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. 20 [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)
(x) On April 30, 1996, pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) On (), pursuant to paragraph (a)(i) of Rule 485
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) On [date] pursuant to paragraph (a)(ii) of Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file the Notice required by
such Rule by May 30, 1996.
VARIABLE INSURANCE PRODUCTS FUND II
Investment Grade Bond Portfolio
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
** To be filed by amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing or a copy of
the Statement of Additional Information (SAI) dated April 30, 199 6 .
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, contact your insurance
company.
Shares of the fund may be purchased only by the separate
accounts of insurance companies, for the purpose of funding variable
annuity and variable life insurance contracts. The fund may not be
available in your state due to various insurance regulations. Please check
with your insurance company for availability. If the fund in this
Prospectus is not available in your state, this Prospectus 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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
like all mutual
funds, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
VIPII-IGB-pro-0496
VARIABLE
INSURANCE
PRODUCTS
FUND II
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. Investment Grade Bond Portfolio
is a fund of the Trust.
INVESTMENT GRADE BOND PORTFOLIO seeks high current income by investing in
investment-grade debt securities.
PROSPECTUS
APRIL 30, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing .
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
PERFORMANCE
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS Share price
calculations and how to invest and
redeem.
KEY FACTS
THE FUND AT A GLANCE
Investment Grade Bond Portfolio is designed to provide an investment
vehicle for variable annuity and variable life insurance contracts of
various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
GOAL: High current income. As with any mutual fund, there is no assurance
that the fund will achieve its goal.
STRATEGY: Invests mainly in investment-grade debt securities.
SIZE: As of December 31, 1995, the fund had over $ 181 million in
assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who want high current income from
a portfolio of investment-grade debt securities. A fund's level of risk and
potential reward depend on the quality and maturity of its investments.
With its focus on medium- to high-quality investments, the fund has a
moderate risk level and yield potential.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk.
Investment Grade Bond
Portfolio falls under the
INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) ASSET ALLOCATION Seeks
high total return with reduced
risk through a mix of stocks,
bonds, and short-term
instruments.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly
in stocks.
(checkmark)
The value of the fund's investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other economic and political news. When fund shares are redeemed, they
may be worth more or less than their original cost. By itself, the fund
does not constitute a balanced investment plan.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows and the fund's financial
statements are included in the fund's Annual Report and have been audited
by Price Waterhouse LLP, independent accountants. Their report on the
financial statements and financial highlights is included in the Annual
Report. The financial statements, the financial highlights, and the report
are incorporated by reference into the fund's SAI, which may be obtained
free of charge from your insurance company.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended December 1995 1994 1993F 1992 1991 1990 1989 1988D
31
Net asset value, $ 11.02 $ 11.48 $ 10.97 $ 11.08 $ 9.920 $ 10.14 $ 10.00 $ 10.00
beginning of period 0 0 0 0 0 0 0
Income from .320 .733 .641 .672 .455 .826 .827 .052
Investment Operations
Net investment
income
Net realized and 1.530 (1.163) .559 .058 1.165 (.220) .160 --
unrealized gain (loss)
Total from investment 1.850 (.430) 1.200 .730 1.620 .606 .987 .052
operations
Less Distributions (.390) -- (.628) (.680) (.460) (.826) (.827) (.052)
From net investment
income
In excess of net -- -- (.002) -- -- -- -- --
investment income
From net realized gain -- (.010) (.050) (.160) -- -- (.020) --
In excess of net -- (.020) (.010) -- -- -- -- --
realized gain
Total distributions (.390) (.030) (.690) (.840) (.460) (.826) (.847) (.052)
Net asset value, end of $ 12.48 $ 11.02 $ 11.48 $ 10.97 $ 11.08 $ 9.920 $ 10.14 $ 10.00
period 0 0 0 0 0 0 0
Total return B,C 17.32 (3.76) 10.96 6.65% 16.38 6.21% 10.26 .52%
% % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 182 $ 111 $ 122 $ 74 $ 45 $ 14 $ 6 $ 3
period
(In millions)
Ratio of expenses to .59% .67% .68% .76% .80%E .80%E .80%E .80%A,
average net assets E
Ratio of net investment 6.53% 6.53% 6.85% 7.11% 7.73% 8.26% 8.19% 6.99%
income A
to average net assets
Portfolio turnover rate 182% 143% 70% 119% 128% 122% 67% 0%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM DECEMBER 5, 1988 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,1988
E EFFECTIVE DECEMBER 5, 1988, THE FUND'S INVESTMENT ADVISOR VOLUNTARILY
AGREED TO LIMIT EXPENSES TO .80% OF AVERAGE NET ASSETS.
F EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
THE FUND IN DETAIL
CHARTER
INVESTMENT GRADE BOND PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund is a
diversified fund of Variable Insurance Products Fund II (VIPII). VIPII is
an open-end management investment company organized as a Massachusetts
business trust on March 21, 1988.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review the fund's performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. An insurance
company issuing a variable contract that participates in the fund will vote
shares held in its separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. Your insurance company is entitled to one vote for each share it
owns. For a further discussion, please refer to your insurance company's
separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The fund employs various Fidelity
companies to perform activities required for its operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds in
the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $ 354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
Michael S. Gray is manager and vice president of Investment Grade Bond
Portfolio, which he has managed since August 1995. Mr. Gray also manages
Fidelity Investment Grade Bond, Fidelity Intermediate Bond Fund and Spartan
Investment Grade Bond. In addition, he manages the fixed income investments
of Fidelity Balanced Fund, VIPII: Asset Manager Portfolio and Asset
Manager: Growth Portfolio, Fidelity Asset Manager, Fidelity Asset Manager:
Growth and Fidelity Asset Manager: Income. Mr. Gray joined Fidelity in
1982.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to Fidelity Investment
Grade Bond Fund. The p erformance of a separate account investing
in the fund is not expected to be the same as the performance of the
corresponding fund due in part to dissimilarities in their investments.
Various insurance related costs at the insurance company's separate account
will also affect performance.
The fund sells its shares to separate accounts of insurance companies which
are both affiliated and unaffiliated with FMR. The fund currently does not
foresee any disadvantages to policyowners arising out of the fact that the
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 the fund and shares of another fund may be substituted. This might force
the fund to sell securities at disadvantageous prices. In addition, the
Board of Trustees may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of the fund if
such action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company
(FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs transfer
agent servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR. Members of the Edward C.
Johnson 3d family are the predominant owners of a class of shares of common
stock representing approximately 49% of the voting power of FMR Corp. Under
the Investment Company Act of 1940 (the 1940 Act), control of a company is
presumed where one individual or group of individuals owns more than 25% of
the voting stock of that company; therefore, the Johnson family may be
deemed under the 1940 Act to form a controlling group with respect to FMR
Corp.
To carry out the fund's transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that the fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The fund seeks as high a level of current income as is consistent with the
preservation of capital by investing primarily in a broad range of
fixed-income securities. FMR normally invests at least 65% of the fund's
total assets in investment-grade, fixed-income securities such as bonds,
notes and debentures. Although the fund can invest in securities of any
maturity, FMR seeks to manage the fund so that it generally reacts to
changes in interest rates similarly to bonds with maturities between four
and ten years. As of December 31, 1995, the fund's dollar-weighted average
maturity was approximately 7.5 years.
INTEREST RATE
RISK
In general, bond prices rise
when interest rates fall, and
vice versa. Funds that hold
short-term bonds are usually
less affected by changes in
interest rates than long-term
bond funds. For that reason,
long-term bond funds typically
offer higher yields and carry
more risk than short-term
bond funds.
(checkmark)
The total return from a bond is a combination of income and price gains or
losses. While income is the most important component of bond returns over
time, the fund's emphasis on income does not mean that the fund invests
only in the highest-yielding bonds available, or that it can avoid risks to
principal. In selecting investments for the fund, FMR considers a bond's
income potential together with its potential for price gains or losses. FMR
focuses on assembling a portfolio of income-producing securities that it
believes will provide the best tradeoff between risk and return within the
range of securities that are eligible investments for the fund.
The fund's yield and share price change daily and are based on changes in
interest rates, market conditions, other economic and political news, and
on the quality and maturity of its investments. In general, bond prices
rise when interest rates fall, and vice versa. This effect is usually more
pronounced for longer-term securities. Lower-quality securities offer
higher yields, but also carry more risk. FMR may use various investment
techniques to hedge a portion of the fund's risks, but there is no
guarantee that these strategies will work as intended. When fund shares are
redeemed, they may be worth more or less than their original cost.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
investment-grade money market or short-term debt instruments for temporary,
defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section . A complete listing of the fund's limitations and more detailed
information about the fund's investments are contained in the fund's SAI.
Policies and limitations are considered at the time of purchase; the sale
of instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Current holdings and recent investment strategies are described in
the fund's financial reports, which are sent to shareholders twice a year.
For a free SAI or financial report, contact your insurance company.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Lower-quality debt securities
are sometimes called "junk bonds." Longer-term bonds are generally more
sensitive to interest rate changes than short-term bonds.
Investment-grade debt securities are medium- and high-quality securities.
Some, however, may possess speculative characteristics, and may be more
sensitive to economic changes and to changes in the financial condition of
issuer s.
RESTRICTIONS: The fund normally invests in investment-grade securities,
but reserves the right to invest up to 5% of its assets in below investment
grade securities. A security is considered to be investment grade if it is
rated investment grade by Moody's Investors Service, Inc. Standard &
Poor's, Duff & Phelps Credit Rating Co., or Fitch Investors Service, L.P.
or is unrated but judged to be of equivalent quality by FMR.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
the U.S. government, corporations, financial institutions, and other
entities. These obligations may carry fixed, variable, or floating interest
rates.
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks and considerations. These include risks relating
to political or economic conditions in foreign countries, fluctuations in
foreign currencies, withholding or other taxes, operational risks,
increased regulatory burdens, and the potentially less stringent investor
protection and disclosure standards of foreign markets. Additionally,
governmental issuers of foreign debt securities may be unwilling to repay
principal and interest when due, and may require that the conditions for
payment be renegotiated. All of these factors can make foreign investments,
especially those in developing countries, more volatile than U.S.
investments.
RESTRICTIONS: FMR limits the amount of the fund's assets that may be
invested in foreign securities to 50%. However, pursuant to certain state
insurance regulations, the fund may not invest more than 20% of its assets
in any one foreign country. The 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.
ASSET-BACKED SECURITIES include interests in pools of lower-rated debt
securities, or consumer loans. The value of these securities may be
significantly affected by changes in the market's perception of the issuers
and the creditworthiness of the parties involved.
MORTGAGE SECURITIES are interests in pools of commercial or residential
mortgages, and may include complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. Mortgage
securities may be issued by the U.S. Government or by private entities. For
example, Ginnie Maes are interests in pools of mortgage loans insured or
guaranteed by a U.S. Government agency. Because mortgage securities pay
both interest and principal as their underlying mortgages are paid off,
they are subject to prepayment risk. This is especially true for stripped
securities. Also, the value of a mortgage security may be significantly
affected by changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt securities,
although they may be more volatile and the value of certain types of
stripped securities may move in the same direction as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, and
purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities, and some other securities , may
be subject to legal restrictions. Difficulty in selling securities may
result in a loss or may be costly to the fund.
RESTRICTIONS. The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the market value of a fund's assets.
OTHER INSTRUMENTS may include convertible securities and
preferred stocks.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may not
purchase a security if, as a result, more than 5% would be invested in the
securities of any one issuer. The fund also may not invest more than 25% of
its total assets in any one industry. These limitations do not apply to
U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 25% of its assets.
LENDING securities to broker-dealers and institutions, including Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning
income. This practice could result in a loss or a delay in recovering the
fund's securities. The fund may also lend money to other funds advised by
FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the fund's
total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, the
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
THE FUND seeks as high a level of current income as is consistent with the
preservation of capital. With respect to 75% of total assets, the fund may
not invest more than 5% of its total assets in any issuer would be
invested in the securities of that issuer and may not own more than 10% of
the outstanding voting securities of a single issuer. The fund may not
invest more than 25% of its total assets in any one industry. Loans, in the
aggregate, may not exceed 33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. The fund also pays OTHER EXPENSES, which are explained
below.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The fund's MANAGEMENT FEE is calculated and paid to FMR every month. The
fee for the fund is calculated by adding a group fee rate to an individual
fee rate, and multiplying the result by the fund's average net assets.
THE GROUP FEE RATE is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above 0.37%, and it drops as
total assets under management increase.
For December 31, 199 5 , the group fee rate was 0. 1482 %. The
fund's individual fund fee rate is 0.30%. For fiscal year 199 5 , the
total management fee was 0. 45 %.
OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for the
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends,
maintains the general accounting records and administers the securities
lending program for the fund.
In fiscal 1995, the fund paid FIIOC fees equal to 0. 05 % of the
fund's average net assets for transfer agency and related services, and the
fund paid FSC fees equal to 0. 04 % of the fund's average net
assets for pricing and bookkeeping services.
For fiscal year 199 5 , the fund's total expenses amounted to
0. 59 % of the fund's average net assets. FMR has voluntarily agreed
to temporarily limit the fund's total operating expenses (excluding
interest, taxes, brokerage commissions, and extraordinary expenses) (as
a percentage of the fund's average net assets) to 0.80%.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund's portfolio turnover rate for fiscal 199 5 was 182 %.
This rate varies from year to year. High turnover rates increase
transaction costs. FMR considers these effects when evaluating the
anticipated benefits of short-term investing.
The fund has adopted a Distribution and Service Plan. The plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. The Board of Trustees
has not authorized such payments.
PERFORMANCE
The fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof. Performance is
based on historical results and is not intended to indicate future
performance. For additional performance information, contact your insurance
company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR THE FUND INCLUDE THE FUND'S EXPENSES,
BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE PURCHASED
ONLY THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS,
YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU
HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding
these charges from quotations of the fund's performance has the effect of
increasing the performance quoted. You should bear in mind the effect of
these charges when comparing the fund's performance to that of other mutual
funds.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance contract,
refer to the prospectus of your insurance company's separate account. It is
suggested you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the fund will be held under the terms of
variable annuity and variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from the 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.
The fund is treated as a separate entity for federal income tax purposes.
The fund intends to pay out all of its net investment income and net
realized capital gains , if any, for each year. Dividends from the
fund will be distributed at least annually. Normally, net realized
capital gains, if any, are distributed each year for the fund. Such income
and capital gain distributions are automatically reinvested in additional
shares of the fund. The 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.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. The fund's NAV is calculated as of the close of business of the
NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market
quotations. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates. If
quotations are not readily available or if the values have been materially
affected by events occurring after the closing of a foreign market, assets
are valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuity and variable life insurance contracts.
Please refer to the prospectus of your insurance company's separate account
for information on how to invest in and redeem from the fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the fund each business day.
That night, all orders received by that insurance company on that business
day are aggregated, and the insurance company places a net purchase or
redemption order for shares of the fund the morning of the next business
day. These orders are generally executed at the NAV that was computed at
the close of the previous business day in order to provide a match between
the variable contract owners' orders to the insurance companies and the
insurance companies' orders to the fund. In some cases, an insurance
company's order for fund shares may be executed at the NAV next
computed after the order is actually transmitted to the fund.
Redemption proceeds will normally be wired to the insurance company on the
next business day after receipt of the redemption instructions by the fund
but in no event later than 7 days following receipt of instructions. The
fund may suspend redemptions or postpone payment dates on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
This prospectus is printed on recycled paper using soy-based inks.
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
** To be filed by amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing or a copy of
the Statement of Additional Information (SAI) dated April 30, 199 6 .
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, contact your insurance
company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in your
state due to various insurance regulations. Please check with your
insurance company for availability. If the fund in this Prospectus is not
available in your state, this Prospectus 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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
like all mutual
funds, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
VIPII-AM -pro-0496
VARIABLE
INSURANCE PRODUCTS
FUND II
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. Asset Manager Portfolio is a fund
of the Trust.
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long - term by investing in domestic and foreign stocks, bonds and
short-term instruments of all types.
PROSPECTUS
APRIL 30, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing .
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
PERFORMANCE
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS Share price
calculations and how to invest and
redeem.
KEY FACTS
THE FUND AT A GLANCE
Asset Manager Portfolio is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager .
GOAL: High total return with reduced risk over the long-term. As with any
mutual fund, there is no assurance that the fund will achieve its goal.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
instruments, both here and abroad, to pursue its goal. The fund has a
neutral mix which represents the way the fund's investments will generally
be allocated over the long - term. This mix will vary over short-term
periods as fund management gradually adjusts the fund's holdings - within
defined ranges - based on the current outlook for the different markets.
Neutral Mix
Stocks 40%
(can range
from
10-60%)
Row: 1, Col: 1, Value: 20.0
Row: 1, Col: 2, Value: 40.0
Row: 1, Col: 3, Value: 40.0
Bonds 40%
(can range
from
20-60%)
Short-term
20%
(can range
from
0-70%)
SIZE: As of December 31, 1995, the fund had over $ 3.3 b illion in
assets.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Asset
Manager Portfolio falls under
the ASSET ALLOCATION
category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) INCOME Seeks income by
investing in bonds.
(right arrow) ASSET ALLOCATION Seeks
high total return with reduced
risk through a mix of stocks,
bonds, and short-term
instruments.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly
in stocks.
(checkmark)
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who want to diversify
among domestic and foreign stocks, bonds, short-term instruments and other
types of securities, in one fund. If you are looking for a fund that can
invest in a wide range of security types within defined ranges in pursuit
of high total return with reduced risk, this fund may be appropriate for
you.
Because the fund owns different types of investments, its performance is
affected by a variety of factors. The value of the fund's investments and
the income they generate will vary from day to day, and generally reflect
interest rates, market conditions, and other company, political, and
economic news both here and abroad. Investments in foreign securities may
involve risks in addition to those of U.S. investments, including increased
political and economic risk, as well as exposure to currency fluctuations.
Performance also depends on FMR's skill in allocating assets. When fund
shares are redeemed, they may be worth more or less than their original
cost.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows and the fund's financial
statements are included in the fund's Annual Report and have been audited
by Price Waterhouse LLP, independent accountants. Their report on the
financial statements and financial highlights is included in the Annual
Report. The financial statements, the financial highlights, and the report
are incorporated by reference into the fund's SAI, which may be obtained
free of charge from your insurance company.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Years ended December 31 1995 1994 1993G 1992 1991 1990 1989D
Net asset value, $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
beginning of period
Income from Investment
Operations
Net investment income .30 .45 .33 .32 .35 .41 .09
Net realized and 1.99 (1.33) 2.39 1.09 1.96 .26 (.01)
unrealized gain (loss)
Total from investment 2.29 (.88) 2.72 1.41 2.31 .67 .08
operations
Less Distributions
From net investment (.29) (.29) (.33) (.31) -- (.40) (.09)
income
In excess of net -- -- (.04) -- -- -- --
investment income
From net realized gain -- (.46) (.25) (.33) -- -- (.02)
Total distributions (.29) (.75) (.62) (.64) -- (.40) (.11)
Net asset value, end of $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
period
Total return B,C 16.96% (6.09)% 21.23% 11.71% 22.56% 6.72% .81%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 3,333 $ 3,291 $ 2,423 $ 732 $ 194 $ 36 $ 7
(In millions)
Ratio of expenses to .81% .81% .88% .91% 1.08% 1.54% 4.39%A
average net assets
Ratio of expenses to .79%F .80%F .88% .91% 1.08% 1.25%E 2.50%A,
average net assets after E
expense reductions
Ratio of net investment 3.54% 4.07% 3.64% 4.89% 5.89% 5.92% 4.77%A
income to average net
assets
Portfolio turnover rate 256% 85% 113% 92% 110% 117% 158%A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED. TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR
INSURANCE COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD
REDUCE THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31,1989
E EFFECTIVE JANUARY 1, 1990, THE FUND'S INVESTMENT ADVISOR
VOLUNTARILY AGREED TO LIMIT EXPENSES TO 1.25% OF AVERAGE NET ASSETS. FOR
THE PERIOD SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1989, EXPENSES WERE VOLUNTARILY LIMITED BY THE INVESTMENT ADVISOR TO
2.50% OF AVERAGE NET ASSETS.
F FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A PORTION
OF THE FUND'S EXPENSES.
G EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
THE FUND IN DETAIL
CHARTER
ASSET MANAGER PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund is a
diversified fund of Variable Insurance Products Fund II (VIPII). VIPII is
an open-end management investment company organized as a Massachusetts
business trust on March 21, 1988.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review the fund's performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. An insurance
company issuing a variable contract that participates in the fund will vote
shares held in its separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. Your insurance company is entitled to one vote for each share it
owns. For a further discussion, please refer to your insurance company's
separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The fund employs various Fidelity
companies to perform activities required for its operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) in London, England, and Fidelity Management & Research (Far
East) Inc. (FMR Far East) in Tokyo, Japan, assist FMR with foreign
investments.
Michael S. Gray, Richard C. Habermann and George Vanderheiden are
managers and vice presidents of VIPII: Asset Manager Portfolio. They have
managed the fund since March 1996.
Dick Habermann is lead manager of VIPII: Asset Manager Portfolio and Asset
Manager: Growth Portfolio. He also manages Fidelity Asset Manager, Fidelity
Asset Manager: Growth and Fidelity Asset Manager: Income. Mr. Habermann is
a managing director of Fidelity and senior vice president of FMR.
Previously, he was director of research and chief investment officer of
Fidelity International, Limited. Mr. Habermann joined Fidelity in 1968.
Michael Gray also manages VIPII Investment Grade Bond Portfolio, Fidelity
Investment Grade Bond Fund, Fidelity Intermediate Bond Fund and Spartan
Investment Grade Bond Fund. In addition, he manages the fixed income
investments of Fidelity Balanced Fund, Fidelity Asset Manager, Fidelity
Asset Manager: Growth and Fidelity Asset Manager: Income. Mr. Gray joined
Fidelity in 1982.
George Vanderheiden also manages Fidelity Asset Manager, Fidelity Asset
Manager: Growth, Fidelity Asset Manager: Income Fund, Fidelity Destiny I
and II and Fidelity Advisor Growth Opportunities Fund. He also serves as
leader of the growth funds group. Mr. Vanderheiden joined Fidelity in
1971.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to Fidelity Asset
Manager. The p erformance of a separate account investing in the fund
is not expected to be the same as the performance of the corresponding
fund due in part to dissimilarities in their investments. Various
insurance - related costs at the insurance company's separate account
will also affect performance.
The fund sells its shares to separate accounts of insurance companies which
are both affiliated and unaffiliated with FMR. The fund currently does not
foresee any disadvantages to policyowners arising out of the fact that the
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 the fund and shares of another fund may be substituted. This might force
the fund to sell securities at disadvantageous prices. In addition, the
Board of Trustees may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of the fund if
such action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company
(FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs transfer
agent servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., and FMR Far
East. Members of the Edward C. Johnson 3d family are the predominant owners
of a class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940 (the
1940 Act), control of a company is presumed where one individual or group
of individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
A broker-dealer may use a portion of the commissions paid by the fund to
reduce the fund's custodian or transfer agent fees. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to carry out
the fund's transactions, provided that the fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
THE FUND SEEKS HIGH TOTAL RETURN WITH REDUCED RISK over the long term
by allocating its assets among stocks, bonds, short-term and other
instruments of U.S. and foreign issuers. The fund allocates its assets
among the following classes, or types, of investments.
The STOCK CLASS includes equity securities of all types. The BOND CLASS
includes all varieties of fixed-income instruments with maturities of more
than three years (including adjustable-rate preferred stocks). The
SHORT-TERM CLASS includes all types of short-term instruments with
remaining maturities of three years or less. Some types of investments,
such as indexed securities, can fall into more than one asset class. The
fund may also make other investments that do not fall within these classes.
FMR has the ability to allocate the fund's assets within specified ranges.
The fund's NEUTRAL MIX indicates the benchmark for its combination of
investments in each asset class over time. FMR may change the neutral mix
from time to time. The range and approximate neutral mix for each asset
class are shown below.
Range Neutral mix
STOCK CLASS 10 - 60% 40%
BOND CLASS 20 - 60% 40%
SHORT-TERM CLASS 0 - 70% 20%
Asset Manager's approach spreads the fund's assets among all three classes,
moderating both the risk and return potential of stocks, bonds, and
short-term instruments.
Although the fund seeks to reduce its overall risk by diversifying among
different types of investments, the fund aggressively invests in a wide
variety of security types, including stocks and bonds issued in developed
and developing countries and derivative transactions. Because the
fund is subject to the risks of each investment type, the fund and its
performance is affected by many factors.
Stock values fluctuate in response to the activities of individual
companies and general market and economic conditions. The value of bonds
and short-term instruments fluctuates based on changes in interest rates
and in the credit quality of the issuer. The value of some of the fund's
investments may fluctuate based on other factors affecting security values
such as commodity prices and currency values . FMR may use various
investment techniques to hedge a portion of the fund's risks, but
there is no guarantee that these strategies will work as FMR intends. When
shares are redeemed, they may be worth more or less than their original
cost.
In pursuit of the fund's objective, FMR will not try to pinpoint the
precise moment when a major reallocation should be made. Instead, FMR
regularly reviews the fund's allocation and makes changes gradually to
favor investments that it believes will provide the most favorable outlook
for achieving the fund's objective. Under normal circumstances, a single
reallocation will not involve more than 10% of the fund's total assets.
Although FMR uses its expertise and resources in allocating assets, FMR's
decisions may not be advantageous to the fund .
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes.
The fund diversifies across investment types more than most mutual
funds . N o one mutual fund , however, can provide an
appropriate balanced investment plan for all investors .
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section. A complete listing of the fund's limitations and more detailed
information about the fund's investments are contained in the fund's SAI.
Policies and limitations are considered at the time of purchase; the sale
of instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Current holdings and recent investment strategies are described in
the fund's financial reports, which are sent to shareholders twice a year.
For a free SAI or financial report, contact your insurance company.
EQUITY SECURITIES may include common stocks and warrants. Common
stocks, the most familiar type, represent an equity (ownership) interest in
a corporation. Although equity securities have a history of long-term
growth in value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions. Smaller
companies are especially sensitive to these factors.
RESTRICTIONS: With respect to 75% of its total assets, the fund may not
purchase more than 10% of the outstanding voting securities of any issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa .
Debt securities have varying degrees of quality and varying levels
of sensitivity to changes in interest rates. Longer-term bonds are
generally more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics , and
involve greater risk of default or price changes due to changes in the
issuer's creditworthiness, or they may already be in default . The
market prices of these securities may fluctuate more than higher-quality
securities and may decline significantly in periods of general economic
difficulty.
The table below provides a summary of ratings assigned to debt
holdings (not including money market instruments) in the fund's portfolio.
These figures are dollar-weighted averages of month-end portfolio holdings
during fiscal 199 5 , and are presented as a percentage of total
security investments. These percentages are historical and do not
necessarily indicate the fund's current or future debt holdings.
FISCAL 1995 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE, INC. STANDARD & POOR'S
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa 16.27 % AAA 16.61 %
High quality Aa 1.04 % AA 0.85 %
Upper-medium grade A 0.34 % A 0.36 %
Medium grade Baa 0 .58 % BBB 1.00 %
LOWER QUALITY
Moderately speculative Ba 1.34 % BB 1.99 %
Speculative B 4.62 % B 2.53 %
Highly speculative Caa 0.22 % CCC 0.23 %
Poor quality Ca 0.01 % CC 0.00 %
Lowest quality, no interest C C
In default, in arrears -- D 0.01 %
24.42 % 23.58 %
A FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS OF THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT. THE DOLLAR-WEIGHTED AVERAGE
OF DEBT SECURITIES NOT RATED DIRECTLY OR INDIRECTLY BY MOODY'S OR S&P
AMOUNTED TO 1.75 %. THIS MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY
RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR HAS
DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER QUALITY ACCOUNT FOR
1.75 %
OF THE FUND'S SECURITY INVESTMENTS. REFER TO THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
RESTRICTIONS: Purchase of a debt security is consistent with the fund's
debt quality policy if it is rated at or above the stated level by Moody's
or rated in the equivalent categories by S&P, or is unrated but judged to
be of equivalent quality by FMR. The fund currently intends to limit its
investment in lower than Baa-quality debt securities to less than
35% of its assets , and currently intends to limit its investment in
lower than Baa-quality debt securities , as determined by FMR, to 20%
of its total assets.
MONEY MARKET SECURITIES are high-quality, short-term obligations
issued by the U.S. government, corporations, financial institutions, and
other entities. These obligations may carry fixed, variable, or
floating interest rates.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These include
risks relating to political or economic conditions in foreign countries,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and the potentially less stringent
investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign debt securities may be
unwilling to repay principal and interest when due, and may require that
the conditions for payment be renegotiated. All of these factors can make
foreign investments, especially those in developing countries, more
volatile than U.S. investments.
RESTRICTIONS: FMR limits the amount of the fund's assets that may be
invested in foreign securities to 50%. However, pursuant to certain
state insurance regulations , the fund may not invest more than 20% of
its assets in any one foreign country. The 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.
ASSET-BACKED AND MORTGAGE SECURITIES include interests in pools of
lower-rated debt securities, consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be
significantly affected by changes in interest rates, the market's
perception of issuers, and the creditworthiness of the parties involved.
Some securities may have a structure that makes their reaction to interest
rates and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt
securities, although they may be more volatile and the value of
certain types of stripped securities may move in the same direction
as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for the fund, or there may be a
requirement that the fund supply additional cash to a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities, and some other securities, may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to the fund.
RESTRICTIONS. The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the market value of a fund's assets.
OTHER INSTRUMENTS may include convertible securities, preferred stocks,
securities of closed-end investment companies, and real estate-related
instruments .
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may not
purchase a security if, as a result, more than 5% would be invested in
the securities of any one issuer. The fund also may not invest more
than 25% of its total assets in any one industry. These limitations do not
apply to U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 25% of its assets.
LENDING securities to broker-dealers and institutions, including Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning
income. This practice could result in a loss or a delay in recovering the
fund's securities. The fund may also lend money to other funds advised by
FMR .
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the fund's
total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, the
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
THE FUND seeks to obtain high total return with reduced risk over the
long-term by allocating its assets among stocks, bonds, and short-term
instruments. The fund, with respect to 75% of total assets, may not invest
more than 5% of its total assets in any one issuer and may not own more
than 10% of the outstanding voting securities of a single issuer. The fund
may not invest more than 25% of its total assets in any one industry.
Loans, in the aggregate, may not exceed 33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services. The fund also pays OTHER EXPENSES, which
are explained below.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The fund's MANAGEMENT FEE is calculated and paid to FMR every month. The
fee for the fund is calculated by adding a group fee rate to an individual
fee rate, and multiplying the result by the fund's average net assets.
THE GROUP FEE RATE is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above 0.52%, and it drops as
total assets under management increase.
For December 31, 199 5 , the group fee rate was 0. 3097 %. The
fund's individual fund fee rate is 0.40%. For fiscal year 199 5 , the
total management fee was 0. 71 %.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on issuers
based outside the United States. Under the sub-advisory agreements, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of the costs of providing these services. For fiscal year 199 5 , FMR
on behalf of the fund, paid FMR U.K. and FMR Far East of 0.013%, and
0.015%, respectively, of the fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for the
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends,
maintains the general accounting records and administers the securities
lending program for the fund.
In fiscal 199 5 , the fund paid FIIOC fees equal to 0. 05 % of
the fund's average net assets for transfer agency and related services, and
the fund paid FSC fees equal to 0. 02 % of its average net assets for
pricing and bookkeeping services.
For fiscal year 199 5 , the fund's total expenses amounted to
0. 81 % of the fund's average net assets. FMR has voluntarily agreed
to temporarily limit the fund's total operating expenses (excluding
interest, taxes, brokerage commissions, and extraordinary expenses) (as
a percentage of the fund's average net assets) to 1.25%. A portion of the
brokerage commissions that the fund paid was used to reduce fund expenses.
Including this reduction, the total operating expenses would have been
0. 79 %.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund's portfolio turnover rate for fiscal 199 5 was 256% . This
rate varies from year to year. High turnover rates increase
transaction costs. FMR considers these effects when evaluating the
anticipated benefits of short-term investing.
The fund has adopted a Distribution and Service Plan. The plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. The Board of Trustees
has not authorized such payments.
PERFORMANCE
The fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof . Performance is
based on historical results and is not intended to indicate future
performance. For additional performance information, contact your insurance
company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate.
The fund may quote its adjusted net asset value (NAV), including all
distributions paid. This value may be averaged over specified periods and
may be used to calculate the fund's moving average.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR THE FUND INCLUDE THE FUND'S EXPENSES,
BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE PURCHASED ONLY
THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN
FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges
from quotations of the fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges
when comparing the fund's performance to that of other mutual funds.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance contract,
refer to the prospectus of your insurance company's separate account. It is
suggested you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the fund will be held under the terms of
variable annuity and variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from the 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.
The fund is treated as a separate entity for federal income tax purposes.
The fund intends to pay out all of its net investment income and net
realized capital gains , if any, for each year. Dividends from the
fund will be distributed at least annually. Normally, net realized
capital gains, if any, are distributed each year for the fund. Such income
and capital gain distributions are automatically reinvested in additional
shares of the fund. The 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.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. The fund's NAV is calculated as of the close of business of
the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's investments with remaining maturities of 60 days or less are
valued on the basis of amortized cost. This method minimizes the effect of
changes in a security's market value. Other assets are valued primarily
on the basis of market quotations. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and
are translated from the local currency into U.S. dollars using current
exchange rates. If quotations are not readily available or if the values
have been materially affected by events occurring after the closing of a
foreign market, assets are valued by a method that the Board of Trustees
believes accurately reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuity and variable life insurance contracts.
Please refer to the prospectus of your insurance company's separate account
for information on how to invest in and redeem from the fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the fund each business day.
That night, all orders received by that insurance company on that business
day are aggregated, and the insurance company places a net purchase or
redemption order for shares of the fund the morning of the next business
day. These orders are generally executed at the NAV that was computed at
the close of the previous business day in order to provide a match between
the variable contract owners' orders to the insurance companies and the
insurance compa nies' orders to the fund. In some cases, an insurance
company's order for fund shares may be executed at the NAV next
computed after the order is actually transmitted to the fund.
Redemption proceeds will normally be wired to the insurance company on the
next business day after receipt of the redemption instructions by the fund
but in no event later than 7 days following receipt of instructions. The
fund may suspend redemptions or postpone payment dates on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
This prospectus is printed on recycled paper using soy-based inks.
VARIABLE INSURANCE PRODUCTS FUND II
Index 500 Portfolio
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
** To be filed by amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing or a copy of
the Statement of Additional Information (SAI) dated April 30, 199 6 .
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, contact your insurance
company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in your
state due to various insurance regulations. Please check with your
insurance company for availability. If the fund in this Prospectus is not
available in your state, this Prospectus 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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
like all mutual
funds, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
VIPII-i500-pro-049
6
VARIABLE
INSURANCE
PRODUCTS
FUND II
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. Index 500 Portfolio is a fund of
the Trust.
INDEX 500 PORTFOLIO seeks a total return which corresponds to that of the
Standard & Poor's Composite Index of 500 Stocks.
PROSPECTUS
APRIL 30, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing .
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
PERFORMANCE
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS Share price
calculations and how to invest and
redeem.
APPENDIX APPENDIX Additional information
about the S&P 500(registered trademark).
KEY FACTS
THE FUND AT A GLANCE
Index 500 Portfolio is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
GOAL: Total return that corresponds to that of the Standard & Poor's
Composite Index of 500 Stocks (S&P 500(registered trademark)). As with any
mutual fund, there is no assurance that the fund will achieve its goal.
STRATEGY: Invests in equity securities of companies that compose the S&P
500 and in other instruments that are based on the value of the index.
SIZE: As of December 31, 1995, the fund had over $ 245 million in
assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want t o pursue growth of capital and
current income through a portfolio of securities that broadly
represents the U.S. stock market, as measured by the S&P 500. The fund
seeks to keep expenses low as it attempts to match the return of the S&P
500.
Because the fund seeks to track, rather than beat, the performance of the
S&P 500, it is not managed in the same manner as other mutual funds. In
this fund, FMR generally will not judge the merits of any particular
stock as an investment. Therefore, you should not expect to achieve the
potentially greater results that could be obtained by a fund that
aggressively seeks growth.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Index
500 Portfolio falls under the
GROWTH category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) INCOME Seeks income by
investing in bonds.
(solid bullet) ASSET ALLOCATION Seeks
high total return with reduced
risk through a mix of stocks,
bonds, and short-term
instruments.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(right arrow) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
The value of the fund's investments will vary from day to day, and
generally reflect market conditions, interest rates, and other company,
political, or economic news. In the short-term, stock prices can fluctuate
dramatically in response to these factors. Over time, however, stocks have
shown greater growth potential than other types of securities. When fund
shares are redeemed, they may be worth more or less than their original
cost. By itself, the fund does not constitute a balanced investment
plan.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows and the fund's financial
statements are included in the fund's Annual Report and have been audited
by Price Waterhouse LLP, independent accountants. Their report on the
financial statements and financial highlights is included in the Annual
Report. The financial statements, the financial highlights, and the report
are incorporated by reference into the fund's SAI, which may be obtained
free of charge from your insurance company.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1.Years ended December 31 1995 1994 1993F 1992D
2.Net asset value, beginning of period $ 56.22 $ 55.74 $ 52.60 $ 50.00
3.Income from Investment Operations
4. Net investment income .85 1.14 1.31 .44
5. Net realized and unrealized gain (loss) 19.72 (.56) 3.80 2.71
6. Total from investment operations 20.57 .58 5.11 3.15
7.Less Distributions
8. From net investment income (.95) -- (1.28) (.47)
9. From net realized gain (.11) (.10) (.60) (.08)
10. In excess of net realized gain (.02) -- (.09) --
11. Total distributions (1.08) (.10) (1.97) (.55)
12.Net asset value, end of period $ 75.71 $ 56.22 $ 55.74 $ 52.60
13.Total return B,C 37.19% 1.04% 9.74% 6.31%
14.RATIOS AND SUPPLEMENTAL DATA
15.Net assets, end of period (In millions) $ 246 $ 51 $ 25 $ 18
16.Ratio of expenses to average net .28% .28% .28% .28%A
assets E
17.Ratio of net investment income to 2.70% 2.81% 2.65% 2.89%A
average net assets
18.Portfolio turnover rate 16% 2% 9% 0%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1992
E FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
THE FUND IN DETAIL
CHARTER
INDEX 500 PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. Index 500
Portfolio is a diversified fund of Variable Insurance Products Fund II
(VIPII). VIPII is an open-end management investment company organized as a
Massachusetts business trust on March 21, 1988.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review the fund's performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. An insurance
company issuing a variable contract that participates in the fund will vote
shares held in its separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. Your insurance company is entitled to one vote for each share it
owns. For a further discussion, please refer to your insurance company's
separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The fund employs various Fidelity
companies to perform activities required for its operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $ 354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to Fidelity Market
Index Fund. Performance of a separate account investing in the fund is not
expected to be the same as the performance of the corresponding fund
due in part to dissimilarities in their investments. Various insurance
related costs at the insurance company's separate account will also affect
performance.
The fund sells its shares to separate accounts of insurance companies which
are both affiliated and unaffiliated with FMR. The fund currently does not
foresee any disadvantages to policyowners arising out of the fact that the
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 the fund and shares of another fund may be substituted. This might force
the fund to sell securities at disadvantageous prices. In addition, the
Board of Trustees may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of the fund if
such action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company
(FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs transfer
agent servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR. Members of the Edward
C. Johnson 3d family are the predominant owners of a class of shares of
common stock representing approximately 49% of the voting power of FMR
Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of a
company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with respect
to FMR Corp.
F MR may use its broker-dealer affiliates and other firms that sell fund
shares to carry out the fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those of
other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
T he fund seeks to match the total return of the S&P 500 while
keeping expenses low. FMR normally invests at least 80% (65% if fund assets
are below $20 million) of the fund's assets in equity securities of
companies that compose the S&P 500.
The S&P 500 is an index of 500 common stocks, most of which trade on
the New York Stock Exchange . It is generally acknowledged that the
S&P 500 broadly represents the performance of publicly traded common stocks
in the U.S.
In seeking a 98% or better long-term correlation of the fund's total return
to that of the S&P 500, the fund utilizes a "passive" or "indexing"
approach and tries to allocate its assets similarly to those of the index.
The fund's composition may not always be identical to that of the S&P 500.
FMR may choose, if extraordinary circumstances warrant, to exclude a stock
held in the S&P 500 and include a similar stock in its place if doing so
will help the fund achieve its objective. FMR monitors the correlation
between the performance of the fund and the S&P 500 on a regular basis. In
the unlikely event that the fund cannot achieve a long-term correlation of
98% or better, the trustees will consider alternative arrangements.
Although the fund focuses on common stocks, it may also invest in other
equity securities and in other types of instruments. The fund purchases
short-term debt securities for cash management purposes and uses various
investment techniques, such as futures contracts, to adjust its exposure to
the S&P 500.
Standard & Poor's Corporation is neither an affiliate nor a sponsor of
the fund, and inclusion of a stock in the index does not imply that it is a
good investment. Please refer to the Appendix for more information on the
S&P 500.
The value of the fund's domestic and foreign investments
varies in response to many factors. Stock values fluctuate in response to
the activities of individual companies, and general market and economic
conditions. Investments in foreign securities may involve risks in
addition to those of U.S. investments, including increased political and
economic risk, as well as exposure to currency fluctuations. When
shares are redeemed, they may be worth more or less than their original
cost.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section. A complete listing of the fund's limitations and more detailed
information about the fund's investments are contained in the fund's SAI.
Policies and limitations are considered at the time of purchase; the sale
of instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Current holdings and recent investment strategies are described in
the fund's financial reports, which are sent to shareholders twice a year.
For a free SAI or financial report, contact your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks, convertible
securities, and warrants. Common stocks, the most familiar type, represent
an equity (ownership) interest in a corporation. Although equity securities
have a history of long-term growth in value, their prices fluctuate based
on changes in a company's financial condition and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase more than 10% of the outstanding voting securities of any
issuer.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These include
risks relating to political or economic conditions in foreign countries,
fluctuations in foreign debt currencies, withholding or other taxes,
operational risks, increased regulatory burdens, and the potentially less
stringent investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign debt securities may be
unwilling to repay principal and interest when due, and may require that
the conditions for payment be renegotiated. All of these factors can make
foreign investments, especially those in developing countries, more
volatile than U.S. investments.
RESTRICTIONS: FMR limits the amount of the fund's assets that may be
invested in foreign securities to 50%. However, pursuant to certain
state insurance regulations , the fund may not invest more than 20% of
its assets in any one foreign country. The 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into swap agreements, and purchasing indexed
securities.
FMR can use these practices in its effort to achieve the fund's
objective of tracking the S&P 500. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These
techniques may increase the volatility of the fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the counterparty to
the transaction does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities , and some other
securities, may be subject to legal restrictions. Difficulty in selling
securities may result in a loss or may be costly to the fund.
RESTRICTIONS. The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include real estate-related
instruments.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may not
purchase a security if, as a result, more than 5% would be invested in the
securities of any one issuer. The fund also may not invest more than
25% of its total assets in any one industry. These limitations do not apply
to U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 25% of its assets.
LENDING securities to broker-dealers and institutions, including Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning
income. This practice could result in a loss or a delay in recovering the
fund's securities. The fund may also lend money to other funds advised by
FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the fund's
total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, the
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
THE FUND seeks investment results that correspond to the total return of
common stocks publicly traded in the United States, as represented by the
S&P 500. The fund, with respect to 75% of total assets, may not invest more
than 5% of its total assets in any one issuer and may not own more than 10%
of the outstanding voting securities of a single issuer. The fund may not
invest more than 25% of its total assets in any one industry. Loans, in the
aggregate, may not exceed 33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily
operations. Expenses paid out of the fund's assets are reflected in its
share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. The fund also pays OTHER EXPENSES, which are explained at
right.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The fund's MANAGEMENT FEE is calculated and paid to FMR every month.
The fund pays the fee at the annual rate of 0.28% of its average net
assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for the
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends,
maintains the general accounting records and administers the securities
lending program for the fund.
In fiscal 1995, the fund paid FIIOC fees equal to 0.05% of the fund's
average net assets for transfer agency and related services, and the fund
paid FSC fees equal to 0.06% of the fund's average net assets for pricing
and bookkeeping services. These amounts are prior to applying any expense
reimbursements from FMR, as discussed below.
For fiscal year 199 5 , the fund's total expenses amounted to 0.28% of
the fund's average net assets. FMR has voluntarily agreed to temporarily
limit the fund's total operating expenses (as a percentage of the fund's
average net assets) to 0.28%. If this agreement were not in effect,
total operating expenses would be 0.47%. Expenses eligible for
reimbursement do not include interest, taxes, brokerage commissions, or
extraordinary expenses.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund's portfolio turnover rate for fiscal 1995 was 16%. This rate
varies from year to year.
The fund has adopted a Distribution and Service Plan. The plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. The Board of Trustees
has not authorized such payments.
PERFORMANCE
The fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof. Performance is
based on historical results and is not intended to indicate future
performance. For additional performance information, contact your insurance
company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate.
The fund may quote its adjusted net asset value (NAV), including all
distributions paid. This value may be averaged over specified periods and
may be used to calculate the fund's moving average.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR THE FUND INCLUDE THE FUND'S EXPENSES,
BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE PURCHASED ONLY THROUGH
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN
FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges
from quotations of the fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges
when comparing the fund's performance to that of other mutual funds.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance contract,
refer to the prospectus of your insurance company's separate account. It is
suggested you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the fund will be held under the terms of
variable annuity and variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from the 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.
The fund is treated as a separate entity for federal income tax purposes.
The fund intends to pay out all of its net investment income and net
realized capital gains , if any, for each year. Dividends from the
fund will be distributed at least annually. Normally, net realized
capital gains, if any, are distributed each year for the fund. Such income
and capital gain distributions are automatically reinvested in additional
shares of the fund. The 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.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. The fund's NAV is calculated as of the close of business of
the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market quotations.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. If quotations are not
readily available or if the values have been materially affected by events
occurring after the closing of a foreign market, assets are valued by a
method that the Board of Trustees believes accurately reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuity and variable life insurance contracts.
Please refer to the prospectus of your insurance company's separate account
for information on how to invest in and redeem from the fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the fund each business day.
That night, all orders received by that insurance company on that business
day are aggregated, and the insurance company places a net purchase or
redemption order for shares of the fund the morning of the next business
day. These orders are generally executed at the NAV that was computed at
the close of the previous business day in order to provide a match between
the variable contract owners' orders to the insurance companies and the
insurance companies' orders to the fund. In some cases, an insurance
company's order for fund shares may be executed at the NAV next
computed after the order is actually transmitted to the fund.
Redemption proceeds will normally be wired to the insurance company on the
next business day after receipt of the redemption instructions by the fund
but in no event later than 7 days following receipt of instructions. The
fund may suspend redemptions or postpone payment dates on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
APPENDIX
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express
or implied, as to results to be obtained by licensee, owners of the
product, or any other person or entity from the use of the S&P 500 Index or
any data included therein. S&P makes no express or implied warranties, and
expressly disclaims all warranties or merchantability or fitness for a
particular purpose or use with respect to the S&P 500 Index or any data
included therein. Without limiting any of the foregoing, in no event shall
S&P have any liability for any special, punitive, indirect, or
consequential damages (including lost profits), even if notified of the
possibility of such damages.
Index 500 Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's ( "S&P "). S&P makes no representation or warranty,
express or implied, to participants of the fund or any member of the public
regarding the advisability of investing in securities generally or in the
fund particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Licensee is the
licensing of certain trademarks and trade names of S&P and of the S&P 500
Index which is determined, composed and calculated by S&P without regard to
the Licensee or the fund. S&P has no obligation to take the needs of the
Licensee or the participants of the fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and
has not participated in the determination of the timing of, prices at, or
quantities of the fund to be issued or in the determination or calculation
of the equation by which the fund is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the fund.
"Standard & Poor's(registered trademark)," "S&P(registered trademark),"
"S&P 500(registered trademark)," "Standard & Poor's 500," and "500" are
trademarks of McGraw-Hill, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
This prospectus is printed on recycled paper using soy-based inks.
VARIABLE INSURANCE PRODUCTS FUND II
Contrafund Portfolio
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
** To be filed by amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing or a
copy of the Statement of Additional Information (SAI) dated April 30,
1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document , contact your
insurance company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in your
state due to various insurance regulations. Please check with your
insurance company for availability. If the fund in this Prospectus is not
available in your state, this Prospectus 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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
like all mutual
funds, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
VIPII-CTRA-pro-04
96
VARIABLE
INSURANCE
PRODUCTS
FUND II
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. Contrafund Portfolio is a fund of
the Trust.
CONTRAFUND PORTFOLIO seeks to increase the value of your investment over
the long - term by investing mainly in equity securities
of companies that are undervalued or out-of-favor.
PROSPECTUS
APRIL 30, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing .
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
PERFORMANCE
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS Share price
calculations and how to invest and
redeem.
KEY FACTS
THE FUND AT A GLANCE
Contrafund Portfolio is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of various insurance
companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
Foreign affiliates of FMR may help choose investments for the fund.
GOAL: Capital appreciation (increase in the value of the fund's
shares). As with any mutual fund, there is no assurance that the fund
will achieve its goal.
STRATEGY: Invests mainly in equity securities of companies that are
undervalued or out-of-favor.
SIZE: As of December 31, 1995, the fund had over $876 million in
assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who are looking for an investment approach that
follows a contrarian philosophy. This approach focuses on companies that
FMR believes are currently out of public favor, but show potential
for capital appreciation.
The value of the fund's investments will vary from day to day, and
generally reflect market conditions, interest rates, and other company,
political, or economic news both here and abroad. In the short-term, stock
prices can fluctuate dramatically in response to these factors. Over time,
however, stocks have shown greater growth potential than other types of
securities. Investments in foreign securities may involve risks in addition
to those of U.S. investments, including increased political and economic
risk, as well as exposure to currency fluctuations. When fund shares are
redeemed, they may be worth more or less than their original cost. By
itself, the fund does not constitute a balanced investment plan.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk.
Contrafund Portfolio falls
under the GROWTH category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) INCOME Seeks income by
investing in bonds.
(solid bullet) ASSET ALLOCATION Seeks
high total return with reduced
risk through a mix of stocks,
bonds, and short-term
instruments.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(right arrow) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
FINANCIAL HIGHLIGHTS
The financial highlights table that follows and the fund's financial
statements are included in the fund's Annual Report and have been audited
by Price Waterhouse LLP, independent accountants. Their report on the
financial statements and financial highlights is included in the Annual
Report. The financial statements, the financial highlights, and the report
are incorporated by reference into the fund's SAI, which may be obtained
free of charge from your insurance company.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C>
1.Year ended December 31 1995B
2.Net asset value, beginning of period $ 10.00
3.Income from Investment Operations
4. Net investment income .06
5. Net realized and unrealized gain (loss) 3.91
6. Total from investment operations 3.97
7.Less Distributions
8. From net investment income (.06)
9. From net realized gain (.12)
10. Total distributions (.18)
11.Net asset value, end of period $ 13.79
12.Total return A 39.72
%
13.RATIOS AND SUPPLEMENTAL DATA
14.Net assets, end of period (In millions) $ 877
15.Ratio of expenses to average net assets .72
%
16.Ratio of net investment income to average net assets 1.07
%
17.Portfolio turnover rate 132
%
</TABLE>
A TOTAL RETURN DOES NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD REDUCE THE
TOTAL RETURN SHOWN.
B JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
THE FUND IN DETAIL
CHARTER
CONTRAFUND PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund is a
diversified fund of Variable Insurance Products Fund II (VIPII). VIPII is
an open-end management investment company organized as a Massachusetts
business trust on March 21, 1988.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review the fund's performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. An insurance
company issuing a variable contract that participates in the fund will vote
shares held in its separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. Your insurance company is entitled to one vote for each share it
owns. For a further discussion, please refer to your insurance company's
separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The fund employs various Fidelity
companies to perform activities required for its operation.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $ 354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) in London, England, and Fidelity Management & Research (Far
East) Inc. (FMR Far East) in Tokyo, Japan, assist FMR with foreign
investments.
William Danoff is manager and vice president of VIPII: Contrafund
Portfolio, which he has managed since January 1995. Mr. Danoff also manages
Fidelity Contrafund, which he has managed since October 1990. Previously,
he managed Select Retailing and assisted on Magellan. Mr. Danoff joined
Fidelity in 1986 as an equity analyst.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to Fidelity
Contrafund. The p erformance of a separate account investing in the
fund is not expected to be the same as the performance of the
correspondin g fund due in part to dissimilarities in their
investments. Various insurance-related costs at the insurance company's
separate account will also affect performance.
The fund sells its shares to separate accounts of insurance companies which
are both affiliated and unaffiliated with FMR. The fund currently does not
foresee any disadvantages to policyowners arising out of the fact that the
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 the fund and shares of another fund may be substituted. This might force
the fund to sell securities at disadvantageous prices. In addition, the
Board of Trustees may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of the fund if
such action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company
(FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs transfer
agent servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., and FMR Far
East. Members of the Edward C. Johnson 3d family are the predominant owners
of a class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940 (the
1940 Act), control of a company is presumed where one individual or group
of individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
A broker-dealer may use a portion of the commissions paid by the fund to
reduce the fund's custodian or transfer agent fees. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to carry out
the fund's transactions, provided that the fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The fund seeks capital appreciation by investing mainly in equity
securities of companies that FMR believes to be undervalued due to an
overly pessimistic appraisal by the public. The fund usually invests
primarily in common stock and securities convertible into common stock, but
it has the flexibility to invest in any type of security that may produce
capital appreciation.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. Generally, these
companies, especially small-sized ones, rely on limited product lines and
markets, financial resources, or other factors. This may make them more
susceptible to setbacks or downturns.
In pursuit of the fund's goal, FMR looks for companies with the following
characteristics:
(small solid bullet) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an
improved balance sheet,
(small solid bullet) recently popular, but temporarily out of favor due to
short-term or one-time factors, or
(small solid bullet) undervalued compared to other companies in the same
industr y.
The value of the fund's domestic and foreign investments varies in response
to many factors. Stock values fluctuate in response to the activities of
individual companies, and general market and economic conditions.
Investments in foreign securities may involve risks in addition to those of
U.S. investments, including increased political and economic risk, as well
as exposure to currency fluctuations.
FMR may use various investment techniques to hedge a portion of the fund's
risks, but there is no guarantee that these strategies will work as FMR
intends. Also, as a mutual fund, the fund seeks to spread investment risk
by diversifying its holdings among many companies and industries. Of
course, when shares are redeemed, they may be worth more or less than their
original cost.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective , and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section. A complete listing of the fund's limitations and more detailed
information about the fund's investments are contained in the fund's SAI.
Policies and limitations are considered at the time of purchase; the sale
of instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Current holdings and recent investment strategies are described in
the fund's financial reports, which are sent to shareholders twice a year.
For a free SAI or financial report, contact your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks, convertible
securities, and warrants. Common stocks, the most familiar type, represent
an equity (ownership) interest in a corporation. Although equity securities
have a history of long-term growth in value, their prices fluctuate based
on changes in a company's financial condition and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase more than 10% of the outstanding voting securities of
any issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa.
Debt securities, loans, and other direct debt have varying degrees of
quality and varying levels of sensitivity to changes in interest rates.
Longer-term bonds are generally more sensitive to interest rate changes
than short-term bonds.
Investment-grade debt securities are medium- and high-quality
securities. Some, however, may possess speculative characteristics, and may
be more sensitive to economic changes and to changes in the financial
condition of issuers. Lower-quality debt securities are sometimes called
"junk bonds."
RESTRICTIONS: Purchase of a debt security is consistent with the fund's
debt quality policy if it is rated at or above the stated level by Moody's
or rated in the equivalent categories by S& P, or is unrated but
judged to be of equivalent quality by FMR. The fund currently limits
investment in lower than Baa-quality debt securities to 5 % of its
assets.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These include
risks relating to political or economic conditions in foreign countries,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and the potentially less stringent
investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign debt securities may be
unwilling to repay principal and interest when due, and may require that
the conditions for payment be renegotiated. All of these factors can make
foreign investments, especially those in developing countries, more
volatile than U.S. investments.
RESTRICTIONS: Pursuant to certain state insurance regulations, the
fund may not invest more than 20% of its assets in any one foreign
country, however, the 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 .
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, and
purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities, and some other securities, may
be subject to legal restrictions. Difficulty in selling securities may
result in a loss or may be costly to the fund.
RESTRICTIONS. The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include securities of closed-end investment
companies and real estate-related instruments.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may not
purchase a security if, as a result, more than 5% would be invested in the
securities of any one issuer. The fund also may not invest more than
25% of its total assets in any one industry. These limitations do not apply
to U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 25% of its assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means
of earning income. This practice could result in a loss or a delay in
recovering the fund's securities. The fund may also lend money to other
funds advised by FMR .
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the fund's
total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, the
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
THE FUND seeks long-term capital appreciation. The fund, with respect to
75% of total assets, may not invest more than 5% of its total assets in any
one issuer and may not own more than 10% of the outstanding voting
securities of a single issuer. The fund may not invest more than 25% of its
total assets in any one industry. Loans, in the aggregate, may not exceed
33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services. The fund also pays OTHER EXPENSES, which
are explained below.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The fund's MANAGEMENT FEE is calculated and paid to FMR every month. The
fee for the fund is calculated by adding a group fee rate to an individual
fee rate, and multiplying the result by the fund's average net assets.
THE GROUP FEE RATE is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above 0.52%, and it drops as
total assets under management increase.
For December 31, 199 5, the group fee rate was 0.3097%. The fund's
individual fund fee rate is 0.30%. For fiscal year 1995, the total
management fee was 0. 61 %.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on issuers
based outside the United States. Under the sub-advisory agreements, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to the fund's investments that the
sub-adviser manages on a discretionary basis. For fiscal year 1995, FMR on
behalf of the fund, paid FMR U.K. and FMR Far East of 0. 004 %, and
0. 004 %, respectively, of the fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for the
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends,
maintains the general accounting records and administers the securities
lending program for the fund.
In fiscal 1995, the fund paid FIIOC fees equal to 0.05% of the fund's
average net assets for transfer agency and related services, and the fund
paid FSC fees equal to 0.06% of the fund's average net assets for pricing
and bookkeeping services.
For fiscal year 1995, the fund's total expenses amounted to 0. 72 % of
the fund's average net assets. FMR has voluntarily agreed to temporarily
limit the fund's total operating expenses (excluding interest, taxes,
brokerage commissions, and extraordinary expenses) (as a percentage of the
fund's average net assets) to 1.00%.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund's portfolio turnover rate for fiscal 1995 was 132%. This rate
varies from year to year. High turnover rates increase transaction costs.
FMR considers these effects when evaluating the anticipated benefits of
short-term investing.
The fund has adopted a Distribution and Service Plan. The plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. The Board of Trustees
has not authorized such payments.
PERFORMANCE
The fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof . Performance is
based on historical results and is not intended to indicate future
performance. For additional performance information, contact your insurance
company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate.
The fund may quote its adjusted net asset value (NAV), including all
distributions paid. This value may be averaged over specified periods and
may be used to calculate the fund's moving average.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR THE FUND INCLUDE THE FUND'S EXPENSES,
BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE PURCHASED ONLY
THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN
FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges
from quotations of the fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges
when comparing the fund's performance to that of other mutual funds.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance contract,
refer to the prospectus of your insurance company's separate account. It is
suggested you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the fund will be held under the terms of
variable annuity and variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from the 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.
The fund is treated as a separate entity for federal income tax purposes.
The fund intends to pay out all of its net investment income and net
realized capital gains , if any, for each year. Dividends from the
fund will be distributed at least annually. Normally, net realized
capital gains, if any, are distributed each year for the fund. Such income
and capital gain distributions are automatically reinvested in additional
shares of the fund. The 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.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. The fund's NAV is calculated as of the close of business of
the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market quotations.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. If quotations are not
readily available or if the values have been materially affected by events
occurring after the closing of a foreign market, assets are valued by a
method that the Board of Trustees believes accurately reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuities and variable life insurance contracts.
Please refer to the prospectus of your insurance company's separate account
for information on how to invest in and redeem from the fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the fund each business day.
That night, all orders received by that insurance company on that business
day are aggregated, and the insurance company places a net purchase or
redemption order for shares of the fund the morning of the next business
day. These orders are generally executed at the NAV that was computed at
the close of the previous business day in order to provide a match between
the variable contract owners' orders to the insurance companies and the
insurance compa nies' orders to the fund. In some cases, an insurance
company's order for fund shares may be executed at the NAV next
computed after the order is actually transmitted to the fund.
Redemption proceeds will normally be wired to the insurance company on the
next business day after receipt of the redemption instructions by the fund
but in no event later than 7 days following receipt of instructions. The
fund may suspend redemptions or postpone payment dates on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
This prospectus is printed on recycled paper using soy-based inks.
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager: Growth Portfolio
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
** To be filed by amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing or a
copy of the Statement of Additional Information (SAI) dated April 30,
199 6 . The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference (legally forms a
part of the prospectus). For a free copy of either document , contact
your insurance company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in your
state due to various insurance regulations. Please check with your
insurance company for availability. If the fund in this Prospectus is not
available in your state, this Prospectus 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.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Like all mutual
funds, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
VIPII-AMG-pro-049
6
VARIABLE
INSURANCE
PRODUCTS
FUND II
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. Asset Manager: Growth Portfolio
is a fund of the Trust.
ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total
return over the long-term through investments in stocks, bonds, and
short-term instruments of all types .
PROSPECTUS
APRIL 30, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing .
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
PERFORMANCE
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS Share price
calculations and how to invest and
redeem.
KEY FACTS
THE FUND AT A GLANCE
Asset Manager: Growth Portfolio is designed to provide an investment
vehicle for variable annuity and variable life insurance contracts of
various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
Foreign affiliates of FMR may help choose investments for the fund.
GOAL: Maximum total return over the long - term. As with any
mutual fund, there is no assurance that the fund will achieve its goal.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
instruments, both here and abroad, to pursue its goal. The fund has a
neutral mix which represents the way the fund's investments will generally
be allocated over the long - term. This mix will vary over short-term
periods as fund management gradually adjusts the fund's holdings - within
defined ranges - based on the current outlook for the different markets.
Neutral Mix
Stocks 65%
(can range
from
0-100%)
Row: 1, Col: 1, Value: 5.0
Row: 1, Col: 2, Value: 65.0
Row: 1, Col: 3, Value: 30.0
Bonds 30%
(can range
from
0-100%)
Short-Term
5%
(can range
from
0-100%)
SIZE: As of December 31, 1995, the fund had over $68 million in
assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who want to diversify
among domestic and foreign stocks, bonds, short-term instruments and other
types of securities in one fund. If you are looking for a fund that can
invest in a wide range of security types within defined ranges in pursuit
of total return, this fund may be appropriate for you.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Asset
Manager: Growth Portfolio
falls under the ASSET
ALLOCATION category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) INCOME Seeks income by
investing in bonds.
(right arrow) ASSET ALLOCATION Seeks
high total return with reduced
risk through a mix of stocks,
bonds, and short-term
instruments.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly
in stocks.
(checkmark)
Because the fund owns different types of investments, its performance is
affected by a variety of factors. The value of the fund's investments and
the income they generate will vary from day to day, and generally reflect
interest rates, market conditions, and other company, political, and
economic news both here and abroad. Investments in foreign securities may
involve risks in addition to those of U.S. investments, including increased
political and economic risk, as well as exposure to currency fluctuations.
Performance also depends on FMR's skill in allocating assets. When fund
shares are redeemed, they may be worth more or less than their original
cost.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows and the fund's financial
statements are included in the fund's Annual Report and have been audited
by Price Waterhouse LLP, independent accountants. Their report on the
financial statements and financial highlights is included in the Annual
Report. The financial statements, the financial highlights, and the report
are incorporated by reference into the fund's SAI, which may be obtained
free of charge from your insurance company.
SELECTED PER-SHARE DATA
Year ended December 31 1995 D
Net asset value, beginning of period $ 10.00
Income from Investment Operations
Net investment income .10
Net realized and unrealized gain (loss) 2.20
Total from investment operations 2.30
Less Distributions
From net investment income (.11)
From net realized gain (.42)
Total distributions (.53)
Net asset value, end of period $ 11.77
Total return A,B 23.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ( In millions ) $ 68
Ratio of expenses to average net assets 1.00%
C
Ratio of net investment income to average net assets 1.69%
Portfolio turnover rate 343%
A TOTAL RETURN DOES NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD REDUCE THE
TOTAL
RETURNS SHOWN.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN.
C FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD SHOWN. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE
RATIO WOULD HAVE BEEN HIGHER.
D JANUARY 3,1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
THE FUND IN DETAIL
CHARTER
ASSET MANAGER: GROWTH PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund is a
diversified fund of Variable Insurance Products Fund II (VIPII). VIPII is
an open-end management investment company organized as a Massachusetts
business trust on March 21, 1988.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review the fund's performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. An insurance
company issuing a variable contract that participates in the fund will vote
shares held in its separate account as required by law and interpretations
thereof, as may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance company
is required to request voting instructions from policyowners and must vote
shares in the separate account in proportion to the voting instructions
received. Your insurance company is entitled to one vote for each share it
owns. For a further discussion, please refer to your insurance company's
separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The fund employs various Fidelity
companies to perform activities required for its operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) in London, England, and Fidelity Management & Research (Far
East) Inc. (FMR Far East) in Tokyo, Japan, assist FMR with foreign
investments.
Michael S. Gray, Richard C. Habermann and George Vanderheiden are
managers and vice presidents of VIPII: Asset Manager Growth Portfolio. They
have managed the fund since March 1996.
Dick Habermann is lead manager of VIPII: Asset Manager Portfolio and Asset
Manager: Growth Portfolio. He also manages Fidelity Asset Manager, Fidelity
Asset Manager: Growth and Fidelity Asset Manager: Income. Mr. Habermann is
a managing director of Fidelity and senior vice president of FMR.
Previously, he was director of research and chief investment officer of
Fidelity International, Limited. Mr. Habermann joined Fidelity in 1968.
Michael Gray is manager and vice president of Investment Grade Bond
Portfolio, which he has managed since August 1995. Mr. Gray also manages
Fidelity Investment Grade Bond Fund and Spartan Investment Grade Bond Fund.
In addition, he manages the fixed income investments of Fidelity Balanced
Fund, Fidelity Asset Manager, Fidelity Asset Manager: Growth, Fidelity
Asset Manager: Income, VIPII: Asset Manager and VIPII: Asset Manager:
Growth. Mr. Gray joined Fidelity in 1982.
George Vanderheiden also manages Fidelity Asset Manager, Fidelity Asset
Manager: Growth, Fidelity Asset Manager: Income Fund, Fidelity Destiny I
and II and Fidelity Advisor Growth Opportunities Fund. He also serves as
leader of the growth funds group. Mr. Vanderheiden joined Fidelity in
1971.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to Fidelity Asset
Manager: Growth. The p erformance of a separate account investing in
the fund is not expected to be the same as the performance of the
corresponding fund due in part to dissimilarities in their
investments. Various insurance related costs at the insurance company's
separate account will also affect performance.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
The fund sells its shares to separate accounts of insurance companies which
are both affiliated and unaffiliated with FMR. The fund currently does not
foresee any disadvantages to policyowners arising out of the fact that the
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 the fund and shares of another fund may be substituted. This might force
the fund to sell securities at disadvantageous prices. In addition, the
Board of Trustees may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of the fund if
such action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company
(FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs transfer
agent servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., and FMR Far
East. Members of the Edward C. Johnson 3d family are the predominant owners
of a class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940 (the
1940 Act), control of a company is presumed where one individual or group
of individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell fund
shares to carry out the fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those of
other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
THE FUND SEEKS TO MAXIMIZE TOTAL RETURN over the long - term by
allocating its assets among stocks, bonds , short-term and other
instruments of U.S. and foreign issuers .
The fund allocates its assets among the following classes, or types, of
investments. The STOCK CLASS includes equity securities of all types. The
BOND CLASS includes all varieties of fixed-income instruments with
maturities of more than three years (including adjustable-rate preferred
stocks). The SHORT-TERM CLASS includes all types of short-term instruments
with remaining maturities of three years or less. Some types of
investments, such as indexed securities, can fall into more than one asset
class. The fund may also make other investments that do not fall within
these classes.
FMR has the ability to allocate the fund's assets within specified ranges.
The fund's NEUTRAL MIX represents the benchmark for its combination of
investments in each asset class over time. FMR may change the neutral mix
from time to time. The range and approximate neutral mix for each asset
class are shown below.
Range Neutral Mix
STOCK CLASS 0 - 100% 65%
BOND CLASS 0 - 100% 30%
SHORT-TERM CLASS 0 - 100% 5%
Asset Manager: Growth's aggressive approach focuses on stocks for high
potential returns. However, because the fund can invest in bonds and
short-term instruments, its return may not be as high as a fund that
invests only in stocks.
Although the fund seeks to reduce its overall risk by diversifying among
different types of investments, the fund aggressively invests in a wide
variety of security types, including stocks and bonds issued in developed
and developing countries and derivative transactions. Because the
fund is subject to the risks of each investment type, the fund and its
performance are affected by many factors.
Stock values fluctuate in response to the activities of individual
companies and general market and economic conditions. The value of bonds
and short-term instruments fluctuates based on changes in interest rates
and in the credit quality of the issuer. The value of some of the fund's
investments may fluctuate based on other factors affecting security values
such as commodity prices and currency values. FMR may use various
investment techniques to hedge a portion of the fund's risks, but there is
no guarantee that these strategies will work as FMR intends. When fund
shares are redeemed, they may be worth more or less than their original
cost.
In pursuit of the fund's objective, FMR will not try to pinpoint the
precise moment when a major reallocation should be made. Instead, FMR
regularly reviews the fund's allocations and makes changes gradually to
favor investments that it believes will provide the most favorable outlook
for achieving the fund's objective. Under normal circumstances, a single
reallocation will not involve more than 20% of the fund's total assets.
Although FMR uses its expertise and resources in allocating assets, FMR's
decisions may not be advantageous to the fund .
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes.
The fund diversifies across investment types more than most mutual funds.
No one mutual fund, however, can provide an appropriate balanced investment
plan for all investors .
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective , and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section. A complete listing of the fund's limitations and more detailed
information about the fund's investments are contained in the fund's SAI.
Policies and limitations are considered at the time of purchase; the sale
of instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these technique s
unless it believes that they are consistent with the fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Current holdings and recent investment strategies are
described in the fund's financial reports, which are sent to shareholders
twice a year. For a free SAI or financial report, contact your insurance
company.
EQUITY SECURITIES may include common stocks and warrants. Common
stocks, the most familiar type, represent an equity (ownership) interest in
a corporation. Although equity securities have a history of long-term
growth in value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions. Smaller
companies are especially sensitive to these factors.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase more than 10% of the outstanding voting securities of any
issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa.
Debt securities have varying degrees of quality and varying levels
of sensitivity to changes in interest rates. Longer-term bonds are
generally more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics, and involve greater risk of
default or price changes due to changes in the issuer's
creditworthiness , or they may already be in default . The market
prices of these securities may fluctuate more than higher-quality
securities and may decline significantly in periods of general economic
difficulty.
The table below provides a summary of ratings assigned to debt holdings
(not including money market instruments) in the fund's portfolio. These
figures are dollar-weighted averages of month-end portfolio holdings during
fiscal 1995, and are presented as a percentage of total security
investments. These percentages are historical and do not necessarily
indicate the fund's current or future debt holdings.
FISCAL 1995 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE, INC. STANDARD & POOR'S
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa 8.49 % AAA 8.72 %
High quality Aa 1.13 % AA 0.90 %
Upper-medium grade A 0.00 % A 0.23 %
Medium grade Baa 0 .00 % BBB 0.00 %
LOWER QUALITY
Moderately speculative Ba 0.00 % BB 0.00 %
Speculative B 0.00 % B 0.00 %
Highly speculative Caa 0.00 % CCC 0.00 %
Poor quality Ca 0.00 % CC 0.00 %
Lowest quality, no interest C C
In default, in arrears -- D 0.00 %
9.62 % 9.85 %
A FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS OF THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT. THE DOLLAR-WEIGHTED AVERAGE
OF DEBT SECURITIES NOT RATED DIRECTLY OR INDIRECTLY BY MOODY'S OR S&P
AMOUNTED TO 1.85 %. THIS MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY
RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR HAS
DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER QUALITY ACCOUNT FOR
1.85 %
OF THE FUND'S SECURITY INVESTMENTS. REFER TO THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
RESTRICTIONS: Purchase of a debt security is consistent with the fund's
debt quality policy if it is rated at or above the stated level by Moody's
or rated in the equivalent categories by S&P, or is unrated but judged to
be of equivalent quality by FMR. The fund currently intends to limit its
investment in lower than Baa-quality debt securities to less than
35% of its assets.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued
by the U.S. government, corporations, financial institutions, and other
entities. These obligations may carry fixed, variable, or floating interest
rates.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign operations
may involve additional risks and considerations. These include risks
relating to political or economic conditions in foreign countries,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and the potentially less stringent
investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign debt securities may be
unwilling to repay principal and interest when due, and may require that
the conditions for payment be renegotiated. All of these factors can make
foreign investments, especially those in developing countries, more
volatile than U.S. investments.
RESTRICTIONS: Pursuant to certain state insurance regulations , the
fund may not invest more than 20% of its assets in any one foreign
country, however, the 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 .
ASSET-BACKED AND MORTGAGE SECURITIES include interests in pools of
lower-rated debt securities, consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be
significantly affected by changes in interest rates, the market's
perception of issuers, and the creditworthiness of the parties involved.
Some securities may have a structure that makes their reaction to interest
rates and other factors difficult to predict, making their value highly
volatile. These securities may also be subject to prepayment risk.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt
securities, although they may be more volatile and t he value of certain
types of stripped securities may move in the same direction as interest
rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for the fund, or there may be a
requirement that the fund supply additional cash to a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities, and some other securities, may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to the fund.
RESTRICTIONS. The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the market value of the fund's assets .
OTHER INSTRUMENTS may include convertible securities, preferred stocks,
securities of closed-end investment companies, and real estate-related
instruments.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may not
purchase a security if, as a result, more than 5% would be invested in the
securities of any one issuer. The fund also may not invest more than
25% of its total assets in any one industry. These limitations do not apply
to U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 25% of its assets.
LENDING securities to broker-dealers and institutions, including Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning
income. This practice could result in a loss or a delay in recovering the
fund's securities. The fund may also lend money to other funds advised by
FMR .
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the fund's
total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, the
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
THE FUND seeks to maximize total return by allocating its assets among
stocks, bonds, short-term instruments, and other investments. The fund,
with respect to 75% of total assets, may not invest more than 5% of its
total assets in any one issuer and may not own more than 10% of the
outstanding voting securities of a single issuer. The fund may not invest
more than 25% of its total assets in any one industry. Loans, in the
aggregate, may not exceed 33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services. The fund also pays OTHER EXPENSES, which
are explained below.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The fund's MANAGEMENT FEE is calculated and paid to FMR every month. The
fee for the fund is calculated by adding a group fee rate to an individual
fee rate, and multiplying the result by the fund's average net assets.
THE GROUP FEE RATE is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above 0.52%, and it drops as
total assets under management increase.
For December 31, 199 5, the group fee rate was 0.3097% . The fund's
individual fund fee rate is 0.40%. For fiscal year 1995, the total
management fee was 0.71%.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on issuers
based outside the United States. Under the sub-advisory agreements, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to the fund's investments that the
sub-adviser manages on a discretionary basis. For fiscal year 1995, FMR
on behalf of the fund, paid FMR U.K. and FMR Far East of 0.012%, and
0.014%, respectively, of the fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for the
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends,
maintains the general accounting records and administers the securities
lending program for the fund.
In fiscal 1995, the fund paid FIIOC fees equal to 0.05% of the fund's
average net assets for transfer agency and related services, and the fund
paid FSC fees equal to 0.12% of its average net assets for pricing and
bookkeeping services. These amounts are prior to applying any expense
reimbursements from FMR, as discussed below.
For fiscal year 1995, the fund's total expenses amounted to 1.00% of the
fund's average net assets. FMR has voluntarily agreed to temporarily
limit the fund's total operating expenses (as a percentage of the fund's
average net assets) to 1.00% . If this agreement were not in effect,
total operating expenses would be 1.13%. Expenses eligible for
reimbursement do not include interest, taxes, brokerage commissions or
extraordinary expenses.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund's portfolio turnover rate for fiscal 1995 was 343%. This rate
varies from year to year. High turnover rates increase transaction
costs. FMR considers these effects when evaluating the anticipated benefits
of short-term investing.
The fund has adopted a Distribution and Service Plan. The plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. The Board of Trustees
has not authorized such payments.
PERFORMANCE
The fund's total return and yield may be quoted in
advertising in accordance with current law and interpretations
thereof . Performance is based on historical results and is not intended
to indicate future performance. For additional performance information,
contact your insurance company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results .
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate.
The fund may quote its adjusted net asset value (NAV), including all
distributions paid. This value may be averaged over specified periods and
may be used to calculate the fund's moving average.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR THE FUND INCLUDE THE FUND'S EXPENSES,
BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE PURCHASED ONLY
THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN
FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges
from quotations of the fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges
when comparing the fund's performance to that of other mutual funds.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance contract,
refer to the prospectus of your insurance company's separate account. It is
suggested you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the fund will be held under the terms of
variable annuity and variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from the 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.
The fund is treated as a separate entity for federal income tax purposes.
The fund intends to pay out all of its net investment income and net
realized capital gains, if any , for each year. Dividends from the
fund will be distributed at least annually. Normally, net realized capital
gains, if any, are distributed each year for the fund. Such income
and capital gain distributions are automatically reinvested in additional
shares of the fund. The 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.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. The fund's NAV is calculated as of the close of business of
the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's investments with remaining maturities of 60 days or less are
valued on the basis of amortized cost. This method minimizes the effect of
changes in a security's market value. Other assets are valued primarily
on the basis of market quotations. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and
are translated from the local currency into U.S. dollars using current
exchange rates. If quotations are not readily available or if the values
have been materially affected by events occurring after the closing of a
foreign market, assets are valued by a method that the Board of Trustees
believes accurately reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuity and variable life insurance contracts.
Please refer to the prospectus of your insurance company's separate account
for information on how to invest in and redeem from the fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the fund each business day.
That night, all orders received by that insurance company on that business
day are aggregated, and the insurance company places a net purchase or
redemption order for shares of the fund the morning of the next business
day. These orders are generally executed at the NAV that was computed at
the close of the previous business day in order to provide a match between
the variable contract owners' orders to the insurance companies and the
insurance companies' orders to the fund. In some cases, an insurance
company's order for fund shares may be executed at the NAV next computed
after the order is actually transmitted to the fund.
Redemption proceeds will normally be wired to the insurance company on the
next business day after receipt of the redemption instructions by the fund
but in no event later than 7 days following receipt of instructions. The
fund may suspend redemptions or postpone payment dates on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
This prospectus is printed on recycled paper using soy-based inks.
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 Financial Highlights
3 b *
c Performance
d Cover Page and Performance
4 a(i) Charter
a(ii) The Funds at a Glance; Investment Principals and Risks
b,c Who May Want to Invest; Investment Principals and Risks
5 a Charter
5 b(i) FMR and Its Affiliates
b(ii)(iii),c Cover Page; The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses; Other Expenses
f, g Breakdown of Expenses
5A Performance
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page, Transaction Details
f,g Distributions and Taxes
7 a Cover Page; Charter
b(i),(ii) Financial Highlights; Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
Part B Statement of Additional Information Caption
10,11 Cover Page
12 Description of the Trust
13 a,b,c Investment Policies and Limitations
d Portfolio Transactions
14 a - c Trustees and Officers
15 a - c Trustees and Officers
16 a(i) FMR, Portfolio Transactions
a(ii) Trustees and Officers
a(iii),b Management Contracts, Contracts with
FMR affiliates
c *
d Contracts with FMR affiliates
e *
f Distribution and Service Plans
g *
h Description of the Trust
i Contracts with FMR affiliates; Description
of the Trust
17 a, b, c Portfolio Transactions
d, e *
18 a Description of the Trust
b *
19 a Additional Purchase and Redemption
Information
b Valuation of Portfolio Securities;
Additional Purchase and
Redemption Information
c *
20 Distributions and Taxes
21 a (i), (ii) Contracts with FMR affiliates
a(iii),b,c *
22 Performance
23 Financial Highlights
_________
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide if
the goal of one or more of the funds matches your own.
To learn more about each fund and its investments, you can obtain a copy of
the funds' most recent financial report and portfolio listing or a copy of
the Statement of Additional Information (SAI) dated April 30, 1996. The SAI
has been filed with the Securities and Exchange Commission (SEC) and is
incorporated herein by reference (legally forms a part of the prospectus).
For a free copy of either document, contact your insurance company.
Shares of each fund may be purchased only by the separate
accounts of insurance companies, for the purpose of funding variable
annuity and variable life insurance contracts. Particular funds may not be
available in your state due to various insurance regulations. Please check
with your insurance company for available funds. Inclusion 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.
AN INVESTMENT IN ANY FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT MONEY MARKET PORTFOLIO WILL
MAINTAIN A STABLE $1.00 SHARE PRICE.
LIKE ALL MUTUAL FUNDS ,
THESE SECURITIES HAVE
NOT BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION,
NOR HAS THE SECURITIES
AND EXCHANGE
COMMISSION OR ANY STATE
SECURITIES COMMISSION
PASSED UPON THE
ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
VIP/VIPII-pro-0496
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
HIGH INCOME PORTFOLIO MAY INVEST WITHOUT LIMITATION IN LOWER-QUALITY
DEBT SECURITIES, SOMETIMES CALLED "JUNK BONDS." INVESTORS SHOULD CONSIDER
THAT THESE SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT,
THAN OTHER DEBT SECURITIES. REFER TO "INVESTMENT PRINCIPLES AND RISKS" ON
PAGE FOR FURTHER INFORMATION.
VARIABLE
INSURANCE
PRODUCTS
FUNDS
Variable Insurance Products Fund 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 the following funds:
MONEY MARKET FUND
Money Market Portfolio
INCOME FUNDS
Investment Grade Bond Portfolio
High Income Portfolio
ASSET ALLOCATION FUNDS
Asset Manager Portfolio
Asset Manager: Growth Portfolio
GROWTH & INCOME AND GROWTH FUNDS
Equity-Income Portfolio
Index 500 Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio
PROSPECTUS
APRIL 30, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUNDS AT A GLANCE
WHO MAY WANT TO INVEST
FINANCIAL HIGHLIGHTS A summary
of each fund's financial data.
THE FUNDS IN DETAIL CHARTER How each fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
Each fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
PERFORMANCE
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS Share price
calculations and how to invest and
redeem.
APPENDIX Description of Moody's and S&P's
Corporate Bond Ratings , and
additional information about the
S&P 500(registered trademark).
KEY FACTS
THE FUNDS AT A GLANCE
The funds contained in this prospectus are designed to provide
investment vehicles for variable annuity and variable life insurance
contracts of various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. Affiliates of FMR may help choose
investments for some of the funds.
MONEY MARKET FUND
MONEY MARKET PORTFOLIO
GOAL: Income while maintaining a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term, U.S. dollar-denominated
money market securities of all types.
SIZE: As of December 31, 1995, the fund had over $808 million in
assets.
INCOME FUNDS
INVESTMENT GRADE BOND PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in investment-grade debt securities.
SIZE: As of December 31, 1995, the fund had over $181 million in assets.
HIGH INCOME PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in high-yielding debt securities, with an emphasis
on lower-quality securities.
SIZE: As of December 31, 1995, the fund had over $ 1 billion in
assets.
ASSET ALLOCATION FUNDS
ASSET MANAGER PORTFOLIO
GOAL: High total return with reduced risk over the long-term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
instruments, both here and abroad, to pursue its goal. The fund has a
neutral mix which represents the way the fund's investments will generally
be allocated over the long - term. This mix will vary over short-term
periods as fund management gradually adjusts the fund's holdings - within
defined ranges - based on the current outlook for the different markets.
Neutral Mix
Stocks 40%
(can range
from
10-60%)
Row: 1, Col: 1, Value: 20.0
Row: 1, Col: 2, Value: 40.0
Row: 1, Col: 3, Value: 40.0
Bonds 40%
(can range
from
20-60%)
Short-term
20%
(can range
from
0-70%)
SIZE: As of December 31, 1995, the fund had over $ 3.3 b illion
in assets.
ASSET MANAGER: GROWTH PORTFOLIO
GOAL: Maximum total return over the long - term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
instruments, both here and abroad, to pursue its goal. The fund has a
neutral mix which represents the way the fund's investments will generally
be allocated over the long - term. This mix will vary over short-term
periods as fund management gradually adjusts the fund's holdings - within
defined ranges - based on the current outlook for the different markets.
Neutral Mix
Stocks 65%
(can range
from
0-100%)
Row: 1, Col: 1, Value: 5.0
Row: 1, Col: 2, Value: 65.0
Row: 1, Col: 3, Value: 30.0
Bonds 30%
(can range
from
0-100%)
Short-Term
5%
(can range
from
0-100%)
SIZE: As of December 31, 1995, the fund had over $ 68 million
in assets.
GROWTH & INCOME AND GROWTH FUNDS
EQUITY-INCOME PORTFOLIO
GOAL: Reasonable income. The fund also considers the potential for capital
appreciation (increase in the value of fund's shares) .
STRATEGY: Invests mainly in income-producing equity securities.
SIZE: As of December 31, 1995, the fund had over $ 4.8 billion in
assets.
INDEX 500 PORTFOLIO
GOAL: Total return that corresponds to that of the Standard & Poor's
Composite Index of 500 Stocks (S&P 500(registered trademark)).
STRATEGY: Invests in equity securities of companies that compose the S&P
500 and in other instruments that are based on the value of the index.
SIZE: As of December 31, 1995, the fund had over $ 245 million in
assets.
CONTRAFUND PORTFOLIO
GOAL: Capital appreciation (increase in the value of the fund's shares).
STRATEGY: Invests mainly in equity securities of companies that are
undervalued or out-of-favor.
SIZE: As of December 31, 1995, the fund had over $ 876 million
in assets.
GROWTH PORTFOLIO
GOAL: Capital appreciation (increase in the value of the fund's shares).
STRATEGY: Invests mainly in common stocks, although its investments are not
restricted to any one type of security.
SIZE: As of December 31, 1995, the fund had over $ 4.1 billion in
assets.
OVERSEAS PORTFOLIO
GOAL: Long-term growth of capital.
STRATEGY: Invests mainly in equity securities outside of the U.S.
SIZE: As of December 31, 1995, the fund had over $ 1.3 billion in
assets.
WHO MAY WANT TO INVEST
The value of each fund's (except Money Market's) investments and, as
applicable, the income they generate will vary from day to day, and
generally reflect changes in market conditions, interest rates, and other
company, political, or economic news both here and abroad. In the
short-term, stock prices can fluctuate dramatically in response to these
factors. The securities of small, less well-known companies may be more
volatile than those of larger companies. Over time, however, stocks have
shown greater growth potential than other types of securities. Bond prices
generally move in the opposite direction from interest rates. Investments
in foreign securities may involve risks in addition to those of U.S.
investments, including increased political and economic risk, as well as
exposure to currency fluctuations. When fund shares are redeemed, they may
be worth more or less than their original cost. An investment in any one
fund is not in itself a balanced investment plan. As with any mutual fund,
there is no assurance that a fund will achieve its goal.
MONEY MARKET PORTFOLIO
The fund may be appropriate for investors who would like to earn income at
current money market rates while preserving the value of their investment.
The fund is managed to keep its share price stable at $1.00. The rate of
income will vary from day to day, generally reflecting short-term interest
rates.
INVESTMENT GRADE BOND PORTFOLIO
The fund may be appropriate for investors who want high current income from
a portfolio of investment-grade debt securities. A fund's level of risk and
potential reward depend on the quality and maturity of its investments.
With its focus on medium- to high-quality investments, the fund has a
moderate risk level and yield potential.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The
funds in this prospectus fall
under one of the following
categories.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(solid bullet) INCOME Seeks income by
investing in bonds.
(solid bullet) ASSET ALLOCATION Seeks
high total return with reduced
risk through a mix of stocks,
bonds, and short-term
instruments.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
HIGH INCOME PORTFOLIO
The fund is designed for investors who want high current income with some
potential for capital growth from a portfolio of lower-quality debt
securities and income-producing equity securities. The fund may be
appropriate for long-term, aggressive investors who understand the
potential risks and rewards of investing in lower-quality debt, including
defaulted securities. Investors must be willing to accept the fund's
greater price movements and credit risks.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
The funds may be appropriate for investors who want to diversify among
domestic and foreign stocks, bonds, short-term instruments and other
types of securities, in one fund. Asset Manager Portfolio spreads its
assets among all three asset classes moderating both its risk and return
potential. On the other hand, Asset Manager: Growth Portfolio , while
spreading its assets among all three asset classes, uses a more aggressive
approach by focusing on stocks for a higher potential return. Performance
depends on FMR's skill in allocating assets. Because each fund can invest
in bonds and short-term instruments, their returns may not be as high as a
fund that invests only in stocks.
EQUITY-INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want some income from equity and bond
investments, but also want to be invested in the stock market for its
long-term growth potential.
INDEX 500 PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want to pursue growth of capital and current
income through a portfolio of securities that broadly represents the U.S.
stock market, as measured by the S&P 500. The fund seeks to keep expenses
low as it attempts to match the return of the S&P 500.
Because the fund seeks to track, rather than beat, the performance of the
S&P 500, it is not managed in the same manner as other mutual funds. In
this fund, FMR generally will not judge the merits of any particular stock
as an investment. Therefore, you should not expect to achieve the
potentially greater results that could be obtained by a fund that
aggressively seeks growth.
CONTRAFUND PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who are looking for an investment approach that
follows a contrarian philosophy. This approach focuses on companies that
FMR believes are currently out of public favor but show potential for
capital appreciation.
GROWTH PORTFOLIO
The fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
fund is designed for those who want to pursue growth wherever it may arise,
and who understand that this strategy often leads to investments in
smaller, less well-known companies. The fund invests for growth and does
not pursue an income strategy.
OVERSEAS PORTFOLIO
The fund may be appropriate for investors who want to pursue their
investment goals in markets outside of the United States. By
including international investments in your portfolio, you can achieve
additional diversification and participate in growth opportunities around
the world. However, it is important to note that investments in foreign
securities involve risks in addition to those of U.S. investments.
In addition to general risks, international investing involves different or
increased risks. The performance of international funds depends upon
currency values, the political and regulatory environment, and overall
economic factors in the countries in which the fund invests. See
"INVESTMENT PRINCIPLES AND RISKS."
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow and each fund's financial
statements are included in each fund's Annual Report and have been
audited by either Coopers & Lybrand L.L.P. (Money Market, High
Income, Equity-Income, Growth and Overseas) or Price Waterhouse LLP
(Investment Grade Bond, Asset Manager, Index 500, Asset Manager: Growth
and Contrafund) , independent accountants. Their reports on the
financial statements and financial highlights are included in the Annual
Reports. The financial statements, the financial highlights, and the
reports are incorporated by reference into the funds' SAI, which may be
obtained free of charge from your insurance company.
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.Selected Per-Share
Data and Ratios
2.Years
ended 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
December 31
3.Net asset
value, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
beginning 0 0 0 0 0 0 0 0 0 0
of period
4.Income
from .057 .042 .032 .038 .059 .078 .087 .071 .063 .065
Investment
Operations
Net interest
income
5.Less (.057) (.042) (.032) (.038) (.059) (.078) (.087) (.071) (.063) (.065)
Distributions
From net interest
income
6.Net asset
value, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
end of period 0 0 0 0 0 0 0 0 0 0
7.Total
return A 5.87 4.25 3.23% 3.90 6.09 8.04 9.12 7.39 6.44 6.70
% % B % % % % % % %
8.Net assets,
end $ 809 $ 749 $ 353 $ 301 $ 271 $ 255 $ 143 $ 106 $ 88 $ 65
of period
(In millions)
9.Ratio of .33% .27% .22%C .24% .38% .56% .67% .60% .54% .50%
expenses to
average net
assets
10.Ratio of
net 5.72 4.32 3.16% 3.85 5.93 7.76 8.70 7.16 6.38 6.52
interest
income to % % % % % % % % %
average net
assets
</TABLE>
A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD.
C FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO
WOULD HAVE BEEN HIGHER.
INVESTMENT GRADE BOND PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11.Selected Per-Share Data and
Ratios
12.Years ended 1995 1994 1993F 1992 1991 1990 1989 1988D
December 31
13.Net asset value, $ 11.02 $ 11.48 $ 10.97 $ 11.08 $ 9.920 $ 10.14 $ 10.00 $ 10.00
beginning of period 0 0 0 0 0 0 0
14.Income from .320 .733 .641 .672 .455 .826 .827 .052
Investment Operations
Net investment
income
15. Net realized and 1.530 (1.163) .559 .058 1.165 (.220) .160 --
unrealized gain (loss)
16. Total from 1.850 (.430) 1.200 .730 1.620 .606 .987 .052
investment operations
17.Less Distributions (.390) -- (.628) (.680) (.460) (.826) (.827) (.052)
From net investment
income
18. In excess of net -- -- (.002) -- -- -- -- --
investment income
19. From net realized -- (.010) (.050) (.160) -- -- (.020) --
gain
20. In excess of net -- (.020) (.010) -- -- -- -- --
realized gain
21. Total distributions (.390) (.030) (.690) (.840) (.460) (.826) (.847) (.052)
22.Net asset value, $ 12.48 $ 11.02 $ 11.48 $ 10.97 $ 11.08 $ 9.920 $ 10.14 $ 10.00
end of period 0 0 0 0 0 0 0
23.Total return B,C 17.32 (3.76) 10.96 6.65% 16.38 6.21% 10.26 .52%
% % % % %
24.Net assets, end of $ 182 $ 111 $ 122 $ 74 $ 45 $ 14 $ 6 $ 3
period
(In millions)
25.Ratio of expenses .59% .67% .68% .76% .80%E .80%E .80%E .80%A,
to E
average net assets
26.Ratio of net 6.53% 6.53% 6.85% 7.11% 7.73% 8.26% 8.19% 6.99%
investment income A
to average net assets
27.Portfolio turnover 182% 143% 70% 119% 128% 122% 67% 0%
rate
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM DECEMBER 5, 1988 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,1988
E EFFECTIVE DECEMBER 5, 1988, THE FUND'S INVESTMENT ADVISOR VOLUNTARILY
AGREED TO LIMIT EXPENSES TO .80% OF AVERAGE NET ASSETS.
F EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28.Selected
Per-Share Data and
Ratios
29.Years
ended 1995 1994 1993C 1992 1991 1990 1989 1988 1987 1986
December 31
30.Net asset
value, $ 10.7 $ 11.9 $ 10.8 $ 9.55 $ 7.07 $ 8.11 $ 9.66 $ 9.68 $ 10.8 $ 10.3
beginning 50 90 20 0 0 0 0 0 30 10
of period
31.Income
from .856 .770 .728 .790 .890 .858 1.202 1.110 1.155 1.227
Investment
Operations
Net investment
income
32. Net
realized 1.224 (.910) 1.332 1.290 1.590 (1.04 (1.55 (.020) (1.00 .520
and 0) 0) 0)
unrealized gain
(loss)
33. Total
from 2.080 (.140) 2.060 2.080 2.480 (.182) (.348) 1.090 .155 1.747
investment
operations
34.Less
Distributions (.780) (.730) (.794) (.810) -- (.858) (1.20 (1.110 (1.15 (1.22
From net 2) ) 5) 7)
investment
income
35. In excess
of net -- -- (.036) -- -- -- -- -- -- --
investment income
36. From net -- (.370) (.060) -- -- -- -- -- (.150) --
realized gain
37. Total (.780) (1.10 (.890) (.810) -- (.858) (1.20 (1.110 (1.30 (1.22
distributions 0) 2) ) 5) 7)
38.Net asset
value, $ 12.0 $ 10.7 $ 11.9 $ 10.8 $ 9.55 $ 7.07 $ 8.11 $ 9.66 $ 9.68 $ 10.8
end of period 50 50 90 20 0 0 0 0 0 30
39.Total
return A,B 20.72 (1.64) 20.40 23.17 35.08 (2.23) (4.17) 11.64 1.22 17.68
% % % % % % % % % %
40.Net assets,
end $ 1,04 $ 569 $ 464 $ 201 $ 70 $ 30 $ 34 $ 30 $ 19 $ 13
of period 0
(In millions)
41.Ratio of .71% .71% .64% .67% .97% 1.00 .93% .99% 1.02 1.00
expenses to D %D %D %D
average net assets
42.Ratio of
net 9.32 8.75 8.69 10.98 12.94 11.36 12.94 11.41 11.19 11.32
investment % % % % % % % % % %
income to average
net assets
43.Portfolio
turnover 132% 122% 155% 160% 154% 156% 124% 139% 189% 78%
rate
</TABLE>
A THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE
TOTAL RETURNS SHOWN.
C EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
D FMR VOLUNTARILY REIMBURSED A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
ASSET MANAGER PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
44.Selected Per-Share
Data and Ratios
45.Years ended 1995 1994 1993G 1992 1991 1990 1989D
December 31
46.Net asset value, $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
beginning of period
47.Income from
Investment Operations
48. Net investment .30 .45 .33 .32 .35 .41 .09
income
49. Net realized and 1.99 (1.33) 2.39 1.09 1.96 .26 (.01)
unrealized gain (loss)
50. Total from 2.29 (.88) 2.72 1.41 2.31 .67 .08
investment operations
51.Less Distributions
52. From net (.29) (.29) (.33) (.31) -- (.40) (.09)
investment income
53. In excess of net -- -- (.04) -- -- -- --
investment income
54. From net realized -- (.46) (.25) (.33) -- -- (.02)
gain
55. Total distributions (.29) (.75) (.62) (.64) -- (.40) (.11)
56.Net asset value, end $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
of period
57.Total return B,C 16.96% (6.09)% 21.23% 11.71% 22.56% 6.72% .81%
58.Net assets, end of $ 3,333 $ 3,291 $ 2,423 $ 732 $ 194 $ 36 $ 7
period
(In millions)
59.Ratio of expenses to .81% .81% .88% .91% 1.08% 1.54% 4.39%A
average net assets
60.Ratio of expenses to .79%F .80%F .88% .91% 1.08% 1.25%E 2.50%A,
average net assets after E
expense reductions
61.Ratio of net 3.54% 4.07% 3.64% 4.89% 5.89% 5.92% 4.77%A
investment income to
average net assets
62.Portfolio turnover rate 256% 85% 113% 92% 110% 117% 158%A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,1989
E EFFECTIVE JANUARY 1, 1990, THE FUND'S INVESTMENT ADVISOR VOLUNTARILY
AGREED TO LIMIT EXPENSES TO 1.25% OF AVERAGE NET ASSETS. FOR THE PERIOD
SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1989,
EXPENSES WERE VOLUNTARILY LIMITED BY THE INVESTMENT ADVISOR TO 2.50% OF
AVERAGE NET ASSETS.
F FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A PORTION
OF THE FUND'S EXPENSES.
G EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
ASSET MANAGER: GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C>
63.Selected Per-Share Data and Ratios
64.Year ended December 31 1995D
65.Net asset value, beginning of period $ 10.00
66.Income from Investment Operations
67. Net investment income .10
68. Net realized and unrealized gain (loss) 2.20
69. Total from investment operations 2.30
70.Less Distributions
71. From net investment income (.11)
72. From net realized gain (.42)
73. Total distributions (.53)
74.Net asset value, end of period $ 11.77
75.Total return A,B 23.02%
76.Net assets, end of period (In millions) $ 68
77.Ratio of expenses to average net assets 1.00%
C
78.Ratio of net investment income to average net assets 1.69%
79.Portfolio turnover rate 343%
</TABLE>
A TOTAL RETURN DOES NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD REDUCE THE
TOTAL
RETURNS SHOWN.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN.
C FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD SHOWN. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE
RATIO WOULD HAVE BEEN HIGHER.
D JANUARY 3,1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
80.Selected Per-Share
Data and Ratios
81.Years ended 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
December 31 G D
82.Net asset
value, $ 15.3 $ 15.4 $ 13.4 $ 11.8 $ 9.51 $ 12.2 $ 11.0 $ 9.42 $ 10.0 $ 10.0
beginning of period 5 4 0 5 9 1 2 0
83.Income from
Investment Operations
84. Net
investment .41 .41 .37 .40 .50 .58 .60 .53 .45 .06
income
85. Net
realized and 4.69 .64 2.06 1.57 2.43 (2.38) 1.29 1.59 (.51) (.04)
unrealized
gain (loss)
86. Total from 5.10 1.05 2.43 1.97 2.93 (1.80) 1.89 2.12 (.06) .02
investment operations
87.Less Distributions
88. From net (.40) (.37) (.35) (.42) (.59) (.59) (.52) (.53) (.40) --
investment income
89. In excess of net -- -- (.04) -- -- -- -- -- -- --
investment income
90. From net
realized (.78) (.77) -- -- -- (.39) (.09) -- (.14) --
gain
91. Total
distributions (1.18 (1.14 (.39) (.42) (.59) (.98) (.61) (.53) (.54) --
) )
92.Net asset value, $ 19.2 $ 15.3 $ 15.4 $ 13.4 $ 11.8 $ 9.51 $ 12.2 $ 11.0 $ 9.42 $ 10.0
end of period 7 5 4 0 5 9 1 2
93.Total
return B,C 35.09 7.07 18.29 16.89 31.44 (15.29 17.34 22.71 (1.13) .20%
% % % % % )% % % %
94.Net assets,
end of $ 4,87 $ 2,28 $ 1,31 $ 593 $ 282 $ 154 $ 143 $ 52 $ 26 $ 4
period (In millions)9 4 9
95.Ratio of
expenses .61% .60% .62% .65% .74% .78% .85% 1.13 1.33 1.50
to % % %A,E
average net assets
96.Ratio of
expenses .61% .58% .62% .65% .74% .78% .85% 1.13 1.33 1.50
to average net assets F % % %A
after expense
reductions
97.Ratio of net 2.56 2.83 2.87 3.52 4.83 6.01% 5.82 5.36 4.78 5.23
investment income to % % % % % % % % %A
average net assets
98.Portfolio
turnover 87% 134% 120% 74% 107% 94% 78% 69% 133% 7%A
rate
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM OCTOBER 9, 1986 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1986
E EFFECTIVE OCTOBER 9, 1986, FMR VOLUNTARILY REIMBURSED A PORTION OF THE
FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER.
F FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A PORTION
OF THE FUND'S EXPENSES.
G EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
INDEX 500 PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
99.Selected Per-Share Data and Ratios
100.Years ended December 31 1995 1994 1993F 1992D
101.Net asset value, beginning of period $ 56.22 $ 55.74 $ 52.60 $ 50.00
102.Income from Investment Operations
103. Net investment income .85 1.14 1.31 .44
104. Net realized and unrealized gain 19.72 (.56) 3.80 2.71
(loss)
105. Total from investment operations 20.57 .58 5.11 3.15
106.Less Distributions
107. From net investment income (.95) -- (1.28) (.47)
108. From net realized gain (.11) (.10) (.60) (.08)
109. In excess of net realized gain (.02) -- (.09) --
110. Total distributions (1.08) (.10) (1.97) (.55)
111.Net asset value, end of period $ 75.71 $ 56.22 $ 55.74 $ 52.60
112.Total return B,C 37.19% 1.04% 9.74% 6.31%
113.Net assets, end of period (In $ 246 $ 51 $ 25 $ 18
millions)
114.Ratio of expenses to average net .28% .28% .28% .28%A
assets E
115.Ratio of net investment income to 2.70% 2.81% 2.65% 2.89%A
average net assets
116.Portfolio turnover rate 16% 2% 9% 0%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1992
E FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
CONTRAFUND PORTFOLIO
<TABLE>
<CAPTION>
<S> <C>
117.Selected Per-Share Data and Ratios
118.Year ended December 31 1995B
119.Net asset value, beginning of period $ 10.00
120.Income from Investment Operations
121. Net investment income .06
122. Net realized and unrealized gain (loss) 3.91
123. Total from investment operations 3.97
124.Less Distributions
125. From net investment income (.06)
126. From net realized gain (.12)
127. Total distributions (.18)
128.Net asset value, end of period $ 13.79
129.Total return A 39.72
%
130.Net assets, end of period (In millions) $ 877
131.Ratio of expenses to average net assets .72
%
132.Ratio of net investment income to average net assets 1.07
%
133.Portfolio turnover rate 132
%
</TABLE>
A TOTAL RETURN DOES NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THOSE CHARGES WOULD REDUCE THE
TOTAL RETURN SHOWN.
B JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
134.Selected
Per-Share Data and
Ratios
135.Years ended 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986D
December 31 H
136.Net asset value,$ 21.6 $ 23.0 $ 19.7 $ 18.5 $ 12.9 $ 15.1 $ 11.7 $ 10.1 $ 10.0 $ 10.0
beginning of period 9 8 6 1 1 8 2 4 3 0
137.Income from
Investment Operations
140. Net investment .08 .12 .12 .09 .09F .24 .24 .19 .10 .04
income
141. Net realized
and 7.55 (.12) 3.64 1.64 5.72 (1.98) 3.41 1.39 .27 (.01)
unrealized
gain (loss)
142. Total from 7.63 -- 3.76 1.73 5.81 (1.74) 3.65 1.58 .37 .03
investment
operations
143.Less Distributions
144. From net (.12) (.12) (.11) (.05) (.21) (.21) (.19) -- (.11) --
investment income
145. From net
realized -- (1.27 (.21) (.43) -- (.32) -- -- (.15) --
gain )
146. In excess of
net -- -- (.12) -- -- -- -- -- -- --
realized gain
147. Total
distributions (.12) (1.39 (.44) (.48) (.21) (.53) (.19) -- (.26) --
)
148.Net asset
value, $ 29.2 $ 21.6 $ 23.0 $ 19.7 $ 18.5 $ 12.9 $ 15.1 $ 11.7 $ 10.1 $ 10.0
end of period 0 9 8 6 1 1 8 2 4 3
149.Total return
B,C 35.36 (.02) 19.37 9.32 45.51 (11.73) 31.51 15.58 3.66 .30%
% % % % % % % % %
150.Net assets, end $ 4,16 $ 2,14 $ 1,38 $ 750 $ 371 $ 135 $ 77 $ 29 $ 19 $ 2
of period 3 2 4
(In millions)
151.Ratio of
expenses .70% .70% .71% .75% .84% .88% 1.02 1.24 1.50 1.50
to average % % %E %A,E
net assets
152.Ratio of
expenses .70% .69% .71% .75% .84% .88% 1.02 1.24 1.50 1.50
to average net assets G % % % %A
after expense
reductions
153.Ratio of net .37% .69% .72% .83% .56% 2.69% 2.83 1.91 1.78 3.27
investment income to % % % %A
average net assets
154.Portfolio
turnover 108% 122% 159% 262% 261% 88% 111% 155% 37% 0%
rate
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM OCTOBER 9, 1986 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,1986
E FMR VOLUNTARILY REIMBURSED A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
G FMR HAS DIRECTED CERTAIN PORTFOLIO TRADES TO BROKERS WHO PAID A PORTION
OF THE FUND'S EXPENSES.
H EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
155.Slected Per-Share
Data and Ratios
156.Years ended 1995 1994 1993G 1992 1991 1990 1989 1988 1987D
December 31
157.Net asset $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35 $ 10.00
value,
beginning of
period
158.Income from
Investment
Operations
159. Net .17 .19 .06 .16 .24 .18 .07 .09 .05
investment income
160. Net realized 1.34 .08 4.16 (1.54) .74 (.39) 2.57 .67 (.59)
and
unrealized gain
(loss)
161. Total from 1.51 .27 4.22 (1.38) .98 (.21) 2.64 .76 (.54)
investment
operations
162.Less
Distributions
163. From net (.06) (.08) (.18) (.18) (.17) (.04) (.08) -- (.11)
investment income
164. In excess of -- -- (.04) -- -- -- -- -- --
net
investment
income
165. From net (.02) -- -- -- (.14)F -- -- -- --
realized gain
166. In excess of (.04) -- (.05) -- -- -- -- -- --
net
realized gain
167. Total (.12) (.08) (.27) (.18) (.31) (.04) (.08) -- (.11)
distributions
168.Net asset $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35
value, end of
period
169.Total 9.74% 1.72% 37.35 (10.72 8.00% (1.67) 26.28 8.13% (5.38)
return B,C % )% % % %
170.Net assets, $ 1,343 $ 1,298 $ 778 $ 181 $ 126 $ 81 $ 26 $ 9 $ 7
end of period
(In millions)
171.Ratio of .91% .92% 1.03% 1.14% 1.26% 1.41% 1.50% 1.50% 1.50%
expenses to E E A,E
average net
assets
172.Ratio of net 1.88% 1.28% 1.21% 1.86% 2.33% 1.89% .66% .84% .78%A
investment income
to average net
assets
173.Portfolio 50% 42% 42% 61% 168% 100% 78% 95% 181%A
turnover rate
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL
RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE COMPANY'S
SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE THE TOTAL RETURNS
SHOWN.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D FROM JANUARY 28, 1987 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,1987
E FMR VOLUNTARILY REIMBURSED A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAINS ON FOREIGN CURRENCY
RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
G EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio
are diversified funds of Variable Insurance Products Fund (VIP) , and
Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500
Portfolio, Asset Manager: Growth Portfolio and Contrafund Portfolio are
diversified funds of Variable Insurance Products Fund II (VIPII). VIP and
VIPII are open-end management investment companies organized as
Massachusetts business trusts on November 13, 1981, and March 21, 1988,
respectively. There is a remote possibility that one fund might become
liable for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review the funds' performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
An insurance company issuing a variable contract that participates in the
funds will vote shares held in its separate account as required by law and
interpretations thereof, as may be amended or changed from time to time. In
accordance with current law and interpretations thereof, a participating
insurance company is required to request voting instructions from
policyowners and must vote shares in the separate account in proportion to
the voting instructions received. Your insurance company is entitled to one
vote for each share it owns. For a further discussion, please refer to your
insurance company's separate account prospectus.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The funds employ various Fidelity
companies to perform activities required for their operation.
The funds are managed by FMR, which handles each fund's business affairs
and, with the assistance of affiliates for certain funds, chooses the
fund's investments.
(small solid bullet) FMR Texas Inc. (FMR Texas), in Irving, Texas, serves
as a sub-adviser for Money Market Portfolio.
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR U.K.),
in London, England, serves as a sub-adviser for High Income, Asset Manager,
Asset Manager: Growth, Contrafund and Overseas Portfolios.
(small solid bullet) Fidelity Management & Research (Far East) Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for High Income, Asset
Manager, Asset Manager: Growth, Contrafund and Overseas Portfolios.
(small solid bullet) Fidelity International Investment Advisors (FIIA), in
Pembroke, Bermuda, serves as a sub-adviser for Overseas Portfolio.
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.), in Kent, England, serves as a sub-adviser for
Overseas Portfolio.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $ 354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
Barry Jay Coffman is manager and vice president of VIP: High Income
Portfolio, which he has managed since August 1990. Mr. Coffman also assists
on Fidelity Puritan Fund. Previously, he served as an assistant manager and
analyst for the high yield bond group. Before joining Fidelity in 1986, Mr.
Coffman was an analyst for Equitable Capital Management and was a senior
auditor at Arthur Anderson & Company.
William Danoff is manager and vice president of VIPII: Contrafund
Portfolio, which he has managed since January 1995. Mr. Danoff also
manages Fidelity Contrafund, which he has managed since October 1990.
Previously, he managed Select Retailing Portfolio and assisted on Magellan.
Mr. Danoff joined Fidelity in 1986 as an equity analyst.
Michael Gray is manager and vice president of VIPII: Investment Grade
Bond Portfolio, which he has managed since August 1995. Mr. Gray also
manages Fidelity Investment Grade Bond Fund and Spartan Investment Grade
Bond Fund. In addition, he manages the fixed income investments of Fidelity
Balanced Fund, Fidelity Asset Manager, Fidelity Asset Manager: Growth,
Fidelity Asset Manager: Income, VIPII: Asset Manager and VIPII: Asset
Manager: Growth. Mr. Gray joined Fidelity in 1982.
Andrew Offit is manager and vice president of VIP: Equity-Income Portfolio
which he has managed since March 1996. He managed Fidelity Convertible
Securities Fund from 1992 to February 1995. Mr. Offit joined Fidelity in
1987 as a research analyst for the hospital supply, medical, technology,
drug distribution and retail drug sectors. He subsequently managed the
Select Biotechnology and Select Health Care Portfolios. He was also an
assistant for Fidelity Growth & Income Fund and Fidelity Magellan Fund.
Lawrence Greenberg is manager and vice president of VIP: 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 Portolios . He also assisted on Fidelity
Magellan Fund. Mr. Greenberg joined Fidelity in 1986.
Richard R. Mace, Jr. is manager and vice president of VIP: Overseas
Portfolio which he has managed since March 1996. He is also manager of
Fidelity Overseas Fund, Fidelity Advisor Overseas Fund, Fidelity Advisor
Annuity Overseas Fund, Fidelity Global Balanced Fund, and Fidelity
International Value Fund. Previously, he managed Fidelity International
Growth & Income Fund, Select Transportation, Select Industrial Materials
and Select Chemical Portfolios. Mr. Mace joined Fidelity in August 1987.
Michael S. Gray, Richard C. Habermann and George Vanderheiden are managers
and vice presidents of VIPII: Asset Manager Portfolio and Asset Manager:
Growth Portfolio. They have managed the funds since March 1996.
Dick Habermann is lead manager of VIPII: Asset Manager Portfolio and Asset
Manager: Growth Portfolio. He also manages Fidelity Asset Manager, Fidelity
Asset Manager: Growth and Fidelity Asset Manager: Income. Mr. Habermann is
a managing director of Fidelity and senior vice president of FMR.
Previously, he was director of research and chief investment officer of
Fidelity International, Limited. Mr. Habermann joined Fidelity in 1968.
Michael Gray also manages VIPII: Investment Grade Bond Portfolio, Fidelity
Investment Grade Bond Fund, Fidelity Intermediate Bond Fund and Spartan
Investment Grade Bond Fund. In addition he manages the fixed income
investments of Fidelity Balanced Fund, Fidelity Asset Manager, Fidelity
Asset Manager: Growth and Fidelity Asset Manager: Income. Mr. Gray joined
Fidelity in 1982.
George Vanderheiden also manages Fidelity Asset Manager, Fidelity Asset
Manager: Growth, Fidelity Asset Manager: Income Fund, Fidelity Destiny I
and II and Fidelity Advisor Growth Opportunities Fund. He also serves as
leader of the growth funds group. Mr. Vanderheiden joined Fidelity in
1971.
Each fund has an investment objective similar to that of an existing
Fidelity fund. Money Market Portfolio is most similar to Fidelity Cash
Reserves, High Income Portfolio is most similar to Spartan High Income
Fund, Equity-Income Portfolio is most similar to Fidelity Equity-Income
Fund, Growth Portfolio is most similar to Fidelity Growth Company Fund,
Overseas Portfolio is most similar to Fidelity Overseas Fund, Investment
Grade Bond Portfolio is most similar to Fidelity Investment Grade
Bond Fund, Asset Manager Portfolio is most similar to Fidelity Asset
Manager, Index 500 Portfolio is most similar to Fidelity Market Index Fund,
Contrafund Portfolio is most similar to Fidelity Contrafund and Asset
Manager: Growth Portfolio is most similar to Fidelity Asset Manager:
Growth. The p erformance of a separate account investing in these
funds is not expected to be the same as the performance of the
corresponding fund due in part to dissimilarities in their investments.
Various insurance - related costs at the insurance company's separate
account will also affect performance.
Each fund sells its shares to separate accounts of insurance companies
which are both affiliated and unaffiliated with FMR. Each fund currently
does not foresee any disadvantages to policyowners arising out of the fact
that each fund offers its shares to separate accounts of various insurance
companies to serve as the investment medium for their variable products.
Nevertheless, the Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts which may possibly arise,
and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance
companies' separate accounts might be required to withdraw its investments
in one or more funds and shares of another fund may be substituted. This
might force a fund to sell securities at disadvantageous prices. In
addition, the Board of Trustees may refuse to sell shares of any fund to
any separate account or may suspend or terminate the offering of shares of
any fund if such action is required by law or regulatory authority or is in
the best interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Investments Institutional Operations Company
(FIIOC), 82 Devonshire Street, Boston, Massachusetts, performs transfer
agent servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR, FMR Texas, FMR U.K., and
FMR Far East. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the Investment
Company Act of 1940 (the 1940 Act), control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company; therefore, the Johnson family may be deemed under
the 1940 Act to form a controlling group with respect to FMR Corp.
Fidelity International Limited (FIL) is the parent company of FIIA
and FIIAL U.K. The Johnson family group also owns, directly or indirectly,
more than 25% of the voting common stock of FIL.
A broker-dealer may use a portion of the commissions paid by High Income
and Asset Manager, respectively, to reduce expenses for those
funds. FMR may use its broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those of
other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of the fund s' domestic and foreign investments
varies in response to many factors. Stock values fluctuate in response to
the activities of individual companies , and general market and
economic conditions.
The value of bonds fluctuates based on changes in interest rates, market
conditions, other economic and political news, and on their quality and
maturity. In general, bond prices rise when interest rates fall, and vice
versa. This effect is usually more pronounced for longer-term securities.
Lower-quality securities offer higher yields, but also carry more risk.
The total return from a bond is a combination of income and price gains or
losses. While income is the most important component of bond returns over
time, a fund's emphasis on income does not mean that the fund invests only
in the highest-yielding bonds available, or that it can avoid risks to
principal. In selecting investments for a fund, FMR considers a bond's
income potential together with its potential for price gains or losses. FMR
focuses on assembling a portfolio of income-producing securities that it
believes will provide the best tradeoff between risk and return within the
range of securities that are eligible investments for a fund.
International funds have increased economic and political risks as they are
exposed to events and factors in the various world markets. This is
especially true for funds that invest in emerging markets. Also, because
many of the funds' investments are denominated in foreign currencies,
changes in the value of foreign currencies can significantly affect a
fund's share price. FMR may use a variety of investment techniques to
either increase or decrease a fund's investment exposure to any currency.
FMR may use various investment techniques to hedge a portion of a fund's
risks, but there is no guarantee that these strategies will work as FMR
intends. As mutual funds, the fund s seek to spread investment risk
by diversifying their holdings among many companies and industries.
FMR normally invests each fund's assets according to its investment
strategy. High Income, Equity-Income, Growth, Overseas, Asset Manager,
Asset Manager: Growth, Index 500 and Contrafund Portfolios also reserve the
right to invest without limitation in preferred stocks and investment-grade
debt instruments for temporary, defensive purposes. Investment Grade Bond
Portfolio reserves the right to invest without limitation in
investment-grade money market or short-term debt instruments for temporary,
defensive purposes.
MONEY MARKET PORTFOLIO
The fund seeks to obtain as high a level of current income as is consistent
with preserving capital and providing liquidity. The fund seeks to obtain
its objective by investing in high-quality, short-term money market
securities while seeking to maintain a stable $1.00 share price.
The fund will invest only in U.S. dollar-denominated securities of domestic
and foreign issuers, including banks and other financial institutions,
governments and their agencies or instrumentalities, and corporations.
When fund shares are redeemed, they should be worth the same amount as when
they were purchased. Of course, there is no guarantee that the fund will
maintain a stable $1.00 share price. The fund follows industry-standard
guidelines on the quality and maturity of its investments, which are
designed to help maintain a stable $1.00 share price. The fund will
purchase only high-quality securities that FMR believes present minimal
credit risks and will observe maturity restrictions on securities it buys.
In general, securities with longer maturities are more vulnerable to price
changes, although they may provide higher yields. It is possible that a
major change in interest rates or a default on the fund's investments could
cause its share price (and the value of your investment) to change.
The fund earns income at current money market rates. It stresses
preservation of capital, liquidity, and income and does not seek the higher
yields or capital appreciation that more aggressive investments may
provide. The fund's yield will vary from day to day and generally reflects
current short-term interest rates and other market conditions. The fund
will invest only in instruments that are consistent with its
objective.
INVESTMENT GRADE BOND PORTFOLIO
The fund seeks as high a level of current income as is consistent with the
preservation of capital by investing primarily in a broad range of
fixed-income securities. FMR normally invests at least 65% of the fund's
total assets in investment-grade, fixed-income securities such as bonds,
notes and debentures. Although the fund can invest in securities of any
maturity, FMR seeks to manage the fund so that it generally reacts to
changes in interest rates similarly to bonds with maturities between five
and ten years. As of December 31, 1995, the fund's dollar-weighted average
maturity was approximately 7.5 years.
The fund's yield and share price change daily based on changes in interest
rates, market conditions, and other political and economic news, and on the
quality and maturity of its investments.
HIGH INCOME PORTFOLIO
The fund seeks high current income by investing primarily in all types of
income-producing debt securities, preferred stocks, and convertible
securities. FMR normally invests at least 65% of the fund's total assets in
these securities. In choosing investments, the fund also considers growth
of capital.
Although the fund has no limits on the quality and maturity of its
investments, its strategy typically leads to longer-term, lower-quality,
fixed-income securities. These domestic and foreign investments may present
the risk of default or may be in default. If consistent with its investment
objective, however, the fund can also invest in common stocks, other equity
securities, and debt securities not currently paying interest but which are
expected to do so in the future. Performance is also affected by individual
company news. The success of the fund's investment strategy depends on
FMR's analysis of a company's relative values and its potential for success
in light of its current financial situation, its industry position,
economic conditions, and interest rate trends.
INTEREST RATE
RISK
In general, bond prices rise
when interest rates fall, and
vice versa. Funds that hold
short-term bonds are usually
less affected by changes in
interest rates than long-term
bond funds. For that reason,
long-term bond funds typically
offer higher yields and carry
more risk than short-term
bond funds.
(checkmark)
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
Each fund seeks to achieve its investment objective by allocating its
assets among stocks, bonds, short-term and other instruments of U.S. and
foreign issuers. Each fund , however, has a different objective and
pursues its objective by investing within different asset allocation
ranges.
ASSET MANAGER seeks high total return with reduced risk over the
long - term.
ASSET MANAGER: GROWTH seeks to maximize total return over the
long - term.
Each fund allocates its assets among the following classes, or types, of
investments. The STOCK CLASS includes equity securities of all types. The
BOND CLASS includes all varieties of fixed-income instruments with
maturities of more than three years (including adjustable-rate preferred
stocks). The SHORT-TERM CLASS includes all types of short-term instruments
with remaining maturities of three years or less. Some types of
investments, such as indexed securities, can fall into more than one asset
class. The funds may also make other investments that do not fall within
these classes.
FMR has the ability to allocate each fund's assets within specified ranges.
Each fund's NEUTRAL MIX indicates the benchmark for its combination of
investments in each asset class over time. FMR may change the neutral mix
from time to time. The range and approximate neutral mix for each
asset class are shown below .
ASSET MANAGER
Range Neutral mix
STOCK CLASS 10-60% 40%
BOND CLASS 20-60% 40%
SHORT-TERM CLASS 0-70% 20%
Asset Manager's approach spreads the fund's assets among all three classes,
moderating both the risk and return potential of stocks, bonds, and
short-term instruments.
ASSET MANAGER: GROWTH
Range Neutral mix
STOCK CLASS 0-100% 65%
BOND CLASS 0-100% 30%
SHORT-TERM CLASS 0-100% 5%
Asset Manager: Growth's more aggressive approach focuses on stocks for high
potential returns. However, because the fund can invest in bonds and
short-term instruments, its return may not be as high as a fund that
invests only in stocks.
Although the funds seek to reduce their overall risk by diversifying among
different types of investments, the funds aggressively invest in a wide
variety of security types, including stocks and bonds issued in developed
and developing countries and derivative transactions. Because the funds
are subject to the risks of each investment type, the funds and their
performance are affected by many factors.
In pursuit of each fund's objective, FMR will not try to pinpoint the
precise moment when a major reallocation should be made. Instead, FMR
regularly reviews each fund's allocation and makes changes gradually to
favor investments that it believes will provide the most favorable outlook
for achieving each fund's objective. Under normal circumstances, a single
reallocation will not involve more than 10% of Asset Manager's total
assets, or 20% of Asset Manager: Growth's total assets. Although FMR uses
its expertise and resources in allocating assets, FMR's decisions may not
be advantageous to a fund.
Each fund diversifies across investment types more than most mutual funds.
No one mutual fund, however, can provide an appropriate balanced investment
plan for all investors.
EQUITY-INCOME PORTFOLIO
The fund seeks reasonable income by investing primarily in income-producing
equity securities. When choosing the fund's investments, FMR also considers
the potential for capital appreciation. The fund seeks to achieve a yield
that beats that of the S&P 500. FMR normally invests at least 65% of the
fund's total assets in income-producing common or preferred stock. The
remainder of the fund's assets will tend to be invested in debt
obligations, many of which are expected to be convertible into common stock
(if convertible securities present favorable investment opportunities). The
fund has the flexibility, however, to invest the balance in all types of
domestic and foreign securities, including bonds of varying quality. The
fund does not expect to invest in debt securities of companies that do not
have proven earnings or credit.
INDEX 500 PORTFOLIO
The fund seeks to match the total return of the S&P 500 while keeping
expenses low. FMR normally invests at least 80% (65% if fund assets are
below $20 million) of the fund's assets in equity securities of companies
that compose the S&P 500.
The S&P 500 is an index of 500 common stocks, most of which trade on the
New York Stock Exchange. It is generally acknowledged that the S&P 500
broadly represents the performance of publicly traded common stocks in the
U.S.
In seeking a 98% or better long-term correlation of the fund's total return
to that of the S&P 500, the fund utilizes a "passive" or "indexing"
approach and tries to allocate its assets similarly to those of the index.
The fund's composition may not always be identical to that of the S&P 500.
FMR may choose, if extraordinary circumstances warrant, to exclude a stock
held in the S&P 500 and include a similar stock in its place if doing so
will help the fund achieve its objective. FMR monitors the correlation
between the performance of the fund and the S&P 500 on a regular basis. In
the unlikely event that the fund cannot achieve a long-term correlation of
98% or better, the trustees will consider alternative arrangements.
Although the fund focuses on common stocks, it may also invest in other
equity securities and in other types of instruments. The fund purchases
short-term debt securities for cash management purposes and uses various
investment techniques, such as futures contracts, to adjust its exposure to
the S&P 500.
Standard & Poor's Corporation is neither an affiliate nor a sponsor of the
fund, and inclusion of a stock in the index does not imply that it is a
good investment. Please refer to the Appendix for more information on the
S&P 500.
CONTRAFUND PORTFOLIO
The fund seeks capital appreciation by investing mainly in equity
securities of companies that FMR believes to be undervalued due to an
overly pessimistic appraisal by the public. The fund usually invests
primarily in common stock and securities convertible into common stock, but
it has the flexibility to invest in any type of security that may produce
capital appreciation.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. Generally, these
companies, especially small sized ones, rely on limited product lines and
markets, financial resources, or other factors. This may make them more
susceptible to setbacks or downturns.
In pursuit of the fund's goal, FMR looks for companies with the following
characteristics:
(small solid bullet) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an
improved balance sheet,
(small solid bullet) recently popular, but temporarily out of favor due to
short-term or one-time factors, or
(small solid bullet) undervalued compared to other companies in the same
industry.
GROWTH PORTFOLIO
The fund seeks capital appreciation by investing primarily in common
stocks. The fund however, is not restricted to any one type of security and
may pursue capital appreciation through the purchase of bonds and preferred
stocks. The fund does not place any emphasis on dividend income from its
investments , except when FMR believes this income will have a
favorable influence on the market value of the security.
Growth may be measured by factors such as earnings or gross sales. In
selecting investments for the fund, FMR will tend to focus on
smaller, lesser known companies in new and emerging areas of the economy.
However, FMR may also pursue growth in larger or revitalized companies that
hold a strong position in the market. These may be found in mature or
declining industries.
Companies with strong growth potential often have new products,
technologies, distribution channels, or other opportunities. As a general
rule, these domestic and foreign companies tend to be small and mid-sized
companies that have higher than average price/earnings (P/E) ratios. A high
P/E ratio means that the stock is more expensive than average relative to
the company's earnings. The market prices of these stocks may be
particularly sensitive to economic, market, or company news.
OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily in
securities of issuers whose principal activities are outside of the U.S.
FMR normally invests at least 65% of the fund's total assets in securities
of issuers from at least three different countries outside of North America
(the U.S., Canada, Mexico, and Central America). The fund expects to invest
a majority of its assets in equity securities, but may also invest in debt
securities of any quality. The fund invests in securities of both developed
and emerging markets.
The fund may invest in the securities of any issuer, including companies
and other business organizations as well as governments and government
agencies. The fund, however, will tend to focus on the equity securities of
both large and small companies. The fund may invest in short-term debt
securities and money market instruments for cash management purposes.
FMR may also use various investment techniques to hedge a portion of the
fund's risks, but there is no guarantee that these strategies will work as
FMR intends.
The fund's focus on international investing involves increased or
additional risks compared to funds which invest primarily in domestic
equity securities. International funds have increased economic and
political risks as they are exposed to events and factors in the various
world markets. This is especially true for emerging markets. Also, because
many of the fund's investments are denominated in foreign currencies,
changes in the value of foreign currencies can significantly affect the
fund's share price. FMR may use a variety of techniques to either increase
or decrease the fund's exposure to any currency.
FMR determines where an issuer or its principal business is located by
looking at such factors as its country of organization, the primary trading
market for its securities, and the location of its assets, personnel,
sales, and earnings. When allocating the fund's investments among countries
and regions, FMR considers such factors as the potential for economic
growth, expected levels of inflation, governmental policies, and the
outlook for currency relationships.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each fund's investments are contained in the funds' SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Current holdings and recent investment strategies are described in each
fund's financial reports, which are sent to shareholders twice a year. For
a free SAI or financial report, contact your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks, convertible
securities, and warrants. For Asset Manager and Asset Manager: Growth, some
preferred stocks and convertible securities may be included in the bond
class. Common stocks, the most familiar type, represent an equity
(ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on
changes in a company's financial condition and on overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.
RESTRICTIONS: With respect to 75% of its total assets, each fund
(excluding Money Market) may not purchase more than 10% of the outstanding
voting securities of any issuer.
High Income may invest up to 20% of its total assets in common stocks and
other equity securities .
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Investment-grade debt securities are medium- and high-quality securities.
Some, however, may possess speculative characteristics, and may be more
sensitive to economic changes and to changes in the financial condition of
issuers.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics and involve greater risk of
default or price changes due to changes in interest rates, economic
conditions, and the issuer's creditworthiness, or they may already be in
default. The market price s of these securities may fluctuate
more than higher-quality securities and may decline significantly in
periods of general economic difficulty.
The default rate of lower-quality debt securities is likely to be higher
when issuers have difficulty meeting projected goals or obtaining
additional financing. This could occur during economic recessions or
periods of high interest rates. If an issuer defaults, a fund may try to
protect the interests of security holders if it determines such action to
be in the interest of its shareholders.
Lower-quality securities may be thinly traded, making them difficult to
sell promptly at an acceptable price. If market quotations are unavailable,
lower-quality securities are valued under guidelines established by the
Board of Trustees, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of
outside pricing services to value lower-quality debt securities, and the
fund's ability to dispose of these securities.
RESTRICTIONS: The fund normally invests in investment-grade securities,
but reserves the right to invest up to 5% of its assets in below investment
grade securities. A security is considered to be investment grade if it is
rated investment grade by Moody's Investors Service, Inc. Standard &
Poor's, Duff & Phelps Credit Rating Co., or Fitch Investors Service, L.P.
or is unrated but judged to be of equivalent quality by FMR. Investment
Grade Bond Portfolio , Growth Portfolio and Contrafund
Portfolio each currently limit s investment in lower than Baa-quality
debt securities to 5% of its assets; Equity-Income, Asset Manager:
Growth, Portfolio and Overseas Portfolios each currently
limit s its investment in lower than Baa-quality debt securities to
less than 35% of its assets; and Asset Manager Portfolio
currently intends to limit its investment in lower than Baa-quality debt
securities to less than 35% of its assets and currently intends to limit
its investment in lower than Baa-quality debt securities , as
determined by FMR, to 20% of its total assets.
The table on page provides a summary of ratings assigned to
debt holdings (not including money market instruments) in certain of the
funds' portfolios. These figures are dollar-weighted averages of month-end
portfolio holdings during fiscal 1995, and are presented as a percentage of
total security investments. These percentages are historical and do not
necessarily indicate a fund's current or future debt holdings.
FISCAL 1995 DEBT HOLDINGS, BY RATING
MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Average [A] Rating Average[A]
High Equity - Asset Asset Mgr: High Equity - Asset
Asset Mgr:
INVESTMENT GRADE Income Income Manager Gr owth Overseas Income
Income Manager Growth Ove
rseas
Highest quality Aaa 0.25 % 4.42 % 16.27 % 8.49 %
0.16% AAA 0.25 % 4.42 % 16.61 % 8.7
2 % 0.16%
High quality Aa 0.00 % 0.00% 1.04 % 1.13 % 0.19%
AA 0.00 % 0.00 % 0.85 % 0.90 % 0
.19%
Upper-medium grade A 0.00 % 0.08 % 0.34 % 0.00 %
0.00% A 0.00 % 0.07 % 0.36 % 0.
23 % 0.00%
Medium grade Baa 0.03 % 0.12 % 0.58 % 0.00 %
0.00% BBB 0.09 % 0.06 % 1.00 % 0.00 %
0.00%
LOWER QUALITY
Moderately speculative Ba 6.11 % 0.08 % 1.34 %
0.00 % 0.00% BB 13.79 % 0.54 % 1.99 %
0.00 % 0.13%
Speculative B 44.80 % 1.32 % 4.62 % 0.00 %
0.49% B 42.81 % 0.87 % 2.53 % 0.00 % 0.
00%
Highly speculative Caa 11.47 % 0.00 % 0.22 %
0.00 % 0.00% CCC 4.72 % 0.00 % 0.23
% 0.00 % 0.00%
Poor quality Ca 0.38 % 0.00 % 0.01 % 0.00 %
0.00% CC 0.00 % 0.00 % 0.00 % 0.00 % 0
.00%
Lowest quality, no interest C C
In default, in arrears -- D 0.34 % 0.00 %
0.01 % 0.
00 % 0.00%
63.04 % 6.02 % 24.42 % 9.62 % 0.84%
62.00 % 5.96 % 23.58 % 9.85 %
0.48%
[A] FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS OF THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT. THE DOLLAR-WEIGHTED AVERAGE OF
DEBT SECURITIES NOT RATED DIRECTLY OR INDIRECTLY BY MOODY'S OR S&P AMOUNTED
TO 9.01% FOR HIGH INCOME, 0.35 % FOR EQUITY-INCOME, 1.75 % FOR
ASSET
MANAGER, 1.85 % FOR ASSET MANAGER: GROWTH, AND 0.00 % FOR
OVERSEAS . THIS
MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING
SERVICES,
AS WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES
THAT ARE LOWER QUALITY ACCOUNT FOR 9.01 % OF HIGH INCOME'S TOTAL
SECURITY
INVESTMENTS, 0.35% OF EQUITY-INCOME'S TOTAL SECURITY INVESTMENTS ,
1.75% OF
ASSET MANAGER'S TOTAL SECURITY INVESTMENTS, 1.85% OF ASSET MANAGER:
GROWTH'S TOTAL SECURITY INVESTMENTS, AND 0.00% OF OVERSEAS' TOTAL SECURITY
INVESTMENTS . REFER TO THE APPENDIX FOR A MORE COMPLETE DISCUSSION OF
THESE
RATINGS.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
the U.S. government, corporations, financial institutions, and other
entities. These obligations may carry fixed, variable, or floating interest
rates. Some money market securities employ a trust or other similar
structure to modify the maturity, price characteristics, or quality of
financial assets so that they are eligible investments for money market
funds. If the structure does not perform as intended, adverse tax or
investment consequences may result.
OTHER MONEY MARKET SECURITIES may include commercial paper, certificates of
deposit, bankers' acceptances, and time deposits.
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
CREDIT SUPPORT. Issuers may employ various forms of credit enhancement,
including letters of credit, guarantees, or insurance from a bank,
insurance company, or other entity. These arrangements expose the fund to
the credit risk of the entity. In the case of foreign entities, extensive
public information about the entity may not be available and the entity may
be subject to unfavorable political, economic, or governmental developments
which might affect its ability to honor its commitment.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks and considerations. These include risks relating
to political or economic conditions in foreign countries, fluctuations in
foreign currencies, withholding or other taxes, operational risks,
increased regulatory burdens, and the potentially less stringent investor
protection and disclosure standards of foreign markets. Additionally,
governmental issuers of foreign debt securities may be unwilling to
repay principal and interest when due, and may require that the conditions
for payment be renegotiated. All of these factors can make foreign
investments, especially those in developing countries, more volatile
than U.S. investments .
RESTRICTIONS: FMR limits the amount of each of High Income,
Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index 500
Portfolios' assets that may be invested in foreign securities to 50%.
However, pursuant to certain state insurance regulations, each fund,
including Money Market, Overseas, Asset Manager: Growth and Contrafund
Portfolios, may not invest more than 20% of its assets in any one foreign
country. Each fund may have an additional 15% invested in securities of
issuers located in any one (but only one) of the following countries:
Australia, Canada, France, Japan, the United Kingdom or Germany.
EXPOSURE TO EMERGING MARKETS. Invest ing in emerging market s
involves risks in addition to those generally associated with
foreign investing. The extent of economic development, political in
stability, and market depth varies widely in comparison to more
developed markets . Emerging market economies may be
subject to greater social, economic, and political uncertainties or may be
based on only a few industries. All of these factors can make emerging
market securities more volatil e and politically less liquid than
domestic securities .
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS (ADRS AND
EDRS) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
ASSET-BACKED SECURITIES include interests in pools of lower-rated debt
securities, or consumer loans. The value of these securities may be
significantly affected by changes in the market's perception of the issuers
and the creditworthiness of the parties involved.
MORTGAGE SECURITIES are interests in pools of commercial or residential
mortgages, and may include complex instruments such as collateralized
mortgage obligations and stripped mortgage-backed securities. Mortgage
securities may be issued by the U.S. Government or by private entities. For
example, Ginnie Maes are interests in pools of mortgage loans insured or
guaranteed by a U.S. Government agency. Because mortgage securities pay
both interest and principal as their underlying mortgages are paid off,
they are subject to prepayment risk. This is especially true for stripped
securities. Also, the value of a mortgage security may be significantly
affected by changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. These interest rate adjustments are designed to help
stabilize the security's price.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt securities,
although they may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a security at
one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S. repurchase
agreements, and may be denominated in foreign currencies. They also may
involve greater risk of loss if the counterparty defaults. Some
counterparties in these transactions may be less creditworthy than those in
U.S. markets.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
temporarily transfers possession of a portfolio instrument to another party
in return for cash. This could increase the risk of fluctuation in the
fund's yield or in the market value of its assets.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or a financial intermediary. In exchange for this benefit, a fund may pay
periodic fees or accept a lower interest rate. The credit quality of the
investment may be affected by the creditworthiness of the put provider.
Demand features, standby commitments, and tender options are types of put
features.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, overbuilding, and the management
skill and creditworthiness of the issuer. Real estate-related instruments
may also be affected by tax and regulatory requirements, such as those
relating to the environment.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments and for Index 500, in its effort to
achieve the fund's objective of tracking the S&P 500. If FMR judges market
conditions incorrectly or employs a strategy that does not correlate well
with a fund's investments, these techniques could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the counterparty to
the transaction does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for a fund, or there may be a requirement
that the fund supply additional cash to a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS. Money Market, Equity-Income, Growth, Investment Grade Bond,
Index 500, Contrafund, Asset Manager and Asset Manager: Growth Portfolios
each may not purchase a security if, as a result, more than 10% of its
assets would be invested in illiquid securities. High Income and Overseas
Portfolios each may not purchase a security if, as a result, more than 15%
of its assets would be invested in illiquid securities.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the market value of a fund's assets.
FINANCIAL SERVICES INDUSTRY. Companies in the financial services industry
are subject to various risks related to that industry, such as government
regulation, changes in interest rates, and exposure on loans, including
loans to foreign borrowers. If a fund invests substantially in this
industry, its performance may be affected by conditions affecting the
industry.
RESTRICTIONS. Money Market will invest more than 25% of its total assets in
the financial services industry.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: Money Market may not invest more than 5% of its total assets
in any one issuer, except that the fund may invest up to 10% of its total
assets in the highest quality securities of a single issuer for up to three
business days. These limitations do not apply to U.S. government
securities.
With respect to 75% of its total assets, each of High Income,
Equity-Income, Growth, Overseas, Investment Grade Bond, Index 500, Asset
Manager, Asset Manager: Growth and Contrafund Portfolios may not purchase a
security if, as a result, more than 5% would be invested in the securities
of any one issuer. Each fund (except Money Market) also may not
invest more than 25% of its total assets in any one industry. These
limitations do not apply to U.S. government securities.
BORROWING. Each fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund, other than Money Market, may borrow only for
temporary or emergency purposes , but not in an amount exceeding 25%
of its assets. Money Market may borrow only for temporary or emergency
purposes, or engage in reverse repurchase agreements, but not in an amount
exceeding 25% of its assets for temporary or emergency purposes and 10%
of its assets for general purposes (reverse repurchase agreements).
LENDING securities to broker-dealers and institutions, including Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means of earning
income. This practice could result in a loss or a delay in recovering a
fund's securities. A fund may also lend money to other funds advised by
FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a fund's
total assets.
OTHER INSTRUMENTS may include depositary receipts, rights, and securities
of closed-end investment companies.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above, each
fund also follows certain limitations imposed by the IRS on separate
accounts of insurance companies relating to the tax-deferred status of
variable contracts. More specific information may be contained in your
insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
MONEY MARKET PORTFOLIO seeks as high a level of current income as is
consistent with preservation of capital and liquidity by investing in money
market instruments.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital.
HIGH INCOME PORTFOLIO seeks a high level of current income by investing
primarily in high yielding, fixed-income securities, while also considering
growth of capital.
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds, and
short-term instruments.
ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the fund
will also consider the potential for capital appreciation. The fund's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
INDEX 500 PORTFOLIO seeks investment results that correspond to the total
return of common stocks publicly traded in the United States, as
represented by the S&P 500.
CONTRAFUND PORTFOLIO seeks long-term capital appreciation.
GROWTH PORTFOLIO seeks to achieve capital appreciation.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities.
EACH FUND (excluding Money Market), with respect to 75% of total assets,
may not invest more than 5% of its total assets in any one issuer and may
not own more than 10% of the outstanding voting securities of a single
issuer. Each fund may not invest more than 25% of its total assets in any
one industry, except Money Market will invest more than 25% of its total
assets in the financial services industry.
Loans, in the aggregate, may not exceed 33% of a fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its share
price.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn, on behalf of Money Market, High Income,
Asset Manager, Asset Manager: Growth, Contrafund and Overseas Portfolios,
pays fees to affiliates who provide assistance with these services. Each
fund also pays OTHER EXPENSES, which are explained on page .
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by a fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
EACH FUND'S MANAGEMENT FEE is calculated and paid to FMR every month. The
fee for each fund (excluding Money Market and Index 500 Portfolios) is
calculated by adding a GROUP FEE rate to an INDIVIDUAL FUND FEE rate, and
multiplying the result by the fund's average net assets.
INDEX 500 'S management fee is calculated and paid to FMR every
month. The fund pays the fee at the annual rate of 0.28% of its average net
assets.
MONEY MARKET'S management fee is calculated by multiplying the sum of two
components by the fund's average net assets and adding an income-based fee.
One component, the group fee rate, is discussed below. The other component,
the individual fund fee rate, is 0.03%. The income-based fee is 6% of the
fund's gross income in excess of a 5% yield and cannot rise above 0.24% of
the fund's average net assets.
THE GROUP FEE RATE is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above 0.52% for Equity-Income,
Growth, Overseas, Asset Manager, Asset Manager: Growth and Contrafund
Portfolios and 0.37% for Money Market, High Income , and Investment
Grade Bond Portfolios, and it drops as total assets under management
increase.
For December 31, 1995, the group fee rate was 0. 3097 % for
Equity-Income, Growth, Overseas, Asset Manager, Asset Manager: Growth and
Contrafund Portfolios , and 0. 1482 % for Money Market, High
Income and Investment Grade Bond Portfolios.
The funds ' individual fund fee rate s and total
management fee s for fiscal year 1995 are outlined in the
chart below.
Fund Individual Managem
fund ent
fee rate fee
Money Market Portfolio 0 .03 0.24
% %
Equity-Income Portfolio 0 .20 0 . 51
% %
Growth Portfolio 0 .30 0 . 61
% %
Contrafund Portfolio 0 .30 0 . 61
% %
Investment Grade Bond Portfolio 0 .30 0 . 45
% %
Asset Manager Portfolio 0 .40 0 . 71
% %
Asset Manager: Growth Portfolio 0 .40 0 . 71
% %
High Income Portfolio 0 .45 0 . 60
% %
Overseas Portfolio 0 .45 0 . 76
% %
For Overseas, this rate was higher than th ose of most other mutual
funds, but not necessarily higher than those of a typical international
fund, due to the greater complexity, expense and commitment of resources
involved in international investing.
SUB-ADVISORY AGREEMENTS. On behalf of High Income, Asset Manager, Asset
Manager: Growth , and Contrafund Portfolios, FMR has sub-advisory
agreements with two affiliates, FMR U.K. and FMR Far East. On behalf of
Overseas Portfolio, FMR has sub-advisory agreements with three affiliates:
FMR U.K., FMR Far East, and FIIA. FIIA in turn has a sub-advisory agreement
with FIIAL U.K. FMR U.K. focuses on issuers based in Europe. FMR Far East
focuses on issuers based in Asia and the Pacific Basin. FIIA focuses on
issuers based in Hong Kong, Australia, New Zealand, and Southeast Asia
(other than Japan). FIIAL U.K. focuses on issuers based in the United
Kingdom and Europe.
These sub-advisers are compensated for providing FMR with investment
research and advice on issuers based outside the United States. FMR pays
FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively, of the
costs of providing these services. FMR pays FIIA a fee equal to 30% of its
management fee rate associated with investments for which the sub-adviser
provided investment advice. FIIA pays FIIAL U.K. a fee equal to 110% of the
cost of providing these services.
On behalf of High Income, Asset Manager: Growth, Contrafund and Overseas
Portfolios, the sub-advisers may also provide investment management
services. In return, FMR pays FMR U.K., FMR Far East, and FIIA a fee equal
to 50% of its management fee rate with respect to the fund's investments
that the sub-adviser manages on a discretionary basis. FIIA pays FIIAL U.K.
a fee equal to 110% of the cost of providing these services.
The following chart details the fees paid by FMR to FMR U.K. and FMR Far
East, on behalf of the funds (as a percentage of a fund's average
net assets) for fiscal 1995:
Fund Fee to
Fee to
FMR U.K. FMR Far
East
Asset Manager
.013% .015%
Portfolio
Asset Manager: Growth Portfolio .012% .014%
Contrafund Portfolio .004% .004%
On behalf of Money Market Portfolio, FMR has a sub-advisory agreement with
FMR Texas, which has primary responsibility for providing investment
management for the fund, while FMR retains responsibility for providing the
fund with other management services. FMR pays FMR Texas 50% of its
management fee (before any expense reimbursement) for these services. FMR
paid FMR Texas 0. 12 % of Money Market's average net assets for fiscal
1995.
OTHER EXPENSES
While the management fee is a significant component of each fund's annual
operating costs, the funds have other expenses as well.
FIIOC, 82 Devonshire Street, Boston, Massachusetts, performs transfer
agency, dividend disbursing and shareholder servicing functions for each
fund. Fidelity Service Co. (FSC), 82 Devonshire Street, Boston,
Massachusetts, calculates the net asset value (NAV) and dividends, and
maintains the general accounting records for each fund's and
administers the securities lending program for each fund (except for
Money Market) .
The following chart details the fees paid to FIIOC and FSC and each fund's
total expenses (as a percentage of the fund's average net assets)
for fiscal 1995:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Fee Fee Total
to to Expen
FIIO FSC ses
C
Money Market 0.05 0.01 0.33
Portfolio % % %
Index 500 Portfolio 0.05 0.06 0.28
% % %
Equity-Income Portfolio 0.05 0.02 0.61
% % %
Growth Portfolio 0.05 0.02 0.70
% % %
Contrafund Portfolio 0.05 0.06 0.72
% % %
Investment Grade Bond Portfolio 0.05 0.04 0.59
% % %
Asset Manager 0.05 0.02 0.81
Portfolio % % %
Asset Manager: 0.05 0.12 1.00
Growth Portfolio % % %
High Income Portfolio 0.05 0.03 0.71
% % %
Overseas Portfolio 0.05 0.04 0.91
% % %
</TABLE>
FMR has voluntarily agreed to temporarily limit the fund's operating
expenses (as a percentage of each fund's average net assets) to 0.28% for
Index 500, 0.80% for Investment Grade Bond, 1.00% for Asset Manager:
Growth, High Income and Contrafund, 1.25% for Asset Manager, and 1.50% for
Equity-Income, Growth and Overseas, respectively. If these agreements were
not in effect, total operating expenses would be .47% and 1.13% for Index
500 and Asset Manager: Growth, respectively. Expense s eligible
for reimbursement do not include interest, taxes, brokerage commissions
or extraordinary expenses. A portion of the brokerage commissions
that certain of the funds pay is used to reduce these
fund s expenses. Including this reduction, the total operating
expenses would have been 0. 79 % for Asset Manager.
Each fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
E ach fund's (except Money Market's) portfolio turnover
rate for fiscal 1995 is outlined in the table below. These rates
vary from year to year. High turnover rates increase transaction costs. FMR
considers these effects when evaluating the anticipated benefits of
short-term investing.
Fund Portfolio
Turnover
Rate
Index 500 Portfolio 16 %
Equity-Income Portfolio 87 %
Growth Portfolio 108 %
Contrafund Portfolio 132%
Investment Grade Bond Portfolio 182 %
Asset Manager Portfolio 256 %
Asset Manager: Growth Portfolio 343%
High Income Portfolio 132 %
Overseas Portfolio 50 %
Each fund has adopted a Distribution and Service Plan. Each plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of a fund ' s shares. The
Board of Trustees has not authorized such payments.
PERFORMANCE
Each fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof. Performance is
based on historical results and is not intended to indicate future
performance. For additional performance information, contact your insurance
company for a free annual report.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a yield
assumes that income earned is reinvested, it is called an EFFECTIVE YIELD.
Seven-day yield illustrates the income earned by an investment in a money
market fund over a recent seven-day period. Since money market funds
maintain a stable $1.00 share price, current seven-day yields are the most
common illustration of money market fund performance.
In calculating yield, a fund may from time to time use a security's coupon
rate instead of its yield to maturity in order to reflect the risk premium
on that security. This practice will have the effect of reducing the fund's
yield.
A fund may quote its adjusted NAV , including all distributions paid.
This value may be averaged over specified periods and may be used to
calculate a fund's moving average.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
TOTAL RETURNS AND YIELDS QUOTED FOR A FUND INCLUDE THE FUND'S EXPENSES, BUT
MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY PARTICULAR
INSURANCE PRODUCT. BECAUSE SHARES OF THE FUNDS MAY BE PURCHASED ONLY
THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, YOU SHOULD
CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU HAVE CHOSEN
FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding these charges
from quotations of a fund's performance has the effect of increasing the
performance quoted. You should bear in mind the effect of these charges
when comparing a fund's performance to that of other mutual funds.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance contract,
refer to the prospectus of your insurance company's separate account. It is
suggested you keep all statements you receive to assist in your personal
recordkeeping.
It is expected that shares of the funds will be held under the terms of
variable annuity and variable life insurance contracts. Under current tax
law, dividends or capital gain distributions from any fund are not
currently taxable when left to accumulate within a variable annuity or
variable life insurance contract. Depending on the variable contract,
withdrawals from the contracts may be subject to ordinary income tax and,
in addition to a 10% penalty tax on withdrawals before age 59.
Each fund is treated as a separate entity for federal income tax purposes.
Each fund intends to pay out all of its net investment income and net
realized capital gains , if any, for each year. Dividends from Money
Market Portfolio are declared daily and paid monthly. High Income,
Equity-Income, Investment Grade Bond, Growth, Overseas, Asset Manager,
Asset Manager: Growth, Index 500, and Contrafund Portfolios will distribute
any dividends at least annually. Normally, net realized capital gains,
if any, are distributed each year for a fund. Such income and capital gain
distributions from a fund are automatically reinvested in additional shares
of the fund. Each fund (except Money Market) makes dividend and capital
gain distributions on a per-share basis. After each distribution from a
fund, the fund's share price drops by the amount of the distribution.
Because dividends and capital gain distributions are reinvested, the total
value of an account will not be affected because, although the shares will
have a lower price, there will be correspondingly more of them.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Each fund's NAV is calculated as of the close of business of the
NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Money Market 's portfolio securities and each of the other fund's
investments with remaining maturities of 60 days or less are valued
on the basis of amortized cost. This method minimizes the effect of changes
in a security's market value and helps Money Market Portfolio maintain a
stable $1.00 share price.
Other than Money Market, each of the fund's assets are valued primarily on
the basis of market quotations. Foreign securities are valued on the basis
of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available or if the values have been
materially affected by events occurring after the closing of a foreign
market, assets are valued by a method that the Board of Trustees believes
accurately reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the purpose
of funding variable annuity and variable life insurance contracts.
Please refer to the prospectus of your insurance company's separate account
for information on how to invest in and redeem from a fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the funds each business
day. That night, all orders received by that insurance company on that
business day are aggregated, and the insurance company places a net
purchase or redemption order for shares of one or more funds the morning of
the next business day. These orders are generally executed at the NAV that
was computed at the close of the previous business day in order to provide
a match between the variable contract owners' orders to the insurance
companies and the insurance companies' orders to a fund. In some cases, an
insurance company's order for fund shares may be executed at the NAV next
computed after the order is actually transmitted to a fund.
Redemption proceeds will normally be wired to the insurance company on the
next business day after receipt of the redemption instructions by a
fund , but in no event later than 7 days following receipt of
instructions. Each fund may suspend redemptions or postpone payment dates
on days when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
APPENDIX
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
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 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 S&P'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 - The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
(INDEX 500 PORTFOLIO) S&P does not guarantee the accuracy and/or the
completeness of the S&P 500 Index or any data included therein and S&P
shall have no liability for any errors, omissions, or interruptions
therein. S&P makes no warranty, express or implied, as to results to be
obtained by licensee, owners of the product, or any other person or entity
from the use of the S&P 500 Index or any data included therein. S&P makes
no express or implied warranties, and expressly disclaims all warranties or
merchantability or fitness for a particular purpose or use with respect to
the S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even
if notified of the possibility of such damages.
Index 500 Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or warranty, express
or implied, to participants of the fund or any member of the public
regarding the advisability of investing in securities generally or in the
fund particularly or the ability of the S&P 500 Index to track general
stock market performance. S&P's only relationship to the Licensee is the
licensing of certain trademarks and trade names of S&P and of the S&P 500
Index which is determined, composed and calculated by S&P without regard to
the Licensee or the fund. S&P has no obligation to take the needs of the
Licensee or the participants of the fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and
has not participated in the determination of the timing of, prices at, or
quantities of the fund to be issued or in the determination or calculation
of the equation by which the fund is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the fund.
"Standard & Poor's(registered trademark)," "S&P(registered trademark),"
"S&P 500(registered trademark)," "Standard & Poor's 500," and "500" are
trademarks of McGraw-Hill, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
This prospectus is printed on recycled paper using soy-based inks.
VARIABLE INSURANCE PRODUCTS FUND:
MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO, EQUITY-INCOME PORTFOLIO,
GROWTH PORTFOLIO, AND OVERSEAS PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND II:
INVESTMENT GRADE BOND PORTFOLIO, ASSET MANAGER PORTFOLIO,
INDEX 500 PORTFOLIO, CONTRAFUND PORTFOLIO, AND ASSET MANAGER: GROWTH
PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1996
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated April 30, 1996). Please retain this
document for future reference. The funds' financial statements and
financial highlights, included in the Annual Reports for the fiscal year
ended December 31, 199 5 , are incorporated herein by reference. To
obtain an additional copy of the Prospectus or Annual Reports, please call
your insurance company or Fidelity Distributors Corporation at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts with FMR Affiliates
Description of the Trusts
Financial Statements
Appendix
VIP/VIPII-ptb-0496
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Money Market Portfolio:
FMR Texas Inc. (FMR Texas)
High Income, Asset Manager, Contrafund and Asset Manager: Growth
Portfolios:
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Overseas Portfolio:
FMR U.K.
FMR Far East
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company (FIIOC)
CUSTODIAN S
Money Market, High Income and Investment Grade Bond Portfolios:
The Bank of New York
Equity-Income, Overseas, Asset Manager: Growth and Asset Manager
Portfolios:
The Chase Manhattan Bank, N.A.
Growth, Contrafund and Index 500 Portfolios:
Brown Brothers Harriman & Co.
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
Each fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of each
fund. However, except for the fundamental investment limitations
listed below, the investment policies and limitations described in
this Statement of Additional Information are not fundamental and may be
changed without shareholder approval.
MONEY MARKET PORTFOLIO
THE FOLLOWING ARE MONEY MARKET PORTFOLIO'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY . THE FUND MAY NOT:
(1) purchase the securities of any issuer (other than obligations issued or
guaranteed as to principal and interest by the United States, its agencies
or instrumentalities) if, as a result, more than 5% of its total assets
would be invested in the securities of such issuer, provided, however, that
with respect to 25% of its total assets, 10% of its assets may be invested
in the securities of any single issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may (i) borrow money for temporary
or emergency purposes (not for leveraging or investment) and (ii) engage in
reverse repurchase agreements for any purpose; provided that (i) and (ii)
in combination do not exceed 33% of the fund's total assets (including the
amount borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with the
33% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry, except that the fund will
invest more than 25% of its total assets in the financial services
industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(8) lend any security or make any other loan if, as a result, more than 33%
of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements;
or
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT,
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to purchase a security (other than a
security issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities) if, as a result, more than 5% of its total assets
would be invested in the securities of a single issuer; provided that the
fund may invest up to 10% of its total assets in the first tier securities
of a single issuer for up to three business days.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment advisor or (b) by engaging in reverse repurchase agreements with
any party. The fund will not borrow money in excess of 25% of net assets so
long as this limitation is required for certification by certain state
insurance departments. The fund will not borrow for any general purpose
in excess of 10% of net assets. The fund will not purchase any security
while borrowings (excluding reverse repurchase agreements) representing
more than 5% of its total assets are outstanding. The fund will not borrow
from other funds advised by FMR or its affiliates if total outstanding
borrowings immediately after such borrowing would exceed 15% of the fund's
total assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by lending money (up to 10% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment advisor. (This limit does
not apply to purchases of debt securities or to repurchase agreements.)
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
QUALITY AND MATURITY Pursuant to procedures adopted by the Board of
Trustees, the fund may purchase only high-quality securities that FMR
believes present minimal credit risks. To be considered high-quality, a
security must be rated in accordance with applicable rules in one of the
two highest categories for short-term securities by at least two nationally
recognized rating services (or by one, if only one rating service has rated
the security); or, if unrated, judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1), and second tier securities
are those deemed to be in the second highest rating category (e.g.,
Standard & Poor's A-2). Split-rated securities may be determined to be
either first tier or second tier based on applicable regulations.
The fund may not invest more than 5% of its total assets in second tier
securities. In addition, the fund may not invest more than 1% of its total
assets or $1 million (whichever is greater) in the second tier securities
of a single issuer.
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
DOMESTIC AND FOREIGN ISSUERS. Investments may be made in U.S.
dollar-denominated time deposits, certificates of deposit, and bankers'
acceptances of U.S. banks and their branches located outside of the United
States, U.S. branches and agencies of foreign banks, and foreign branches
of foreign banks. The fund may also invest in U.S.
dollar-denominated securities issued or guaranteed by other U.S. or foreign
issuers, including U.S. and foreign corporations or other business
organizations, foreign governments, foreign government agencies or
instrumentalities, and U.S. and foreign financial institutions, including
savings and loan institutions, insurance companies, mortgage bankers, and
real estate investment trusts, as well as banks.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental
regulation. Payment of interest and principal on these obligations may also
be affected by governmental action in the country of domicile of the branch
(generally referred to as sovereign risk). In addition, evidence of
ownership of portfolio securities may be held outside of the United States
and a fund may be subject to the risks associated with the holding of such
property overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.
Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation, as well as by governmental action in the country in which the
foreign bank has its head office.
Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic developments,
withholding taxes, seizures of foreign deposits, currency controls,
interest limitations, or other governmental restrictions that might affect
payment of principal or interest, or the ability to honor a credit
commitment. Additionally, there may be less public information available
about foreign entities . Foreign issuers may be subject to less
governmental regulation and supervision than U.S. issuers. Foreign issuers
also generally are not bound by uniform accounting, auditing, and financial
reporting requirements comparable to those applicable to U.S. issuers.
HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS,
INVESTMENT GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, AND ASSET
MANAGER: GROWTH PORTFOLIOS
THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, INVESTMENT
GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, AND ASSET MANAGER: GROWTH
PORTFOLIOS' FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR
ENTIRETY . EACH FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) (for High Income, Equity-Income, Growth and Overseas Portfolios) borrow
money, except that the fund (i) may borrow money for temporary or emergency
purposes (not for leveraging or investment) or (ii) engage in reverse
repurchase agreements, provided that (i) and (ii) in combination
(borrowings) do not exceed 33% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that
come to exceed 33% of the value of the fund's total assets by reason of a
decline in net assets will be reduced within three days (exclusive of
Sundays and holidays) to the extent necessary to comply with the 33%
limitation;
(for Investment Grade Bond, Asset Manager, Index 500, Contrafund and Asset
Manager: Growth Portfolios) borrow money, except that the fund may borrow
money for temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed this amount will be reduced within three
days (not including Sundays and holidays) to the extent necessary to comply
with the 33% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets would
be invested in the securities of companies whose principal business
activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33%
of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME,
GROWTH, OVERSEAS, INVESTMENT GRADE BOND, ASSET MANAGER, INDEX 500,
CONTRAFUND, AND ASSET MANAGER: GROWTH PORTFOLIOS ARE NOT FUNDAMENTAL AND
MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT , WITHOUT SHAREHOLDER
APPROVAL.
(i) Each fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) Each fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) Each fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment advisor or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). Each fund will not
borrow money in excess of 25% of net assets so long as this limitation is
required for certification by certain state insurance departments. Any
borrowings that come to exceed this amount will be reduced within seven
days (not including Sundays and holidays) to the extent necessary to comply
with the 25% limitation. Each fund will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding.
Each fund will not borrow from other funds advised by FMR or its affiliates
if total outstanding borrowings immediately after such borrowing would
exceed 15% of the fund's total assets.
(iv) Each fund does not currently intend to purchase any security if, as a
result, more than 10% of Equity-Income, Growth, Investment Grade Bond,
Asset Manager, Index 500, Contrafund and Asset Manager: Growth Portfolios'
net assets and 15% of High Income and Overseas Portfolio's net assets would
be invested in securities that are deemed to be illiquid because they are
subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to 5% of net
assets for Equity-Income, Growth, Overseas, Asset Manager, Index 500,
Contrafund and Asset Manager: Growth Portfolios and 7.5% of net assets for
High Income and Investment Grade Bond Portfolios) to a registered
investment company or portfolio for which FMR or an affiliate serves as
investment advisor or (b) acquiring loans, loan participations, or other
forms of direct debt instruments and, in connection therewith, assuming any
associated unfunded commitments of the sellers. (This limitation does not
apply to purchases of debt securities or to repurchase agreements.)
(vi) Each fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(vii) Each fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
For each fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions." For
limitations on short sales, see the section s entitled "Short Sales" and
"Short Sales Against The Box".
For the funds' policies on foreign investments, see the section entitled
" Exposure to Foreign Markets ."
Higher yielding, fixed-income securities of the type in which High Income
Portfolio invests will at times be purchased at a discount from or a
premium over par value. The total return on such securities includes the
potential for a capital gain or loss. High Income Portfolio generally does
not intend to hold securities for the purpose of achieving capital gains,
however, unless current yields on these securities remain attractive.
Capital gain or loss may also be realized upon the sale of portfolio
securities.
The U.S. government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors
such as the funds. If such restrictions should be reinstituted, it might
become necessary for Overseas Portfolio to invest all or substantially all
of its assets in U.S. securities. In such event, the Board of Trustees
would reevaluate the fund's investment objective and policies.
In accordance with the funds' fundamental investment policies, there are no
limitations on the percentage of the funds' assets which may be invested in
any one type of instrument. Nor are there limitations (except those imposed
by certain state insurance regulations) on the percentage of the funds'
assets which may be invested in any foreign country. However, in order to
comply with diversification requirements under Section 817(h) of the
Internal Revenue Code of 1986, as amended, in connection with FMR serving
as investment advisor, each fund has agreed to certain non-fundamental
limitations. Please refer to your insurance company's separate account
prospectus for more information.
EACH FUND'S INVESTMENTS MUST BE CONSISTENT WITH ITS INVESTMENT OBJECTIVE
AND POLICIES. ACCORDINGLY, NOT ALL OF THE SECURITY TYPES AND INVESTMENT
TECHNIQUES DISCUSSED BELOW ARE ELIGIBLE INVESTMENTS FOR EACH OF THE FUNDS.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
ASSET ALLOCATION (ASSET MANAGER AND ASSET MANAGER: GROWTH). The short-term
class includes all types of domestic and foreign securities and short-term
instruments with remaining maturities of three years or less. FMR seeks to
maximize total return within this 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.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. FMR seeks to maximize
total return within the bond class by adjusting the fund's investments in
securities with different credit qualities, maturities, and coupon or
dividend rates, and by seeking to take advantage of yield differentials
between securities. Securities in this class may include bonds, notes,
adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government
agency securities, zero coupon bonds, and other intermediate-term and
long-term securities. As with the short-term class, these securities may be
denominated in U.S. dollars or foreign currency. The funds may also invest
in lower quality, high-yielding debt securities (commonly referred to as
"junk bonds").
The stock class includes domestic and foreign equity securities of all
types (other than adjustable-rate preferred stocks which are included in
the bond class). FMR seeks to maximize total return within this asset class
by actively allocating assets to industry sectors expected to benefit from
major trends, and to individual stocks that FMR believes to have superior
investment potential. When FMR selects equity securities, it considers both
growth and anticipated dividend income. Securities in the stock class may
include common stocks, fixed-rate preferred stocks (including convertible
preferred stocks), warrants, rights, depositary receipts, securities of
closed-end investment companies, and other equity securities issued by
companies of any size, located anywhere in the world.
In making asset allocation decisions, FMR will evaluate projections of
risk, market conditions, economic conditions, volatility, yields, and
returns. FMR's management will use database systems to help analyze past
situations and trends, research specialists in each of the asset classes to
help in securities selection, portfolio management professionals to
determine asset allocation and to select individual securities, and its own
credit analysis as well as credit analyses provided by rating services.
INVESTMENT DETAILS FOR INDEX 500 PORTFOLIO. Index 500 Portfolio is not
managed according to traditional methods of "active" investment management,
which involve the buying and selling of securities based upon economic,
financial, and market analyses and investment judgment. Instead, the fund,
utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500. The fund may omit or remove an
S&P 500 stock from its portfolio if, following objective criteria, FMR
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or
financial conditions. FMR may purchase stocks that are not included in the
S&P 500 to compensate for these differences if it believes that their
prices will move together with the prices of S&P 500 stocks omitted from
the portfolio.
The ability of the fund to meet its objective depends in part on its cash
flow because investments and redemptions by shareholders generally will
require the fund to purchase or sell portfolio securities. A low level of
shareholder transactions will keep cash flow manageable and enhance the
fund's ability to track the S&P 500. FMR will make investment changes to
accommodate cash flow in an attempt to maintain the similarity of the
fund's portfolio to the composition of the S&P 500. In addition, the fund
will maintain a reasonable position in high-quality, short-term debt
securities and money market instruments to meet redemption requests.
S&P 500. The S&P 500 is a well-known stock market index that includes
common stocks of companies representing a significant portion of the market
value of all common stocks publicly traded in the United States. Stocks in
the S&P 500 are weighted according to their market capitalization (i.e. the
number of shares outstanding multiplied by the stock's current price), with
the 62 largest stocks currently comprised approximately 50% of the index's
value. The composition of the S&P 500 is determined by Standard & Poor's
Corporation and is based on such factors as the market capitalization and
trading activity of each stock and its adequacy as a representation of
stocks in a particular industry group. Standard and Poor's Corporation may
change the index's composition from time to time.
The performance of the S&P 500 is a hypothetical number which does not take
into account brokerage commissions and other costs of investing, which the
fund bears.
ASSET-BACKED SECURITIES 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 entities providing
the credit support.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell
securities on a delayed-delivery or when-issued basis. These transactions
involve a commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
funds (excluding Money Market) may receive fees for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in foreign currencies and
of dividends and interest paid with respect to such securities will
fluctuate based on the relative strength of the U.S. dollar.
Foreign investments involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments,
and may be affected by actions of foreign governments adverse to the
interests of U.S. investors. Such actions may include the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
is no assurance that FMR will be able to anticipate these potential events
or counter their effects. These risks are magnified for investments in
developing countries, which may have relatively unstable governments,
economies based on only a few industries, and securities markets that trade
a small number of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States. Foreign
markets may offer less protection to investors than U.S. markets. It is
anticipated that in most cases the best available market for foreign
securities will be on an exchange or in over-the-counter markets located
outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading practices,
including those involving securities settlement where fund assets may be
released prior to receipt of payment, may result in increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer, and
may involve substantial delays. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and custodial
costs, are generally higher than for U.S. investors. In general, there is
less overall governmental supervision and regulation of securities
exchanges, brokers, and listed companies than in the United States. It may
also be difficult to enforce legal rights in foreign countries. Foreign
issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to
those applicable to U.S. issuers.
Some foreign securities impose restrictions on transfer within the United
States or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
American Depository Receipts (ADRs) as well as other "hybrid" forms of ADRs
including European Depository Receipts (EDRs) and Global Depository
Receipts (GDRs), are certificates evidencing ownership of shares of a
foreign issuer. These certificates are issued by depository banks and
generally trade on an established market in the United States or elsewhere.
The underlying shares are held in trust by a custodian bank or similar
financial institution in the issuer's home country. The depository bank may
not have physical custody of the underlying securities at all times and may
charge fees for various services, including forwarding dividends and
interest and corporate actions. ADRs are an alternative to directly
purchasing the underlying foreign securities in their national markets and
currencies. However, ADRs continue to be subject to many of the risks
associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks
of the underlying issuer's country.
FOREIGN CURRENCY TRANSACTIONS. The funds (excluding Money Market) may
conduct foreign currency transactions on a spot (i.e., cash) basis or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. The funds will convert currency on a spot basis from
time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers generally do not charge a fee
for conversion, they do realize a profit based on the difference between
the prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the fund at one rate, while
offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract
may agree to offset or terminate the contract before its maturity, or may
hold the contract to maturity and complete the contemplated currency
exchange.
Each fund may use currency forward contracts for any purpose consistent
with its investment objective. The following discussion summarizes the
principal currency management strategies involving forward contracts that
could be used by each fund. The funds may also use swap agreements, indexed
securities, and options and futures contracts relating to foreign
currencies for the same purposes.
When a fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The funds may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The funds may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example,
if a fund owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. A fund could also hedge the
position by selling another currency expected to perform similarly to the
pound sterling - 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.
Each fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if a fund held investments denominated in
Deutschemarks, the fund could enter into forward contracts to sell
Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is
purchased, much as if the fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause the fund to assume the risk of fluctuations in the
value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the funds will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The funds will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on FMR's skill
in analyzing and predicting currency values. Currency management strategies
may substantially change a fund's investment exposure to changes in
currency exchange rates, and could result in losses to the fund if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged a fund by selling that currency in
exchange for dollars, the fund would be unable to participate in the
currency's appreciation. If FMR hedges currency exposure through proxy
hedges, a fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if FMR increases a fund's exposure to a foreign
currency, and that currency's value declines, the fund will realize a loss.
There is no assurance that FMR's use of currency management strategies will
be advantageous to the funds or that it will hedge at an appropriate time.
FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements may
include agreements to purchase and sell foreign securities in exchange for
fixed U.S. dollar amounts, or in exchange for specified amounts of foreign
currency. Unlike typical U.S. repurchase agreements, foreign repurchase
agreements may not be fully collateralized at all times. However, pursuant
to certain state insurance regulations, any foreign repurchase agreements a
fund enters into will be secured by collateral consisting of liquid assets
having a market value of not less than 102% of the cash or assets
transferred to the other party. The value of a security purchased by a fund
may be more or less than the price at which the counterparty has agreed to
repurchase the security. In the event of default by the counterparty, the
fund may suffer a loss if the value of the security purchased is less than
the agreed-upon repurchase price, or if the fund is unable to successfully
assert a claim to the collateral under foreign laws. As a result, foreign
repurchase agreements may involve higher credit risks than repurchase
agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging market investments,
repurchase agreements with counterparties located in emerging markets or
relating to emerging markets may involve issuers or counterparties with
lower credit ratings than typical U.S. repurchase agreements.
FUNDS' RIGHTS AS A SHAREHOLDER. The funds do not intend to direct or
administer the day-to-day operations of any company. Each fund, however,
may exercise its rights as a shareholder and may communicate its views on
important matters of policy to management, the Board of Directors, and
shareholders of a company when FMR determines that such matters could have
a significant effect on the value of the fund's investment in the company.
The activities that a fund may engage in, either individually or in
conjunction with others, may include, among others, supporting or opposing
proposed changes in a company's corporate structure or business activities;
seeking changes in a company's directors or management; seeking changes in
a company's direction or policies; seeking the sale or reorganization of
the company or a portion of its assets; or supporting or opposing third
party takeover efforts. This area of corporate activity is increasingly
prone to litigation and it is possible that a fund could be involved in
lawsuits related to such activities. FMR will monitor such activities with
a view to mitigating, to the extent possible, the risk of litigation
against a fund and the risk of actual liability if a fund is involved in
litigation. No guarantee can be made, however, that litigation against a
fund will not be undertaken or liabilities incurred.
FUTURES AND OPTIONS. The following sections pertain to futures
and options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures Margin
Payments, Limitations on Futures and Options Transactions, Liquidity of
Options and Futures Contracts, Options and Futures Relating to Foreign
Currencies, OTC Options, Purchasing Put and Call Options, and Writing Put
and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. 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 Composite Index of 500
Stocks (S&P 500) and the Bond Buyer Municipal Bond Index . Futures
can be held until their delivery dates, or can be closed out before then if
a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund (excluding Money
Market) has filed a notice of eligibility for exclusion from the definition
of the term "commodity pool operator" with the Commodity Futures Trading
Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The funds intend to comply with Rule 4.5
under the Commodity Exchange Act, which limits the extent to which a fund
can commit assets to initial margin deposits and option premiums.
In addition, each fund (excluding Index 500 Portfolio) will not: (a) sell
futures contracts, purchase put options, or write call options if, as a
result, more than 25% of the fund's total assets would be hedged with
futures and options under normal conditions; (b) purchase futures contracts
or write put options if, as a result, the fund's total obligations upon
settlement or exercise of purchased futures contracts and written put
options would exceed 25% of its total assets; or (c) purchase call options
if, as a result, the current value of option premiums for call options
purchased by the fund would exceed 5% of the fund's total assets. These
limitations do not apply to options attached to or acquired or traded
together with their underlying securities, and do not apply to securities
that incorporate features similar to options.
For Index 500 Portfolio, FMR also intends to follow certain other
limitations on the fund's futures and option activities. The fund will
not purchase any option if, as a result, more than 5% of its total assets
would be invested in option premiums . Under normal conditions, the fund
will not inter into any futures contract or option if, as a result, the sum
of (i) the current value of assets hedged in the case of strategies
involving the sale of securities, and (ii) the current value of the indices
or other instruments underlying the fund's other futures or options
positions, would exceed 35% of the fund's total assets. These limitations
do not apply to options attached to, or acquired or traded together with
their underlying securities, and do not apply to securities that
incorporate features similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information may be
changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed above.
The funds may purchase and sell currency futures and may purchase and write
currency options to increase or decrease their exposure to different
foreign currencies. A fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
a fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect a
fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a fund's foreign-denominated
investments changes in response to many factors other than exchange rates,
it may not be possible to match the amount of currency options and futures
to the value of the fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by a fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments,
emerging market securities, and swap agreements to be illiquid. However,
with respect to over-the-counter options a fund writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the
assets held to cover the option and the nature and terms of any agreement
the fund may have to close out the option before expiration. With
respect to Money Market, FMR may also determine some time deposits to be
illiquid.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees (for Money Market Portfolio, illiquid investments are
valued for purposes of monitoring amortized cost valuation). If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of Money Market, Equity-Income, Growth,
Investment Grade Bond, Asset Manager, Index 500, Contrafund and Asset
Manager: Growth Portfolios' net assets and more than 15% of High Income and
Overseas Portfolios' net assets were invested in illiquid securities,
the fund would seek to take appropriate steps to protect
liquidity .
INDEXED SECURITIES. A fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting
in a security whose price tends to rise and fall together with gold prices.
Currency-indexed securities typically are short-term to intermediate-term
debt securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and
may offer higher yields than U.S. dollar-denominated securities of
equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values
of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness
deteriorates. Recent issuers of indexed securities have included banks,
corporations, and certain U.S. government agencies. FMR will use its
judgment in determining whether indexed securities should be treated as
short-term instruments, bonds, stocks, or as a separate asset class for
purposes of Asset Manager and Asset Manager: Growth Portfolios' investment
allocations, depending on the individual characteristics of the securities.
Indexed securities may be more volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, each fund has received permission to lend money
to, and borrow money from, other funds advised by FMR or its affiliates.
Interfund loans and borrowings normally extend overnight, but can have a
maximum duration of seven days. Loans may be called on one day's notice. A
fund will lend through the program only when the returns are higher than
those available from 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. A fund may have to borrow
from a bank at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
ISSUER LOCATION. FMR determines where an issuer is located by
looking at such factors as its country of organization, the primary trading
market for its securities, and the location of its assets, personnel,
sales, and earnings. The issuer of a security is located in a particular
country if: 1) the security is issued or guaranteed by the government of
the country; or 2) the issuer is organized under the laws of the country,
derives at least 50% of its revenues or profits from goods sold,
investments made or services performed in the country, or has at least 50%
of its assets located in the country.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower
to lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments are subject to each fund's policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If a fund does not receive scheduled interest or
principal payments on such indebtedness, the fund's share price and yield
could be adversely affected. Loans that are fully secured offer a fund more
protections than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation
of collateral from a secured loan would satisfy the borrower's obligation,
or that the collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal when
due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a fund.
For example, if a loan is foreclosed, the fund could become part owner of
any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the fund could be held
liable as a co-lender. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt
instruments that are not in the form of securities may offer less legal
protection to a fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, each fund relies on FMR's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or
other indebtedness, each fund has direct recourse against the borrower, it
may have to rely on the agent to apply appropriate credit remedies against
a borrower. If assets held by the agent for the benefit of a fund were
determined to be subject to the claims of the agent's general creditors,
the fund might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness purchased by each fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the fund to pay additional cash on demand. These commitments may
have the effect of requiring the fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
Each fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under standby
financing commitments.
Each fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations 1 and 5).
For purposes of these limitations, each fund generally will treat the
borrower as the "issuer" of indebtedness held by the fund. In the case of
loan participations where a bank or other lending institution serves as
financial intermediary between each fund and the borrower, if the
participation does not shift to the fund the direct debtor-creditor
relationship with the borrower, SEC interpretations require the fund, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating a
financial intermediary as an issuer of indebtedness may restrict a fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
LOWER-QUALITY DEBT SECURITIES. While the market for high-yield corporate
debt securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic increase in the
use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of
the future performance of the high-yield bond market, especially during
periods of economic recession .
The market for lower-quality debt securities may be thinner and less active
than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing
high-yield corporate debt securities than is the case for securities for
which more external sources for quotations and last-sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-quality debt
securities and a fund's ability to dispose of these securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by a fund. In considering investments
for the fund, FMR will attempt to identify those issuers of high-yielding
securities whose financial condition is adequate to meet future
obligations, has improved, or is expected to improve in the future. FMR's
analysis focuses on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the fund's shareholders.
MONEY MARKET SECURITIES are high-quality, short-term obligations.
Some money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial assets.
For example, put features can be used to modify the maturity of a security
or interest rate adjustment features can be used to enhance price
stability. If the structure does not perform as intended, adverse tax or
investment consequences may result. Neither the Internal Revenue Service
(IRS) nor any other regulatory authority has ruled definitively on certain
legal issues presented by structured securities. Future tax or other
regulatory determinations could adversely affect the value, liquidity, or
tax treatment of the income received from these securities or the nature
and timing of distributions made by the funds.
MORTGAGE-BACKED SECURITIES. The funds may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security is an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations or
CMOs, make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
funds may invest in them if FMR determines they are consistent with the
funds' investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
MUNICIPAL SECURITIES are issued to raise money for a variety of
public or private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. The value of some or all municipal
securities may be affected by uncertainties in the municipal market related
to legislation or litigation involving the taxation of municipal securities
or the rights of municipal securities holders. A fund may own a municipal
security directly or through a participation interest.
PUT FEATURES entitle the holder to sell a security back to the
issuer or a third party at any time or at specified intervals. They are
subject to the risk that the put provider is unable to honor the put
feature (purchase the security). Put providers often support their ability
to buy securities on demand by obtaining letters of credit or other
guarantees from other entities. Demand features, standby commitments, and
tender options are types of put features.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as real estate values and property taxes, interest rates, cash flow of
underlying real estate assets, overbuilding, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR. Pursuant to certain state
insurance regulations, any repurchase agreements a fund enters into will be
secured by collateral consisting of liquid assets having a market value of
not less than 102% of the cash or assets transferred to the other
party.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, Money Market anticipates holding
restricted securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange and
a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a fund
may engage in l oan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of cash
or cash equivalents (e.g., U.S. Treasury bills or notes) from the borrower;
(2) the borrower must increase the collateral whenever the market value of
the securities loaned (determined on a daily basis) rises above the value
of the collateral; (3) after giving notice, the fund must be able to
terminate the loan at any time; (4) the fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the fund may pay
only reasonable custodian fees in connection with the loan; and (6) the
Board of Trustees must be able to vote proxies on the securities loaned,
either by terminating the loan or by entering into an alternative
arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which a fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
SHORT SALES "AGAINST THE BOX." Money Market may sell securities short when
it owns or has the right to obtain securities equivalent in kind or amount
to the securities sold short. Short sales could be used to protect the net
asset value per share of the fund in anticipation of increased interest
rates, without sacrificing the current yield of the securities sold
short .
SHORT SALES. A fund may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if FMR
anticipates a decline in the price of the stock underlying a convertible
security a fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be expected to
offset all or a portion of the effect of the stock's decline on the value
of the convertible security. A fund currently intends to hedge no
more than 15% of its total assets with short sales on equity securities
underlying its convertible security holdings under normal circumstances.
When a fund enters into a short sale or a short sale "against the
box" , it will be required to set aside securities equivalent in kind
and amount to those securities sold short (or securities convertible
or exchangeable into such securities) and will be required to hold them
aside while the short sale is outstanding. A fund will incur transaction
costs, including interest expense, in connection with opening, maintaining,
and closing short sales and short sales "against the box."
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its
evaluation of the credit of a bank or another entity in determining whether
to purchase a security supported by a letter of credit guarantee, insurance
or other source of credit or liquidity. In evaluating the credit of a
foreign bank or other foreign entities, FMR will consider whether adequate
public information about the entity is available and whether the entity may
be subject to unfavorable political or economic developments, currency
controls, or other government restrictions that might affect its ability to
honor its commitment.
SOVEREIGN DEBT OBLIGATIONS. Overseas Portfolio may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of Latin American nations or other developing countries.
Sovereign debt may be in the form of conventional securities or other types
of debt instruments such as loans or loan participations. Sovereign debt of
developing countries may involve a high degree of risk, and my be in
default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest
may depend on political as well as economic factors.
STRIPPED GOVERNMENT SECURITIES. Stripped securities are created
by separating the income and principal components of a debt instrument and
selling them separately. U.S. Treasury STRIPS (Separate Trading of
Registered Interest and Principal of Securities) are created when the
coupon payments and the principal payment are stripped from an outstanding
Treasury bond by the Federal Reserve Bank. Bonds issued by the government
agencies also may be stripped in this fashion.
Privately stripped government securities are created when a dealer deposits
a Treasury security or federal agency security with a custodian for
safekeeping and then sells the coupon payments and principal payment that
will be generated by this security. Proprietary receipts, such as
Certificates of Accrual on Treasury Securities (CATS), Treasury Investment
Growth Receipts (TIGRS), and generic Treasury Receipts (TRs), are stripped
U.S. Treasury securities that are separated into their component parts
through trusts created by their broker sponsors. Bonds issued by the
government agencies also may be stripped in this fashion.
Because of the SEC's views on privately stripped government securities, a
fund must evaluate them as it would non-government securities pursuant to
regulatory guidelines applicable to all money market funds. Money Market
currently intends to purchase only those privately stripped government
securities that have either received the highest rating from two nationally
recognized rating services (or one, if only one has rated the security) or,
if unrated, have been judged to be of equivalent quality by FMR pursuant to
procedures adopted by the Board of Trustees.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease a fund's exposure to long- or
short-term interest rates (in the United States or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. A fund is
not limited to any particular form of swap agreement if FMR determines it
is consistent with the fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if the fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of a fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses. A fund expects to be able to eliminate its
exposure under swap agreements either by assignment or other disposition,
or by entering into an offsetting swap agreement with the same party or a
similarly creditworthy party.
A fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of the fund's accrued
obligations under the swap agreement over the accrued amount the fund is
entitled to receive under the agreement. If a fund enters into a swap
agreement on other than a net basis, it will segregate assets with a value
equal to the full amount of the fund's accrued obligations under the
agreement.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic
adjustments of the interest rate paid on the security. Variable rate
securities provide for a specified periodic adjustment in the interest
rate, while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some variable or
floating rate securities have put features.
WARRANTS. Warrants are securities that give a fund the right to purchase
equity securities from the issuer at a specific price (the strike price)
for a limited period of time. The strike price of warrants typically is
much lower than the current market price of the underlying securities, yet
they are subject to similar price fluctuations. As a result, warrants may
be more volatile investments than the underlying securities and may offer
greater potential for capital appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets
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 expiration date. These factors
can make warrants more speculative than other types of investments.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not
pay current income, their prices can be very volatile when interest rates
change. In calculating its dividends, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face valu e.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the
management contract. If FMR grants investment management authority to the
sub-advisers (see the section entitled "Management Contract"), the
sub-advisers are authorized to place orders for the purchase and sale of
portfolio securities, and will do so in accordance with the policies
described below. FMR is also responsible for the placement of transaction
orders for other investment companies and accounts for which it or its
affiliates act as investment adviser. Securities purchased and sold by
Money Market generally will be traded on a net basis (i.e., without
commission). In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, FMR considers various relevant
factors, including, but not limited to: the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the broker-dealer firm; the broker-dealer's
execution services rendered on a continuing basis; the reasonableness of
any commissions; and arrangements for payment of fund expenses.
Generally, commissions for investments traded on foreign exchanges will be
higher than for investments traded on U.S. exchanges and may not be subject
to negotiation.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). For Money
Market, FMR maintains a listing of broker-dealers who provide such services
on a regular basis. However, as many transactions on behalf of Money Market
are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The
selection of such broker-dealers generally is made by FMR (to the extent
possible consistent with execution considerations) in accordance with a
ranking of broker-dealers determined periodically by FMR's investment staff
based upon the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI) and Fidelity Brokerage Services (FBS), subsidiaries of FMR
Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services. From September 1992 through December 1994, FBS operated
under the name Fidelity Brokerage Services Limited, Inc. (FBSL). As of
January 1995, FBSL was converted to an unlimited liability company and
assumed the name FBS. 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, Johnson family members, and various trusts for the
benefit of the Johnson family own, directly or indirectly, more than 25% of
the voting common stock of FIL.
FMR may allocate brokerage transactions to broker-dealers who have
entered into arrangements with FMR under which the broker-dealer allocates
a portion of the commissions paid by each fund toward payment of the fund's
expenses, such as transfer agent fees or custodian fees. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
Because a high turnover rate increases transaction costs and may
increase capital gains, FMR carefully weighs the anticipated benefits of
short-term investing against these consequences . An increased turnover
rate is due to a greater volume of shareholder purchase orders, short-term
interest rate volatility and other special market conditions. For
the fiscal years ended December 31, 1995 and 1994, the
fund s had the following portfolio turnover rates:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Yea High Equity- Growth Overse Investm Asset Asset Contraf Index
r Income Income as ent Manager Manager: und 500
Grade Growth
Bond
199 132 % 87 % 108 % 50 % 182 % 256 % 343 % 132 % 16 %
5
199 122% 134% 122% 42% 143% 85% N/A N/A 2%
4
</TABLE>
BROKERAGE COMMISSIONS. The following lists the total brokerage
commissions paid; the percentage of the brokerage commissions paid to
brokerage firms that provided research services and the commissions
paid to FBSI and FBSL in dollars and as a percentage of the dollar value of
all transactions in which brokerage commissions were paid for the fiscal
periods ended December 31, 1995, 1994 and 1993 for each of the funds. No
commissions were paid by Money Market or Investment Grade Bond
Portfolios. The funds pay both commissions and spreads in connection with
the placement of portfolio transactions. The difference in the percentage
of brokerage commissions paid to and the percentage of the dollar amount of
transactions effected through FBSI and FBSL is a result of the low
commission rates charged by FBSI and FBSL.
HIGH INCOME PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Perio Providing To To through through
d
Ende TOTAL Researc FBSI FBSL % to % to FBSI FBSL
d h FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
199 $ 185,56 95 % $ 21,89 $ 0 12% 0% 16% 0%
5 1 6
199 $135,01 98% $ 24,14 $ 0 18 % 0 % 29 % 0 %
4 3 0
199 $ 25,198 99% $ 0 $ 0 0 % 0 % 0 % 0 %
3
</TABLE>
EQUITY-INCOME PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 5,473,12 94 % $ 2,043,79 $ 33,242 37 % 1 % 51 % 0 %
8 7
1994 $ 4,893,68 95% $ 1,717,63 $ 116,65 35% 2% 46% 1%
4 0 8
1993 $ 2,658,97 68% $ 712,270 $ 51,049 27% 2% 42% 0%
9
</TABLE>
GROWTH PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 3,835,62 97 % $ 1,237,37 $ 13,081 32 % 0 % 43 % 0 %
4 2
1994 $ 3,120,41 97% $ 956,332 $ 0 31% 0% 44% 0%
1
1993 $ 2,137,39 49% $ 750,137 $ 0 35% 0% 48% 0%
9
</TABLE>
OVERSEAS PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 2,495,82 96 % $ 10,057 $ 240,170 0 % 10 % 1 % 12 %
9
1994 $ 2,985,96 90% $ 1,605 $ 255,413 0% 9% 0% 11%
1
1993 $ 1,541,38 92% $ 3,119 $ 13,077 0% 1% 1% 0%
5
</TABLE>
ASSET MANAGER PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 12,537,40 96 % $ 1,793,40 $ 218,281 14 2 % 33 % 2 %
6 6 %
1994 $ 3,316,118 92% $ 583,097 $ 107,280 18 3% 32% 3%
%
1993 $ 2,839,401 73% $ 398,687 $ 43,172 14 2% 29% 0%
%
</TABLE>
INDEX 500 PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 133,65 31% $ 20 $ 0 0 % 0 % 0 % 0 %
9
1994 $ 10,286 1% $ 17 $ 0 0% 0% 0% 0%
1993 $ 3,870 4% $ 123 $ 0 3% 0% 3% 0%
</TABLE>
ASSET MANAGER: GROWTH PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 335,353 93 % $ 4,540 $ 14 13 % 0 % 30% 0 %
</TABLE>
CONTRAFUND PORTFOLIO
% %
% Paid Transa Transa
to Firms ctions ctions
Period Providing To To % to % to through through
Ended TOTAL Research FBSI FBSL FBSI FBSL FBSI FBSL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $ 672,767 97 % $ 246,38 $ 0 37 % 0 % 49 % 0 %
9
</TABLE>
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
MONEY MARKET PORTFOLIO
The fund values its investments on the basis of amortized cost. This
technique involves valuing an instrument at its cost as adjusted for
amortization of premium or accretion of discount rather than its value
based on current market quotations or appropriate substitutes which reflect
current market conditions. The amortized cost value of an instrument may be
higher or lower than the price the fund would receive if it sold the
instrument.
Valuing the fund's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the 1940 Act.
The fund must adhere to certain conditions under Rule 2a-7.
The Board of Trustees of the trust oversees FMR's adherence to SEC rules
concerning money market funds, and has established procedures designed to
stabilize the fund's net asset value (NAV) at $1.00. At such intervals as
they deem appropriate, the Trustees consider the extent to which NAV
calculated by using market valuations would deviate from $1.00 per share.
If the Trustees believe that a deviation from the fund's amortized cost per
share may result in material dilution or other unfair results to
shareholders, the Trustees have agreed to take such corrective action, if
any, as they deem appropriate to eliminate or reduce, to the extent
reasonably practicable, the dilution or unfair results. Such corrective
action could include selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind; establishing NAV by using
available market quotations; and such other measures as the Trustees may
deem appropriate.
During periods of declining interest rates, the fund's yield based on
amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder of the fund would be able to
obtain a somewhat higher yield than would result if the fund utilized
market valuations to determine its NAV. The converse would apply in a
period of rising interest rates.
INVESTMENT GRADE BOND AND HIGH INCOME PORTFOLIOS
Securities and other assets for which market quotations are readily
available may be 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. Futures contracts and options are valued on the basis of
market quotations, if available.
EQUITY-INCOME, GROWTH, OVERSEAS, ASSET MANAGER, CONTRAFUND, ASSET MANAGER:
GROWTH, AND INDEX 500 PORTFOLIOS
Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Most equity securities for which
the primary market is the U.S. are valued at last sale price or, if no sale
has occurred, at the closing bid price. Most equity securities for which
the primary market is outside the U.S. are valued using the official
closing price or the last sale price in the principal market where they are
traded. If the last sale price (on the local exchange) is unavailable, the
last evaluated quote or last bid price is normally used. Short-term
securities are valued either at amortized cost or at original cost plus
accrued interest, both of which approximate current value. Convertible
securities and fixed-income securities are valued primarily by a pricing
service that uses a vendor security valuation matrix which incorporates
both dealer-supplied valuations and electronic data processing techniques.
This two-fold 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 a 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 a fund are
determined as of such time for the purpose of computing the fund's net
asset value. Foreign security prices are furnished by independent brokers
or quotation services which express the value of securities in their local
currency. Fidelity Service Company (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
A fund may quote performance in various ways. All performance information
supplied by a fund in advertising is historical and is not intended to
indicate future returns. Each non-money market fund's share price, and
each fund's total return and yield fluctuate in response to market
conditions and other factors, and the value of non-money market fund shares
when redeemed may be more or less than their original cost.
YIELD CALCULATION (MONEY MARKET PORTFOLIO). To compute the fund's yield for
a period, the net change in value of a hypothetical account containing one
share reflects the value of additional shares purchased with dividends from
the one original share and dividends declared on both the original share
and any additional shares. The net change is then divided by the value of
the account at the beginning of the period to obtain a base period return.
This base period return is annualized to obtain a current annualized yield.
The fund also may calculate an effective yield by compounding the base
period return over a one-year period. In addition to the current yield, the
fund may quote yields in advertising based on any historical seven-day
period. Yields for the fund are calculated on the same basis as other money
market funds, as required by applicable regulations.
YIELD CALCULATIONS (EXCLUDING MONEY MARKET PORTFOLIO). Yields for a fund
are computed by dividing the fund's interest and dividend income for a
given 30-day or one-month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this
figure by the fund's net asset value (NAV) at the end of the period, and
annualizing the result (assuming compounding of income) in order to arrive
at an annual percentage rate. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock
and bond funds. Dividends from equity investments are treated as if they
were accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. For a fund's investments denominated in foreign currencies, income
and expenses are calculated first in their respective currencies, and are
then converted to U.S. dollars, either when they are actually converted or
at the end of the 30-day or one month period, whichever is earlier. Capital
gains and losses generally are excluded from the calculation as are gains
and losses from currency exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, a fund's yield may not equal its
distribution rate or the income reported in the fund's financial
statements. In calculating yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in order
to reflect the risk premium on that security. This practice will have the
effect of reducing the fund's yield.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years.
W hile average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that a fund's
performance is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as opposed to
the actual year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
MOVING AVERAGES. A fund may illustrate performance using moving averages. A
long-term moving average is the average of each week's adjusted closing NAV
for a specified period. A short-term moving average is the average of each
day's adjusted closing NAV for a specified period. Moving Average Activity
Indicators combine adjusted closing NAVs from the last business day of each
week with moving averages for a specified period to produce indicators
showing when an NAV has crossed, stayed above, or stayed below its moving
average. On December 29, 1995, the 13-week and 39-week long-term moving
averages were $ 18.55 and $ 17.46 , for Equity-Income;
$ 29.78 and $ 28.01 for Growth; $ 16.61 and $ 16.44
for Overseas; $ 15.33 and $ 14.81 for Asset Manager; $ 73.49
and $ 68.72 for Index 500; $ 11.48 and $ 11.03 for
Asset Manager: Growth; and $ 13.60 and $ 12.86 for Contrafund,
respectively.
Historical Fund Results Average Annual Total Cumulative Total
Returns Returns
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
As of 12/31/95 Yields One Five Life One Five Life of
Year Years of Year Years Fund*
Fund*
Money Market 7-day 5.87 % 4.66 6.09 5.87 % 25.59 % 80.57 %
Portfolio 5.56 % % %
High Income 30-day 20.72 % 18.92 % 11.47 % 20.72 % 137.84 196.31
Portfolio 9.20 % %
%
Equity-Income N/A 35.09 % 21.32 % 13.33 % 35.09 % 162.87 217.64
Portfolio % %
Growth
Portfolio N/A 35.36 20.78 % 14.83 % 35.36 % 156.99 258.51
% % %
Overseas
Portfolio N/A 9.74 % 8.13 7.31 % 9.74 % 47.84 % 87.83 %
%
Investment
Grade 30-day 17.32 9.23 8.92 17.32 % 55.52 % 83.07 %
Bond Portfolio 5.56 % % % %
Asset Manager N/A 16.96 12.76 % 11.24 % 16.96 % 82.30 % 96.13 %
Portfolio %
Index 500
Portfolio N/A 37.19 N/A 15.44 % 37.19 % N/A 61.71 %
%
Asset Manager: N/A N/A N/A N/A N/A N/A 23.02 %
Growth Portfolio
Contrafund
Portfolio N/A N/A N/A N/A N/A N/A 39.72 %
</TABLE>
If FMR had not reimbursed certain fund expenses during certain of these
periods, the total returns would have been lower.
* 10-year return for Money Market Portfolio and High Income Portfolio;
Equity-Income and Growth Portfolios commenced operations October 9, 1986;
Overseas Portfolio commenced operations January 28, 1987; Investment Grade
Bond Portfolio commenced operations December 5, 1988; Asset Manager
Portfolio commenced operations September 6, 1989; Index 500 Portfolio
commenced operations August 27, 1992; and Asset Manager: Growth and
Contrafund Portfolios commenced operations January 3, 1995
The following charts show the income and capital elements of each fund's
total return from the date it commenced operations through the year ended
December 31, 1995. The charts compare the funds' returns to the record of
the S&P 500, the Dow Jones Industrial Average (DJIA), and the cost of
living (measured by the Consumer Price Index, or CPI), and for Overseas,
the Morgan Stanley Capital International Europe, Australasia, and Far East
Index (EAFE), an unmanaged index of 900 foreign common stocks.
The S&P and DJIA comparisons are provided to show how the funds' total
returns compared to the record of a broad average of U.S. common stock
prices and a narrower set of stocks of major U.S. industrial companies. Of
course, since Money Market, High Income, and Investment Grade Bond
Portfolios invest in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally offer
greater growth potential than a money market or bond fund, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than a
fixed-income investment such as a money market or bond fund. Each fund has
the ability to invest in securities not included in either index, and its
investment portfolio may or may not be similar in composition to the
indices. Figures for the S&P 500, DJIA, and EAFE are based on the prices of
unmanaged groups of stocks and, unlike the funds' returns, their returns do
not include the effect of paying brokerage commissions and other costs of
investing.
MONEY MARKET PORTFOLIO During the ten - year period ended December 31,
1995, a hypothetical $10,000 investment in Money Market Portfolio
would have grown to $ 18,057 , assuming all distributions were
reinvested. This was a period of fluctuating interest rates and the figures
below should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the fund
today.
MONEY MARKET PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P DJIA Cost of
Ended Initial Reinveste Reinveste Value 500 Living
$10,000 d d
Investmen Dividend Capital
t Distribution Gain
s Distribution
s
1995 $ 10,000 $ 8,057 $ 0 $ 18,05 $ 40,05 $ 45,58 $ 14,04
7 4 1 4
1994 $ 10,000 $ 7,055 $ 0 $1 7,05 $ 29,11 $ 33 , 33 $ 1 3 , 69
5 4 8 6
1993 $ 10,000 $ 6,360 $ 0 $1 6,36 $ 28,73 $ 31 , 75 $ 1 3 , 33
0 5 9 9
1992 $ 10,000 $ 5,848 $ 0 $1 5,84 $ 26,10 $ 27 , 14 $ 1 2 , 98
8 4 6 3
1991 $ 10,000 $ 5,253 $ 0 $1 5,25 $ 24,25 $ 25 , 30 $ 1 2 , 61
3 1 0 7
1990 $ 10,000 $ 4,378 $ 0 $1 4,37 $ 18,58 $ 2 0 , 34 $ 1 2 , 24
8 5 7 2
1989 $ 10,000 $ 3,308 $ 0 $1 3,30 $ 19,18 $ 2 0 , 45 $ 1 1,53
8 3 7 7
1988 $ 10,000 $ 2,196 $ 0 $1 2,19 $ 1 4,56 $ 15 , 52 $ 11, 02
6 7 6 5
1987 $ 10,000 $ 1,357 $ 0 $1 1,35 $ 1 2,49 $ 1 3 , 39 $ 10 ,5 5
7 2 4 8
1986 $ 10,000 $ 670 $ 0 $1 0,67 $ 11,86 $ 1 2 , 70 $ 10, 11
0 8 3 0
</TABLE>
Explanatory Notes: With an initial investment of $10,000 made on December
31, 1985, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends for the period covered (their cash value at the time
they were reinvested), amounted to $ 18,057 . If distributions had not
been reinvested, the amount of distributions earned from the fund over time
would have been smaller, and cash payments (dividends) for the period would
have amounted to $ 5,925 . The fund did not distribute any capital
gains during the period. Tax consequences of different investments have not
been factored into the above figures.
HIGH INCOME PORTFOLIO During the ten-year period ended December 31,
1995, a hypothetical $10,000 investment in High Income Portfolio would have
grown to $2 9 , 631 , assuming all distributions were reinvested.
This was a period of fluctuating interest rates and bond prices and the
figures below should not be considered representative of the dividend
income or capital gain or loss that could be realized from an investment in
the fund today.
HIGH INCOME PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P DJIA Cost of
Ended Initial Reinveste Reinveste Value 500 Living
$10,000 d d
Investme Dividend Capital
nt Distribution Gain
s Distribution
s
1995 $ 11,688 $ 16,809 $ 1,134 $ 29,63 $ 40,05 $ 45,58 $ 14,04
1 4 1 4
1994 $ 10, 427 $ 1 3,108 $ 1, 012 $ 2 4,54 $ 29,11 $ 33 , 33 $ 13, 69
6 4 8 6
1993 $ 11, 629 $ 1 3,012 $ 3 13 $ 2 4,95 $ 28,73 $ 3 1 , 75 $ 13, 33
5 5 9 9
1992 $ 10, 495 $ 1 0,070 $ 1 62 $ 2 0,72 $ 26,10 $ 27 , 14 $ 1 2 , 98
7 4 6 3
1991 $ 9, 263 $ 7,423 $ 143 $ 16,82 $ 2 4,25 $ 25 , 30 $ 12, 61
8 1 0 7
1990 $ 6,857 $ 5,495 $ 106 $ 1 2,45 $ 18,58 $ 20 , 34 $ 12, 24
8 5 7 2
1989 $ 7,866 $ 4,755 $ 121 $ 1 2,74 $ 19,18 $ 20 , 45 $ 1 1 , 53
3 3 7 7
1988 $ 9, 37 0 $ 3,784 $ 144 $ 1 3,29 $ 1 4,56 $ 1 5 , 52 $ 1 1 , 02
8 7 6 5
1987 $ 9, 389 $ 2, 37 7 $ 145 $ 1 1,91 $ 1 2,4 9 $ 1 3 , 39 $ 10, 55
1 2 4 8
1986 $ 10, 504 $ 1, 264 $ 0 $ 1 1,76 $ 1 1,86 $ 1 2 , 70 $ 10, 11
8 8 3 0
</TABLE>
Explanatory Notes: With an initial investment of $10,000 made on December
31, 1985, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 24,569 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 8,440 for
dividends and $ 563 for capital gains distributions. Tax consequences
of different investments have not been factored into the above figures.
EQUITY-INCOME PORTFOLIO During the period from October 9, 1986
(commencement of operations) to December 31, 1995, a hypothetical $10,000
investment in Equity-Income Portfolio would have grown to $ 31,764 ,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates, bond prices, and stock prices and the figures
below should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the fund
today.
EQUITY-INCOME PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P DJIA Cost of
Ended Initial Reinveste Reinveste Value 500 Living**
$10,000 d d
Investme Dividend Capital
nt Distribution Gain
s Distribution
s
1995 $ 19,270 $ 8,329 $ 4,165 $ 31,76 $ 34,80 $ 38,02 $ 13,92
4 0 1 9
1994 $ 15,350 $ 6,059 $ 2,104 $ 23,51 $ 25,29 $ 27,80 $ 13,58
3 5 9 4
1993 $ 15,440 $ 5,529 $ 992 $ 21,96 $ 24,96 $ 26,49 $ 13,23
1 6 1 0
1992 $ 13,400 $ 4,304 $ 861 $ 18,56 $ 22,68 $ 22,64 $ 12,87
5 0 4 7
1991 $ 11,850 $ 3,272 $ 761 $ 15,88 $ 21,07 $ 21,10 $ 12,51
3 0 4 4
1990 $ 9,510 $ 1,963 $ 611 $ 12,08 $ 16,14 $ 16,97 $ 12,14
4 7 2 2
1989 $ 12,290 $ 1,682 $ 293 $ 14,26 $ 16,66 $ 17,06 $ 11,44
5 7 4 3
1988 $ 11,010 $ 979 $ 167 $ 12,15 $ 12,65 $ 12,95 $ 10,93
6 7 1 5
1987 $ 9,420 $ 344 $ 143 $ 9,907 $ 10,85 $ 11,17 $ 10,47
4 2 2
1986* $ 10,020 $ 0 $ 0 $ 10,02 $ 10,31 $ 10,59 $ 10,02
0 1 6 7
</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 fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 18,358 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 4,210 for
dividends and $ 2,170 for capital gains distributions. Tax
consequences of different investments have not been factored into the above
figures.
GROWTH PORTFOLIO. During the period from October 9, 1986 (commencement of
operations) to December 31, 1995, a hypothetical $10,000 investment in
Growth Portfolio would have grown to $ 35 , 851 assuming all
distributions were reinvested. This was a period of fluctuating stock
prices and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
GROWTH PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinveste Reinveste Value Living**
d $10,000 d d
Investment Dividend Capital
Distribution Gain
s Distribution
s
1995 $ 29,200 $ 2,337 $ 4,314 $ 35,851 $ 34,800 $ 38,021 $ 13,929
1994 $ 21,690 $ 1,590 $ 3,205 $ 26,485 $ 25,295 $ 27,809 $ 13,584
1993 $ 23,080 $ 1,546 $ 1,864 $ 26,490 $ 24,966 $ 26,491 $ 13,230
1992 $ 19,760 $ 1,202 $ 1,230 $ 22,192 $ 22,680 $ 22,644 $ 12,877
1991 $ 18,510 $ 1,075 $ 715 $ 20,300 $ 21,070 $ 21,104 $ 12,514
1990 $ 12,910 $ 541 $ 499 $ 13,950 $ 16,147 $ 16,972 $ 12,142
1989 $ 15,180 $ 400 $ 225 $ 15,805 $ 16,667 $ 17,064 $ 11,443
1988 $ 11,720 $ 124 $ 174 $ 12,018 $ 12,657 $ 12,951 $ 10,935
1987 $ 10,140 $ 108 $ 150 $ 10,398 $ 10,854 $ 11,172 $ 10,472
1986* $ 10,030 $ 0 $ 0 $ 10,030 $ 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 fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 13,996 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 1,120 for
dividends and $2,500 for capital gains distributions. Tax
consequences of different investments have not been factored into the above
figures.
OVERSEAS PORTFOLIO. During the period from January 28, 1987 (commencement
of operations) to December 31, 199 5 , a hypothetical $10,000
investment in Overseas Portfolio would have grown to $18,783, assuming all
distributions were reinvested. This was a period of fluctuating stock
prices and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
OVERSEAS PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P DJIA EAFE Cost of
Ende Initial Reinveste Reinveste Value 500 Index Living**
d $10,000 d d
Investme Dividend Capital
nt Distributio Gain
ns Distributio
ns
1995 $ 1 7,06 0 $ 1,571 $ 152 $ 18,78 $ 29,78 $ 31,56 $ 19,12 $ 13,80
3 9 8 8 4
1994 $ 15,670 $ 1,375 $ 71 $ 17,11 $ 21,65 $ 23,08 $17,20 $13,46
6 3 9 1 2
1993 $ 15,480 $ 1,276 $ 70 $ 16,82 $ 21,37 $ 21,99 $15,95 $13,11
6 1 6 9 2
1992 $ 11,530 $ 720 $ 0 $ 12,25 $ 19,41 $ 18,80 $12,03 $12,76
0 4 1 9 1
1991 $ 13,090 $ 631 $ 0 $ 13,72 $ 18,03 $ 17,52 $13,70 $12,40
1 6 2 8 1
1990 $ 12,420 $ 285 $ 0 $ 12,70 $ 13,82 $ 14,09 $12,22 $12,03
5 2 2 5 2
1989 $ 12,670 $ 250 $ 0 $ 12,92 $ 14,26 $ 14,16 $15,97 $11,34
0 7 8 0 0
1988 $ 10,110 $ 121 $ 0 $ 10,23 $ 10,83 $ 10,75 $14,44 $10,83
1 4 3 8 6
1987* $ 9,350 $ 112 $ 0 $ 9,462 $ 9,291 $ 9,276 $11,26 $10,37
3 8
</TABLE>
* From January 28, 1987 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
28, 1987, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 11,242 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 1,080 for
dividends and $ 110 for capital gains distributions. Tax consequences
of different investments (with the exception of foreign tax
withholdings) have not been factored into the above figures.
INVESTMENT GRADE BOND PORTFOLIO. During the period from December 5, 1988
(commencement of operations) to December 31, 1995, a hypothetical $10,000
investment in Investment Grade Bond Portfolio would have grown to
$ 18,307 , assuming all distributions were reinvested. This was a
period of fluctuating interest rates and bond prices and the figures below
should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in the fund today.
INVESTMENT GRADE BOND PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinveste Reinveste Value Living**
d $10,000 d d
Investment Dividend Capital
Distribution Gain
s Distribution
s
1995 $ 12,480 $ 5,441 $ 386 $ 18,307 $ 28,161 $ 30,509 $ 12,760
1994 $ 11,020 $ 4,243 $ 341 $ 15,604 $ 20,469 $ 22,314 $ 12,444
1993 $ 11,480 $ 4,420 $ 313 $ 16,213 $ 20,203 $ 21,257 $ 12,120
1992 $ 10,970 $ 3,418 $ 223 $ 14,611 $ 18,353 $ 18,170 $ 11,796
1991 $ 11,080 $ 2,596 $ 24 $ 13,700 $ 17,050 $ 16,934 $ 11,463
1990 $ 9,920 $ 1,831 $ 21 $ 11,772 $ 13,067 $ 13,619 $ 11,122
1989 $ 10,140 $ 921 $ 22 $ 11,083 $ 13,487 $ 13,692 $ 10,482
1988 $ 10,000 $ 52 $ 0 $ 10,052 $ 10,242 $ 10,392 $ 10,017
*
</TABLE>
* From December 5, 1988 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on December
5, 1988, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 24,977 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 3,864 for
dividends and $ 270 for capital gains distributions. Tax consequences
of different investments have not been factored into the above figures.
ASSET MANAGER PORTFOLIO. During the period from September 6, 1989
(commencement of operations) to December 31, 1995, a hypothetical $10,000
investment in Asset Manager Portfolio would have grown to $ 19,613 ,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates, bond prices, and stock prices and the
figures below should not be considered representative of the dividend
income or capital gain or loss that could be realized from an investment in
the fund today.
ASSET MANAGER PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinvested Reinveste Value Living**
d $10,000 Dividend d
Investmen Distribution Capital
t s Gain
Distribution
s
1995 $ 15,790 $ 2,448 $ 1,375 $ 19,613 $ 21,148 $ 22,617 $ 12,319
1994 $ 13,790 $ 1,779 $ 1,201 $ 16,770 $ 15,372 $ 16,542 $ 12,014
1993 $ 15,420 $ 1,642 $ 795 $ 17,857 $ 15,172 $ 15,758 $ 11,701
1992 $ 13,320 $ 1,004 $ 406 $ 14,730 $ 13,783 $ 13,470 $ 11,388
1991 $ 12,550 $ 610 $ 25 $ 13,185 $ 12,804 $ 12,554 $ 11,067
1990 $ 10,240 $ 497 $ 21 $ 10,758 $ 9,813 $ 10,096 $ 10,738
1989 $ 9,970 $ 91 $ 20 $ 10,081 $ 10,128 $ 10,151 $ 10,120
*
</TABLE>
* From September 6, 1989 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on September
6, 1989, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 13,094 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 1,750 for
dividends and $ 1,060 for capital gains distributions. Tax
consequences of different investments have not been factored into the above
figures.
INDEX 500 PORTFOLIO. During the period from August 27, 1992 (commencement
of operations) to December 31, 199 5 , a hypothetical $10,000
investment in Index 500 Portfolio would have grown to $ 16,171 ,
assuming all distributions were reinvested. This was a period of
fluctuating stock prices and the figures below should not be considered
representative of the dividend income or capital gain or loss that could be
realized from an investment in the fund today.
INDEX 500 PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinveste Reinveste Value Living**
d $10,000 d d
Investment Dividend Capital
Distribution Gain
s Distribution
s
1995 $ 15,142 $ 751 $ 278 $ 16,171 $ 16,339 $ 17,252 $ 10,894
1994 $ 11,244 $ 363 $ 180 $ 11,787 $ 11,876 $ 12,618 $ 10,625
1993 $ 11,148 $ 360 $ 158 $ 11,666 $ 11,722 $ 12,021 $ 10,348
1992* $ 10,520 $ 95 $ 16 $ 10,631 $ 10,648 $ 10,275 $ 10,071
</TABLE>
* From August 27, 1992 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August 27,
1992, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 10,757 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 540 for
dividends and $ 200 for capital gains distributions. Tax consequences
of different investments have not been factored into the above figures.
CONTRAFUND PORTFOLIO. During the period from January 3, 1995 (commencement
of operations) to December 31, 1995, a hypo thetical $10,000 investment
in Contrafund Portfolio would have grown to $13,972, assuming all
distributions were reinvested. This was a period of fluctuating stock
prices and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
CONTRAFUND PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ende Initial Reinvested Reinveste Value Living**
d $10,000 Dividend d
Investmen Distributions Capital
t Gain
Distribution
s
1995* $ 13,790 $ 61 $ 121 $ 13,972 $ 13,756 $ 13,670 $ 10,254
</TABLE>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 3,
1995, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $10,180.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $60 for dividends and $120 for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
ASSET MANAGER: GROWTH PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1995, a hypothetical
$10,000 investment in Asset Manager: Growth Portfolio would have grown to
$12,302, assuming all distributions were reinvested. This was a period of
fluctuating interest rates, bond prices, and stock prices and the figures
below should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the fund
today.
ASSET MANAGER: GROWTH PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinveste Reinveste Value Living**
$10,000 d d
Investme Dividend Capital
nt Distribution Gain
s Distribution
s
1995* $ 11,770 $ 110 $ 422 $ 12,302 $ 13,756 $ 13,670 $ 10,254
</TABLE>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 3,
1995, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $10,530.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $110 for dividends and $420 for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
INTERNATIONAL INDICES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International Indices
database, the total market capitalization of Latin American countries
according to the International Finance Corporation Emerging Markets
database, and the performance of national stock markets as measured in U.S.
dollars by the Morgan Stanley Capital International stock market indices
for the twelve months ended December 31, 199 5 . Of course,
these results are not indicative of future stock market performance or the
funds' performance. Market conditions during the periods measured
fluctuated widely. Brokerage commissions and other fees are not factored
into the values of the indices.
MARKET CAPITALIZATION. Companies outside the U.S. now make up nearly
two-thirds of the world's stock market capitalization. According to Morgan
Stanley Capital International, the size of the markets as measured in U.S.
dollars grew from $2,011 billion in 1982 to $8,512 billion in 1995.
The following table measures the total market capitalization of certain
countries according to the Morgan Stanley Capital International Indices
database. The value of the markets are measured in billions of U.S. dollars
as of December 31, 1995.
TOTAL MARKET CAPITALIZATION
Australia $ 245 Japan $ 3,583
Austria $ 37 Netherlands $ 304
Belgium $ 101 Norway $ 43
Canada $ 333 Singapore/Malaysia $ 354
Denmark $ 56 Spain $ 152
France $ 505 Sweden $ 177
Germany $ 579 Switzerland $ 402
Hong Kong $ 274 United Kingdom $ 354
Italy $ 180 United States $ 6,338
The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in billions
of U.S. dollars as of December 31, 199 5 .
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
Argentina $ 26.0 Colombia $ 5.6
Brazil $ 77.1 Mexico $ 59.4
Chile $ 37.0 Venezuela $ 2.5
NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents the
performance of national stock markets as measured in U.S. dollars by the
Morgan Stanley Capital International Stock Market Indices for the twelve
months ended December 31 , 199 5 . The second table shows the
same performance as measured in local currency. Each table measures total
return based on the period's change in price, dividends paid on stocks in
the index, and the effect of reinvesting dividends net of any applicable
foreign taxes. These are unmanaged indices composed of a sampling of
selected companies representing an approximation of the market structure of
the designated country.
STOCK MARKET PERFORMANCE (CUMULATIVE TOTAL RETURNS)
MEASURED IN U.S. DOLLARS (INCLUDES NET DIVIDENDS REINVESTED MONTHLY)
12 MONTHS ENDED DECEMBER 31 , 199 5
Australia 12.46% Japan 0.86%
Austria -4.42 % Netherlands 28.87%
Belgium 27.32 % Norway 6.51%
Canada 19.06 % Singapore/Malaysia 11.61%
Denmark 19.41 % Spain 31.15%
France 14.77 % Sweden 34.07%
Germany 17.00 % Switzerland 45.04%
Hong Kong 22.57 % United Kingdom 21.27%
Italy 1.66 % United States 38.19%
The following table shows average annualized stock market returns
measured in U.S. dollars as of December 31, 1995.
STOCK MARKET PERFORMANCE
Five Years Ended Ten Years Ended
December 29, 199 5 December 29, 1995
Germany 64.61% 175.35%
Hong Kong 273.52% 747.72%
Japan 32.39% 234.22%
Spain 53.08% 419.41%
United Kingdom 65.92% 305.25%
United States 118.74% 298.28%
The results are not indicative of future stock market performance or of
any fund's performance. Market conditions during the periods measured
fluctuated widely. Brokerage commissions and other fees are not factored
into the values of the indices.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, a fund's performance may be
compared to stock, bond, and money market mutual fund performance indices
prepared by Lipper or other organizations. When comparing these indices, it
is important to remember the risk and return characteristics of each type
of investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
(Asset Manager and Asset Manager: Growth Portfolios) The Asset
Allocation Composite Index is a hypothetical representation of the
performance of the combination of Asset Manager's three asset classes
according to their respective weighting in the fund's neutral mix (20% -
short-term instruments; 40% - bonds; and 40% - stocks). The Aggressive
Asset Allocation Composite Index is a hypothetical representation of the
performance of the combination of Asset Manager: Growth's three asset
classes according to their respective weighting in the fund's neutral mix
(5% - short-term instruments; 30% - bonds; and 65% - stocks). The following
indices are used to calculate the three asset allocation composite indices:
the Salomon Brothers 3-Month T-Bill Total Rate of Return Index,
representing the average of T-Bill rates for each of the prior three
months, adjusted to a bond equivalent yield basis (short-term instruments);
the Lehman Brothers Treasury Bond Index, a widely utilized benchmark of
bond market performance that includes virtually all long-term public
obligations of the U.S. Treasury (bonds); and the S&P 500, which represents
common stocks (stocks).
Each of Asset Manager and Asset Manager: Growth has the ability to invest
in securities that are not included in any of the indices, and each fund's
actual investment portfolio may not reflect the composition or the
weighting of the indices used. The S&P 500 and the asset allocation
composite indices include reinvestment of income or dividends and are based
on the prices of unmanaged groups of stocks or U.S. Treasury obligations.
Unlike the funds' returns, the indices do not include the effect of paying
brokerage commissions, spreads, or other costs of investing. Historical
results are used for illustrative purposes only and do not reflect the past
or future performance of the funds. The following table represents the
comparative calendar year-to-year performance of the funds' asset
classes:
Short-Term Bonds Stocks
Instruments
1995 5.75% 18.35% 37.58%
1994 4.24 % -3.38 % 1.32 %
1993 3.09 % 10.68 % 10.08 %
1992 3.61 % 7.21 % 7.62 %
1991 5.75 % 15.29 % 30.47 %
1990 7.90 % 8.54 % -3.10 %
1989 8.64 % 14.38 % 31.69 %
1988 6.76 % 6.99 % 16.61 %
1987 5.91 % 2.00 % 5.10 %
1986 6.23 % 15.61 % 18.56 %
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the 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.
Each fixed-income fund may compare its performance or the performance of
securities in which that fixed-income fund may invest to averages published
by IBC USA (Publications), Inc. of Ashland, Massachusetts. These averages
assume reinvestment of distributions. The Bond Fund Report AverageSTM/All
Taxable (High Income and Investment Grade Bond) , which is reported in
the BOND FUND REPORT(Registered trademark), covers over 488 taxable bond
funds. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All Taxable (Money
Market), which is reported in the MONEY FUND REPORT(registered trademark),
covers over 766 taxable money market funds. When evaluating comparisons
to money market funds, investors should consider the relevant differences
in investment objectives and policies. Specifically, a money market fund
invests in short-term, high-quality instruments and seek s to
maintain a stable $1.00 share price. A bond fund, however, invests in
longer-term instruments and its 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 the following: other Fidelity funds;
retirement investing; model portfolios or allocations; and saving
for college or other goals. In addition, Fidelity may quote or reprint
financial or business publications and periodicals, as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the desirability
of owning a particular mutual fund, and Fidelity services and products.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
The funds may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program,
a policyowner invests at periodic intervals a fixed dollar amount in
an insurance company's sub-account, which in turn invests in a fund,
thereby purchasing fewer units when prices are high and more units when
prices are low. While such a strategy does not assure a profit or 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 the
same intervals. In evaluating such a plan, policyowners should consider
their ability to continue purchasing units through periods of low price
levels.
As of February 29, 1996 , FMR advised over $ 26.5 billion in
tax-free fund assets, over $ 80 billion in money market fund assets,
over $ 256 billion in equity fund assets, over $55
billion in international fund assets, and over $ 23
billion in Spartan fund assets. The funds may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management figure
represents the largest amount of equity fund assets under management by a
mutual fund investment adviser in the United States, making FMR America's
leading equity (stock) fund manager. FMR, its subsidiaries, and affiliates
maintain a worldwide information and communications network for the purpose
of researching and managing investments abroad.
Each fund is available only through the purchase of variable annuity and
variable life insurance contracts offering deferral of income taxes on
earnings, which may produce superior after-tax returns over time. For
example, a $1,000 investment earning a taxable return of 10% annually would
have an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after ten
years, assuming tax was deducted at a 31% rate from the tax-deferred
earnings at the end of the ten-year period. Individuals holding shares of a
fund through a variable annuity or variable life insurance contract may
receive additional tax benefits from the deferral of income taxes
associated with variable contracts. Individuals should consult their tax
advisors to determine the effect of holding variable contracts on their
individual tax situations.
YIELDS AND TOTAL RETURNS QUOTED FOR A FUND INCLUDE THE FUND'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. BECAUSE YOU CAN PURCHASE SHARES OF
EACH FUND ONLY THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE
INSURANCE CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE
INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. Excluding these charges from quotations of a fund's performance
has the effect of increasing the performance quoted.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1996: New
Year's Day, Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day. Although FMR expects the same holiday schedule to be observed in
the future, the NYSE may modify its holiday schedule at any time. In
addition, the funds will not process wire purchases and redemptions on days
when the Federal Reserve Wire System is closed.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
In the Prospectus, each fund has notified shareholders that it reserves
the right at any time, without prior notice, to refuse purchases if, in
FMR's judgment, the fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
potentially be adversely affected.
D ISTRIBUTIONS AND TAXES
For a discussion of tax consequences of variable contracts, please refer to
your insurance company's separate account prospectus.
Variable contracts purchased through insurance company separate accounts
provide for the accumulation of all earnings from interest, dividends, and
capital appreciation without current federal income tax liability to the
owner. Depending on the variable contract, distributions from the contract
may be subject to ordinary income tax and a 10% penalty tax on
distributions before age 59. Only the portion of a distribution
attributable to income is subject to federal income tax. Investors should
consult with competent tax advisors for a more complete discussion of
possible tax consequences in a particular situation.
Section 817(h) of the Internal Revenue Code provides that the investments
of a separate account underlying a variable insurance contract (or the
investments of a mutual fund, the shares of which are owned by the variable
separate account) must be "adequately diversified" in order for the
contract to be treated as an annuity or life insurance for tax purposes.
The Treasury Department has issued regulations prescribing these
diversification requirements. Each fund intends to comply with these
requirements.
Each fund intends to qualify each year as a "regulated investment company"
for tax purposes, so that it will not be liable for federal tax on income
and capital gains distributed to shareholders. In order to qualify as a
regulated investment company and avoid being subject to federal income or
excise taxes, each fund intends to distribute substantially all its net
taxable income and net realized capital gains within each calendar year as
well as on a fiscal year basis. Each fund also intends to comply with other
tax rules applicable to regulated investment companies including a
requirement that gross capital gains from selling securities held less than
three months must constitute less than 30% of a fund's gross income for
each fiscal year. Gains from some forward currency contracts, futures
contracts, and options are included in this 30% calculation, which may
limit a fund's investments in such instruments. Income and capital gain
distributions are reinvested in additional shares of the fund. This is done
to preserve the tax advantaged status of the variable contracts. Each fund
is treated as a separate entity from the other funds of its
respective trust for tax purposes. Money Market Portfolio may
distribute any net realized short-term gains once each year, or more
frequently if necessary, in order to maintain the fund's NAV at $1.00 per
share and to comply with tax regulations.
If a fund purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the Internal
Revenue Code, it may be subject to U.S. federal income tax on a portion of
any excess distribution or gain from the disposition of such shares.
Interest charges may also be imposed on the fund with respect to deferred
taxes arising from such distributions or gains. Generally, a fund will
elect to mark-to-market any PFIC shares. Unrealized gains will be
recognized as income for tax purposes and must be distributed to
shareholders as dividends.
MONEY MARKET PORTFOLIO - As of December 31, 1995, the fund had a capital
loss carryforward of approximately $ 78,000 which will expire on
December 31, 2002, respectively.
INVESTMENT GRADE BOND PORTFOLIO - As of December 31, 1995, the fund had a
capital loss carryforward of approximately $ 230,000 , all of which
will expire on December 31, 2002.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. The
business address of each Trustee and officer who is an "interested person"
(as defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees is Fidelity Investments, P.O. Box 9235,
Boston, Massachusetts 02205-9235. Those Trustees who are "interested
persons" by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (65), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (54), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (64), 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 is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (72), 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 Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc., and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (68), Trustee (1990). Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc. (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990),
and he previously served as a Director of NACCO Industries, Inc. (mining
and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc.
(1985-1995). In addition, he serves as a Trustee of First Union Real Estate
Investments, a Trustee and member of the Executive Committee of the
Cleveland Clinic Foundation, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the
Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (53), Trustee (1990) is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (66), Trustee, 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), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (71), 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). In addition, he serves as a Trustee of the Naples
Philharmonic Center for the Arts and Rensselaer Polytechnic Institute, and
he is a member of the Advisory Boards of Butler Capital Corporation Funds
and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (63), 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 (67), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
WILLIAM J. HAYES (61), Vice President (1994), is Vice President of
Fidelity's equity funds; Senior Vice President of FMR; and Managing
Director of FMR Corp.
ROBERT H. MORRISON (56), Manager of Security Transactions of Fidelity's
equity funds is Vice President of FMR.
ROBERT A. LAWRENCE (43), Vice President (1994), is Vice President of
Fidelity's high income funds and Senior Vice President of FMR (1993). Prior
to joining FMR, Mr. Lawrence was Managing Director of the High Yield
Department for Citicorp (1984-1991).]
FRED L. HENNING, JR. (56), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
ROBERT LITTERST (36), Vice President of Money Market Portfolio (1992), is
an employee of FMR.
BARRY COFFMAN (36), Vice President of High Income Portfolio (1992), is an
employee of FMR.
LAWRENCE GREENBERG (32), Vice President of Growth Portfolio (1994), is an
employee of FMR.
MICHAEL S. GRAY (39), Vice President of Investment Grade Bond Portfolio
(1995) and Asset Manager Portfolio (1996) and Asset Manager: Growth
Portfolio (1996), is an employee of FMR.
WILLIAM DANOFF (35), Vice President of Contrafund Portfolio (1995), is an
employee of FMR.
JENNIFER G. FARRELLY (32), Vice President of Index 500 Portfolio (1996), is
an employee of FMR.
RICHARD C. HABERMANN (55), Vice President of Asset Manager Portfolio (1996)
and Asset Manager: Growth Portfolio (1996), is an employee of FMR.
RICHARD R. MACE, JR. (34), Vice President of Overseas Portfolio (1996) is
an employee of FMR.
GEORGE VANDERHEIDEN (50), Vice President of Asset Manager Portfolio (1996)
and Asset Manager: Growth Portfolio (1996), is an employee of FMR.
ANDREW OFFIT (35), Vice President of Equity-Income Portfolio (1995), is an
employee of FMR.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995)
THOMAS D. MAHER (51), Assistant Vice President (1990), is Assistant Vice
President of Fidelity's money market funds and Vice President and Associate
General Counsel of FMR Texas Inc. (1990). Prior to 1990, Mr. Maher was an
employee of FMR.
JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (50), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial
Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice
President, Assistant Controller, and Director of the Accounting Department
- - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current trustee of each fund for his or her services as trustee for
the fiscal year ended December 31, 1995.
COMPENSATION TABLE
Aggregate Compensation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Ralph Phyllis Richar Edward E. Donald Peter Gerald Edwar Marvin Thomas
Gary F. Burke d J. C. Bradle J. Kirk S. C. d H. L. R.
Burkhe Cox Davis Flynn Johnson y Lynch** McDono Malon Mann Williams
ad** 3d** Jones ugh e
Money $ 0 $ 324 $ 316 $ 405 $ 0 $ 324 $ 332 $ 0 $ 324 $ 324 $ 324 $ 317
Market
High $ 0 $ 303 $ 296 $ 381 $ 0 $ 303 $ 310 $ 0 $ 302 $ 303 $ 303 $ 295
Income
Equity- $ 0 $ 1,255 $ 1,224 $ 1,57 $ 0 $ 1,255 $ 1,277 $ 0 $ 1,249 $ 1,25 $ 1,25 $ 1,221
Income 9 5 5
Growth $ 0 $ 1,173 $ 1,145 $ 1,47 $ 0 $ 1,174 $ 1,195 $ 0 $ 1,168 $ 1,17 $ 1,17 $ 1,142
8 3 3
Overse $ 0 $ 544 $ 532 $ 681 $ 0 $ 544 $ 558 $ 0 $ 546 $ 544 $ 544 $ 533
as
Invest $ 0 $ 56 $ 54 $ 70 $ 0 $ 56 $ 57 $ 0 $ 56 $ 56 $ 56 $ 54
ment
Grade
Bond
Asset $ 0 $ 1,377 $ 1,345 $ 1,72 $ 0 $ 1,377 $ 1,413 $ 0 $ 1,381 $ 1,37 $ 1,37 $ 1,348
Manag 2 7 7
er
Index $ 0 $ 40 $ 38 $ -- $ 0 $ 40 $ 40 $ 0 $ 39 $ 40 $ 40 $ 38
500
Contraf $ 0 $ 116 $ 110 $ 149 $ 0 $ 116 $ 116 $ 0 $ 110 $ 116 $ 116 $ 108
und [+]
Asset $ 0 $ 11 $ 11 $ 15 $ 0 $ 11 $ 11 $ 0 $ 11 $ 11 $ 11 $ 11
Manag
er :
Growth
[+]
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Pension or Estimated Annual Total
Retirement Benefits Benefits Upon Compensation
Accrued as Part Retirement from the
of Fund from the Fund Complex*
Expenses from the Fund Complex*
Fund Complex*
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox 5,200 52,000 128,000
Phyllis Burke Davis 5,200 52,000 125,000
Richard J. Flynn 0 52,000 160,500
Edward C. Johnson 0 0 0
3d**
E. Bradley Jones 5,200 49,400 128,000
Donald J. Kirk 5,200 52,000 129,500
Peter S. Lynch** 0 0 0
Gerald C. 5,200 52,000 128,000
McDonough
Edward H. Malone 5,200 44,200 128,000
Marvin L. Mann 5,200 52,000 128,000
Thomas R. Williams 5,200 52,000 125,000
</TABLE>
* Information is as of December 31, 1995 for 219 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
+ Estimated ; the fund commenced operations January 3, 1995.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the Plan). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee (designated securities). The amount paid to the
Trustee under the Plan will be determined based upon the performance of
such investments. Deferral of Trustees' fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate the fund to retain the services of
any Trustee or to pay any particular level of compensation to the Trustee.
Each fund may invest in such designated securities under the Plan without
shareholder approval.
Under a retirement program adopted in July 1988, the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments is not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-interested Trustees, receive retirement benefits under the program.
On March 1, 1996 , the Trustees and officers of each fund owned, in
the aggregate, less than 1% of each fund's total outstanding shares.
A shareholder owning of record or beneficially more than 25% of a fund's
outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders. As
of March 31, 199 6 , significant shares of the funds were held by the
following companies with the figures beneath each fund representing that
company's holdings as a percentage of that fund's total outstanding
shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity Growth Oversea Investm Asset Asset Contrafu Index
Market Incom -Inco s ent Manage Manage nd 500
e me Grade r r:
Growth
American
United Life -- -- -- -- -- -- -- -- 5 % 11 %
Insurance Company
(Indianapolis, IN)
Ameritas
Variable 9 % -- -- -- -- 13 % -- -- -- --
Life Insurance
Company
(Lincoln, NE)
Empire
Fidelity -- -- -- -- -- -- 6% 5 % 5 %
Investments
Life --
Insurance Company
(New York, NY)
Fidelity
Investments 45 % 19 % 23 % 17 % 15 % 39 % 21 % 76 % 47 % 46 %
Life Insurance
Company
(Boston, MA)
Integrity
Life 5% -- -- -- -- 6% -- -- -- --
Insurance
Company
(Louisville, KY)
The Life
Insurance -- -- 5 % 5 % 8 % -- 13 % -- 7% --
Company of Virginia
(Richmond, VA)
Northwestern -- -- -- -- -- 10 % -- -- -- --
National
Life Insurance
Company
(Minneapolis, MN)
PFL Life
Insurance 13 % 5 % -- -- -- 9 % -- 5% -- --
Company
(Cedar Rapids, IA)
Provident
Mutual Life -- -- -- -- -- -- -- -- -- --
Insurance Company
(Philadelphia, PA)
Nationwide
Life -- 39 % 29 % 30 % 37 % -- 26 % -- 18% --
Insurance Company
(Columbus, OH)
The New
England -- -- -- -- 8 % -- -- -- -- --
Life Insurance
Company
(Boston, MA)
State
Mutual Life -- 10 % 7 % 7 % 8 % -- -- -- -- --
Assurance
Company
(Worcester, MA)
The
Travelers -- 5 % 5% 9 % -- -- 11 % -- -- --
Insurance Company
(Hartford, CT)
Aetna
Life -- -- 5% 5% -- -- -- -- 7% --
Insurance & Annuity
Co. (Hartford, CT)
Security
Equity
Life -- -- -- -- -- 6% -- -- -- --
Insurance Co.
(Armonk, NY)
United of
Omaha -- -- -- -- -- -- -- 5% -- --
(Omaha, NB)
</TABLE>
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC and FIIOC, each fund pays all of its expenses, without limitation, that
are not assumed by those parties. Each fund pays for typesetting, printing,
and mailing proxy material to shareholders, legal expenses, and the fees of
the custodian, auditor, and non-interested Trustees. Although each fund's
current management contract provides that it will pay for typesetting,
printing, and mailing prospectuses, statements of additional information,
notices, and reports to existing shareholders, each trust on behalf of each
fund has entered into a revised transfer agent agreement with FIIOC,
pursuant to which FIIOC bears the cost of providing these services to
existing shareholders. Other expenses paid by each fund include interest,
taxes, brokerage commissions, each fund's proportionate share of insurance
premiums and Investment Company Institute dues, and the costs of
registering shares under federal and state securities laws. Each fund is
also liable for such non-recurring expenses as may arise, including costs
of any litigation to which each fund may be a party, and any obligation it
may have to indemnify its officers and Trustees with respect to litigation.
FMR is each fund's manager pursuant to management contracts dated as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity-I Growth Oversea Investm Asset Index Contrafu Asset
Market Income ncome s ent Manage 500 nd Manage
Grade r r:
Bond Growth
Contract January January January January January January January January Novemb Novemb
Dated 1, 1994 1, 1994 1, 1993 1, 1993 1, 1993 1, 1993 1, 1993 1, 1993 er 1, er 1,
1994 1994
Date Decemb Decemb Decemb Decemb Decemb Decemb Decemb Decemb Novemb Novemb
Approve er 15, er 15, er 16, er 16, er 16, er 16, er 16, er 16, er 9, er 9,
d by 1993 1993 1992 1992 1992 1992 1992 1992 1994 1994
Shareho
lders
</TABLE>
The management fee paid to FMR by Index 500 Portfolio is reduced by an
amount equal to the fees and expenses of the non-interested Trustees.
MONEY MARKET PORTFOLIO: For the services of FMR under the contract, the
fund pays FMR a monthly management fee composed of a group fee rate and an
individual fund fee rate (.03%), and an income-based component of 6% of the
fund's gross income in excess of a 5% yield. The maximum income-based
component is .24% of average net assets.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right
shows the effective annual group fee rate at various asset levels, which is
the result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $ 366 billion of group net
assets - the approximate level for December 1995 - was . 1482 %, which
is the weighted average of the respective fee rates for each level of group
net assets up to $ 366 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualize Group Net Effective
Assets d Assets Annual
Rate Fee
Rate
$ 0 - 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
On August 1, 1994, FMR voluntarily revised the group fee rate schedule
and added new breakpoints for average group assets in excess of $156
billion and under $372 billion as shown in the schedule below. The revised
group fee rate schedule was identical to the above schedule for average
group assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $156
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualiz Group Net Effective
Assets ed Assets Annual
Rate Fee
Rate
$ 120 - 156 billion .1450 $150 billion .1736
% %
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The individual fund fee rate for Money Market Portfolio is .03%.
One twelfth of the sum of the group fee rate and the individual fund fee
rate is applied to the fund's average net assets for the current month,
giving a dollar amount , which is the fee for that month.
If the fund's monthly gross yield is 5% or less, the total management fee
is the sum of the group fee and the individual fund fee. If the fund's
monthly gross yield is greater than 5%, the management fee that FMR
receives includes an income-based component. The income-based component
equals 6% of that portion of the fund's gross income that represents a
gross yield of more than 5% per year. The maximum income-based component is
.24% (annualized) of average net assets, at a fund gross yield of 9%. Gross
income for this purpose includes interest accrued and/or discount earned
(including both original issue discount and market discount) on portfolio
obligations, less amortization of premium. Realized and unrealized gains
and losses, if any, are not included in gross income.
For the fiscal years ended December 31, 1995, 1994, and 1993, FMR received
$ 1,881,213 , $1,178,543, and $415,213, respectively, for its services
as investment adviser to Money Market Portfolio . These fees were
equivalent to .24 %, .20%, and .14%, respectively, of the fund's
average net assets for those years.
Prior to January 1, 1994, for the services of FMR under the contract, the
fund paid FMR a monthly management fee computed on the basis of the fund's
gross income. To the extent that the fund's monthly gross income of
the fund was equivalent to an annualized yield of 5% or less, FMR received
4% of that amount of the fund's gross income. In addition, to the extent
that the fund's monthly gross income exceeded an annualized yield of
5%, FMR received 6% of that excess. For this purpose, gross income included
interest accrued or discount earned (including both original issue and
market discount), less amortization of premium. The amount of discount or
premium on portfolio instruments was fixed at the time of purchase.
Realized and unrealized gains and losses, if any, were not included in
gross income.
Pursuant to the terms of the contract, limitations were imposed on the
compensation FMR could receive under the above formula. These limitations
were based on the fund's average monthly net assets as follows:
AVERAGE MONTHLY NET ASSETS ANNUALIZED RATE
On the first $1.5 billion. . 50%
On the portion in excess of $1.5 to $3.0 billion. . 45%
On the portion in excess of $3.0 billion to $4.5 billion. . 43%
On the portion in excess of $4.5 billion to $6.0 billion. . 41%
On the portion in excess of $6.0 billion. . 40%
HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS. For the services of FMR
under the contracts, each fund pays FMR a monthly management fee composed
of the sum of two elements: a group fee rate and an individual fund fee
rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $ 366 billion of group net
assets - the approximate level for December 1995 - was
. 1482 %, which is the weighted average of the respective fee rates
for each level of group net assets up to $ 366 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualize Group Net Effective
Assets d Assets Annual
Rate Fee Rate
$ 0 - 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Under Investment Grade Bond's current management contract with FMR, the
group fee rate is based on a schedule with breakpoints ending at .1400% for
average group assets in excess of $174 billion. Prior to January 1, 1993,
the group fee rate breakpoints shown above for average group assets in
excess of $120 billion and under $228 billion were voluntarily adopted by
FMR, on January 1, 1992. The additional breakpoints shown above for
average group assets in excess of $228 billion were voluntarily adopted by
FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised (in the case of Investment
Grade Bond the prior extensions to) the group fee rate schedule, and added
new breakpoints for average group assets in excess of $156 billion and
under $372 billion as shown in the schedule below. The revised group fee
rate schedule was identical to the above schedule for average group assets
under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $156
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualiz Group Net Effective
Assets ed Assets Annual
Rate Fee
Rate
$ 120 - 156 billion .1450 $150 billion .1736
% %
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The individual fund fee rate for Investment Grade Bond Portfolio is .30%,
and the individual fund fee rate for High Income Portfolio is .45%. Based
on the average group net assets of the funds advised by FMR for December
1995, the annual management fee rate for each fund would be calculated as
follows:
INVESTMENT GRADE BOND PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management Fee
Rate
. 1482 % + .30% = . 4482 %
HIGH INCOME PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee
Rate
. 1482 % + .45% = . 5982 %
</TABLE>
One-twelfth of this annual management fee rate is applied to each fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $ 660,058 , $520,469, and $460,983, respectively, for its
services as investment adviser to INVESTMENT GRADE BOND PORTFOLIO. These
fees were equivalent to .45 %, .46%, and .47%, respectively, of the
average net assets of the fund for those years.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $ 4,956,133 , $2,999,205, and $1,764,257, respectively, for
its services as investment adviser to HIGH INCOME PORTFOLIO. These fees
were equivalent to .60 %, .61%, and .51%, respectively, of the
average net assets of the fund for those years. On December 15, 1993,
shareholders voted to increase the fund's individual fund fee rate from
0.35% to 0.45%.
EQUITY-INCOME, GROWTH, OVERSEAS, ASSET MANAGER, CONTRAFUND, AND ASSET
MANAGER: GROWTH PORTFOLIOS. For the services of FMR under the
contract s , each fund pays FMR a monthly management fee composed of
the sum of two elements: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $ 366 billion of group net
assets - the approximate level for December 1995 - was . 3097 %, which
is the weighted average of the respective fee rates for each level of group
net assets up to $ 366 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualiz Group Net Effective
Assets ed Assets Annual
Rate Fee
Rate
$ 0 - 3 billion .5200 $ 0.5 billion .5200
% %
3 - 6 .4900 25 .4238
6 - 9 .4600 50 .3823
9 - 12 .4300 75 .3626
12 - 15 .4000 100 .3512
15 - 18 .3850 125 .3430
18 - 21 .3700 150 .3371
21 - 24 .3600 175 .3325
24 - 30 .3500 200 .3284
30 - 36 .3450 225 .3253
36 - 42 .3400 250 .3223
42 - 48 .3350 275 .3198
48 - 66 .3250 300 .3175
66 - 84 .3200 325 .3153
84 - 102 .3150 350 .3133
102 - 138 .3100
138 - 174 .3050
174 - 228 .3000
228 - 282 .2950
282 - 336 .2900
Over 336 .2850
Under Equity-Income, Growth, Overseas and Asset Manager Portfolios' current
management contract s with FMR, the group fee rate is based on a
schedule with breakpoints ending at .3000% for average group assets in
excess of $174 billion. Prior to January 1, 1993, the group fee rate
breakpoints shown above for average group assets in excess of $138 billion
and under $228 billion were voluntarily adopted by FMR, on January
1, 1992. The additional breakpoints shown above for average group assets in
excess of $228 billion were voluntarily adopted by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints for average group assets
in excess of $210 billion and under $390 billion as shown in the schedule
below. The revised group fee rate schedule was identical to the above
schedule for average group assets under $210 billion. For average group
assets in excess of $210 billion, the group fee rate schedule voluntarily
adopted by FMR is as follows (Asset Manager: Growth and Contrafund
Portfolios' management contracts, dated November 1, 1994, include the
following breakpoints in their fee schedules):
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualiz Group Net Effective
Assets ed Assets Annual
Rate Fee
Rate
$ 138 - 174 billion .3050 $150 billion .3371
% %
174 - 210 .3000 175 .3325
210 - 246 .2950 200 .3284
246 - 282 .2900 225 .3249
282 - 318 .2850 250 .3219
318 - 354 .2800 275 .3190
354 - 390 .2750 300 .3163
Over 390 .2700 325 .3137
350 .3113
375 .3090
400 .3067
On January 1, 1996, FMR voluntarily added new breakpoints to the revised
schedule for average group assets in excess of $390 billion, pending
shareholder approval of a new management contract reflecting the revised
schedule and additional breakpoints. The revised group fee rate schedule
and its extensions provide for lower management fee rates as FMR's assets
under management increase. For average group assets in excess of $210
billion, the revised group fee rate schedule with additional breakpoints
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE
RATES
Average Group Annualiz Group Net Effective
Assets ed Assets Annual
Rate Fee Rate
$ 174 - 210 billion .3000 $150 billion .3371
% %
210 - 246 .2950 175 .3325
246 - 282 .2900 200 .3284
282 - 318 .2850 225 .3249
318 - 354 .2800 250 .3219
354 - 390 .2750 275 .3190
390 - 426 .2700 300 .3163
426 - 462 .2650 325 .3137
462 - 498 .2600 350 .3113
498 - 534 .2550 375 .3090
Over 534 .2500 400 .3067
425 .3046
450 .3024
475 .3003
500 .2982
525 .2962
550 .2942
The individual fund fee rate for the funds are as follows: .20% for
Equity-Income Portfolio; .30% for Growth and Contrafund Portfolios; .40%
for Asset Manager and Asset Manager: Growth Portfolios; and .45% for
Overseas Portfolio. Based on the average group net assets of the funds
advised by FMR for December 1995, the annual management fee rate for each
fund would be calculated as follows:
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management Fee
Rate
. 3097 % + .20% = . 5097 %
GROWTH AND CONTRAFUND PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee
Rate
. 3097 % + .30% = . 6097 %
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee
Rate
. 3097 % + .40% = . 7097 %
OVERSEAS PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee
Rate
. 3097 % + .45% = . 7597 %
</TABLE>
One-twelfth of the annual management fee rate is applied to each fund's net
assets averaged for the most recent month, giving a dollar amount, which is
the fee for that month.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $ 17,818,979 , $9,165,293, and $5,004,191, respectively, for
its services as investment adviser to EQUITY-INCOME PORTFOLIO. These fees
were equivalent to .51 %, .52%, and .53%, respectively, of the
average net assets of the fund for each of those years.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $ 19,591,048 , $10,585,482, and $6,358,701, respectively, for
its services as investment adviser to GROWTH PORTFOLIO. These fees were
equivalent to .61 %, .62%, and .63%, respectively, of the average net
assets of the fund for each of those years.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $ 9,837,952 , $8,646,616, and $3,078,432, respectively, for
its services as investment adviser to OVERSEAS PORTFOLIO. These fees were
equivalent to .76 %, .77%, and .77%, respectively, of the average net
assets of the fund for each of those years.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $ 23,174,840 , $22,080,801, and $10,365,454, respectively,
for its services as investment adviser to ASSET MANAGER PORTFOLIO. These
fees were equivalent to .71 %, .72%, and .72%, respectively, of the
average net assets of the fund for each of those years.
During the fiscal year ended December 31, 1995 , FMR received
$ 261,324 , and $ 2,316,458 , for its services as investment
adviser to ASSET MANAGER: GROWTH PORTFOLIO AND CONTRAFUND
PORTFOLIO , RESPECTIVELY . These fees were equivalent to .71 %,
and .61 %, of the average net assets of Asset Manager: Growth and
Contrafund, respectively, for that year .
INDEX 500 PORTFOLIO. F or the services of FMR under the contract,
the fund pays FMR a monthly management fee at the annual rate of
.28% of the average net assets of the fund throughout the month.
During the fiscal years ended December 31, 199 5, 1994, and 1993,
FMR received $351,136, $103,136, and $58,243, respectively, before any
reimbursement of expenses by FMR.
FMR may, from time to time, voluntarily reimburse all or a portion of a
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase a fund's total returns and yield and repayment of the
reimbursement by a fund will lower its total returns and yield.
FMR has voluntarily agreed, subject to revision or termination, to
reimburse a fund if, and to the extent that, its aggregate operating
expenses, including management fees, exceed of a specified annual
rate for the fund. The following provides the expense cap and the date the
cap was imposed: September 19, 1985 (1.00%) for High Income Portfolio;
October 9, 1986 (1.50%) for Equity-Income and Growth Portfolios; January
28, 1987 (1.50%) for Overseas Portfolio; December 5, 1988 (.80%) for
Investment Grade Bond Portfolio; January 1, 1990 (1.25%) for Asset Manager
Portfolio; August 27, 1992 (.28%) for Index 500 Portfolio; and January 3,
1995 (1.00%) for Asset Manager: Growth and Contrafund Portfolios. Under
this arrangement, FMR reimbursed Index 500 $ 241,437 , $195,500, and
$138,597, respectively for fiscal years ended December 31, 1995, 1994 and
1993 and Asset Manager: Growth $46,008 for the fiscal year ended
December 31, 1995 .
SUB-ADVISERS. On behalf of HIGH INCOME , A SSET MANAGER, CONTRAFUND
and ASSET MANAGER: GROWTH PORTFOLIOS, FMR has entered into sub-advisory
agreements with FMR U.K. and FMR Far East. On behalf of OVERSEAS PORTFOLIO,
FMR has entered into sub-advisory agreements with FMR U.K., FMR Far East,
and FIIA. FIIA, in turn, has entered into a sub-advisory agreement with
FIIAL U.K. Pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from the
sub-advisers. On behalf of High Income, Contrafund, Asset Manager: Growth
and Overseas Portfolios, FMR may also grant the sub-advisers investment
management authority, as well as the authority to buy and sell securities
if FMR believes it would be beneficial to a fund.
Currently, FMR U.K., FMR Far East, FIIA, and FIIAL U.K. each focus on
issuers in countries other than the United States such as those in Europe,
Asia, and the Pacific Basin.
FMR U.K. and FMR Far East, which were organized in 1986, are wholly owned
subsidiaries of FMR. FIIA is a wholly owned subsidiary of Fidelity
International Limited (FIL), a Bermuda company formed in 1968 which
primarily provides investment advisory services to non-U.S. investment
companies and institutional investors investing in securities throughout
the world. Edward C. Johnson 3d, Johnson family members, and various trusts
for the benefit of the Johnson family owns, directly or indirectly, more
than 25% of the voting common stock of FIL. FIIA was organized in Bermuda
in 1983. FIIAL U.K. was organized in the United Kingdom in 1984, and is a
wholly owned subsidiary of Fidelity International Management Holdings
Limited, an indirect wholly owned subsidiary of FIL.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K. For providing
non-discretionary investment advice and research services the sub-advisers
are compensated as follows:
(small solid bullet) FMR pays FMR U.K. and FMR Far East fees equal to 110%
and 105%, respectively, of FMR U.K.'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
(small solid bullet) FMR pays FIIA a fee equal to 30% of FMR's monthly
management fee with respect to the average net assets held by the fund for
which FIIA has provided FMR with investment advice and research services.
(small solid bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL
U.K.'s costs incurred in connection with providing investment advice and
research services.
For providing discretionary investment management and executing portfolio
transactions, the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K., FMR Far East, and FIIA a fee equal
to 50% of its monthly management fee with respect to the fund's average net
assets managed by the sub-adviser on a discretionary basis.
(small solid bullet) FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL
U.K.'s costs incurred in connection with providing discretionary investment
management services.
For providing investment advice and research services, the fees paid to the
sub-advisers for fiscal 1995, 1994, and 1993 were as follows:
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal FMR U.K. FMR Far East FIIA FIIAL U.K.
Year
1995 $744,061 $768,046 -- --
1994 $387,086 $425,049 -- --
1993 $94,517 $138,059 -- --
</TABLE>
ASSET MANAGER: GROWTH PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1995 $ 4,252 $ 5,046
ASSET MANAGER PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1995 $ 425,265 $ 471,463
1994 $ 147,227 $ 190,254
1993 $ 139,893 $ 227,112
CONTRAFUND PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1995 $ 13,324 $ 15,011
For providing discretionary investment management and executing portfolio
transactions, FMR, on behalf of Overseas Portfolio paid FMR U.K. fees
totaling $376,357 for fiscal 1992. For providing discretionary investment
management and executing portfolio transactions, no fees were paid by FMR
on behalf of Overseas Portfolio to the sub-advis e rs during
the fiscal years ended 199 4 and 199 3 .
FMR entered into the sub-advisory agreements described above as follows:
April 1, 1992 for Overseas; January 1, 1994 for High Income; and November
1, 1994 for Contrafund and Asset Manager: Growth Portfolios. The agreements
were approved by shareholders as follows: March 25, 1992 for Overseas,
December 15, 1993 for High Income; and November 9, 1994 for Contrafund and
Asset Manager: Growth.
On behalf of MONEY MARKET PORTFOLIO, FMR has entered into a sub-advisory
agreement with FMR Texas pursuant to which FMR Texas has primary
responsibility for providing portfolio investment management services to
the fund.
Under the sub-advisory agreement , dated January 1, 1990, which was
approved by the fund's shareholders December 13, 1989, FMR pays FMR
Texas fees equal to 50% of the management fee payable to FMR under its
management contract with the fund. The fees paid to FMR Texas are not
reduced by any voluntary or mandatory expense reimbursements that may be in
effect from time to time. On behalf of the fund , for the fiscal
years ended December 31, 1995, 1994, and 1993, FMR paid FMR Texas
f ees of $ 940,607 , $589,272, and $207,606, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of the
funds (the Plans) pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plans. Each Plan also
specifically recognizes that FMR, either directly or through FDC, may use
its management fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection
with the offer and sale of shares of each fund. In addition, each Plan
provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that assist in selling shares
of each fund, or to third parties, including banks, that render shareholder
support services. The Trustees have not authorized such payments to date.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of each Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
each fund and its shareholders. In particular, the Trustees noted that each
Plan does not authorize payments by each fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders have
other relationships. Money Market, High Income, Equity-Income and Growth
Portfolios' Plans were approved by the fund's respective
shareholders on December 11, 1986. Overseas Portfolio's Plan was
approved by the fund's shareholders on November 18, 1987. The Plans
for Investment Grade Bond Portfolio and Asset Manager Portfolio 's
Plans were approved by the funds' respective shareholders on
December 13, 1989. Index 500 Portfolio's Plan was approved by the
fund shareholders on December 16, 1992. Contrafund and Asset
Manager: Growth Portfolios' Plans were approved by FMR as the then
sole shareholder on November 9, 1994.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
Each fund has an agreement with FSC, an affiliate of FMR Corp., under which
FSC determines the NAV per share and dividends of each fund and maintains
the portfolio and general accounting records of each fund. The fee rates in
effect as of January 1, 1996, are based on each fund's average net
assets as follows: for Money Market , 0.0175% for the first $500
million of average net assets and 0.0075% for average net assets in excess
of $500 million; for High Income and Overseas, 0.075% for the first $500
million of average net assets and 0.0375% for average net assets in excess
of $500 million; for Investment Grade Bond Portfolio, 0.04% for the first
$500 million of average net assets and .02% for average net assets in
excess of $500 million; and for Equity-Income, Growth, Asset Manager,
Contrafund, Asset Manager: Growth and Index 500 Portfolios, 0.06% for the
first $500 million of average net assets and 0.03% for average net assets
in excess of $500 million. The fee for Money Market Portfolio is limited to
a minimum of $40,000 and a maximum of $800,000 per year. The fee for High
Income, Equity Income, Growth, Overseas, Asset Manager, Investment Grade
Bond, Index 500, Contrafund and Asset Manager: Growth Portfolios is limited
to a minimum of $60,000 and a maximum of $800,000 per year.
The following are the fees paid by each fund to FSC for the last three
fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Growth Oversea Investm Asset Asset Contrafu Index
Market Income Income s ent Manager Manager: nd 500
Grade Growth
Bond
1995 $ 107,886 $266,623 $760,752 $760,478 $551,039 $58,943 $758,063 $44,863 $210,939 $76,868
1994 $ 92,003 $197,109 $669,962 $664,914 $491,242 $46,617 $751,546 N/A N/A $45,097
1993 $ 53,769 $138,642 $439,891 $456,795 $230,456 $46,426 $583,404 N/A N/A $45,074
</TABLE>
Each fund utilizes FIIOC, an affiliate of FMR Corp., to maintain the master
accounts of the participating insurance companies. Under the contract, each
fund pays an account fee of $125 and an asset based fee of 0.050% for
each account. The asset-based fees of the growth and growth and income
funds are subject to adjustment if the year-to-date total return of the S&P
500 is greater than positive or negative 15%. In addition to providing
transfer agent and shareholder servicing functions, FIIOC pays all transfer
agent out-of-pocket expenses and also pays for typesetting, printing and
mailing Prospectuses, Statements of Additional Information, reports,
notices and statements to shareholders allocable to the master account of
participating insurance companies.
The following are the fees paid by each fund to FIIOC (including
reimbursement for out-of-pocket expenses) for the last three fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money High Equity- Growth Overs Investm Asset Asset Contrafu Index
Market Income Income eas ent Manage Manage nd 500
Grade r r:
Bond Growth
1995 $390,35 $ 417,74 $1,660,72 $1,536,28 $612,82 $81,906 $957,17 $17,12 $159,15 $65,837
8 2 0 5 8 3 3 2
1994 $115,837 $163,05 $ 0 $ 7,61 $173,15 $90,382 $ 50,23 N/A N/A $84,940
5 2 7 1
1993 $ 87,20 $108,43 $ 51,596 $ 51,82 $143,22 $71,119 $ 62,28 N/A N/A $33,911
8 2 5 2 1
</TABLE>
If a portion of each applicable fund's brokerage commissions had not been
allocated toward payment of these fees, the transfer agent fees for the
last three fiscal years would have been as follows (not applicable for
Money Market, Overseas, Index 500 and Investment Grade Bond Portfolios):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
High Equity- Asset Asset Contrafu
Income Income Growth Manager Manager: nd
Portfolio Portfolio Portfolio Portfolio Growth
Portfolio
1995 $ 427,444 $ 1,660,72 $ 1,536,28 $ 1,545,902 $ 18,490 $ 185,30
0 5 9
1994 163,055 $ 192,500 $ 212,064 $ 181,816 N/A N/A
1993 108,432 $ 111,756 $ 140,122 $ 115,600 N/A N/A
</TABLE>
FSC also receives fees for administering a fund's securities lending
program. Securities lending fees are based on the number and duration of
individual securities loans. For fiscal 1995, 1994, and 1993, no
securities lending fees were incurred by the funds .
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements call
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio, and Overseas Portfolio are funds
of Variable Insurance Products Fund, an open-end management investment
company organized as a Massachusetts business trust on November 13, 1981.
In July 1985, pursuant to shareholder approval, the Declaration of Trust
was amended to change the name of the Trust from Fidelity Cash Reserves II
to Variable Insurance Products Fund. The Declaration of Trust permits the
Trustees to create additional funds.
Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500
Portfolio, Contrafund Portfolio, and Asset Manager: Growth Portfolio are
funds of Variable Insurance Products Fund II, an open-end management
investment company organized as a Massachusetts business trust on March 21,
1988. The Declaration of Trust permits the Trustees to create additional
funds.
Investments in each trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.
In the event that FMR ceases to be the investment adviser to a trust or a
fund, the right of the trust or fund to use the identifying name "Fidelity"
may be withdrawn. There is a remote possibility that one fund might become
liable for any misstatement in its prospectus or statement of additional
information about another fund.
The assets of each trust received for the issue or sale of shares of each
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. Each trust is an entity of the type
commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the trust.
Each Declaration of Trust provides that the trust shall not have any claim
against shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or instrument entered into or
executed by the trust or the Trustees shall include a provision limiting
the obligations created thereby to the trust and its assets. Each
Declaration of Trust provides for indemnification out of each fund's
property of any shareholders held personally liable for the obligations of
the fund. Each 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.
Each Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the 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, and the right of redemption are
described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the heading "Shareholder and Trustee Liability"
above. Shareholders representing 10% or more of a trust or a fund may, as
set forth in the Declaration of Trust, call meetings of a 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 an entire trust, the purpose of
voting on removal of one or more Trustees. Each 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 outstanding shares of
a trust or a fund. If not so terminated, each trust and its funds will
continue indefinitely.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York New York,
is custodian of Money Market, High Income and Investment Grade Bond
Portfolios' assets; The Chase Manhattan Bank, N.A., 1211 Avenue of the
Americas, New York, New York 10036, is custodian of Equity-Income,
Overseas, Asset Manager: Growth, and Asset Manager Portfolios' assets; and
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts, is
custodian of Growth, Contrafund, and Index 500 Portfolios' assets. The
custodians take no part in determining the investment policies of the funds
or in deciding which securities are purchased or sold by the funds. The
funds, however, may invest in obligations of the custodians and may
purchase or sell securities from or to the custodians. The Bank of New
York and Chemical Bank, each headquartered in New York, also may serve as a
special purpose custodian of certain assets in connection with pooled
repurchase agreement transactions. Investors should understand that the
expense ratio for the Overseas Portfolio may be higher than that of
investment companies which invest exclusively in domestic securities since
the cost of maintaining the custody of foreign securities is higher.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR. The
Boston branch of Brown Brothers Harriman & Co. leases its office space from
an affiliate of FMR at a lease payment which, when entered into, was
consistent with prevailing market rates. Transactions that have occurred to
date include mortgages and personal and general business loans. In the
judgment of FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts (1999 Bryan Street, Dallas, Texas, for Money Market
Portfolio), serves as independent accountant of Variable Insurance Products
Fund and Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts,
serves as independent accountant of Variable Insurance Products Fund II.
Each auditor examines financial statements for the funds and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the fiscal
year ended December 31, 199 5 are included in the fund's Annual
Report, which is a separate report supplied with this Statement of
Additional Information. Each fund's financial statements and financial
highlights are incorporated herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities 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
estimating the timing of principal payments, including unscheduled
prepayments, during the life of the mortgage. The weighted average life of
these securities is likely to be substantially shorter than their stated
final maturity.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
(small solid bullet) Leading market positions in well established
industries.
(small solid bullet) High rates of return on funds employed.
(small solid bullet) Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
(small solid bullet) Broad margins in earning coverage of fixed financial
charges and with high internal cash generation.
(small solid bullet) Well established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earning trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated PRIME-3 (or related supporting institutions) have
an acceptable capacity for repayment of short-term promissory obligations.
The effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.
A-2 - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
A-3 - This designation indicates that the capacity for timely
payment is satisfactory. These issues are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
B - Issues rated B are regarded as having only adequate capacity for
timely payment. However, such capacity may be damaged by changing or
short-term adversities.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is
used when interest or principal payments are not made on the date due even
if the applicable period has not expired, unless S&P believes that such
payments will be made during such grace period.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, 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 edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA - Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect
to principal or interest.
CA - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds which are rated C are the lowest-rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt 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.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - The rating CC is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been filed
but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The D
rating will also be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
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.
(INDEX 500 PORTFOLIO) The S&P 500 Composite Stock Price Index (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; Standard & Poor's
may change the composition of the Index from time to time. Stocks in the
S&P 500 Index are weighted according to their market capitalization (i.e.,
the number of shares outstanding multiplied by the stock's current price),
with the 59 largest stocks currently composing 50% of the S&P 500's value.
Although Standard & Poor's obtains information for inclusion in or for use
in the calculation of the S&P 500 from sources which considers reliable,
Standard & Poor's does not guarantee the accuracy or the completeness of
the S&P 500 or any data included therein. Standard & Poor's makes no
warranty, express or implied, as to results to be obtained by the licensee,
owners of the fund, or any other person or entity from the use of the S&P
500 or any data included therein in connection with the rights licensed
hereunder or for any other use. Standard & Poor's makes no express or
implied warranties, and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the S&P
500 any data included therein.
THE 500 STOCKS IN THE S&P 500 INDEX. The following is a list of the 500
stocks comprising the S&P 500 as of February 29, 1996.
Abbott Labs
Advanced Micro Devices Inc.
Aetna Life & Casualty Co.
Ahmanson (H.F.) & Co.
Air Products & Chemicals Inc.
Airtouch Communications
Alberto Culver Co.
Albertson's Inc.
Alcan Aluminum Ltd.
Alco Standard Corp.
Alexander & Alexander
Allergan Inc.
Allied-Signal Inc.
Allstate Corp.
ALL TEL Corp.
Aluminum Co. of America
ALZA Corp.
Amdahl Corp.
Amerada Hess Corp.
American Brands Inc.
American Electric Power Inc.
American Express Co.
American Gen Corp.
American Greetings Corp.
American Home Products Corp.
American Int'l. Group Inc.
American Stores Co.
Ameritech Corp.
Amgen Inc.
Amoco Corp.
AMP Inc.
AMR Corp.
Andrew Corp.
Anheuser-Busch Cos. Inc.
Apple Computer Inc.
Applied Materials Inc.
Archer Daniels Midland Co.
Armco Inc.
Armstrong World Industries Inc.
ASARCO Inc.
Ashland Inc.
AT&T Corp.
Atlantic Richfield Co.
Autodesk Inc.
Automatic Data Processing
Avery Dennison Corp.
Avon Products Inc.
Baker Hughes Inc.
Ball Corp.
Bally Entertainment Corp.
Baltimore Gas & Electric Co.
Banc One Corp.
Bank New York Inc.
Bank of Boston Corp.
BankAmerica Corp.
Bankers Trust N.Y. Corp.
Bard (C.R.) Inc.
Barnett Banks Inc.
Barrick Gold Corp.
Bausch & Lomb Inc.
Baxter International Inc.
Bay Networks Inc.
Becton Dickinson & Co.
Bell Atlantic Corp.
BellSouth Corp.
Bemis Inc.
Beneficial Corp.
Bethlehem Steel Corp.
Beverly Enterprises Inc.
Biomet Inc.
Black & Decker Corp.
Block H&R Inc.
Boatmen's Bancshares Inc.
Boeing Co.
Boise Cascade Corp.
Boston Scientific Corp.
Briggs & Stratton Corp.
Bristol-Myers Squibb Co.
Brown Forman Corp.
Brown Group Inc.
Browning-Ferris Industries Inc.
Brunswick Corp.
Burlington Northern Santa Fe
Burlington Resources Inc.
Cabletron Sys Inc.
Caliber Sys Inc.
Campbell Soup Co.
Carolina Power & Light Co.
Cast Corp.
Caterpillar Inc.
Centex Corp.
Central & South West Corp.
Ceridian Corp.
Champion International Corp.
Charming Shoppes Inc.
Chase Manhattan Corp.
Chemical Banking Corp.
Chevron Corp.
Chrysler Corp.
Chubb Corp.
CIGNA Corp.
Cincinnati Milacron Inc.
Cinergy Corp.
Circuit City Stores Inc.
Cisco Systems Inc.
Citicorp
Clorox Co.
Coastal Corp.
Coca Cola Co.
Colgate-Palmolive Co.
Columbia
Columbia Gas System Inc.
3 Com Corp.
Comcast Corp.
Comerica Inc.
Community Psych Centers
Compaq Computer Corp.
Computer Associates Intl. Inc.
Computer Sciences Corp.
ConAgra Inc.
Conrail Inc.
Consolidated Edison Co. N.Y.
Consolidated Freightways Inc.
Consolidated Natural Gas Co.
Cooper Industries Inc.
Cooper Tire & Rubber Co.
Coors (Adolph) Co.
CoreStates Financial Corp.
Corning Inc.
CPC International Inc.
Crane Co.
Cray Research Inc.
Crown Cork & Seal Inc.
CSX Corp.
CUC Int'l. Inc.
Cummins Engine Inc.
Cyprus Amax Minerals Co.
Dana Corp.
Darden Restaurants Inc.
Data General Corp.
Dayton Hudson Corp.
Dean Witter Discover & Co.
Deere & Co.
Delta Air Lines Inc.
Deluxe Corp.
Dial Corp.
Digital Equipment Corp.
Dillard Department Stores Inc.
Dominion Resources Inc.
Donnelley (R.R.) & Sons Co.
Dover Corp.
Dow Chemical Co.
Dow Jones & Co. Inc.
Dresser Industries Inc.
DSC Communications Corp.
DTE Energy Co.
Du Pont (E.I.) de Nemours &Co
Duke Power
Dun & Bradstreet
EG&G Inc.
Eastern Enterprises
Eastman Chemical Co.
Eastman Kodak Co.
Eaton Corp.
Echlin Inc.
Echo Bay Mines Ltd.
Ecolab Inc.
Edison Int'l.
Emerson Electric Co.
Engelhard Corp.
Enron Corp.
Enserch Corp.
Entergy Corp.
Exxon Corp.
Federal Express Corp.
Federal Home Loan Mtg. Corp.
Federal Natl. Mtge. Assn.
Federal Paper Board Inc.
Federated Dept. Stores Inc.
First Bank System Inc.
First Chicago NBD Corp.
First Data Corp.
First Fidelity Bancorp
First Interstate Bancorp
First Union Corp.
Fleet Financial Group Inc.
Fleetwood Enterprises Inc.
Fleming Cos. Inc.
Fluor Corp.
FMC Corp.
Ford Motor Co.
Foster Wheeler
FPL Group Inc.
Freeport McMoran Copper/Gold
Fruit of the Loom Inc.
Gannett Inc.
Gap Inc.
General Dynamics Corp.
General Electric Co.
General Mills Inc.
General Motors Corp.
General Public Utilities Corp.
General Re Corp.
General Signal Corp.
Genuine Parts Co.
Georgia-Pacific Corp.
Giant Food Inc.
Giddings & Lewis Inc.
Gillette Co.
Golden West Financial Corp.
Goodrich (B.F.) Co.
Goodyear Tire & Rubber Co.
Grace (W.R.) & Co.
Grainger (W.W.) Inc.
Great A&P TEA Inc.
Great Lakes Chemical Corp.
Great Western Financial Corp.
GTE Corp.
Halliburton Co.
Handleman Co.
Harcourt General Inc.
Harland (J.H.) Co.
Harnischfeger Indus. Inc.
Harrahs Entertainment Inc.
Harris Corp.
Hartmarx Corp.
Hasbro Inc.
Heinz (H.J.) Co.
Helmerich & Payne Inc.
Hercules Inc.
Hershey Foods Corp.
Hewlett-Packard Co.
Hilton Hotels Corp.
Home Depot Inc.
Homestake Mining Co.
Honeywell Inc.
Household International Inc.
Houston Industries Inc.
Humana Inc.
Illinois Tool Works Inc.
Inco Ltd.
Ingersoll-Rand Co.
Inland Steel Ind. Inc.
Intel Corp.
Intergraph Corp.
International Bus. Machines
International Flav/Frag
International Paper Co.
Interpublic Group Cos. Inc.
ITT Corp.
ITT Hartford Group Inc.
ITT Industries Inc.
James River Corp.
Jefferson-Pilot Corp.
Johnson Controls Inc.
Johnson & Johnson
Jostens Inc.
K Mart
Kaufman & Broad Home Corp.
Kellogg Co.
Kerr-McGee Corp.
KeyCorp
Kimberly-Clark Corp.
King World Productions Inc.
Knight-Ridder Inc.
Kroger Co.
Laidlaw Inc.
Lilly (Eli) & Co.
Limited Inc.
Lincoln National Corp.
Liz Claiborne Inc.
Lockheed Martin Corp.
Loews Corp.
Longs Drug Stores Corp.
Loral Corp.
Louisiana Land & Exploration
Louisiana Pacific Corp.
Lowe's Cos. Inc.
LSI Logic Corp.
Luby's Cafeterias Inc.
Maillinckrodt Group Inc.
Manor Care Inc.
Marriott Int'l Inc.
Marsh & McLennan Cos. Inc.
Masco Corp.
Mattel Inc.
May Dept. Stores Co.
Maytag Corp.
MBNA Corp.
McDermott International Inc.
McDonald's Corp.
McDonnell Douglas Corp.
McGraw-Hill Companies Inc.
MCI Communications Corp.
Mead Corp.
Medtronic Inc.
Mellon Bank Corp.
Melville Corp.
Mercantile Stores Inc.
Merck & Co. Inc.
Meredith Corp.
Merrill Lynch & Co. Inc.
Micron Technology Inc.
Microsoft Corp.
Millipore Corp.
Minn. Mining & Mfg. Co.
Mobil Corp.
Monsanto Co.
Moore Ltd.
Morgan (J.P.) & Co. Inc.
Morgan Stanley Group Inc.
Morton International Inc.
Motorola Inc.
NACCO Ind. Inc.
Nalco Chemical Co.
National City Corp.
National Semiconductor Corp.
National Service Ind. Inc.
NationsBank Corp.
Navistar International Corp.
New York Times Co.
Newell Co.
Newmont Mining Corp.
Niagara Mohawk Power Corp.
NICOR Inc.
Nike Inc.
NorAm Energy Corp.
Nordstrom Inc.
Norfolk Southern Corp.
Northern States Power Co.
Northern Telecom Ltd.
Northrop Grumman Corp.
Norwest Corp.
Novell Inc.
Nucor Corp.
Nynex Corp.
Occidental Petroleum Corp.
Ogden Corp.
Ohio Edison Co.
ONEOK Inc.
Oracle Corp.
Oryx Energy Co.
Outboard Marine Corp.
Owens Corning
PACCAR Inc.
Pacific Enterprises
Pacific Gas & Electric Co.
Pacific Telesis Group
PacifiCorp
Pall Corp.
Panhandle Eastern Corp.
Parker-Hannifin Corp.
PECO Energy Co.
Penney (J.C.) Inc.
Pennzoil Co.
Peoples Energy Corp.
Pep Boys
PepsiCo Inc.
Perkin-Elmer Corp.
Pfizer Inc.
Phelps Dodge Corp.
Pharmacia & UpJohn Inc.
Philip Morris Cos. Inc.
Phillips Petroleum Co.
Pioneer Hi-Bred Int'l Inc.
Pitney-Bowes Inc.
Placer Dome Inc.
PNC Bank Corp.
Polaroid Corp.
Potlatch Corp.
PPG Industries Inc.
PP&L Resources Inc.
Praxair Inc.
Premark International Inc.
Price
Procter & Gamble Co.
Providian Corp.
Public Service Enterprises
Pulte Corp.
Quaker Oats Co.
Ralston Purina Co.
Raychem Corp.
Raytheon Co.
Reebok International Ltd.
Republic NY Corp.
Reynolds Metals Co.
Rite Aid Corp.
Rockwell International Corp.
Rohm & Haas Co.
Rowan Cos. Inc.
Royal Dutch Petroleum Co.
Rubbermaid Inc.
Russell Corp.
Ryan's Family Steak Houses
Ryder System Inc.
SAFECO Corp.
Safety-Kleen Corp.
Salomon Inc.
Santa Fe Energy Resources Inc.
Santa Fe Pacific Gold Corp.
Sara Lee Corp.
SBC Communications Inc.
Schering-Plough Corp.
Schlumberger Ltd.
Scientific-Atlanta Inc.
Seagram Ltd.
Sears Roebuck & Co.
Service Corp. International
Shared Medical Systems Corp.
Sherwin-Williams Co.
Shoney's Inc.
Sigma Aldrich Corp.
Silicon Graphics Inc.
Snap-On Inc.
Sonat Inc.
Southern Co.
Southwest Airlines Co.
Springs Industries Inc.
Sprint Corp.
Stanley Works
Stone Container Corp.
Stride Rite Corp.
St. Jude Medical Inc.
St. Paul Cos. Inc.
Sun Inc.
Sun Microsystem Inc.
SunTrust Banks Inc.
Supervalu Inc.
Sysco Corp.
Tandem Computers Inc.
Tandy Corp.
Tektronix Inc.
Tele-Communications Inc.
Teledyne Inc.
Tellabs Inc.
Temple-Inland Inc.
Tenet Healthcare Corp.
Tenneco Inc.
Texaco Inc.
Texas Instruments Inc.
Texas Utilities Co.
Textron Inc.
Thomas & Betts Corp.
Time Warner Inc.
Times Mirror Co.
Timken Co.
TJX Companies Inc.
Torchmark Corp.
Toys R Us Inc.
Transamerica Corp.
Travelers Group Inc.
Tribune Co.
Trinova Corp.
TRW Inc.
Tyco Int'l Limited
Unicom Corp.
Unilever N.V.
Union Camp Corp.
Union Carbide Corp.
Union Electric Co.
Union Pacific
Unisys Corp.
United Healthcare Corp.
United Technologies Corp.
Unocal Corp.
UNUM Corp.
U.S. Bancorp
U.S. Healthcare Inc.
U.S. Surgical Corp.
U.S. West Inc.
USAir Group Inc.
USF&G Corp.
USLIFE Corp.
UST Inc.
USX-Marathon Group
USX-U.S. Steel Group
Varity Corp.
V.F. Corp.
Viacom Inc.
Wachovia Corp.
Walgreen Co.
Wal-Mart Stores Inc.
Walt Disney Co.
Warner-Lambert Co.
Wells Fargo & Co.
Wendy's International Inc.
Western Atlas Inc.
Westinghouse Electric Corp.
Westvaco Corp.
Weyerhaeuser Corp.
Whirlpool Corp.
Whitman Corp.
Williamette Industries Inc.
Williams Cos. Inc.
Winn-Dixie Stores Inc.
WMX Technologies Inc.
Woolworth Corp.
Worthington Ind. Inc.
Wrigley (Wm.) Jr. Co.
Xerox Corp.
Yellow Corp.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) 1. The Financial Statements and Financial Highlights, included in the
Annual Report, for Variable Insurance Products Fund II: Investment Grade
Bond Portfolio, Asset Manager Portfolio, Index 500 Portfolio, Contrafund
Portfolio, and Asset Manager: Growth Portfolio for the fiscal year ended
December 31, 1995, are incorporated herein by reference into the Statement
of Additional Information and were filed on February 15, 1996, for Variable
Insurance Products Fund II (File No. 811-5511) pursuant to Rule 30d-1 under
the Investment Company Act of 1940 and are incorporated herein by
reference.
2. The Financial Statements and Financial Highlights, included in the
Annual Report, for Variable Insurance Products Fund: Money Market
Portfolio, High Income Portfolio, Equity-Income Portfolio, Growth Portfolio
and Overseas Portfolio for the fiscal year ended December 31, 1994, are
incorporated herein by reference into the Statement of Additional
Information and were filed on February 15, 1996, for Variable Insurance
Products Fund (File No. 811-3329) pursuant to Rule 30d-1 under the
Investment Company Act of 1940 and are incorporated herein by reference.
(b) Exhibits:
(1) (a) Declaration of Trust dated as of March 21, 1988 is incorporated
herein by reference to Exhibit 1(a) of Post-Effective Amendment No. 17.
(b) Supplement to the Declaration of Trust dated January 1, 1990 is
incorporated herein by reference to Exhibit 1(b) of Post-Effective
Amendment No. 17.
(2) By-Laws of Variable Insurance Products Fund II, as amended, are
incorporated herein by reference to Exhibit 2(a) to Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(3) None.
(4) None.
(5) (a) Management Contract between Index 500 Portfolio and Fidelity
Management & Research Company dated January 1, 1993, is incorporated herein
by reference to Exhibit 5(a) of Post-Effective Amendment No. 17.
(b) Management Contract between Investment Grade Bond Portfolio and
Fidelity Management & Research Company dated January 1, 1993, is
incorporated herein by reference to Exhibit 5(b) of Post-Effective
Amendment No. 17.
(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) of Post-Effective Amendment No. 17.
(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) of Post-Effective Amendment No. 17.
(e) Management Contract between Asset Manager Portfolio and Fidelity
Management & Research Company dated January 1, 1993, is incorporated herein
by reference to Exhibit 5(e) of Post-Effective Amendment No. 17.
(f) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. on behalf of Asset
Manager: Growth Portfolio, dated December 1, 1994, is incorporated herein
by reference to Exhibit 5(f) of Post-Effective Amendment No. 17.
(g) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
Asset Manager: Growth Portfolio, dated December 1, 1994, is incorporated
herein by reference to Exhibit 5(g) of Post-Effective Amendment No. 17.
(h) Management Contract between Asset Manager: Growth Portfolio and
Fidelity Management & Research Company dated November 1, 1994, is
incorporated herein by reference as Exhibit 5(h) of Post-Effective
Amendment No. 16.
(i) Management Contract between Contrafund Portfolio and Fidelity
Management & Research Company dated November 1, 1994, is incorporated
herein by reference as Exhibit 5(i) of Post-Effective Amendment No. 16.
(j) Sub-Advisory Agreement between Fidelity Management & Research Company
and Fidelity Management & Research (U.K.) Inc. on behalf of Contrafund
Portfolio, dated December 1, 1994, is incorporated herein by reference to
Exhibit 5(j) of Post-Effective Amendment No. 17.
(k) Sub-Advisory Agreement between Fidelity Management & Research Company
and Fidelity Management & Research (Far East) Inc. on behalf of Contrafund
Portfolio, dated December 1. 1994, is incorporated herein by reference to
Exhibit 5(k) of Post-Effective Amendment No. 17.
(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) of Post-Effective Amendment No. 17.
(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) of Post-Effective Amendment No. 17.
(c) General Distribution Agreement between Index 500 Portfolio and
Fidelity Distributors Corporation dated August 27, 1992, is incorporated
herein by reference to Exhibit 6(c) of Post-Effective Amendment No. 17.
(d) General Distribution Agreement between Asset Manager: Growth Portfolio
and Fidelity Distributors Corporation dated December 1, 1994, is
incorporated herein by reference to Exhibit 6(d) of Post-Effective
Amendment No. 17.
(e) General Distribution Agreement between Contrafund Portfolio and
Fidelity Distributors Corporation dated December 1, 1994, is incorporated
herein by reference to Exhibit 6(e) of Post-Effective Amendment No. 17.
(7) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, effective August 1, 1993, is incorporated herein by
reference to Exhibit 7 to Fidelity Union Street Trust's Post-Effective
Amendment No. 87 (File No. 2-50318).
(8) (a) Custodian Agreement and Appendix C, dated December 1, 1994, between
The Bank of New York and Variable Insurance Products Fund II on behalf of
Investment Grade Bond Portfolio is incorporated herein by reference to
Exhibit 8(a) of Fidelity Hereford Street Trust's Post-Effective Amendment
No. 4 (File No. 33-52577).
(b) Appendix A, dated September 14, 1995, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and Variable Insurance
Products Fund II on behalf of Investment Grade Bond Portfolio is
incorporated herein by reference to Exhibit 8(d) of Fidelity Charles Street
Trust's Post-Effective Amendment No. 54 (File No. 2-73133).
(c) Appendix B, dated September 14, 1995, to the Custodian Agreement, dated
December 1, 1994, between The Bank of New York and Variable Insurance
Products Fund II on behalf of Investment Grade Bond Portfolio is
incorporated herein by reference to Exhibit 8(e) of Fidelity Charles Street
Trust's Post-Effective Amendment No. 54 (File No. 2-73133).
(d) Custodian Agreement, Appendix A, and Appendix C, dated August 1, 1994,
between The Chase Manhattan Bank, N.A. and Variable Insurance Products Fund
II on behalf of Asset Manager Portfolio and Asset Manager: Growth Portfolio
is incorporated herein by reference to Exhibit 8(a) of Fidelity Investment
Trust's Post-Effective Amendment No. 59 (File No. 2-90649).
(e) Appendix B, dated September 14, 1995, to the Custodian Agreement,
dated August 1, 1994, between The Chase Manhattan Bank, N.A. and Variable
Insurance Products Fund II on behalf of Asset Manager Portfolio and Asset
Manager: Growth Portfolio is incorporated herein by reference to Exhibit
8(b) of Fidelity Charles Street Trust's Post-Effective Amendment No. 54
(File No. 2-73133).
(f) Custodian Agreement and Appendix C, dated September 1, 1994, between
Brown Brothers Harriman & Company and Variable Insurance Products Fund II
on behalf of Index 500 Portfolio and Contrafund Portfolio is incorporated
herein by reference to Exhibit 8(a) of Fidelity Commonwealth Trust's
Post-Effective Amendment No. 56 (File No. 2-52322).
(g) Appendix A, dated September 14, 1995, to the Custodian Agreement,
dated September 1, 1994, between Brown Brothers Harriman & Company and
Variable Insurance Products Fund II on behalf of Index 500 Portfolio and
Contrafund Portfolio is incorporated herein by reference to Exhibit 8(b) of
Fidelity Mt. Vernon Street Trust's Post-Effective Amendment No. 33 (File
No. 2-79755).
(h) Appendix B, dated September 14, 1995, to the Custodian Agreement,
dated September 1, 1994, between Brown Brothers Harriman & Company and
Variable Insurance Products Fund II on behalf of Index 500 Portfolio and
Contrafund Portfolio is incorporated herein by reference to Exhibit 8(b) of
Fidelity Capital Trust's Post-Effective Amendment No. 63 (File No.
2-61760).
(9) None.
(10) None.
(11)(a) Consent of Price Waterhouse LLP is filed herein as Exhibit 11(a).
(11)(b) Consent of Coopers & Lybrand L.L.P. is filed herein as Exhibit
11(b).
(11)(a)
(11)(b) Not applicable.
(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(a)
to Post-Effective Amendment No. 19.
(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. 19.
(c) 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. 19.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Asset
Manager: Growth Portfolio is incorporated herein by reference to Exhibit
15(d) to Post-Effective Amendment No. 19.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Contrafund
Portfolio is incorporated herein by reference to Exhibit 15(e) to
Post-Effective Amendment No. 19.
(16) Schedule for Computation of performance quotations (for a 30-day
yield, using Investment Grade Bond Portfolio and for total return, using
Asset Manager Portfolio as an example) is incorporated herein by reference
to Exhibit 16 to Post-Effective Amendment No. 19.
(a) A schedule for the computation of a moving average (using Asset
Manager Portfolio as an example) is incorporated herein by reference and
was filed as Exhibit 16(a) to Post Effective Amendment No. 14.
(17) Financial Data Schedules are filed herein as Exhibit 17.
(18) Not Applicable.
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
March 31, 1996
Title of Class Number of Record Holders
Investment Grade Bond Portfolio 42
Asset Manager Portfolio 98
Index 500 Portfolio 53
Asset Manager: Growth Portfolio 16
Contrafund Portfolio 43
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present Trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit, or
proceeding in which he is involved by virtue of his service as a Trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless disregard
of the duties involved in the conduct of the particular office involved.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against any
loss, liability, claim, damages or expense arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information, shareholder
reports or other information filed or made public by the Registrant
included a materially misleading statement or omission. However, the
Registrant does not agree to indemnify the Distributor or hold it harmless
to the extent that the statement or omission was made in reliance upon, and
in conformity with, information furnished to the Registrant by or on behalf
of the Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the
obligations and duties under the Distribution Agreement.
Pursuant to the agreement by which Fidelity Service Company ("Service") is
appointed sub-transfer agent, the Transfer Agent agrees to indemnify
Service for its losses, claims, damages, liabilities and expenses to the
extent the Transfer Agent is entitled to and receives indemnification from
the Registrant for the same events. Under the Transfer Agency Agreement,
the Registrant agrees to indemnify and hold the Transfer Agent harmless
against any losses, claims, damages, liabilities, or expenses resulting
from:
(1) any claim, demand, action or suit brought by any person other than the
Registrant, which names the Transfer Agent and/or the Registrant as a party
and is not based on and does not result from the Transfer Agent's willful
misfeasance, bad faith, negligence or reckless disregard of its duties, and
arises out of or in connection with the Transfer Agent's performance under
the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent contributed to
by the Transfer Agent's willful misfeasance, bad faith, negligence or
reckless disregard of its duties) which results from the negligence of the
Registrant, or from the Transfer Agent's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of the Transfer
Agent's acting in reliance upon advice reasonably believed by the Transfer
Agent to have been given by counsel for the Registrant, or as a result of
the Transfer Agent's acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR 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 and Director of FMR.
Robert Beckwitt Vice President of FMR and of funds advised by FMR.
David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.
Stephan Campbell Vice President of FMR (1993).
Dwight Churchill Vice President of FMR (1993).
William Danoff 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.
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.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Lawrence Greenberg Vice President of FMR (1993).
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Equity Division Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Richard C. Habermann Senior Vice President of FMR (1993).
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curtis Hollingsworth Vice President of FMR (1993).
Stephen P. Jonas Treasurer and Vice President of FMR (1993)); Treasurer of
FMR Texas Inc. (1993), Fidelity Management & Research
(U.K.) Inc. (1993), and Fidelity Management & Research
(Far East) Inc. (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); High Income
Division 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.
Malcolm W. MacNaught III Vice President of FMR (1993).
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Andrew Offit Vice President of FMR (1993).
Judy Pagliuca Vice President of FMR (1993).
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Lee Sandwen Vice President of FMR (1993).
Patricia A. Satterthwaite Vice President of FMR (1993) and of a fund advised by
FMR.
Thomas T. Soviero Vice President of FMR (1993).
Richard Spillane Vice President of FMR; Senior Vice President and Director
of Operations and Compliance of FMR U.K. (1993).
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised
by FMR.
Gary L. Swayze Vice President of FMR and of funds advised by FMR;
Tax-Free Fixed-Income Group Leader.
Thomas Sweeney Vice President of FMR (1993).
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; Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) 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.; 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.
Richard Spillane Senior Vice President and Director of Operations and
Compliance of FMR U.K. (1993).
Stephen P. Jonas Treasurer of FMR U.K. (1993), Fidelity Management &
Research (Far East) Inc. (1993), and FMR Texas Inc. (1993);
Treasurer and Vice President of FMR (1993).
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).
Stephen P. Jonas Treasurer of FMR Far East (1993), Fidelity Management
& Research (U.K.) Inc. (1993), and FMR Texas Inc.
(1993); Treasurer and Vice President of FMR (1993).
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.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer 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 Investment Grade Bond Portfolio, Asset Manager
Portfolio, Index 500 Portfolio, Asset Manager: Growth Portfolio, and
Contrafund Portfolio, undertakes (1) to call a meeting of shareholders for
the purpose of voting upon the questions of removal of a trustee or
trustees, when requested to do so by record holders of not less than 10% of
its outstanding shares; and (2) to assist in communications with other
shareholders pursuant to Section 16(c)(1) and (2), whenever shareholders
meeting the qualifications set forth in Section 16(c) seek the opportunity
to communicate with other shareholders with a view toward requesting a
meeting.
The Registrant,on behalf of Investment Grade Bond Portfolio, Asset Manager
Portfolio, Index 500 Portfolio, Asset Manager: Growth Portfolio, and
Contrafund Portfolio, provided the information required by Item 5A is
contained in the annual report, undertakes to furnish to each person to
whom a prospectus has been delivered, upon their request and without
charge, a copy of the Registrant's latest annual report to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for the effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 20 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 19th day
of April 1996.
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 April 19 , 1996
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Kenneth A. Rathgeber Treasurer April 19 , 1996
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee April 19 , 1996
J. Gary Burkhead
/s/Ralph F. Cox * Trustee April 19 , 1996
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee April 19 , 1996
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee April 19 , 1996
Richard J. Flynn
/s/E. Bradley Jones * Trustee April 19 , 1996
E. Bradley Jones
/s/Donald J. Kirk * Trustee April 19 , 1996
Donald J. Kirk
/s/Peter S. Lynch * Trustee April 19 , 1996
Peter S. Lynch
/s/Edward H. Malone * Trustee April 19 , 1996
Edward H. Malone
/s/Marvin L. Mann_____* Trustee April 19 , 1996
Marvin L. Mann
/s/Gerald C. McDonough* Trustee April 19 , 1996
Gerald C. McDonough
/s/Thomas R. Williams * Trustee April 19 , 1996
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated December 15, 1994 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 15, 1994 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 Annuity Fund Fidelity Income Fund
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 Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
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 Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust 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
</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.
Djinis, 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 fifteenth day of December, 1994.
/s/Edward C. Johnson 3d /s/Donald J. Kirk
Edward C. Johnson 3d Donald J. Kirk
/s/J. Gary Burkhead /s/Peter S. Lynch
J. Gary Burkhead Peter S. Lynch
/s/Ralph F. Cox /s/Marvin L. Mann
Ralph F. Cox Marvin L. Mann
/s/Phyllis Burke Davis /s/Edward H. Malone
Phyllis Burke Davis 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
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Institutional Trust
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series II Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
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 Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Exchange Fund Fund
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund
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 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 December 15, 1994
Edward C. Johnson 3d
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Prospectus
and Statement of Additional Information constituting part of Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A of Variable
Insurance Products Fund II: Invesment Grade Bond Portfolio, Asset Manager
Portfolio, Asset Manager: Growth Portfolio, Contrafund Portfolio and Index
500 Portfolio, of our report dated February 9, 1996, on the financial
statements and financial highlights included in the December 31, 1995
Annual Report to Shareholders of Variable Insurance Products Fund II:
Investment Grade Bond Portfolio, Asset Manager Portfolio, Asset Manager:
Growth Portfolio, Contrafund Portfolio and Index 500 Portfolio.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Auditor" in the Statement of
Additional Information.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 22, 1996
Exhibit 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Statement of
Additional Information constituting part of this Post-Effective Amendment
No. 20 to the Registration Statement on Form N-1A (the "Registration
Statement") of Variable Insurance Products Fund, of our report dated
February 6, 1996, relating to the financial statements and financial
highlights included in the December 31, 1995 Annual Report to Shareholders
of Variable Insurance Products Fund: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio
which is incorporated by reference in such Registration Statement.
We further consent to the references to our Firm in the Prospectuses and
Statement of Additional Information under the headings "Financial
Highlights" and "Auditor".
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831016
<NAME> Variable Insurance Products Fund II
<SERIES>
<NUMBER> 11
<NAME> Investment Grade Bond Portfolio
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-END> dec-31-1995
<INVESTMENTS-AT-COST> 175,792
<INVESTMENTS-AT-VALUE> 183,406
<RECEIVABLES> 3,199
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 186,605
<PAYABLE-FOR-SECURITIES> 4,811
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 248
<TOTAL-LIABILITIES> 5,059
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 164,574
<SHARES-COMMON-STOCK> 14,552
<SHARES-COMMON-PRIOR> 10,104
<ACCUMULATED-NII-CURRENT> 9,528
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (171)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,615
<NET-ASSETS> 181,546
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,414
<OTHER-INCOME> 0
<EXPENSES-NET> 859
<NET-INVESTMENT-INCOME> 9,555
<REALIZED-GAINS-CURRENT> 2,635
<APPREC-INCREASE-CURRENT> 10,800
<NET-CHANGE-FROM-OPS> 22,990
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,481
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,945
<NUMBER-OF-SHARES-REDEEMED> 5,910
<SHARES-REINVESTED> 413
<NET-CHANGE-IN-ASSETS> 70,165
<ACCUMULATED-NII-PRIOR> 7,323
<ACCUMULATED-GAINS-PRIOR> (5,673)
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 660
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<GROSS-EXPENSE> 859
<AVERAGE-NET-ASSETS> 146,293
<PER-SHARE-NAV-BEGIN> 11.020
<PER-SHARE-NII> .320
<PER-SHARE-GAIN-APPREC> 1.530
<PER-SHARE-DIVIDEND> .390
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.480
<EXPENSE-RATIO> 59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
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<CIK> 0000831016
<NAME> Variable Insurance Products Fund II
<SERIES>
<NUMBER> 21
<NAME> Asset Manager Portfolio
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-END> dec-31-1995
<INVESTMENTS-AT-COST> 3,107,397
<INVESTMENTS-AT-VALUE> 3,314,574
<RECEIVABLES> 82,306
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,396,880
<PAYABLE-FOR-SECURITIES> 58,216
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,820
<TOTAL-LIABILITIES> 64,036
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,914,158
<SHARES-COMMON-STOCK> 211,046
<SHARES-COMMON-PRIOR> 238,560
<ACCUMULATED-NII-CURRENT> 105,159
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 97,895
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 215,632
<NET-ASSETS> 3,332,844
<DIVIDEND-INCOME> 34,064
<INTEREST-INCOME> 106,494
<OTHER-INCOME> 0
<EXPENSES-NET> 25,781
<NET-INVESTMENT-INCOME> 114,777
<REALIZED-GAINS-CURRENT> 108,752
<APPREC-INCREASE-CURRENT> 284,745
<NET-CHANGE-FROM-OPS> 508,274
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 67,895
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,732
<NUMBER-OF-SHARES-REDEEMED> 49,260
<SHARES-REINVESTED> 5,014
<NET-CHANGE-IN-ASSETS> 42,317
<ACCUMULATED-NII-PRIOR> 117,159
<ACCUMULATED-GAINS-PRIOR> (69,758)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23,175
<INTEREST-EXPENSE> 2
<GROSS-EXPENSE> 26,370
<AVERAGE-NET-ASSETS> 3,245,182
<PER-SHARE-NAV-BEGIN> 13.790
<PER-SHARE-NII> .300
<PER-SHARE-GAIN-APPREC> 1.990
<PER-SHARE-DIVIDEND> .290
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.790
<EXPENSE-RATIO> 79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831016
<NAME> Variable Insurance Products Fund II
<SERIES>
<NUMBER> 31
<NAME> Index 500 Portfolio
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-END> dec-31-1995
<INVESTMENTS-AT-COST> 218,581
<INVESTMENTS-AT-VALUE> 244,587
<RECEIVABLES> 5,559
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 250,147
<PAYABLE-FOR-SECURITIES> 4,317
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130
<TOTAL-LIABILITIES> 4,447
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 207,598
<SHARES-COMMON-STOCK> 3,245
<SHARES-COMMON-PRIOR> 913
<ACCUMULATED-NII-CURRENT> 3,389
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,832
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25,881
<NET-ASSETS> 245,700
<DIVIDEND-INCOME> 2,798
<INTEREST-INCOME> 941
<OTHER-INCOME> 0
<EXPENSES-NET> 351
<NET-INVESTMENT-INCOME> 3,388
<REALIZED-GAINS-CURRENT> 8,859
<APPREC-INCREASE-CURRENT> 24,841
<NET-CHANGE-FROM-OPS> 37,088
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,038
<DISTRIBUTIONS-OF-GAINS> 142
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,594
<NUMBER-OF-SHARES-REDEEMED> 281
<SHARES-REINVESTED> 20
<NET-CHANGE-IN-ASSETS> 194,399
<ACCUMULATED-NII-PRIOR> 1,040
<ACCUMULATED-GAINS-PRIOR> 114
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 592
<AVERAGE-NET-ASSETS> 125,356
<PER-SHARE-NAV-BEGIN> 56.220
<PER-SHARE-NII> .850
<PER-SHARE-GAIN-APPREC> 19.720
<PER-SHARE-DIVIDEND> .950
<PER-SHARE-DISTRIBUTIONS> .130
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 75.710
<EXPENSE-RATIO> 28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831016
<NAME> Variable Insurance Products Fund II
<SERIES>
<NUMBER> 41
<NAME> Asset Manager: Growth Portfolio
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-END> dec-31-1995
<INVESTMENTS-AT-COST> 66,838
<INVESTMENTS-AT-VALUE> 68,464
<RECEIVABLES> 989
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,454
<PAYABLE-FOR-SECURITIES> 1,136
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71
<TOTAL-LIABILITIES> 1,207
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,916
<SHARES-COMMON-STOCK> 5,796
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 31
<ACCUMULATED-NET-GAINS> 2,575
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,787
<NET-ASSETS> 68,247
<DIVIDEND-INCOME> 253
<INTEREST-INCOME> 735
<OTHER-INCOME> 0
<EXPENSES-NET> 367
<NET-INVESTMENT-INCOME> 621
<REALIZED-GAINS-CURRENT> 4,774
<APPREC-INCREASE-CURRENT> 1,787
<NET-CHANGE-FROM-OPS> 7,182
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 592
<DISTRIBUTIONS-OF-GAINS> 2,260
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,216
<NUMBER-OF-SHARES-REDEEMED> 663
<SHARES-REINVESTED> 243
<NET-CHANGE-IN-ASSETS> 68,247
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 261
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 414
<AVERAGE-NET-ASSETS> 36,710
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> .100
<PER-SHARE-GAIN-APPREC> 2.200
<PER-SHARE-DIVIDEND> .110
<PER-SHARE-DISTRIBUTIONS> .420
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.770
<EXPENSE-RATIO> 100
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000831016
<NAME> Variable Insurance Products Fund II
<SERIES>
<NUMBER> 51
<NAME> Contrafund Portfolio
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-END> dec-31-1995
<INVESTMENTS-AT-COST> 776,771
<INVESTMENTS-AT-VALUE> 845,224
<RECEIVABLES> 77,853
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