VARIABLE INSURANCE PRODUCTS FUND
VARIABLE INSURANCE PRODUCTS FUND II
VARIABLE INSURANCE PRODUCTS FUND III:
MONEY MARKET, INVESTMENT GRADE BOND, HIGH INCOME, ASSET MANAGER,
ASSET MANAGER: GROWTH, BALANCED, EQUITY-INCOME, INDEX 500, GROWTH &
INCOME, GROWTH OPPORTUNITIES, CONTRAFUND, GROWTH, OVERSEAS PORTFOLIOS
SUPPLEMENT TO THE APRIL 30, 1997 PROSPECTUS
Pursuant to approval of shareholders of VIP II Index 500 at a
shareholder meeting held on November 19, 1997, effective December 1,
1997 Bankers Trust Company (BT) has been appointed as the fund's
sub-adviser. The refences to BT are exclusively related to the
sub-advisory relationship for Index 500 Portfolio.
The following information supplements similar information found under
the heading "The Funds at a Glance" in the "Key Facts" section.
Bankers Trust Company (BT) is a wholly-owned subsidiary of Bankers
Trust New York Corporation, the seventh largest bank holding company
in the United States. BT currently serves as sub-adviser to Index 500
and manages the funds portfolio.
The following information replaces similar information found under the
heading "Who May Want to Invest" in the "Key Facts" section.
Because the fund seeks to track, rather than beat, the performance of
the S&P 500, the fund is not managed in the same manner as other
mutual funds. Bankers Trust Company (BT) generally does not judge the
merits of any particular stock as an investment. Therefore, you should
not expect to achieve the potentially greater results that could be
obtained by a fund that aggressively seeks growth.
The following information replaces similar information found under the
heading "Charter" in the "The Funds in Detail" section.
The trustees serves as trustees for other Fidelity funds. The majority
of trustees are not otherwise affiliated with Fidelity or BT.
The following information supplements information found under the
heading "FMR and Its Affiliates" in the "The Funds in Detail" section.
BT is the sub-adviser of Index 500 Portfolio, chooses the fund's
investments, and acts as the fund's custodian.
BT, a New York banking corporation with principal offices at 130
Liberty Street, New York, New York 10006, is a wholly-owned subsidiary
of Bankers Trust New York Corporation.
BT, subject to the supervision and direction of the Board of Trustees
and FMR, makes investment decisions for Index 500, places orders to
buy sell and lend the fund's investments and manages the fund in
accordance with its investment objectives and policies. BT may utilize
the expertise of any of its worldwide subsidiaries and affiliates to
assist in its role as sub-adviser. BT places orders for portfolio
transactions with broker-dealers and other firms of its choosing,
which may include affiliates of BT or FMR.
BT investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
The following information replaces the similar information found under
the heading "FMR and Its Affiliates" in "The Funds in Detail" section.
BT and FMR may use their broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
Each use of the term "FMR" under the heading "Index 500 Portfolio" in
the section "Investment Principles and Risks" in "The Funds in Detail"
section is replaced with the term "BT," except for the use in the
following sentence which is unchanged.
FMR monitors correlation between the performance of the fund and that
of the S&P 500 on a monthly basis.
The following information supplements the similar information found
under the heading "Securities and Investment Practices" in the "The
Funds in Detail" section.
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR and BT 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 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 or BT may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
your insurance company.
The following information replaces similar information found under the
heading "Securities and Investment Practices" in the "The Funds in
Detail" section.
BT can use these practices in its efforts to track the return of the
S&P 500. If BT judges market conditions incorrectly or employs a
strategy that does not correlate well with the fund's investments,
these techniques could result in a loss, regardless of whether the
intent was to reduce risk or increase return. These techniques may
increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the
transaction does not perform as promised.
The following information replaces similar information found under the
heading "Securities and Investment Practices" in the "The Funds in
Detail" section.
FMR and BT can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments and for Index 500
in its effort to achieve the fund's objective of tracking the S&P 500.
If FMR or BT 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.
CASH MANAGEMENT. The funds may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. The funds may also invest in similar money market funds
managed by FMR, BT or other investment managers. A major change in
interest rates or a default on a money market fund's investments could
cause its share price to change.
Lending securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. For Index 500 Portfolio BT receives a portion
of securities lending income as a sub-advisory fee. Securities lending
could result in a loss or a delay in recovering a fund's securities. A
fund may also lend money to other funds advised by FMR.
The following information replaces similar information found under the
heading "Breakdown of Expenses" in the "The Funds in Detail" section.
Each fund pays a management fee to FMR for managing its investments
and business affairs. FMR in turn, on behalf of Money Market, High
Income, Asset Manager, Asset Manager: Growth, Balanced, Growth
Opportunities, Contrafund, Index 500 and Overseas Portfolios, pays
fees to affiliates or sub-advisors who provide assistance with these
services. Each fund also pays other expenses, which are explained on
page 31.
The following information replaces similar information found under the
heading "Management Fee" in the "The Funds in Detail" section.
Index 500's management fees are paid out of the fund's assets to FMR
and BT. The fund also incurs other expenses for services such as
maintaining shareholder records and furnishing shareholder account
statements and financial reports.
Management and sub-advisory fees are calculated and paid every month
to FMR and BT, respectively. The fund pays the fees at the annual rate
of 0.24% of its average net assets. These fees include a management
fee of 0.24% payable to FMR, and estimated sub-advisory fees of less
than 0.01% payable to BT (representing 40% of net income from
securities lending).
BT is Index 500 Portfolio's sub-adviser under an agreement with FMR
and the fund. BT is paid a sub-advisory fee for providing investment
management, securities lending and custodial services to the fund.
For investment management, securities lending and custodial services
to the fund, FMR pays BT fees at an annual rate of 0.006% of the
average net assets of the fund. In addition, the fund pays BT fees
equal to 40% of net income from the fund's securities lending program.
The remaining 60% of net income from the fund's securities lending
program goes to the fund.
The following information replaces similar information found under the
heading "Other Expenses" in the "The Funds in Detail" section.
While management fee and sub-advisory fees, as applicable, are a
significant component of each fund's annual operating costs, the funds
have other expenses as well.
The following information supplements the information found under the
heading "Other Expenses" in the "The Funds in Detail" section.
The Index 500 Portfolio has adopted a Distribution and Service Plan.
This plan recognizes that FMR may use its resources, including
management fees, to pay expenses associated with the sale of fund
shares. This may include reimbursing FDC for payments to third
parties, such as banks or broker-dealers, that provide shareholder
support services or engage in the sale of the fund's shares. The Board
of Trustees has authorized such payments.
The funds also pay other expenses, such as legal and audit fees; in
some instances, proxy solicitation costs; and the compensation of
trustees who are not affiliated with Fidelity.
The original class of shares (Initial Class) of each fund is offered
through the funds' April 30, 1997 Prospectus and Statement of
Additional Information. An additional class of shares (Service Class)
of each fund, except Index 500 Portfolio, Investment Grade Bond
Portfolio, and Money Market Portfolio, is offered through a separate
Prospectus and Statement of Additional Information dated October 31,
1997.
The following information supplements the information found under the
heading "Who May Want to Invest" in the "Key Facts" section.
Each fund (except Money Market Portfolio, Investment Grade Bond
Portfolio, and Index 500 Portfolio) is composed of multiple classes of
shares. All classes of a fund have a common investment objective and
investment portfolio. Initial Class shares, the original class of
shares, of each fund are offered at net asset value and are not
subject to a 12b-1 fee. Service Class shares of each fund (except
Money Market Portfolio, Investment Grade Bond Portfolio, and Index 500
Portfolio) are offered at net asset value and are subject to a 12b-1
fee. Because Initial Class shares are not subject to a 12b-1 fee,
Initial Class shares are expected to have a higher total return than
Service Class shares (excluding charges and expenses attributable to
any particular insurance product). You may obtain more information
about Service Class shares, which are not offered through this
prospectus, from your insurance company or by calling Fidelity
Distributors Corporation at 1-800-544-2442.
The following information replaces the similar information found under
the heading "Charter" in the "The Funds in Detail" section.
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.
The following information replaces the similar information found under
the heading "FMR and Its Affiliates" in the "The Funds in Detail"
section.
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.
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.
The following information replaces the similar information found under
the heading "FMR and Its Affiliates" in the "The Funds in Detail"
section.
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 and manager of VIP II: Investment Grade
Bond Portfolio, which he has managed since February 1997. He also is
Vice President of VIP III: Balanced Portfolio and manager of its
fixed-income investments since March 1996. He also manages several
other Fidelity funds. Prior to joining Fidelity as a manager in 1993,
Mr. Grant was a vice president and chief mortgage strategist at Morgan
Stanley for three years.
Stephen Petersen is Vice President and manager of VIP: Equity-Income
Portfolio, which he has managed since January 1997. He also manages
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.
The following information supplements the information found under the
heading "Who May Want to Invest" in the "Key Facts" section.
Effective January 1, 1998, John D. Avery will assume the
responsibility of managing VIP III: Balanced Portfolio. He will
succeed Bettina Doulton who will continue managing the fund until that
date.
The following information supplements the information found under the
heading "Investment Principles and Risks" in the "The Funds in Detail"
section.
FMR normally invests each fund's assets according to its investment
strategy. High Income, Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, Index 500, Growth & Income, Growth Opportunities,
Contrafund, Growth, and Overseas Portfolios also reserve the right to
invest without limitation in preferred stocks and investment-grade
debt instruments for temporary, defensive purposes. Investment Grade
Bond Portfolio reserves the right to invest without limitation in
investment-grade money market or short-term debt instruments for
temporary, defensive purposes.
The following information replaces the "Restrictions" for "Equity
Securities" and "Exposure to Foreign Markets," respectively, found
under the heading "Securities and Investment Practices" in the "The
Funds in Detail" section.
RESTRICTIONS: With respect to 75% of its total assets, each fund
(excluding Money Market) may not purchase more than 10% of the
outstanding voting securities of any issuer. High Income may invest up
to 20% of its total assets in common stocks and other equity
securities.
RESTRICTIONS: FMR limits the amount of each of High Income,
Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index
500 Portfolios' assets that may be invested in foreign securities to
50%. However, pursuant to certain state insurance regulations, each
such fund and each of Money Market, 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 funds 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.
The following information supplements the information found under the
heading "Securities and Investment Practices" in the "The Funds in
Detail" section.
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.
The following information replaces the similar information found under
the heading "Breakdown of Expenses" in the "The Funds in Detail"
section.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services for Money Market, High Income, Asset
Manager, Asset Manager: Growth, Balanced, Growth & Income, Growth
Opportunities, Contrafund, and Overseas Portfolios. Each fund also
pays OTHER EXPENSES, which are explained on page 31.
The following information replaces the similar information found under
the heading "Management Fee" in the "The Funds in Detail" section.
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 FIIAL U.K.
a fee equal to 110% of the cost of providing these services.
The following information replaces the similar information found under
the heading "Transaction Details" in the "Account Policies" section.
A CLASS'S NAV is the value of a single share. The NAV of Initial Class
of each fund is computed by adding Initial Class's pro rata share of
the value of the fund's investments, cash, and other assets,
subtracting Initial Class's pro rata share of the value of the fund's
liabilities, subtracting the liabilities allocated to Initial Class,
and dividing the result by the number of Initial Class shares of the
fund that are outstanding.
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.
VARIABLE INSURANCE PRODUCTS FUND II:
INDEX 500 PORTFOLIO
SUPPLEMENT TO THE APRIL 30, 1997 PROSPECTUS
Pursuant to approval of shareholders of VIP II Index 500 at a
shareholder meeting held on November 19, 1997, effective December 1,
1997 Bankers Trust Company (BT) has been appointed as the fund's
sub-adviser.
The following information supplements similar information found under
the heading "The Fund at a Glance" in the "Key Facts" section.
Bankers Trust Company (BT) is a wholly-owned subsidiary of Bankers
Trust New York Corporation, the seventh largest bank holding company
in the United States. BT currently serves as sub-adviser to the fund
and manages the funds portfolio.
The following information replaces similar information found under the
heading "Who May Want to Invest" in the "Key Facts" section.
Because the fund seeks to track, rather than beat, the performance of
the S&P 500, the fund is not managed in the same manner as other
mutual funds. Bankers Trust Company (BT) generally does not judge the
merits of any particular stock as an investment. Therefore, you should
not expect to achieve the potentially greater results that could be
obtained by a fund that aggressively seeks growth.
The following information replaces similar information found under the
heading "Charter" in the "The Fund in Detail" section.
The trustees serves as trustees for other Fidelity funds. The majority
of trustees are not otherwise affiliated with Fidelity or BT.
The following information supplements information found under the
heading "FMR and Its Affiliates" in the "The Fund in Detail" section.
The fund is managed by FMR, which handles its business affairs. BT,
the fund's sub-adviser, chooses the fund's investments. FMR supervises
the sub-adviser, and, in conjunction with the Board of Trustees,
reviews the performance of its duties.
BT, a New York banking corporation with principal offices at 130
Liberty Street, New York, New York 10006, is a wholly-owned subsidiary
of Bankers Trust New York Corporation.
BT, subject to the supervision and direction of the Board of Trustees
and FMR, makes investment decisions for Index 500, places orders to
buy sell and lend the fund's investments and manages the fund in
accordance with its investment objectives and policies. BT may utilize
the expertise of any of its worldwide subsidiaries and affiliates to
assist in its role as sub-adviser. BT places orders for portfolio
transactions with broker-dealers and other firms of its choosing,
which may include affiliates of BT or FMR.
BT investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
The following information replaces the similar information found under
the heading "FMR and Its Affiliates" in "The Funds in Detail" section.
BT and FMR may use their broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
The following information supplements the similar information found
under the heading "Investment Principles and Risks" in "The Fund in
Detail Section."
Each use of the term "FMR" in the section is replaced with "BT."
The following information replaces the similar information found under
the heading "Securities and Investment Practices" in the "The Fund in
Detail" section, and "BT" replaces "FMR" in discussions relating to
the day-to-day fund investments, subject to FMR supervision.
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies BT 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 the fund's limitations and more
detailed information about the fund's investments are contained the
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
BT may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its
goal. Fund holdings and recent investment strategies are detailed in
each fund's financial reports, which are sent to shareholders twice a
year. For a free SAI or financial report, call your insurance company.
BT can use these practices in its efforts to track the return of the
S&P 500. If BT judges market conditions incorrectly or employs a
strategy that does not correlate well with the fund's investments,
these techniques could result in a loss, regardless of whether the
intent was to reduce risk or increase return. These techniques may
increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the
transaction does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by BT, under the supervision of the Board of Trustees and FMR, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. Difficulty in selling securities may result in a
loss or may be costly to the fund.
CASH MANAGEMENT. The 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. The fund may also invest in similar money market funds
managed by BT or other investment managers. A major change in interest
rates or a default on the money market fund's investments could cause
its share price to change.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. BT receives a portion of securities lending
income as a sub-advisory fee. Securities lending practice could result
in a loss or a delay in recovering the fund's securities. The fund may
also lend money to other funds advised by FMR.
The following information replaces similar information found under the
heading "Breakdown of Expenses" in the "The Fund in Detail" section.
Like all mutual funds, the fund pays fees related to its daily
operations. Expenses paid out of the fund's assets are reflected in
its share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR and the fund pay sub-advisory fees to BT for
managing the fund's investments, administering its securities lending
program, and for custodial services. The fund also pays OTHER
EXPENSES, which are explained below.
FMR may, from time to time, agree to reimburse the fund for management
fees above a specified limit. FMR retains the ability to be repaid by
the fund if expenses fall below the specified limit prior to the end
of the fiscal year. Reimbursement arrangements can decrease the fund's
expenses and boost its performance.
The following information replaces similar the information found under
the heading "Management Fee" in the "The Fund in Detail" section. The
"Management Fee" heading should now read "Management and Sub-Advisory
Fees."
Management and sub-advisory fees are calculated and paid every month
to FMR and BT, respectively. The fund pays the fee at the annual rate
of 0.24% of its average net assets. These fees include a management
fee of 0.24% payable to FMR, and estimated sub-advisory fees of less
than 0.01% payable to BT (representing 40% of net income from
securities lending).
BT is the fund's sub-adviser under an agreement with FMR and the fund.
BT is paid a sub-advisory fee for providing investment management,
securities lending and custodial services to the fund.
For investment management, securities lending and custodial services
to the fund, FMR pays BT fees at an annual rate of 0.006% of the
average net assets of the fund. In addition, the fund pays BT fees
equal to 40% of net income from the fund's securities lending program.
The remaining 60% of net income from the fund's securities lending
program goes to the fund.
SUPPLEMENT TO THE
VARIABLE INSURANCE PRODUCTS FUND:
MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO, EQUITY-INCOME
PORTFOLIO,
GROWTH PORTFOLIO, AND OVERSEAS PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND II:
ASSET MANAGER PORTFOLIO, CONTRAFUND PORTFOLIO, INDEX 500 PORTFOLIO,
INVESTMENT GRADE BOND PORTFOLIO, AND ASSET MANAGER: GROWTH PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND III:
BALANCED PORTFOLIO, GROWTH & INCOME PORTFOLIO,
AND GROWTH OPPORTUNITIES PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1997
Pursuant to approval of shareholders of Index 500 Portfolio at a
shareholder meeting held on November 19, 1997, effective December 5,
1997 Bankers Trust Company (BT) has been appointed as the fund's
sub-adviser.
THE FOLLOWING NEW HEADINGS SUPPLEMENT INFORMATION FOUND IN THE "TABLE
OF CONTENTS" ON THE COVER PAGE.
BT 33
Contracts with BT Affiliates 48
THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION FOUND ON THE INSIDE
COVER OF THE STATEMENT.
INVESTMENT SUB-ADVISER
Bankers Trust Company (BT)
CUSTODIAN
BT
The original class of shares (Initial Class) of each fund is offered
through the funds' April 30, 1997 Prospectus and Statement of
Additional Information. An additional class of shares (Service Class)
of each fund, except Index 500 Portfolio, Investment Grade Bond
Portfolio, and Money Market Portfolio, is offered through a separate
Prospectus and Statement of Additional Information dated October 31,
1997.
Effective October 31, 1997, each fund (or each class thereof, as
applicable) will no longer pay the transfer agent, Fidelity
Investments Institutional Operations Company, Inc. (FIIOC), an account
fee of $125 for each account. Each fund (or each class thereof, as
applicable) will, however, continue to pay FIIOC an asset-based fee of
0.070% for each account.
THE FOLLOWING INFORMATION REPLACES THE RESPECTIVE NON-FUNDAMENTAL
INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO FOUND IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION.
(i) The fund does not currently intend to purchase a security (other
than securities issued or guaranteed by the U.S. government or any of
its agencies or instrumentalities) if, as a result, more than 5% of
its total assets would be invested in the securities of a single
issuer; provided that the fund may invest up to 10% of its total
assets in the first tier securities of a single issuer for up to three
business days. (This limit does not apply to 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.)
(viii) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply (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.
WITH RESPECT TO INDEX 500 PORTFOLIO, THE FOLLOWING FUNDAMENTAL
LIMITATION REPLACES SIMILAR LIMIT FOUND UNDER "INVESTMENT POLICIES AND
LIMITATIONS" SECTION.
(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, or
securities of other investment companies) if, as a result, (a) more
than 5% of the fund's total assets would be invested in the securities
of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
THE FOLLOWING INFORMATION REPLACES THE RESPECTIVE NON-FUNDAMENTAL
INVESTMENT LIMITATION FOR HIGH INCOME, EQUITY-INCOME, GROWTH,
OVERSEAS, GROWTH & INCOME, BALANCED, GROWTH OPPORTUNITIES, INVESTMENT
GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, AND ASSET MANAGER:
GROWTH PORTFOLIOS FOUND IN THE "INVESTMENT POLICIES AND LIMITATIONS"
SECTION.
(vi) Each fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to (i) 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.
THE FOLLOWING INFORMATION SUPPLEMENTS THE LIST OF NON-FUNDAMENTAL
INVESTMENT LIMITATIONS FOUND IN THE "INVESTMENT POLICIES AND
LIMITATIONS" SECTION.
(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.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION FOUND IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION.
For each fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options
Transactions." For limitations on short sales, see the sections
entitled "Short Sales" and "Short Sales Against The Box." For purposes
of Index 500 Portfolio's limitation on concentration in a single
industry, the fund may use the industry categorizations as defined by
BARRA, Inc.
WITH RESPECT TO THE INVESTMENT ACTIVITY FOR INDEX 500 PORTFOLIO, EACH
USE OF THE TERM "FMR" UNDER THE HEADINGS "EXPOSURE TO FOREIGN
MARKETS," "FOREIGN CURRENCY TRANSACTIONS," "FUND'S RIGHTS AS A
SHAREHOLDER," AND "LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS" IN
THE "INVESTMENT POLICIES AND LIMITATIONS" SECTION IS REPLACED WITH THE
TERM "BT."
WITH RESPECT TO INDEX 500 PORTFOLIO, THE FOLLOWING INFORMATION HAS
BEEN ELIMINATED FROM THE "INVESTMENT POLICIES AND LIMITATIONS"
SECTION.
CLOSED-END INVESTMENT COMPANIES. The fund may purchase the shares of
closed-end investment companies to facilitate investment in certain
countries. Shares of closed-end companies may trade at a premium or a
discount to their net asset value.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION FOUND IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION.
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
and FMR , FMR (BT for Index 500) determines the liquidity of a fund's
investments and, through reports from FMR and/or BT for Index 500, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR (BT for Index 500) may consider
various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature
of the security (including any demand or tender features), and (5) the
nature of the marketplace for trades (including the ability to assign
or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by 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
(BT for Index 500) may determine some restricted securities,
government-stripped fixed-rate mortgage-backed securities, loans and
other direct debt instruments, emerging market securities, and swap
agreements to be illiquid. However, with respect to over-the-counter
options a fund writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the
option and the nature and terms of any agreement the fund may have to
close out the option before expiration. With respect to Money Market,
FMR may also determine some time deposits to be illiquid.
THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION FOUND IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION.
OTHER INVESTMENT COMPANIES. The fund may purchase the shares of other
investment companies.
WITH RESPECT TO THE INVESTMENT ACTIVITY FOR INDEX 500 PORTFOLIO, EACH
USE OF THE TERM "FMR" UNDER THE HEADINGS "REPURCHASE AGREEMENTS" AND
"REVERSE REPURCHASE AGREEMENTS" IN THE "INVESTMENT POLICIES AND
LIMITATIONS" SECTION IS REPLACED WITH THE PHRASE "BT OR, UNDER CERTAIN
CIRCUMSTANCES, BY FMR OR AN FMR AFFILIATE."
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION FOUND IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION.
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. With respect to Index 500
Portfolio, the fund will not lend securities to BT or its affiliates.
BT receives a portion of securities lending income earned by the fund.
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, BT for Index 500 (or
under certain circumstances, FMR or and FMR affiliate), and to be of
good standing. Furthermore, they will only be made if, in FMR's (or
BT's for Index 500) 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). With respect to
Index 500, if the fund cannot recover the loaned securities on
termination, the fund may sell the collateral and purchase a
replacement investment in the markets.
WITH RESPECT TO THE INVESTMENT ACTIVITY FOR INDEX 500 PORTFOLIO, EACH
USE OF THE TERM "FMR" UNDER THE HEADINGS "REPURCHASE AGREEMENTS" AND
"REVERSE REPURCHASE AGREEMENTS" IN THE "INVESTMENT POLICIES AND
LIMITATIONS" SECTION IS REPLACED WITH THE PHRASE "BT OR, UNDER CERTAIN
CIRCUMSTANCES, BY FMR OR AN FMR AFFILIATE."
THE FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND IN
THE "PORTFOLIO TRANSACTIONS" SECTION. THROUGHOUT THE SECTION
REFERENCES TO FIDELITY BROKERAGE SERVICES, INC. (FBSI) ARE REPLACED
WITH REFERENCES TO NATIONAL FINANCIAL SERVICES CORPORATION (NFSC). ALL
REFERENCES TO BT IN THE SECTION ARE WITH RESPECT TO INVESTMENT
ACTIVITY FOR INDEX 500 PORTFOLIO.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR (BT for Index 500) pursuant to authority
contained in the management contract. Except for Index 500 Portfolio,
if FMR grants investment management authority to the sub-advisers (see
the section entitled "Management Contracts"), the sub-advisers are
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
below. FMR (BT for Index 500) is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. Securities
purchased and sold by Money Market generally will be traded on a net
basis (i.e., without commission). In selecting broker-dealers, subject
to applicable limitations of the federal securities laws, FMR (BT for
Index 500) considers various relevant factors, including, but not
limited to: the size and type of the transaction; the nature and
character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition
of the broker-dealer firm; the broker-dealer's execution services
rendered on a continuing basis; and the reasonableness of any
commissions; and (except for Index 500) arrangements for payment of
fund expenses. Commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts
over which FMR or BT or their affiliates exercise investment
discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing, or selling
securities; and the availability of securities or the purchasers or
sellers of securities. In addition, such broker-dealers may furnish
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of
accounts; effect securities transactions, and perform functions
incidental thereto (such as clearance and settlement). For Money
Market, FMR maintains a listing of broker-dealers who provide such
services on a regular basis. However, as many transactions on behalf
of Money Market are placed with broker-dealers (including
broker-dealers on the list) without regard to the furnishing of such
services, it is not possible to estimate the proportion of such
transactions directed to such broker-dealers solely because such
services were provided. The selection of such broker-dealers generally
is made by FMR (BT for Index 500) (to the extent possible consistent
with execution considerations) in accordance with a ranking of
broker-dealers determined periodically by FMR's (BT's for Index 500)
investment staff based upon the quality of research and execution
services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the funds may be useful to FMR (BT for Index 500) in
rendering investment management services to the funds or its other
clients, and conversely, such research provided by broker-dealers who
have executed transaction orders on behalf of other FMR (BT for Index
500) clients may be useful to FMR (BT for Index 500) in carrying out
its obligations to the funds. The receipt of such research has not
reduced FMR's (BT's for Index 500) normal independent research
activities; however, it enables FMR (BT for Index 500) to avoid the
additional expenses that could be incurred if FMR (BT for Index 500)
tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause each fund to pay such higher commissions,
FMR (BT for Index 500) must determine in good faith that such
commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR (BT for Index 500) will not attempt to place a
specific dollar value on the brokerage and research services provided,
or to determine what portion of the compensation should be related to
those services.
FMR (BT for Index 500) is authorized to use research services provided
by and to place portfolio transactions with brokerage firms that have
provided assistance in the distribution of shares of the funds or
shares of other Fidelity funds to the extent permitted by law. FMR 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., (for Index 500
Portfolio: BT Brokerage Corporation, BT Alex Brown Incorporated or BT
Futures Corporation, indirect subsidiaries of Bankers Trust New York
Corporation), if the commissions are fair, reasonable, and comparable
to commissions charged by non-affiliated, qualified brokerage firms
for similar services. From September 1992 through December 1994, FBS
operated under the name Fidelity Brokerage Services Limited (FBSL). As
of January 1995, FBSL was converted to an unlimited liability company
and assumed the name FBS.
FMR may allocate brokerage transactions to broker-dealers who have
entered into arrangements with FMR under which the broker-dealer
allocates a portion of the commissions paid by each fund toward
payment of the fund's expenses, such as transfer agent fees or
custodian fees. The transaction quality must, however, be comparable
to those of other qualified broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized FBSI to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
Each fund's Trustees periodically review FMR's or BT'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.
THE FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND IN
THE "PORTFOLIO TRANSACTIONS" SECTION.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR, investment decisions for
each fund are made independently, and by BT for Index 500, from those
of other funds managed by FMR or BT or accounts managed by FMR or BT
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these FMR or BT managed funds or
accounts. Simultaneous transactions are inevitable when several funds
and accounts are managed by the same investment adviser, particularly
when the same security is suitable for the investment objective of
more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to each fund
and BT as a sub-adviser to Index 500 outweighs any disadvantages that
may be said to exist from exposure to simultaneous transactions.
THE FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND IN
THE FIRST PARAGRAPH IN THE "ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION" SECTION.
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.
THE FOLLOWING NEW SECTION WITH RESPECT TO THE MANAGEMENT OF INDEX 500
PORTFOLIO FOLLOWS THE "FMR" SECTION.
BT
BT, a New York banking corporation with principal offices at 130
Liberty Street, New York, New York 10006, is a wholly owned subsidiary
of Bankers Trust New York Corporation, whose principal offices are
also at 130 Liberty Street, New York, New York 10006. BT was founded
in 1903. As of December 31, 1996 Bankers Trust New York Corporation
was the seventh largest bank holding company in the United States with
total assets of approximately $120 billion. BT is a worldwide merchant
bank that conducts a variety of general banking and trust activities
and is a major wholesale supplier of financial services to the
international and domestic institutional markets. Investment
management is a core business of BT with approximately $227 billion in
assets under management globally. Of that total, approximately $82
billion are in U.S. equity index assets. When bond and international
funds are included, BT manages over $94 billion in total index assets.
This makes BT one of the nation's leading managers in index funds.
BT has been advised by counsel that BT currently may perform the
services for the fund described herein without violation of the
Glass-Steagall Act or other applicable banking laws of relations.
State laws on this issue may differ from the interpretation of
relevant federal law and banks and financial institutions may be
required to register as dealers pursuant to state securities law.
BT investment personnel may invest in securities for their own
accounted pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
THE FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND IN
THE "FMR" SECTION.
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.
THE FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND IN
THE "TRUSTEES AND OFFICERS" SECTION.
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 (*).
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.
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION FOUND IN THE
"TRUSTEES AND OFFICERS" SECTION. IN ADDITION, MR. EDWARD H. MALONE IS
DELETED AS TRUSTEE AND MR. KENNETH A. RATHGEBER IS DELETED AS
TREASURER.
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).
*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.
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.
BOYCE I. GREER (41), is Vice President of Money Market Funds (1997),
Group Leader of the Money Market Group (1997), and Senior Vice
President of FMR (1997). Mr. Greer served as the Leader of the
Fixed-Income Group for Fidelity Management Trust Company (1993-1995)
and was Vice President and Group Leader of Municipal Fixed-Income
Investments (1996-1997). Prior to 1993, Mr. Greer was an associate
portfolio manager.
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.
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.
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice
President of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds and Vice President and Associate General Counsel of
FMR Texas Inc.
THOMAS J. SIMPSON (39), Assistant Treasurer, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money market
funds (1996) and an employee of FMR (1996). Prior to joining FMR, Mr.
Simpson was Vice President and Fund Controller of Liberty Investment
Services (1987-1995).
THE FOLLOWING INFORMATION REPLACES THE INDEX 500 PORTFOLIO MANAGEMENT
INFORMATION IN THE "MANAGEMENT CONTRACTS" SECTION, EXCEPT FOR THE
REPORTING OF MANAGEMENT FEES. PLEASE NOTE THE INFORMATION BELOW IS
ONLY FOR INDEX 500 AND SHOULD NOT BE READ IN CONJUNCTION WITH ANY
OTHER FUND.
FMR is the fund's manager pursuant to a management contact dated
December 5, 1997 which was approved by shareholders on November 19,
1997.
MANAGEMENT AND SUB-ADVISORY SERVICES. The fund employs FMR to furnish
investment advisory and other services. FMR provides the fund with all
necessary office facilities and personnel for servicing the fund's
investments, compensates all officers of the fund and all Trustees who
are "interested persons" of the trust or of FMR, and all personnel of
the fund or FMR performing services relating to research, statistical,
and investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provides the management and administrative services
necessary for the operation of the fund. These services include
providing facilities for maintaining the fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with the fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
records, evaluations, and analyses on a variety of subjects to the
Trustees.
BT is the sub-adviser of the fund and acts as the fund's custodian.
Under its management contract with the fund, FMR acts as investment
adviser. Under the sub-advisory agreement, and subject to the
supervision of the Board of Trustees, BT directs the investment of the
fund in accordance with its investment objective, policies, and
limitations, administers the securities leading program of the fund
and provides custodial services to the fund.
MANAGEMENT-RELATED EXPENSES. In addition to the management fees
payable to FMR, the sub-advisory fees payable to BT and the fees
payable to FIIOC and FSC, the fund pays all its expenses, without
limitations, that are not assumed by those parties.
The fund pays for the typesetting, printing, and mailing of proxy
materials to shareholders, legal expenses, and the fees of the
auditor, and non-interested Trustees. Although the fund's current
management contract provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statement of additional
information notices, and reports to shareholders, the trust, on behalf
of the fund, has entered into a revised transfer agent agreement with
FIIOC pursuant to which FIIOC bears the cost of providing these
services to existing shareholders. Other expenses paid by the fund
include interest, taxes, brokerage commissions, and the fund's
proportionate share of insurance premiums and Investment Company
Institute dues. The fund is also liable for such non-recurring
expenses as may arise, including costs of any litigation of which the
fund may be the party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT AND SUB-ADVISORY FEES. For the services of FMR under the
contract, the fund pays FMR and BT monthly management and sub-advisory
fees at the annual rate of 0.24% of average net assets throughout the
month. These fees include management fees of 0.24% payable to FMR, and
estimated sub-advisory fees of less than 0.01% payable to BT
(representing 40% of net income from securities lending). FMR has
voluntarily agreed to reimburse the fund if and to the extent that its
aggregate operating expenses, including management fees (but excluding
sub-advisory fees associated with securities lending, interest taxes,
brokerage commissions, and extraordinary expenses), are in excess of
the annual rate of 0.19%, of average net assets of the fund through
December 31, 1999. 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 the fund's total returns and repayment of
reimbursement by the fund will lower its total returns.
SUB-ADVISER. The fund and FMR has entered into a sub-advisory
agreement with BT. Pursuant to the sub-advisory agreement, FMR has
granted BT investment management authority as well as the authority to
buy and sell securities.
Under the sub-advisory agreement, for providing investment management,
securities lending and custodial services to the fund, FMR pays BT
fees at an annual rate of 0.006% of the average net assets of the
fund. In addition, as described above, in the sub-advisory agreements,
for such services the fund pays BT fees equal to 40% of net income
from the fund's securities lending program. The remaining 60% of net
income from the fund's securities lending program goes the fund.
THE FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND UNDER
THE HEADING "CONTRACTS WITH FMR AFFILIATES."
Effective December 5, 1997, FSC no longer administers Index 500
Portfolio's securities lending program; therefore, except for Index
500, FSC also receives fees for administering a fund's securities
lending program. Securities lending fees are based on the number and
duration of individual securities loans. For fiscal 1996, 1995, and
1994, no securities lending fees were incurred by the funds.
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION FOUND IN THE
FIRST PARAGRAPH OF THE "CONTRACTS WITH FMR AFFILIATES" SECTION.
The fee for Growth & Income and Growth Opportunities Portfolios is
limited to a minimum of $60,000 and a maximum of $800,000 per year.
THE FOLLOWING NEW SECTION WITH RESPECT TO THE MANAGEMENT OF INDEX 500
PORTFOLIO FOLLOWS THE "CONTRACTS WITH FMR AFFILIATES" SECTION.
CONTRACTS WITH BT AFFILIATES
BT is custodian of the assets of the fund. The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any subcustodian banks and clearing agencies. However, a fund may
invest in obligations of its custodian. Bankers Trust New York
Corporation is included in the S&P 500. The Chase Manhattan Bank and
The Bank of New York, each headquartered in New York, also may serve
as special purpose custodians of certain assets in connection with
repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
BT's fees for custodial services to the fund are included in the fees
payable under the sub-advisory agreement.
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION FOUND UNDER THE
HEADING "SHAREHOLDER AND TRUSTEE LIABILITY" IN THE "DESCRIPTION OF THE
TRUSTS" SECTION.
Claims asserted against one class of shares of a fund may subject
holders of another class of shares of that fund to certain
liabilities.
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION FOUND UNDER THE
HEADING "VOTING RIGHTS" IN THE "DESCRIPTION OF THE TRUSTS" SECTION.
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 FOLLOWING INFORMATION REPLACES THE SIMILAR INFORMATION FOUND UNDER
THE HEADING "VOTING RIGHTS" IN THE "DESCRIPTION OF THE TRUSTS"
SECTION.
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.
THE FOLLOWING INFORMATION SUPPLEMENTS INFORMATION FOUND UNDER THE
HEADING "CUSTODIAN" IN THE "DESCRIPTION OF THE TRUSTS" SECTION.
Effective December 5, 1997, BT replaced State Street Bank and Trust
Company as custodian of the assets of Index 500 Portfolio.
