1940 Act No. 811-5511
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 33-20773)
UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [x]
Amendment No. 25 [x]
Variable Insurance Products Fund II
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Office)
Registrant's Telephone Number, Including Area Code 617-563-7000
Arthur S. Loring, Secretary, 82 Devonshire St., Boston, MA 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) Immediately upon filing pursuant to paragraph (b)
(x) On October 31, 1997, pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On [ ], pursuant to paragraph (a)(1) of Rule 485
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On [ ] pursuant to paragraph (a)(2) of Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and has filed the Notice required by
such Rule on February 28, 1997.
VARIABLE INSURANCE PRODUCTS FUND II
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 a,b Cover Page
2 a,b,c *
3 a *
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) Transaction Details
b(iii,iv,v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the goal of one or more of the funds matches your own.
To learn more about each fund and its investments, you can obtain a
copy of the funds' most recent financial report and portfolio listing
or a copy of the Statement of Additional Information (SAI) dated
October 31, 1997. The SAI has been filed with the Securities and
Exchange Commission (SEC) and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov). The SAI
is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-2442.
Shares of each fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be
available in your state due to various insurance regulations. Please
check with your insurance company for available funds. Inclusion in
this Prospectus of a fund which is not available in your state is not
to be considered a solicitation. Please read this Prospectus in
conjunction with the prospectus of the separate account of the
specific insurance product which accompanies this Prospectus and keep
them on file for future reference.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIP/VIPII/VIPIII SC -PRO-1097
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
SERVICE CLASS
Variable Insurance Products Fund, Variable Insurance Products Fund II
and Variable Insurance Products Fund III (the Trusts) are designed to
provide investment vehicles for variable annuity and variable life
insurance contracts of various insurance companies. The Trusts
currently offer Service Class shares of the following funds:
INCOME FUND
High Income Portfolio
ASSET ALLOCATION FUNDS
Asset Manager Portfolio
Asset Manager: Growth Portfolio
GROWTH & INCOME AND GROWTH FUNDS
Balanced Portfolio
Equity-Income Portfolio
Growth & Income Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio
PROSPECTUS
OCTOBER 31, 1997(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON,
MA 02109
CONTENTS
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KEY FACTS THE FUNDS AT A GLANCE
WHO MAY WANT TO INVEST
PERFORMANCE
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.
ACCOUNT POLICIES DISTRIBUTIONS AND TAXES
TRANSACTION DETAILS SHARE PRICE CALCULATIONS AND THE
TIMING OF PURCHASES AND REDEMPTIONS.
APPENDIX DESCRIPTION OF MOODY'S AND S&P'S CORPORATE BOND RATINGS.
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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. Foreign
affiliates of FMR may help choose investments for some of the funds.
INCOME FUND
HIGH INCOME PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in high-yielding debt securities, with an
emphasis on lower-quality securities.
SIZE: As of December 31, 1996, the fund had over $1.5 billion in
assets.
ASSET ALLOCATION FUNDS
ASSET MANAGER PORTFOLIO
GOAL: High total return with reduced risk over the long-term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
and money market instruments, both here and abroad, to pursue its
goal. The fund has a neutral mix which represents the way the fund's
investments will generally be allocated over the long-term. This mix
will vary over short-term periods as fund management gradually adjusts
the fund's holdings - within defined ranges - based on the current
outlook for the different markets.
Neutral Mix
Stocks 50%
(can range from
30-70%)
Row: 1, Col: 1, Value: 20.0
Row: 1, Col: 2, Value: 40.0
Row: 1, Col: 3, Value: 40.0
Bonds 40%
(can range from 20-60%)
Short-Term/Money Market 10%
(can range from 0-50%)
SIZE: As of December 31, 1996, the fund had over $3.6 billion in
assets.
ASSET MANAGER: GROWTH PORTFOLIO
GOAL: Maximum total return over the long-term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
and money market instruments, both here and abroad, to pursue its
goal. The fund has a neutral mix which represents the way the fund's
investments will generally be allocated over the long-term. This mix
will vary over short-term periods as fund management gradually adjusts
the fund's holdings - within defined ranges - based on the current
outlook for the different markets.
Neutral Mix
Stocks 70%
(can range from
50-100%)
Row: 1, Col: 1, Value: 5.0
Row: 1, Col: 2, Value: 65.0
Row: 1, Col: 3, Value: 30.0
Bonds 25%
(can range from 0-50%)
Short-Term/Money Market 5%
(can range from 0-50%)
SIZE: As of December 31, 1996, the fund had over $253 million in
assets.
GROWTH & INCOME AND GROWTH FUNDS
BALANCED PORTFOLIO
(formerly known as Fidelity Advisor Annuity Income & Growth Fund)
GOAL: Both income and growth of capital.
STRATEGY: Invests in a diversified portfolio of equity and
fixed-income securities.
SIZE: As of December 31, 1996, the fund had over $103 million in
assets.
EQUITY-INCOME PORTFOLIO
GOAL: Reasonable income. The fund also considers the potential for
capital appreciation (increase in the value of the fund's shares).
STRATEGY: Invests mainly in income-producing equity securities.
SIZE: As of December 31, 1996, the fund had over $6.9 billion in
assets.
GROWTH & INCOME PORTFOLIO
GOAL: High total return through a combination of current income and
capital appreciation.
STRATEGY: Invests mainly in equity securities of companies that pay
current dividends and offer potential earnings growth.
SIZE: As of December 31, 1996, the fund had over $989 thousand in
assets.
GROWTH OPPORTUNITIES PORTFOLIO
(formerly known as Fidelity Advisor Annuity Growth Opportunities Fund)
GOAL: Capital growth (increase in the value of the fund's shares).
STRATEGY: Invests primarily in common stocks and securities
convertible into common stock.
SIZE: As of December 31, 1996, the fund had over $383 million in
assets.
CONTRAFUND PORTFOLIO
GOAL: Capital appreciation (increase in the value of the fund's
shares).
STRATEGY: Invests mainly in equity securities of companies that are
undervalued or out-of-favor.
SIZE: As of December 31, 1996, the fund had over $2.3 billion 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, 1996, the fund had over $6.0 billion in
assets.
OVERSEAS PORTFOLIO
GOAL: Long-term growth of capital.
STRATEGY: Invests mainly in equity securities outside of the U.S.
SIZE: As of December 31, 1996, the fund had over $1.6 billion in
assets.
AS WITH ANY INVESTMENT OPTION, THERE IS NO ASSURANCE THAT A FUND WILL
ACHIEVE ITS GOAL.
WHO MAY WANT TO INVEST
The value of ea ch fund's investments and, as applicable, the
income they generate will vary from day to day, and generally reflect
changes in market conditions, interest rates, and other company,
political, or economic news both here and abroad. In the short-term,
stock prices can fluctuate dramatically in response to these factors.
The securities of smaller, less well-known companies may be more
volatile than those of larger companies. Over time, however, stocks
have shown greater growth potential than other types of securities.
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 e xposure to currency fluctuations.
When fund shares are redeemed, they may be worth more or less than
their original cost. An investment in any one fund is not in itself a
balanced investment plan.
Each fund is composed of multiple classes of shares. All classes of a
fund have a common investment objective and investment portfolio. Each
fund's Service Class shares are offered at net asset value and are
subject to a 12b-1 fee. Each fund's original class of shares ("Initial
Class" shares) are offered at net asset value and are not subject to a
12b-1 fee. Because Initial Class shares are not subject to a 12b-1
fee, Initial Class shares are expected to have a higher total return
than Service Class shares (excluding charges and expenses attributable
to any particular insurance product). You may obtain more information
about Initial Class shares, which are not offered through this
prospectus, from your insurance company or by calling Fidelity
Distributors Corporation at 1-800-544-2442.
HIGH INCOME PORTFOLIO
The fund is designed for investors who want high current income with
some potential for capital growth from a portfolio of lower-quality
debt securities and income-producing equity securities. The fund may
be appropriate for long-term, aggressive investors who understand the
potential risks and rewards of investing in lower-quality debt,
including defaulted securities. Investors must be willing to accept
the fund's greater price movements and credit risks.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
The funds may be appropriate for investors who want to diversify among
domestic and foreign stocks, bonds, and short-term and money market
instruments and other types of securities, in one fund. Asset Manager
Portfolio spreads its assets among all three asset classes moderating
both its risk and return potential. On the other hand, Asset Manager:
Growth Portfolio, while spreading its assets among all three asset
classes, uses a more aggressive approach by focusing on stocks for a
higher potential return. Because each fund owns different types of
investments, its performance is affected by a variety of factors. The
value of each fund's investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other company, political and economic news.
Performance also depends on FMR's skills in allocating assets.
BALANCED PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for investors who seek a combination of
growth and income from equity and some bond investments.
EQUITY-INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who want some income from
equity and bond investments, but also want to be invested in the stock
market for its long-term growth potential.
GROWTH & INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who seek a combination of
growth and income from equity and some bond investments.
GROWTH OPPORTUNITIES PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for investors who want to be invested in
the stock market for its long-term growth potential. The fund invests
for growth and does not pursue income.
CONTRAFUND PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who are looking for an
investment approach that follows a contrarian philosophy. This
approach focuses on companies that FMR believes are currently out of
public favor but show potential for capital appreciation.
GROWTH PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who want to pursue growth
wherever it may arise, and who understand that this strategy often
leads to investments in smaller, less well-known companies. The fund
invests for growth and does not pursue an income strategy.
OVERSEAS PORTFOLIO
The fund may be appropriate for investors who want to pursue their
investment goals in markets outside of the United States. By including
international investments in your portfolio, you can achieve
additional diversification and participate in growth opportunities
around the world. However, it is important to note that investments in
foreign securities involve risks in addition to those of U.S.
investments.
In addition to general risks, international investing involves
different or increased risks. The performance of international funds
depends upon currency values, the political and regulatory
environment, and overall economic factors in the countries in which
the fund invests. See "INVESTMENT PRINCIPLES AND RISKS."
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 CATEGORI ES
(EXCEPT THE MONEY MARKET CATEGORY).
(SOLID BULLET) MONEY MARKET SEEKS INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY, SHORT-TERM INVESTMENTS.
(SOLID BULLET) INCOME SEEKS INCOME BY INVESTING IN BONDS.
(SOLID BULLET) ASSET ALLOCATION SEEKS HIGH TOTAL RETURN WITH
REDUCED RISK THROUGH A MIX OF STOCKS, BONDS, AND
SHORT-TERM 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)
P ERFORMANCE
M utual fund performance is commonly measured as TOTAL RETURN and/or
YIELD.
Each fund's fiscal year runs from January 1 through December 31.
Service Class of each fund is expected to commence operations on or
about November 3, 1997.
Each fund's Service Class total returns for the periods ended June
30, 1997 shown in the table below are those of Initial Class, which
does not have a 12b-1 fee. If Service Class's 12b-1 fee had been
reflected, total returns would have been lower.
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AVERAGE ANNUAL TOTAL
RETURN (DAGGER) CUMULATIVE TOTAL RETURN (DAGGER)
PAST PAST PAST PAST
ONE FIVE 10 SIX
YEAR YEARS YEARS/ MONTHS PAST ONE YEAR PAST FIVE YEARS PAST 10 YEARS/
LIFE OF FUND*
LIFE OF FUND*
HIGH INCOME - SERVICE
CLASS 14.47% 13.24% 11.48% 7.70% 14.47% 86.25% 196.43%
ASSET MANAGER - SERVICE
CLASS 20.45% 12.43% 12.43% 11.20% 20.45% 79.68% 149.96%
ASSET MANAGER: GROWTH - SERVICE
CLASS 25.51% N/A 23.29% 14.14% 25.51% N/A 68.55%
BALANCED - SERVICE
CLASS 24.77% N/A 15.39% 14.05% 24.77% N/A 42.89%
EQUITY-INCOME - SERVICE
CLASS 25.66% 20.09% 13.66% 16.39% 25.66% 149.77% 259.94%
GROWTH & INCOME - SERVICE
CLASS N/A N/A N/A 16.06% N/A N/A 14.90%
GROWTH OPPORTUNITIES - SERVICE
CLASS 29.02% N/A 26.86% 15.45% 29.02% N/A 80.95%
CONTRAFUND - SERVICE
CLASS 25.07% N/A 29.11% 11.63% 25.07% N/A 89.06%
GROWTH - SERVICE
CLASS 17.92% 19.89% 14.33% 13.83% 17.92% 147.66% 281.48%
OVERSEAS - SERVICE
CLASS 22.69% 11.30% 8.93% 16.44% 22.69% 70.76% 135.23%
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* LIFE OF FUND FIGURES ARE FROM COMMENCEMENT OF OPERATIONS -
JANUARY 28, 1987 (OVERSEAS); SEPTEMBER 6, 1989 (ASSET MANAGER);
JANUARY 3, 1995 (ASSET MANAGER: GROWTH, CONTRAFUND, BALANCED, AND
GROWTH OPPORTUNITIES); AND DECEMBER 31, 1996 (GROWTH & INCOME) -
THROUGH THE PERIOD ENDED JUNE 30, 1997.
(dagger) TOTAL RETURNS DO NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. EXCLUDING THESE
CHARGES AND EXPENSES HAS THE EFFECT OF INCREASING THE PERFORMANCE
QUOTED.
If FMR had not reimbursed certain fund expenses during certain of
these periods, Service Class total returns would have been lower.
A fund's total return and/or yield may be quoted in advertising in
accordance with current law and interpretations thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a
given period, assuming reinvestment of any dividends and capital
gains. A CUMULATIVE TOTAL RETURN reflects actual performance over a
stated period of time. An AVERAGE ANNUAL TOTAL RETURN is a
hypothetical rate of return that, if achieved annually, would have
produced the same cumulative total return if performance had been
constant over the entire period. Average annual total returns smooth
out variations in performance; they are not the same as actual
year-by-year results. Average annual total returns covering periods of
less than one year assume that performance will remain constant for
the rest of the year.
YIELD refers to the income generated by an investment in a
fund over a given period of time, expressed as an annual percentage
rate. Yields are calculated according to a standard that is required
for all stock and bond funds. Because this differs from other
accounting methods, the quoted yield may not equal the income actually
paid to policyholders. This difference may be significant for funds
whose investments are denominated in foreign currencies.
In calculating yield, a fund may from time to time use a security's
coupon rate instead of its yield to maturity in order to reflect the
risk premium on that security. This practice will have the effect of
reducing a fund's yield.
Each class of each equity fund may quote its adjusted net asset
value including all distributions paid. This value may be averaged
over specified periods and may be used to calculate a class's moving
average.
The funds' recent strategies, performance, and holdings are
detailed twice a year in financial reports, which are sent to all
shareholders. For additional performance information, contact your
insurance company for a free annual report.
TOTAL RETURNS AND YIELDS QUOTED FOR A CLASS INCLUDE THE CLASS'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. BECAUSE SHARES OF THE FUNDS MAY BE
PURCHASED ONLY THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE
CONTRACTS, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. Excluding these charges from quotations of a class's
performance has the effect of increasing the performance quoted. You
should bear in mind the effect of these charges when comparing a
fund's performance to that of other mutual funds.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio are
diversified funds of Variable Insurance Products Fund (VIP); Asset
Manager Portfolio, Asset Manager: Growth Portfolio and Contrafund
Portfolio are diversified funds of Variable Insurance Products Fund II
(VIP II); and Growth & Income Portfolio, Balanced Portfolio and Growth
Opportunities Portfolio are diversified funds of Variable Insurance
Products Fund III (VIP III). VIP, VIP II, and VIP III are open-end
management investment companies organized as Massachusetts business
trusts on November 13, 1981, March 21, 1988, and July 14, 1994,
respectively. There is a remote possibility that one fund might become
liable for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. An insurance company issuing a variable
contract that participates in the funds will vote shares held in its
separate account as required by law and interpretations thereof, as
may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance
company is required to request voting instructions from policyowners
and must vote shares in the separate account in proportion to the
voting instructions received. With respect to funds of VIP and VIP II,
your insurance company is entitled to one vote for each share it owns.
With respect to funds of VIP III, the number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your insurance
company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust,
respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business
address at 82 Devonshire Street, Boston, Massachusetts 02109. It
includes a number of different subsidiaries and divisions which
provide a variety of financial services and products. The funds employ
various Fidelity companies to perform activities required for their
operation.
The funds are managed by FMR, which handles the funds' busin ess
affairs and, with the assistance of foreign affiliates for certain
funds, chooses the funds' investments.
(small solid bullet) Fidelity Management & Research (U.K.) Inc.
(FMR U.K.), in London, England, serves as a sub-adviser for High
Income, Asset Manager, Asset Manager: Growth, Balanced, Growth &
Income, Growth Opportunities, Contrafund, and Overseas Portfolios.
(small solid bullet) Fidelity Management & Research (Far East)
Inc. (FMR Far East), in Tokyo, Japan, serves as a sub-adviser for High
Income, Asset Manager, Asset Manager: Growth, Balanced, Growth &
Income, Growth Opportunities, Contrafund, and Overseas Portfolios.
(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda, serves as a sub-adviser for Overseas
Portfolio.
(small solid bullet) Fidelity International Investment Advisors
(U.K.) Limited (FIIA(U.K.)L), in London, England, serves as a
sub-adviser for Overseas Portfolio.
FIDELITY FACTS
Fidelity offers the broadest selection of mutual
funds in the world.
(solid bullet) Number of Fidelity mutual funds: over 228
(solid bullet) Assets in Fidelity mutual funds: over $49 8
billion
(solid bullet) Number of shareholder accounts: ov er 33
million
(solid bullet) Number of investment analysts and portfolio
managers: over 273
(checkmark)
Barry Coffman is Vice President and manager of VIP: High Income
Portfolio, which he has managed since August 1990. He also co-manages
several other Fidelity funds. Mr. Coffman joined Fidelity as an
analyst in 1986.
Dick Habermann is Vice President and lead manager of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio, both of
which he has managed since March 1996. He also manages several other
Fidelity funds. Previously, he was division head for international
equities and director of international research from 1991 to 1996. Mr.
Habermann joined Fidelity in 1968.
Charles Morrison is Vice President and manager of VIP II: Asset
Manager Portfolio's and VIP II: Asset Manager: Growth Portfolio's
fixed-income investments, which he has managed since February 1997. He
also manages other Fidelity funds. Since joining Fidelity in 1987, Mr.
Morrison has worked as an analyst and manager.
Steve Snider is manager of the equity investments of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio,
positions he has held since October 1997. He also manages trust
accounts for Fidelity Management Trust Company (FMTC). Mr. Snider
joined Fidelity in 1992 as a quantitative analyst. Since then, he has
worked as a manager and a Vice President for FMTC.
John Todd is Vice President of VIP II: Asset Manager Portfolio and VIP
II: Asset Manager: Growth Portfolio and manager of each fund's money
market investments, which he has managed since December 1996. He also
manages other Fidelity funds. Mr. Todd joined Fidelity as a portfolio
manager in 1981.
Bettina Doulton is Vice President and lead manager of VIP III:
Balanced Portfolio, which she has managed since March 1996. She also
manages other Fidelity funds. Since joining Fidelity in 1986, Ms.
Doulton has worked as a research assistant, analyst, and manager.
John Avery is associate manager of VIP III: Balanced Portfolio,
which he has managed since September 1997. He also manages another
Fidelity fund. Mr. Avery joined Fidelity as an analyst in 1995.
Previously, he was an analyst for Putnam Investments from 1993 to
1994. Mr. Avery received his MBA from The Wharton School at the
University of Pennsylvania in 1993.
Kevin Grant is Vice President of VIP III: Balanced Portfolio and
manager of its fixed-income investments since March 1996. He also
manages several other Fidelity funds. Prior to joining Fidelity as a
manager in 1993, Mr. Grant was a vice president and chief mortgage
strategist at Morgan Stanley for three years.
Stephen Petersen is Vice President and manager of VIP: Equity-Income
Portfolio, which he has managed since January 1997. He also manages
other Fidelity funds. Since joining Fidelity in 1980, Mr. Petersen has
worked as an analyst and manager.
Beth Terrana is Vice President and manager of VIP III: Growth & Income
Portfolio, which she has managed since inception. She also manages
other Fidelity funds. Since joining Fidelity in 1983, Ms. Terrana has
worked as an analyst, portfolio assistant, and manager.
George Vanderheiden is Vice President and manager of VIP III:
Growth Opportunities Portfolio, which he has managed since January
1995. He also manages several other Fidelity funds. Mr. Vanderheiden
joined Fidelity in 1971; he has worked as a portfolio manager since
1980.
Will Danoff is Vice President and manager of VIP II: Contrafund
Portfolio, which he has managed since January 1995. He also manages
another Fidelity fund. Since joining Fidelity in 1986, Mr. Danoff has
worked as an analyst and manager.
Jennifer Uhrig is Vice President and manager of VIP: Growth Portfolio,
which she has managed since January 1997. She also manages another
Fidelity fund. Since joining Fidelity in 1987, Ms. Uhrig has worked as
an analyst and manager.
Richard Mace is Vice President and manager of VIP: Overseas Portfolio,
which he has managed since March 1996. He also manages several other
Fidelity funds. Since joining Fidelity in 1987, Mr. Mace has worked as
an analyst and manager.
Each fund has an investment objective similar to that of an existing
Fidelity fund. High Income Portfolio is most similar to Spartan High
Income Fund; Equity-Income Portfolio is most similar to Fidelity
Equity-Income Fund; Growth Portfolio is most similar to Fidelity
Growth Company Fund; Overseas Portfolio is most similar to Fidelity
Overseas Fund; Asset Manager Portfolio is most similar to Fidelity
Asset Manager; Contrafund Portfolio is most similar to Fidelity
Contrafund; Asset Manager: Growth Portfolio is most similar to
Fidelity Asset Manager: Growth; Growth & Income Portfolio is most
similar to Fidelity Growth & Income Portfolio; Balanced Portfolio is
most similar to Fidelity Balanced Fund; and Growth Opportunities
Portfolio is most similar to Fidelity Advisor Growth Opportunities
Fund. The performance of a separate account investing in these funds
is not expected to be the same as the performance of the corresponding
fund due in part to dissimilarities in their investments. Various
insurance-related costs at the insurance company's separate account
will also affect performance.
Each fund sells its shares to separate accounts of insurance companies
which are both affiliated and unaffiliated with FMR. Each fund
currently does not foresee any disadvantages to policyowners arising
out of the fact that each fund offers its shares to separate accounts
of various insurance companies to serve as the investment medium for
their variable products. Nevertheless, the Board of Trustees intends
to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise, and to determine what action, if
any, should be taken in response to such conflicts. If such a conflict
were to arise, one or more insurance companies' separate accounts
might be required to withdraw its investments in one or more funds and
shares of another fund may be substituted. This might force a fund to
sell securities at disadvantageous prices. In addition, the Board of
Trustees may refuse to sell shares of any fund to any separate account
or may suspend or terminate the offering of shares of any fund if such
action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Investments Institutional Operations Company, Inc. (FIIOC),
82 Devonshire Street, Boston, Massachusetts, performs transfer agent
servicing functions for the Service Class of each 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.
Fidelity International Limited (FIL) is the parent company of FIIA and
FIIA(U.K.)L. The Johnson family group also owns, directly or
indirectly, more than 25% of the voting common stock of FIL.
A broker-dealer may use a portion of the commissions paid by High
Income and Asset Manager, respectively, to reduce expenses for those
funds. FMR may use its broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of each fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the
activities of individual companies and general market and economic
conditions. Bond values fluctuate based on changes in interest rates,
market conditions, other economic and political news, and on their
quality and maturity. In general, bond prices rise when interest rates
fall, and fall when interest rates rise. This effect is more
pronounced for longer-term securities. Lower-quality securities offer
higher yields, but also carry more risk.
Funds which invest in foreign securities have increased economic and
political risks as they are exposed to events and factors in the
various world markets. This is especially true for funds that invest
in emerging markets. Also, because many of the funds' investments are
denominated in foreign currencies, changes in the value of foreign
currencies can significantly affect a fund's share price. FMR may use
a variety of investment techniques to either increase or decrease a
fund's investment exposure to any currency.
The total return from a bond includes both income and price gains or
losses. In selecting investments for a bond fund, FMR considers a
bond's expected income together with its potential for price gains or
losses. While income is generally the most important component of bond
returns over time, a bond fund's emphasis on income does not mean the
fund invests only in the highest-yielding bonds available, or that it
can avoid losses of principal.
FMR generally focuses on assembling a portfolio of bonds that it
believes will provide the best balance between risk and return within
the range of eligible investments for the fund. FMR's evaluation of a
potential investment includes an analysis of the credit quality of the
issuer, its structural features, its current price compared to FMR's
estimate of its long-term value, and any short-term trading
opportunities resulting from market inefficiencies.
FMR may use various investment techniques to hedge a portion of the
funds' risks, but there is no guarantee that these strategies will
work as FMR intends. It is important to note that neither the funds
nor their yields are guaranteed by the U.S. Government. When fund
shares are redeemed , they may be worth more or less than
their original cost.
FMR normally invests each fund's assets according to its investment
strategy. Ea ch fund also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments
for temporary, defensive purposes.
HIGH INCOME PORTFOLIO
The fund seeks high current income by investing primarily in all types
of income-producing debt securities, preferred stocks, and convertible
securities. FMR normally invests at least 65% of the fund's total
assets in these securities. In choosing investments, the fund also
considers growth of capital.
Although the fund has no limits on the quality and maturity of its
investments, its strategy typically leads to longer-term,
lower-quality, fixed-income securities. These domestic and foreign
investments may present the risk of default or may be in default. If
consistent with its investment objective, however, the fund can also
invest in common stocks, other equity securities, and debt securities
not currently paying interest but which are expected to do so in the
future. Performance is also affected by individual company news. The
success of the fund's investment strategy depends on FMR's analysis of
a company's relative values and its potential for success in light of
its current financial situation, its industry position, economic
conditions, and interest rate trends.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
Each fund seeks to achieve its investment objective by allocating its
assets among stocks, bonds, and short-term and money market
instruments and other instruments of U.S. and foreign issuers. Each
fund, however, has a different objective and pursues its objective by
investing within different asset allocation ranges.
ASSET MANAGER seeks high total return with reduced risk over the
long-term.
ASSET MANAGER: GROWTH seeks to maximize total return over the
long-term.
Each fund allocates its assets among the following classes, or types,
of investments. The STOCK CLASS includes equity securities of all
types. The BOND CLASS includes all varieties of fixed-income
securities maturing in more than one year. The SHORT-TERM/MONEY MARKET
CLASS includes all types of short-term and money market instruments.
FMR may use its judgment to place a security in the most appropriate
class based on its investment characteristics. Fixed-income securities
may be classified in the bond or short-term/money market class
according to interest rate sensitivity as well as maturity. The funds
may also make other investments that do not fall within these classes.
FMR has the ability to allocate each fund's assets within specified
ranges. Each fund's NEUTRAL MIX represents the benchmark for its
combination of investments in each asset class over time. FMR may
change the neutral mix from time to time. The range and approximate
neutral mix for each asset class are shown on page .
ASSET MANAGER
Range Neutral mix
STOCK CLASS 30-70% 50%
BOND CLASS 20-60% 40%
SHORT-TERM/MONEY MARKET CLASS 0-50% 10%
Asset Manager's approach spreads the fund's assets among all three
classes, moderating both the risk and return potential of stocks,
bonds, and short-term and money market instruments.
ASSET MANAGER: GROWTH
Range Neutral mix
STOCK CLASS 50-100% 70%
BOND CLASS 0-50% 25%
SHORT-TERM/MONEY MARKET CLASS 0-50% 5%
Asset Manager: Growth's more aggressive approach focuses on stocks for
high potential returns. However, because the fund can invest in bonds
and short-term instruments, its return may not be as high as a fund
that invests only in stocks.
Although the funds seek to reduce their overall risk by diversifying
among different types of investments, the funds aggressively invest in
a wide variety of security types, including stocks and bonds issued in
developed and developing countries and derivative transactions.
Because the funds are subject to the risks of each investment type,
the funds and their performance are affected by many factors.
In pursuit of each fund's objective, FMR will not try to pinpoint the
precise moment when a major reallocation should be made. Instead, FMR
regularly reviews each fund's allocation and makes changes gradually
to favor investments that it believes will provide the most favorable
outlook for achieving each fund's objective.
Each fund diversifies across investment types more than most mutual
funds. No one mutual fund, however, can provide an appropriate
balanced investment plan for all investors.
BALANCED PORTFOLIO
The fund seeks both income and growth of capital by investing in a
diversified portfolio of equity and fixed-income securities with
income, growth of income, and capital appreciation potential.
FMR manages the fund to maintain a balance between stocks and bonds.
When FMR's outlook is neutral, it will invest approximately 60% of the
fund's assets in stocks and other equity securities and the remainder
in bonds and other fixed-income securities. FMR may vary from this
target if it believes stocks or bonds offer more favorable
opportunities, but will always invest at least 25% of the fund's total
assets in fixed-income senior securities (including debt securities
and preferred stock).
The fund invests in equity securities, convertible securities, common
and preferred stocks, and fixed-income securities that provide income
or opportunities for capital growth. The fund may buy securities that
are not currently paying income but offer prospects for future income.
The fund may invest in securities of foreign issuers. In selecting
investments for the fund, FMR will consider such factors as the
issuer's financial strength, its outlook for increased dividend or
interest payments, and the potential for capital gains.
EQUITY-INCOME PORTFOLIO
The fund seeks reasonable income by investing primarily in
income-producing equity securities. When choosing the fund's
investments, FMR also considers the potential for capital
appreciation. The fund seeks to achieve a yield that beats that of the
S&P 500. FMR normally invests at least 65% of the fund's total assets
in income-producing common or preferred stock. The remainder of the
fund's assets will tend to be invested in debt obligations, many of
which are expected to be convertible into common stock (if convertible
securities present favorable investment opportunities). The fund has
the flexibility, however, to invest the balance in all types of
domestic and foreign securities, including bonds of varying quality.
The fund does not expect to invest in debt securities of companies
that do not have proven earnings or credit.
GROWTH & INCOME PORTFOLIO
The fund seeks high total return through a combination of current
income and capital appreciation by investing mainly in equity
securities. The fund expects to invest the majority of its assets in
domestic and foreign equity securities, with a focus on those that pay
current dividends and show potential earnings growth. However, the
fund may buy debt securities as well as equity securities that are not
currently paying dividends, but offer prospects for capital
appreciation or future income.
GROWTH OPPORTUNITIES PORTFOLIO
The fund seeks to provide capital growth by investing primarily in
common stocks and securities convertible into common stocks.
The fund, under normal conditions, will invest at least 65% of its
total assets in securities of companies that FMR believes have
long-term growth potential. Although the fund invests primarily in
common stock and securities convertible into common stock, it has the
ability to purchase other securities, such as preferred stock and
bonds, that may produce capital growth. The fund may invest in foreign
securities without limitation.
CONTRAFUND PORTFOLIO
The fund seeks capital appreciation by investing mainly in equity
securities of companies that FMR believes to be undervalued due to an
overly pessimistic appraisal by the public. The fund usually invests
primarily in common stock and securities convertible into common
stock, but it has the flexibility to invest in any type of security
that may produce capital appreciation.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. Generally, these
companies, especially small sized ones, rely on limited product lines
and markets, financial resources, or other factors. This may make them
more susceptible to setbacks or downturns.
In pursuit of the fund's goal, FMR looks for companies with the
following characteristics:
(small solid bullet) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an
improved balance sheet,
(small solid bullet) recently popular, but temporarily out of favor
due to short-term or one-time factors, or
(small solid bullet) undervalued compared to other companies in the
same industry.
GROWTH PORTFOLIO
The fund seeks capital appreciation by investing primarily in common
stocks. The fund however, is not restricted to any one type of
security and may pursue capital appreciation through the purchase of
bonds and preferred stocks. The fund does not place any emphasis on
dividend income from its investments, except when FMR believes this
income will have a favorable influence on the market value of the
security.
Growth may be measured by factors such as earnings or gross sales. In
selecting investments for the fund, FMR will tend to focus on smaller,
lesser known companies in new and emerging areas of the economy.
However, FMR may also pursue growth in larger or revitalized companies
that hold a strong position in the market. These may be found in
mature or declining industries.
Companies with strong growth potential often have new products,
technologies, distribution channels, or other opportunities. As a
general rule, these domestic and foreign companies tend to be small
and mid-sized companies that have higher than average price/earnings
(P/E) ratios. A high P/E ratio means that the stock is more expensive
than average relative to the company's earnings. The market prices of
these stocks may be particularly sensitive to economic, market, or
company news.
OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily in
securities of issuers whose principal activities are outside of the
U.S. FMR normally invests at least 65% of the fund's total assets in
securities of issuers from at least three different countries outside
of North America (the U.S., Canada, Mexico, and Central America). The
fund expects to invest a majority of its assets in equity securities,
but may also invest in debt securities of any quality. The fund
invests in securities of both developed and emerging markets.
The fund may invest in the securities of any issuer, including
companies and other business organizations as well as governments and
government agencies. The fund, however, will tend to focus on the
equity securities of both large and small companies. The fund may
invest in short-term debt securities and money market instruments for
cash management purposes. FMR may also use various investment
techniques to hedge a portion of the fund's risks, but there is no
guarantee that these strategies will work as FMR intends.
The fund's focus on international investing involves increased or
additional risks compared to funds which invest primarily in domestic
equity securities. International funds have increased economic and
political risks as they are exposed to events and factors in the
various world markets. This is especially true for emerging markets.
Also, because many of the fund's investments are denominated in
foreign currencies, changes in the value of foreign currencies can
significantly affect the fund's share price. FMR may use a variety of
techniques to either increase or decrease the fund's exposure to any
currency.
FMR determines where an issuer or its principal business is located by
looking at such factors as its country of organization, the primary
trading market for its securities, and the location of its assets,
personnel, sales, and earnings. When allocating the fund's investments
among countries and regions, FMR considers such factors as the
potential for economic growth, expected levels of inflation,
governmental policies, and the outlook for currency relationships.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in
the funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
described in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, contact
your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks,
convertible securities, and warrants. For Asset Manager and Asset
Manager: Growth, some preferred stocks and convertible securities may
be included in the bond class. Common stocks, the most familiar type,
represent an equity (ownership) interest in a corporation. Although
equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition
and on overall market and economic conditions. Smaller companies are
especially sensitive to these factors.
RESTRICTIONS: With respect to 75% of its total assets, each fund 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 generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Other debt securities, such as zero
coupon bonds, do not pay interest, but are sold at a discount from
their face values.
Debt securities, loans, and other direct debt have varying levels of
sensitivity to changes in interest rates and varying degrees of
quality. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices
of these securities may fluctuate more than higher-quality securities
and may decline significantly in periods of general economic
difficulty.
The following table provides a summary of ratings assigned to
debt holdings (not including money market instruments) in certain of
the funds' portfolios. These figures are dollar-weighted averages of
month-end portfolio holdings during the fiscal year ended December 31,
1996, and are presented as a percentage of total security investments.
These percentages are historical and do not necessarily indicate a
fund's current or future debt holdings.
FISCAL 1996 DEBT HOLDINGS, BY RATING
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(as a % of investments) (as a % of investments)
Rating Average Rating Average
INVESTMENT High Asset Asset Bal Equity- Growth Over High Asset Asset Bal Equity- Growth Over
Mgr: Mgr:
GRADE Income Manager Growth anced Income Opps seas Income Manager Growth anced Income Opps seas
Highest
quality Aaa 1.43% 25.46% 12.37% 23.77% 1.28% 15.47% 0.00% AAA 1.43% 25.31% 12.40% 23.33% 1.28% 15.47% 0.00%
High
quality Aa 0.00% 0.57% 0.19% 0.52% 0.43% 0.00% 0.22% AA 0.00% 0.34% 0.03% 0.52% 0.43% 0.00% 0.00%
Upper-medium
grade A 0.00% 1.87% 0.79% 2.77% 0.63% 0.00% 0.00% A 0.00% 1.71% 0.65% 2.41% 0.21% 0.00% 0.22%
Medium
grade Baa 0.00% 2.02% 0.72% 3.28% 1.10% 0.00% 0.00% BBB 0.00% 2.69% 1.13% 4.00% 1.73% 0.00% 0.00
LOWER QUALITY
Moderately
speculative Ba 4.60% 0.96% 1.01% 0.72% 0.47% 0.00% 0.00% BB 12.03% 1.06% 1.19% 0.59% 0.78% 0.00% 0.05%
Speculative B 49.30% 2.52% 2.97% 1.83% 2.82% 0.00% 0.07% B 47.15% 1.77% 2.57% 1.55% 1.95% 0.00% 0.00%
Highly
speculative Caa 9.68% 0.10% 0.17% 0.15% 0.00% 0.00% 0.00% CCC 4.24% 0.18% 0.28% 0.10% 0.02% 0.00% 0.00%
Poor
quality Ca CC
Lowest quality,
no interest C 0.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% C 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
In default, in
arrears -- -- -- -- -- -- -- -- D 0.04% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
65.12% 33.50% 18.22% 33.04% 6.73% 15.47% 0.29% 64.89% 33.06% 18.25% 32.50% 6.40% 15.47% 0.27%
</TABLE>
EACH FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S AND S&P
TO DETERMINE COMPLIANCE WITH ITS DEBT QUALITY POLICY. REFER TO THE
APPENDIX FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO 4.41% FOR HIGH
INCOME, 1.23% FOR ASSET MANAGER, 0.70% FOR ASSET MANAGER: GROWTH,
0.32% FOR BALANCED, 0.35% FOR EQUITY-INCOME,
0.00% FOR GROWTH OPPORTUNITIES, AND 0.00% FOR OVERSEAS. THESE
PERCENTAGES MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS, AS WELL AS UNRATED
SECURITIES.
FMR HAS DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER QUALITY
ACCOUNT FOR 4.41% FOR HIGH INCOME, 1.16% FOR ASSET MANAGER, 0.69% FOR
ASSET MANAGER: GROWTH, 0.32% FOR BALANCED, 0.35% FOR
EQUITY-INCOME, 0.00% FOR GROWTH OPPORTUNITIES, AND 0.00% FOR OVERSEAS.
FOR FOREIGN GOVERNMENT OBLIGATIONS NOT INDIVIDUALLY RATED BY A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION, FMR ASSIGNS
A RATING BASED ON THE RATING OF THE SOVEREIGN CREDIT OF THE ISSUING
GOVERNMENT.
RESTRICTIONS: For Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, Growth & Income, Growth Opportunities, Contrafund,
Growth, and Overseas Portfolios, purchase of a debt security is
consistent with a fund's debt quality polic y if it is
rated at or above the stated level by Moody's Investors Service,
Inc. (Moody's) or rated in the equivalent categories by
Standard & Poor's (S&P), or is unrated but judged to be of
equivalent quality by FMR. Growth and Contrafund Portfolios each
currently limits its investment in lower than Baa-quality debt
securities to 5% of its assets; Equity-Income, Asset Manager: Growth,
Overseas, Growth & Income, Balanced, and Growth Opportunities
Portfolios each currently limits its investment in lower than
Baa-quality debt securities to less than 35% of its assets; and Asset
Manager Portfolio limits its investment in lower than Baa-quality debt
securities to less than 35% of its assets but currently intends to
limit its investment in lower than Baa-quality debt securities, as
determined by FMR, to 20% of its total assets.
MONEY MARKET SECURITIES are high-quality, short-term obligations
issued by the U.S. government and other entities. These securities may
carry fixed, variable, or floating interest rates.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by the Federal National
Mortgage Association are supported by the instrumentality's right to
borrow money from the U.S. Treasury under certain circumstances. Other
U.S. Government securities such as those issued by the Federal Farm
Credit Banks Funding Corporation are supported only by the credit of
the entity that issued them.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit enhancement, including letters of credit, guarantees, puts and
other demand features, and insurance provided by entities such as
banks and other financial institutions. These arrangements expose a
fund to the credit risk of the entity providing the credit or
liquidity support. Changes in the credit quality of the provider could
affect the value of the security and a fund's share price.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These
include risks relating to political or economic conditions in foreign
countries, fluctuations in foreign currencies, withholding or other
taxes, operational risks, increased regulatory burdens, and the
potentially less stringent investor protection and disclosure
standards of foreign markets. Additionally, governmental issuers of
foreign debt securities may be unwilling to repay principal and
interest when due, and may require that the conditions for payment be
renegotiated. All of these factors can make foreign investments,
especially those in developing countries, more volatile than U.S.
investments.
RESTRICTIONS: FMR limits the amount of each of High Income,
Equity-Income, Growth , and Asset Manager Portfolios' assets
that may be invested in foreign securities to 50%. However, pursuant
to certain state insurance regulations, each such fund and
each of Overseas, Asset Manager: Growth , Balanced, Growth
Opportunities, and Contrafund Portfolios may not invest more than
20% of its assets in any one foreign country. Each of these
fund s may have an additional 15% invested in securities of
issuers located in any one (but only one) of the following countries:
Australia, Canada, France, Japan, the United Kingdom or Germany.
EXPOSURE TO EMERGING MARKETS. Investing in emerging markets involves
risks in addition to those generally associated with foreign
investing. The extent of economic development, political instability,
and market depth varies widely in comparison to more developed
markets. Emerging market economies may be subject to greater social,
economic, and political uncertainties or may be based on only a few
industries. All of these factors can make emerging market securities
more volatile and less liquid than domestic securities.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS (ADRS
AND EDRS) are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial
institution. Designed for use in U.S. and European securities markets,
respectively, ADRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies.
ASSET-BACKED SECURITIES include interests in pools of the following:
purchase contracts, financing leases, or sales agreements entered into
by municipalities; lower-rated debt securities; or consumer loans. The
value of these securities may be significantly affected by changes in
interest rates, the market's perception of issuers, and the
creditworthiness of the parties involved. Certain asset-backed
securities rely on continued payments by a municipality, and may also
be subject to prepayment risk.
MORTGAGE SECURITIES are interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a
benchmark rate changes. These interest rate adjustments are designed
to help stabilize the security's price.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. Their risks are similar to those of other debt
securities, although they may be more volatile, and the value of
certain types of stripped securities may move in the same direction as
interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S.
repurchase agreements, and may be denominated in foreign currencies.
They also may involve greater risk of loss if the counterparty
defaults. Some counterparties in these transactions may be less
creditworthy than those in the U.S. markets.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund temporarily transfers possession of a portfolio instrument to
another party in return for cash. This could increase the risk of
fluctuation in the fund's yield or in the market value of its assets.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund may
accept a lower interest rate. The credit quality of the investment may
be affected by the creditworthiness of the put provider. Demand
features and standby commitments are types of put features.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors
such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and
the management skill and creditworthiness of the issuer. Real
estate-related instruments may also be affected by tax and regulatory
requirements, such as those relating to the environment.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange contracts or swap
agreements, purchasing indexed securities, and selling securities
short.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments . 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: Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, Growth & Income, Growth Opportunities, Contrafund, and
Growth Portfolios each may not purchase a security if, as a result,
more than 10% of its assets would be invested in illiquid securities.
High Income and Overseas Portfolios each may not purchase a security
if, as a result, more than 15% of its assets would be invested in
illiquid securities.
WARRANTS are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A
warrant tends to be more volatile than its underlying securities and
ceases to have value if it is not exercised prior to its expiration
date. In addition, changes in the value of a warrant do not
necessarily correspond to changes in the value of its underlying
securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future
date. The market value of a security could change during this period.
FINANCIAL SERVICES INDUSTRY. Companies in the financial services
industry are subject to various risks related to that industry, such
as government regulation, changes in interest rates, and exposure on
loans, including loans to foreign borrowers. If a fund invests
substantially in this industry, its performance may be affected by
conditions affecting the industry.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry.
RESTRICTIONS: With respect to 75% of its total assets, each fund
may not purchase a security if, as a result, more than 5% would be
invested in the securities of any issuer. This limitation does not
apply to U.S. government securities.
Each fund may not invest more than 25% of its total assets in any
one industry. This limitation does not apply to U.S. government
securities.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If a fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 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 a fund's securities. A fund may also lend money to
other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a
fund's total assets.
OTHER INSTRUMENTS may include depositary receipts, rights, and
securities of closed-end investment companies.
CASH MANAGEMENT. A fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investment could cause its share price to change.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above,
each fund also follows certain limitations imposed by the IRS on
separate accounts of insurance companies relating to the tax-deferred
status of variable contracts. More specific information may be
contained in your insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
HIGH INCOME PORTFOLIO seeks a high level of current income by
investing primarily in high yielding, fixed-income securities, while
also considering growth of capital.
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds,
and short-term instruments.
ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.
BALANCED PORTFOLIO seeks high total return through a combination of
current income and capital appreciation.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities,
the fund will also consider the potential for capital appreciation.
The fund's goal is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard & Poor's Composite
Index of 500 Stocks (S&P 500).
GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation.
GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth through
investing in common stocks and securities convertible into common
stocks.
CONTRAFUND PORTFOLIO seeks long-term capital appreciation.
GROWTH PORTFOLIO seeks to achieve capital appreciation.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities.
EACH FUND, with respect to 75% of its 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.
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 pays fees to affiliates who provide
assistance with these services for High Income, Asset Manager, Asset
Manager: Growth, Balanced, Growth & Income, Growth Opportunities,
Contrafund, and Overseas Portfolios. Each fund also pays OTHER
EXPENSES, which are explained on page .
FMR may, from time to time, agree to reimburse a fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by a fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated at any time without notice, can decrease a
fund's expenses and boost its performance.
MANAGEMENT FEE
EACH FUND'S MANAGEMENT FEE is calculated and paid to FMR every month.
The fee for each fund is calculated by adding a GROUP FEE rate to an
INDIVIDUAL FUND FEE rate, and multiplying the result by the fund's
average net assets.
THE GROUP FEE RATE is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.5200%
for Asset Manager, Asset Manager: Growth, Balanced, Equity-Income,
Growth & Income, Growth Opportunities, Contrafund, Growth, and
Overseas Portfolios , and 0.3700% for High Income Portfolio,
and it drops as total assets under management increase.
For December 1996, the group fee rate was 0.3021% for Asset Manager,
Asset Manager: Growth, Balanced, Equity-Income, Growth & Income,
Growth Opportunities, Contrafund, Growth, and Overseas Portfolios, and
0.1425% for High Income Portfolio.
The funds' individual fund fee rates and total management fees for the
fiscal year ended December 31, 1996 are outlined in the following
chart:
FUND INDIVIDUAL MANAGEMENT
FUND FEE
FEE RATE
HIGH INCOME PORTFOLIO 0.45% 0.59%
ASSET MANAGER PORTFOLIO 0.25%A 0.64%
ASSET MANAGER: GROWTH PORTFOLIO 0.30%B 0.65%
BALANCED PORTFOLIO 0.15%C 0.48%
EQUITY-INCOME PORTFOLIO 0.20% 0.51%
GROWTH & INCOME PORTFOLIO 0.20% 0.50%D
GROWTH OPPORTUNITIES PORTFOLIO 0.30% 0.61%
CONTRAFUND PORTFOLIO 0.30% 0.61%
GROWTH PORTFOLIO 0.30% 0.61%
OVERSEAS PORTFOLIO 0.45% 0.76%
A EFFECTIVE AUGUST 1, 1996, FMR VOLUNTARILY AGREED TO REDUCE THE
FUND'S INDIVIDUAL FUND FEE RATE FROM 0.40% TO 0.25%. IF THIS REDUCTION
WERE NOT IN EFFECT, THE MANAGEMENT FEE WOULD HAVE BEEN 0.70%.
B EFFECTIVE AUGUST 1, 1996, FMR VOLUNTARILY AGREED TO REDUCE THE
FUND'S INDIVIDUAL FUND FEE RATE FROM 0.40% TO 0.30%. IF THIS REDUCTION
WERE NOT IN EFFECT, THE MANAGEMENT FEE WOULD HAVE BEEN 0.69%.
C EFFECTIVE AUGUST 1, 1996, FMR VOLUNTARILY AGREED TO REDUCE THE
FUND'S INDIVIDUAL FUND FEE RATE FROM 0.20% TO 0.15%. IF THIS REDUCTION
WERE NOT IN EFFECT, THE MANAGEMENT FEE WOULD HAVE BEEN 0.50%.
D ESTIMATED.
SUB-ADVISORY AGREEMENTS. On behalf of High Income, Asset Manager,
Asset Manager: Growth, Contrafund, Growth & Income, Balanced and
Growth Opportunities Portfolios, FMR has sub-advisory agreements with
two affiliates: FMR U.K. and FMR Far East. On behalf of Overseas
Portfolio, FMR has sub-advisory agreements with three affiliates: FMR
U.K., FMR Far East, and FIIA. FIIA in turn has a sub-advisory
agreement with FIIA(U.K.)L. FMR U.K. focuses on issuers based in
Europe. FMR Far East focuses on issuers based in Asia and the Pacific
Basin. FIIA focuses on issuers based in Hong Kong, Australia, New
Zealand, and Southeast Asia (other than Japan). FIIA(U.K.)L focuses on
issuers based in the United Kingdom and Europe.
These sub-advisers are compensated for providing FMR with investment
research and advice on issuers based outside the United States. FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of the costs of providing these services. FMR pays FIIA
a fee equal to 30% of its management fee rate associated with
investments for which the sub-adviser provided investment advice. FIIA
pays FIIA(U.K.)L a fee equal to 110% of the cost of providing these
services.
On behalf of High Income, Asset Manager: Growth, Balanced, Growth
Opportunities, Growth & Income, 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 a fund's investments that
the sub-adviser manages on a discretionary basis. FIIA pays
FIIA(U.K.)L a fee equal to 110% of the cost of providing these
services.
The following 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 the fiscal year ended December 31, 1996:
FUND FEE TO FEE TO
FMR U.K. FMR FAR
EAST
ASSET MANAGER PORTFOLIO .009% .009%
ASSET MANAGER: GROWTH PORTFOLIO .007% .007%
BALANCED PORTFOLIO .006% .006%
GROWTH OPPORTUNITIES PORTFOLIO .006% .005%
CONTRAFUND PORTFOLIO .005% .005%
OVERSEAS PORTFOLIO .060% .058%
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 performs transfer agency, dividend disbursing, and shareholder
servicing functions for Service Class of each fund. Fidelity Service
Company, Inc. (FSC), 82 Devonshire Street, Boston, Massachusetts,
calculates the net asset value per share (NAV) and dividends for
Service Class of each fund, maintains the general accounting records
for each fund, and administers the securities lending program for each
fund.
The following chart details the fees paid by the funds to FSC (as a
percentage of a fund's average net assets) for the fiscal year ended
December 31, 1996:
FUND FEE TO
FSC
HIGH INCOME PORTFOLIO .05%
ASSET MANAGER PORTFOLIO .02%
ASSET MANAGER: GROWTH PORTFOLIO .06%
BALANCED PORTFOLIO .08%
EQUITY-INCOME PORTFOLIO .01%
GROWTH OPPORTUNITIES PORTFOLIO .06%
CONTRAFUND PORTFOLIO .04%
GROWTH PORTFOLIO .02%
OVERSEAS PORTFOLIO .05%
The following figures are based on estimated expenses of Service Class
of each fund and are calculated as a percentage of estimated
average net assets of Service Class of each fund. A portion of the
brokerage commissions that certain of the funds pay is used to reduce
fund expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances is used to reduce custodian and
transfer agent expenses.
FUND 12B-1 FEE TOTAL OPERATING
EXPENSES
HIGH INCOME PORTFOLIO 0.10% 0.81 %
ASSET MANAGER PORTFOLIO 0.10% 0.84 %
ASSET MANAGER: GROWTH PORTFOLIO 0.10% 0.97 %
BALANCED PORTFOLIO 0.10% 0.82 %
EQUITY-INCOME PORTFOLIO 0.10% 0.68 %
GROWTH & INCOME PORTFOLIO 0.10% 0.80 %
GROWTH OPPORTUNITIES PORTFOLIO 0.10% 0.87 %
CONTRAFUND PORTFOLIO 0.10% 0.84%
GROWTH PORTFOLIO 0.10% 0.79 %
OVERSEAS PORTFOLIO 0.10% 1.03 %
Effective November 3 , 1997, FMR has voluntarily agreed to
reimburse Service Class of the funds to the extent that total
operating expenses (as a percentage of their respective average net
assets) exceed the following rates:
FUND SERVICE CLASS
HIGH INCOME PORTFOLIO 1.10%
ASSET MANAGER PORTFOLIO 1.35%
ASSET MANAGER: GROWTH PORTFOLIO 1.10%
BALANCED PORTFOLIO 1.60%
EQUITY-INCOME PORTFOLIO 1.60%
GROWTH & INCOME PORTFOLIO 1.10%
GROWTH OPPORTUNITIES PORTFOLIO 1.60%
CONTRAFUND PORTFOLIO 1.10%
GROWTH PORTFOLIO 1.60%
OVERSEAS PORTFOLIO 1.60%
Expenses eligible for reimbursement do not include interest, taxes,
brokerage commissions, or extraordinary expenses.
Each fund also pays other expenses, such as legal, audit, and
custodian fees; proxy solicitation costs; and the compensation of
trustees who are not affiliated with Fidelity.
Each fund's portfolio turnover rate for the fiscal year ended December
31, 1996 is outlined in the following chart. These rates vary from
year to year. High turnover rates increase transaction costs. FMR
considers these effects when evaluating the anticipated benefits of
short-term investing.
FUND PORTFOLIO
TURNOVER RATE
HIGH INCOME PORTFOLIO 123%
ASSET MANAGER PORTFOLIO 168%
ASSET MANAGER: GROWTH PORTFOLIO 120%
BALANCED PORTFOLIO 163%
EQUITY-INCOME PORTFOLIO 186%
GROWTH & INCOME PORTFOLIO <200%A
GROWTH OPPORTUNITIES PORTFOLIO 28%
CONTRAFUND PORTFOLIO 178%
GROWTH PORTFOLIO 81%
OVERSEAS PORTFOLIO 92%
A ESTIMATED 1997 TURNOVER RATE.
Service Class shares of each fund have adopted a DISTRIBUTION AND
SERVICE PLAN. Under the plans, Service Class of each fund is
authorized to pay FDC (for remittance quarterly to an insurance
company) a 12b-1 fee as compensation for its services and
expenses in connection with the distribution of Service Class shares.
Depending on an insurance company's corporate structure and applicable
state law, FDC may remit payments to the insurance company's
affiliated broker-dealer or other affiliated company, rather than to
the insurance company itself.
Un der the plans, Servic e Class of each fund may pay FDC a 12b-1
f ee at an annual rate of 0.25% of its average net assets, or such
less er amount as the Trustees may determine from time to time.
Service Class of each fund c urrently pays FDC a 12b-1 fee at an
annual rate of 0.10% of its average net assets throughout the
month. Service Class 12b-1 fee rates may be increased only when the
Trustees believe that it is in the best interests of Variable Product
owners to do so. (For purposes of this discussion, "Variable Product"
refers to a variable annuity contract or variable life insurance
policy for which shares of the funds are available as underlying
investment options.)
Up to the full amount of the Service Class 12b-1 fee may be reallowed
to insurance companies, as compensation for their services in
connection with the distribution of Service Class shares and for
providing support services to Variable Product owners, based
upon the level of such services provided. These services may include,
without limitation: answering questions about the funds from
Variable Product owners; receiving and answering correspondence from
Variable Product owners (including requests for prospectuses and
statements of additional information for the funds); performing
sub-accounting with respect to Variable Product values allocated to
the funds; preparing, printing and distributing reports of values to
Variable Product owners who have contract values allocated to the
funds; printing and distributing prospectuses, statements of
additional information, any supplements thereto, and shareholder
reports; preparing, printing and distributing marketing materials for
Variable Products; assisting customers in completing applications for
Variable Products and selecting underlying mutual fund investment
options; preparing, printing and distributing sub-account performance
figures for sub-accounts investing in fund shares; and providing other
reasonable assistance in connection with the distribution of fund
shares to insurers.
The Service Class plans specifically recognize that FMR may make
payments from its management fee revenue, past profits, or other
resources to FDC for expenses incurred in connection with the
distribution of Service Class shares, including payments made to
insurance companies and others that provide shareholder support
services or engage in the sale of Service Class shares. The Board of
Trustees of each fund has authorized such payments.
ACCOUNT POLICIES
DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance
contract, refer to the prospectus of your insurance company's separate
account. It is suggested you keep all statements you receive to assist
in your personal recordkeeping.
It is expected that shares of the funds will be held under the terms
of variable annuity and variable life insurance contracts. Under
current tax law, dividends or capital gain distributions from any fund
are not currently taxable when left to accumulate within a variable
annuity or variable life insurance contract. Depending on the variable
contract, withdrawals from the contracts may be subject to ordinary
income tax and, in addition, to a 10% penalty tax on withdrawals
before age 59.
Each fund is treated as a separate entity for federal income tax
purposes. Each fund intends to pay out all of its net investment
income and net realized capital gains, if any, for each year. Each
f und will distribute any dividends at least annually. Normally,
net realized capital gains, if any, are distributed each year for a
fund. Such income and capital gain distributions from a fund are
automatically reinvested in additional shares of the same class of the
fund. Each fund makes dividend and capital gain distributions on a
per-share basis for each class. After each distribution from a
fund, the fund's share price drops by the amount of the distribution.
Because dividends and capital gain distributions are reinvested, the
total value of an account will not be affected because, although the
shares will have a lower price, there will be correspondingly more of
them.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each class's NAV as of the
close of the NYSE, normally 4:00 p.m. Eastern time.
A CLASS'S NAV is the value of a single share. The NAV of each class
is computed by ad ding that class's pro rata share of the value
of the applicable fund 's investmen ts, cash, and other assets,
subtracting t hat class's pro r ata share of the value of the
applicable fund' s liabilities, subtr acting the liabilities
allocated to that class, and dividing the resu lt by the number
of shares of that class that are outstanding.
Each f und's assets are valued primarily on the basis of market
quotations or on the basis of information furnished by a pricing
service. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the affect of changes in a security's
market value. Foreign securities are valued on the basis of quotations
from the primary market in which they are traded, and are translated
from the local currency into U.S. dollars using current exchange
rates. In addition, if quotations and information furnished by a
pricing service are not readily available or if the values have been
materially affected by events occurring after the closing of a foreign
market, assets may be valued by another method that the Board of
Trustees believes accurately reflects fair value.
A CLASS'S OFFERING PRICE (price to buy one share) is its NAV. A
class's REDEMPTION PRICE (price to sell one share) is its NAV.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a
period of time. Each fund also reserves the right to reject any
specific purchase order. Purchase orders may be refused if, in FMR's
opinion, they would disrupt management of a fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the
purpose of funding variable annuity and variable life insurance
contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in and redeem from a
fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the funds each
business day. That night, all orders received by that insurance
company on that business day are aggregated, and the insurance company
places a net purchase or redemption order for shares of one or more
funds the morning of the next business day. These orders are generally
executed at the NAV that was computed at the close of the previous
business day in order to provide a match between the variable contract
owners' orders to the insurance companies and the insurance companies'
orders to a fund. In some cases, an insurance company's order for fund
shares may be executed at the NAV next computed after the order is
actually transmitted to a fund.
Redemption proceeds will normally be wired to the insurance company on
the next business day after receipt of the redemption instructions by
a fund, but in no event later than 7 days following receipt of
instructions. Each fund may suspend redemptions or postpone payment
dates on days when the NYSE is closed (other than weekends or
holidays), when trading on the NYSE is restricted, or as permitted by
the SEC.
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF
CORPORATE BOND S
Moody's ratings for obligations with an original remaining maturity
in excess of one year fall within nine categories. They range from Aaa
(highest quality) to C (lowest quality). Moody's applies numerical
modifiers of 1, 2, or 3 to each generic rating classification from Aa
through B. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
on the lower end of its generic rating category.
AAA - B onds that are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long period
of time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest.
CA - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest-rated class of bonds
and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF CORPORATE
BOND S
Debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA to CCC may be modified by the addition of a plus sign (+) or minus
sign (-) to show relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating will also be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
VARIABLE INSURANCE PRODUCTS FUND II
CROSS REFERENCE SHEET
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 *
14 a - c Trustees and Officers
15 a, b *
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 *
_________
* Not Applicable
VARIABLE INSURANCE PRODUCTS FUND:
HIGH INCOME PORTFOLIO, EQUITY-INCOME PORTFOLIO,
GROWTH PORTFOLIO, AND OVERSEAS PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND II:
ASSET MANAGER PORTFOLIO, CONTRAFUND PORTFOLIO,
AND ASSET MANAGER: GROWTH PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND III:
BALANCED PORTFOLIO, GROWTH & INCOME PORTFOLIO,
AND GROWTH OPPORTUNITIES PORTFOLIO
SERVICE CLASS
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 31, 1997
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus for
Service Class shares (dated October 31, 1997). Please retain this
document for future reference. The funds' Annual Reports are separate
documents supplied with this SAI. To obtain an additional copy of the
Prospectus or an Annual Report, please call your insurance company or
Fidelity Distributors Corporation (FDC) at 1-800-544-2442.
TABLE OF CONTENTS PAGE
INVESTMENT POLICIES AND LIMITATIONS
PORTFOLIO TRANSACTIONS
VALUATION
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
VIP/VIPII/VIPIII SC -ptb-1097
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
High Income, Asset Manager, Contrafund, Balanced, Growth
Opportunities, Growth & Income, and Asset Manager: Growth Portfolios:
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Overseas Portfolio:
FMR U.K.
FMR Far East
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited
(FIIA(U.K.)L)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company, Inc. (FIIOC)
CUSTODIANS
High Income Portfolio:
The Bank of New York
Equity-Income, Overseas, Asset Manager: Growth, Asset Manager,
Balanced, and Growth & Income Portfolios:
The Chase Manhattan Bank
Growth, Growth Opportunities, and Contrafund Portfolios:
Brown Brothers Harriman & Co.
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with the fund's investment policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the
fund. However, except for the fundamental investment limitations
listed below, the investment policies and limitations described in
this SAI are not fundamental and may be changed without shareholder
approval.
THE FOLLOWING ARE EACH FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. EACH FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the fund's total assets would be
invested in the securities of that issuer, or (b) the fund would hold
more than 10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) (for High Income, Equity-Income, Growth , Overseas, Balanced, and
Growth Opportunities 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 Asset Manager, Contrafund, Asset Manager: Growth, and Growth
& Income Portfolios) borrow money, except that the fund may borrow
money for temporary or emergency purposes (not for leveraging or
investment) in an amount not exceeding 33% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets
would be invested in the securities of companies whose principal
business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(8) lend any security or make any other loan if, as a result, more
than 33% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to
repurchase agreements.
(9) (for Balanced and Growth Opportunities Portfolios) Each fund may,
notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS FOR EACH FUND ARE NOT
FUNDAMENTAL AND MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT,
WITHOUT SHAREHOLDER APPROVAL.
(i) Each fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) Each fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) Each fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). Each fund will not borrow 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, Asset
Manager, Contrafund, Asset Manager: Growth, Balanced, Growth
Opportunities, and Growth & Income Portfolios' net assets and 15%
of High Income and Overseas Portfolios' 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,
Contrafund, Asset Manager: Growth, Balanced, Growth Opportunities, and
Growth & Income Portfolios and 7.5% of net assets for High Income
Portfolio) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment adviser or (b)
acquiring loans, loan participations, or other forms of direct debt
instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
(vi) Each fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply (i) to
securities received as dividends, through offers of exchange, or as a
result of a reorganization, consolidation, or merger , or (ii) to
securities of other open-end investment companies managed by FMR or a
successor or affiliate purchased pursuant to an exemptive order
granted by the SEC .
(vii) Each fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(viii) (for Balanced and Growth Opportunities Portfolios) Each fund
does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For the funds' limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options
Transactions." For limitations on short sales, see the sections
entitled "Short Sales" and "Short Sales Against The Box."
For the funds' policies on foreign investments, see the section
entitled "Exposure to Foreign Markets."
Higher yielding, fixed-income securities of the type in which High
Income Portfolio invests will at times be purchased at a discount from
or a premium over par value. The total return on such securities
includes the potential for a capital gain or loss. High Income
Portfolio generally does not intend to hold securities for the purpose
of achieving capital gains, however, unless current yields on these
securities remain attractive. Capital gain or loss may also be
realized upon the sale of portfolio securities.
The U.S. government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign investments
by U.S. investors such as the funds. If such restrictions should be
reinstituted, it might become necessary for Overseas Portfolio to
invest all or substantially all of its assets in U.S. securities. In
such event, the Board of Trustees would reevaluate the fund's
investment objective and policies.
In accordance with the funds' fundamental investment policies, there
are no limitations on the percentage of the funds' assets which may be
invested in any one type of instrument. Nor are there limitations
(except those imposed by certain state insurance regulations) on the
percentage of the funds' assets which may be invested in any foreign
country. However, in order to comply with diversification requirements
under Section 817(h) of the Internal Revenue Code of 1986, as amended,
in connection with FMR serving as investment adviser, 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/money market class includes all types of domestic and
foreign securities and short-term and money market instruments with
remaining maturities of 12 months or less or comparable interest rate
sensitivity. FMR will seek to maximize total return with respect to
Asset Manager and Asset Manager: Growth. Short-term and money market
instruments may include corporate debt securities, such as commercial
paper and notes; government securities issued by U.S. or foreign
governments or their agencies or instrumentalities; bank deposits and
other financial institution obligations; repurchase agreements
involving any type of security; and other similar short-term
instruments. These instruments may be denominated in U.S. dollars or
foreign currency.
The bond class includes all varieties of domestic and foreign
fixed-income securities with maturities greater than 12 months or
comparable interest rate sensitivity. FMR will seek to maximize total
return within the bond class by adjusting a fund's investments in
securities with different credit qualities, maturities, and coupon or
dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include
bonds, notes, adjustable-rate preferred stocks, convertible bonds,
mortgage-related and asset-backed securities, domestic and foreign
government and government agency securities, zero coupon bonds, and
other intermediate and long-term securities. As with the
short-term/money market class, these securities may be denominated in
U.S. dollars or foreign currency. Asset Manager and Asset Manager:
Growth may also invest in lower quality, high-yielding debt securities
(commonly referred to as "junk bonds"). Asset Manager and Asset
Manager: Growth currently intend to limit their investments in these
securities to less than 35% of their assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks which are included
in the bond class). FMR seeks to maximize total return within this
asset class by actively allocating assets to industry sectors expected
to benefit from major trends, and to individual stocks that FMR
believes to have superior investment potential. When FMR selects
equity securities, it considers both growth and anticipated dividend
income. Securities in the stock class may include common stocks,
fixed-rate preferred stocks (including convertible preferred stocks),
warrants, rights, depositary receipts, securities of closed-end
investment companies, and other equity securities issued by companies
of any size, located anywhere in the world.
In making asset allocation decisions, FMR will evaluate projections of
risk, market conditions, economic conditions, volatility, yields, and
returns. FMR's management will use database systems to help analyze
past situations and trends, research specialists in each of the asset
classes to help in securities selection, portfolio management
professionals to determine asset allocation and to select individual
securities, and its own credit analysis as well as credit analyses
provided by rating services.
ASSET-BACKED SECURITIES. Asset-backed securities represent interests
in pools of consumer loans (generally unrelated to mortgage loans) and
most often are structured as pass-through securities. Interest and
principal payments ultimately depend upon payment of the underlying
loans by individuals, although the securities may be supported by
letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the
servicing agent for the loan pool, the originator of the loans, or the
financial institution providing the credit enhancement.
CLOSED-END INVESTMENT COMPANIES. A fund may purchase the shares of
closed-end investment companies to facilitate investment in certain
countries. Shares of closed-end investment companies may trade at a
premium or a discount to their net asset value.
DELAYED-DELIVERY TRANSACTIONS. A fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place
after the customary settlement period for that type of security.
Typically, no interest accrues to the purchaser until the security
is delivered. A fund may receive fees for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, a 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.
A fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are
delivered, which may result in capital gains or losses.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks
inherent in U.S. investments. The value of securities denominated in
foreign currencies and of dividends and interest paid with respect to
such securities will fluctuate based on the relative strength of the
U.S. dollar.
Foreign investments involve a risk of local political, economic, or
social instability, military action or unrest, or adverse diplomatic
developments, and may be affected by actions of foreign governments
adverse to the interests of U.S. investors. Such actions may include
the possibility of expropriation or nationalization of assets,
confiscatory taxation, restrictions on U.S. investment or on the
ability to repatriate assets or convert currency into U.S. dollars, or
other government intervention. There is no assurance that FMR will be
able to anticipate these potential events or counter their effects.
These risks are magnified for investments in developing countries,
which may have relatively unstable governments, economies based on
only a few industries, and securities markets that trade a small
number of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States.
Foreign markets may offer less protection to investors than U.S.
markets. It is anticipated that in most cases the best available
market for foreign securities will be on an exchange or in
over-the-counter markets located outside of the United States. Foreign
stock markets, while growing in volume and sophistication, are
generally not as developed as those in the United States, and
securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading
practices, including those involving securities settlement where fund
assets may be released prior to receipt of payment, may result in
increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer, and may involve substantial delays. In
addition, the costs of foreign investing, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than
for U.S. investors. In general, there is less overall governmental
supervision and regulation of securities exchanges, brokers, and
listed companies than in the United States. It may also be difficult
to enforce legal rights in foreign countries. Foreign issuers are
generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those
applicable to U.S. issuers.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject
to such restrictions.
American Depositary Receipts (ADRs) as well as other "hybrid" forms of
ADRs including European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs), are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by
depository banks and generally trade on an established market in the
United States or elsewhere. The underlying shares are held in trust by
a custodian bank or similar financial institution in the issuer's home
country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various
services, including forwarding dividends and interest and corporate
actions. ADRs are an alternative to directly purchasing the underlying
foreign securities in their national markets and currencies. However,
ADRs continue to be subject to many of the risks associated with
investing directly in foreign securities. These risks include foreign
exchange risk as well as the political and economic risks of the
underlying issuer's country.
FOREIGN CURRENCY TRANSACTIONS. A fund may conduct foreign currency
transactions on a spot (i.e., cash) or forward basis (i.e., by
entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange. A fund may use currency
forward contracts for any purpose consistent with its investment
objective.
The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by a fund. A
fund may also use swap agreements, indexed securities, and options and
futures contracts relating to foreign currencies for the same
purposes.
A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is
made or received. Entering into a forward contract for the purchase or
sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the
U.S. dollar price of the security. Forward contracts to purchase or
sell a foreign currency may also be used by a fund in anticipation of
future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected
by FMR.
A fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's
value. Such a hedge, sometimes referred to as a "position hedge,"
would tend to offset both positive and negative currency fluctuations,
but would not offset changes in security values caused by other
factors. A fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would
not hedge currency exposure as effectively as a direct hedge into U.S.
dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged
securities are denominated.
A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to
the currency that is sold, and increase exposure to the currency that
is purchased, much as if a fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause a fund to assume the risk of
fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to
cover currency forward contracts. As required by SEC guidelines, a
fund will segregate assets to cover currency forward contracts, if
any, whose purpose is essentially speculative. A fund will not
segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy
hedges.
Successful use of currency management strategies will depend on FMR's
skill in analyzing currency values. Currency management strategies may
substantially change a fund's investment exposure to changes in
currency exchange rates and could result in losses to a fund if
currencies do not perform as FMR anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR hedges currency exposure through
proxy hedges, a fund could realize currency losses from both the hedge
and the security position if the two currencies do not move in tandem.
Similarly, if FMR increases a fund's exposure to a foreign currency
and that currency's value declines, a fund will realize a loss. There
is no assurance that FMR's use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements may
include agreements to purchase and sell foreign securities in exchange
for fixed U.S. dollar amounts, or in exchange for specified amounts of
foreign currency. Unlike typical U.S. repurchase agreements, foreign
repurchase agreements may not be fully collateralized at all times.
However, pursuant to certain state insurance regulations, any foreign
repurchase agreements a fund enters into will be secured by collateral
consisting of liquid assets having a market value of not less than
102% of the cash or assets transferred to the other party. The value
of a security purchased by a fund may be more or less than the price
at which the counterparty has agreed to repurchase the security. In
the event of default by the counterparty, the fund may suffer a loss
if the value of the security purchased is less than the agreed-upon
repurchase price, or if the fund is unable to successfully assert a
claim to the collateral under foreign laws. As a result, foreign
repurchase agreements may involve higher credit risks than repurchase
agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging market investments,
repurchase agreements with counterparties located in emerging markets
or relating to emerging markets may involve issuers or counterparties
with lower credit ratings than typical U.S. repurchase agreements.
FUNDS' RIGHTS AS A SHAREHOLDER. The funds do not intend to direct or
administer the day-to-day operations of any company. Each fund,
however, may exercise its rights as a shareholder and may communicate
its views on important matters of policy to management, the Board of
Directors, and shareholders of a company when FMR determines that such
matters could have a significant effect on the value of the fund's
investment in the company. The activities that a fund may engage in,
either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a company's
corporate structure or business activities; seeking changes in a
company's directors or management; seeking changes in a company's
direction or policies; seeking the sale or reorganization of the
company or a portion of its assets; or supporting or opposing third
party takeover efforts. This area of corporate activity is
increasingly prone to litigation and it is possible that a fund could
be involved in lawsuits related to such activities. FMR will monitor
such activities with a view to mitigating, to the extent possible, the
risk of litigation against a fund and the risk of actual liability if
a fund is involved in litigation. No guarantee can be made, however,
that litigation against a fund will not be undertaken or liabilities
incurred.
FUTURES AND OPTIONS. The following sections pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, Options and Futures
Relating to Foreign Currencies, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will
comply with guidelines established by the Securities and Exchange
Commission with respect to coverage of options and futures strategies
by mutual funds, and if the guidelines so require will set aside
appropriate liquid assets in a segregated custodial account in the
amount prescribed. Securities held in a segregated account cannot be
sold while the futures or option strategy is outstanding, unless they
are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of a fund's assets
could impede portfolio management or the fund's ability to meet
redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, a fund may purchase a put option and
write a call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined
position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. The funds may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which they typically invest, which involves a risk that the options or
futures position will not track the performance of a fund's other
investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future
date. When a fund sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which
the purchase and sale will take place is fixed when the fund enters
into the contract. Futures can be held until their delivery dates, or
can be closed out before then if a liquid secondary market is
available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a futures commission merchant (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive
all or a portion of this amount. Initial and variation margin payments
do not constitute purchasing securities on margin for purposes of a
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of a fund, the fund may be entitled to
return of margin owed to it only in proportion to the amount received
by the FCM's other customers, potentially resulting in losses to the
fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund 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 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.
The above limitations on the funds' investments in futures contracts
and options, and the funds' policies regarding futures contracts and
options discussed elsewhere in this SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a fund to enter into new positions
or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a
position until delivery or expiration regardless of changes in its
value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and
are standardized as to contract size and delivery date. Most currency
futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency
call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. The funds may purchase and sell currency futures and may
purchase and write currency options to increase or decrease their
exposure to different foreign currencies. A fund may also purchase and
write currency options in conjunction with each other or with currency
futures or forward contracts. Currency futures and options values can
be expected to correlate with exchange rates, but may not reflect
other factors that affect the value of a fund's investments. A
currency hedge, for example, should protect a Yen-denominated security
from a decline in the Yen, but will not protect a fund against a price
decline resulting from deterioration in the issuer's creditworthiness.
Because the value of a fund's foreign-denominated investments changes
in response to many factors other than exchange rates, it may not be
possible to match the amount of currency options and futures to the
value of the fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the funds greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund
obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this
right, the fund pays the current market price for the option (known as
the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities
prices, and futures contracts. The fund may terminate its position in
a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund
will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the
strike price. A fund may also terminate a put option position by
closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the fund assumes the
obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract, the fund will be
required to make margin payments to an FCM as described above for
futures contracts. A fund may seek to terminate its position in a put
option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not
liquid for a put option the fund has written, however, the fund must
continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise
of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally
is a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, a call writer mitigates the effects of
a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up
some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by a fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal
and interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR
may determine some restricted securities, government-stripped
fixed-rate mortgage-backed securities, loans and other direct debt
instruments, emerging market securities, and swap agreements to be
illiquid. However, with respect to over-the-counter options a fund
writes, all or a portion of the value of the underlying instrument may
be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the fund may have to close out
the option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed
by the Board of Trustees. If through a change in values, net assets,
or other circumstances, a fund were in a position where more than 10%
of Equity-Income, Growth, Asset Manager, Contrafund, Asset Manager:
Growth, Balanced, Growth & Income, and Growth Opportunities
Portfolios' net assets or more than 15% of High Income and Overseas
Portfolios' net assets were invested in illiquid securities, the fund
would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. A fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic.
Gold-indexed securities, for example, typically provide for a maturity
value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices.
Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest
rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their
maturity value may increase when the specified currency value
increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline
when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each
other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes
in the United States and abroad. At the same time, indexed securities
are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. government
agencies. FMR will use its judgment in determining whether indexed
securities should be treated as short-term instruments, bonds, stocks,
or as a separate asset class for purposes of Asset Manager and Asset
Manager: Growth Portfolios' investment allocations, depending on the
individual characteristics of the securities. Indexed securities may
be more volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, each fund has received permission to lend
money to, and borrow money from, other funds advised by FMR or its
affiliates. Interfund loans and borrowings normally extend overnight,
but can have a maximum duration of seven days. Loans may be called on
one day's notice. A fund will lend through the program only when the
returns are higher than those available from an investment in
repurchase agreements, and will borrow through the program only when
the costs are equal to or lower than the cost of bank loans. A fund
may have to borrow from a bank at a higher interest rate if an
interfund loan is called or not renewed. Any delay in repayment to a
lending fund could result in a lost investment opportunity or
additional borrowing costs.
ISSUER LOCATION. FMR determines where an issuer is located by looking
at such factors as its country of organization, the primary trading
market for its securities, and the location of its assets, personnel,
sales, and earnings. The issuer of a security is considered to be
located in a particular country if (1) the security is issued or
guaranteed by the government of the country or any of its agencies,
political subdivisions, or instrumentalities; (2) the security has its
primary trading market in that country; or (3) the issuer is organized
under the laws of that country, derives at least 50% of its revenues
or profits from goods sold, investments made, or services performed in
the country, or has at least 50% of its assets located in the country.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other
borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt instruments are
subject to each fund's policies regarding the quality of debt
securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
principal and interest. Direct debt instruments may not be rated by
any nationally recognized rating service. If a fund does not receive
scheduled interest or principal payments on such indebtedness, the
fund's share price and yield could be adversely affected. Loans that
are fully secured offer a fund more protections than an unsecured loan
in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from
a secured loan would satisfy the borrower's obligation, or that the
collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks and may
be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a
small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities
responsible for the repayment of the debt may be unable, or unwilling,
to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional
risks to a fund. For example, if a loan is foreclosed, the fund could
become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of
lender liability, the fund could be held liable as a co-lender. Direct
debt instruments may also involve a risk of insolvency of the lending
bank or other intermediary. Direct debt instruments that are not in
the form of securities may offer less legal protection to a fund in
the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, each fund relies on FMR's research in an attempt
to avoid situations where fraud or misrepresentation could adversely
affect the fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of
the loan, as specified in the loan agreement. Unless, under the terms
of the loan or other indebtedness, each fund has direct recourse
against the borrower, it may have to rely on the agent to apply
appropriate credit remedies against a borrower. If assets held by the
agent for the benefit of a fund were determined to be subject to the
claims of the agent's general creditors, the fund might incur certain
costs and delays in realizing payment on the loan or loan
participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by each fund may include letters of
credit, revolving credit facilities, or other standby financing
commitments obligating the fund to pay additional cash on demand.
These commitments may have the effect of requiring the fund to
increase its investment in a borrower at a time when it would not
otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. Each fund will set aside
appropriate liquid assets in a segregated custodial account to cover
its potential obligations under standby financing commitments.
Each fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see limitations 1
and 5). For purposes of these limitations, each fund generally will
treat the borrower as the "issuer" of indebtedness held by the fund.
In the case of loan participations where a bank or other lending
institution serves as financial intermediary between each fund and the
borrower, if the participation does not shift to the fund the direct
debtor-creditor relationship with the borrower, SEC interpretations
require the fund, in appropriate circumstances, to treat both the
lending bank or other lending institution and the borrower as
"issuers" for these purposes. Treating a financial intermediary as an
issuer of indebtedness may restrict a fund's ability to invest in
indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying
borrowers represent many different companies and industries.
LOWER-QUALITY DEBT SECURITIES. While the market for high-yield
corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic
increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may not
provide an accurate indication of the future performance of the
high-yield bond market, especially during periods of economic
recession.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. If market
quotations are not available, lower-quality debt securities will be
valued in accordance with procedures established by the Board of
Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing high-yield corporate debt securities
than is the case for securities for which more external sources for
quotations and last-sale information are available. Adverse publicity
and changing investor perceptions may affect the ability of outside
pricing services to value lower-quality debt securities and a fund's
ability to dispose of these securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by a fund. In considering
investments for the fund, FMR will attempt to identify those issuers
of high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve in
the future. FMR's analysis focuses on relative values based on such
factors as interest or dividend coverage, asset coverage, earnings
prospects, and the experience and managerial strength of the issuer.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
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.
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.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. A fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory
by FMR. Such transactions may increase fluctuations in the market
value of the fund's assets and may be viewed as a form of leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any
security in which a fund is authorized to invest. Investing this cash
subjects that investment, as well as the security loaned, to market
forces (i.e., capital appreciation or depreciation).
SHORT SALES "AGAINST THE BOX." A fund may sell securities short
when it owns or has the right to obtain securities equivalent in kind
or amount to the securities sold short. Such short sales are known as
short sales "against the box." If a fund enters into a short sale
against the box, it will be required to set aside securities
equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities) and will
be required to hold such securities while the short sale is
outstanding. A fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing
short sales against the box.
SHORT SALES. A fund may enter into short sales with respect to stocks
underlying its convertible security holdings. For example, if FMR
anticipates a decline in the price of the stock underlying a
convertible security a fund holds, it may sell the stock short. If the
stock price subsequently declines, the proceeds of the short sale
could be expected to offset all or a portion of the effect of the
stock's decline on the value of the convertible security. Each fund
currently intends to hedge no more than 15% of its total assets with
short sales on equity securities underlying its convertible security
holdings under normal circumstances.
When a fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or
securities convertible or exchangeable into such securities) and will
be required to hold them aside while the short sale is outstanding. A
fund will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider whether adequate public information about the entity is
available and whether the entity may be subject to unfavorable
political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its
commitment.
SOVEREIGN DEBT OBLIGATIONS. Overseas Portfolio may purchase sovereign
debt instruments issued or guaranteed by foreign governments or their
agencies, including debt of Latin American nations or other developing
countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments such as loans or loan
participations. Sovereign debt of developing countries may involve a
high degree of risk, and may be in default or present the risk of
default. Governmental entities responsible for repayment of the debt
may be unable or unwilling to repay principal and interest when due,
and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend
on political as well as economic factors.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security (IO)
receives interest payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall,
prepayment rates tend to increase, which tends to reduce prices of IOs
and increase prices of POs. Rising interest rates can have the
opposite effect.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease a fund's exposure to long- or
short-term interest rates (in the United States or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of
names. A fund is not limited to any particular form of swap agreement
if FMR determines it is consistent with the fund's investment
objective and policies.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if the fund agreed to
exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and
interest rates. Caps and floors have an effect similar to buying or
writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a fund's investments
and its share price and yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors
that determine the amounts of payments due to and from a fund. If a
swap agreement calls for payments by the fund, the fund must be
prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of a swap
agreement would be likely to decline, potentially resulting in losses.
A fund expects to be able to eliminate its exposure under swap
agreements either by assignment or other disposition, or by entering
into an offsetting swap agreement with the same party or a similarly
creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating
interest rates and carry rights that permit holders to demand payment
of the unpaid principal balance plus accrued interest from the issuers
or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated
base rate while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed
to result in a market value for the instrument that approximates its
par value.
WARRANTS. Warrants are securities that give a fund the right to
purchase equity securities from the issuer at a specific price (the
strike price) for a limited period of time. The strike price of
warrants typically is much lower than the current market price of the
underlying securities, yet they are subject to similar price
fluctuations. As a result, warrants may be more volatile investments
than the underlying securities and may offer greater potential for
capital appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights
in the assets if the issuing company. Also, the value of the warrant
does not necessarily change with the value of the underlying
securities and a warrant ceases to have value if it is not exercised
prior to expiration date. These factors can make warrants more
speculative than other types of investments.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep discount from their face value and
are redeemed at face value when they mature. Because zero coupon bonds
do not pay current income, their prices can be very volatile when
interest rates change. In calculating its dividends, a fund takes into
account as income a portion of the difference between a zero coupon
bond's purchase price and its face value.
A broker-dealer creates a DERIVATIVE ZERO by separating the interest
and principal components of a U.S. Treasury security and selling them
as two individual securities. CATS (Certificates of Accrual on
Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and
TRs (Treasury Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of
Registered Interest and Principal of Securities) by separating the
interest and principal components of an outstanding U.S. Treasury bond
and selling them as individual securities. Bonds issued by the
Resolution Funding Corporation (REFCORP) and the Financing Corporation
(FICO) can also be separated in this fashion. ORIGINAL ISSUE ZEROS are
zero coupon securities originally issued by the U.S. government, a
government agency, or a corporation in zero coupon form.
PORTFOLI O TRANSACTI ONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR pursuant to authority contained in the
management contract. If FMR grants investment management authority to
the sub-advisers (see the section entitled "Management Contracts"),
the sub-advisers are authorized to place orders for the purchase and
sale of portfolio securities, and will do so in accordance with the
policies described below. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR considers various relevant factors, including,
but not limited to: the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold;
the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions; and arrangements for payment of fund expenses.
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). 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
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services (FBS), indirect 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 (FBSL). As of January 1995, FBSL
was converted to an unlimited liability company and assumed the name
FBS.
FMR may allocate brokerage transactions to broker-dealers who have
entered into arrangements with FMR under which the broker-dealer
allocates a portion of the commissions paid by 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 NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
Because a high turnover rate increases transaction costs and may
increase taxable gains, FMR carefully weighs the anticipated benefits
of short-term investing against these consequences. An increased
turnover rate is due to a greater volume of shareholder purchase
orders, short-term interest rate volatility and other special market
conditions. For the fiscal years ended December 31, 1996 and 1995, the
funds had the following portfolio turnover rates:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR HIGH EQUITY- GROWTH GROWTH OVERSEAS ASSET ASSET MANAGER: BALANCED CONTRAFUND
INCOME INCOME OPPORTUNITIES MANAGER GROWTH
1996 123% 186% 81% 28% 92% 168% 120% 163% 178%
1995 132% 87% 108% 38% 50% 256% 343% 248% 132%
</TABLE>
BROKERAGE COMMISSIONS. The following tables list the total brokerage
commissions paid, the percentage of the brokerage commissions paid to
brokerage firms that provided research services, and the commissions
paid to NFSC and FBS (formerly FBSL) in dollars and as a percentage of
the dollar value of all transactions in which brokerage commissions
were paid, for the fiscal periods ended December 31, 1996, 1995 and
1994 for each of the funds. The funds pay both commissions and
spreads in connection with the placement of portfolio transactions.
The difference between the percentage of brokerage commissions paid to
and the percentage of the dollar amount of transactions effected
through NFSC is a result of the low commission rates charged by NFSC.
HIGH INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 501,544 69% $ 10,168 $ 0 2% 0% 2% 0%
1995 $ 185,561 95% $ 21,896 $ 0 12% 0% 16% 0%
1994 $ 135,013 98% $ 24,140 $ 0 18% 0% 29% 0%
</TABLE>
EQUITY-INCOME PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 13,450,350 66% $ 3,563,724 $ 19,906 27% 0% 40% 0%
1995 $ 5,473,128 94% $ 2,043,797 $ 33,242 37% 1% 51% 0%
1994 $ 4,893,684 95% $ 1,717,630 $ 116,658 35% 2% 46% 1%
</TABLE>
GROWTH OPPORTUNITIES PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 195,409 64% $ 43,699 $ 2,978 22% 2% 33% 1%
1995 $ 105,477 67% $ 40,358 $ 100 38% 0% 58% 0%
</TABLE>
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 4,689,993 68% $ 1,167,932 $ 41,903 25% 1% 37% 1%
1995 $ 3,835,624 97% $ 1,237,372 $ 13,081 32% 0% 43% 0%
1994 $ 3,120,411 97% $ 956,332 $ 0 31% 0% 44% 0%
</TABLE>
OVERSEAS PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 4,851,584 86% $ 23,341 $ 338,852 1% 7% 2% 9%
1995 $ 2,495,829 96% $ 10,057 $ 240,170 0% 10% 1% 12%
1994 $ 2,985,961 90% $ 1,605 $ 255,413 0% 9% 0% 11%
</TABLE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 138,649 70% $ 32,871 $ 1,221 24% 1% 39% 1%
1995 $ 65,835 89% $ 12,056 $ 195 18% 0% 37% 0%
</TABLE>
ASSET MANAGER PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 5,969,816 85% $ 600,978 $ 27,964 10% 0% 22% 0%
1995 $ 12,537,406 96% $ 1,793,406 $ 218,281 14% 2% 33% 2%
1994 $ 3,316,118 92% $ 583,097 $ 107,280 18% 3% 32% 3%
</TABLE>
ASSET MANAGER: GROWTH PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 296,932 70% $ 52,039 $ 2,173 18% 1% 30% 1%
1995 $ 335,353 93% $ 4,540 $ 14 13% 0% 30% 0%
</TABLE>
CONTRAFUND PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO NFSC TO FBS % TO NFSC % TO FBS % %
ENDED TO FIRMS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS
1996 $ 4,846,349 73% $ 1,020,036 $ 8,210 21% 0% 32% 0%
1995 $ 672,767 97% $ 246,389 $ 0 37% 0% 49% 0%
</TABLE>
From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR, investment decisions for
each fund are made independently from those of other funds managed by
FMR or accounts managed by FMR affiliates. It sometimes happens that
the same security is held in the portfolio of more than one of these
funds or accounts. Simultaneous transactions are inevitable when
several funds and accounts are managed by the same investment adviser,
particularly when the same security is suitable for the investment
objective of more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to each fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
FSC normally determines each class's net asset value per share (NAV)
as of the close of the New York Stock Exchange (NYSE) (normally 4:00
p.m. Eastern time). The valuation of portfolio securities is
determined as of this time for the purpose of computing each class's
NAV.
HIGH INCOME PORTFOLIO
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities and convertible securities may be valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services or
discontinue the use of any pricing service.
Most equity securities for which the primary market is the United
States are valued at last sale price or, if no sale has occurred, at
the closing bid price. Most equity securities for which the primary
market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which
they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or last bid price normally is
used.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. FSC gathers all exchange rates daily at the
close of the NYSE using the last quoted price on the local currency
and then translates the value of foreign securities from their local
currencies into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange on which that security is traded, then
that security will be valued as determined in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
EQUITY-INCOME, CONTRAFUND, GROWTH, GROWTH & INCOME, OVERSEAS, ASSET
MANAGER, ASSET MANAGER: GROWTH, BALANCED, AND GROWTH OPPORTUNITIES
PORTFOLIOS
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Most equity securities
for which the primary market is the United States are valued at last
sale price or, if no sale has occurred, at the closing bid price. Most
equity securities for which the primary market is outside the United
States are valued using the official closing price or the last sale
price in the principal market in which they are traded. If the last
sale price (on the local exchange) is unavailable, the last evaluated
quote or last bid price normally is used. Securities of other open-end
investment companies are valued at their respective NAVs.
Fixed-income securities and other assets for which market quotations
are readily available may be valued at market values determined by
such securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets. Or, fixed-income securities and convertible securities may be
valued on the basis of information furnished by a pricing service that
uses a valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the funds may use various pricing
services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. FSC gathers all exchange rates daily at the
close of the NYSE using the last quoted price on the local currency
and then translates the value of foreign securities from their local
currencies into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange on which that security is traded, then
that security will be valued as determined in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and
is not intended to indicate future returns. Each fund's share
price, yield and total return fluctuate in response to market
conditions and other factors, and the value of a fund's shares when
redeemed may be more or less than their original cost.
YIELD CALCULATIONS. Yields for a class are computed by dividing the
class's pro rata share of the applicable interest and dividend
income, if any, for a given 30-day or one-month period, net of
expenses, by the average number of shares of that class entitled to
receive distributions during the period, dividing this figure by the
class's net asset value (NAV) at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable
to all stock and bond funds. Dividends from equity investments are
treated as if they were accrued on a daily basis, solely for the
purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For a fund's investments
denominated in foreign currencies, income and expenses are calculated
first in their respective currencies, and are then converted to U.S.
dollars, either when they are actually converted or at the end of the
30-day or one month period, whichever is earlier. Capital gains and
losses generally are excluded from the calculation as are gains and
losses from currency exchange rate fluctuations.
Income calculated for the purposes of calculating a class's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a class's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
In calculating a class's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing the class's yield.
Yield information may be useful in reviewing a class's performance and
in providing a basis for comparison with other investment
alternatives. However, each class's yield fluctuates, unlike
investments that pay a fixed interest rate over a stated period of
time. 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 class's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a class's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing the class's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of a class's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the
class's NAV over a stated period. Average annual total returns are
calculated by determining the growth or decline in value of a
hypothetical historical investment in a class over a stated period,
and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative
total return of 100% over ten years would produce an average annual
total return of 7.18%, which is the steady annual rate of return that
would equal 100% growth on a compounded basis in ten years. Average
annual total returns covering periods of less than one year are
calculated by determining a class's total return for the period,
extending that return for a full year (assuming that return remains
constant over the year), and quoting the result as an annual return.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that a class'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 class.
In addition to average annual total returns, a class may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a class's NAVs, adjusted
NAVs, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid and reflects all elements
of return. Unless otherwise indicated, a class's adjusted NAVs are not
adjusted for sales charges, if any.
MOVING AVERAGES. A fund may illustrate performance using moving
averages. A long-term moving average is the average of each week's
adjusted closing NAV for a specified period. A short-term moving
average is the average of each day's adjusted closing NAV for a
specified period. Moving Average Activity Indicators combine adjusted
closing NAVs from the last business day of each week with moving
averages for a specified period to produce indicators showing when a
NAV has crossed, stayed above, or stayed below its moving average.
HISTORICAL FUND RESULTS. The following table shows the funds'
yields (High Income Portfolio) and total returns for Service Class
shares for the periods ended June 30, 1997. The initial offering of
Service Class shares of each fund is expected to begin on or about
November 3, 1997. Service Class returns prior to the initial
offering date are those of the original class of each fund ("Initial
Class"), which does not have a 12b-1 fee. Service Class returns would
have been lower if the applicable Service Class 12b-1 fee had been
reflected in returns prior to the initial offering date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS
AS OF
6/30/97 30-DAY ONE FIVE 10 YEARS/ SIX ONE FIVE 10 YEARS/
YIELD YEAR YEARS LIFE OF MONTHS YEAR YEARS LIFE OF
FUND* FUND*
HIGH
INCOME 7.06% 14.47% 13.24% 11.48% 7.70% 14.47% 86.25% 196.43%
PORTFOLIO
ASSET
MANAGER N/A 20.45% 12.43% 12.43% 11.20% 20.45% 79.68% 149.96%
PORTFOLIO
ASSET
MANAGER: N/A 25.51% N/A 23.29% 14.14% 25.51% N/A 68.55%
GROWTH PORTFOLIO
EQUITY-
INCOME N/A 25.66% 20.09% 13.66% 16.39% 25.66% 149.77% 259.94%
PORTFOLIO
CONTRAFUND
PORTFOLIO N/A 25.07% N/A 29.11% 11.63% 25.07% N/A 89.06%
GROWTH
PORTFOLIO N/A 17.92% 19.89% 14.33% 13.83% 17.92% 147.66% 281.48%
OVERSEAS
PORTFOLIO N/A 22.69% 11.30% 8.93% 16.44% 22.69% 70.76% 135.23%
GROWTH &
INCOME N/A N/A N/A N/A 16.06% N/A N/A 14.90%
PORTFOLIO
BALANCED
PORTFOLIO N/A 24.77% N/A 15.39% 14.05% 24.77% N/A 42.89%
GROWTH
OPPORTUNI
TIES N/A 29.02% N/A 26.86% 15.45% 29.02% N/A 80.95%
PORTFOLIO
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during certain
of these periods, the Service Class total returns would have been
lower.
* 10-year return for High Income, Equity-Income and Growth
Portfolios; Overseas Portfolio commenced operations January 28, 1987;
Asset Manager Portfolio commenced operations September 6, 1989; Asset
Manager: Growth, Contrafund, Balanced and Growth Opportunities
Portfolios commenced operations January 3, 1995; and Growth & Income
Portfolio commenced operations December 31, 1996.
The following tables show the income and capital elements of each
fund's Service Class cumulative total return. The tables compare each
fund's Service Class return to the record of the Standard & Poor's 500
Index (S&P 500), the Dow Jones Industrial Average (DJIA), and the cost
of living, as measured by the Consumer Price Index (CPI), over the
same period. The CPI information is as of the month-end closest to the
initial investment date for each fund. The S&P 500 and DJIA
comparisons are provided to show how each fund's Service Class total
return compared to the record of a broad unmanaged index of common
stocks and a narrower set of stocks of major industrial companies,
respectively, over the same period. Because High Income Portfolio
invests in fixed-income securities, common stocks represent a
different type of investment from the fund. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income
than a fixed-income investment such as a bond fund. Each fund has the
ability to invest in securities not included in either index, and
its investment portfolio may or may not be similar in composition to
the indexes. The S&P 500 and DJIA returns are based on the prices of
unmanaged groups of stocks and, unlike each fund's Service Class
returns, do not include the effect of brokerage commissions or other
costs of investing.
The initial offering of Service Class shares of each fund is
expected to begin on or about November 3, 1997. Service Class
figures prior to the initial offering date are those of Initial
Class, the original class of each fund, which does not have a 12b-1
fee. Service Class figures would have been lower if the applicable
Service Class 12b-1 fee had been reflected in figures prior to the
initial offering date.
HIGH INCOME PORTFOLIO . During the ten-year period ended
December 31, 1996, a hypothetical $10,000 investment in Service Class
of High Income Portfolio would have grown to $28,713, assuming all
distributions were reinvested. This was a period of fluctuating
interest rates and bond prices and the figures below should not be
considered representative of the dividend income or capital gain or
loss that could be realized from an investment in the class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
HIGH INCOME PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 11,560 $ 15,734 $ 1,419 $ 28,713 $ 41,499 $ 46,181 $ 14,353
1995 $ 11,127 $ 13,088 $ 964 $ 25,179 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,926 $ 10,072 $ 860 $ 20,858 $ 24,531 $ 26,244 $ 13,548
1993 $ 11,071 $ 9,869 $ 266 $ 21,206 $ 24,213 $ 25,001 $ 13,195
1992 $ 9,991 $ 7,484 $ 138 $ 17,613 $ 21,996 $ 21,370 $ 12,842
1991 $ 8,818 $ 5,361 $ 121 $ 14,300 $ 20,434 $ 19,916 $ 12,480
1990 $ 6,528 $ 3,969 $ 90 $ 10,587 $ 15,660 $ 16,018 $ 12,109
1989 $ 7,488 $ 3,237 $ 103 $ 10,828 $ 16,164 $ 16,104 $ 11,412
1988 $ 8,920 $ 2,257 $ 123 $ 11,300 $ 12,275 $ 12,222 $ 10,905
1987 $ 8,938 $ 1,061 $ 123 $ 10,122 $ 10,526 $ 10,543 $ 10,443
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of High Income Portfolio on January 1, 1987, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$23,613. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $7,751 for
dividends and $702 for capital gain distributions. Tax consequences of
different investments have not been factored into the above
figures.
EQUITY-INCOME PORTFOLIO. During the ten-year period ended December 31,
1996, a hypothetical $10,000 investment in Service Class of
Equity-Income Portfolio would have grown to $36,228, 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
class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY-INCOME PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 20,988 $ 9,127 $ 6,113 $ 36,228 $ 41,499 $ 46,181 $ 14,353
1995 $ 19,232 $ 8,313 $ 4,156 $ 31,701 $ 33,750 $ 35,882 $ 13,891
1994 $ 15,319 $ 6,048 $ 2,099 $ 23,466 $ 24,531 $ 26,244 $ 13,548
1993 $ 15,409 $ 5,518 $ 990 $ 21,917 $ 24,213 $ 25,001 $ 13,195
1992 $ 13,373 $ 4,296 $ 859 $ 18,528 $ 21,996 $ 21,370 $ 12,842
1991 $ 11,826 $ 3,265 $ 760 $ 15,851 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,491 $ 1,959 $ 610 $ 12,060 $ 15,660 $ 16,018 $ 12,109
1989 $ 12,265 $ 1,679 $ 292 $ 14,236 $ 16,164 $ 16,104 $ 11,412
1988 $ 10,988 $ 977 $ 167 $ 12,132 $ 12,275 $ 12,222 $ 10,905
1987 $ 9,401 $ 343 $ 143 $ 9,887 $ 10,526 $ 10,543 $ 10,443
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Equity-Income Portfolio on January 1, 1987, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested), amounted to $19,805.
If distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $4,232 for dividends
and $3,024 for capital gain distributions. Tax consequences of
different investments have not been factored into the above figures.
GROWTH PORTFOLIO. During the ten-year period ended December 31, 1996,
a hypothetical $10,000 investment in Service Class of Growth
Portfolio would have grown to $41,000, 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 class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 31,047 $ 2,594 $ 7,359 $ 41,000 $ 41,499 $ 46,181 $ 14,353
1995 $ 29,113 $ 2,330 $ 4,301 $ 35,744 $ 33,750 $ 35,882 $ 13,891
1994 $ 21,625 $ 1,586 $ 3,195 $ 26,406 $ 24,531 $ 26,244 $ 13,548
1993 $ 23,011 $ 1,542 $ 1,858 $ 26,411 $ 24,213 $ 25,001 $ 13,195
1992 $ 19,701 $ 1,198 $ 1,226 $ 22,125 $ 21,996 $ 21,370 $ 12,842
1991 $ 18,455 $ 1,071 $ 713 $ 20,239 $ 20,434 $ 19,916 $ 12,480
1990 $ 12,871 $ 541 $ 497 $ 13,909 $ 15,660 $ 16,018 $ 12,109
1989 $ 15,135 $ 399 $ 224 $ 15,758 $ 16,164 $ 16,104 $ 11,412
1988 $ 11,685 $ 124 $ 173 $ 11,982 $ 12,275 $ 12,222 $ 10,905
1987 $ 10,110 $ 106 $ 150 $ 10,366 $ 10,526 $ 10,543 $ 10,443
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth Portfolio on January 1, 1987, the net amount invested
in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested), amounted to $16,555.
If distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $1,196 for dividends
and $4,506 for capital gain distributions. Tax c onsequences of
different investments have not been factored into the above figures.
OVERSEAS PORTFOLIO. During the period from January 28, 1987
(commencement of operations) to December 31, 1996, a hypothetical
$10,000 investment in Service Class of Overseas Portfolio would
have grown to $21,254, assuming all distributions were reinvested.
This was a period of fluctuating stock prices and the figures below
should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the
class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
OVERSEAS PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 18,840 $ 1,979 $ 435 $ 21,254 $ 36,629 $ 40,630 $ 14,263
1995 $ 17,060 $ 1,571 $ 152 $ 18,783 $ 29,789 $ 31,568 $ 13,804
1994 $ 15,670 $ 1,375 $ 71 $ 17,116 $ 21,653 $ 23,089 $ 13,462
1993 $ 15,480 $ 1,276 $ 70 $ 16,826 $ 21,371 $ 21,996 $ 13,112
1992 $ 11,530 $ 720 $ 0 $ 12,250 $ 19,414 $ 18,801 $ 12,761
1991 $ 13,090 $ 631 $ 0 $ 13,721 $ 18,036 $ 17,522 $ 12,401
1990 $ 12,420 $ 285 $ 0 $ 12,705 $ 13,822 $ 14,092 $ 12,032
1989 $ 12,670 $ 250 $ 0 $ 12,920 $ 14,267 $ 14,168 $ 11,340
1988 $ 10,110 $ 121 $ 0 $ 10,231 $ 10,834 $ 10,753 $ 10,836
1987* $ 9,350 $ 112 $ 0 $ 9,462 $ 9,291 $ 9,276 $ 10,378
</TABLE>
* From January 28, 1987 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Overseas Portfolio on January 28, 1987, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$11,705. If di stributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $1,280 for
dividends and $330 for capital gain distributions. Tax consequences of
different investments (with the exception of foreign tax
withholdings) have not been factored into the above figures.
ASSET MANAGER PORTFOLIO. During the period from September 6, 1989
(commencement of operations) to December 31, 1996, a hypothetical
$10,000 investment in Service Class of Asset Manager Portfolio would
have grown to $22,477, assuming all distributions were reinvested.
This was a period of fluctuating interest rates, bond prices, and
stock prices and the figures below should not be considered
representative of the dividend income or capital gain or loss that
could be realized from an investment in the class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET MANAGER PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 16,930 $ 3,418 $ 2,129 $ 22,477 $ 26,004 $ 29,109 $ 12,729
1995 $ 15,790 $ 2,448 $ 1,375 $ 19,613 $ 21,148 $ 22,617 $ 12,319
1994 $ 13,790 $ 1,779 $ 1,201 $ 16,770 $ 15,372 $ 16,542 $ 12,014
1993 $ 15,420 $ 1,642 $ 795 $ 17,857 $ 15,172 $ 15,758 $ 11,701
1992 $ 13,320 $ 1,004 $ 406 $ 14,730 $ 13,783 $ 13,470 $ 11,388
1991 $ 12,550 $ 610 $ 25 $ 13,185 $ 12,804 $ 12,554 $ 11,067
1990 $ 10,240 $ 497 $ 21 $ 10,758 $ 9,813 $ 10,096 $ 10,738
1989* $ 9,970 $ 91 $ 20 $ 10,081 $ 10,128 $ 10,151 $ 10,120
</TABLE>
* From September 6, 1989 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Asset Manager Portfolio on September 6, 1989, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested), amounted to $14,386.
If distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $2,320 for dividends
and $1,530 for capital gain distributions. Tax consequences of
different investments have not been factored into the above figures.
CONTRAFUND PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1996, a hypothetical
$10,000 investment in Service Class of Contrafund Portfolio would
have grown to $16,937, assuming all distributions were reinvested.
This was a period of fluctuating stock prices and the figures
below should not be considered representative of the dividend income
or capital gain or loss that could be realized from an investment in
the class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CONTRAFUND PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 16,560 $ 73 $ 304 $ 16,937 $ 16,915 $ 17,594 $ 10,595
1995* $ 13,790 $ 61 $ 121 $ 13,972 $ 13,756 $ 13,670 $ 10,254
</TABLE>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Contrafund Portfolio on January 3, 1995, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested), amounted to $10,321.
If distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $60 for dividends and
$250 for capital gain 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, 1996, a
hypothetical $10,000 investment in Service Class of Asset Manager:
Growth Portfolio would have grown to $14,767, assuming all
distrib utions 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
class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET MANAGER: GROWTH PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 13,100 $ 348 $ 1,319 $ 14,767 $ 16,915 $ 17,594 $ 10,595
1995* $ 11,770 $ 110 $ 422 $ 12,302 $ 13,756 $ 13,670 $ 10,254
</TABLE>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Asset Manager: Growth Portfolio on January 3, 1995, the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested),
amounted to $11,554. If distributions had not been reinvested, the
amount of distributions earned from the class over time would have
been smaller, and cash payments for the period would have amounted to
$320 for dividends and $1,170 for capital gain distributions. Tax
consequences of different investments have not been factored into the
above figures.
BALANCED PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1996, a hypothetical
$10,000 investment in Service Class of Balanced Portfolio would
have grown to $12,528, 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 class today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCED PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 12,230 $ 154 $ 144 $ 12,528 $ 16,915 $ 17,594 $ 10,595
1995* $ 11,170 $ 141 $ 81 $ 11,392 $ 13,756 $ 13,670 $ 10,254
</TABLE>
* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Balanced Portfolio on January 3, 1995, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$10,271. If distributions had not been reinvested, the amount of
distributions earned from the class over time would have been smaller,
and cash payments for the period would have amounted to $140 for
dividends and $130 for capital gain distributions. Tax consequences of
different investments have not been factored into the above
figures.
GROWTH OPPORTUNITIES PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 1996, a hypothetical
$10,000 investment in Service Class of Growth Opportunities Portfolio
would have grown to $15,673, assuming all distrib utions 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 class today.
<TABLE>
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GROWTH OPPORTUNITIES PORTFOLIO-SERVICE CLASS INDICES
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS
1996 $ 15,400 $ 130 $ 143 $ 15,673 $ 16,915 $ 17,594 $ 10,595
1995* $ 13,070 $ 111 $ 71 $ 13,252 $ 13,756 $ 13,670 $ 10,254
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* From January 3, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth Opportunities Portfolio on January 3, 1995, the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested),
amounted to $10,231. If distributions had not been reinvested, the
amount of distributions earned from the class over time would have
been smaller, and cash payments for the period would have amounted to
$110 for dividends and $120 for capital gain distributions. Tax
consequences of different investments have not been factored into the
above figures.
PERFORMANCE COMPARISONS. A class's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank bond
funds based on yield. In addition to the mutual fund rankings, a
class's performance may be compared to stock, bond, and money market
mutual fund performance indices prepared by Lipper or other
organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of
investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability
of principal, but generally do not offer the higher potential returns
available from stock mutual funds.
The Asset Allocation Composite Indices (for Asset Manager and Asset
Manager: Growth) are hypothetical representations of the performance
of the funds' three asset classes according to their respective
weighting in each fund's neutral mix. The weightings are rebalanced
monthly. Beginning January 1, 1997, the Asset Allocation Composite
Index represents Asset Manager's three asset classes according to
their respective weighting in the fund's neutral mix (10% -
short-term/money market; 40% - bonds; and 50% - stocks), and beginning
January 1, 1997, the Aggressive Asset Allocation Composite Index
represents Asset Manager: Growth's three asset classes according to
their respective weighting in the fund's neutral mix (5% -
short-term/money market; 25% - bonds; and 70% - stocks). The following
indices are used to calculate the three asset allocation composite
indices: the Salomon Brothers 3-month T-Bill Total Rate of Return
Index, representing the average of T-Bill rates for each of the prior
three months, adjusted to a bond equivalent yield basis (short-term
and money market instruments); the Lehman Brothers Aggregate Bond
Index, a market value weighted performance benchmark for
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgaged-backed securities with
maturities of at least one year; and the S&P 500, a widely recognized,
unmanaged index of common stocks. Prior to January 1, 1997, the Asset
Allocation Composite Index represented Asset Manager's three asset
classes according to their respective weighting in the fund's neutral
mix (20% - short-term instruments; 40% - bonds; and 40% - stocks), and
prior to January 1, 1997, the Aggressive Asset Allocation Composite
Index represented Asset Manager: Growth's three asset classes
according to their respective weighting in the fund's neutral mix (5%
- - short-term instruments; 30% - bonds; and 65% - stocks). The
following indices were used to calculate the three asset allocation
composite indices: the Salomon Brothers 3-month T-Bill Total Rate of
Return Index; the Lehman Brothers Treasury Bond Index, a widely
utilized benchmark of bond market performance that includes virtually
all long-term public obligations of the U.S. Treasury (bonds); and the
S&P 500.
Asset Manager and Asset Manager: Growth have the ability to invest in
securities that are not included in any of the indices, and each
fund's actual investment portfolio may not reflect the composition or
the weighting of the indices used. The S&P 500 and the asset
allocation composite indices include reinvestment of income or
dividends and are based on the prices of unmanaged groups of stocks or
U.S. Treasury obligations. Unlike each fund's returns, the indices do
not include the effect of paying brokerage commissions, spreads, or
other costs of investing. Historical results are used for illustrative
purposes only and do not reflect the past or future performance of the
funds.
The following table represents the comparative indices calendar
year-to-year performance of the funds' asset classes:
SALOMON BROTHERS 3-MONTH LEHMAN BROTHERS TREASURY S&P 500
T-BILL TOTAL RATE OF BOND INDEX
RETURN INDEX
1996 5.25% 2.70% 22.96%
1995 5.75 18.35 37.58
1994 4.24 -3.38 1.32
1993 3.09 10.68 10.08
1992 3.61 7.21 7.62
1991 5.75 15.29 30.47
1990 7.90 8.54 -3.10
1989 8.64 14.38 31.69
1988 6.76 6.99 16.61
1987 5.91 2.00 5.10
1986 6.23 15.61 18.56
From time to time, a class's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, 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 class's performance may also be compared to that of a benchmark
index representing the universe of securities in which the fund may
invest. The total return of a benchmark index reflects reinvestment of
all dividends and capital gains paid by securities included in the
index. Unlike a class's returns, however, the index returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
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.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals;
charitable giving; and the Fidelity credit card. In addition, Fidelity
may quote or reprint financial or business publications and
periodicals as they relate to current economic and political
conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a
particular mutual fund, and Fidelity services and products. Fidelity
may also reprint, and use as advertising and sales literature,
articles from Fidelity Focus(registered trademark), a quarterly
magazine provided free of charge to Fidelity fund shareholders.
A fund may be advertised as part of certain asset allocation programs
involving other Fidelity or non-Fidelity mutual funds. These asset
allocation programs may advertise a model portfolio and its
performance results.
A fund may be advertised as part of a no transaction fee (NTF) program
in which Fidelity and non-Fidelity mutual funds are offered. An NTF
program may advertise performance results.
A fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a class's historical share price fluctuations or total
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, a fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate a class's price movements over specific
periods of time. Each point on the momentum indicator represents the
class's percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a class at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
As of August 31, 1997, FMR advised over $29 billion in tax-free
fund assets, $ 97 billion in money market fund assets, $368 billion in
equity fund assets, $74 billion in international fund assets, and $27
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 CLASS INCLUDE THE CLASS'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. BECAUSE YOU CAN PURCHASE SHARES OF EACH
FUND ONLY THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE INSURANCE
CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. Excluding these charges from quotations of a class's
performance has the effect of increasing the performance quoted.
INTERNATIONAL INDICES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International
Indices database, the total market capitalization of Latin American
countries according to the International Finance Corporation Emerging
Markets database, and the performance of national stock markets as
measured in U.S. dollars by the Morgan Stanley Capital International
stock market indices for the twelve months ended December 31, 1996. Of
course, these results are not indicative of future stock market
performance or the funds' performance. Market conditions during the
periods measured fluctuated widely. Brokerage commissions and other
fees are not factored into the values of the indices.
MARKET CAPITALIZATION. Companies outside the U.S. now make up nearly
two-thirds of the world's stock market capitalization. According to
Morgan Stanley Capital International, the size of the markets as
measured in U.S. dollars grew from $5,080.3 ($8,621.7 including the
U.S.) billion in 1995 to $5,749.4 ($10,078.9 including the U.S.)
billion in 1996.
The following table measures the total market capitalization of
certain countries according to the Morgan Stanley Capital
International Indices database. The value of the markets is measured
in billions of U.S. dollars as of December 31, 1996.
TOTAL MARKET CAPITALIZATION
AUSTRALIA $ 168.3 JAPAN $ 1,842.4
AUSTRIA 23.8 NETHERLANDS 269.8
BELGIUM 67.9 NORWAY 31.5
CANADA 271.8 SINGAPORE/MALAYSIA 76.7/148.3
DENMARK 50.5 SPAIN 129.0
FRANCE 395.0 SWEDEN 143.8
GERMANY 465.9 SWITZERLAND 321.0
HONG KONG 214.6 UNITED KINGDOM 1,093.6
ITALY 175.6 UNITED STATES 4,549.1
The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in
billions of U.S. dollars as of December 31, 1996.
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
ARGENTINA $ 30.6
BRAZIL 109.9
CHILE 31.8
COLOMBIA 5.8
MEXICO 74.6
VENEZUELA 9.8
NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents
the performance of national stock markets as measured in U.S. dollars
by the Morgan Stanley Capital International stock market indices for
the twelve months ended December 31, 1996. The second table shows the
same performance as measured in local currency. Each table measures
total return based on the period's change in price, dividends paid on
stocks in the index, and the effect of reinvesting dividends net of
any applicable foreign taxes. These are unmanaged indices composed of
a sampling of selected companies representing an approximation of the
market structure of the designated country.
STOCK MARKET PERFORMANCE MEASURED IN U.S. DOLLARS
AUSTRALIA 17.8% JAPAN -15.4%
AUSTRIA 4.9 NETHERLANDS 28.5
BELGIUM 13.1 NORWAY 29.2
CANADA 29.3 SINGAPORE/MALAYSIA -6.9/25.9
DENMARK 22.4 SPAIN 41.3
FRANCE 21.8 SWEDEN 38.0
GERMANY 14.1 SWITZERLAND 2.8
HONG KONG 33.1 UNITED KINGDOM 27.4
ITALY 13.4 UNITED STATES 24.1
STOCK MARKET PERFORMANCE MEASURED IN LOCAL CURRENCY
AUSTRALIA 10.4% JAPAN -4.8%
AUSTRIA 12.9 NETHERLANDS 38.7
BELGIUM 22.1 NORWAY 30.6
CANADA 29.9 SINGAPORE/MALAYSIA -7.9/25.2
DENMARK 30.3 SPAIN 51.5
FRANCE 29.5 SWEDEN 42.2
GERMANY 22.9 SWITZERLAND 20.0
HONG KONG 33.1 UNITED KINGDOM 15.6
ITALY 8.7 UNITED STATES 24.1
The following table shows the average annualized stock market returns
measured in U.S. dollars as of December 31, 1996.
STOCK MARKET PERFORMANCE
Five Years Ended Ten Years Ended
December 31, 1996 December 31, 1996
Germany 10.89% 45.12%
Hong Kong 17.84 38.95
Japan -3.63 5.91
Spain 5.38 19.33
United Kingdom 11.78 46.08
United States 12.70 43.60
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and the net asset value per share (NAV)
of each class is calculated each day the New York Stock Exchange
(NYSE) is open for trading. The NYSE has designated the following
holiday closings for 1997 and 1998: New Year's Day, Martin Luther
King's Birthday (in 1998), Presidents' Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day, and
Christmas Day. Although FMR expects the same holiday schedule to
be observed in the future, the NYSE may modify its holiday schedule at
any time. In addition, the funds will not process wire purchases and
redemptions on days when the Federal Reserve Wire System is closed.
FSC normally determines each class's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
Securities and Exchange Commission (SEC). To the extent that portfolio
securities are traded in other markets on days when the NYSE is
closed, a class's NAV may be affected on days when investors do not
have access to the fund to 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 class's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
In the Prospectus, each fund has notified shareholders that it
reserves the right at any time, without prior notice, to refuse
exchange purchases by any person or group if, in FMR's judgment, the
fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
DISTRIBUTIONS AND TAXES
For a discussion of tax consequences of variable contracts, please
refer to your insurance company's separate account prospectus.
Variable contracts purchased through insurance company separate
accounts provide for the accumulation of all earnings from interest,
dividends, and capital appreciation without current federal income tax
liability to the owner. Depending on the variable contract,
distributions from the contract may be subject to ordinary income tax
and a 10% penalty tax on distributions before age 59. Only the portion
of a distribution attributable to income is subject to federal income
tax. Investors should consult with competent tax advisers for a more
complete discussion of possible tax consequences in a particular
situation.
Section 817(h) of the Internal Revenue Code provides that the
investments of a separate account underlying a variable insurance
contract (or the investments of a mutual fund, the shares of which are
owned by the variable separate account) must be "adequately
diversified" in order for the contract to be treated as an annuity or
life insurance for tax purposes. The Treasury Department has issued
regulations prescribing these diversification requirements. Each fund
intends to comply with these requirements.
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 the 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 same class 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.
If a fund purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the
Internal Revenue Code, it may be subject to U.S. federal income tax on
a portion of any excess distribution or gain from the disposition of
such shares. Interest charges may also be imposed on a fund with
respect to deferred taxes arising from such distributions or gains.
Generally, a fund will elect to mark-to-market any PFIC shares.
Unrealized gains will be recognized as income for tax purposes and
must be distributed to shareholders as dividends.
BALANCED PORTFOLIO - As of December 31, 1996, the fund had a capital
loss carryforward of approximately $372,000, which will expire on
December 31, 2004.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the Investment Company Act of 1940 (1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the 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 (67), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of FMR Texas Inc., Fidelity Management & Research (U.K.)
Inc., and Fidelity Management & Research (Far East) Inc.
J. GARY BURKHEAD (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997),
and President and Chief Executive Officer of the Fidelity
Institutional Group (1997). Previously, Mr. Burkhead served as
President of Fidelity Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting - engineering industry, 1994). Prior to
February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). Until March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources
Company (exploration and production). He is a Director of USA Waste
Services, Inc. (non-hazardous waste, 1993), CH2M Hill Companies
(engineering), Rio Grande, Inc. (oil and gas production), and Daniel
Industries (petroleum measurement equipment manufacturer). In
addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (65), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum for
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates serves as a member of the corporate
board for Lucas Varity PLC (automotive components and diesel engines),
Charles Stark Draper Laboratory (non-profit), NACCO Industries, Inc.
(mining and manufacturing), and TRW Inc. (original equipment and
replacement products).
E. BRADLEY JONES (69), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc. (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (64), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Fund, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive
Vice President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition,
he serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the
Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996) and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996.
MARVIN L. MANN (64), Trustee (1993), is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company
(chemicals, 1993), Imation Corp. (imaging and information storage,
1997), and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State
United Way (1993) and is a member of the University of Alabama
President's Cabinet.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997), and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp. Mr. Pozen currently
serves as a Trustee for only Variable Insurance Products Fund III.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (43), is Vice President of Bond Funds, Group
Leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
BART A. GRENIER (38), is Vice President of certain High-Income Bond
Funds (1997). Mr. Grenier rejoined Fidelity in August 1997 from DDJ
Capital Management, LLC, where he had served as Managing Director
since April 1997. Mr. Grenier originally joined Fidelity in 1991 as a
senior analyst. Mr. Grenier served as a Director of High-Income Group
research and as Director of U.S. Equity research from 1994 to March
1996. He later became Group Leader of the Income-Growth and Asset
Allocation-Income Groups in 1996 and Assistant Equity Division Head in
1997.
ABIGAIL P. JOHNSON (35), is Vice President of certain Equity Funds
(1997), and is a Director of FMR Corp. (1994). Before assuming her
current responsibilities, Ms. Johnson managed a number of Fidelity
funds.
WILLIAM J. HAYES (63), Vice President (1994), is Vice President of
Fidelity's equity funds; Senior Vice President of FMR; and Managing
Director of FMR Corp.
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
ROBERT A. LAWRENCE (45), is Vice President of certain Equity Funds,
Vice President of Fidelity Real Estate High Income Fund and Fidelity
Real Estate High Income Fund II (1994), and Senior Vice President of
FMR (1993). Mr. Lawrence joined Fidelity in 1991 as a Vice President
of FMR.
RICHARD A. SPILLANE, JR. (46), is Vice President of certain Equity
Funds and Senior Vice President of FMR (1997). Since joining Fidelity,
Mr. Spillane was Chief Investment Officer for Fidelity International,
Limited. Prior to that position, Mr. Spillane served as Director of
Research.
WILLIAM DANOFF (37), is Vice President of VIP II: Contrafund
Portfolio (1995), other funds advised by FMR, and an employee of
FMR.
KEVIN E. GRANT (37), is Vice President of VIP III: Balanced
Portfolio (1996), other funds advised by FMR, and an employee of
FMR.
BARRY J. COFFMAN (37), is Vice President of VIP: High Income
Portfolio (1992) and an employee of FMR.
STEPHEN R. PETERSEN (41), is Vice President of VIP: Equity-Income
Portfolio (1997), other funds advised by FMR, and an employee of
FMR.
JENNIFER S. UHRIG (36), is Vice President of VIP: Growth Portfolio
(1997), other funds advised by FMR, and an employee of FMR.
BETH F. TERRANA (40), is Vice President of VIP III: Growth & Income
Portfolio (1996), other funds advised by FMR, and an employee of
FMR.
BETTINA E. DOULTON (33), is Vice President of VIP III: Balanced
Portfolio (1996), other funds advised by FMR, and an employee of
FMR.
RICHARD C. HABERMANN (57), is Vice President of VIP II: Asset
Manager Portfolio (1996), VIP II: Asset Manager: Growth Portfolio
(1996), other funds advised by FMR, and an employee of FMR.
CHARLES S. MORRISON II (56), is Vice President of VIP II: Asset
Manager Portfolio (1996), VIP II: Asset Manager: Growth Portfolio
(1997), other funds advised by FMR, and an employee of FMR.
JOHN J. TODD (48), is Vice President of VIP II: Asset Manager
Portfolio and VIP II: Asset Manager: Growth Portfolio (1996), other
funds advised by FMR, and an employee of FMR.
RICHARD R. MACE, JR. (35), is Vice President of VIP: Overseas
Portfolio (1996), other funds advised by FMR, and an employee of
FMR.
GEORGE A. VANDERHEIDEN (51), is Vice President of VIP III: Growth
Opportunities Portfolio (1995), other funds advised by FMR, and a n
employee of FMR.
ARTHUR S. LORING (50), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice president and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
ROBERT H. MORRISON (57), Manager of Security Transactions of
Fidelity's equity funds, is Vice President of FMR.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (51), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Agregate
Compensation
from a Fund
William
O.
Robert McCoy
M. (double
Richard Gates dagger) Edward
J. (double Edward (double H.
Flynn dagger) C. Peter dagger) Malone Robert
J. Gary (double (double Johnson S. (double Gerald (double C.
Burkhead Ralph Phyllis dagger) dagger) 3d E. Donald Lynch dagger) C. dagger) Marvin Pozen Thomas
(double F. Burke (double (double (double Bradley J. (double (double McDo (double L. (double R.
dagger) Cox Davis dagger) dagger) dagger) Jones Kirk dagger) dagger) nough dagger) Mann dagger) Williams
High IncomeB
$ 0 $ 407 $ 397 $ 498 $ 0 $ 0 $ 397 $ 402 $ 0 $ 260 $ 402 $ 403 $ 398 $ 0 $ 402
Equity-
0 1,960 1,908 2,385 0 0 1,908 1,930 0 1,251 1,932 1,939 1,917 0 1,929
IncomeC,K
GrowthD,K
0 1,719 1,682 2,107 0 0 1,682 1,702 0 1,115 1,705 1,700 1,680 0 1,702
OverseasE,K
0 516 502 626 0 0 502 488 0 323 508 510 505 0 508
Asset
0 1,162 1,144 1,423 0 0 1,144 1,156 0 704 1,155 1,149 1,137 0 1,156
ManagerF,K
ContrafundG
0 484 468 591 0 0 468 475 0 344 477 481 474 0 474
Asset Manager:
0 42 40 50 0 0 40 41 0 30 41 41 41 0 41
GrowthH
BalancedI
0 23 22 28 0 0 22 23 0 16 23 23 23 0 23
Growth &
0 50 50 65 0 0 50 50 0 35 50 50 50 0 50
Income+
Growth
0 86 82 104 0 0 82 84 0 60 84 84 84 0 83
OpportunitiesJ
TOTAL
$ 0 $ 137,700 $134,700 $168,000 $ 0 $ 0 $ 134,700 $136,200 $ 0 $ 85,333 $ 136,200 $136,200 $ 134,700 $ 0 $136,200
COMPENSATION
FROM THE FUND
COMPLEX ++, A
</TABLE>
(double dagger) Interested Trustees of the funds and Mr. Burkhead are
compensated by FMR.
(double dagger)(double dagger) Richard J. Flynn and Edward H. Malone
served on the Board of Trustees through December 31, 1996.
(double dagger)(double dagger)(double dagger) Mr. Gates was
appointed to the Board of Trustees of each trust effective March 1,
1997.
(double dagger)(double dagger)(double dagger)(double dagger) During
the period from May 1, 1996 through December 31, 1996, William O.
McCoy served as a Member of the Advisory Board of each trust. Mr.
McCoy was appointed to the Board of Trustees of each trust effective
January 1, 1997.
+ Estimated
++ Information is for the calendar year ended December 31, 1996 for
235 funds in the complex.
A Compensation figures include cash, a pro rata portion of benefits
accrued under the retirement program for the period ended December 30,
1996 and required to be deferred, and may include amounts deferred at
the election of Trustees.
B The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $15, Phyllis Burke Davis, $15, Richard J. Flynn, $0, E. Bradley
Jones, $15, Donald J. Kirk, $15, Gerald C. McDonough, $15, Edward H.
Malone, $15, Marvin L. Mann, $15, and Thomas R. Williams, $15.
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $75, Phyllis Burke Davis, $75, Richard J. Flynn, $0, E. Bradley
Jones, $75, Donald J. Kirk, $75, Gerald C. McDonough, $75, Edward H.
Malone, $75, Marvin L. Mann, $75, and Thomas R. Williams, $75.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $65, Phyllis Burke Davis, $65, Richard J. Flynn, $0, E. Bradley
Jones, $65, Donald J. Kirk, $65, Gerald C. McDonough, $65, Edward H.
Malone, $65, Marvin L. Mann, $65, and Thomas R. Williams, $65.
E The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $20, Phyllis Burke Davis, $20, Richard J. Flynn, $0, E. Bradley
Jones, $20, Donald J. Kirk, $20, Gerald C. McDonough, $20, Edward H.
Malone, $20, Marvin L. Mann, $20, and Thomas R. Williams, $20.
F The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $44, Phyllis Burke Davis, $44, Richard J. Flynn, $0, E. Bradley
Jones, $44, Donald J. Kirk, $44, Gerald C. McDonough, $44, Edward H.
Malone, $44, Marvin L. Mann, $44, and Thomas R. Williams, $44.
G The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $19, Phyllis Burke Davis, $19, Richard J. Flynn, $0, E. Bradley
Jones, $19, Donald J. Kirk, $19, Gerald C. McDonough, $19, Edward H.
Malone, $19, Marvin L. Mann, $19, and Thomas R. Williams, $19.
H The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $2, Phyllis Burke Davis, $2, Richard J. Flynn, $0, E. Bradley
Jones, $2, Donald J. Kirk, $2, Gerald C. McDonough, $2, Edward H.
Malone, $2, Marvin L. Mann, $2, and Thomas R. Williams, $2.
I The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $1, Phyllis Burke Davis, $1, Richard J. Flynn, $0, E. Bradley
Jones, $1, Donald J. Kirk, $1, Gerald C. McDonough, $1, Edward H.
Malone, $1, Marvin L. Mann, $1, and Thomas R. Williams, $1.
J The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $3, Phyllis Burke Davis, $3, Richard J. Flynn, $0, E. Bradley
Jones, $3, Donald J. Kirk, $3, Gerald C. McDonough, $3, Edward H.
Malone, $3, Marvin L. Mann, $3, and Thomas R. Williams, $3.
K For the fiscal year ended December 31, 1996, certain of the
non-interested Trustees' aggregate compensation from certain funds
includes accrued voluntary deferred compensation as follows:
Equity-Income (Cox, $1,885, Malone, $1,864, Mann, $1,842); Growth
(Cox, $1,654, Malone, $1,635, Mann, $1,615); Overseas (Cox, $496,
Malone, $490, Mann, $485); Asset Manager (Cox, $1,118, Malone, $1,105,
Mann, $1,093).
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and related
crediting of estimated benefits to the Trustees' Plan accounts did not
result in a material cost to the funds.
As of October 1, 1997, the Trustees, Members of the Advisory Board,
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 October 1, 1997, significant shares of the funds were held by
the following companies with the figures beneath each fund
representing that company's holdings as a percentage of that fund's
total outstanding shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Equity-I Growth Overseas Asset Asset Contrafund Balanced Growth Growth &
Income ncome Manager Manager: Opportunities Income
Growth
Empire Fidelity Investments Life Insurance
Company -- -- -- -- -- -- -- -- -- 8%
(New York, NY)
Fidelity Investments Life Insurance
Company 14% 17% 13% 14% 18% 68% 31% 25% 27% 78%
(Boston, MA)
The Life Insurance Company of
VIrginia -- 6% -- -- 12% -- 6% -- -- --
(Richmon, VA)
Nationwide Life and Annuity
Company 45% 29% 29% 36% 26% -- 25% 70% 67% 7%
(Columbus, OH)
The New England Life Insurance
Company -- -- -- 9% -- -- -- -- -- --
(Boston, MA)
The Travelers Insurance
Company -- 5% 8% -- 10% -- -- -- -- --
(Hartford, CT)
Aetna Insurance Company of
America -- 7% 7% -- -- -- 11% -- -- --
(Hartford, CT)
United of Omaha Life Insurance
Company -- -- -- -- -- 9% -- -- -- --
(Omaha, NE)
Allmerica Financial Life Insurance & Annuity
Company 12% 8% 8% 6% -- -- -- -- -- --
(Worcester, MA)
</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 the fund in accordance with its
investment objective, policies, and limitations. FMR also provides
each fund with all necessary office facilities and personnel for
servicing the fund's investments, compensates all officers of each
fund and all Trustees who are "interested persons" of the trusts or of
FMR, and all personnel of each fund or FMR performing services
relating to research, statistical, and investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
In addition to the management fee payable to FMR and the fees payable
to FSC and FIIOC, each fund or each class thereof , as
applicable , pays all of its expenses that are not assumed by
those parties. Each fund pays for typesetting, printing, and mailing
proxy material to shareholders, legal expenses, and the fees of the
custodian, 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 of the applicable
classes. Other expenses paid by each fund or each class
thereof , as applicable , include interest, taxes,
brokerage commissions, the fund's proportionate share of insurance
premiums and Investment Company Institute dues, and the costs of
registering shares under federal securities laws and making necessary
filing s under state securities law s. Each fund is also
liable for such non-recurring expenses as may arise, including costs
of any litigation to which the fund may be a party, and any
obligation it may have to indemnify its officers and Trustees with
respect to litigation.
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>
High Equity-Inc Growth Overseas Asset Growth & Balanced Contrafund Asset Growth
Income ome Manager Income Manager: Opportunities
Growth
Contract
Dated January January January January January January November November November November
1, 1994 1, 1993 1, 1993 1, 1993 1, 1993 1, 1997 18, 1994 1, 1994 1, 1994 18, 1994
Date Approved by
Shareholders December December December December December December November November November November
15, 1993 16, 1992 16, 1992 16, 1992 16, 1992 19, 1996 21, 1994 9, 1994 9, 1994 21, 1994
</TABLE>
HIGH INCOME PORTFOLIO. For the services of FMR under the contract,
the fund pays FMR a monthly management fee composed of the sum of
two elements: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
$ 0 - 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Prior to January 1, 1994, the group fee rate was based on a
schedule with breakpoints ending at .1400% for average group assets in
excess of $174 billion. The group fee rate breakpoints shown above for
average group assets in excess of $120 billion and under $228 billion
were voluntarily adopted by FMR on January 1, 1992. The additional
breakpoints shown above for average group assets in excess of $228
billion were voluntarily adopted by FMR on November 1, 1993. The
fund's current management contract reflects these extensions of
the group fee rate schedule.
On August 1, 1994, FMR voluntarily revised the prior extensions
to the group fee rate schedule, and added new breakpoints for
average group assets in excess of $156 billion and under $372 billion
as shown in the schedule below. The revised group fee rate schedule
was identical to the above schedule for average group assets under
$156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion,
pending shareholder approval of a new management contract reflecting
the revised schedule and additional breakpoints. The revised group fee
rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. For average group
assets in excess of $156 billion, the revised group fee rate schedule
with additional breakpoints voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
$ 120 - 156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $453 billion of group net assets - the approximate level for
December 1996 - was .1425%, which is the weighted average of the
respective fee rates for each level of group net assets up to $453
billion.
The individual fund fee rate for High Income Portfolio is .45%.
Based on the average group net assets of the funds advised by FMR
for December 1996, the annual management fee rate for the fund
would be calculated as follows:
HIGH INCOME PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1425% + .45% = .5925%
One-twelfth of the annual management fee rate is applied to the
fund's net assets averaged for the most recent month, giving a
dollar amount, which is the fee for that month.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $7,422,311, $4,956,133, and $2,999,205, respectively, for its
services as investment adviser to HIGH INCOME PORTFOLIO. These fees
were equivalent to .59%, .60%, and .61%, respectively, of the average
net assets of the fund for those years.
EQUITY-INCOME, BALANCED, GROWTH, GROWTH & INCOME, GROWTH
OPPORTUNITIES, OVERSEAS, ASSET MANAGER, CONTRAFUND, AND ASSET MANAGER:
GROWTH PORTFOLIOS. For the services of FMR under the contracts, each
fund pays FMR a monthly management fee composed of the sum of two
elements: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
$ 0 - 3 billion .5200% $ 0.5 billion .5200%
3 - 6 .4900 25 .4238
6 - 9 .4600 50 .3823
9 - 12 .4300 75 .3626
12 - 15 .4000 100 .3512
15 - 18 .3850 125 .3430
18 - 21 .3700 150 .3371
21 - 24 .3600 175 .3325
24 - 30 .3500 200 .3284
30 - 36 .3450 225 .3253
36 - 42 .3400 250 .3223
42 - 48 .3350 275 .3198
48 - 66 .3250 300 .3175
66 - 84 .3200 325 .3153
84 - 102 .3150 350 .3133
102 - 138 .3100
138 - 174 .3050
174 - 228 .3000
228 - 282 .2950
282 - 336 .2900
Over 336 .2850
Under Equity-Income, Growth, Overseas and Asset Manager Portfolios'
current management contracts with FMR, the group fee rate is based on
a schedule with breakpoints ending at .3000% for average group assets
in excess of $174 billion. Prior to January 1, 1993, the group fee
rate breakpoints shown above for average group assets in excess of
$138 billion and under $228 billion were voluntarily adopted by FMR on
January 1, 1992. The additional breakpoints shown above for average
group assets in excess of $228 billion were voluntarily adopted by FMR
on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints for average group
assets in excess of $210 billion and under $390 billion as shown in
the schedule below. The revised group fee rate schedule was identical
to the above schedule for average group assets under $210 billion. For
average group assets in excess of $210 billion, the group fee rate
schedule voluntarily adopted by FMR is as follows (Balanced, Growth
Opportunities, Contrafund, and Asset Manager: Growth Portfolios'
current management contracts reflect the group fee rate schedule above
for average group assets under $210 billion and the group fee rate
schedule below for average group assets in excess of $210 billion):
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
$ 138 - 174 billion .3050% $150 billion .3371%
174 - 210 .3000 175 .3325
210 - 246 .2950 200 .3284
246 - 282 .2900 225 .3249
282 - 318 .2850 250 .3219
318 - 354 .2800 275 .3190
354 - 390 .2750 300 .3163
Over 390 .2700 325 .3137
350 .3113
375 .3090
400 .3067
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $390 billion,
pending shareholder approval of a new management contract reflecting
the revised schedule and additional breakpoints. The revised group fee
rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. For average group
assets in excess of $210 billion, the revised group fee rate schedule
with additional breakpoints voluntarily adopted by FMR is as follows
(Growth & Income Portfolio's current management contract reflects the
group fee rate schedule above for average group assets under $210
billion and the group fee rate schedule below for average group assets
in excess of $210 billion):
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
$ 138 - 174 billion .3050% $150 billion .3371%
174 - 210 .3000 175 .3325
210 - 246 .2950 200 .3284
246 - 282 .2900 225 .3249
282 - 318 .2850 250 .3219
318 - 354 .2800 275 .3190
354 - 390 .2750 300 .3163
390 - 426 .2700 325 .3137
426 - 462 .2650 350 .3113
462 - 498 .2600 375 .3090
498 - 534 .2550 400 .3067
Over 534 .2500 425 .3046
450 .3024
475 .3003
500 .2982
525 .2962
550 .2942
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $453 billion of group net assets - the approximate level for
December 1996 - was .3021%, which is the weighted average of the
respective fee rates for each level of group net assets up to $453
billion.
The individual fund fee rates for the funds are as follows: .15% for
Balanced Portfolio; .20% for Equity-Income and Growth & Income
Portfolios; .25% for Asset Manager Portfolio; .30% for Growth
Opportunities, Growth, Asset Manager: Growth and Contrafund
Portfolios; and .45% for Overseas Portfolio. Based on the average
group net assets of the funds advised by FMR for December 1996, the
annual management fee rate for each fund would be calculated as
follows:
BALANCED PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3021% + .15% = .4521%
EQUITY-INCOME AND GROWTH & INCOME PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3021% + .20% = .5021%
ASSET MANAGER PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3021% + .25% = .5521%
GROWTH OPPORTUNITIES, GROWTH, CONTRAFUND AND ASSET MANAGER: GROWTH
PORTFOLIOS
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3021% + .30% = .6021%
OVERSEAS PORTFOLIO
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.3021% + .45% = .7521%
One-twelfth of the annual management fee rate is applied to each
fund's net assets averaged for the most recent month, giving a dollar
amount, which is the fee for that month.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $30,150,885, $17,818,979, and $9,165,293, respectively, for
its services as investment adviser to EQUITY-INCOME PORTFOLIO. These
fees were equivalent to .51%, .51%, and .52%, respectively, of the
average net assets of the fund for each of those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $31,760,621, $19,591,048, and $10,585,482, respectively, for
its services as investment adviser to GROWTH PORTFOLIO. These fees
were equivalent to .61%, .61%, and .62%, respectively, of the average
net assets of the fund for each of those years.
During the fiscal years ended December 31, 1996, and 1995, FMR
received $356,604 and $75,801, respectively, for its services as
investment adviser to BALANCED PORTFOLIO. These fees were equivalent
to .48% and .51%, respectively, of the average net assets of the fund
for each of those years. Effective August 1, 1996, FMR voluntarily
agreed to reduce Balanced Portfolio's individual fund fee rate from
.20% to .15%. If this agreement were not in effect, the management fee
would have been equivalent to .50%.
During the fiscal years ended December 31, 1996, and 1995, FMR
received $1,679,264 and $311,959, respectively, for its services as
investment adviser to GROWTH OPPORTUNITIES PORTFOLIO. These fees were
equivalent to .61% and .61%, respectively, of the average net assets
of the fund for each of those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $11,667,177, $9,837,952, and $8,646,616, respectively, for
its services as investment adviser to OVERSEAS PORTFOLIO. These fees
were equivalent to .76%, .76%, .77%, respectively, of the average net
assets of the fund for each of those years.
During the fiscal years ended December 31, 1996, 1995, and 1994, FMR
received $22,022,749, $23,174,840, and $22,080,801, respectively, for
its services as investment adviser to ASSET MANAGER PORTFOLIO. These
fees were equivalent to .64%, .71%, and .72%, respectively, of the
average net assets of the fund for each of those years. Effective
August 1, 1996, FMR voluntarily agreed to reduce Asset Manager
Portfolio's individual fund fee rate from .40% to .25%. If this
agreement were not in effect, the management fee would have been
equivalent to .70%.
During the fiscal years ended December 31, 1996, and 1995, FMR
received $906,614 and $261,324, respectively, for its services as
investment adviser to ASSET MANAGER: GROWTH PORTFOLIO. These fees were
equivalent to .65% and .71%, respectively, of the average net assets
of the fund for each of those years. Effective August 1, 1996, FMR
voluntarily agreed to reduce Asset Manager: Growth Portfolio's
individual fund fee rate from .40% to .30%. If this agreement were not
in effect, the management fee would have been equivalent to .69%.
During the fiscal years ended December 31, 1996 and 1995, FMR received
$9,539,179 and $2,316,458, respectively, for its service as investment
adviser to CONTRAFUND PORTFOLIO. These fees were equivalent to .61%
and .61%, respectively, of the average net assets of the fund for each
of those years.
FMR may, from time to time, voluntarily reimburse all or a portion of
a class's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to
be repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year. Expense
reimbursements by FMR will increase a class's total returns and yield
and repayment of the reimbursement by a class will lower its total
returns and yield.
Effective November 3, 1997, FMR has voluntarily agreed, subject to
revision or termination, to reimburse Service Class of the funds to
the extent that total operating expenses (as a percentage of their
respective average net assets) exceed the following rates: High Income
Portfolio - Service Class (1.10%); Asset Manager Portfolio - Service
Class (1.35%); Asset Manager: Growth Portfolio - Service Class
(1.10%); Balanced Portfolio - Service Class (1.60%); Equity-Income
Portfolio - Service Class (1.60%); Growth & Income Portfolio - Service
Class (1.10%); Growth Opportunities Portfolio - Service Class (1.60%);
Contrafund Portfolio - Service Class (1.10%); Growth Portfolio -
Service Class (1.60%); and Overseas Portfolio - Service Class (1.60%).
FMR reimbursed Asset Manager: Growth Portfolio $46,008 for the fiscal
year ended December 31, 1995.
SUB-ADVISERS. On behalf of HIGH INCOME, BALANCED, GROWTH & INCOME,
GROWTH OPPORTUNITIES, ASSET MANAGER, CONTRAFUND and ASSET MANAGER:
GROWTH PORTFOLIOS, FMR has entered into sub-advisory agreements with
FMR U.K. and FMR Far East. On behalf of OVERSEAS PORTFOLIO, FMR has
entered into sub-advisory agreements with FMR U.K., FMR Far East, and
FIIA. FIIA, in turn, has entered into a sub-advisory agreement with
FIIA(U.K.)L. Pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from
the sub-advisers. On behalf of High Income, Balanced, Growth
Opportunities, Growth & 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 FIIA(U.K.)L 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 own,
directly or indirectly, more than 25% of the voting common stock of
FIL. FIIA was organized in Bermuda in 1983. FIIA(U.K.)L was organized
in the United Kingdom in 1984, and is a direct subsidiary of Fidelity
Investments Management Limited and an indirect subsidiary of FIL.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, and FIIA. FIIA, in turn, pays the fees of FIIA(U.K.)L. For
providing non-discretionary investment advice and research services,
the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K. and FMR Far East fees equal to
110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services.
(small solid bullet) FMR pays FIIA a fee equal to 30% of FMR's monthly
management fee with respect to the average net assets held by the fund
for which FIIA has provided FMR with investment advice and research
services.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing investment
advice and research services.
For providing discretionary investment management and executing
portfolio transactions, the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K., FMR Far East, and FIIA a fee
equal to 50% of its monthly management fee with respect to the fund's
average net assets managed by the sub-adviser on a discretionary
basis.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing
discretionary investment management services.
For providing investment advice and research services, the fees paid
to the sub-advisers for the fiscal years ended December 31, 1996,
1995, and 1994 were as follows:
OVERSEAS PORTFOLIO
Fiscal Year FMR U.K. FMR Far East FIIA FIIA(U.K.)L
1996 $ 934,318 $ 897,170 -- --
1995 $ 744,061 $ 768,046 -- --
1994 $ 387,086 $ 425,049 -- --
ASSET MANAGER: GROWTH PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1996 $ 9,362 $ 9,146
1995 $ 4,252 $ 5,046
ASSET MANAGER PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1996 $ 308,946 $ 305,205
1995 $ 425,265 $ 471,463
1994 $ 147,227 $ 190,254
CONTRAFUND PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1996 $ 79,710 $ 78,354
1995 $ 13,324 $ 15,011
BALANCED PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1996 $ 4,632 $ 4,355
1995 $ 1,361 $ 1,598
GROWTH OPPORTUNITIES PORTFOLIO
Fiscal Year FMR U.K. FMR Far East
1996 $ 15,833 $ 15,008
1995 $ 2,167 $ 2,421
For providing discretionary investment management and executing
portfolio transactions, FMR on behalf of Overseas Portfolio paid
FMR U.K. fees totaling $376,357 for the fiscal year ended December
31, 1996. For providing discretionary investment management and
executing portfolio transactions, no fees were paid by FMR on behalf
of Overseas Portfolio to the sub-advisers during the fiscal years
ended December 31,1995 and 1994.
FMR entered into the sub-advisory agreements described above as
follows: January 1, 1990 for Asset Manager; April 1, 1992 for
Overseas; January 1, 1994 for High Income; December 1, 1994 for
Contrafund and Asset Manager: Growth; November 18, 1994 for
Balanced and Growth Opportunities; and January 1, 1997 for Growth &
Income. The agreements were approved by shareholders as follows:
December 13, 1989 for Asset Manager; March 25, 1992 for Overseas;
December 15, 1993 for High Income; November 9, 1994 for Contrafund and
Asset Manager: Growth; November 21, 1994 for Balanced and Growth
Opportunities; and December 19, 1996 for Growth & Income.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
Service Class of each fund (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 the fund except pursuant to a plan approved on
behalf of the fund under the Rule. The Plans, as approved by the
Trustees, allow Service Class of the funds and FMR to incur certain
expenses that might be considered to constitute direct or indirect
payment by the funds of distribution expenses.
Pursuant to the Service Class Plans, FDC is paid a 12b-1 fee at an
annual rate of up to 0.25% of Service Class's average net assets for
each fund. For the purpose of calculating the 12b-1 fees, average net
assets are determined at the close of business on each day throughout
the month. Currently, the Trustees have approved a 12b-1 fee for
Service Class of each fund at an annual rate of 0.10% of its average
net assets. These fee rates may be increased only when, in the opinion
of the Trustees, it is in the best interests of Variable Product
owners to do so. (For purposes of this discussion, "Variable Product"
refers to a variable annuity contract or variable life insurance
policy for which shares of the funds are available as underlying
investment options. )
Under each Service Class Plan, if the payment of management fees by
the fund to FMR is deemed to be indirect financing by the fund of the
distribution of its shares, such payment is authorized by the Plan.
Each Service Class Plan specifically recognizes that FMR may use its
management fee revenue, as well as its past profits or its other
resources, to pay FDC for expenses incurred in connection with the
distribution of Service Class shares, including payments made to third
parties that engage in the sale of Service Class shares or to third
parties, including banks, that render shareholder support services.
Currently, the Board of Trustees has authorized such payments for
Service Class shares.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan and
determined that there is a reasonable likelihood that the Plan will
benefit Service Class of the fund and Variable Product owners .
To the extent that each Service Class Plan gives FMR and FDC greater
flexibility in connection with the distribution of Service Class
shares, additional sales of fund shares may result. Furthermore,
certain shareholder support services may be provided more efficiently
under the Plans by insurance companies and their affiliates with
whom Variable Product owners have other relationships.
Each Service Class Plan does not provide for specific payments by
Service Class of any of the expenses of FDC, or obligate FDC or FMR to
perform any specific type or level of distribution activities or incur
any specific level of expenses in connection with distribution
activities. After payments by FDC for advertising, marketing and
distribution, and payments to third parties, the amounts remaining, if
any, may be used as FDC may elect.
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 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; and for Balanced,
Growth & Income, Growth Opportunities, Equity-Income, Growth, Asset
Manager, Contrafund, and Asset Manager: Growth Portfolios, 0.06% for
the first $500 million of average net assets and 0.03% for average net
assets in excess of $500 million. The fee for each fund is limited to
a minimum of $60,000 and a maximum of $800,000 per year.
The following are the fees paid by the funds to FSC for the last three
fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
High Income Equity-Income Growth Overseas Asset Manager
1996 $ 662,535 $ 809,457 $ 808,115 $ 760,136 $ 808,547
1995 $ 266,623 $ 760,752 $ 760,478 $ 551,039 $ 758,063
1994 $ 197,109 $ 669,962 $ 664,914 $ 491,242 $ 751,546
Asset Manager: Growth Contrafund Balanced Growth Opportunities
1996 $ 87,337 $ 622,337 $ 59,115 $ 167,116
1995 $ 44,863 $ 210,939 $ 46,084 $ 52,050
1994 N/A N/A N/A N/A
</TABLE>
Each fund utilizes FIIOC, an affiliate of FMR Corp., to maintain the
master accounts of the participating insurance companies. Under the
contract, Service Class of each fund pays 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.
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 the fiscal years ended December
31, 1996, 1995, and 1994, no securities lending fees were incurred by
the funds.
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. The distribution agreements call for FDC to use all
reasonable efforts, consistent with its other business, to secure
purchasers for shares of each fund, which are continuously offered at
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. 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. Currently, there are
five funds of the trust: Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio, and Overseas
Portfolio.
Asset Manager 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. Currently, there are five funds of
the trust: Investment Grade Bond Portfolio, Asset Manager Portfolio,
Index 500 Portfolio, Contrafund Portfolio, and Asset Manager: Growth
Portfolio.
Balanced Portfolio, Growth & Income Portfolio and Growth Opportunities
Portfolio are funds of Variable Insurance Products Fund III, an
open-end management investment company organized as a Massachusetts
business trust on July 14, 1994. The name of the trust was changed
from Fidelity Advisor Annuity Fund to Variable Insurance Products Fund
III on December 30, 1996. Advisor Annuity Income & Growth Fund's name
was changed to Balanced Portfolio on December 30, 1996. Advisor
Annuity Growth Opportunities Fund's name was changed to Growth
Opportunities Portfolio on December 30, 1996.
The Declarations of Trust permit the Trustees to create additional
funds.
Investments in each trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.
In the event that FMR ceases to be the investment adviser to a trust
or a fund, the right of the trust or fund to use the identifying name
"Fidelity" may be withdrawn. There is a remote possibility that one
fund might become liable for any misstatement in its prospectus or
statement of additional information about another fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general liabilities of their
respective trusts. Expenses with respect to each trust are to be
allocated in proportion to the asset value of their respective funds,
except where allocations of direct expense can otherwise be fairly
made. The officers of each trust, subject to the general supervision
of the Boards of Trustees, have the power to determine which expenses
are allocable to a given fund, or which are general or allocable to
all of the funds of a certain trust. In the event of the dissolution
or liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. Each trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be
held personally liable for the obligations of the trust. Each
Declaration of Trust provides that the trust shall not have any claim
against shareholders except for the payment of the purchase price of
shares and requires that each agreement, obligation, or instrument
entered into or executed by the trust or its Trustees shall include a
provision limiting the obligations created thereby to the trust and
its assets. Each Declaration of Trust provides for indemnification out
of each fund's property of any shareholder held personally liable for
the obligations of the fund. Each Declaration of Trust also provides
that its funds shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the fund and
satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the
risk of personal liability to shareholders is remote.
Each Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declarations of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office. Claims asserted against one class of shares may subject
holders of another class of shares to certain liabilities.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. Shareholders of Balanced Portfolio, Growth & Income
Portfolio, and Growth Opportunities Portfolio receive one vote for
each dollar value of net asset value they own. The shares have no
preemptive or conversion rights; the voting and dividend rights, the
right of redemption, and the privilege of exchange are described in
the Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of a trust or fund may, as set
forth in the Declarations of Trust, call meetings of a trust or fund
for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of an entire trust, the purpose of
voting on removal of one or more Trustees. Each trust or fund may be
terminated upon the sale of its assets to another open-end management
investment company, or upon liquidation and distribution of its
assets, if approved by vote of the holders of a majority of the
outstanding shares of the funds of Variable Insurance Products Fund
and Variable Insurance Products Fund II, or if approved by vote of the
holders of a majority of Variable Insurance Products Fund III or its
funds, as determined by the current value of each such shareholder's
investment in such trust or fund. If not so terminated, each trust or
fund will continue indefinitely.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, New
York, is custodian of High Income Portfolio ' s assets; The Chase
Manhattan Bank, 1 Chase Manhattan Plaza, New York, New York, is
custodian of Equity-Income, Balanced, Growth & Income, Overseas, Asset
Manager: Growth, and Asset Manager Portfolios' assets; and Brown
Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts, is
custodian of Growth, Growth Opportunities, and Contrafund 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 securities from or sell securities to
the custodians. The Bank of New York and The Chase Manhattan Bank,
each headquartered in New York, also may serve as special purpose
custodians of certain assets in connection with repurchase agreement
transactions. Investors should understand that the expense ratio for
Overseas Portfolio may be higher than that of investment companies
which invest exclusively in domestic securities since the cost of
maintaining the custody of foreign securities is higher.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. The Boston branch of Brown Brothers Harriman & Co.
leases its office space from an affiliate of FMR at a lease payment
which, when entered into, was consistent with prevailing market rates.
Transactions that have occurred to date include mortgages and personal
and general business loans. In the judgment of FMR, the terms and
conditions of those transactions were not influenced by existing or
potential custodial or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts, serves as independent accountant of Variable
Insurance Products Fund, and Price Waterhouse LLP, 1 60 Federal
Street, Boston, Massachusetts, serves as independent accountant of
Variable Insurance Products Fund II and Variable Insurance Products
Fund III. Each auditor examines financial statements for the funds and
provides other audit, tax, and related services.
FINANCIAL STATEMENTS
The funds' financial statements for the fiscal year ended December 31,
1996, and reports of the auditors, and the funds' financial statements
for the period ended June 30, 1997 (unaudited), are included in the
funds' Annual Reports and Semi-Annual Reports, respectively, which are
separate reports supplied with this SAI. The funds' financial
statements and reports of the auditors are incorporated herein by
reference. For an additional copy of the funds' Annual or Semi-Annual
Reports, contact your insurance company or FDC at 1-800-544-2442.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) Financial Statements included in the Annual Reports for Asset
Manager Portfolio, Asset Manager: Growth
Portfolio, and Contrafund Portfolio for the fiscal year ended
December 30, 1996, are incorporated by refer ence into the Statement
of Additional Information and were filed on February 28, 1997 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) Financial Statementsincluded in the Semi-Annual Reports for
Asset Manager Portfolio, Asset Manager:
Portfolio, and Contrafund Portfolio for the six-month period ended
June 30, 1997, are incorporated by reference into the Statement of
Additional Information and were filed on August 21, 1997 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.
(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) Not Applicable.
(4) Not Applicable.
(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 among Fidelity Management & Research
Company, Fidelity Management & Research (U.K.) Inc. and Variable
Insurance Products Fund II 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 among Fidelity Management & Research
Company, Fidelity Management & Research (Far East) Inc. and Variable
Insurance Products Fund II 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 to 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 to Exhibit 5(i) of Post-Effective Amendment No.
16.
(j) Sub-Advisory Agreement among Fidelity Management & Research
Company, Fidelity Management & Research (U.K.) Inc. and Variable
Insurance Products Fund II 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 among Fidelity Management & Research
Company, Fidelity Management & Research (Far East) Inc. and Variable
Insurance Products Fund II 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
(currently known as Investment Grade Bond 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.
(f) Amendments, dated March 14, 1996 and July 15, 1996, to General
Distribution Agreement between Investment Grade Bond, Asset Manager,
Index 500, Asset Manager: Growth, and Contrafund Portfolios and
Fidelity Distributors Corporation, are incorporated herein by
reference to Exhibit 6(b) of Fidelity Court Street Trust's
Post-Effective Amendment No. 61 (File No. 2-58774).
(g) Form of Service Contract between Fidelity Distributors
Corporation and "Qualified Recipients" with respect to Initial Class
shares of Investment Grade Bond, Asset Manager, Asset Manager: Growth,
and Contrafund Portfolios is electronically filed herein as Exhibit
6(g).
(h) Form of Service Contract between Fidelity Distributors
Corporation and "Qualified Recipients" with respect to Service Class
shares of Asset Manager, Asset Manager: Growth, and Contrafund
Portfolios is electronically filed herein as Exhibit 6(h).
(7) (a) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is incorporated
herein by reference to Exhibit 7(a) of Fidelity Select Portfolio's
Post-Effective Amendment No. 54 (File No. 2-69972) .
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's Post-Effective
Amendment No. 19 (File No. 33-43529).
(8) (a) Custodian Agreement and Appendix C, dated December 1, 1994,
between The Bank of New York and Variable Insurance Products Fund 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) Not applicable.
(11) (a) Consent of Price Waterhouse LLP is electronically filed
herein as Exhibit 11(a).
(b) Consent of Coopers & Lybrand L.L.P. is electronically filed
herein as Exhibit 11(b).
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Investment Grade Bond Portfolio: "Initial Class" is electronically
filed herein as Exhibit 15(a).
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Asset
Manager Portfolio: Initial Class is electronically filed herein as
Exhibit 15(b).
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Index
500 Portfolio: Initial Class is electronically filed herein as Exhibit
15(c).
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Asset
Manager: Growth Portfolio: Initial Class is electronically filed
herein as Exhibit 15(d).
(e) Distribution and Service Plan pursuant to Rule 12b-1 for
Contrafund Portfolio: Initial Class is electronically filed herein as
Exhibit 15(e).
(f) Distribution and Service Plan pursuant to Rule 12b-1 for Asset
Manager Portfolio: Service Class is electronically filed herein as
Exhibit 15(f).
(g) Distribution and Service Plan pursuant to Rule 12b-1 for Asset
Manager: Growth Portfolio: Service Class is electronically filed
herein as Exhibit 15(g).
(h) Distribution and Service Plan pursuant to Rule 12b-1 for
Contrafund Portfolio: Service Class is electronically filed herein as
Exhibit 15(h)
(16) (a) A schedule for the computation of performance quotations
(for a 30-day yield, using Investment Grade Bond Portfolio as an
example; and for total return, using Asset Manager Portfolio as an
example) is incorporated herein by reference to Exhibit 16 of
Post-Effective Amendment No. 19.
(b) A schedule for the computation of a moving average (using Asset
Manager Portfolio as an example) is incorporated herein by reference
to Exhibit 16(a) of Post-Effective Amendment No. 14.
(17) Financial Data Schedules are electronically filed herein as
Exhibit 27.
(18) Rule 18f-3 Plan dated October 16, 1997 is electronically filed
herein as Exhibit 18.
Item 25. Persons Controlled by or Under Common Control with Registrant
The Board of Trustees of Registrant is the same as the Board of
Trustees of other funds advised by FMR, each of which has Fidelity
Management and Research Company as its investment adviser. In
addition, the officers of these funds are substantially identical.
Nonetheless, Registrant takes the position that it is not under common
control with these other funds since the power residing in the
respective boards and officers arises as the result of an official
position with the respective funds.
Item 26. Number of Holders of Securities
September 30, 1997
Title of Class Number of Record Holders
Investment Grade Bond Portfolio 58
Asset Manager Portfolio 118
Index 500 Portfolio 82
Asset Manager: Growth Portfolio 19
Contrafund Portfolio 81
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Registrant shall indemnify any present or past Trustee or
officer to the fullest extent permitted by law against liability and
all expenses reasonably incurred by him in connection with any claim,
action, suit, or proceeding in which he is involved by virtue of his
service as a Trustee, an officer, or both. Additionally, amounts paid
or incurred in settlement of such matters are covered by this
indemnification. Indemnification will not be provided in certain
circumstances, however. These include instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of
the duties involved in the conduct of the particular office involved.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense arising by reason of
any person acquiring any shares, based upon the ground that the
registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Registrant included a materially misleading statement or
omission. However, the Registrant does not agree to indemnify the
Distributor or hold it harmless to the extent that the statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Registrant by or on behalf of the
Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of
willful misfeasance, bad faith, gross negligence, and reckless
disregard of the obligations and duties under the Distribution
Agreement.
Pursuant to the agreement by which Fidelity Investments Institutional
Operations Company, Inc. ("FIIOC") is appointed transfer agent, the
Registrant agrees to indemnify and hold FIIOC harmless against any
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names FIIOC
and/or the Registrant as a party and is not based on and does not
result from FIIOC's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with
FIIOC's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FIIOC's willful misfeasance, bad faith or negligence
or reckless disregard of duties) which results from the negligence of
the Registrant, or from FIIOC's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of FIIOC's
acting in reliance upon advice reasonably believed by FIIOC to have
been given by counsel for the Registrant, or as a result of FIIOC's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held,
during the past two fiscal years, the following positions of a
substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of the
Board and Director of FMR, FMR Corp., FMR Texas
Inc., FMR (U.K.) Inc., and FMR (Far East) Inc.;
Chairman of the Board and Representative Director of
Fidelity Investments Japan Limited; President and
Trustee of funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FMR Texas Inc., FMR (U.K.) Inc., and
FMR (Far East) Inc.; General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
J. Gary Burkhead President of FIIS; President and Director of FMR, FMR
Texas Inc., FMR (U.K.) Inc., and FMR (Far East) Inc.;
Managing Director of FMR Corp.; Senior Vice
President and Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
John Carlson Vice President of FMR.
Dwight D. Churchill Senior Vice President of FMR.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR
William Danoff Senior Vice President of FMR and of a fund advised by
FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of FMR
Texas Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Senior Vice President of FMR.
Bart A. Grenier Vice President of FMR and of High-Income Funds
advised by FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of Equity
funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
Bruce Herring Vice President of FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Senior Vice President of FMR and of a fund advised by
FMR; Associate Director and Senior Vice President of
Equity funds advised by FMR.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by FMR;
Vice President of High Income funds advised by FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Mark G. Lohr Vice President of FMR; Treasurer of FMR, FMR (U.K.)
Inc., FMR (Far East) Inc., and FMR Texas Inc.
Arthur S. Loring Senior Vice President, Clerk, and General Counsel of
FMR; Vice President/Legal, and Assistant Clerk of
FMR Corp.; Secretary of funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Charles Mangum Vice President of FMR.
Kevin McCarey Vice President of FMR.
Diane McLaughlin Vice President of FMR.
Neal P. Miller Vice President of FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Scott Orr Vice President of FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Kennedy P. Richardson Vice President of FMR.
Mark Rzepczynski Vice President of FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Fergus Shiel Vice President of FMR.
Carol Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by FMR;
Senior Vice President and Director of Operations and
Compliance of FMR (U.K.) Inc.
Thomas Sprague Vice President of FMR.
Robert E. Stansky Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Scott Stewart Vice President of FMR.
Cythia Straus Vice President of FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
25 Lovat Lane, London, EC3R 8LL, England
FMR U.K. provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board and Director of FMR U.K.,
FMR, FMR Corp., FMR Texas Inc., and FMR (Far
East) Inc.; Chairman of the Executive Committee of
FMR; President and Chief Executive Officer of FMR
Corp.; Chairman of the Board and Representative
Director of Fidelity Investments Japan Limited;
President and Trustee of funds advised by FMR.
J. Gary Burkhead President of FIIS; President and Director of FMR U.K.,
FMR, FMR (Far East) Inc., and FMR Texas Inc.;
Managing Director of FMR Corp.; Senior Vice
President and Trustee of funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FMR Texas Inc., FMR (U.K.) Inc., and
FMR (Far East) Inc.; General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
Mark G. Lohr Treasurer of FMR U.K., FMR, FMR (Far East) Inc., and
FMR Texas Inc.; Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR U.K., FMR, FMR (Far
East) Inc., and FMR Texas Inc.; Treasurer of FMR
Corp.
Francis V. Knox Compliance Officer of FMR U.K.; Vice President of
FMR.
Jay Freedman Clerk of FMR U.K., FMR (Far East) Inc., and FMR
Corp.; Assistant Clerk of FMR; Secretary of FMR
Texas Inc.
(3) FIDELITY MANAGEMENT & RESEARCH COMPANY (FAR EAST) INC. (FMR FAR
EAST)
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan
FMR Far East provides investment advisory services to Fidelity
Management & Research Company and Fidelity Management Trust Company.
The directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR Far
East, FMR, FMR Corp., FMR Texas Inc., and
FMR (U.K.) Inc.; Chairman of the Executive
Committee of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of
the Board and Representative Director of Fidelity
Investments Japan Limited; President and
Trustee of funds advised by FMR.
J. Gary Burkhead President of FIIS; President and Director of FMR
Far East, FMR Texas Inc., FMR, and FMR
(U.K.) Inc.; Managing Director of FMR Corp.;
Senior Vice President and Trustee of funds
advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FMR Texas Inc., FMR
(U.K.) Inc., and FMR (Far East) Inc.; General
Counsel, Managing Director, and Senior Vice
President of FMR Corp.
Bill Wilder Vice President of FMR Far East; President and
Representative Director of Fidelity Investments
Japan Limited.
Mark G. Lohr Treasurer of FMR Far East, FMR, FMR (U.K.)
Inc., and FMR Texas Inc.; Vice President of
FMR.
Stephen G. Manning Assistant Treasurer of FMR Far East, FMR,
FMR (U.K.) Inc., and FMR Texas Inc.; Vice
President and Treasurer of FMR Corp.
Jay Freedman Clerk of FMR Far East, FMR (U.K.) Inc., and
FMR Corp.; Assistant Clerk of FMR; Secretary
of FMR Texas Inc.
Robert Auld Vice President of FMR Far East.
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for
most funds advised by FMR.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
James Curvey Director None
Martha B. Willis President None
Arthur S. Loring Vice President and Clerk Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
</TABLE>
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Company, Inc., 82 Devonshire Street, Boston, MA 02109, or the
funds' respective custodian: The Bank of New York, 110 Washington
Street, New York, N.Y.; The Chase Manhattan Bank, 1 Chase Manhattan
Plaza, New York, N.Y.; and Brown Brothers Harriman & Co., 40 Water
Street, Boston, MA.
Item 31. Management Services - Not applicable.
Item 32. Undertakings
The Registrant on behalf of 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. 25 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 30th day of October 1997.
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 October 30, 1997
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer October 30, 1997
Richard A. Silver
/s/Ralph F. Cox * Trustee October 30, 1997
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee October 30, 1997
Phyllis Burke Davis
/s/Robert October. Gates ** Trustee October 30, 1997
Robert October. Gates
/s/E. Bradley Jones * Trustee October 30, 1997
E. Bradley Jones
/s/Donald J. Kirk * Trustee October 30, 1997
Donald J. Kirk
/s/Peter S. Lynch * Trustee October 30, 1997
Peter S. Lynch
/s/Marvin L. Mann * Trustee October 30, 1997
Marvin L. Mann
/s/William O. McCoy * Trustee October 30, 1997
William O. McCoy
/s/Gerald C. McDonough * Trustee October 30, 1997
Gerald C. McDonough
/s/Thomas R. Williams * Trustee October 30, 1997
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
FORM OF
SERVICE CONTRACT
With Respect to Initial Class Shares of:
( ) Variable Insurance Products Fund - High Income Portfolio
( ) Variable Insurance Products Fund - Equity-Income Portfolio
( ) Variable Insurance Products Fund - Growth Portfolio
( ) Variable Insurance Products Fund - Overseas Portfolio
( ) Variable Insurance Products Fund II - Investment Grade Bond
Portfolio
( ) Variable Insurance Products Fund II - Asset Manager Portfolio
( ) Variable Insurance Products Fund II - Contrafund Portfolio
( ) Variable Insurance Products Fund II - Asset Manager: Growth
Portfolio
( ) Variable Insurance Products Fund III - Growth Opportunities
Portfolio
( ) Variable Insurance Products Fund III - Balanced Portfolio
( ) Variable Insurance Products Fund III - Growth & Income Portfolio
To Fidelity Distributors Corporation:
We desire to enter into a Contract with you for activities in
connection with (i) the distribution of shares of the funds noted
above (the "Funds") of which you are the principal underwriter as
defined in the Investment Company Act of 1940 (the "Act") and for
which you are the agent for the continuous distribution of shares, and
(ii) the servicing of holders of shares of the Funds and existing and
prospective holders of Variable Products (as defined below).
THE TERMS AND CONDITIONS OF THIS CONTRACT ARE AS FOLLOWS:
1. We shall provide distribution and certain shareholder services for
our clients who own or are considering the purchase of variable
annuity contracts or variable life insurance policies for which shares
of the Funds are available as underlying investment options ("Variable
Products"), which services may include, without limitation, answering
questions about the Funds from owners of Variable Products; receiving
and answering correspondence (including requests for prospectuses and
statements of additional information for the Funds); performing
subaccounting with respect to Variable Products' values allocated to
the Funds; preparing, printing and distributing reports of values to
owners of Variable Products who have contract values allocated to the
Funds; printing and distributing prospectuses, statements of
additional information, any supplements to prospectuses and statements
of additional information, and shareholder reports; preparing,
printing and distributing marketing materials for Variable Products;
assisting customers in completing applications for Variable Products
and selecting underlying mutual fund investment options; preparing,
printing and distributing subaccount performance figures for
subaccounts investing in Fund shares; and providing other reasonable
assistance in connection with the distribution of Fund shares to
insurers.
2. We shall provide such office space and equipment, telephone
facilities and personnel (which may be all or any part of the space,
equipment and facilities currently used in our business, or all or any
personnel employed by us) as is necessary or beneficial for us to
provide information and services to existing and prospective owners of
Variable Products, and to assist you in providing services with
respect to Variable Products.
3. We agree to indemnify and hold you, the Funds, and the Funds'
advisers and transfer agent harmless from any and all direct or
indirect liabilities or losses resulting from requests, directions,
actions or inactions, of or by us or our officers, employees or agents
regarding the purchase, redemption, transfer or registration of Fund
shares that underlie Variable Products of our clients. Such
indemnification shall survive the termination of this Contract.
Neither we nor any of our officers, employees or agents are
authorized to make any representation concerning Fund shares except
those contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee or by you, except with
the permission of the Fund or you or the designee of either.
4. In consideration of the services and facilities described herein,
we shall be entitled to receive, and you shall pay or cause to be paid
to us, fees at an annual rate as set forth on the accompanying fee
schedule. We understand that the payment of such fees has been
authorized pursuant to, and shall be paid in accordance with, a
Distribution and Service Plan approved by the Board of Trustees of the
applicable Fund, by those Trustees who are not "interested persons" of
the Fund (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Distribution and
Service Plan or in any agreements related to the Distribution and
Service Plan ("Qualified Trustees"), and by shareholders of such
class; and that such fees are subject to change during the term of
this Contract and shall be paid only so long as this Contract is in
effect. We also understand and agree that, notwithstanding anything
to the contrary, if at any time payment of all such fees would, in
your reasonable determination, conflict with the limitations on sales
or service charges set forth in Section 2830(d) of the NASD Conduct
Rules, then such fees shall not be paid; provided that in such event
each Fund's Board of Trustees may, but is not required to, establish
procedures to pay such fees, or a portion thereof, in such manner and
amount as they shall deem appropriate.
5. We agree to conduct our activities in accordance with any
applicable federal or state laws and regulations, including securities
laws and any obligation thereunder to disclose to our clients the
receipt of fees in connection with their investment in Variable
Products.
6. This Contract shall continue in force for one year from the
effective date (see below), and thereafter shall continue
automatically for successive annual periods, provided such continuance
is specifically subject to termination without penalty at any time if
a majority of each Fund's Qualified Trustees or a majority of the
outstanding voting securities (as defined in the 1940 Act) of the
applicable class vote to terminate or not to continue the Distribution
and Service Plan. Either of us also may cancel this Contract without
penalty upon telephonic or written notice to the other; and upon
telephonic or written notice to us, you may also amend or change any
provision of this Contract. This Contract will also terminate
automatically in the event of its assignment (as defined in the 1940
Act).
7. All communications to you shall be sent to you at your offices, 82
Devonshire Street, Boston, MA 02109. Any notice to us shall be duly
given if mailed or telegraphed to us at the address shown in this
Contract.
8. This Contract shall be construed in accordance with the laws of
the Commonwealth of Massachusetts.
Very truly yours,
____________________________________________________
Name of Qualified Recipient (Please Print or Type)
____________________________________________________
Street
____________________________________________________
City State Zip Code
Date: ______________________________
FIDELITY DISTRIBUTORS CORPORATION
By: ______________________________________
Arthur S. Loring
NOTE: Please return TWO signed copies of this Service Contract to
Fidelity Distributors Corporation. Upon acceptance, one countersigned
copy will be returned to you.
FOR INTERNAL USE ONLY:
EFFECTIVE DATE: ___________________
FEE SCHEDULE FOR QUALIFIED RECIPIENTS OF
Variable Insurance Products Fund - High Income Portfolio
Variable Insurance Products Fund - Equity-Income Portfolio
Variable Insurance Products Fund - Growth Portfolio
Variable Insurance Products Fund - Overseas Portfolio
Variable Insurance Products Fund II - Investment Grade Bond Portfolio
Variable Insurance Products Fund II - Asset Manager Portfolio
Variable Insurance Products Fund II - Contrafund Portfolio
Variable Insurance Products Fund II - Asset Manager: Growth Portfolio
Variable Insurance Products Fund III - Growth Opportunities Portfolio
Variable Insurance Products Fund III - Balanced Portfolio
Variable Insurance Products Fund III - Growth & Income Portfolio
(1) Those who have signed the Service Contract and who render
distribution, administrative support and recordkeeping services as
described in paragraph 1 of the Service Contract will hereafter be
referred to as "Qualified Recipients."
(2) A Qualified Recipient providing services pursuant to the Service
Contract will be paid a quarterly fee at an annualized rate of six (6)
basis points of the average aggregate net assets of its clients
invested in Initial Class shares of the Funds listed above. In order
to be assured of receiving full payment under this paragraph (2) for a
given calendar quarter, a Qualified Recipient must have insurance
company clients with a minimum of $100 million of average net assets
in the aggregate in the Funds listed below. For any calendar quarter
during which assets in these Funds are in the aggregate less than $100
million, the amount of qualifying assets may be considered to be zero
for the purpose of computing the payments due under this paragraph
(2), and the payments under this paragraph (2) may be reduced or
eliminated.
Variable Insurance Products Fund - Equity-Income Portfolio
Variable Insurance Products Fund - Growth Portfolio
Variable Insurance Products Fund - Overseas Portfolio
Variable Insurance Products Fund II - Asset Manager Portfolio
Variable Insurance Products Fund II - Contrafund Portfolio
Variable Insurance Products Fund II - Asset Manager: Growth Portfolio
Variable Insurance Products Fund III - Growth Opportunities Portfolio
Variable Insurance Products Fund III - Balanced Portfolio
Variable Insurance Products Fund III - Growth & Income Portfolio
(3) The fees paid to each Qualified Recipient will be calculated and
paid quarterly. Checks will be mailed to each Qualified Recipient by
the 30th of the following month.
FORM OF
SERVICE CONTRACT
With Respect to Service Class Shares of:
( ) Variable Insurance Products Fund - High Income Portfolio
( ) Variable Insurance Products Fund - Equity-Income Portfolio
( ) Variable Insurance Products Fund - Growth Portfolio
( ) Variable Insurance Products Fund - Overseas Portfolio
( ) Variable Insurance Products Fund II - Asset Manager Portfolio
( ) Variable Insurance Products Fund II - Contrafund Portfolio
( ) Variable Insurance Products Fund II - Asset Manager: Growth
Portfolio
( ) Variable Insurance Products Fund III - Growth Opportunities
Portfolio
( ) Variable Insurance Products Fund III - Balanced Portfolio
( ) Variable Insurance Products Fund III - Growth & Income Portfolio
To Fidelity Distributors Corporation:
We desire to enter into a Contract with you for activities in
connection with (i) the distribution of shares of the funds noted
above (the "Funds") of which you are the principal underwriter as
defined in the Investment Company Act of 1940 (the "Act") and for
which you are the agent for the continuous distribution of shares, and
(ii) the servicing of holders of shares of the Funds and existing and
prospective holders of Variable Products (as defined below).
THE TERMS AND CONDITIONS OF THIS CONTRACT ARE AS FOLLOWS:
1. We shall provide distribution and certain shareholder services for
our clients who own or are considering the purchase of variable
annuity contracts or variable life insurance policies for which shares
of the Funds are available as underlying investment options ("Variable
Products"), which services may include, without limitation, answering
questions about the Funds from owners of Variable Products; receiving
and answering correspondence (including requests for prospectuses and
statements of additional information for the Funds); performing
subaccounting with respect to Variable Products' values allocated to
the Funds; preparing, printing and distributing reports of values to
owners of Variable Products who have contract values allocated to the
Funds; printing and distributing prospectuses, statements of
additional information, any supplements to prospectuses and statements
of additional information, and shareholder reports; preparing,
printing and distributing marketing materials for Variable Products;
assisting customers in completing applications for Variable Products
and selecting underlying mutual fund investment options; preparing,
printing and distributing subaccount performance figures for
subaccounts investing in Fund shares; and providing other reasonable
assistance in connection with the distribution of Fund shares to
insurers.
2. We shall provide such office space and equipment, telephone
facilities and personnel (which may be all or any part of the space,
equipment and facilities currently used in our business, or all or any
personnel employed by us) as is necessary or beneficial for us to
provide information and services to existing and prospective owners of
Variable Products, and to assist you in providing services with
respect to Variable Products.
3. We agree to indemnify and hold you, the Funds, and the Funds'
advisers and transfer agent harmless from any and all direct or
indirect liabilities or losses resulting from requests, directions,
actions or inactions, of or by us or our officers, employees or agents
regarding the purchase, redemption, transfer or registration of Fund
shares that underlie Variable Products of our clients. Such
indemnification shall survive the termination of this Contract.
Neither we nor any of our officers, employees or agents are
authorized to make any representation concerning Fund shares except
those contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee or by you, except with
the permission of the Fund or you or the designee of either.
4. In consideration of the services and facilities described herein,
we shall be entitled to receive, and you shall pay or cause to be paid
to us, fees at an annual rate as set forth on the accompanying fee
schedule. We understand that the payment of such fees has been
authorized pursuant to, and shall be paid in accordance with, a
Distribution and Service Plan approved by the Board of Trustees of the
applicable Fund, by those Trustees who are not "interested persons" of
the Fund (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Distribution and
Service Plan or in any agreements related to the Distribution and
Service Plan ("Qualified Trustees"), and by shareholders of such
class; and that such fees are subject to change during the term of
this Contract and shall be paid only so long as this Contract is in
effect. We also understand and agree that, notwithstanding anything
to the contrary, if at any time payment of all such fees would, in
your reasonable determination, conflict with the limitations on sales
or service charges set forth in Section 2830(d) of the NASD Conduct
Rules, then such fees shall not be paid; provided that in such event
each Fund's Board of Trustees may, but is not required to, establish
procedures to pay such fees, or a portion thereof, in such manner and
amount as they shall deem appropriate.
5. We agree to conduct our activities in accordance with any
applicable federal or state laws and regulations, including securities
laws and any obligation thereunder to disclose to our clients the
receipt of fees in connection with their investment in Variable
Products.
6. This Contract shall continue in force for one year from the
effective date (see below), and thereafter shall continue
automatically for successive annual periods, provided such continuance
is specifically subject to termination without penalty at any time if
a majority of each Fund's Qualified Trustees or a majority of the
outstanding voting securities (as defined in the 1940 Act) of the
applicable class vote to terminate or not to continue the Distribution
and Service Plan. Either of us also may cancel this Contract without
penalty upon telephonic or written notice to the other; and upon
telephonic or written notice to us, you may also amend or change any
provision of this Contract. This Contract will also terminate
automatically in the event of its assignment (as defined in the 1940
Act).
7. All communications to you shall be sent to you at your offices, 82
Devonshire Street, Boston, MA 02109. Any notice to us shall be duly
given if mailed or telegraphed to us at the address shown in this
Contract.
8. This Contract shall be construed in accordance with the laws of
the Commonwealth of Massachusetts.
Very truly yours,
____________________________________________________
Name of Qualified Recipient (Please Print or Type)
____________________________________________________
Street
____________________________________________________
City State Zip Code
Date: ______________________________
FIDELITY DISTRIBUTORS CORPORATION
By: ______________________________________
Arthur S. Loring
NOTE: Please return TWO signed copies of this Service Contract to
Fidelity Distributors Corporation. Upon acceptance, one countersigned
copy will be returned to you.
FOR INTERNAL USE ONLY:
EFFECTIVE DATE: ___________________
FEE SCHEDULE FOR QUALIFIED RECIPIENTS OF
Variable Insurance Products Fund - High Income Portfolio
Variable Insurance Products Fund - Equity-Income Portfolio
Variable Insurance Products Fund - Growth Portfolio
Variable Insurance Products Fund - Overseas Portfolio
Variable Insurance Products Fund II - Asset Manager Portfolio
Variable Insurance Products Fund II - Contrafund Portfolio
Variable Insurance Products Fund II - Asset Manager: Growth Portfolio
Variable Insurance Products Fund III - Growth Opportunities Portfolio
Variable Insurance Products Fund III - Balanced Portfolio
Variable Insurance Products Fund III - Growth & Income Portfolio
(1) Those who have signed the Service Contract and who render
distribution, administrative support and recordkeeping services as
described in paragraph 1 of the Service Contract will hereafter be
referred to as "Qualified Recipients."
(2) A Qualified Recipient providing services pursuant to the Service
Contract will be paid a quarterly fee at an annualized rate of 16
basis points of the average aggregate net assets of its clients
invested in Service Class shares of the Funds listed above.
(3) In addition, a Qualified Recipient providing services pursuant
to the Service Contract will be paid a quarterly fee at an annualized
rate of 10 basis points of the average aggregate net assets of its
clients invested in service class Shares of the Funds listed above.
In order to be assured of receiving full payment under this paragraph
(3) for a given calendar quarter, a Qualified Recipient must have
insurance company clients with a minimum of $100 million of average
net assets in the aggregate in the Funds listed below. For any
calendar quarter during which assets in these Funds are in the
aggregate less than $100 million, the amount of qualifying assets may
be considered to be zero for the purpose of computing the payments due
under this paragraph (3), and the payments under this paragraph (3)
may be reduced or eliminated.
Variable Insurance Products Fund - Equity-Income Portfolio
Variable Insurance Products Fund - Growth Portfolio
Variable Insurance Products Fund - Overseas Portfolio
Variable Insurance Products Fund II - Asset Manager Portfolio
Variable Insurance Products Fund II - Contrafund Portfolio
Variable Insurance Products Fund II - Asset Manager: Growth Portfolio
Variable Insurance Products Fund III - Growth Opportunities Portfolio
Variable Insurance Products Fund III - Balanced Portfolio
Variable Insurance Products Fund III - Growth & Income Portfolio
(4) The fees paid to each Qualified Recipient will be calculated and
paid quarterly. Checks will be mailed to each Qualified Recipient by
the 30th of the following month.
Exhibit 11(a)
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. 25 to the Registration Statement on
Form N-1A of Variable Insurance Products Fund II, of our report dated
February 10, 1997, relating to the financial statements and financial
highlights included in the December 31, 1996 Annual Report to
Shareholders of Variable Insurance Products Fund II: Asset Manager
Portfolio, Asset Manager: Growth Portfolio and Contrafund Portfolio,
and our reports dated February 11, 1997, relating to the financial
statements and financial highlights included in the December 31, 1996
Annual Report to Shareholders of Variable Insurance Products Fund III:
Balanced Portfolio, Growth & Income Portfolio and Growth Opportunities
Portfolio.
We further consent to the reference to our Firm under the heading
"Auditor" in the Statement of Additional Information.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
October 30, 1997
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. 25 to the Registration Statement on
Form N-1A of Variable Insurance Products Fund II, of our report dated
February 10, 1997, relating to the financial statements and financial
highlights included in the December 31, 1996 Annual Reports to
Shareholders of Variable Insurance Products Fund: 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 reference to our Firm under the heading
"Auditor" in the Statement of Additional Information.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 30, 1997
Exhibit 15(a)
DISTRIBUTION AND SERVICE PLAN
Initial Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") for the original class of shares of Investment Grade Bond
Portfolio ("Initial Class"), a class of shares of Investment Grade
Bond Portfolio (the "Fund"), a series of Variable Insurance Products
Fund II (the "Trust").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor") under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for
the Fund's shares of beneficial interest ("Shares"). Under the
agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by
the Distributor, advertising, and other promotional activities in
connection with the offering of Shares of the Fund for sale to the
public. It is recognized that Fidelity Management & Research Company
(the "Adviser") may use its management fee revenues as well as its
past profits or its resources from any other source, to make payments
to the Distributor with respect to any expenses incurred in connection
with the distribution of Initial Class Shares, including the
activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of Initial Class Shares or
who render shareholder support services, including but not limited to
providing office space, equipment and telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder
transactions and providing such other shareholder services as the
Trust may reasonably request.
4. The Initial Class will not make separate payments as a result of
this Plan to the Adviser, Distributor or any other party, it being
recognized that the Fund presently pays, and will continue to pay, a
management fee to the Adviser. To the extent that any payments made
by the Fund to the Adviser, including payment of management fees,
should be deemed to be indirect financing of any activity primarily
intended to result in the sale of Initial Class Shares within the
meaning of Rule 12b-1, then such payments shall be deemed to be
authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities" (as defined in the Act) of the Initial
Class, this plan having been approved by a vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are
not "interested persons" of the Trust (as defined in the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or in any agreement related to the Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter,
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Initial Class to finance
any activity primarily intended to result in the sale of Initial Class
Shares, to increase materially the amount spent by the Initial Class
for distribution, or any amendment of the Management Contract to
increase the amount to be paid by the Fund thereunder shall be
effective only upon approval by a vote of a majority of the
outstanding voting securities of the Initial Class, in the case of
this Plan, or upon approval by a vote of a majority of the outstanding
voting securities of the Fund, in the case of the Management Contract,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence of this
paragraph 6.
7. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of the
Initial Class.
8. During the existence of this Plan, the Trust shall require the
Adviser and/or Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of Initial Class
Shares (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Initial Class Shares.
10. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Initial Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Initial Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
any other class of the Fund, series of the Trust, or class of such
series.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(b)
DISTRIBUTION AND SERVICE PLAN
Initial Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") for the original class of shares of Asset Manager Portfolio
("Initial Class"), a class of shares of Asset Manager Portfolio (the
"Fund"), a series of Variable Insurance Products Fund II (the
"Trust").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor") under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for
the Fund's shares of beneficial interest ("Shares"). Under the
agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by
the Distributor, advertising, and other promotional activities in
connection with the offering of Shares of the Fund for sale to the
public. It is recognized that Fidelity Management & Research Company
(the "Adviser") may use its management fee revenues as well as its
past profits or its resources from any other source, to make payments
to the Distributor with respect to any expenses incurred in connection
with the distribution of Initial Class Shares, including the
activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of Initial Class Shares or
who render shareholder support services, including but not limited to
providing office space, equipment and telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder
transactions and providing such other shareholder services as the
Trust may reasonably request.
4. The Initial Class will not make separate payments as a result of
this Plan to the Adviser, Distributor or any other party, it being
recognized that the Fund presently pays, and will continue to pay, a
management fee to the Adviser. To the extent that any payments made
by the Fund to the Adviser, including payment of management fees,
should be deemed to be indirect financing of any activity primarily
intended to result in the sale of Initial Class Shares within the
meaning of Rule 12b-1, then such payments shall be deemed to be
authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities" (as defined in the Act) of the Initial
Class, this plan having been approved by a vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are
not "interested persons" of the Trust (as defined in the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or in any agreement related to the Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter,
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Initial Class to finance
any activity primarily intended to result in the sale of Initial Class
Shares, to increase materially the amount spent by the Initial Class
for distribution, or any amendment of the Management Contract to
increase the amount to be paid by the Fund thereunder shall be
effective only upon approval by a vote of a majority of the
outstanding voting securities of the Initial Class, in the case of
this Plan, or upon approval by a vote of a majority of the outstanding
voting securities of the Fund, in the case of the Management Contract,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence of this
paragraph 6.
7. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of the
Initial Class.
8. During the existence of this Plan, the Trust shall require the
Adviser and/or Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of Initial Class
Shares (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Initial Class Shares.
10. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Initial Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Initial Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
any other class of the Fund, series of the Trust, or class of such
series.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(c)
DISTRIBUTION AND SERVICE PLAN
Initial Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") for the original class of shares of Index 500 Portfolio
("Initial Class"), a class of shares of Index 500 Portfolio (the
"Fund"), a series of Variable Insurance Products Fund II (the
"Trust").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor") under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for
the Fund's shares of beneficial interest ("Shares"). Under the
agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by
the Distributor, advertising, and other promotional activities in
connection with the offering of Shares of the Fund for sale to the
public. It is recognized that Fidelity Management & Research Company
(the "Adviser") may use its management fee revenues as well as its
past profits or its resources from any other source, to make payments
to the Distributor with respect to any expenses incurred in connection
with the distribution of Initial Class Shares, including the
activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of Initial Class Shares or
who render shareholder support services, including but not limited to
providing office space, equipment and telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder
transactions and providing such other shareholder services as the
Trust may reasonably request.
4. The Initial Class will not make separate payments as a result of
this Plan to the Adviser, Distributor or any other party, it being
recognized that the Fund presently pays, and will continue to pay, a
management fee to the Adviser. To the extent that any payments made
by the Fund to the Adviser, including payment of management fees,
should be deemed to be indirect financing of any activity primarily
intended to result in the sale of Initial Class Shares within the
meaning of Rule 12b-1, then such payments shall be deemed to be
authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities" (as defined in the Act) of the Initial
Class, this plan having been approved by a vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are
not "interested persons" of the Trust (as defined in the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or in any agreement related to the Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter,
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Initial Class to finance
any activity primarily intended to result in the sale of Initial Class
Shares, to increase materially the amount spent by the Initial Class
for distribution, or any amendment of the Management Contract to
increase the amount to be paid by the Fund thereunder shall be
effective only upon approval by a vote of a majority of the
outstanding voting securities of the Initial Class, in the case of
this Plan, or upon approval by a vote of a majority of the outstanding
voting securities of the Fund, in the case of the Management Contract,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence of this
paragraph 6.
7. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of the
Initial Class.
8. During the existence of this Plan, the Trust shall require the
Adviser and/or Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of Initial Class
Shares (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Initial Class Shares.
10. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Initial Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Initial Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
any other class of the Fund, series of the Trust, or class of such
series.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(d)
DISTRIBUTION AND SERVICE PLAN
Initial Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") for the original class of shares of Asset Manager: Growth
Portfolio ("Initial Class"), a class of shares of Asset Manager:
Growth Portfolio (the "Fund"), a series of Variable Insurance Products
Fund II (the "Trust").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor") under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for
the Fund's shares of beneficial interest ("Shares"). Under the
agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by
the Distributor, advertising, and other promotional activities in
connection with the offering of Shares of the Fund for sale to the
public. It is recognized that Fidelity Management & Research Company
(the "Adviser") may use its management fee revenues as well as its
past profits or its resources from any other source, to make payments
to the Distributor with respect to any expenses incurred in connection
with the distribution of Initial Class Shares, including the
activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of Initial Class Shares or
who render shareholder support services, including but not limited to
providing office space, equipment and telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder
transactions and providing such other shareholder services as the
Trust may reasonably request.
4. The Initial Class will not make separate payments as a result of
this Plan to the Adviser, Distributor or any other party, it being
recognized that the Fund presently pays, and will continue to pay, a
management fee to the Adviser. To the extent that any payments made
by the Fund to the Adviser, including payment of management fees,
should be deemed to be indirect financing of any activity primarily
intended to result in the sale of Initial Class Shares within the
meaning of Rule 12b-1, then such payments shall be deemed to be
authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities" (as defined in the Act) of the Initial
Class, this plan having been approved by a vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are
not "interested persons" of the Trust (as defined in the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or in any agreement related to the Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter,
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Initial Class to finance
any activity primarily intended to result in the sale of Initial Class
Shares, to increase materially the amount spent by the Initial Class
for distribution, or any amendment of the Management Contract to
increase the amount to be paid by the Fund thereunder shall be
effective only upon approval by a vote of a majority of the
outstanding voting securities of the Initial Class, in the case of
this Plan, or upon approval by a vote of a majority of the outstanding
voting securities of the Fund, in the case of the Management Contract,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence of this
paragraph 6.
7. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of the
Initial Class.
8. During the existence of this Plan, the Trust shall require the
Adviser and/or Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of Initial Class
Shares (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Initial Class Shares.
10. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Initial Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Initial Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
any other class of the Fund, series of the Trust, or class of such
series.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(e)
DISTRIBUTION AND SERVICE PLAN
Initial Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") for the original class of shares of Contrafund Portfolio
("Initial Class"), a class of shares of Contrafund Portfolio (the
"Fund"), a series of Variable Insurance Products Fund II (the
"Trust").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor") under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers for
the Fund's shares of beneficial interest ("Shares"). Under the
agreement, the Distributor pays the expenses of printing and
distributing any prospectuses, reports and other literature used by
the Distributor, advertising, and other promotional activities in
connection with the offering of Shares of the Fund for sale to the
public. It is recognized that Fidelity Management & Research Company
(the "Adviser") may use its management fee revenues as well as its
past profits or its resources from any other source, to make payments
to the Distributor with respect to any expenses incurred in connection
with the distribution of Initial Class Shares, including the
activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of Initial Class Shares or
who render shareholder support services, including but not limited to
providing office space, equipment and telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder
transactions and providing such other shareholder services as the
Trust may reasonably request.
4. The Initial Class will not make separate payments as a result of
this Plan to the Adviser, Distributor or any other party, it being
recognized that the Fund presently pays, and will continue to pay, a
management fee to the Adviser. To the extent that any payments made
by the Fund to the Adviser, including payment of management fees,
should be deemed to be indirect financing of any activity primarily
intended to result in the sale of Initial Class Shares within the
meaning of Rule 12b-1, then such payments shall be deemed to be
authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities" (as defined in the Act) of the Initial
Class, this plan having been approved by a vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are
not "interested persons" of the Trust (as defined in the Act) and who
have no direct or indirect financial interest in the operation of this
Plan or in any agreement related to the Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter,
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Initial Class to finance
any activity primarily intended to result in the sale of Initial Class
Shares, to increase materially the amount spent by the Initial Class
for distribution, or any amendment of the Management Contract to
increase the amount to be paid by the Fund thereunder shall be
effective only upon approval by a vote of a majority of the
outstanding voting securities of the Initial Class, in the case of
this Plan, or upon approval by a vote of a majority of the outstanding
voting securities of the Fund, in the case of the Management Contract,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence of this
paragraph 6.
7. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of the
Initial Class.
8. During the existence of this Plan, the Trust shall require the
Adviser and/or Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of Initial Class
Shares (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Initial Class Shares.
10. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Initial Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Initial Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
any other class of the Fund, series of the Trust, or class of such
series.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(f)
DISTRIBUTION AND SERVICE PLAN
Service Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Securities and Exchange Commission Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act") for the Service Class
shares of Asset Manager Portfolio ("Service Class"), a class of shares
of Asset Manager Portfolio (the "Fund"), a portfolio of Variable
Insurance Products Fund II (the "Trust"). The Fund's shares of
beneficial interest ("Shares") may from time to time be offered to
insurance companies for allocation to certain of their separate
accounts established for the purpose of funding variable annuity
contracts and variable life insurance policies ("Variable Products").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor"), under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers of
the Fund's Shares. Such efforts may include, but neither are required
to include nor are limited to, the following: (1) formulation and
implementation of marketing and promotional activities, such as mail
promotions and television, radio, newspaper, magazine and other mass
media advertising; (2) preparation, printing and distribution of sales
literature; (3) preparation, printing and distribution of prospectuses
of the Fund and reports to recipients other than existing insurance
company shareholders; (4) obtaining such information, analyses and
reports with respect to marketing and promotional activities as the
Distributor may, from time to time, deem advisable; (5) making
payments to insurance companies and others engaged in the sale of
Shares or who engage in shareholder support services; and (6)
providing training, marketing and support to such insurance companies
and others with respect to Shares.
3. In consideration for the services provided and the expenses
incurred by the Distributor pursuant to the General Distribution
Agreement and paragraph 2 hereof, all with respect to Service Class
shares, Service Class shall pay to the Distributor a fee at the annual
rate of 0.25% (or such lesser amount as the Trustees may, from time to
time, determine) of the average daily net assets of Service Class
throughout the month. The determination of daily net assets shall be
made at the close of business each day throughout the month and
computed in the manner specified in the Fund's then current Prospectus
for the determination of the net asset value of the Fund's Service
Class Shares.
4. The Distributor may use all or any portion of the fee received
pursuant to this Plan to compensate insurance companies or others who
have engaged in the sale of Service Class Shares or in shareholder
support services pursuant to agreements with the Distributor, or to
pay any of the expenses associated with other activities authorized
under paragraph 2 hereof. Such services may include, but are not
limited to, the following: (1) answering questions about the Fund
from owners of Variable Products; (2) receiving and answering
correspondence from owners of Variable Products (including requests
for prospectuses and statements of additional information for the
Fund); (3) performing sub-accounting with respect to Variable Product
values allocated to the Fund; (4) preparing, printing and distributing
reports of values to Variable Product owners who have values allocated
to the Fund; (5) printing and distributing prospectuses, statements of
additional information, any supplements thereto, and shareholder
reports; (6) preparing, printing and distributing marketing materials
for Variable Products; (7) assisting customers in completing
applications for Variable Products and selecting underlying mutual
fund investment options; (8) preparing, printing and distributing
sub-account performance figures for sub-accounts investing in Fund
Shares; and (9) providing other reasonable assistance in connection
with the distribution of Fund Shares to insurers.
5. The Fund presently pays, and will continue to pay, a management
fee to Fidelity Management & Research Company (the "Adviser") pursuant
to a management agreement between the Fund and the Adviser (the
"Management Contract"). It is recognized that the Adviser may use its
management fee revenue, as well as its past profits or its resources
from any other source, to make payments to the Distributor with
respect to any expenses incurred in connection with the distribution
of Service Class Shares, including the activities referred to in
paragraph 2 hereof. To the extent that the payment of management fees
by the Fund to the Adviser should be deemed to be indirect financing
of any activity primarily intended to result in the sale of Service
Class Shares within the meaning of Rule 12b-1, then such payment shall
be deemed to be authorized by this Plan.
6. This Plan shall become effective upon approval by a vote of a
majority of the Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust (as defined in
the Act) and who have no direct or indirect financial interest in the
operation of this Plan or in any agreement related to the Plan (the
"Independent Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan.
7. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter;
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to increase materially the fee provided for in paragraph 3
hereof or any amendment of the Management Contract to increase the
amount to be paid by the Fund thereunder shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of Service Class, in the case of this Plan, or upon approval by a vote
of a majority of the outstanding voting securities of the Fund, in the
case of the Management Contract, and (b) any material amendment of
this Plan shall be effective only upon approval in the manner provided
in the first sentence of this paragraph 7.
8. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of Service
Class.
9. During the existence of this Plan, the Trust shall require the
Adviser and/or the Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of shares of Service
Class (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
10. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Service Class Shares.
11. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Service Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Service Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
of any other class of the Fund, series of the Trust, or class of such
series.
12. If any provision of the Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(g)
DISTRIBUTION AND SERVICE PLAN
Service Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Securities and Exchange Commission Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act") for the Service Class
shares of Asset Manager: Growth Portfolio ("Service Class"), a class
of shares of Asset Manager: Growth Portfolio (the "Fund"), a portfolio
of Variable Insurance Products Fund II (the "Trust"). The Fund's
shares of beneficial interest ("Shares") may from time to time be
offered to insurance companies for allocation to certain of their
separate accounts established for the purpose of funding variable
annuity contracts and variable life insurance policies ("Variable
Products").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor"), under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers of
the Fund's Shares. Such efforts may include, but neither are required
to include nor are limited to, the following: (1) formulation and
implementation of marketing and promotional activities, such as mail
promotions and television, radio, newspaper, magazine and other mass
media advertising; (2) preparation, printing and distribution of sales
literature; (3) preparation, printing and distribution of prospectuses
of the Fund and reports to recipients other than existing insurance
company shareholders; (4) obtaining such information, analyses and
reports with respect to marketing and promotional activities as the
Distributor may, from time to time, deem advisable; (5) making
payments to insurance companies and others engaged in the sale of
Shares or who engage in shareholder support services; and (6)
providing training, marketing and support to such insurance companies
and others with respect to Shares.
3. In consideration for the services provided and the expenses
incurred by the Distributor pursuant to the General Distribution
Agreement and paragraph 2 hereof, all with respect to Service Class
shares, Service Class shall pay to the Distributor a fee at the annual
rate of 0.25% (or such lesser amount as the Trustees may, from time to
time, determine) of the average daily net assets of Service Class
throughout the month. The determination of daily net assets shall be
made at the close of business each day throughout the month and
computed in the manner specified in the Fund's then current Prospectus
for the determination of the net asset value of the Fund's Service
Class Shares.
4. The Distributor may use all or any portion of the fee received
pursuant to this Plan to compensate insurance companies or others who
have engaged in the sale of Service Class Shares or in shareholder
support services pursuant to agreements with the Distributor, or to
pay any of the expenses associated with other activities authorized
under paragraph 2 hereof. Such services may include, but are not
limited to, the following: (1) answering questions about the Fund
from owners of Variable Products; (2) receiving and answering
correspondence from owners of Variable Products (including requests
for prospectuses and statements of additional information for the
Fund); (3) performing sub-accounting with respect to Variable Product
values allocated to the Fund; (4) preparing, printing and distributing
reports of values to Variable Product owners who have values allocated
to the Fund; (5) printing and distributing prospectuses, statements of
additional information, any supplements thereto, and shareholder
reports; (6) preparing, printing and distributing marketing materials
for Variable Products; (7) assisting customers in completing
applications for Variable Products and selecting underlying mutual
fund investment options; (8) preparing, printing and distributing
sub-account performance figures for sub-accounts investing in Fund
Shares; and (9) providing other reasonable assistance in connection
with the distribution of Fund Shares to insurers.
5. The Fund presently pays, and will continue to pay, a management
fee to Fidelity Management & Research Company (the "Adviser") pursuant
to a management agreement between the Fund and the Adviser (the
"Management Contract"). It is recognized that the Adviser may use its
management fee revenue, as well as its past profits or its resources
from any other source, to make payments to the Distributor with
respect to any expenses incurred in connection with the distribution
of Service Class Shares, including the activities referred to in
paragraph 2 hereof. To the extent that the payment of management fees
by the Fund to the Adviser should be deemed to be indirect financing
of any activity primarily intended to result in the sale of Service
Class Shares within the meaning of Rule 12b-1, then such payment shall
be deemed to be authorized by this Plan.
6. This Plan shall become effective upon approval by a vote of a
majority of the Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust (as defined in
the Act) and who have no direct or indirect financial interest in the
operation of this Plan or in any agreement related to the Plan (the
"Independent Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan.
7. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter;
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to increase materially the fee provided for in paragraph 3
hereof or any amendment of the Management Contract to increase the
amount to be paid by the Fund thereunder shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of Service Class, in the case of this Plan, or upon approval by a vote
of a majority of the outstanding voting securities of the Fund, in the
case of the Management Contract, and (b) any material amendment of
this Plan shall be effective only upon approval in the manner provided
in the first sentence of this paragraph 7.
8. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of Service
Class.
9. During the existence of this Plan, the Trust shall require the
Adviser and/or the Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of shares of Service
Class (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
10. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Service Class Shares.
11. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Service Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Service Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
of any other class of the Fund, series of the Trust, or class of such
series.
12. If any provision of the Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(h)
DISTRIBUTION AND SERVICE PLAN
Service Class Shares
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Securities and Exchange Commission Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act") for the Service Class
shares of Contrafund Portfolio ("Service Class"), a class of shares of
Contrafund Portfolio (the "Fund"), a portfolio of Variable Insurance
Products Fund II (the "Trust"). The Fund's shares of beneficial
interest ("Shares") may from time to time be offered to insurance
companies for allocation to certain of their separate accounts
established for the purpose of funding variable annuity contracts and
variable life insurance policies ("Variable Products").
2. The Trust has entered into a General Distribution Agreement on
behalf of the Fund with Fidelity Distributors Corporation (the
"Distributor"), under which the Distributor uses all reasonable
efforts, consistent with its other business, to secure purchasers of
the Fund's Shares. Such efforts may include, but neither are required
to include nor are limited to, the following: (1) formulation and
implementation of marketing and promotional activities, such as mail
promotions and television, radio, newspaper, magazine and other mass
media advertising; (2) preparation, printing and distribution of sales
literature; (3) preparation, printing and distribution of prospectuses
of the Fund and reports to recipients other than existing insurance
company shareholders; (4) obtaining such information, analyses and
reports with respect to marketing and promotional activities as the
Distributor may, from time to time, deem advisable; (5) making
payments to insurance companies and others engaged in the sale of
Shares or who engage in shareholder support services; and (6)
providing training, marketing and support to such insurance companies
and others with respect to Shares.
3. In consideration for the services provided and the expenses
incurred by the Distributor pursuant to the General Distribution
Agreement and paragraph 2 hereof, all with respect to Service Class
shares, Service Class shall pay to the Distributor a fee at the annual
rate of 0.25% (or such lesser amount as the Trustees may, from time to
time, determine) of the average daily net assets of Service Class
throughout the month. The determination of daily net assets shall be
made at the close of business each day throughout the month and
computed in the manner specified in the Fund's then current Prospectus
for the determination of the net asset value of the Fund's Service
Class Shares.
4. The Distributor may use all or any portion of the fee received
pursuant to this Plan to compensate insurance companies or others who
have engaged in the sale of Service Class Shares or in shareholder
support services pursuant to agreements with the Distributor, or to
pay any of the expenses associated with other activities authorized
under paragraph 2 hereof. Such services may include, but are not
limited to, the following: (1) answering questions about the Fund
from owners of Variable Products; (2) receiving and answering
correspondence from owners of Variable Products (including requests
for prospectuses and statements of additional information for the
Fund); (3) performing sub-accounting with respect to Variable Product
values allocated to the Fund; (4) preparing, printing and distributing
reports of values to Variable Product owners who have values allocated
to the Fund; (5) printing and distributing prospectuses, statements of
additional information, any supplements thereto, and shareholder
reports; (6) preparing, printing and distributing marketing materials
for Variable Products; (7) assisting customers in completing
applications for Variable Products and selecting underlying mutual
fund investment options; (8) preparing, printing and distributing
sub-account performance figures for sub-accounts investing in Fund
Shares; and (9) providing other reasonable assistance in connection
with the distribution of Fund Shares to insurers.
5. The Fund presently pays, and will continue to pay, a management
fee to Fidelity Management & Research Company (the "Adviser") pursuant
to a management agreement between the Fund and the Adviser (the
"Management Contract"). It is recognized that the Adviser may use its
management fee revenue, as well as its past profits or its resources
from any other source, to make payments to the Distributor with
respect to any expenses incurred in connection with the distribution
of Service Class Shares, including the activities referred to in
paragraph 2 hereof. To the extent that the payment of management fees
by the Fund to the Adviser should be deemed to be indirect financing
of any activity primarily intended to result in the sale of Service
Class Shares within the meaning of Rule 12b-1, then such payment shall
be deemed to be authorized by this Plan.
6. This Plan shall become effective upon approval by a vote of a
majority of the Trustees of the Trust, including a majority of the
Trustees who are not "interested persons" of the Trust (as defined in
the Act) and who have no direct or indirect financial interest in the
operation of this Plan or in any agreement related to the Plan (the
"Independent Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan.
7. This Plan shall, unless terminated as hereinafter provided, remain
in effect until April 30, 1998, and from year to year thereafter;
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to increase materially the fee provided for in paragraph 3
hereof or any amendment of the Management Contract to increase the
amount to be paid by the Fund thereunder shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of Service Class, in the case of this Plan, or upon approval by a vote
of a majority of the outstanding voting securities of the Fund, in the
case of the Management Contract, and (b) any material amendment of
this Plan shall be effective only upon approval in the manner provided
in the first sentence of this paragraph 7.
8. This Plan may be terminated at any time, without the payment of
any penalty, by a vote of a majority of the Independent Trustees or by
a vote of a majority of the outstanding voting securities of Service
Class.
9. During the existence of this Plan, the Trust shall require the
Adviser and/or the Distributor to provide the Trust, for review by the
Trustees, and the Trustees shall review, at least quarterly, a written
report of the amounts expended in connection with financing any
activity primarily intended to result in the sale of shares of Service
Class (making estimates of such costs where necessary or desirable)
and the purposes for which such expenditures were made.
10. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of Service Class Shares.
11. Consistent with the limitation of shareholder liability as set
forth in the Trust's Declaration of Trust, any obligation assumed by
Service Class pursuant to this Plan and any agreement related to this
Plan shall be limited in all cases to Service Class and its assets and
shall not constitute an obligation of any shareholder of the Trust or
of any other class of the Fund, series of the Trust, or class of such
series.
12. If any provision of the Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit (18)
Multiple Class of Shares Plan
for
VIP Funds
Dated October 16, 1997
This Multiple Class of Shares Plan (the "Plan"), when effective in
accordance with its provisions, shall be the written plan contemplated
by Rule 18f-3 under the Investment Company Act of 1940 (the "1940
Act") for the portfolios (each, a "Fund") of the respective Fidelity
trusts (each, a "Trust") as listed on Schedule I to this Plan.
1. Classes Offered. Each Fund may offer up to two classes of its
shares: Service Class and Initial Class (each, a "Class").
2. Distribution and/or Shareholder Service Fees. Distribution and/or
shareholder service fees shall be calculated and paid in accordance
with the terms of the then-effective plan pursuant to Rule 12b-1 under
the 1940 Act for the applicable class. Distribution and/or
shareholder service fees currently authorized are as set forth in
Schedule I to this Plan.
3. Expense Allocations. Expenses shall be allocated under this Plan
as follows:
A. Class Expenses. The following expenses shall be allocated
exclusively to the applicable specific class of shares: (i)
distribution and shareholder service fees and (ii) transfer agent
fees.
B. Fund Expenses. Expenses not allocated to specific classes as
specified above shall be charged to the Fund and allocated daily to
each class on the basis of the net asset value of that class in
relation to the net asset value of the Fund.
4. Voting Rights. Each class of shares governed by this Plan (i)
shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement; and (ii) shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any
other class.
5. Effective Date of Plan. This Plan shall become effective upon the
approval by a vote of at least a majority of the Trustees of the
Trust, and a majority of the Trustees of the Trust who are not
"interested persons" of the Trust, which vote shall have found that
this Plan as proposed to be adopted, including expense allocations, is
in the best interests of each class individually and of the Fund as a
whole; or upon such other date as the Trustees shall determine.
6. Amendment of Plan. Any material amendment to this Plan shall
become effective upon the approval by a vote of at least a majority of
the Trustees of the Trust, and a majority of the Trustees of the Trust
who are not "interested persons" of the Trust, which vote shall have
found that this Plan as proposed to be amended, including expense
allocations, is in the best interests of each class individually and
of the Fund as a whole; or upon such other date as the Trustees shall
determine.
7. Severability. If any provision of this Plan shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of the Plan shall not be affected thereby.
8. Limitation of Liability. Consistent with the limitation of
shareholder liability as set forth in each Trust's Declaration of
Trust or other organizational document, any obligations assumed by any
Fund or class thereof, and any agreements related to this Plan, shall
be limited in all cases to the relevant Fund and its assets, or class
and its assets, as the case may be, and shall not constitute
obligations of any other Fund or class of shares. All persons having
any claim against a Fund, or any class thereof, arising in connection
with this Plan, are expressly put on notice of such limitation of
shareholder liability, and agree that any such claim shall be limited
in all cases to the relevant Fund and its assets, or class and its
assets, as the case may be, and such person shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Trust, class or Fund; nor shall such person seek
satisfaction of any such obligation from the Trustees or any
individual Trustee of the Trust.
SCHEDULE I, DATED OCTOBER 16, 1997, TO MULTIPLE CLASS OF SHARES PLAN
FOR VIP FUNDS, DATED OCTOBER 16, 1997
VARIABLE INSURANCE PRODUCTS FUND
FUND/CLASS SALES CHARGE 12B-1 FEE AS A
PERCENTAGE OF
AVERAGE NET
ASSETS
High Income none none
Portfolio: none 0.10
(Initial Class)
Service Class
Equity-Income none none
Portfolio: none 0.10
(Initial Class)
Service Class
Growth Portfolio: none none
(Initial Class) none 0.10
Service Class
Overseas Portfolio: none none
(Initial Class) none 0.10
Service Class
VARIABLE INSURANCE PRODUCTS FUND II
FUND/CLASS SALES CHARGE 12B-1 FEE AS A
PERCENTAGE OF
AVERAGE NET
ASSETS
Asset Manager none none
Portfolio: none 0.10
(Initial Class)
Service Class
Contrafund Portfolio: none none
(Initial Class) none 0.10
Service Class
Asset Manager: none none
Growth Portfolio: none 0.10
(Initial Class)
Service Class
VARIABLE INSURANCE PRODUCTS FUND III
FUND/CLASS SALES CHARGE 12B-1 FEE AS A
PERCENTAGE OF
AVERAGE NET
ASSETS
Balanced Portfolio: none none
(Initial Class) none 0.10
Service Class
Growth & Income none none
Portfolio: none 0.10
(Initial Class)
Service Class
Growth Opportunities none none
Portfolio: none 0.10
(Initial Class)
Service Class
<TABLE> <S> <C>
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<NAME> Variable Insurance Products Fund II
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<NAME> Variable Insurance Products Fund II
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<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> jun-30-1997
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<INVESTMENTS-AT-VALUE> 4,022,978
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<DISTRIBUTIONS-OF-INCOME> 126,645
<DISTRIBUTIONS-OF-GAINS> 317,687
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,084
<NUMBER-OF-SHARES-REDEEMED> 11,428
<SHARES-REINVESTED> 28,797
<NET-CHANGE-IN-ASSETS> 384,650
<ACCUMULATED-NII-PRIOR> 120,489
<ACCUMULATED-GAINS-PRIOR> 319,437
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<GROSS-EXPENSE> 12,502
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<PER-SHARE-NII> .290
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