SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
(Name of Registrant as Specified In Its
Charter)
Variable Insurance Products Fund II
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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INDEX 500 PORTFOLIO
A FUND OF
VARIABLE INSURANCE PRODUCTS FUND II
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-5429
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Index 500 Portfolio:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the Meeting)
of Index 500 Portfolio (the fund) will be held at the office of Variable
Insurance Products Fund II (the trust), 82 Devonshire Street, Boston,
Massachusetts 02109 on September 15, 1999, at 11:00 a.m. The purpose of the
Meeting is to consider and act upon the following proposals, and to transact
such other business as may properly come before the Meeting or any adjournments
thereof.
1(a). To approve an interim sub-advisory agreement with Bankers Trust
Company for the fund.
1(b). To approve a new sub-advisory agreement with Bankers Trust Company
for the fund.
2. To approve a new "manager-of-managers" arrangement for the fund.
The Board of Trustees has fixed the close of business on July 19, 1999 as the
record date for the determination of the shareholders of the fund entitled to
notice of, and to vote at, such Meeting and any adjournments thereof.
By order of the Board of Trustees,
ERIC D. ROITER, Secretary
July 19, 1999
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YOUR VOTE IS IMPORTANT -
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO
DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING INSTRUCTIONS
ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENVELOPE
PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO
AVOID UNNECESSARY EXPENSE, WE ASK YOUR COOPERATION IN MAILING YOUR PROXY CARD
PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of assistance to
you and help avoid the time and expense involved in validating your vote if you
fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears in
the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual signing.
This can be shown either in the form of the account registration itself
or by the individual executing the proxy card. For example:
REGISTRATION VALID SIGNATURE
A. 1) ABC Corp. John Smith, Treasurer
2) ABC Corp. John Smith, Treasurer
c/o John Smith, Treasurer
B. 1) ABC Corp. Profit Sharing Plan Ann B. Collins, Trustee
2) ABC Trust Ann B. Collins, Trustee
3) Ann B. Collins, Trustee Ann B. Collins, Trustee
u/t/d 12/28/78
C. 1) Anthony B. Craft, Cust. Anthony B. Craft
f/b/o Anthony B. Craft, Jr.
UGMA
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PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS OF
VARIABLE INSURANCE PRODUCTS FUND II:
INDEX 500 PORTFOLIO
TO BE HELD ON SEPTEMBER 15, 1999
This Proxy Statement is furnished in connection with a solicitation of proxies
made by, and on behalf of, the Board of Trustees of Variable Insurance Products
Fund II (the trust) to be used at the Special Meeting of Shareholders of Index
500 Portfolio (the fund) and at any adjournments thereof (the Meeting), to be
held on September 15, 1999 at 11:00 a.m., at 82 Devonshire Street, Boston,
Massachusetts 02109, the principal executive office of the trust and Fidelity
Management & Research Company (FMR), the fund's investment adviser.
The purpose of the Meeting is set forth in the accompanying Notice. The
solicitation is being made primarily by the mailing of this Proxy Statement and
the accompanying proxy card on or about July 19, 1999. Supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, electronic
means or by personal interview by representatives of the trust. [The expenses in
connection with preparing Proposals 1(a) and 2 of this Proxy Statement and its
enclosures and of all solicitations will be borne by Bankers Trust Company (BT),
subadviser to the fund. BT will reimburse insurance companies for their
reasonable expenses in forwarding solicitation material to the variable contract
owners of shares.] [The expenses in connection with preparing Proposal 1(b) of
this Proxy Statement and its enclosures and of all solicitations will be borne
by FMR. FMR will reimburse insurance companies for their reasonable expenses in
forwarding solicitation material to the variable contract owners of shares.] The
principal business address of Fidelity Distributors Corporation (FDC), the
fund's principal underwriter and distribution agent, is 82 Devonshire Street,
Boston, Massachusetts 02109. The principal business address of BT is 130 Liberty
Street, New York, New York 10006.
If the enclosed proxy card is executed and returned, it may nevertheless be
revoked at any time prior to its use by written notification received by the
trust, by the execution of a later-dated proxy card, by the trust's receipt of a
subsequent valid telephonic vote or by attending the Meeting and voting in
person.
All proxy cards solicited by the Board of Trustees that are properly executed
and received by the Secretary prior to the Meeting, and are not revoked, will be
voted at the Meeting. Shares represented by such proxies will be voted in
accordance with the instructions thereon. If no specification is made on a proxy
card, it will be voted FOR the matters specified on the proxy card. Only proxies
that are voted will be counted towards establishing a quorum. Broker non-votes
are not considered voted for this purpose. Shareholders should note that while
votes to ABSTAIN will count toward establishing a quorum, passage of any
proposal being considered at the Meeting will occur only if a sufficient number
of votes are cast FOR the proposal. Accordingly, votes to ABSTAIN and votes
AGAINST will have the same effect in determining whether the proposal is
approved.
If a quorum is not present at the Meeting, or if a quorum is present at the
Meeting but sufficient votes to approve one or more of the proposed items are
not received, or if other matters arise requiring shareholder attention, the
persons named as proxy agents may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares present at the
Meeting or represented by proxy. When voting on a proposed adjournment, the
persons named as proxy agents will vote FOR the proposed adjournment all shares
that they are entitled to vote with respect to each item, unless directed to
vote AGAINST the item, in which case such shares will be voted AGAINST the
proposed adjournment with respect to that item. A shareholder vote may be taken
on one or more of the items in this Proxy Statement prior to such adjournment if
sufficient votes have been received and it is otherwise appropriate.
On May 31, 1999, there were ________ shares of the fund issued and
outstanding.
[As of May 31, 1999, the Trustees and officers of the trust owned, in the
aggregate, less than 1% of the fund's outstanding shares.]
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[To the knowledge of the trust, substantial (5% or more) record or beneficial
ownership of the fund on May 31, 1999 was as follows:]
[FMR has advised the trust that for Proposals __ contained in this Proxy
Statement, it will vote its shares at the Meeting [FOR each Proposal.]] To the
knowledge of the trust, no [other] shareholder owned of record or beneficially
more than 5% of the outstanding shares of the fund on that date.
[A shareholder owning more than 25% of the fund's shares may be considered to
be a "controlling person" (as defined in the Investment Company Act of 1940) of
the fund. Accordingly, its vote could have a more significant effect on matters
presented to shareholders for approval than the votes of the fund's other
shareholders.]
Each company holds its shares in a separate account (the Variable Account),
which serves as the funding vehicle for its variable insurance products. In
accordance with its view of present applicable law, each company will vote its
shares held in its respective Variable Account at the Special Meeting of
Shareholders in accordance with instructions received from persons having a
voting interest in the Variable Account. Those persons who have a voting
interest at the close of business on July 19, 1999, will be entitled to submit
instructions to their company.
Fund shares held in a Variable Account for which no timely instructions are
received will be voted by the companies in proportion to the voting instructions
that are received with respect to all contracts participating in a Variable
Account. Voting instructions to abstain on any item to be voted upon will reduce
the votes eligible to be cast.
Accordingly, if you wish to vote, you should complete the enclosed voting
instruction form as a participant in a Variable Account. All forms which are
properly executed and received prior to the Meeting, and which are not revoked,
will be voted as described above. If the enclosed voting instruction form is
executed and returned, it may nevertheless be revoked at any time prior to the
Meeting by written notification received by your company, by execution of a
later-dated form received by your company, or by attending the Meeting and
voting in person.
FOR A FREE COPY OF THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER
31, 1998, CALL FIDELITY DISTRIBUTORS CORPORATION AT 1-800-544-5429 OR THE
INSURANCE COMPANY THAT ISSUED YOUR POLICY.
VOTE REQUIRED: APPROVAL OF EACH OF PROPOSALS 1(A), 1(B), AND 2 REQUIRES THE
AFFIRMATIVE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF THE
FUND. UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE 1940 ACT), THE VOTE OF A
"MAJORITY OF THE OUTSTANDING VOTING SECURITIES" MEANS THE AFFIRMATIVE VOTE OF
THE LESSER OF (A) 67% OR MORE OF THE VOTING SECURITIES PRESENT AT THE MEETING OR
REPRESENTED BY PROXY IF THE HOLDERS OF MORE THAN 50% OF THE OUTSTANDING VOTING
SECURITIES ARE PRESENT OR REPRESENTED BY PROXY OR (B) MORE THAN 50% OF THE
OUTSTANDING VOTING SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED "PRESENT" FOR
THIS PURPOSE.
OVERVIEW OF PROPOSALS
OVERVIEW OF PROPOSALS 1(A) AND 1(B). Bankers Trust Company ("BT"), the
fund's sub-adviser, is a wholly-owned subsidiary of Bankers Trust Corporation
("BT Corporation"). On _____, 1999, a wholly-owned subsidiary of Deutsche Bank
AG ("Deutsche Bank") merged with and into BT Corporation (the "BT Merger"). The
BT Merger could be considered a change of control of BT, resulting in the
assignment and automatic termination of the sub-advisory agreement dated
December 1, 1997, among FMR, BT, and the trust, on behalf of the fund (the "Old
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Sub-Advisory Agreement"). THE BT MERGER HAS NO EFFECT ON THE FUND'S INVESTMENT
OBJECTIVE OR POLICIES.
The Board of Trustees, including a majority of the Trustees who are not
interested persons of the trust or of FMR (the "Independent Trustees"), has
approved, and recommends that shareholders of the fund approve, an interim
sub-advisory agreement among FMR, BT, and the trust, on behalf of the fund (the
"Interim Sub-Advisory Agreement"), as described in Proposal 1(a). Under the
Interim Sub-Advisory Agreement, BT (subject to the supervision and direction of
the Board of Trustees and/or FMR) is required to provide the same investment
management, custodial, and securities lending services that it provided to the
fund under the Old Sub-Advisory Agreement. OTHER THAN THE EXECUTION AND
TERMINATION DATES, THE INTERIM SUB-ADVISORY AGREEMENT CONTAINS THE SAME TERMS
AND CONDITIONS AS THE OLD SUB-ADVISORY AGREEMENT. Under the Interim Sub-Advisory
Agreement, BT receives the same fees and expects to continue to provide the same
level and quality of services as under the Old Sub-Advisory Agreement.
On May 25, 1999, the SEC granted BT an exemptive order (the "BT Exemptive
Order") permitting the Interim Sub-Advisory Agreement to take effect, without
shareholder approval, on [INSERT THE LATER OF THE EFFECTIVE DATE OF THE BT
MERGER OR THE DATE ON WHICH THE SEC ISSUES THE BT EXEMPTIVE ORDER]. The BT
Exemptive Order permits the Interim Sub-Advisory Agreement to remain in effect,
for an interim period of up to 150 days, through the date on which it is
approved (or disapproved) by shareholders.
The Board of Trustees, including a majority of the Independent Trustees,
also has approved, and recommends that shareholders of the fund approve, a new
sub-advisory agreement among FMR, BT, and the trust, on behalf of the fund (the
"New Sub-Advisory Agreement"), as described in Proposal 1(b). If approved, the
New Sub-Advisory Agreement would replace the Interim Sub-Advisory Agreement
effective October 1, 1999 (or on the first day of the first month following
shareholder approval). If shareholders approve Proposal 1(b), BT (subject to the
supervision and direction of the Board of Trustees and/or FMR) will continue to
provide investment management, custodial, and securities lending services to the
fund, but all of these services will no longer be covered by the same contract.
While the Interim Sub-Advisory Agreement currently requires BT to provide
investment management, custodial, and securities lending services to the fund,
the New Sub-Advisory Agreement would require BT to provide only investment
management and custodial services to the fund. Under the fund's New Sub-Advisory
Agreement, FMR, NOT THE FUND, would pay BT for providing these services. In
conjunction with the New Sub-Advisory Agreement, BT and the trust, on behalf of
the fund, would enter into, and BT would continue to provide securities lending
services to the fund under, a new, separate securities lending agreement (the
"New Securities Lending Agreement"). Under the fund's New Securities Lending
Agreement, it is anticipated that the fund would pay BT lower fees for providing
securities lending services than the fund pays BT under the Interim Sub-Advisory
Agreement. As discussed below, shareholders are not being asked to approve the
New Securities Lending Agreement.
OVERVIEW OF PROPOSAL 2. Shareholder approval of the Interim Sub-Advisory
Agreement would not be necessary if the fund currently operated under a
so-called "manager-of-managers" arrangement. As described in Proposal 2, a
manager-of-managers arrangement would, among other things, permit FMR, with the
approval of the Board of Trustees, to enter into a new sub-advisory agreement if
a current agreement is assigned and automatically terminated, such as in the
case of the BT Merger. Thus, the proposed arrangement would avoid the expenses
and delays associated with holding a shareholder meeting to approve the new
agreement. Such an arrangement also would permit FMR, with the approval of the
Board of Trustees, to change sub-advisers or materially modify a sub-advisory
agreement without shareholder approval. THE PROPOSED ARRANGEMENT WOULD NOT,
HOWEVER, PERMIT FMR TO INCREASE THE FUND'S MANAGEMENT FEE RATE PAYABLE TO FMR
UNDER THE PRESENT MANAGEMENT CONTRACT WITHOUT SHAREHOLDER APPROVAL.
On May 19, 1999, FMR and the trust, on behalf of the fund, filed with the
Securities and Exchange Commission (the "SEC") an exemptive application seeking
authorization for the fund to operate under a manager-of-managers arrangement,
subject to shareholder approval and certain other conditions. Although the fund
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cannot implement such an arrangement unless and until it receives the necessary
SEC authorization, the Board of Trustees is taking this opportunity to seek
shareholder approval of the proposed arrangement.
Proposals 1(a), 1(b), and 2 do not affect the present management contract
dated December 1, 1997 between FMR and the trust, on behalf of the fund (the
"Present Management Contract"). SHAREHOLDER APPROVAL OF THE PROPOSALS WILL NOT
RESULT IN AN INCREASE OR A DECREASE IN THE FUND'S MANAGEMENT FEE RATE PAYABLE TO
FMR UNDER THE PRESENT MANAGEMENT CONTRACT. If shareholders approve the
proposals, FMR expects to continue to provide the same level and quality of
management services to the fund as it has always provided.
Refer to each proposal below for more detailed information.
1(A). TO APPROVE AN INTERIM SUB-ADVISORY AGREEMENT WITH BT FOR THE FUND.
The Board of Trustees, including a majority of the Independent Trustees,
has approved, and recommends that shareholders of the fund approve, the Interim
Sub-Advisory Agreement.
THE OLD SUB-ADVISORY AGREEMENT. As discussed above, prior to the effective
date of the BT Merger, BT served as the fund's sub-adviser pursuant to the Old
Sub-Advisory Agreement. The fund's shareholders approved the Old Sub-Advisory
Agreement at a special meeting held on November 19, 1997. At that meeting,
shareholders approved the appointment of BT as sub-adviser of the fund to handle
the day-to-day management of the fund's investments and to provide custodial and
securities lending services to the fund. FMR proposed, and the Board of Trustees
approved, BT's appointment as part of FMR's ongoing efforts to provide services
to the fund efficiently and at low cost.
Under the Old Sub-Advisory Agreement, BT (subject to the supervision and
direction of the Board of Trustees and/or FMR) directed the fund's investments
in accordance with its investment objective, policies, and limitations; voted
the fund's portfolio securities; provided custodial services to the fund; and
administered the fund's securities lending program. For providing these services
to the fund, FMR paid BT monthly fees at an annual rate of 0.006% of the fund's
average net assets, and the fund paid BT monthly fees equal to 40% of net income
from the fund's securities lending activities. The fund retained the remaining
60% of net income from its securities lending activities. Because the fees that
the fund paid BT were based on a percentage of net income from securities
lending, the fund paid the fees only to the extent that it earned income from
securities lending. For the fiscal year ended December 31, 1998, FMR, on behalf
of the fund, paid BT sub-advisory fees of $_____, and the fund paid BT
sub-advisory fees of $_____.
IMPACT OF BT MERGER ON OLD SUB-ADVISORY AGREEMENT. Generally, Section 15(a)
of the 1940 Act requires that a fund's shareholders approve all agreements
pursuant to which persons serve as investment advisers or sub-advisers to the
fund. Section 15(a) also requires that such an agreement automatically terminate
if it is assigned. An assignment of a sub-advisory agreement may be deemed to
occur due to a change of control of the sub-adviser. Because BT became an
indirect, wholly-owned subsidiary of Deutsche Bank as a result of the BT Merger,
the BT Merger could be considered a change of control of BT, resulting in the
assignment and automatic termination of the Old Sub-Advisory Agreement.
THE INTERIM SUB-ADVISORY AGREEMENT. As discussed above, the BT Exemptive
Order permitted the Interim Sub-Advisory Agreement to become effective, without
shareholder approval, on ____, 1999. OTHER THAN THE EXECUTION AND TERMINATION
DATES, THE INTERIM SUB-ADVISORY AGREEMENT CONTAINS THE SAME TERMS AND CONDITIONS
AS THE OLD SUB-ADVISORY AGREEMENT. Under the Interim Sub-Advisory Agreement, BT
receives the same fees and expects to continue to provide the same level and
quality of services as under the Old Sub-Advisory Agreement.
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Under the Interim Sub-Advisory Agreement, BT (subject to the supervision
and direction of the Board of Trustees and/or FMR) directs the fund's
investments in accordance with its investment objective, policies, and
limitations; votes the fund's portfolio securities; provides custodial services
to the fund; and administers the fund's securities lending program. For
providing these services to the fund, FMR pays BT monthly fees at an annual rate
of 0.006% of the fund's average net assets, and the fund pays BT monthly fees
equal to 40% of net income from the fund's securities lending activities. The
fund retains the remaining 60% of net income from its securities lending
activities. Securities lending is a means of earning a modest amount of income
by lending the fund's securities to other parties temporarily. The party
borrowing the securities (typically a broker-dealer or other institution)
provides collateral to secure the loan, agrees to return the securities to the
fund upon notice, and pays the fund a fee for the loan (and/or allows it to earn
income on the collateral). Because the fees that the fund pays BT are based on a
percentage of net income from securities lending, the fund pays the fees only to
the extent that it earns income from securities lending.
Under the terms of the BT Exemptive Order, BT is permitted to earn fees
under the Interim Sub-Advisory Agreement, provided that the fees are held in
escrow pending shareholder approval of the Interim Sub-Advisory Agreement. In
accordance with the BT Exemptive Order, the fees that BT has earned to date
under the Interim Sub-Advisory Agreement have been held in escrow, and any
additional such fees will be held in escrow, until shareholders approve (or
disapprove) the Interim Sub-Advisory Agreement. [As of _____, 1999, the amount
in escrow totaled $_____.] (The portion of net income from the fund's securities
lending activities that the fund retains is not subject to the escrow
arrangement.) If shareholders approve the Interim Sub-Advisory Agreement, the
fees held in escrow, together with any interest thereon, will be released to BT.
If shareholders do not approve the Interim Sub-Advisory Agreement, the fees held
in escrow, together with any interest thereon, will be released to the fund.
A copy of the Interim Sub-Advisory Agreement is supplied as Exhibit 1 on
page _. The Interim Sub-Advisory Agreement became effective on _____, 1999. If
shareholders approve the New Sub-Advisory Agreement (see Proposal 1(b) below),
the New Sub-Advisory Agreement will become effective on October 1, 1999 (or on
the first day of the first month following approval), and the Interim
Sub-Advisory Agreement will terminate on that date. If shareholders approve the
Interim Sub-Advisory Agreement, but do not approve the New Sub-Advisory
Agreement, the Interim Sub-Advisory Agreement will remain in effect through July
31, 2000, and from year to year thereafter, but only as long as its continuance
is approved at least annually by (i) the vote, cast in person at a meeting
called for the purpose, of a majority of the Independent Trustees, and (ii) the
vote of either a majority of the Trustees or a majority of the outstanding
shares of the fund. The Interim Sub-Advisory Agreement may be terminated on 60
days' written notice by the Board of Trustees and will terminate automatically
in the event of its assignment. In addition, the Interim Sub-Advisory Agreement
may be modified subject to both Board and shareholder approval.
MATTERS CONSIDERED BY THE BOARD. At meetings held on March 18, 1999 and May
20, 1999, the Board of Trustees, including the Independent Trustees, discussed
the BT Merger and its implications for the fund and considered the Interim
Sub-Advisory Agreement. In approving the Interim Sub-Advisory Agreement and
recommending that it be presented to shareholders for their approval, the
Trustees considered the best interests of the shareholders and took into account
all factors that they deemed relevant. The Board of Trustees received materials
relating to the Interim Sub-Advisory Agreement in advance of the meeting at
which the Interim Sub-Advisory Agreement was considered, and had the opportunity
to ask questions and request further information in connection with such
consideration. During their deliberations, the Trustees considered that the
Interim Sub-Advisory Agreement has substantially the same terms and conditions
as the Old Sub-Advisory Agreement. The Trustees also considered that, under the
Interim Sub-Advisory Agreement, BT receives the same fees, and expects to
continue to provide the same level and quality of services to the fund, as under
the Old Sub-Advisory Agreement. The Trustees further considered that the fees
payable to BT under the Interim Sub-Advisory Agreement during the interim period
would be deposited in an interest-bearing escrow account and released to BT if
shareholders approve the Interim Sub-Advisory Agreement or to the fund if
shareholders do not approve the Interim Sub-Advisory Agreement. In addition, the
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Board considered that BT recently pleaded guilty to misstating entries in the
bank's books and records, but that the events leading up to BT's guilty plea did
not arise out of the investment advisory or mutual fund activities of BT or its
affiliates (see "Activities and Management of Bankers Trust Company" beginning
on page _ below).
CONCLUSION. The Board of Trustees has concluded that the Interim
Sub-Advisory Agreement will benefit the fund and its shareholders. The Board of
Trustees, including a majority of the Independent Trustees, voted to approve the
submission of the Interim Sub-Advisory Agreement to shareholders of the fund and
recommends that shareholders of the fund vote FOR the Interim Sub-Advisory
Agreement. If shareholders approve the Interim Sub-Advisory Agreement, the fees
held in escrow, together with any interest thereon, will be released to BT. If
shareholders do not approve the Interim Sub-Advisory Agreement, the fees held in
escrow, together with any interest thereon, will be released to the fund and the
Board of Trustees will consider what other action is in the best interest of the
fund and its shareholders.
1(B). TO APPROVE A NEW SUB-ADVISORY AGREEMENT WITH BT FOR THE FUND.
The Board of Trustees, including a majority of the Independent Trustees,
has approved, and recommends that shareholders of the fund approve, the New
Sub-Advisory Agreement. If shareholders approve this proposal, BT (subject to
the supervision and direction of the Board of Trustees and/or FMR) will continue
to provide investment management and custodial services to the fund under the
New Sub-Advisory Agreement, but will provide securities lending services to the
fund under the New Securities Lending Agreement. Shareholders are not being
asked to approve the New Securities Lending Agreement. SHAREHOLDER APPROVAL OF
THIS PROPOSAL WILL NOT RESULT IN AN INCREASE OR A DECREASE IN THE FUND'S
MANAGEMENT FEE RATE PAYABLE TO FMR UNDER THE PRESENT MANAGEMENT CONTRACT.
INTERIM SUB-ADVISORY AGREEMENT. As stated above, under the Interim
Sub-Advisory Agreement, BT (subject to the supervision and direction of the
Board of Trustees and/or FMR) directs the fund's investments in accordance with
its investment objective, policies, and limitations; votes the fund's portfolio
securities; provides custodial services to the fund; and administers the fund's
securities lending program. For providing these services to the fund, FMR pays
BT monthly fees at an annual rate of 0.006% of the fund's average net assets,
and the fund pays BT monthly fees equal to 40% of net income from the fund's
securities lending activities. The fund retains the remaining 60% of net income
from its securities lending activities. (As stated above, the fees that BT has
earned under the Interim Sub-Advisory Agreement are being held in escrow pending
shareholder approval of the Interim Sub-Advisory Agreement.) The Interim
Sub-Advisory Agreement explicitly requires the vote of a majority of the
outstanding voting securities of the fund to authorize all amendments.
The fund's Interim (and Old) Sub-Advisory Agreements "bundle" investment
advisory and securities lending services (among other services) under one
contract. As a result of this kind of arrangement, the fund reports securities
lending fees as expenses and, therefore, includes the fees in its expense ratio.
Including securities lending fees in the fund's expense ratio makes the ratio
higher than it would be otherwise. The Board of Trustees believes that including
securities lending fees in the fund's expense ratio places the fund at a
competitive disadvantage relative to its universe of "competing" funds, which
were identified based on [investment objective and asset size]. The fund's
competitors generally have separate investment advisory and securities lending
agreements. If the fund had a separate agreement covering only securities
lending services, the fund (like its competitors) would net its securities
lending fees against its securities lending income (rather than report the fees
as expenses) and, therefore, would not include the fees in its expense ratio.
Because the fund's competitors do not include securities lending fees in their
expense ratios, [(assuming all other fees and expenses are equal)] the fund's
expense ratio [will]/[may] be higher than its competitors' expense ratios.
NEW SUB-ADVISORY AGREEMENT. If approved, under the New Sub-Advisory
Agreement, BT (subject to the supervision and direction of the Board of Trustees
and/or FMR) will continue to direct the fund's investments in accordance with
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its investment objective, policies, and limitations; vote the fund's portfolio
securities; and provide custodial services to the fund. For providing these
services to the fund, FMR will pay BT monthly fees at an annual rate of 0.006%
of the fund's average net assets. THE FUND WILL NOT PAY BT FEES FOR PROVIDING
THESE SERVICES UNDER THE NEW SUB-ADVISORY AGREEMENT. BT expects to provide the
same level and quality of investment management and custodial services to the
fund under the New Sub-Advisory Agreement as it currently provides under the
Interim Sub-Advisory Agreement. The New Sub-Advisory Agreement is subject to the
requirements of Section 15(a) of the 1940 Act and, therefore, shareholders are
being asked to approve the New Sub-Advisory Agreement. If shareholders approve
the New Sub-Advisory Agreement, BT and the trust, on behalf of the fund, will
enter into the New Securities Lending Agreement, pursuant to which BT will
continue to administer the fund's securities lending program. (See "New
Securities Lending Agreement" on page _ below.) Shareholders are not being asked
to approve the New Securities Lending Agreement.
The New Sub-Advisory Agreement would allow FMR, BT, and the trust, on
behalf of the fund, to amend the New Sub-Advisory Agreement subject to the
provisions of Section 15 of the 1940 Act, as modified or interpreted by the SEC.
In contrast, the Interim Sub-Advisory Agreement explicitly requires the vote of
a majority of the outstanding voting securities of the fund to authorize all
amendments. Generally, the New Sub-Advisory Agreement's amendment provisions
would allow amendment of the New Sub-Advisory Agreement without shareholder vote
ONLY IF THE 1940 ACT SO PERMITS. In short, the New Sub-Advisory Agreement's
amendment provisions give FMR, BT, and the trust added flexibility to amend the
New Sub-Advisory Agreement subject to 1940 Act constraints. Of course, any
amendments to the New Sub-Advisory Agreement would require the approval of the
Board of Trustees.
As stated above, FMR would pay all of BT's fees under the fund's New
Sub-Advisory Agreement. If shareholders approve the New Sub-Advisory Agreement,
FMR could, in the future and subject to the approval of the Board of Trustees,
amend the New Sub-Advisory Agreement to change the fees FMR pays to BT for
providing the services described above. IF SHAREHOLDERS APPROVE THE NEW
SUB-ADVISORY AGREEMENT, FMR COULD NOT, HOWEVER, IN THE FUTURE AMEND THE FUND'S
PRESENT MANAGEMENT CONTRACT TO INCREASE THE FUND'S MANAGEMENT FEE RATE PAYABLE
TO FMR THEREUNDER WITHOUT SHAREHOLDER APPROVAL.
A copy of the form of New Sub-Advisory Agreement is supplied as Exhibit 2
on page _. Except for the differences discussed above, the New Sub-Advisory
Agreement is substantially identical to the Interim Sub-Advisory Agreement. If
approved by shareholders, the New Sub-Advisory Agreement will replace the
Interim Sub-Advisory Agreement and take effect on October 1, 1999 (or on the
first day of the first month following approval), and will remain in effect
through July 31, 2000, and from year to year thereafter, but only as long as its
continuance is approved at least annually by (i) the vote, cast in person at a
meeting called for the purpose, of a majority of the Independent Trustees, and
(ii) the vote of either a majority of the Trustees or a majority of the
outstanding shares of the fund. If shareholders do not approve the New
Sub-Advisory Agreement, but do approve the Interim Sub-Advisory Agreement, the
Interim Sub-Advisory Agreement will continue in effect as described in Proposal
1(a) above. The New Sub-Advisory Agreement may be terminated on 60 days' written
notice by the Board of Trustees and will terminate automatically in the event of
its assignment.
NEW SECURITIES LENDING AGREEMENT. As stated above, if shareholders approve
the New Sub-Advisory Agreement, BT and the trust, on behalf of the fund, will
enter into the New Securities Lending Agreement, pursuant to which BT will
continue to administer the fund's securities lending program. For providing
securities lending services, it is currently anticipated that the fund will pay
BT lower monthly fees equal to 35% of the fund's securities lending revenue (and
the fund will retain the remaining 65%). Once the aggregate assets of the fund
and Spartan Market Index Fund, Spartan U.S. Equity Index Fund, Spartan Total
Market Index Fund, Spartan Extended Market Index Fund, and Spartan International
Index Fund (five other equity index funds managed by FMR and sub-advised by BT)
(collectively, the "Six Equity Index Funds") exceed $35 billion and the
aggregate assets of Spartan Total Market Index Fund, Spartan Extended Market
Index Fund and Spartan International Index Fund (collectively, the "Three Equity
Index Funds") exceed $600 million, the portion of securities lending revenue
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payable to BT will be (i) 30% on the first $5 million per year, (ii) 25% on the
next $2.5 million per year, and (iii) 20% on the excess of securities lending
revenue per year over $7.5 million. As of April 30, 1999, the aggregate assets
of the Six Equity Index Funds were $31.2 billion, and the aggregate assets of
the Three Equity Index Funds were $420 million.
As stated above, as a result of the New Securities Lending Agreement, the
fund would net its securities lending fees against its securities lending income
and, therefore, would not include the fees in its expense ratio. The New
Securities Lending Agreement is a service contract, not an investment advisory
contract. As such, the New Securities Lending Agreement is not subject to the
requirements of Section 15(a) of the 1940 Act and, therefore, SHAREHOLDERS ARE
NOT BEING ASKED TO APPROVE THE NEW SECURITIES LENDING AGREEMENT. (See Proposal
1(a) above for a brief explanation of the fund's securities lending program.)
Shareholder approval would not be required for amendments to the New Securities
Lending Agreement (including changes to the anticipated fee structure). Of
course, any amendments to the New Securities Lending Agreement would require the
approval of the Board of Trustees.
IMPACT ON FUND EXPENSES. The following table illustrates the impact of the
proposal on the fund's expenses. The following table provides data concerning
the fund's [management and sub-advisory fees and] total operating expenses for
the fiscal year ended December 31, 1998, under the Interim Sub-Advisory
Agreement and if the New Sub-Advisory Agreement (and separate New Securities
Lending Agreement, as described above) had been in effect during the same
period. The following data are [based on historical expenses adjusted to reflect
current fees and are] calculated as percentages of the fund's average net
assets. The total operating expenses provided below do not reflect the effect of
any expense reimbursements during the period.
INTERIM AGREEMENT NEW AGREEMENTS
Management Fee 0.24%** 0.24%
12b-1 Fees None None
Other Expenses 0.11% 0.11%
Total Operating Expenses* 0.35%** 0.35%
* FMR currently reimburses the fund to the extent that its total operating
expenses (with the exceptions noted below) exceed 0.28% of its average net
assets. Expenses eligible for reimbursement do not include interest, taxes,
brokerage commissions, or extraordinary expenses. Sub-advisory fees paid by
the fund associated with securities lending are not eligible for
reimbursement and, under the Interim Sub-Advisory Agreement, represent an
additional expense for the fund. The expense reimbursement arrangement can
be terminated by FMR at any time.
** Including sub-advisory fees of less than 0.01%, equal to 40% of net income
from securities lending (not visible due to rounding).
EXAMPLE: The following example illustrates the expenses on a $10,000
investment under the fees and expenses stated above, assuming (1) 5% annual
return and (2) redemption at the end of each time period.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Interim Agreement $36 $113 $197 $443
New Agreements $36 $113 $197 $443
The purpose of the table and example above is to assist investors in
understanding the various costs and expenses of investing in shares of the fund.
The example above should not be considered a representation of past or future
expenses of the fund. Actual expenses may vary from year to year and may be
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higher or lower than those shown above. The table and example above do not
reflect expenses attributable to any particular insurance product.
MATTERS CONSIDERED BY THE BOARD. At a meeting held on May 20, 1999, the
Board of Trustees, including the Independent Trustees, considered the New
Sub-Advisory Agreement. In approving the New Sub-Advisory Agreement and
recommending that it be presented to shareholders for their approval, the
Trustees considered the best interests of the shareholders and took into account
all factors that they deemed relevant. The Board of Trustees received materials
relating to the New Sub-Advisory Agreement in advance of the meeting at which
the New Sub-Advisory Agreement was considered, and had the opportunity to ask
questions and request further information in connection with such consideration.
During their deliberations, the Trustees considered that the New Sub-Advisory
Agreement has substantially the same terms and conditions as the Interim
Sub-Advisory Agreement, except that the New Sub-Advisory Agreement does not
provide for securities lending services or for shareholder approval of
amendments to the agreement. The Trustees also considered that, under the New
Sub-Advisory Agreement, BT receives the same fee from FMR, and expects to
continue to provide the same level and quality of investment management and
custodial services to the fund, as under the Interim Sub-Advisory Agreement. The
Board also determined that the securities lending services currently provided
for in the Interim Sub-Advisory Agreement are best provided for in a separate
securities lending agreement. The Board of Trustees considered that, under a
separate securities lending agreement, the fund would pay BT lower fees than
under the Interim Sub-Advisory Agreement. With regard to the amendment
provisions, the Board of Trustees and the Independent Trustees considered the
benefit to shareholders of FMR's, BT's and the trust's increased flexibility
(within 1940 Act constraints) to amend the New Sub-Advisory Agreement without
the delays and potential costs of a proxy solicitation. In addition, the Board
considered that BT recently pleaded guilty to misstating entries in the bank's
books and records, but that the events leading up to BT's guilty plea did not
arise out of the investment advisory or mutual fund activities of BT or its
affiliates (see "Activities and Management of Bankers Trust Company" beginning
on page _ below).
CONCLUSION. The Board of Trustees has concluded that the New Sub-Advisory
Agreement will benefit the fund and its shareholders. The Board of Trustees,
including a majority of the Independent Trustees, voted to approve the
submission of the New Sub-Advisory Agreement to shareholders of the fund and
recommends that shareholders of the fund vote FOR the New Sub-Advisory
Agreement. If approved, the New Sub-Advisory Agreement will take effect on the
first day of the first month following shareholder approval.
2. TO APPROVE A NEW "MANAGER-OF-MANAGERS" ARRANGEMENT FOR THE FUND.
At a meeting on March 18, 1999, the Board of Trustees, including a majority
of the Independent Trustees, voted to approve the submission of a so-called
"manager-of-managers" proposal to shareholders of the fund. Such an arrangement,
if approved, would permit FMR, with the approval of the Board of Trustees, to
hire, terminate, or replace sub-advisers, and to modify material terms and
conditions of a sub-advisory agreement (including the fees payable thereunder)
without shareholder approval. (Hence, FMR would act as a "manager-of-managers.")
THE ARRANGEMENT WOULD NOT, HOWEVER, PERMIT FMR TO INCREASE THE FUND'S MANAGEMENT
FEE RATE PAYABLE TO FMR UNDER THE PRESENT MANAGEMENT CONTRACT WITHOUT
SHAREHOLDER APPROVAL. As discussed below, the arrangement may enable the fund to
operate more efficiently because FMR would be able to make these kinds of
sub-advisory changes from time to time without the expenses and delays
associated with obtaining shareholder approval of the changes. If shareholders
approve the arrangement, the Board will continue to consider and approve any
sub-advisory changes that FMR proposes under the arrangement to ensure that the
changes are in the best interests of the fund and its shareholders. For these
and other reasons discussed below, the Board of Trustees recommends that
shareholders of the fund vote FOR the proposal.
REQUEST FOR SEC EXEMPTIVE RELIEF. Generally, Section 15(a) of the 1940 Act
requires that a fund's shareholders approve all agreements pursuant to which
persons serve as investment advisers or sub-advisers to the fund. On May 19,
1999, FMR and the trust, on behalf of the fund, filed with the SEC an
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<PAGE>
application (the "Application") seeking, among other relief, an exemption from
Section 15(a) (and certain other provisions of the 1940 Act) to permit FMR, with
the approval of the Board of Trustees, to hire, terminate, or replace
sub-advisers, and to modify material terms and conditions of a sub-advisory
agreement (including the fees payable thereunder) without shareholder approval.
If granted, the requested relief would not, however, permit FMR to enter into an
agreement with a sub-adviser that is an affiliate of FMR, the trust, or the fund
(other than by reason of serving as sub-adviser to the fund) or to change the
sub-advisory fee to be paid to an affiliated sub-adviser, without shareholder
approval. If granted, the requested relief would apply, for instance, where a
sub-advisory agreement is automatically terminated as a result of a change of
control (such as a merger) of the sub-adviser. In such case, the sub-adviser
could continue to serve as sub-adviser to the fund under a new agreement
approved by the Board but not by the fund's shareholders. IF GRANTED, THE
REQUESTED RELIEF WOULD NOT APPLY TO THE PRESENT MANAGEMENT CONTRACT. ANY CHANGES
TO THE PRESENT MANAGEMENT CONTRACT, INCLUDING ANY CHANGE IN THE FUND'S
MANAGEMENT FEE RATE PAYABLE TO FMR, WOULD REMAIN SUBJECT TO THE BOARD AND
SHAREHOLDER APPROVAL REQUIREMENTS OF SECTION 15(A) OF THE 1940 ACT.
The Application currently is pending at the SEC. There can be no assurance
that the SEC will grant the requested relief. One of the SEC's conditions to
implementing such relief, if granted, is expected to be that the proposed
arrangement be approved by a majority of the fund's outstanding voting
securities. Because the BT Merger required the Board of Trustees to call a
special meeting to seek shareholder approval of the Interim Sub-Advisory
Agreement, the Board of Trustees is taking this opportunity to seek shareholder
approval of the proposed arrangement, as well. If the SEC grants the requested
relief and shareholders approve the proposal, it is expected that the trust and
FMR will be required to comply with certain additional SEC conditions in order
for the fund to implement and operate under the arrangement. For example, it is
expected that the fund will be required to provide shareholders with relevant
information (that otherwise would be provided in a proxy statement) within a
specified period of time after hiring a new sub-adviser, and the fund will be
required to disclose in its prospectus certain aspects of the
manager-of-managers arrangement.
FMR'S ROLE AS THE "MANAGER-OF-MANAGERS." FMR serves as the fund's manager
pursuant to the Present Management Contract. The fund's shareholders last
approved the Present Management Contract at a special meeting held on November
19, 1997. Under the Present Management Contract, FMR provides the fund with
investment research, advice, and supervision, and furnishes an investment
program for the fund consistent with the fund's investment objectives and
policies. The Present Management Contract expressly permits FMR to appoint
sub-advisers to perform any or all of the services specified in the contract.
FMR is responsible for recommending to the Board of Trustees the hiring,
termination, and replacement of sub-advisers; supervising and evaluating the
performance of sub-advisers; and negotiating and, as circumstances warrant,
renegotiating the terms and conditions of any sub-advisory agreement (including
the fees payable thereunder). FMR believes that these duties have benefited, and
will continue to benefit, the fund because FMR is able to select those
sub-advisers who are particularly well-suited to manage the fund's investment
portfolio. (For a discussion of the fund's Present Management Contract,
including the fees payable to FMR thereunder, refer to the section entitled
"Present Management Contract," beginning on page _.) Although BT is currently
the only sub-adviser to the fund, FMR may, in the future, enter into
sub-advisory agreements with one or more additional sub-advisers. FMR does not
anticipate frequent changes in sub-advisers.
REASONS FOR PROPOSAL. The Board of Trustees believes that permitting FMR to
perform the duties for which shareholders of the fund pay FMR - selecting,
supervising, and evaluating the sub-advisers - without incurring the unnecessary
expenses or delays of obtaining shareholder approval is in the best interests of
the fund's shareholders and will allow the fund to operate more efficiently.
Currently, in order for FMR to appoint a sub-adviser or materially modify a
sub-advisory agreement, the trust must call and hold a special shareholder
meeting, create and distribute proxy materials, and solicit votes from the
fund's shareholders. This process is time-intensive, slow and costly. These
costs are generally borne by the fund, provided they do not exceed the fund's
existing expense cap. Without the delay inherent in holding shareholder
meetings, the Board of Trustees would be able to act more quickly and with less
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<PAGE>
expense to appoint a sub-adviser when the Board and FMR believe that the
appointment would benefit the fund and its shareholders. Furthermore, the Board
of Trustees believes that it is appropriate to vest these duties in FMR (subject
to the Board of Trustees' review) in light of FMR's significant experience and
expertise and shareholders' expectation that FMR will utilize that experience
and expertise to select the most competent sub-advisers for the fund.
Moreover, the Board will provide oversight of the sub-adviser selection
process to help ensure that shareholders' interests are protected if FMR selects
a new sub-adviser or modifies a sub-advisory agreement. The Board, including a
majority of the Independent Trustees, will evaluate and approve all new
sub-advisory agreements, as well as any modifications to all sub-advisory
agreements. In its review, the Board will analyze all factors that it considers
to be relevant to the determination, including the nature, quality and scope of
services provided by the sub-advisers. The Board will compare the investment
performance of the assets managed by the sub-advisers with other accounts with
similar investment objectives managed by other advisers and will review the
sub-advisers' compliance with federal securities laws and regulations. The Board
of Trustees believes that its review will ensure that FMR continues to act in
the best interest of the fund and its shareholders.
CONCLUSION. The Board of Trustees, including a majority of the Independent
Trustees, voted to approve the submission of the manager-of-managers proposal to
shareholders of the fund and recommends that shareholders of the fund vote FOR
the proposal. As stated above, the fund's implementation of a
manager-of-managers arrangement is also conditioned upon receipt of the
requested exemptive relief from the SEC. If the SEC declines to grant the relief
requested in the Application, the fund will not implement the proposed
arrangement.
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting.
However, if any other matters properly come before the Meeting, it is the
intention that proxies that do not contain specific instructions to the contrary
will be voted on such matters in accordance with the judgment of the persons
therein designated.
ACTIVITIES AND MANAGEMENT OF FMR
FMR, a corporation organized in 1946, serves as investment adviser to a number
of investment companies. Information concerning the advisory fees and average
net assets of funds with investment objectives similar to Index 500 Portfolio
and advised by FMR is contained in the Table of Average Net Assets and Expense
Ratios in Exhibit 3 beginning on page __.
FMR, its officers and directors, its affiliated companies, and the Trustees,
from time to time have transactions with various banks, including the custodian
banks for certain of the funds advised by FMR. Those transactions that have
occurred to date have included mortgages and personal and general business
loans. In the judgment of FMR, the terms and conditions of those transactions
were not influenced by existing or potential custodial or other fund
relationships.
The Directors of FMR are Edward C. Johnson 3d, Chairman of the Board and of
the Executive Committee; Robert C. Pozen, President; and Peter S. Lynch, Vice
Chairman. Each of the Directors is also a Trustee of the trust. Messrs. Johnson
3d, Pozen, J. Gary Burkhead, John H. Costello, Matthew N. Karstetter, Eric D.
Roiter, Richard A. Silver, Leonard M. Rush, and Robert A. Lawrence are currently
officers of the trust and officers or employees of FMR or FMR Corp. With the
exception of Mr. Costello and Mr. Karstetter, all of these persons hold or have
options to acquire stock of FMR Corp. The principal business address of each of
the Directors of FMR is 82 Devonshire Street, Boston, Massachusetts 02109.
All of the stock of FMR is owned by its parent company, FMR Corp., 82
Devonshire Street, Boston, Massachusetts 02109, which was organized on October
31, 1972. Members of Mr. Edward C. Johnson 3d's family are the predominant
owners of a class of shares of common stock, representing approximately 49% of
the voting power of FMR Corp., and, therefore, under the 1940 Act may be deemed
to form a controlling group with respect to FMR Corp.
During the period January 1, 1998, through May 31, 1999, [the following
transactions/no transactions] were entered into by Trustees of the trust
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<PAGE>
involving more than 1% of the voting common, non-voting common and equivalent
stock, or preferred stock of FMR Corp.
ACTIVITIES AND MANAGEMENT OF BANKERS TRUST COMPANY
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
Corporation (formerly Bankers Trust New York Corporation) ("BT Corporation"),
whose principal offices are also at 130 Liberty Street, New York, New York
10006. BT was founded in 1903. As of March 31, 1999, BT Corporation was the
seventh largest bank holding company in the United States with total assets of
approximately $127 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. As of March 31, 1999,
BT had over $378 billion in assets under management globally. Of that total,
over $183 billion was in U.S. equity index assets. This makes BT one of the
nation's leading managers of index funds.
On November 30, 1998, BT Corporation, Deutsche Bank AG ("Deutsche Bank"), and
Circle Acquisition Corporation ("Circle Corporation"), a wholly owned subsidiary
of Deutsche Bank, entered into a merger agreement ("BT Merger Agreement").
Pursuant to the terms of the BT Merger Agreement, Circle Corporation merged with
and into BT Corporation on _____, 1999, with BT Corporation continuing as the
surviving entity ("BT Merger"). Although the direct corporate ownership of BT
was not affected by the BT Merger and BT remains a wholly owned subsidiary of BT
Corporation, as of the date of the BT Merger, BT became an indirect, wholly
owned subsidiary of Deutsche Bank. Deutsche Bank, a banking company organized
under the laws of the Federal Republic of Germany, provides, along with its
various subsidiaries, a comprehensive range of global banking and financial
services both domestically and abroad. As of September 30, 1998, Deutsche Bank
and its affiliates had total assets of approximately $689.6 billion, with over
$___ billion in assets under management. (See also "Overview of Proposals"
beginning on page __.)
In conjunction with its global custodial services, BT operates one of the
largest and most extensive securities lending programs. BT serves as securities
lending agent with respect to loan transactions involving a daily average in
excess of $57 billion on loan. Approximately 90 lenders participated in BT's
program during 1998.
Information concerning the advisory or sub-advisory fees and average net
assets of funds with investment objectives similar to Index 500 Portfolio and
advised or sub-advised by BT is contained in the Table of Average Net Assets and
Expense Ratios in Exhibit 4 beginning on page __. The name, address and
principal occupation of each director and the principal executive officer of BT
is provided in Exhibit 5 beginning on page _.
No officer or Trustee of the trust is an officer, employee or director of BT.
No officer or Trustee of the trust owns any securities of, or has any other
material direct or indirect interest in, BT, BT Corporation, or any entity
controlled by or under common control with BT. During the period March 1, 1998
through May 31, 1999, [no material transactions] were entered into by any
Trustee of the trust to which BT, BT Corporation, or any entity controlled by or
under common control with BT is or was a party.
BT has been advised by counsel that BT currently may perform the services for
the fund described in this proxy statement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law and
banks and financial institutions may be required to register as dealers pursuant
to state securities law.
On March 11, 1999, BT announced that it had reached an agreement with the
United States Attorney's Office in the Southern District of New York to resolve
an investigation concerning inappropriate transfers of unclaimed funds and
related record keeping problems that occurred between 1994 and early 1996.
Pursuant to its agreement with the U.S. Attorney's Office, BT pleaded guilty to
misstating entries in the bank's books and records and agreed to pay a $60
million fine to federal authorities. Separately, BT agreed to pay a $3.5 million
fine to the State of New York. The events leading up to the guilty plea did not
arise out of the investment advisory or mutual fund activities of BT or its
affiliates. As a result of the plea, absent an order from the Commission, BT
would not be able to continue to provide investment advisory services to the
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<PAGE>
fund. The Commission has granted a temporary order to permit BT and its
affiliates to continue to provide investment advisory services to registered
investment companies. There is no assurance that the Commission will grant a
permanent order. If a permanent order is not granted, FMR and the Board of
Trustees will consider appropriate actions, including selecting, approving, and
submitting for shareholder approval (if required at the time) a replacement
sub-adviser.
PRESENT MANAGEMENT CONTRACT
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, provide the management and administrative services necessary for the
operation of the fund. These services include providing facilities for
maintaining the fund's organization; supervising relations with custodians,
transfer and pricing agents, accountants, underwriters, and other persons
dealing with the fund; preparing all general shareholder communications and
conducting shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws and making
necessary filings under state securities laws; developing management and
shareholder services for the fund; and furnishing reports, evaluations, and
analyses on a variety of subjects to the Trustees.
BT is the sub-adviser of the fund and acts as the fund's custodian. Under its
management contract with the fund, FMR acts as investment adviser. Under the
Interim Sub-Advisory Agreement, and subject to the supervision of the Board of
Trustees, BT directs the investments of the fund in accordance with its
investment objective, policies, and limitations, administers the securities
lending program of the fund, and provides custodial services to the fund.
In addition to the management fee payable to FMR, the sub-advisory fee payable
to BT, and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent and pricing and bookkeeping agent, the fund pays all
of its expenses that are not assumed by those parties. The fund pays for the
typesetting, printing, and mailing of its proxy materials to shareholders, legal
expenses, and the fees of the auditor and non-interested Trustees. The fund's
management contract further provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statements of additional information,
notices, and reports to shareholders; however, under the terms of the fund's
transfer agent agreement, the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by the fund include
interest, taxes, brokerage commissions, the fund's proportionate share of
insurance premiums and Investment Company Institute dues, and the costs of
registering shares under federal securities laws and making necessary filings
under state securities laws. The 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. The fund also pays the costs related to the
solicitation of fund proxies from contract holders.
Transfer agent fees, including reimbursement for out-of-pocket expenses, paid
to Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an
affiliate of FMR, by the fund for the fiscal year ended December 31, 1998,
amounted to $1,966,403. Pricing and bookkeeping fees, including reimbursement
for out-of-pocket expenses, paid to Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, by the fund for the fiscal year ended December 31, 1998,
amounted to $806,724.
The fund also has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered under
the Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The distribution agreement calls for FDC to use all
reasonable efforts, consistent with its other business, to secure purchasers for
shares of the fund, which are continuously offered at net asset value per share.
Promotional and administrative expenses in connection with the offer and sale of
shares are paid by FMR.
FMR is the fund's manager pursuant to a management contract dated December 1,
1997, which was last approved by shareholders on November 19, 1997. At that
time, shareholder approval had been obtained to amend the management contract to
15
<PAGE>
(1) expressly permit FMR to delegate investment advisory authority to an
investment adviser, and (2) reduce the fund's management fee payable to FMR from
0.28% to 0.24% of the fund's average net assets.
For the services of FMR under the management contract, the fund pays FMR a
monthly management fee at the annual rate of 0.24% of its average net assets
throughout the month. The fee received by FMR for the fiscal year ended December
31, 1998 from the fund was $_______, of which $______ was reimbursed by FMR.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's total operating expenses (exclusive of sub-advisory fees associated with
securities lending, 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.
Effective August 27, 1992, FMR has voluntarily agreed, subject to revision or
termination, to reimburse the fund to the extent that its total operating
expenses (with the exceptions noted below), as a percentage of its average net
assets, exceed 0.28%. Expenses eligible for reimbursement do not include
interest, taxes, brokerage commissions and extraordinary expenses. In addition,
sub-advisory fees paid by the fund associated with securities lending are not
eligible for reimbursement. This arrangement may be terminated by FMR at any
time.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the fund by BT pursuant to authority contained in the fund's
management contract and sub-advisory agreement.
BT may use research services provided by and place agency transactions with
National Financial Services Corporation (NFSC) and Fidelity Brokerage Services
(Japan), LLC (FBSJ), indirect subsidiaries of FMR Corp., and BT Brokerage
Corporation and BT Futures Corp., indirect subsidiaries of BT Corporation, if
the commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. [Prior to
December 9, 1997, FMR used research services provided by and placed agency
transactions with Fidelity Brokerage Services (FBS), an indirect subsidiary of
FMR Corp.]
For the fiscal year ended December 31, 1998, the fund paid no brokerage
commissions to affiliated brokers.
SUBMISSION OF CERTAIN SHAREHOLDER PROPOSALS
The trust does not hold annual shareholder meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of the Trust, 82
Devonshire Street, Boston, Massachusetts 02109.
NOTICE TO INSURANCE COMPANIES
Please advise the trust, in care of [Client Services at 1-800-544-5429],
whether other persons are beneficial owners of shares for which proxies are
being solicited and, if so, the number of copies of the Proxy Statement and
Annual Report you wish to receive in order to supply copies to the variable
contract owners of the respective shares.
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Exhibit 1
((UNDERLINED)) LANGUAGE WILL BE ADDED
[BRACKETED] LANGUAGE WILL BE DELETED
FORM OF
SUBADVISORY AGREEMENT
This Agreement is entered into as of the [1st] ((___)) day of [December]
((______________)), [1997] ((1999)), among Variable Insurance Products Fund II,
a Massachusetts business trust (the "Trust"), on behalf of Index 500 Portfolio,
a series portfolio of the Trust (the "Portfolio"), Fidelity Management &
Research Company, a Massachusetts corporation ("Manager"), and Bankers Trust
Company, a New York banking
corporation ("Subadviser").
WHEREAS, the Trust, on behalf of the Portfolio, has entered into a
Management Contract, dated December 1, 1997, with Manager (the "Management
Contract"), pursuant to which Manager has agreed to provide certain management
and administrative services to the Portfolio; and
WHEREAS, Manager desires to appoint Subadviser as investment subadviser to
provide the investment advisory and administrative services to the Portfolio
specified herein, and Subadviser is willing to serve the Portfolio in such
capacity; and
WHEREAS, the trustees of the Trust (the "Trustees"), including a majority
of the Trustees who are not "interested persons" (as such term is defined below)
of any party to this Agreement, and the shareholder(s) of the Portfolio, have
each consented to such an arrangement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
I. APPOINTMENT OF SUBADVISER; COMPENSATION
1.1 APPOINTMENT AS SUBADVISER. Subject to and in accordance with the
provisions hereof, Manager hereby appoints Subadviser as investment subadviser
to perform the various investment advisory and other services to the Portfolio
set forth herein and, subject to the restrictions set forth herein, hereby
delegates to Subadviser the authority vested in Manager pursuant to the
Management Contract to the extent necessary to enable Subadviser to perform its
obligations under this Agreement.
1.2 SCOPE OF INVESTMENT AUTHORITY. (a) The Subadviser is hereby
authorized, on a discretionary basis, to manage the investments and determine
the composition of the assets of the Portfolio, subject at all times to (i) the
supervision and control of the Trustees, (ii) the requirements of the Investment
Company Act of 1940 and rules thereunder, as amended from time to time (the
"Investment Company Act"), (iii) the investment objective, policies and
limitations, as provided in the Portfolio's Prospectus and other governing
documents, and (iv) such instructions, policies and limitations relating to the
Portfolio as the Trustees or Manager may from time to time adopt and communicate
in writing to Subadviser. Notwithstanding anything herein to the contrary,
Subadviser is not authorized to take any action, including the purchase and sale
of portfolio securities, in contravention of any restriction, limitation,
objective, policy or instruction described in the previous sentence.
(b) It is understood and agreed that, for so long as this Agreement shall
remain in effect, Subadviser shall retain discretionary investment authority
over the manner in which the Portfolio's assets are invested, and Manager shall
not have the right to overrule any investment decision with respect to a
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particular security made by Subadviser, PROVIDED that the Trustees and Manager
shall at all times have the right to monitor the Portfolio's investment
activities and performance, require Subadviser to make reports and give
explanations as to the manner in which the Portfolio's assets are being
invested, and, should either Manager or the Trustees become dissatisfied with
Subadviser's performance in any way, terminate this Agreement in accordance with
the provisions of Section 9.2 hereof.
1.3 APPOINTMENT AS PROXY VOTING AGENT. Subject to and in accordance with
the provisions hereof, the Trustees hereby appoint Subadviser as the Portfolio's
proxy voting agent, and hereby delegate to Subadviser discretionary authority to
vote all proxies solicited by or with respect to issuers of securities in which
the assets of the Portfolio may be invested from time to time. Upon written
notice to Subadviser, the Trustees may at any time withdraw the authority
granted to Subadviser pursuant to this Section 1.3 to perform any or all of the
proxy voting services contemplated hereby.
1.4 GOVERNING DOCUMENTS. Manager will provide Subadviser with copies of
(i) the Trust's Declaration of Trust and By-laws, as currently in effect, (ii)
the Portfolio's currently effective prospectus and statement of additional
information, as set forth in the Trust's registration statement under the
Investment Company Act and the Securities Act of 1933, as amended, (iii) any
instructions, investment policies or other restrictions adopted by the Trustees
or Manager supplemental thereto, and (iv) the Management Contract. Manager will
provide Subadviser with such further documentation and information concerning
the investment objectives, policies and restrictions applicable to the Portfolio
as Subadviser may from time to time reasonably request.
1.5 SUBADVISER'S RELATIONSHIP. Notwithstanding anything herein to the
contrary, Subadviser shall be an independent contractor and will have no
authority to act for or represent the Trust, the Portfolio or Manager in any way
or otherwise be deemed an agent of any of them, except to the extent expressly
authorized by this Agreement or in writing by the Trust or Manager.
1.6 COMPENSATION. Subadviser shall be compensated for the services it
performs on behalf of the Portfolio in accordance with the terms set forth in
Appendix A to this Agreement.
II. SERVICES TO BE PERFORMED BY SUBADVISER
2.1 INVESTMENT ADVISORY SERVICES. (a) In fulfilling its obligations to
manage the assets of the Portfolio, Subadviser will:
(i) formulate and implement a continuous investment program for the
Portfolio, including, without limitation, implementation of a securities
lending program in accordance with the provisions of Article III hereof;
(ii) take whatever steps are necessary to implement these investment
programs by the purchase and sale of securities and other investments,
including the selection of brokers or dealers, the placing of orders for
such purchases and sales in accordance with the provisions of paragraph
(b) below and assuring that such purchases and sales are properly settled
and cleared;
(iii) provide such reports with respect to the implementation of the
Portfolio's investment program as the Trustees or Manager shall reasonably
request; and
(iv) provide advice and assistance to Manager as to the
determination of the fair value of certain securities where market
quotations are not readily available for purposes of calculating net asset
value of the Portfolio in accordance with valuation procedures and methods
established by the Trustees.
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(b) The Subadviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers and dealers
selected by Subadviser. Such brokers and dealers may include brokers or dealers
that are "affiliated persons" (as such term is defined in the Investment Company
Act) of the Trust, the Portfolio, Manager or Subadviser, PROVIDED that
Subadviser shall only place orders on behalf of the Portfolio with such
affiliated persons in accordance with procedures adopted by the Trustees
pursuant to Rule 17e-1 under the Investment Company Act. The Subadviser shall
use its best efforts to seek to execute portfolio transactions at prices which
are advantageous to the Portfolio and at commission rates which are reasonable
in relation to the benefits received. In selecting brokers or dealers qualified
to execute a particular transaction, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or other
accounts over which Subadviser or its affiliates exercise investment discretion.
The Subadviser is authorized to pay a broker or dealer who provided such
brokerage and research services a commission for executing a portfolio
transaction for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
Subadviser determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities which the Subadviser and
its affiliates have in respect to accounts over which they exercise investment
discretion. The Trustees shall periodically review the commissions paid by the
Portfolio to determine if the commissions paid over representative periods were
reasonable in relation to the benefits to the Portfolio.
2.2. ADMINISTRATIVE AND OTHER SERVICES. (a) Subadviser will, at its
expense, furnish (i) all necessary investment and management facilities,
including salaries of personnel required for it to execute its duties
faithfully, and (ii) administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for the efficient conduct of the investment
affairs of the Portfolio (excluding determination of net asset values and
shareholder accounting services).
(b) Subadviser will maintain all accounts, books and records with respect
to the Portfolio as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act and the rules
thereunder. Subadviser agrees that such records are the property of the Trust,
and will be surrendered to the Trust promptly upon request. The Manager shall be
granted reasonable access to the records and documents in Subadviser's
possession relating to the Portfolios.
(c) Subadviser shall provide such information as is necessary to enable
Manager to prepare and update the Trust's registration statement (and any
supplement thereto) and the Portfolio's financial statements. Subadviser
understands that the Trust and Manager will rely on such information in the
preparation of the Trust's registration statement and the Portfolio's financial
statements, and hereby covenants that any such information approved by
Subadviser expressly for use in such registration and/or financial statements
shall be true and complete in all material respects.
(d) Subadviser will vote the Portfolio's investment securities in the
manner in which Subadviser believes to be in the best interests of the
Portfolio, and shall review its proxy voting activities on a periodic basis with
the Trustees.
(e) Subadviser will provide custodian services to the Portfolio in
accordance with the provisions of a separate Custodian Agreement, dated as of
the date hereof, between the Trust, on behalf of the Portfolio, and Subadviser.
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III. SECURITIES LENDING
3.1. APPOINTMENT AS AGENT. For as long as this Agreement shall remain in
effect, Subadviser is hereby authorized as the Portfolio's agent to lend on a
disclosed basis the Portfolio's securities. Subadviser is further authorized as
the Portfolio's agent to sign agreements with borrowers, ownership or other
certificates as may be required by the Internal Revenue Service or any other tax
authorities, and to take any other actions necessary to effect such loans.
3.2. INDEMNIFICATION. (a) In the event that any securities lending
transaction is terminated and the loaned securities or any portion thereof shall
not have been returned to the Portfolio by or on behalf of the borrower within
the time specified by Subadviser's agreement with the borrower (the "Delivery
Date"), Subadviser shall, at its expense, within one (1) business day after the
Delivery Date replace the loaned securities (or any portion thereof not so
returned) with a like amount of the loaned securities of the same issuer, class
and denomination, and hold the Portfolio, the Trustees and Manager harmless from
any brokerage commission, fees, taxes or other expenses incurred by Subadviser
in the purchase of such replacement securities. If Subadviser is unable to
purchase such replacement securities on the open market within one business day
after the Delivery Date (the "Reimbursement Date"), Subadviser shall credit the
Portfolio's account by the close of business on the Reimbursement Date with an
amount of cash in U.S. dollars equal to (i) if the Portfolio shall continue to
hold such unreturned loaned securities, the Market Value (as defined below) of
such unreturned loaned securities determined at the close of business as of the
Reimbursement Date, plus all financial benefits derived from the beneficial
ownership of the unreturned loaned securities which have accrued on such
securities whether or not received from borrower, or (ii) if the Portfolio shall
have sold such securities prior to the Reimbursement Date, (x) the sale proceeds
in respect of such sale, to the extent not received by the Portfolio, plus (y)
any interest, penalties, fees or other costs, if any, incurred by the Portfolio
as a direct result of a failure to settle such sale on a timely basis, PROVIDED
that such interest, penalties, fees or other costs shall not include any
consequential or special damages which may arise out of such failure to settle
such sale on a timely basis. The "Market Value" of any securities on any given
day shall be the fair market value of such security on such day, as determined
in accordance with the Portfolio's valuation procedures and methods, as adopted
by the Trustees.
(b) In the event that Subadviser shall be required to make any payment to
the Portfolio or shall incur any loss or expense pursuant to paragraph (a)
above, it shall, to the extent of such payment or loss or expense, be subrogated
to, and succeed to, all of the Portfolio's rights against the borrower and to
the collateral involved. To the extent the collateral consists of cash or
securities issued or guaranteed by the United States Government or its agencies,
the Portfolio shall contemporaneously with any such payment to the Portfolio by
Subadviser surrender same to Subadviser for its sole disposition.
(c) Notwithstanding the foregoing, in no event shall Subadviser incur
liability pursuant to paragraph (a) above if Subadviser is prevented, forbidden
or delayed from causing a loaned security to be returned to the Portfolio by the
applicable Delivery Date by reason of (i) any provision of any present or future
law or regulation or order of the United States of America, or any state
thereof, or of any foreign country, or political subdivision thereof, or of any
court of competent jurisdiction; or (ii) any act of God or war or other similar
circumstance beyond the control of Subadviser unless, in each case, such delay
or nonperformance is caused by (A) the negligence, misfeasance or misconduct of
Subadviser or any of its directors, officers, employees or agents, or (B) a
malfunction or failure of equipment operated or utilized by Subadviser other
than a malfunction or failure beyond Subadviser's control and which could not
have been reasonably anticipated and/or prevented by Subadviser.
3.3. MARKET RISK. The Portfolio acknowledges that any cash collateral
provided by a borrower in respect of a securities lending transaction may be
invested by Subadviser on the Portfolio's behalf at the Portfolio's risk, and
if, upon termination of any loan, the cash collateral held by Subadviser for
Portfolio's account is less than the amount required to be returned to the
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borrower under Subadviser's agreement with the borrower, the Portfolio will
provide borrower with cash in the amount of any such deficiency.
3.4. SUBADVISER'S RELATIONSHIPS WITH BORROWERS. The Portfolio acknowledges
that Subadviser or its affiliates may be a creditor of, for its own account or
in a fiduciary capacity, or generally engage in any kind of commercial or
investment banking business with, a borrower, to whom Subadviser has lent the
Portfolio's securities. Without limiting the generality of the foregoing,
Subadviser shall not be required to disclose to the Portfolio or Manager any
financial information about a borrower obtained in the course of its
relationship with such borrower.
3.5 SECURITIES LENDING PROCEDURES. Subadviser's securities lending
activities on behalf of the Portfolio shall be governed by such procedures as
shall be adopted by the Trustees or Manager, as the same may be amended from
time to time.
IV. COMPLIANCE; CONFIDENTIALITY
4.1 COMPLIANCE. (a) Subadviser will comply with (i) all applicable state
and federal laws and regulations governing the performance of the Subadviser's
duties hereunder, (ii) the investment objective, policies and limitations, as
provided in the Portfolio's Prospectus and other governing documents, and (iii)
such instructions, policies and limitations relating to the Portfolio as the
Trustees or Manager may from time to time adopt and communicate in writing to
subadviser.
(b) Subadviser will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Investment Company Act and will provide the
Trust with a copy of such code of ethics, evidence of its adoption and copies of
any supplemental policies and procedures implemented to ensure compliance
therewith.
4.2 CONFIDENTIALITY. The parties to this Agreement agree that each shall
treat as confidential all information provided by a party to the others
regarding such party's business and operations, including without limitation the
investment activities or holdings of the Portfolio. All confidential information
provided by a party hereto shall be used by any other parties hereto solely for
the purposes of rendering services pursuant to this Agreement and, except as may
be required in carrying out the terms of this Agreement, shall not be disclosed
to any third party without the prior consent of such providing party. The
foregoing shall not be applicable to any information that is publicly available
when provided or which thereafter becomes publicly available other than in
contravention of this Section 4.2 or which is required to be disclosed by any
regulatory authority in the lawful and appropriate exercise of its jurisdiction
over a party, any auditor of the parties hereto, by judicial or administrative
process or otherwise by applicable law or regulation.
V. LIABILITY OF SUBADVISER
5.1 LIABILITY; STANDARD OF CARE. Notwithstanding anything herein to the
contrary, except as provided in Section 3.2 hereof, neither Subadviser, nor any
of its directors, officers or employees, shall be liable to Manager or the Trust
for any loss resulting from Subadviser's acts or omissions as Subadviser to the
Portfolio, except to the extent any such losses result from bad faith, willful
misfeasance, reckless disregard or gross negligence on the part of the
Subadviser or any of its directors, officers or employees in the performance of
the Subadviser's duties and obligations under this Agreement.
5.2 INDEMNIFICATION. (a) Subadviser agrees to indemnify and hold the Trust
and Manager harmless from any and all direct or indirect liabilities, losses or
damages (including reasonable attorneys fees) suffered by the Trust or Manager
resulting from (i) Subadviser's breach of its duties hereunder, or (ii) bad
faith, willful misfeasance, reckless disregard or gross negligence on the part
of the Subadviser or any of its directors, officers or employees in the
performance of the Subadviser's duties and obligations under this Agreement,
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except to the extent such loss results from the Trust's or Manager's own willful
misfeasance, bad faith, reckless disregard or negligence in the performance of
their respective duties and obligations under the Management Contract or this
Agreement.
(b) Manager hereby agrees to indemnify and hold Subadviser harmless from
any and all direct or indirect liabilities, losses or damages (including
reasonable attorney's fees) suffered by Subadviser resulting from (i) Manager's
breach of its duties under Management Contract, or (ii) bad faith, willful
misfeasance, reckless disregard or gross negligence on the part of Manager or
any of its directors, officers or employees in the performance of Manager's
duties and obligations under this Agreement, except to the extent such loss
results from Subadviser's own willful misfeasance, bad faith, reckless disregard
or negligence in the performance of Subadviser's duties and obligations under
this Agreement.
VI. SUPPLEMENTAL ARRANGEMENTS; EXPENSES; INSURANCE
6.1 SUPPLEMENTAL ARRANGEMENTS. Subject to the prior written consent of the
Trustees and Manager, Subadviser may enter into arrangements with other persons
affiliated with Subadviser to better fulfill its obligations under this
Agreement for the provision of certain personnel and facilities to Subadviser,
provided that such arrangements do not rise to the level of an advisory contract
subject to the requirements of Section 15 of the Investment Company Act.
6.2 EXPENSES. It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by Subadviser hereunder
or by Manager under the Management Agreement. Subadviser expressly agrees to pay
the cost of all custody services required by the Portfolio. Expenses paid by the
Portfolios will include, but not be limited to, (i) interest and taxes; (ii)
brokerage commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses of the
Trustees other than those who are "interested persons" of the Trust, Manager or
Subadviser; (iv) legal and audit expenses; (v) registrar and transfer agent fees
and expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution under
state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders of the Portfolio; (viii)
all other expenses incidental to holding meetings of the Portfolio's
shareholders, including proxy solicitations therefor; (ix) a pro rata share
based on the relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management Contracts with
the Manager, of 50% of insurance premiums for fidelity bond and other coverage;
(x) investment management fees; (xi) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements thereto;
(xii) expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and (xiii)
such non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a party and
any legal obligation that the Portfolio may have to indemnify the Trustees,
officers and/or employees or agents with respect thereto. Subadviser shall not
cause the Trust or the Portfolios to incur any expenses, other than those
reasonably necessary for Subadviser to fulfill its obligations under this
Agreement, unless Subadviser has first notified Manager of its intention to do
so.
6.3 INSURANCE. Subadviser shall maintain for the duration hereof, with an
insurer acceptable to Manager, a blanket bond and professional liability (errors
and omissions) insurance in amounts reasonably acceptable to Manager. Subadviser
agrees that such insurance shall be considered primary and Subadviser shall
assure that such policies pay claims prior to similar policies that may be
maintained by Manager. In the event Subadviser fails to have in force such
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insurance, that failure will not exclude Subadviser's responsibility to pay up
to the limit Subadviser would have had to pay had said insurance been in force.
VII. CONFLICTS OF INTEREST
7.1 CONFLICTS OF INTEREST. It is understood that the Trustees, officers,
agents and shareholders of the Trust are or may be interested in Subadviser as
directors, officers, stockholders or otherwise; that directors, officers, agents
and stockholders of Subadviser are or may be interested in the Trust as
trustees, officers, shareholders or otherwise; that Subadviser may be interested
in the Trust; and that the existence of any such dual interest shall not affect
the validity of this Agreement or of any transactions hereunder except as
otherwise provided in the Trust's Declaration of Trust and the Articles of
Incorporation of Subadviser, respectively, or by specific provisions of
applicable law.
VIII. REGULATION
8.1 REGULATION. Subadviser shall submit to all regulatory and
administrative bodies having jurisdiction over the services provided pursuant to
this Agreement any information, reports or other material which any such body by
reason of this Agreement may reasonably request or require pursuant to
applicable laws and regulations.
IX. DURATION AND TERMINATION OF AGREEMENT
9.1 EFFECTIVE DATE; DURATION; CONTINUANCE. (a) This Agreement shall become
effective on [December 1, 1997] ((_______, 1999)).
(b) Subject to prior termination pursuant to Section 9.2 below, this
Agreement shall continue in force until July 31, [1998] ((____)), and
indefinitely thereafter, but only so long as the continuance after such date
shall be specifically approved at least annually by vote of the Trustees or by a
vote of a majority of the outstanding voting securities of the Portfolio,
PROVIDED that in either event such continuance shall also be approved by the
vote of a majority of the Trustees who are not "interested persons" (as such
term is defined in the Investment Company Act) of any party to this Agreement
cast in person at a meeting called for the purpose of voting on such approval.
(c) Shareholder approval of this Agreement or any continuance of this
Agreement, if required, shall be effective with respect to the Portfolio if a
majority of the outstanding voting securities of the series (as defined in Rule
18f-2(h) under the Investment Company Act) of shares of the Portfolio votes to
approve this Agreement or its continuance.
9.2 TERMINATION AND ASSIGNMENT. This Agreement may be terminated at any
time, upon sixty days' written notice, without the payment of any penalty, (i)
by the Trustees, (ii) by the vote of a majority of the outstanding voting
securities of the Portfolio; (iii) by Manager, or (iv) by Subadviser.
(b) This Agreement will terminate automatically, without the payment of
any penalty, (i) in the event of its assignment (as defined in the Investment
Company Act) or (ii) in the event the Management Contract is terminated for any
reason.
9.3 DEFINITIONS. The terms "registered investment company," "vote of a
majority of the outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings specified in the
Investment Company Act as now in effect or as hereafter amended, and subject to
such orders or no-action letters as may be granted by the Securities and
Exchange Commission.
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X. REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 REPRESENTATIONS OF THE PORTFOLIO. The Trust, on behalf of the
Portfolio, represents and warrants that:
(i) the Trust is a business trust established pursuant to the laws
of the Commonwealth of Massachusetts;
(ii) the Trust is duly registered as an investment company under the
Investment Company Act and the Portfolio is a duly constituted series
portfolio thereof;
(iii) the execution, delivery and performance of this Agreement are
within the Trust's powers, have been and remain duly authorized by all
necessary action (including without limitation all necessary approvals and
other actions required under the Investment Company Act) and will not
violate or constitute a default under any applicable law or regulation or
of any decree, order, judgment, agreement or instrument binding on the
Trust or the Portfolio;
(iv) no consent (including, but not limited to, exchange control
consents) of any applicable governmental authority or body is necessary,
except for such consents as have been obtained and are in full force and
effect, and all conditions of which have been duly complied with; and
(v) this Agreement constitutes a legal, valid and binding obligation
enforceable against the Trust and the Portfolio in accordance with its
terms.
10.2 REPRESENTATIONS OF THE MANAGER. The Manager represents, warrants and
agrees that:
(i) Manager is a corporation established pursuant to the laws of the
Commonwealth of Massachusetts;
(ii) Manager is duly registered as an "investment adviser" under the
Investment Advisers Act of 1940 ("Advisers Act");
(iii) Manager has been duly appointed by the Trustees and
Shareholders of the Portfolio to provide investment services to the
Portfolio as contemplated by the Management Contract;
(iv) the execution, delivery and performance of this Agreement are
within Manager's powers, have been and remain duly authorized by all
necessary corporate action and will not violate or constitute a default
under any applicable law or regulation or of any decree, order, judgment,
agreement or instrument binding on Manager;
(v) no consent (including, but not limited to, exchange control
consents) of any applicable governmental authority or body is necessary,
except for such consents as have been obtained and are in full force and
effect, and all conditions of which have been duly complied with; and
(vi) this Agreement constitutes a legal, valid and binding
obligation enforceable against Manager.
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10.3 REPRESENTATIONS OF SUBADVISER. Subadviser represents, warrants and
agrees that:
(i) Subadviser is a New York banking corporation established
pursuant to the laws of the State of New York;
(ii) Subadviser is duly registered as an "investment adviser" under
the Advisers Act; or is a "bank" as defined in Section 202 (a) (2) of the
Advisers Act or an "insurance company" as defined in Section 202 (a) (2)
of the Advisers Act.
(iii) the execution, delivery and performance of this Agreement are
within Subadviser's powers, have been and remain duly authorized by all
necessary corporate action and will not violate or constitute a default
under any applicable law or regulation or of any decree, order, judgment,
agreement or instrument binding on Subadviser;
(iv) no consent (including, but not limited to, exchange control
consents) of any applicable governmental authority or body is necessary,
except for such consents as have been obtained and are in full force and
effect, and all conditions of which have been duly complied with; and
(v) this Agreement constitutes a legal, valid and binding obligation
enforceable against Subadviser.
10.4 COVENANTS OF SUBADVISER. (a) Subadviser will promptly notify the
Trust and Manager in writing of the occurrence of any event which could have a
material impact on the performance of its obligations pursuant to this
Agreement, including without limitation:
(i) the occurrence of any event which could disqualify Subadviser
from serving as an investment adviser of a registered investment company
pursuant to Section 9 (a) of the Investment Company Act or otherwise;
(ii) any material change in the Subadviser's overall business
activities that may have a material adverse affect on the Subadviser's
ability to perform under its obligations under this Agreement;
(iii) any event that would constitute a change in control of
Subadviser;
(iv) any change in the portfolio manager of the Portfolio; and
(v) the existence of any pending or threatened audit, investigation,
complaint, examination or other inquiry (other than routine regulatory
examinations or inspections) relating to the Portfolio conducted by any
state or federal governmental regulatory authority.
(b) Subadviser agrees that it will promptly supply Manager with copies of
any material changes to any of the documents provided by Subadviser pursuant to
Section 4.1.
XI. MISCELLANEOUS PROVISIONS
11.1 USE OF SUBADVISER'S NAME. Neither the Trust nor Manager will use the
name of Subadviser, or any affiliate of Subadviser, in any prospectus,
advertisement sales literature or other communication to the public except in
accordance with such policies and procedures as shall be mutually agreed to in
writing by the Subadviser and the Manager.
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11.2 USE OF TRUST OR MANAGER'S NAME. Subadviser will not use the name of
Manager, the Trust or the Portfolio in any prospectus, advertisement, sales
literature or other communication to the public except in accordance with such
policies and procedures as shall be mutually agreed to in writing by the
Subadviser and the Manager.
11.3 AMENDMENTS. This Agreement may only be amended with the prior written
consent of each of the parties hereto and if such amendment is specifically
approved (i) by the vote of a majority of the outstanding voting securities of
the Portfolio, and (ii) by the vote of a majority of the Trustees who are not
interested persons (as such term is defined in the Investment Company Act) of
any person to this Agreement cast in person at a meeting called for the purpose
of voting on such approval. The required shareholder approval shall be effective
with respect to the Portfolio if a majority of the outstanding voting securities
of the Portfolio vote to approve the amendment.
11.4 ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the parties with respect to the subject hereof.
11.5 CAPTIONS. The headings in the sections of this Agreement are inserted
for convenience of reference only and shall not constitute a part of the
Agreement.
11.6 NOTICES. All notices required to be given pursuant to this Agreement
shall be delivered or mailed to the last known business address of the Trust,
Manager or Subadviser, as the case may be, in person or by registered mail or a
private mail or delivery service providing the sender with notice of receipt.
Notice shall be deemed given on the date delivered or mailed in accordance with
this Section 11.6.
11.7 SEVERABILITY. Should any portion of this Agreement, for any reason,
be held to be void at law or in equity, the Agreement shall be construed,
insofar as is possible, as if such portion had never been contained herein.
11.8 GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without giving effect to the choice of law provisions thereof), or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of the Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
11.9 LIMITATION OF LIABILITY. A copy of the Declaration of Trust
establishing the Trust, dated March 21, 1988, together with all amendments, is
on file in the office of the Secretary of the Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is not executed on behalf of any of
the Trustees as individuals and no Trustee, shareholder, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall resort be
had to their private property, for the satisfaction of any obligation or claim,
in connection with the affairs of the Trust or the Portfolio, but only the
assets belonging to the Portfolio shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
SIGNATURE LINES OMITTED
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APPENDIX A
Pursuant to Section 1.6 of the Subadvisory Agreement among Variable
Insurance Products Fund II (the "Trust"), on behalf of Index 500 Portfolio (the
"Portfolio"), Fidelity Management & Research Company ("Manager") and Bankers
Trust Company ("Subadviser"), Subadviser shall be compensated for the services
it performs on behalf of
the Portfolio as follows:
1. FEES PAYABLE BY MANAGER. Manager will pay Subadviser a monthly fee
computed at an annual rate of 0.006% (0.6 basis points) of the average daily net
assets of the Portfolio (computed in the manner set forth in the Trust's
Declaration of Trust) throughout the month.
Subadviser's fee shall be computed monthly, and within twelve business
days of the end of each calendar month, Manager shall transmit to Subadviser the
fee for the previous month. Payment shall be made in federal funds wired to a
bank account designated by Subadviser. If this Agreement becomes effective or
terminates before the end of any month, the fee (if any) for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination occurs.
Subadviser agrees to look exclusively to Manager, and not to any assets of
the Trust or the Portfolio, for the payment of Subadviser's fees arising under
this Paragraph 1.
2. FEES PAYABLE BY TRUST. The Trust, on behalf of the Portfolio, shall pay
Subadviser a monthly fee equal to 40% of the Portfolio's aggregate Net
Securities Lending Income (as defined below) attributable to the securities
lending activities conducted by Subadviser on the Portfolio's behalf. For
purposes of this Paragraph 2, the Portfolio's aggregate "Net Securities Lending
Income" for any given month shall be calculated in accordance with the following
provisions:
(a) LOANS COLLATERALIZED BY CASH. For securities lending transactions
collateralized by cash, the Portfolio's aggregate Net Securities
Lending Income attributable to such transactions for such month
shall be equal to (I) the income earned by the Portfolio from
investing such cash collateral during such month, plus (II) if such
cash collateral is invested in a money market fund or similar
investment vehicle managed by Subadviser or its affiliates, an
amount equal to the Portfolio's pro rata share (calculated by
dividing the average daily amount of the Portfolio's cash collateral
so invested during such month by the average daily net assets of
such investment vehicle for such month) of the Total Operating
Expenses (as defined below) accrued by such investment vehicle in
respect of such month, less (III) any rebates, commissions or
similar fees paid by the Portfolio in respect of such transactions
during such month. For purposes of this subparagraph 2(a), an
investment vehicle's "Total Operating Expenses" shall consist of
"Management Fees," "Rule 12b-1 Fees," and "Other Expenses," as such
terms are defined in paragraphs 8, 9, and 10, respectively, of the
instructions to Part A, Item 2 of the form of registration statement
promulgated by the Securities and Exchange Commission on Form N-1A,
as the same may be amended from time to time.
(b) LOANS COLLATERALIZED BY SECURITIES. For securities lending
transactions collateralized by securities or a letter of credit, the
Portfolio's aggregate Net Securities Lending Income attributable to
such transactions for such month shall be equal to (I) the
securities lending fees paid by the borrower to the Portfolio in
respect of such transactions, less (II) any rebates, commissions or
similar fees paid by the Portfolio in respect of such transactions.
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(c) SUBSTITUTE PAYMENTS. Substitute payments received by the Portfolio
from a borrower in lieu of any dividends, distributions or other
financial benefits paid out in respect of a loaned security shall
not be considered part of the Portfolio's Net Securities Lending
Income for purposes of calculating the fee payable by the Portfolio
pursuant to this Paragraph 2, except that (I) to the extent that any
such substitute payment exceeds the amount that the Portfolio would
have received had such security not been loaned to the borrower, the
Portfolio's Net Securities Lending Income shall be increased by an
amount equal to the difference, and (II) to the extent that any such
substitute payment is less than the amount that the Portfolio would
have received had such security not been loaned to the borrower, the
Portfolio's Net Securities Lending Income shall be decreased by an
amount equal to the difference.
The fees payable by the Portfolio pursuant to this Paragraph 2 shall accrue
daily and shall be paid to Subadviser monthly within twelve business days of the
end of each calendar month. If the Portfolio's aggregate Net Securities Lending
Income for any calendar month shall be a negative amount, the fee payable by the
Portfolio for such month pursuant to this Paragraph 2 shall be zero, and an
amount equal to 40% of such negative Net Securities Lending Income shall be
carried forward and applied against future fees earned by Subadviser pursuant to
this Paragraph 2 for a period not to exceed 3 calendar months.
Subadviser agrees to look exclusively to the assets of the Portfolio, and not to
any other assets of the Trust or Manager, for the payment of Subadviser's fees
arising under this Paragraph 2.
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EXHIBIT 2
FORM OF
SUBADVISORY AGREEMENT
This Agreement is entered into as of the ___ day of ______________, 1999,
among Variable Insurance Products Fund II, a Massachusetts business trust (the
"Trust"), on behalf of Index 500 Portfolio, a series portfolio of the Trust (the
"Portfolio"), Fidelity Management & Research Company, a Massachusetts
corporation ("Manager"), and Bankers Trust Company, a New York banking
corporation ("Subadviser").
WHEREAS, the Trust, on behalf of the Portfolio, has entered into a
Management Contract, dated December 1, 1997, with Manager (the "Management
Contract"), pursuant to which Manager has agreed to provide certain management
and administrative services to the Portfolio; and
WHEREAS, Manager desires to appoint Subadviser as investment subadviser to
provide the investment advisory and administrative services to the Portfolio
specified herein, and Subadviser is willing to serve the Portfolio in such
capacity; and
WHEREAS, the trustees of the Trust (the "Trustees"), including a majority
of the Trustees who are not "interested persons" (as such term is defined below)
of any party to this Agreement, and the shareholder(s) of the Portfolio, have
each consented to such an arrangement;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
I. APPOINTMENT OF SUBADVISER; COMPENSATION
1.1 APPOINTMENT AS SUBADVISER. Subject to and in accordance with the
provisions hereof, Manager hereby appoints Subadviser as investment subadviser
to perform the various investment advisory and other services to the Portfolio
set forth herein and, subject to the restrictions set forth herein, hereby
delegates to Subadviser the authority vested in Manager pursuant to the
Management Contract to the extent necessary to enable Subadviser to perform its
obligations under this Agreement.
1.2 SCOPE OF INVESTMENT AUTHORITY. (a) The Subadviser is hereby
authorized, on a discretionary basis, to manage the investments and determine
the composition of the assets of the Portfolio, subject at all times to (i) the
supervision and control of the Trustees, (ii) the requirements of the Investment
Company Act of 1940, as amended (the "Investment Company Act") and the rules
thereunder, (iii) the investment objective, policies and limitations, as
provided in the Portfolio's Prospectus and other governing documents, and (iv)
such instructions, policies and limitations relating to the Portfolio as the
Trustees or Manager may from time to time adopt and communicate in writing to
Subadviser. Notwithstanding anything herein to the contrary, Subadviser is not
authorized to take any action, including the purchase and sale of portfolio
securities, in contravention of any restriction, limitation, objective, policy
or instruction described in the previous sentence.
(b) It is understood and agreed that, for so long as this Agreement shall
remain in effect, Subadviser shall retain discretionary investment authority
over the manner in which the Portfolio's assets are invested, and Manager shall
not have the right to overrule any investment decision with respect to a
particular security made by Subadviser, PROVIDED that the Trustees and Manager
shall at all times have the right to monitor the Portfolio's investment
activities and performance, require Subadviser to make reports and give
explanations as to the manner in which the Portfolio's assets are being
invested, and, should either Manager or the Trustees become dissatisfied with
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Subadviser's performance in any way, terminate this Agreement in accordance with
the provisions of Section 8.2 hereof.
1.3 APPOINTMENT AS PROXY VOTING AGENT. Subject to and in accordance with
the provisions hereof, the Trustees hereby appoint Subadviser as the Portfolio's
proxy voting agent, and hereby delegate to Subadviser discretionary authority to
vote all proxies solicited by or with respect to issuers of securities in which
the assets of the Portfolio may be invested from time to time. Upon written
notice to Subadviser, the Trustees may at any time withdraw the authority
granted to Subadviser pursuant to this Section 1.3 to perform any or all of the
proxy voting services contemplated hereby.
1.4 GOVERNING DOCUMENTS. Manager will provide Subadviser with copies of
(i) the Trust's Declaration of Trust and By-laws, as currently in effect, (ii)
the Portfolio's currently effective prospectus and statement of additional
information, as set forth in the Trust's registration statement under the
Investment Company Act and the Securities Act of 1933, as amended, (iii) any
instructions, investment policies or other restrictions adopted by the Trustees
or Manager supplemental thereto, and (iv) the Management Contract. Manager will
provide Subadviser with such further documentation and information concerning
the investment objectives, policies and restrictions applicable to the Portfolio
as Subadviser may from time to time reasonably request.
1.5 SUBADVISER'S RELATIONSHIP. Notwithstanding anything herein to the
contrary, Subadviser shall be an independent contractor and will have no
authority to act for or represent the Trust, the Portfolio or Manager in any way
or otherwise be deemed an agent of any of them, except to the extent expressly
authorized by this Agreement or in writing by the Trust or Manager.
1.6 COMPENSATION. Subadviser shall be compensated for the services it
performs on behalf of the Portfolio in accordance with the terms set forth in
Appendix A to this Agreement.
II. SERVICES TO BE PERFORMED BY SUBADVISER
2.1 INVESTMENT ADVISORY SERVICES. (a) In fulfilling its obligations to
manage the assets of the Portfolio, Subadviser will:
(i) formulate and implement a continuous investment program for the
Portfolio;
(ii) take whatever steps are necessary to implement these investment
programs by the purchase and sale of securities and other investments,
including the selection of brokers or dealers, the placing of orders for
such purchases and sales in accordance with the provisions of paragraph
(b) below and assuring that such purchases and sales are properly settled
and cleared;
(iii) provide such reports with respect to the implementation of the
Portfolio's investment program as the Trustees or Manager shall reasonably
request; and
(iv) provide advice and assistance to Manager as to the
determination of the fair value of certain securities where market
quotations are not readily available for purposes of calculating net asset
value of the Portfolio in accordance with valuation procedures and methods
established by the Trustees.
(b) The Subadviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers and dealers
selected by Subadviser. Such brokers and dealers may include brokers or dealers
that are "affiliated persons" (as such term is defined in the Investment Company
Act) of the Trust, the Portfolio, Manager or Subadviser, PROVIDED that
Subadviser shall only place orders on behalf of the Portfolio with such
affiliated persons in accordance with procedures adopted by the Trustees
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pursuant to Rule 17e-1 under the Investment Company Act. The Subadviser shall
use its best efforts to seek to execute portfolio transactions at prices which
are advantageous to the Portfolio and at commission rates which are reasonable
in relation to the benefits received. In selecting brokers or dealers qualified
to execute a particular transaction, brokers or dealers may be selected who also
provide brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or other
accounts over which Subadviser or its affiliates exercise investment discretion.
The Subadviser is authorized to pay a broker or dealer who provided such
brokerage and research services a commission for executing a portfolio
transaction for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction if
Subadviser determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either that
particular transaction or the overall responsibilities which the Subadviser and
its affiliates have in respect to accounts over which they exercise investment
discretion. The Trustees shall periodically review the commissions paid by the
Portfolio to determine if the commissions paid over representative periods were
reasonable in relation to the benefits to the Portfolio.
2.2. ADMINISTRATIVE AND OTHER SERVICES. (a) Subadviser will, at its
expense, furnish (i) all necessary investment and management facilities,
including salaries of personnel required for it to execute its duties
faithfully, and (ii) administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for the efficient conduct of the investment
affairs of the Portfolio (excluding determination of net asset values and
shareholder accounting services).
(b) Subadviser will maintain all accounts, books and records with respect
to the Portfolio as are required of an investment adviser of a registered
investment company pursuant to the Investment Company Act and the rules
thereunder. Subadviser agrees that such records are the property of the Trust,
and will be surrendered to the Trust promptly upon request. The Manager shall be
granted reasonable access to the records and documents in Subadviser's
possession relating to the Portfolios.
(c) Subadviser shall provide such information as is necessary to enable
Manager to prepare and update the Trust's registration statement (and any
supplement thereto) and the Portfolio's financial statements. Subadviser
understands that the Trust and Manager will rely on such information in the
preparation of the Trust's registration statement and the Portfolio's financial
statements, and hereby covenants that any such information approved by
Subadviser expressly for use in such registration and/or financial statements
shall be true and complete in all material respects.
(d) Subadviser will vote the Portfolio's investment securities in the
manner in which Subadviser believes to be in the best interests of the
Portfolio, and shall review its proxy voting activities on a periodic basis with
the Trustees.
(e) Subadviser will provide custodian services to the Portfolio in
accordance with the provisions of a separate Custodian Agreement, dated as of
the date hereof, between the Trust, on behalf of the Portfolio, and Subadviser.
III. COMPLIANCE; CONFIDENTIALITY
3.1 COMPLIANCE. (a) Subadviser will comply with (i) all applicable state
and federal laws and regulations governing the performance of the Subadviser's
duties hereunder, (ii) the investment objective, policies and limitations, as
provided in the Portfolio's Prospectus and other governing documents, and (iii)
such instructions, policies and limitations relating to the Portfolio as the
Trustees or Manager may from time to time adopt and communicate in writing to
subadviser.
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(b) Subadviser will adopt a written code of ethics complying with the
requirements of Rule 17j-1 under the Investment Company Act and will provide the
Trust with a copy of such code of ethics, evidence of its adoption and copies of
any supplemental policies and procedures implemented to ensure compliance
therewith.
3.2 CONFIDENTIALITY. The parties to this Agreement agree that each shall
treat as confidential all information provided by a party to the others
regarding such party's business and operations, including without limitation the
investment activities or holdings of the Portfolio. All confidential information
provided by a party hereto shall be used by any other parties hereto solely for
the purposes of rendering services pursuant to this Agreement and, except as may
be required in carrying out the terms of this Agreement, shall not be disclosed
to any third party without the prior consent of such providing party. The
foregoing shall not be applicable to any information that is publicly available
when provided or which thereafter becomes publicly available other than in
contravention of this Section 3.2 or which is required to be disclosed by any
regulatory authority in the lawful and appropriate exercise of its jurisdiction
over a party, any auditor of the parties hereto, by judicial or administrative
process or otherwise by applicable law or regulation.
IV. LIABILITY OF SUBADVISER
4.1 LIABILITY; STANDARD OF CARE. Notwithstanding anything herein to the
contrary, neither Subadviser, nor any of its directors, officers or employees,
shall be liable to Manager or the Trust for any loss resulting from Subadviser's
acts or omissions as Subadviser to the Portfolio, except to the extent any such
losses result from bad faith, willful misfeasance, reckless disregard or gross
negligence on the part of the Subadviser or any of its directors, officers or
employees in the performance of the Subadviser's duties and obligations under
this Agreement.
4.2 INDEMNIFICATION. (a) Subadviser agrees to indemnify and hold the Trust
and Manager harmless from any and all direct or indirect liabilities, losses or
damages (including reasonable attorneys fees) suffered by the Trust or Manager
resulting from (i) Subadviser's breach of its duties hereunder, or (ii) bad
faith, willful misfeasance, reckless disregard or gross negligence on the part
of the Subadviser or any of its directors, officers or employees in the
performance of the Subadviser's duties and obligations under this Agreement,
except to the extent such loss results from the Trust's or Manager's own willful
misfeasance, bad faith, reckless disregard or negligence in the performance of
their respective duties and obligations under the Management Contract or this
Agreement.
(b) Manager hereby agrees to indemnify and hold Subadviser harmless from
any and all direct or indirect liabilities, losses or damages (including
reasonable attorney's fees) suffered by Subadviser resulting from (i) Manager's
breach of its duties under Management Contract, or (ii) bad faith, willful
misfeasance, reckless disregard or gross negligence on the part of Manager or
any of its directors, officers or employees in the performance of Manager's
duties and obligations under this Agreement, except to the extent such loss
results from Subadviser's own willful misfeasance, bad faith, reckless disregard
or negligence in the performance of Subadviser's duties and obligations under
this Agreement.
V. SUPPLEMENTAL ARRANGEMENTS; EXPENSES; INSURANCE
5.1 SUPPLEMENTAL ARRANGEMENTS. Subject to the prior written consent of the
Trustees and Manager, Subadviser may enter into arrangements with other persons
affiliated with Subadviser to better fulfill its obligations under this
Agreement for the provision of certain personnel and facilities to Subadviser,
provided that such arrangements do not rise to the level of an advisory contract
subject to the requirements of Section 15 of the Investment Company Act.
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5.2 EXPENSES. It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by Subadviser hereunder
or by Manager under the Management Agreement. Subadviser expressly agrees to pay
the cost of all custody services required by the Portfolio. Expenses paid by the
Portfolios will include, but not be limited to, (i) interest and taxes; (ii)
brokerage commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses of the
Trustees other than those who are "interested persons" of the Trust, Manager or
Subadviser; (iv) legal and audit expenses; (v) registrar and transfer agent fees
and expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution under
state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders of the Portfolio; (viii)
all other expenses incidental to holding meetings of the Portfolio's
shareholders, including proxy solicitations therefor; (ix) a pro rata share
based on the relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management Contracts with
the Manager, of 50% of insurance premiums for fidelity bond and other coverage;
(x) investment management fees; (xi) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements thereto;
(xii) expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and (xiii)
such non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a party and
any legal obligation that the Portfolio may have to indemnify the Trustees,
officers and/or employees or agents with respect thereto. Subadviser shall not
cause the Trust or the Portfolios to incur any expenses, other than those
reasonably necessary for Subadviser to fulfill its obligations under this
Agreement, unless Subadviser has first notified Manager of its intention to do
so.
5.3 INSURANCE. Subadviser shall maintain for the duration hereof, with an
insurer acceptable to Manager, a blanket bond and professional liability (errors
and omissions) insurance in amounts reasonably acceptable to Manager. Subadviser
agrees that such insurance shall be considered primary and Subadviser shall
assure that such policies pay claims prior to similar policies that may be
maintained by Manager. In the event Subadviser fails to have in force such
insurance, that failure will not exclude Subadviser's responsibility to pay up
to the limit Subadviser would have had to pay had said insurance been in force.
VI. CONFLICTS OF INTEREST
6.1 CONFLICTS OF INTEREST. It is understood that the Trustees, officers,
agents and shareholders of the Trust are or may be interested in Subadviser as
directors, officers, stockholders or otherwise; that directors, officers, agents
and stockholders of Subadviser are or may be interested in the Trust as
trustees, officers, shareholders or otherwise; that Subadviser may be interested
in the Trust; and that the existence of any such dual interest shall not affect
the validity of this Agreement or of any transactions hereunder except as
otherwise provided in the Trust's Declaration of Trust and the Articles of
Incorporation of Subadviser, respectively, or by specific provisions of
applicable law.
VII. REGULATION
7.1 REGULATION. Subadviser shall submit to all regulatory and
administrative bodies having jurisdiction over the services provided pursuant to
this Agreement any information, reports or other material which any such body by
reason of this Agreement may reasonably request or require pursuant to
applicable laws and regulations.
VIII. DURATION AND TERMINATION OF AGREEMENT
8.1 EFFECTIVE DATE; DURATION; CONTINUANCE. (a) This Agreement shall become
effective on ________, 1999.
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(b) Subject to prior termination pursuant to Section 8.2 below, this
Agreement shall continue in force until July 31, 2000, and indefinitely
thereafter, but only so long as the continuance after such date shall be
specifically approved at least annually by vote of the Trustees or by a vote of
a majority of the outstanding voting securities of the Portfolio, PROVIDED that
in either event such continuance shall also be approved by the vote of a
majority of the Trustees who are not "interested persons" (as such term is
defined in the Investment Company Act) of any party to this Agreement cast in
person at a meeting called for the purpose of voting on such approval.
(c) The required shareholder approval of this Agreement or any continuance
of this Agreement shall be effective with respect to the Portfolio if a majority
of the outstanding voting securities of the series (as defined in Rule 18f-2(h)
under the Investment Company Act) of shares of the Portfolio votes to approve
this Agreement or its continuance.
8.2 TERMINATION AND ASSIGNMENT. (A) This Agreement may be terminated at
any time, upon sixty days' written notice, without the payment of any penalty,
(i) by the Trustees, (ii) by the vote of a majority of the outstanding voting
securities of the Portfolio; (iii) by Manager, or (iv) by Subadviser.
(b) This Agreement will terminate automatically, without the payment of
any penalty, (i) in the event of its assignment (as defined in the Investment
Company Act) or (ii) in the event the Management Contract is terminated for any
reason.
8.3 DEFINITIONS. The terms "registered investment company," "vote of a
majority of the outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings specified in the
Investment Company Act as now in effect or as hereafter amended, and subject to
such orders or no-action letters as may be granted by the Securities and
Exchange Commission ("Commission").
X. REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 REPRESENTATIONS OF THE PORTFOLIO. The Trust, on behalf of the
Portfolio, represents and warrants that:
(i) the Trust is a business trust established pursuant to the laws
of the Commonwealth of Massachusetts;
(ii) the Trust is duly registered as an investment company under the
Investment Company Act and the Portfolio is a duly constituted series
portfolio thereof;
(iii) the execution, delivery and performance of this Agreement are
within the Trust's powers, have been and remain duly authorized by all
necessary action (including without limitation all necessary approvals and
other actions required under the Investment Company Act) and will not
violate or constitute a default under any applicable law or regulation or
of any decree, order, judgment, agreement or instrument binding on the
Trust or the Portfolio;
(iv) no consent (including, but not limited to, exchange control
consents) of any applicable governmental authority or body is necessary,
except for such consents as have been obtained and are in full force and
effect, and all conditions of which have been duly complied with; and
(v) this Agreement constitutes a legal, valid and binding obligation
enforceable against the Trust and the Portfolio in accordance with its
terms.
9.2 REPRESENTATIONS OF THE MANAGER. The Manager represents, warrants and
agrees that:
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(i) Manager is a corporation established pursuant to the laws of the
Commonwealth of Massachusetts;
(ii) Manager is duly registered as an "investment adviser" under the
Investment Advisers Act of 1940 ("Advisers Act");
(iii) Manager has been duly appointed by the Trustees and
Shareholders of the Portfolio to provide investment services to the
Portfolio as contemplated by the Management Contract.
(iv) the execution, delivery and performance of this Agreement are
within Manager's powers, have been and remain duly authorized by all
necessary corporate action and will not violate or constitute a default
under any applicable law or regulation or of any decree, order, judgment,
agreement or instrument binding on Manager;
(v) no consent (including, but not limited to, exchange control
consents) of any applicable governmental authority or body is necessary,
except for such consents as have been obtained and are in full force and
effect, and all conditions of which have been duly complied with; and
(vi) this Agreement constitutes a legal, valid and binding
obligation enforceable against Manager.
9.3 REPRESENTATIONS OF SUBADVISER. Subadviser represents, warrants and
agrees that:
(i) Subadviser is a New York banking corporation established
pursuant to the laws of the State of New York;
(ii) Subadviser is duly registered as an "investment adviser" under
the Advisers Act; or is a "bank" as defined in Section 202 (a) (2) of the
Advisers Act or an "insurance company" as defined in Section 202 (a) (2)
of the Advisers Act.
(iii) the execution, delivery and performance of this Agreement are
within Subadviser's powers, have been and remain duly authorized by all
necessary corporate action and will not violate or constitute a default
under any applicable law or regulation or of any decree, order, judgment,
agreement or instrument binding on Subadviser;
(iv) no consent (including, but not limited to, exchange control
consents) of any applicable governmental authority or body is necessary,
except for such consents as have been obtained and are in full force and
effect, and all conditions of which have been duly complied with; and
(v) this Agreement constitutes a legal, valid and binding obligation
enforceable against Subadviser.
9.4 COVENANTS OF THE SUBADVISER. (a) Subadviser will promptly notify the
Trust and Manager in writing of the occurrence of any event which could have a
material impact on the performance of its obligations pursuant to this
Agreement, including without limitation:
(i) the occurrence of any event which could disqualify Subadviser
from serving as an investment adviser of a registered investment company
pursuant to Section 9 (a) of the Investment Company Act or otherwise;
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(ii) any material change in the Subadviser's overall business
activities that may have a material adverse affect on the Subadviser's
ability to perform under its obligations under this Agreement;
(iii) any event that would constitute a change in control of
Subadviser;
(iv) any change in the portfolio manager of the Portfolio; and
(v) the existence of any pending or threatened audit, investigation,
complaint, examination or other inquiry (other than routine regulatory
examinations or inspections) relating to the Portfolio conducted by any
state or federal governmental regulatory authority.
(b) Subadviser agrees that it will promptly supply Manager with copies of
any material changes to any of the documents provided by Subadviser pursuant to
Section 3.1.
X. MISCELLANEOUS PROVISIONS
10.1 USE OF SUBADVISER'S NAME. Neither the Trust nor Manager will use the
name of Subadviser, or any affiliate of Subadviser, in any prospectus,
advertisement sales literature or other communication to the public except in
accordance with such policies and procedures as shall be mutually agreed to in
writing by the Subadviser and the Manager.
10.2 USE OF TRUST OR MANAGER'S NAME. Subadviser will not use the name of
Manager, the Trust or the Portfolio in any prospectus, advertisement, sales
literature or other communication to the public except in accordance with such
policies and procedures as shall be mutually agreed to in writing by the
Subadviser and the Manager.
10.3 AMENDMENTS. This Agreement may be modified by mutual consent of the
Manager, the Subadviser and the Portfolio subject to the provisions of Section
15 of the Investment Company Act, as modified by or interpreted by any
applicable order or orders of the Commission or any rules or regulations adopted
by, or interpretive releases of, the Commission.
10.4 ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement of the parties with respect to the subject hereof.
10.5 CAPTIONS. The headings in the sections of this Agreement are inserted
for convenience of reference only and shall not constitute a part of the
Agreement.
10.6 NOTICES. All notices required to be given pursuant to this Agreement
shall be delivered or mailed to the last known business address of the Trust,
Manager or Subadviser, as the case may be, in person or by registered mail or a
private mail or delivery service providing the sender with notice of receipt.
Notice shall be deemed given on the date delivered or mailed in accordance with
this Section 10.6.
10.7 SEVERABILITY. Should any portion of this Agreement, for any reason,
be held to be void at law or in equity, the Agreement shall be construed,
insofar as is possible, as if such portion had never been contained herein.
10.8 GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the Commonwealth of Massachusetts
(without giving effect to the choice of law provisions thereof), or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of the Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
8
<PAGE>
10.9 LIMITATION OF LIABILITY. The Declaration of Trust establishing the
Trust, dated March 21, 1988, a copy of which, together with all amendments, is
on file in the office of the Secretary of the Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is not executed on behalf of any of
the Trustees as individuals and no Trustee, shareholder, officer, employee or
agent of the Trust shall be held to any personal liability, nor shall resort be
had to their private property, for the satisfaction of any obligation or claim,
in connection with the affairs of the Trust or the Portfolio, but only the
assets belonging to the Portfolio shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
SIGNATURE LINES OMITTED
9
<PAGE>
APPENDIX A
Pursuant to Section 1.6 of the Subadvisory Agreement among Variable
Insurance Products Fund II (the "Trust"), on behalf of Index 500 Portfolio (the
"Portfolio"), Fidelity Management & Research Company ("Manager") and Bankers
Trust Company ("Subadviser"), Subadviser shall be compensated for the services
it performs on behalf of
the Portfolio as follows:
1. FEES PAYABLE BY MANAGER. Manager will pay Subadviser a monthly fee
computed at an annual rate of 0.006% (0.6 basis points) of the average daily net
assets of the Portfolio (computed in the manner set forth in the Trust's
Declaration of Trust) throughout the month.
Subadviser's fee shall be computed monthly, and within twelve business
days of the end of each calendar month, Manager shall transmit to Subadviser the
fee for the previous month. Payment shall be made in federal funds wired to a
bank account designated by Subadviser. If this Agreement becomes effective or
terminates before the end of any month, the fee (if any) for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination occurs.
Subadviser agrees to look exclusively to Manager, and not to any assets of
the Trust or the Portfolio, for the payment of Subadviser's fees arising under
this Paragraph 1.
10
<PAGE>
EXHIBIT ___
FUNDS ADVISED BY FMR - TABLE OF AVERAGE NET ASSETS AND EXPENSE RATIOS(a)
[TO BE UPDATED IN A SUBSEQUENT FILING]
<TABLE>
<CAPTION>
RATIO OF
NET ADVISORY
FISCAL AVERAGE NET ASSETS FEES TO AVERAGE NET
INVESTMENT OBJECTIVE AND FUND YEAR END(a) (MILLIONS)(b) ASSETS PAID TO FMR(c)
- ----------------------------- ----------- ------------------ ---------------------
<S> <C> <C> <C>
INDEX FUNDS
Variable Insurance Products II: 12/31/96 $ 480.5 0.13%*
Index 500
Spartan U.S. Equity Index 2/28/97 5,035.0 0.01*
Spartan Market Index 4/30/97 1,491.9 0.45
(a) All fund data are as of the fiscal year end noted in the chart.
(b) Average net assets are computed on the basis of average net assets of each fund at the
close of business on each business day throughout its fiscal period.
(c) Reflects reductions for any expense reimbursement paid by or due from FMR pursuant to
voluntary or state expense limitations. Funds so affected are indicated by an (*).
</TABLE>
<PAGE>
EXHIBIT _
BANKERS TRUST COMPANY ADVISED/SUB-ADVISED MUTUAL FUNDS*
[TO BE UPDATED IN A SUBSEQUENT FILING]
<TABLE>
<CAPTION>
Assets Advisory Fees
Fund as of 5/25/99 Payable to BT(a)
- ---------------------------------------------- ---------------------- ------------------------
<S> <C> <C>
S&P INDEX FUNDS
- ---------------
Equity Index Portfolio (b) $6,535,084,349.59 0.085%
Includes the following feeder funds: $2,376,406,676.21
BT Inst'l: Equity 500 Index Fund (c) $924,030,686.42
BT Pyramid Investment Equity 500
Index (d) $2,670,922,035.83
USAA S&P 500 Index (e) $318,025,886.62
Amer AADV: S&P 500 - AMR Class (f) $3,475,740.53
Amer AADV: S&P 500 - Mileage Fund (f) $241,297,029.28
Scudder S&P 500 Index (g)
VALIC S&P (Variable Annuity Life Insurance $4,318,817,502 0.02% 1st $2 billion
Company) (i) 0.01% over $2 billion
PacMut S&P (Pacific Mutual Life Insurance $1,548,635,978 0.07% 1st $100mm
Company) (i) 0.03% next $100mm
0.01% over $200mm
minimum $100,000
advisory fee
BT Insur: Equity 500 Index (Variable $108,602,298.52 0.20%
Annuity) (h)
S&P "INDEX BASED" FUND
- ----------------------
AARP U.S. Stock Index (j) $403,717,834 0.07% 1st $100mm
0.03% next $100mm
0.01% over $200mm
minimum $75,000
advisory fee
EAFE INDEX FUNDS
- ----------------
BT Inv Port: EAFE Equity Index Portfolio (b) $59,334,019.05 0.25%
Includes the following feeder fund:
BT ADV: EAFE Equity Index Fund - Inst'l $59,358,576.25
Cl (c)
BT Insur: EAFE Equity Index Fund (Variable $43,998,229.14 0.45%
Annuity) (h)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Assets Advisory Fees
Fund as of 5/25/99 Payable to BT(a)
- ---------------------------------------------- ---------------------- ------------------------
<S> <C> <C>
RUSSELL 2000 INDEX FUNDS
- ------------------------
BT Inv Port: Small Cap Index Portfolio (b) $119,163,061.81 0.15%
Includes the following feeder fund:
BT ADV: Small Cap Index Fund - Inst'l $88,773,064.53
Cl (c)
BT Insur: Small Cap Index Fund (Variable $31,302,185.68 0.35%
Annuity) (h)
(a) Reflects reductions for any expense reimbursement paid by or due from the
pursuant to expense limitations. Funds so affected are indicated by an (*).
(b) Master portfolio not available for direct retail purchase. (c) Feeder fund
available to institutional investors through BT. (d) Feeder fund available
to retail investors through BT.
(e) Feeder fund available to customers of United States Automobile Association
and retail public. (f) Feeder fund available to customers of American
Airlines.
(g) Feeder fund available to customers of Scudder, Stevens & Clark; commenced
operations on August 29, 1997.
(h) Available only through variable annuity products; the EAFE Equity Index Fund
and Small Cap Index Fund of the BT Insurance Funds Trust commenced
operations on August 22, 1997.
(i) Available only through variable annuity products.
(j) Sub-advised fund available to members of American Association of Retired
Persons.
* Includes sub-advised funds that commenced operations prior to 1/1/99.
</TABLE>
<PAGE>
EXHIBIT
BANKERS TRUST COMPANY - DIRECTORS
NAME AND PRINCIPAL OCCUPATION BUSINESS ADDRESS
- ----------------------------- ----------------
Mr. Lee A. Ault III, Investor 190l Avenue of the Stars
Suite 1800
Los Angeles, CA 90067-6018
Mr. Neil R. Austrian, President and National Football League
Chief Operating Officer, National 280 Park Avenue - FL. 17E
Football League New York, NY 10017
Mr. George B. Beitzel, Director of 29 King Street
Various Corporations Chappaqua, NY 10514-3432
Dr. Phillip A. Griffiths, Director, Institute for Advanced Study
Institute for Advanced Study Olden Lane
Princeton, NJ 08540
Mr. William R. Howell, Chairman J.C. Penney Company, Inc.
Emeritus, J.C. Penney Company, P.O. Box 10001
Inc. Dallas, TX 75301-1109
Vernon E. Jordan, Jr., Esq., Senior Akin, Gump, Strauss, Hauer &
Partner, Akin, Gump, Strauss, Feld, LLP
Hauer & Feld, LLP, Attorneys-at-law 1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
Mr. Hamish Maxwell, Retired Chairman Philip Morris Companies, Inc.
and Chief Executive Officer, 120 Park Avenue
Philip Morris Companies, Inc. New York, NY 10017
Mr. Frank N. Newman, Chairman of the Bankers Trust Company
Board, Chief Executive Officer and 130 Liberty Street
President, Bankers Trust New York, NY 10006
Corporation and Bankers Trust
Company
Mr. N.J. Nicholas Jr., Investor 45 West 67th Street - Suite 19F
New York, NY 10023
Mr. Russell E. Palmer, Chairman and The Palmer Group
Chief Executive Officer, The 3600 Market Street, Suite 530
Palmer Group Philadelphia, PA 19104
Mr. Donald L. Staheli, Retired 39 Locust Avenue
Chairman of the Board and Chief Suite 204
Executive Officer, Continental New Canaan, CT 06840
Grain Company
Mrs. Patricia Carry Stewart, Former Bankers Trust Company
Vice President, The Edna McConnell 130 Liberty Street
Clark Foundation New York, NY 10006
Mr. G. Richard Thoman, President, Xerox Corporation
Chief Executive Officer and 800 Long Ridge Road
Director, Xerox Corporation Stamford, CT 06904
<PAGE>
NAME AND PRINCIPAL OCCUPATION BUSINESS ADDRESS
- ----------------------------- ----------------
Mr. George J. Vojta, Vice Chairman of Bankers Trust Company
the Board, Bankers Trust 130 Liberty Street
Corporation and Bankers Trust New York, NY 10006
Company
Mr. Paul A. Volcker, Director of 610 Fifth Avenue
Various Corporations Suite 420
New York, NY 10020
- 2 -
<PAGE>
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------------------
VARIABLE INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward C. Johnson
3d, Gerald C. McDonough and Eric D. Roiter, or any one or more of them,
attorneys, with full power of substitution, to vote all shares of VARIABLE
INSURANCE PRODUCTS FUND II: INDEX 500 PORTFOLIO which the undersigned is
entitled to vote at the Special Meeting of Shareholders of the fund to be held
at the office of the trust at 82 Devonshire St., Boston, MA 02109, on September
15, 1999 at 11:00 a.m. and at any adjournments thereof. All powers may be
exercised by a majority of said proxy holders or substitutes voting or acting
or, if only one votes and acts, then by that one. This Proxy shall be voted on
the proposals described in the Proxy Statement as specified on the reverse side.
Receipt of the Notice of the Meeting and the accompanying Proxy Statement is
hereby acknowledged.
NOTE: Please sign exactly as your name
appears on this Proxy. When signing in a
fiduciary capacity, such as executor,
administrator, trustee, attorney, guardian,
etc., please so indicate. Corporate and
partnership proxies should be signed by an
authorized person indicating the person's
title.
Date _________________________________, 1999
____________________________________________
____________________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 922175302 /fund # 157
<PAGE>
Please refer to the Proxy Statement discussion of each of these matters.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSALS.
As to any other matter, said attorneys shall vote in accordance with their
best judgment.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING:
- --------------------------------------------------------------------------------
1(a). To approve an interim FOR[ ] AGAINST[ ] ABSTAIN[] 1(a).
sub-advisory agreement with
Bankers Trust Company for the
fund.
1(b). To approve a new sub-advisory FOR[ ] AGAINST[ ] ABSTAIN[] 1(b).
agreement with Bankers Trust
Company for the fund.
2. To approve a new "manager-of- FOR[ ] AGAINST[ ] ABSTAIN[] 2.
managers" arrangement for the fund.
VIP500-PXC-0799 cusip # 922175302 /fund # 157
