VARIABLE INSURANCE PRODUCTS FUND II, 485APOS, 1999-02-09

VARIABLE INSURANCE PRODUCTS FUND II
485APOS, 1999-02-09

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (No. 33-20773)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 28 [X]

and

REGISTRATION STATEMENT (No. 811-5511)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [X]

Variable Insurance Products Fund II
(Exact Name of Registrant as Specified in Charter)

82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number: 617-563-7000

Eric D. Roiter, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)

It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
( ) on ( ) pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
(X) on (April 30, 1999 ) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.

Shares of the funds are offered only to the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be
available in your state due to various insurance regulations. Please
check with your insurance company for available funds. Inclusion in
this prospectus of a fund that is not available in your state is not
to be considered a solicitation. Please read this prospectus along
with the variable annuity or variable life insurance contract
prospectus that accompanies it.

Like securities of all mutual funds, these securities
have not been approved or disapproved by the
Securities and Exchange Commission, and the
Securities and Exchange Commission has not
determined if this prospectus is accurate or
complete. Any representation to the contrary is a
criminal offense.

VARIABLE
INSURANCE PRODUCTS FUNDS

INITIAL CLASS

MONEY MARKET FUND:
Money Market Portfolio

INCOME FUNDS:
Investment Grade Bond Portfolio
High Income Portfolio

ASSET ALLOCATION FUNDS:
Asset Manager Portfolio
Asset Manager: Growth Portfolio

GROWTH & INCOME AND GROWTH FUNDS:
Balanced Portfolio
Equity-Income Portfolio
Index 500 Portfolio
Growth & Income Portfolio
Mid Cap Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio

PROSPECTUS
APRIL 30, 1999
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109

CONTENTS

FUND SUMMARY 3 INVESTMENT SUMMARY

8 PERFORMANCE

FUND BASICS 8 INVESTMENT DETAILS

16 VALUING SHARES

SHAREHOLDER INFORMATION 17 BUYING AND SELLING SHARES

17 DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS

17 TAX CONSEQUENCES

FUND SERVICES 15 FUND MANAGEMENT

18 FUND DISTRIBUTION

APPENDIX 22 FINANCIAL HIGHLIGHTS

FUND SUMMARY

INVESTMENT SUMMARY

INVESTMENT OBJECTIVE

MONEY MARKET PORTFOLIO seeks as high a level of current income as is
consistent with the preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGIES

Fidelity Management & Research Company (FMR)'s principal investment
strategies include:

(small solid bullet) Investing in U.S. dollar-denominated money market
securities, including U.S. Government securities and repurchase
agreements, and entering into reverse repurchase agreements.

(small solid bullet) Investing more than 25% of total assets in the
financial services industry.

(small solid bullet) Investing in compliance with industry-standard
requirements for money market funds for the quality, maturity and
diversification of investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a money market security to decrease.

(small solid bullet) FOREIGN EXPOSURE. Entities located in foreign
countries can be affected by adverse political, regulatory, market or
economic developments in those countries.

(small solid bullet) FINANCIAL SERVICES EXPOSURE. Changes in
government regulation or economic downturns can have a significant
negative affect on issuers in the financial services sector.

(small solid bullet) ISSUER-SPECIFIC CHANGES. A decline in the credit
quality of an issuer or the provider of credit support or a
maturity-shortening structure for a security can cause the price of a
money market security to decrease.

An investment in the fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Although the fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
fund.

INVESTMENT OBJECTIVE

INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing in U.S. dollar-denominated
investment-grade bonds.

(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers Aggregate Bond Index.

(small solid bullet) Allocating assets across different market sectors
and maturities.

(small solid bullet) Analyzing a security's structural features,
current pricing and trading opportunities, and the credit quality of
its issuer in selecting investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) FOREIGN EXPOSURE. Entities located in foreign
countries can be affected by adverse political, regulatory, market or
economic developments in those countries.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

HIGH INCOME PORTFOLIO seeks a high level of current income while also
considering growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 65% of total assets in
income-producing debt securities, preferred stocks and convertible
securities, with an emphasis on lower-quality debt securities.

(small solid bullet) Potentially investing in non-income producing
securities, including defaulted securities and common stocks.

(small solid bullet) Investing in companies in troubled or uncertain
financial condition.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.

(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market.

(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. Lower-quality debt securities
(those of less than investment-grade quality) can be more volatile due
to increased sensitivity to adverse issuer, political, regulatory,
market or economic developments.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over
the long term by allocating its assets among stocks, bonds, and
short-term instruments.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Allocating the fund's assets among stocks, bonds,
and short-term and money market instruments.

(small solid bullet) Maintaining a neutral mix over time of 50% of
assets in stocks, 40% of assets in bonds, and 10% of assets in
short-term and money market instruments.

(small solid bullet) Adjusting allocation among asset classes
gradually within the following ranges: stock class (30% - 70%), bond
class (20% - 60%), and short-term/money market class (0% - 50%).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Analyzing an issuer using fundamental and/or
quantitative factors and evaluating each security's current price
relative to estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) FOREIGN EXPOSURE. Foreign markets can be more
volatile than the U.S. market due to increased risks of adverse
issuer, political, regulatory, market or economic developments and can
perform differently than the U.S. market.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:
(small solid bullet) Allocating the fund's assets among stocks, bonds,
and short-term and money market instruments.

(small solid bullet) Maintaining a neutral mix over time of 70% of
assets in stocks, 25% of assets in bonds, and 5% of assets in
short-term and money market instruments.

(small solid bullet) Adjusting allocation among asset classes
gradually within the following ranges: stock class (50% - 100%), bond
class (0% - 50%), and short-term/money market class (0% - 50%).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Analyzing an issuer using fundamental and/or
quantitative factors and evaluating each security's current price
relative to estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

BALANCED PORTFOLIO seeks both income and growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing approximately 60% of assets in stocks
and other equity securities and the remainder in bonds and other debt
securities, including lower-quality debt securities, when its outlook
is neutral.

(small solid bullet) Investing at least 25% of total assets in
fixed-income senior securities (including debt securities and
preferred stock).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) With respect to equity investments, emphasizing
above-average income-producing equity securities, which tends to lead
to investments in stocks that have more "value" characteristics than
"growth" characteristics.

(small solid bullet) Analyzing a security's issuer using fundamental
factors and evaluating each security's current price relative to
estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause prices of debt securities to decrease.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

EQUITY-INCOME PORTFOLIO seeks reasonable income. The fund will also
consider the potential for capital appreciation. The fund seeks a
yield which exceeds the composite yield on the securities comprising
the S&P 500.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 65% of total assets in
income-producing equity securities, which tends to lead to investments
in large cap "value" stocks.

(small solid bullet) Potentially investing in other types of equity
securities and debt securities, including lower-quality debt
securities.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) "VALUE" INVESTING. "Value" stocks can perform
differently than the market as a whole and other types of stocks and
can continue to be undervalued by the market for long periods of time.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

INDEX 500 PORTFOLIO seeks investment results that correspond to the
total return of common stocks publicly traded in the United States, as
represented by the S&P 500.

PRINCIPAL INVESTMENT STRATEGIES

Bankers Trust Company (BT)'s principal investment strategies include:

(small solid bullet) Investing at least 80% of assets in common stocks
included in the S&P 500.

(small solid bullet) Lending securities to earn income for the fund.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing a majority of assets in common stocks
with a focus on those that pay current dividends and show potential
for capital appreciation.

(small solid bullet) Potentially investing in bonds, including
lower-quality debt securities, as well as stocks that are not
currently paying dividends, but offer prospects for future income or
capital appreciation.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of debt securities to decrease.

(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. Lower-quality debt securities
(those of less than investment-grade quality) can be more volatile,
due to increased sensitivity to adverse issuer, political, regulatory,
market or economic developments.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

MID CAP PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Investing at least 65% of total assets in
securities of companies with medium market capitalizations (those with
market capitalizations similar to companies in the S&P MidCap 400).

(small solid bullet) Potentially investing in companies with smaller
or larger market capitalizations.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. The value of securities of smaller
issuers can be more volatile than that of larger issuers.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Potentially investing in other types of
securities, including bonds which may be lower-quality debt
securities.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

CONTRAFUND PORTFOLIO seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Investing in securities of companies whose value
it believes is not fully recognized by the public.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

GROWTH PORTFOLIO seeks capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Investing in companies that it believes have
above-average growth potential (stocks of these companies are often
called "growth" stocks).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

OVERSEAS PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 65% of total assets in foreign
securities.

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Allocating investments across countries and
regions considering the size of the market in each country and region
relative to the size of the international market as a whole.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

PERFORMANCE

A fund's total return and/or yield may be quoted in advertising in
accordance with current law and interpretations thereof.

Total returns and yields quoted for a class include the class's
expenses, but may not include charges and expenses attributable to any
particular insurance product. Because shares of the funds may be
purchased only through variable annuity and variable life insurance
contracts, you should carefully review the prospectus of the insurance
product you have chosen for information on relevant charges and
expenses. Excluding these charges from quotations of a class's
performance has the effect of increasing the performance quoted. You
should bear in mind the effect of these charges when comparing a
fund's performance to that of other mutual funds.

FUND BASICS

INVESTMENT DETAILS

THE MONEY MARKET FUND

INVESTMENT OBJECTIVE

MONEY MARKET seeks as high a level of current income as is consistent
with the preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGIES

FMR invests the fund's assets in U.S. dollar-denominated money market
securities of domestic and foreign issuers, including U.S. Government
securities and repurchase agreements. FMR also may enter into reverse
repurchase agreements for the fund.

FMR will invest more than 25% of the fund's total assets in the
financial services industry.

In buying and selling securities for the fund, FMR complies with
industry-standard requirements for money market funds regarding the
quality, maturity and diversification of the fund's investments. FMR
stresses maintaining a stable $1.00 share price, liquidity and income.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

MONEY MARKET SECURITIES are high-quality, short-term debt securities
that pay a fixed, variable or floating interest rate. Securities are
often specifically structured so that they are eligible investments
for a money market fund. For example, in order to satisfy the
maturity restrictions for a money market fund, some money market
securities have demand or put features which have the effect of
shortening the security's maturity. Taxable money market securities
include bank certificates of deposit, bank acceptances, bank time
deposits, notes, commercial paper and U.S. Government securities.

PRINCIPAL INVESTMENT RISKS

Many factors affect the fund's performance. The fund's yield will
change daily based on changes in market conditions. Although the fund
is managed to maintain a stable $1.00 share price, there is no
guarantee that the fund will be able to do so. For example, a major
increase in interest rates or a decrease in the credit quality of the
issuer of one of the fund's investments could cause the fund's share
price to decrease. While the fund will be charged premiums by a
mutual insurance company for coverage of specified types of losses
related to default or bankruptcy on certain securities, the fund may
incur losses regardless of the insurance. It is important to note
that neither the fund's share price nor its yield is guaranteed by the
U.S. Government.

The following factors may significantly affect the fund's performance:

INTEREST RATE CHANGES. Money market securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
money market security can fall when interest rates rise and can rise
when interest rates fall. Securities with longer maturities and the
securities of issuers in the financial services industry can be more
sensitive to interest rate changes. Short-term securities tend to
react to changes in short-term interest rates.

FOREIGN EXPOSURE. Issuers located in foreign countries and entities
located in foreign countries that provide credit support or a
maturity-shortening structure can involve increased risks. Extensive
public information about the issuer or provider may not be available
and unfavorable political, economic or governmental developments could
affect the value of the security.

FINANCIAL SERVICES EXPOSURE. Financial services companies are highly
dependent on the supply of short-term financing. The value of
securities of issuers in the financial services sector can be
sensitive to changes in government regulation and interest rates and
to economic downturns in the United States and abroad.

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. Entities providing credit support or a
maturity-shortening structure also can be affected by these types of
changes. If the structure of a security fails to function as
intended, the security could decline in value.

THE INCOME FUNDS

INVESTMENT OBJECTIVE

INVESTMENT GRADE BOND seeks as high a level of current income as is
consistent with the preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets in U.S. dollar-denominated
investment-grade bonds.

FMR uses the Lehman Brothers Aggregate Bond Index as a guide in
structuring the fund and selecting its investments. FMR manages the
fund to have similar overall interest rate risk to the index. As of
December 31, 1998, the dollar-weighted average maturity of the fund
and the index was approximately ___ and ___ years, respectively. In
determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated maturity.

FMR allocates the fund's assets among different market sectors (for
example, corporate or government securities) and different maturities
based on its view of the relative value of each sector or maturity.

In buying and selling securities for the fund, FMR analyzes a
security's structural features, current price compared to its
estimated long-term value, and any short-term trading opportunities
resulting from market inefficiencies, and the credit quality of its
issuer.

In order to earn additional income for the fund, FMR may use a trading
strategy that involves selling mortgage securities and simultaneously
agreeing to purchase similar securities on a later date at a set
price. This trading strategy may result in an increased portfolio
turnover rate which increases transaction costs and may increase
taxable gains.

FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.

INVESTMENT OBJECTIVE

HIGH INCOME seeks a high level of current income while also
considering growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests at least 65% of the fund's total assets in
income-producing debt securities, preferred stocks and convertible
securities, with an emphasis on lower-quality debt securities. Many
lower-quality debt securities are subject to legal or contractual
restrictions limiting FMR's ability to resell the securities to the
general public. FMR may also invest the fund's assets in non-income
producing securities, including defaulted securities and common
stocks. FMR currently intends to limit common stocks to 10% of the
fund's total assets. FMR may invest in companies whose financial
condition is troubled or uncertain and that may be involved in
bankruptcy proceedings, reorganizations or financial restructurings.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest,
but are sold at a discount from their face values. Debt securities
include corporate bonds, government securities, mortgage and other
asset-backed securities, and loans and loan participations.

EQUITY SECURITIES represent an ownership interest, or the right to
acquire an ownership interest, in an issuer. Different types of equity
securities provide different voting and dividend rights and priority
in the event of the bankruptcy of the issuer. Equity securities
include common stocks, preferred stocks, convertible securities and
warrants.

PRINCIPAL INVESTMENT RISKS

Many factors affect each fund's performance. A fund's yield and share
price change daily based on changes in interest rates and market
conditions and in response to other economic, political or financial
developments. A fund's reaction to these developments will be
affected by the types and maturities of the securities in which the
fund invests, the financial condition, industry and economic sector,
and geographic location of an issuer, and the fund's level of
investment in the securities of that issuer. When you sell your shares
of a fund, they could be worth more or less than what you paid for
them.

The following factors may significantly affect a fund's performance:

INTEREST RATE CHANGES. Debt securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when
interest rates fall. Securities with longer maturities and mortgage
securities can be more sensitive to interest rate changes. In other
words, the longer the maturity of a security, the greater the impact a
change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily
move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and long-term
securities tend to react to changes in long-term interest rates.

STOCK MARKET VOLATILITY. The value of equity securities fluctuates in
response to issuer, political, market and economic developments. In
the short term, equity prices can fluctuate dramatically in response
to these developments. Different parts of the market can react
differently to these developments. For example, large cap stocks can
react differently than small cap stocks, and "growth" stocks can react
differently than "value" stocks. Issuer, political or economic
developments can affect a single issuer, issuers within an industry or
economic sector or geographic region, or the market as a whole.

FOREIGN EXPOSURE. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations
can involve additional risks relating to political, economic or
regulatory conditions in foreign countries. These risks include
fluctuations in foreign currencies; withholding or other taxes;
trading, settlement, custodial and other operational risks; and the
less stringent investor protection and disclosure standards of some
foreign markets. All of these factors can make foreign investments,
especially those in emerging markets, more volatile and potentially
less liquid than U.S. investments. In addition, foreign markets can
perform differently than the U.S. market.

PREPAYMENT. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment occurs when the
issuer of a security can repay principal prior to the security's
maturity. Securities subject to prepayment generally offer less
potential for gains during a declining interest rate environment and
similar or greater potential for loss in a rising interest rate
environment. In addition, the potential impact of prepayment features
on the price of a debt security can be difficult to predict and result
in greater volatility.

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.

Lower-quality debt securities involve greater risk of default or price
changes due to changes in the credit quality of the issuer. The value
of lower-quality debt securities often fluctuates in response to
company, political or economic developments and can decline
significantly over short periods of time or during periods of general
or regional economic difficulty. Lower-quality debt securities can be
thinly traded or have restrictions on resale, making them difficult to
sell at an acceptable price. The default rate for lower-quality debt
securities is likely to be higher during economic recessions or
periods of high interest rates.

In response to market, economic, political or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect a fund's
performance and the fund may not achieve its investment objective.

THE ASSET ALLOCATION FUNDS

INVESTMENT OBJECTIVE

ASSET MANAGER seeks high total return with reduced risk over the long
term by allocating its assets among stocks, bonds, and short-term
instruments.

PRINCIPAL INVESTMENT STRATEGIES

FMR allocates the fund's assets among the following classes, or types,
of investments. The STOCK CLASS includes equity securities of all
types. The BOND CLASS includes all varieties of fixed-income
securities, including lower-quality debt securities, maturing in more
than one year. The SHORT-TERM/MONEY MARKET CLASS includes all types of
short-term and money market instruments.

FMR may use its judgement to place a security in the most appropriate
class based on its investment characteristics. Fixed-income securities
may be classified in the bond or short-term/money market class
according to interest rate sensitivity as well as maturity. FMR may
also invest the fund's assets in other instruments that do not fall
within these classes.

FMR has the ability to allocate the fund's assets within specified
ranges. The fund's neutral mix represents the benchmark for its
combination of investments in each asset class over time. FMR may
change the neutral mix from time to time. The approximate neutral mix
and range for each asset class are shown below: [NEED TO CREATE PIE
CHARTS]

(small solid bullet) STOCK CLASS: 50% (can range from 30%-70%)

(small solid bullet) BOND CLASS: 40% (can range from 20%-60%)

(small solid bullet) SHORT-TERM/MONEY MARKET CLASS: 10% (can range
from 0%-50%)

FMR will not try to pinpoint the precise moment when a major
reallocation should be made. Instead, FMR regularly reviews the fund's
allocation and makes changes gradually to favor investments that it
believes will provide the most favorable outlook for achieving the
fund's objective. Normally, a single reallocation will not involve
more than 10% of the fund's total assets.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

In buying and selling securities for the fund, FMR generally analyzes
the issuer of a security using fundamental factors (e.g., growth
potential, earnings estimates and management) and/or quantitative
factors (e.g., historical earnings, dividend yield and earnings per
share) and evaluates each security's current price relative to its
estimated long-term value.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

ASSET MANAGER: GROWTH seeks to maximize total return by allocating its
assets among stocks, bonds, short-term instruments, and other
investments.

PRINCIPAL INVESTMENT STRATEGIES

(small solid bullet) STOCK CLASS: 70% (can range from 50%-100%)

(small solid bullet) BOND CLASS: 25% (can range from 0%-50%)

(small solid bullet) SHORT-TERM/MONEY MARKET CLASS: 5% (can range from
0%-50%)

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

In buying and selling securities for the fund, FMR generally analyzes
the issuer of a security using fundamental factors (e.g., growth
potential, earnings estimates and management) and/or quantitative
factors (e.g., historical earnings, dividend yield and earnings per
share) and estimates each security's current price relative to its
estimated long-term value.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

PRINCIPAL INVESTMENT RISKS

Many factors affect each fund's performance. A fund's share price and
yield change daily based on changes in market conditions and interest
rates and in response to other economic, political or financial
developments. A fund's reaction to these developments will be
affected by the types and maturities of the securities in which the
fund invests, the financial condition, industry and economic sector,
and geographic location of an issuer, and the fund's level of
investment in the securities of that issuer. When you sell your shares
of a fund, they could be worth more or less than what you paid for
them.

The following factors may significantly affect a fund's performance:

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.

THE GROWTH & INCOME AND GROWTH FUNDS

INVESTMENT OBJECTIVE

BALANCED PORTFOLIO seeks both income and growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR manages the fund to maintain a balance between stocks and bonds.
When FMR's outlook is neutral, it will invest approximately 60% of the
fund's assets in stocks and other equity securities and the remainder
in bonds and other debt securities, including lower-quality debt
securities. FMR may vary from this target if it believes stocks or
bonds offer more favorable opportunities, but will always invest at
least 25% of the fund's total assets in fixed-income senior securities
(including debt securities and preferred stock).

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

With respect to the fund's equity investments, FMR's emphasis on
above-average income-producing equity securities tends to lead to
investments in stocks that have more "value" characteristics than
"growth" characteristics. However, FMR is not constrained by any
particular investment style. In buying and selling securities for the
fund, FMR generally analyzes the issuer of a security using
fundamental factors (e.g., growth potential, earnings estimates and
management) and evaluates each security's current price relative to
its estimated long-term value.

INVESTMENT OBJECTIVE
EQUITY-INCOME seeks reasonable income. The fund will also consider the
potential for capital appreciation. The fund seeks a yield which
exceeds the composite yield on the securities comprising the S&P 500.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests at least 65% of the fund's total assets in
income-producing equity securities. FMR may also invest the fund's
assets in other types of equity securities and debt securities,
including lower-quality debt securities.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.
FMR's emphasis on above-average income-producing equity securities
tends to lead to investments in large cap "value" stocks. However, FMR
is not constrained by any particular investment style. In buying and
selling securities for the fund, FMR relies on fundamental analysis of
each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market
conditions. Factors considered include growth potential, earnings
estimates and management.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, or other factors that affect security values. If
FMR's strategies do not work as intended, the fund may not achieve its
objective.

INVESTMENT OBJECTIVE

INDEX 500 seeks investment results that correspond to the total return
of common stocks publicly traded in the United States, as represented
by the S&P 500.

PRINCIPAL INVESTMENT STRATEGIES

BT normally invests at least 80% of the fund's assets in common stocks
included in the S&P 500. The S&P 500 is a widely recognized,
unmanaged index of common stock prices.

The fund may not always hold all of the same securities as the S&P
500. BT may choose, if extraordinary circumstances warrant, to
exclude an index stock from the fund and substitute a similar stock if
doing so will help the fund achieve its objective.

The fund seeks to achieve a 98% or better correlation between its
total return and the total return of the index. The fund may not
track the index perfectly because differences between the index and
the fund's portfolio can cause differences in performance. In
addition, expenses and transaction costs, the size and frequency of
cash flow into and out of the fund, and differences between how and
when the fund and the index are valued can cause differences in
performance.

BT may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

BT may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If BT's
strategies do not work as intended, the fund may not achieve its
objective.

INVESTMENT OBJECTIVE

GROWTH & INCOME seeks high total return through a combination of
current income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests a majority of the fund's assets in common stocks
with a focus on those that pay current dividends and show potential
for capital appreciation. FMR may also invest the fund's assets in
bonds, including lower-quality debt securities, as well as stocks that
are not currently paying dividends, but offer prospects for future
income or capital appreciation.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR is not constrained by any particular investment style. At any
given time, FMR may tend to buy "growth" stocks or "value" stocks, or
a combination of both types. In buying and selling securities for the
fund, FMR relies on fundamental analysis of each issuer and its
potential for success in light of its current financial condition, its
industry position, and economic and market conditions. Factors
considered include growth potential, earnings estimates and
management.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.

INVESTMENT OBJECTIVE

MID CAP PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks.

FMR normally invests at least 65% of the fund's total assets in
securities of companies with medium market capitalizations. Medium
market capitalization companies are those whose market capitalization
is similar to the capitalization of companies in the S&P MidCap 400 at
the time of the fund's investment. Companies whose capitalization no
longer meets this definition after purchase continue to be considered
to have a medium market capitalization for purposes of the 65% policy.
As of December 31, 1998, the S&P MidCap 400 included companies with
capitalizations between $_ million and $ _ [m/b]illion. The size of
companies in the S&P MidCap 400 changes with market conditions and the
composition of the index. FMR may also invest the fund's assets in
companies with smaller or larger market capitalizations.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks. FMR
may also invest the fund's assets in other types of securities,
including bonds which may be lower-quality debt securities.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

CONTRAFUND seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks.

FMR invests the fund's assets in securities of companies whose value
FMR believes is not fully recognized by the public. The types of
companies in which the fund may invest include companies experiencing
positive fundamental change such as a new management team or product
launch, a significant cost-cutting initiative, a merger or
acquisition, or a reduction in industry capacity that should lead to
improved pricing; companies whose earnings potential has increased or
is expected to increase more than generally perceived; companies that
have enjoyed recent market popularity but which appear to have
temporarily fallen out of favor for reasons that are considered
non-recurring or short-term; and companies that are undervalued in
relation to securities of other companies in the same industry.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

GROWTH PORTFOLIO seeks capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks.

FMR invests the fund's assets in companies FMR believes have
above-average growth potential. Growth may be measured by factors
such as earnings or revenue.

Companies with high growth potential tend to be companies with higher
than average price/earnings (P/E) ratios. Companies with strong
growth potential often have new products, technologies, distribution
channels or other opportunities or have a strong industry or market
position. The stocks of these companies are often called "growth"
stocks.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If
FMR's strategies do not work as intended, the fund may not achieve its
objective.

INVESTMENT OBJECTIVE

OVERSEAS PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests at least 65% of the fund's total assets in
foreign securities. FMR normally invests the fund's assets primarily
in common stocks.

FMR normally diversifies the fund's investments across different
countries and regions. In allocating the fund's investments across
countries and regions, FMR will consider the size of the market in
each country and region relative to the size of the international
market as a whole.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

PRINCIPAL INVESTMENT RISKS

Many factors affect each fund's performance. A fund's share price
changes daily based on changes in market conditions and interest rates
and in response to other economic, political or financial
developments. A fund's reaction to these developments will be
affected by the financial condition, industry and economic sector, and
geographic location of an issuer, and the fund's level of investment
in the securities of that issuer. When you sell your shares of a fund,
they could be worth more or less than what you paid for them.

The following factors may significantly affect a fund's performance:

Investing in emerging markets involves risks in addition to and
greater than those generally associated with investing in more
developed foreign markets. The extent of foreign development;
political stability; market depth, infrastructure and capitalization
and regulatory oversight are generally less than in more developed
markets. Emerging market economies can be subject to greater social,
economic, regulatory and political uncertainties. All of these factors
can make emerging market securities more volatile and potentially less
liquid than securities issued in more developed markets.

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.

"GROWTH" INVESTING. "Growth" stocks can react differently to issuer,
political, market and economic developments than the market as a whole
and other types of stocks. "Growth" stocks tend to be more expensive
relative to their earnings or assets compared to other types of
stocks. As a result, "growth" stocks tend to be sensitive to changes
in their earnings and more volatile than other types of stocks.

"VALUE" INVESTING. "Value" stocks can react differently to issuer,
political, market and economic developments than the market as a whole
and other types of stocks. "Value" stocks tend to be inexpensive
relative to their earnings or assets compared to other types of
stocks. However, "value" stocks can continue to be inexpensive for
long periods of time and may not ever realize their full value.

In response to market, economic, political or other conditions, FMR
(BT for Index 500 Portfolio) may temporarily use a different
investment strategy for defensive purposes. If FMR (BT for Index 500
Portfolio) does so, different factors could affect a fund's
performance and the fund may not achieve its investment objective.

FUNDAMENTAL INVESTMENT POLICIES

The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.

MONEY MARKET PORTFOLIO seeks as high a level of current income as is
consistent with preservation of capital and liquidity by investing in
money market instruments.

INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital.

HIGH INCOME PORTFOLIO seeks a high level of current income by
investing primarily in high yielding, fixed-income securities, while
also considering growth of capital.

ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced
risk over the long term by allocating its assets among stocks, bonds,
and short-term instruments.

ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.

BALANCED PORTFOLIO seeks both income and growth of capital by
investing in a diversified portfolio of equity and fixed-income
securities with income, growth of income, and capital appreciation
potential.

EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities,
the fund will also consider the potential for capital appreciation.
The fund's goal is to achieve a yield which exceeds the composite
yield on the securities comprising the S&P 500.

INDEX 500 PORTFOLIO seeks investment results that correspond to the
total return of common stocks publicly traded in the United States, as
represented by the S&P 500.

GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation.

MID CAP PORTFOLIO seeks long-term growth of capital.

GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth by
investing primarily in common stocks and securities convertible into
common stocks.

CONTRAFUND PORTFOLIO seeks long-term capital appreciation.

GROWTH PORTFOLIO seeks to achieve capital appreciation.

OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities.

VALUING SHARES

Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.

A class's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates Initial Class's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
However, NAV may be calculated earlier if trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission
(SEC). Each fund's assets are valued as of this time for the purpose
of computing Initial Class's NAV.

To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.

Money Market's assets are valued on the basis of amortized cost.

Each fund's (except Money Market's) assets are valued primarily on the
basis of market quotations or on the basis of information furnished by
a pricing service. Certain short-term securities are valued on the
basis of amortized cost. If market quotations or information furnished
by a pricing service is not readily available for a security or if a
security's value has been materially affected by events occurring
after the close of the exchange or market on which the security is
principally traded (for example, a foreign exchange or market), that
security may be valued by another method that the Board of Trustees
believes accurately reflects fair value. A security's valuation may
differ depending on the method used for determining value.

SHAREHOLDER INFORMATION

BUYING AND SELLING SHARES

The price to buy one share of Initial Class is the class's NAV.

The price to sell one share of Initial Class is the class's NAV.

Only "separate accounts" of insurance companies that have executed
certain agreements with the funds can buy or sell shares of the funds.
A separate account is a segregated asset account. Separate accounts
fund variable annuity contracts and variable life insurance policies.
Please refer to your insurance company's separate account prospectus
for investing information.

Each insurance company separate account places a single order to buy
or sell shares of each fund each business day. The insurance company
calculates the amount of the order based on the aggregate instructions
to the insurer from owners of the insurer's variable annuity contracts
and variable life insurance policies. Instructions received from
owners before the close of the NYSE on a given day usually result in
fund share purchases and redemptions at the NAV calculated as of the
close of the NYSE that day. In some cases, the applicable NAV is the
next NAV calculated after the order is received by the fund.

A fund will normally send the proceeds from redemption orders to the
insurance company one business day after the fund receives the
redemption order. The fund must send the proceeds within 7 days after
the fund receives the redemption order.

Redemptions may be suspended or payment dates postponed when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.

Agreements executed with insurance companies obligate a fund to sell
and redeem fund shares each day that the NYSE is open for business.
Notwithstanding anything else in the agreements, the Board may refuse
to sell shares of any fund to any separate account, or suspend or
terminate the offering of shares of any fund if such action is
required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in
light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such
fund.

Each fund sells its shares to separate accounts of insurance companies
that are both affiliated and unaffiliated with FMR. Each fund
currently does not foresee any disadvantages to policyowners arising
out of the fact that each fund offers its shares to separate accounts
of various insurance companies to serve as the investment medium for
their variable products. Nevertheless, the Board of Trustees intends
to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise, and to determine what action, if
any, should be taken in response to such conflicts. If such a conflict
were to arise, one or more insurance companies' separate accounts
might be required to withdraw its investments in one or more funds and
shares of another fund may be substituted. This might force a fund to
sell securities at disadvantageous prices.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each fund earns dividends, interest and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. Each fund may also realize capital gains
from its investments, and distribute these gains (less any losses), if
any, to shareholders as capital gains distributions.

Money Market Portfolio normally declares dividends daily and pays them
monthly. Investment Grade Bond, High Income, Asset Manager, Asset
Manager: Growth, Balanced, Equity-Income, Index 500, Growth & Income,
Mid Cap, Growth Opportunities, Contrafund, Growth, and Overseas
Portfolios will distribute any dividends at least annually. Normally,
net realized capital gains, if any, are distributed each year for a
fund.

Dividends and capital gains distributions from a fund will be
automatically reinvested in additional shares of the same class of the
fund.

TAX CONSEQUENCES

Please refer to your insurance company's separate account prospectus
for a discussion of the tax status of your variable annuity or
variable life insurance contract. It is suggested you keep all
statements you receive to assist in your personal recordkeeping.

It is expected that shares of the funds will be held by insurance
company separate accounts under the terms of variable annuity and
variable life insurance contracts. Under current tax law, dividends or
capital gains distributions from a fund are not currently taxable to
holders of variable annuity and variable life insurance contracts when
left to accumulate within a variable contract. Depending on the
variable contract, withdrawals from the contract may be subject to
ordinary income tax and, in addition, to a 10% penalty tax on
withdrawals before age 59.

FUND SERVICES

FUND MANAGEMENT

Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.

FMR is each fund's manager.

As of ___________, 199_, FMR had approximately $__ billion in
discretionary assets under management.

As the manager, FMR is responsible for choosing investments for the
funds (except Index 500) and handling the funds' business affairs.

BT serves as sub-adviser and custodian for Index 500. BT chooses the
fund's investments and places orders to buy, sell and lend the fund's
investments.

As of ___________, 199_, BT had approximately $____ billion in
discretionary assets under management.

BT's principal offices are at 130 Liberty Street, New York, New York
10006.

Affiliates assist FMR with foreign investments:

(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for High Income,
Asset Manager, Asset Manager: Growth, Balanced, Growth & Income, Mid
Cap, Growth Opportunities, Contrafund, and Overseas. FMR U.K. was
organized in 1986 to provide investment research and advice to FMR.
Currently, FMR U.K. provides investment research and advice on issuers
based outside the United States and may also provide investment
advisory services for each fund.

(small solid bullet) Fidelity Management & Research Far East Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for High Income,
Asset Manager, Asset Manager: Growth, Balanced, Growth & Income,
Growth Opportunities, Contrafund, and Overseas. FMR Far East was
organized in 1986 to provide investment research and advice to FMR.
Currently, FMR Far East provides investment research and advice on
issuers based outside the United States and may also provide
investment advisory services for each fund.

(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda, serves as a sub-adviser for Overseas. As
of _____, 199_, FIIA had approximately $___ in discretionary assets
under management. Currently, FIIA provides investment research and
advice on issuers based outside the United States and may also provide
investment advisory services for Overseas.

(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L), in London, England, serves as a sub-adviser for
Overseas. As of ___________, 199_, FIIA(U.K.)L had approximately $___
in discretionary assets under management. Currently, FIIA(U.K.)L
provides investment research and advice on issuers based outside the
United States and may also provide investment advisory services for
Overseas.

Fidelity Investments Money Management, Inc. (FIMM), in Merrimack, New
Hampshire, serves as sub-adviser for Money Market and Investment Grade
Bond. FIMM is primarily responsible for choosing investments for each
fund.

FIMM chooses certain types of investments for each fund.

FIMM is an affiliate of FMR. As of ______, 199_, FIMM had
approximately $___ billion in discretionary assets under management.

A fund could be adversely affected if the computer systems used by
FMR, BT and other service providers do not properly process and
calculate date-related information from and after January 1, 2000. FMR
and BT have advised each fund that they are actively working on
necessary changes to their computer systems and expect that their
systems, and those of other major service providers, will be modified
prior to January 1, 2000. However, there can be no assurance that
there will be no adverse impact on a fund.

Kevin Grant is Vice President and manager of VIP II: Investment Grade
Bond Portfolio, which he has managed since February 1997. He also is
Vice President of VIP III: Balanced Portfolio and manager of its
fixed-income investments since March 1996. He also manages several
other Fidelity funds. Mr. Grant joined Fidelity as a portfolio manager
in 1993.

Barry Coffman is Vice President and manager of VIP: High Income
Portfolio, which he has managed since August 1990. He also co-manages
other Fidelity funds. Mr. Coffman joined Fidelity as an analyst in
1986.

Dick Habermann is Vice President and lead manager of VIP II: Asset
Manager Portfolio and VIP II: Asset Manager: Growth Portfolio, both of
which he has managed since March 1996. Other Fidelity investment
professionals assist Mr. Habermann in selecting investments within
each asset class for the funds. He also manages several other Fidelity
funds. Mr Habermann is a Senior Vice President of FMR Co. He joined
Fidelity in 1968.

John Avery is manager of VIP III: Balanced Portfolio, which he has
managed since January 1998; he had been associate manager of the fund
since September 1997. He also manages another Fidelity fund. Mr. Avery
joined Fidelity as an analyst in 1995. Previously, he was an analyst
for Putnam Investments from 1993 to 1994.

Stephen Petersen is Vice President and manager of VIP: Equity-Income
Portfolio, which he has managed since January 1997. He also manages
another Fidelity fund. Since joining Fidelity in 1980, Mr. Petersen
has worked as an analyst and manager.

Louis Salemy is manager of VIP III: Growth & Income Portfolio, which
he has managed since September 1998. Previously, he was associate
manager of VIP III: Growth & Income Portfolio and managed other
Fidelity funds. Since joining Fidelity in 1992, Mr. Salemy has worked
as an analyst, manager, and portfolio assistant.

Katherine Collins is manager of VIP III: Mid Cap Portfolio, which she
has managed since December 1998. She also manages another Fidelity
fund. Since joining Fidelity in 1990, Ms. Collins has worked as an
analyst and manager.

George Vanderheiden is Vice President and manager of VIP III: Growth
Opportunities Portfolio, which he has managed since January 1995. He
also manages other Fidelity funds. Mr. Vanderheiden is a member of the
Board of Directors for FMR Corp. He joined Fidelity in 1971.

Charles Mangum will provide assistance in managing VIP III: Growth
Opportunities Portfolio from time to time. He also manages another
Fidelity fund. Since joining Fidelity in 1990, Mr. Mangum has worked
as an analyst and manager.

Jason Weiner is associate manager of VIP II: Contrafund Portfolio,
which he has managed since April 1998. He also manages another
Fidelity fund. Since joining Fidelity in 1991, Mr. Weiner has worked
as an analyst and manager.

Jennifer Uhrig is Vice President and manager of VIP: Growth Portfolio,
which she has managed since January 1997. She also manages another
Fidelity fund. Since joining Fidelity in 1987, Ms. Uhrig has worked as
an analyst and manager.

Richard Mace is Vice President and manager of VIP: Overseas Portfolio,
which he has managed since March 1996. He also manages several other
Fidelity funds. Since joining Fidelity in 1987, Mr. Mace has worked as
an analyst and manager.

Each fund has an investment objective similar to that of an existing
Fidelity fund. Money Market Portfolio is most similar to Fidelity Cash
Reserves; Investment Grade Bond Portfolio is most similar to Fidelity
Investment Grade Bond Fund; High Income Portfolio is most similar to
Fidelity High Income Fund; Asset Manager Portfolio is most similar to
Fidelity Asset Manager; Asset Manager: Growth Portfolio is most
similar to Fidelity Asset Manager: Growth; Balanced Portfolio is most
similar to Fidelity Advisor Balanced Fund; Equity-Income Portfolio is
most similar to Fidelity Equity-Income Fund; Index 500 Portfolio is
most similar to Spartan Market Index Fund; Growth & Income Portfolio
is most similar to Fidelity Growth & Income Portfolio; Mid Cap
Portfolio is most similar to Fidelity Advisor Mid Cap Fund; Growth
Opportunities Portfolio is most similar to Fidelity Advisor Growth
Opportunities Fund; Contrafund Portfolio is most similar to Fidelity
Contrafund; Growth Portfolio is most similar to Fidelity Growth
Company Fund; and Overseas Portfolio is most similar to Fidelity
Overseas Fund.

The performance of a fund is not expected to be the same as the
performance of the existing Fidelity fund to which it is most similar
due to differences in investments, economies of scale, and other
factors. Various insurance-related costs at the insurance company's
separate account level will also affect performance.

Fidelity and BT investment personnel may invest in securities for
their own investment accounts pursuant to codes of ethics that
establish procedures for personal investing and restrict certain
transactions.

Money Market, Investment Grade Bond, High Income, Asset Manager, Asset
Manager: Growth, Balanced, Equity-Income, Growth & Income, Mid Cap,
Growth Opportunities, Contrafund, Growth, and Overseas each pays a
management fee to FMR. The management fee is calculated and paid to
FMR every month. The fee for each fund (except Money Market) is
calculated by adding a group fee rate to an individual fund fee rate,
dividing by twelve, and multiplying the result by the fund's average
net assets throughout the month.

The fee for Money Market is calculated by adding a group fee rate to
an individual fund fee rate, dividing by twelve and multiplying the
result by the fund's average net assets throughout the month, and then
adding an income-based fee. The income-based fee is 6% of the fund's
monthly gross income in excess of an annualized 5% yield, but it
cannot rise above an annual rate of 0.24% of the fund's average net
assets throughout that month.

The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% for
Asset Manager, Asset Manager: Growth, Balanced, Equity-Income, Growth
& Income, Mid Cap, Growth Opportunities, Contrafund, Growth, and
Overseas, or 0.37% for Money Market, Investment Grade Bond, and High
Income, and it drops as total assets under management increase.

For December 1998, the group fee rate was __% for Money Market,
Investment Grade Bond, and High Income, and the group fee rate was __%
for Asset Manager, Asset Manager: Growth, Balanced, Equity-Income,
Growth & Income, Mid Cap, Growth Opportunities, Contrafund, Growth,
and Overseas. The individual fund fee rate is 0.03% for Money Market.
The individual fund fee rate is 0.15% for Balanced. The individual
fund fee rate is 0.20% for Equity-Income and Growth & Income. The
individual fund fee rate is 0.25% for Asset Manager. The individual
fund fee rate is 0.30% for Investment Grade Bond, Asset Manager:
Growth, Mid Cap, Growth Opportunities, Contrafund, and Growth. The
individual fund fee rate is 0.45% for High Income and Overseas.

Index 500 pays management and sub-advisory fees to FMR and BT,
respectively. These fees are calculated and paid every month. The
fund pays a management fee at an annual rate of 0.24% of its average
net assets to FMR, and a sub-advisory fee (representing 40% of net
income from securities lending) of [less than] 0.01% to BT. FMR,
independently of the fund, also compensates BT for investment
management, securities lending and custodial services.

The following table states the total management (and, for Index 500,
sub-advisory) fee, as a percentage of each fund's average net assets,
for each fund for the fiscal year ended December 31, 1998:

Fund Total Management Fee

Money Market Portfolio 0.__%

Investment Grade Bond Portfolio 0.__%

High Income Portfolio 0.__%

Asset Manager Portfolio 0.__%

Asset Manager: Growth Portfolio 0.__%

Balanced Portfolio 0.__%

Equity-Income Portfolio 0.__%

Index 500 Portfolio 0.__%

Growth & Income Portfolio 0.__%

Growth Opportunities Portfolio 0.__%

Contrafund Portfolio 0.__%

Growth Portfolio 0.__%

Overseas Portfolio 0.__%

FMR pays FIMM, FMR U.K., FMR Far East, and FIIA for providing
assistance with investment advisory services, and FIIA in turn pays
FIIA(U.K.)L.

FMR may, from time to time, agree to reimburse each class for
management fees and other expenses above a specified limit. FMR
retains the ability to be repaid by a class if expenses fall below the
specified limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated by FMR at any time, can decrease
a class's expenses and boost its performance.

FMR has voluntarily agreed to reimburse Initial Class of certain funds
to the extent that total operating expenses (excluding interest,
taxes, securities lending fees, brokerage commissions and
extraordinary expenses, as a percentage of their respective average
net assets, exceed the following rates:

Effective Date

Investment Grade Bond Portfolio 0.80% 12/05/88

High Income Portfolio 1.00% 9/19/85

Asset Manager Portfolio 1.25% 1/1/90

Asset Manager: Growth Portfolio 1.00% 1/3/95

Balanced Portfolio 1.50% 1/3/95

Equity-Income Portfolio 1.50% 10/9/86

Growth & Income Portfolio 1.00% 12/31/96

Mid Cap Portfolio 1.00% 12/14/98

Growth Opportfunities Portfolio 1.50% 1/3/95

Contrafund Portfolio 1.00% 1/3/95

Growth Portfolio 1.50% 10/9/86

Overseas Portfolio 1.50% 1/28/87

Effective August 27, 1992, FMR has voluntarily agreed to reimburse
Index 500 to the extent that 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. In addition,
sub-advisory fees paid by index 500 associated with securities lending
are not eligible for reimbursement.

As of December 31, 1998, approximately __% and __% OF [NAME OF FUND]'s
total outstanding shares, respectively, were held by [FMR/FMR and [an]
FMR affiliate[s]/[an] FMR affiliate[s].

FUND DISTRIBUTION

Each fund (except Money Market, Investment Grade Bond, and Index 500)
is composed of multiple classes of shares. All classes of a fund have
a common investment objective and investment portfolio.

Fidelity Distributors Corporation, Inc. (FDC) distributes Initial
Class's shares.

Initial Class of each fund has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 that
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with providing services intended
to result in the sale of Initial Class shares and/or shareholder
support services. FMR, directly or through FDC, may pay
intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees of each fund has authorized such payments for Initial
Class.

To receive payments made pursuant to a Distribution and Service Plan
or record keeping fees, intermediaries must sign the appropriate
agreement with FDC in advance.

FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of the Variable Insurance Product funds,
provided that a fund receives brokerage services and commission rates
comparable to those of other broker-dealers.

BT may allocate brokerage transactions in a manner that takes into
account the sale of shares of Index 500, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.

No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this Prospectus and in the related
Statement of Additional Information (SAI), in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This Prospectus and the related SAI do
not constitute an offer by the funds or by FDC to sell or to buy
shares of the funds to any person to whom it is unlawful to make such
offer.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand each
class's financial history. Initial Class of Money Market, Investment
Grade Bond, High Income, Asset Manager, Equity-Income, Index 500,
Growth, and Overseas has financial history for the past 5 years.
Initial Class of Asset Manager: Growth, Balanced, Growth & Income, Mid
Cap, Growth Opportunities, and Contrafund has under 5 years of
financial history, beginning with its respective commencement of
operations date. Certain information reflects financial results for a
single class share. Total returns for each period include the
reinvestment of all dividends and distributions. This information has
been audited by ___________________, independent accountants, whose
report, along with each fund's financial highlights and financial
statements, are included in each fund's Annual Report. A free copy of
each Annual Report is available upon request.

[Financial Highlights to be filed by subsequent amendment.]

You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus).Each fund's annual and semi-annual
reports include a discussion of the fund's holdings and recent market
conditions and the fund's investment strategies that affected
performance.

For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-1916, or your insurance company.

The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's Internet Web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.

INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS 811-3329, 811-5511, AND
811-7205.

Fidelity Investments & (Pyramid) Design and Fidelity are registered
trademarks of FMR Corp.

The third party marks appearing above are the marks of their
respective owners.

VIP/VIPII/VIPIIIL-pro-0499
___________

VARIABLE
INSURANCE PRODUCTS FUNDS

SERVICE CLASS

INCOME FUND:
High Income Portfolio

ASSET ALLOCATION FUNDS:
Asset Manager Portfolio
Asset Manager: Growth Portfolio

GROWTH & INCOME AND GROWTH FUNDS:
Balanced Portfolio
Equity-Income Portfolio
Growth & Income Portfolio
Mid Cap Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio

PROSPECTUS
APRIL 30, 1999
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109

CONTENTS

FUND SUMMARY 3 INVESTMENT SUMMARY

7 PERFORMANCE

FUND BASICS 6 INVESTMENT DETAILS

16 VALUING SHARES

SHAREHOLDER INFORMATION 17 BUYING AND SELLING SHARES

17 DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS

17 TAX CONSEQUENCES

FUND SERVICES 12 FUND MANAGEMENT

14 FUND DISTRIBUTION

APPENDIX 21 FINANCIAL HIGHLIGHTS

FUND SUMMARY

INVESTMENT SUMMARY

INVESTMENT OBJECTIVE

HIGH INCOME PORTFOLIO seeks a high level of current income while also
considering growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 65% of total assets in
income-producing debt securities, preferred stocks and convertible
securities, with an emphasis on lower-quality debt securities.

(small solid bullet) Potentially investing in non-income producing
securities, including defaulted securities and common stocks.

(small solid bullet) Investing in companies in troubled or uncertain
financial condition.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over
the long term by allocating its assets among stocks, bonds, and
short-term instruments.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Allocating the fund's assets among stocks, bonds,
and short-term and money market instruments.

(small solid bullet) Maintaining a neutral mix over time of 50% of
assets in stocks, 40% of assets in bonds, and 10% of assets in
short-term and money market instruments.

(small solid bullet) Adjusting allocation among asset classes
gradually within the following ranges: stock class (30% - 70%), bond
class (20% - 60%), and short-term/money market class (0% - 50%).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Analyzing an issuer using fundamental and/or
quantitative factors and evaluating each security's current price
relative to estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Allocating the fund's assets among stocks, bonds,
and short-term and money market instruments.

(small solid bullet) Maintaining a neutral mix over time of 70% of
assets in stocks, 25% of assets in bonds, and 5% of assets in
short-term and money market instruments.

(small solid bullet) Adjusting allocation among asset classes
gradually within the following ranges: stock class (50% - 100%), bond
class (0% - 50%), and short-term/money market class (0% - 50%).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Analyzing an issuer using fundamental and/or
quantitative factors and evaluating each security's current price
relative to estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

BALANCED PORTFOLIO seeks both income and growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 25% of total assets in
fixed-income senior securities (including debt securities and
preferred stock).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Analyzing a security's issuer using fundamental
factors and evaluating each security's current price relative to
estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause prices of debt securities to decrease.

(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 65% of total assets in
income-producing equity securities, which tends to lead to investments
in large cap "value" stocks.

(small solid bullet) Potentially investing in other types of equity
securities and debt securities, including lower-quality debt
securities.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing a majority of assets in common stocks
with a focus on those that pay current dividends and show potential
for capital appreciation.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of debt securities to decrease.

(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. Lower-quality debt securities
(those of less than investment-grade quality) can be more volatile,
due to increased sensitivity to adverse issuer, political, regulatory,
market or economic developments.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

MID CAP PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Potentially investing in companies with smaller
or larger market capitalizations.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. The value of securities of smaller
issuers can be more volatile than that of larger issuers.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Potentially investing in other types of
securities, including bonds which may be lower-quality debt
securities.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

CONTRAFUND PORTFOLIO seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Investing in securities of companies whose value
it believes is not fully recognized by the public.

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Investing in either "growth" stocks or "value"
stocks or both.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

GROWTH PORTFOLIO seeks capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Investing in companies that it believes have
above-average growth potential (stocks of these companies are often
called "growth" stocks).

(small solid bullet) Investing in domestic and foreign issuers.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

INVESTMENT OBJECTIVE

OVERSEAS PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR's principal investment strategies include:

(small solid bullet) Investing at least 65% of total assets in foreign
securities.

(small solid bullet) Investing primarily in common stocks.

(small solid bullet) Allocating investments across countries and
regions considering the size of the market in each country and region
relative to the size of the international market as a whole.

(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

PRINCIPAL INVESTMENT RISKS

The fund is subject to the following principal investment risks:

When you sell your shares of the fund, they could be worth more or
less than what you paid for them.

PERFORMANCE

A fund's total return and/or yield may be quoted in advertising in
accordance with current law and interpretations thereof.

FUND BASICS

INVESTMENT DETAILS

THE INCOME FUND

INVESTMENT OBJECTIVE

HIGH INCOME seeks a high level of current income while also
considering growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

PRINCIPAL INVESTMENT RISKS

Many factors affect the fund's performance. The fund's yield and share
price change daily based on changes in interest rates and market
conditions and in response to other economic, political or financial
developments. The fund's reaction to these developments will be
affected by the types and maturities of the securities in which the
fund invests, the financial condition, industry and economic sector,
and geographic location of an issuer, and the fund's level of
investment in the securities of that issuer. When you sell your shares
of the fund, they could be worth more or less than what you paid for
them.

The following factors may significantly affect the fund's performance:

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.

In response to market, economic, political or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect the fund's
performance and the fund may not achieve its investment objective.

THE ASSET ALLOCATION FUNDS

INVESTMENT OBJECTIVE

ASSET MANAGER seeks high total return with reduced risk over the long
term by allocating its assets among stocks, bonds, and short-term
instruments.

PRINCIPAL INVESTMENT STRATEGIES

(small solid bullet) STOCK CLASS: 50% (can range from 30%-70%)

(small solid bullet) BOND CLASS: 40% (can range from 20%-60%)

(small solid bullet) SHORT-TERM/MONEY MARKET CLASS: 10% (can range
from 0%-50%)

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

ASSET MANAGER: GROWTH seeks to maximize total return by allocating its
assets among stocks, bonds, short-term instruments, and other
investments.

PRINCIPAL INVESTMENT STRATEGIES

(small solid bullet) STOCK CLASS: 70% (can range from 50%-100%)

(small solid bullet) BOND CLASS: 25% (can range from 0%-50%)

(small solid bullet) SHORT-TERM/MONEY MARKET CLASS: 5% (can range from
0%-50%)

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

In buying and selling securities for the fund, FMR generally analyzes
the issuer of a security using fundamental factors (e.g., growth
potential, earnings estimates and management) and/or quantitative
factors (e.g., historical earnings, dividend yield and earnings per
share) and estimates each security's current price relative to its
estimated long-term value.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

PRINCIPAL INVESTMENT RISKS

The following factors may significantly affect a fund's performance:

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.

THE GROWTH & INCOME AND GROWTH FUNDS

INVESTMENT OBJECTIVE

BALANCED PORTFOLIO seeks both income and growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

INVESTMENT OBJECTIVE

EQUITY-INCOME seeks reasonable income. The fund will also consider the
potential for capital appreciation. The fund seeks a yield which
exceeds the composit yield on the securities comprising the S&P 500.

PRINCIPAL INVESTMENT STRATEGIES

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR's emphasis on above-average income-producing equity securities
tends to lead to investments in large cap "value" stocks. However, FMR
is not constrained by any particular investment style. In buying and
selling securities for the fund, FMR relies on fundamental analysis of
each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market
conditions. Factors considered include growth potential, earnings
estimates and management.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

GROWTH & INCOME seeks high total return through a combination of
current income and capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

MID CAP PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks. FMR
may also invest the fund's assets in other types of securities,
including bonds which may be lower-quality debt securities.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

CONTRAFUND seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

INVESTMENT OBJECTIVE

GROWTH PORTFOLIO seeks capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests the fund's assets primarily in common stocks.

FMR invests the fund's assets in companies FMR believes have
above-average growth potential. Growth may be measured by factors
such as earnings or revenue.

FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If
FMR's strategies do not work as intended, the fund may not achieve its
objective.

INVESTMENT OBJECTIVE

OVERSEAS PORTFOLIO seeks long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

FMR normally invests at least 65% of the fund's total assets in
foreign securities. FMR normally invests the fund's assets primarily
in common stocks.

FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.

DESCRIPTION OF PRINCIPAL SECURITY TYPES

PRINCIPAL INVESTMENT RISKS

The following factors may significantly affect a fund's performance:

ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.

FUNDAMENTAL INVESTMENT POLICIES

The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.

HIGH INCOME PORTFOLIO seeks a high level of current income by
investing primarily in high yielding, fixed-income securities, while
also considering growth of capital.

ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced
risk over the long term by allocating its assets among stocks, bonds,
and short-term instruments.

ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.

GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation.

MID CAP PORTFOLIO seeks long-term growth of capital.

GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth by
investing primarily in common stocks and securities convertible into
common stocks.

CONTRAFUND PORTFOLIO seeks long-term capital appreciation.

GROWTH PORTFOLIO seeks to achieve capital appreciation.

OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities.

VALUING SHARES

Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.

A class's net asset value per share (NAV) is the value of a single
share. Fidelity(registered trademark) normally calculates Service
Class's NAV as of the close of business of the NYSE, normally 4:00
p.m. Eastern time. However, NAV may be calculated earlier if trading
on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). Each fund's assets are valued as of this
time for the purpose of computing Service Class's NAV.

Each fund's assets are valued primarily on the basis of market
quotations or on the basis of information furnished by a pricing
service. Certain short-term securities are valued on the basis of
amortized cost. If market quotations or information furnished by a
pricing service is not readily available for a security or if a
security's value has been materially affected by events occurring
after the close of the exchange or market on which the security is
principally traded (for example, a foreign exchange or market), that
security may be valued by another method that the Board of Trustees
believes accurately reflects fair value. A security's valuation may
differ depending on the method used for determining value.

SHAREHOLDER INFORMATION

BUYING AND SELLING SHARES

The price to buy one share of Service Class is the class's NAV.

The price to sell one share of Service Class is the class's NAV.

Redemptions may be suspended or payment dates postponed when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.

Agreements executed with insurance companies obligate a fund to sell
and redeem fund shares each day that the NYSE is open for business.
Notwithstanding anything else in the agreements, the Board may refuse
to sell shares of any fund to any separate account, or suspend or
terminate the offering of shares of any fund if such action is
required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in
light of its duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

High Income, Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, Growth & Income, Mid Cap, Growth Opportunities,
Contrafund, Growth, and Overseas Portfolios will distribute any
dividends at least annually. Normally, net realized capital gains, if
any, are distributed each year for a fund.

Dividends and capital gains distributions from a fund will be
automatically reinvested in additional shares of the same class of the
fund.

TAX CONSEQUENCES

FUND SERVICES

FUND MANAGEMENT

Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.

FMR is each fund's manager.

As of ___________, 199_, FMR had approximately $__ billion in
discretionary assets under management.

As the manager, FMR is responsible for choosing the funds' investments
and handling their business affairs.

Affiliates assist FMR with foreign investments:

(small solid bullet) Fidelity Management & Research Far East Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for High Income,
Asset Manager, Asset Manager: Growth, Balanced, Growth & Income, Mid
Cap, Growth Opportunities, Contrafund, and Overseas. FMR Far East was
organized in 1986 to provide investment research and advice to FMR.
Currently, FMR Far East provides investment research and advice on
issuers based outside the United States and may also provide
investment advisory services for each fund.

Fidelity Investments Money Management, Inc. (FIMM), in Merrimack, New
Hampshire, serves as a sub-adviser for Asset Manager, Asset Manager:
Growth, and Balanced. FIMM chooses certain types of investments for
each fund. FIMM is an affiliate of FMR. As of ______, 199_, FIMM had
approximately $___ billion in discretionary assets under management.

A fund could be adversely affected if the computer systems used by FMR
and other service providers do not properly process and calculate
date-related information from and after January 1, 2000. FMR has
advised each fund that it is actively working on necessary changes to
its computer systems and expects that its systems, and those of other
major service providers, will be modified prior to January 1, 2000.
However, there can be no assurance that there will be no adverse
impact on a fund.

Kevin Grant is Vice President of VIP III: Balanced Portfolio and
manager of its fixed-income investments since March 1996. He also
manages several other Fidelity funds. Mr. Grant joined Fidelity as a
portfolio manager in 1993.

Will Danoff is Vice President and manager of VIP II: Contrafund
Portfolio, which he has managed since January 1995. He also manages
another Fidelity fund. Since joining Fidelity in 1986, Mr. Danoff has
worked as an analyst and manager.
Jason Weiner is associate manager of VIP II: Contrafund Portfolio,
which he has managed since April 1998. He also manages another
Fidelity fund. Since joining Fidelity in 1991, Mr. Weiner has worked
as an analyst and manager.

Each fund has an investment objective similar to that of an existing
Fidelity fund. High Income Portfolio is most similar to Fidelity High
Income Fund; Asset Manager Portfolio is most similar to Fidelity Asset
Manager; Asset Manager: Growth Portfolio is most similar to Fidelity
Asset Manager: Growth; Balanced Portfolio is most similar to Fidelity
Advisor Balanced Fund; Equity-Income Portfolio is most similar to
Fidelity Equity-Income Fund; Growth & Income Portfolio is most similar
to Fidelity Growth & Income Portfolio; Mid Cap Portfolio is most
similar to Fidelity Advisor Mid Cap Fund; Growth Opportunities
Portfolio is most similar to Fidelity Advisor Growth Opportunities
Fund; Contrafund Portfolio is most similar to Fidelity Contrafund;
Growth Portfolio is most similar to Fidelity Growth Company Fund; and
Overseas Portfolio is most similar to Fidelity Overseas Fund.

Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.

Each fund pays a management fee to FMR. The management fee is
calculated and paid to FMR every month. The fee for each fund is
calculated by adding a group fee rate to an individual fund fee rate,
dividing by twelve, and multiplying the result by the fund's average
net assets throughout the month.

The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% for
Asset Manager, Asset Manager: Growth, Balanced, Equity-Income, Growth
& Income, Mid Cap, Growth Opportunities, Contrafund, Growth, and
Overseas, or 0.37% for High Income, and it drops as total assets under
management increase.

For December 1998, the group fee rate was __% for High Income, and the
group fee rate was __% for Asset Manager, Asset Manager: Growth,
Balanced, Equity-Income, Growth & Income, Mid Cap, Growth
Opportunities, Contrafund, Growth, and Overseas. The individual fund
fee rate is 0.15% for Balanced. The individual fund fee rate is 0.20%
for Equity-Income and Growth & Income. The individual fund fee rate is
0.25% for Asset Manager. The individual fund fee rate is 0.30% for
Asset Manager: Growth, Mid Cap, Growth Opportunities, Contrafund, and
Growth. The individual fund fee rate is 0.45% for High Income and
Overseas.

The following table states the total management fee, as a percentage
of each fund's average net assets, for each fund for the fiscal year
ended December 31, 1998:

Fund Total Management Fee

High Income Portfolio 0.__%

Asset Manager Portfolio 0.__%

Asset Manager: Growth Portfolio 0.__%

Balanced Portfolio 0.__%

Equity-Income Portfolio 0.__%

Growth & Income Portfolio 0.__%

Growth Opportunities Portfolio 0.__%

Contrafund Portfolio 0.__%

Growth Portfolio 0.__%

Overseas Portfolio 0.__%

FMR pays FIMM, FMR U.K., FMR Far East, and FIIA for providing
assistance with investment advisory services, and FIIA in turn pays
FIIA(U.K.)L.

FMR has voluntarily agreed to reimburse Service Class of the funds to
the extent that total operating expenses (excluding interest, taxes,
securities lending fees, brokerage commissions and extraordinary
expenses), as a percentage of their respective average net assets,
exceed the following rates:

Effective Date

High Income Portfolio 1.10% 11/03/97

Asset Manager Portfolio 1.35% 11/03/97

Asset Manager: Growth Portfolio 1.10% 11/03/97

Balanced Portfolio 1.60% 11/03/97

Equity-Income Portfolio 1.60% 11/03/97

Growth & Income Portfolio 1.10% 11/03/97

Mid Cap Portfolio 1.10% 12/14/98

Growth Opportfunities Portfolio 1.60% 11/03/97

Contrafund Portfolio 1.10% 11/03/97

Growth Portfolio 1.60% 11/03/97

Overseas Portfolio 1.60% 11/03/97

As of December 31, 1998, approximately __% and __% OF [NAME OF FUND]'s
total outstanding shares, respectively, were held by [FMR/FMR and [an]
FMR affiliate[s]/[an] FMR affiliate[s].

FUND DISTRIBUTION

Each fund is composed of multiple classes of shares. All classes of a
fund have a common investment objective and investment portfolio.

Fidelity Distributors Corporation, Inc. (FDC) distributes Service
Class's shares.

Service Class of each fund has adopted a Distribution and Service Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
the plan, Service Class of each fund is authorized to pay FDC (for
remittance quarterly to an insurance company) a 12b-1 fee as
compensation for providing services intended to result in the sale of
Service Class shares and/or shareholder support services. Depending on
an insurance company's corporate structure and applicable state law,
FDC may remit payments to the insurance company's affiliated
broker-dealer or other affiliated company, rather than to the
insurance company itself. Service Class of each fund may pay FDC a
12b-1 fee at an annual rate of 0.25% of its average net assets, or
such lesser amount as the Trustees may determine from time to time.
Service Class of each fund currently pays FDC a [monthly] 12b-1 fee at
an annual rate of 0.10% of its average net assets throughout the
month. Service Class's 12b-1 fee rate for each fund may be increased
only when the Trustees believe that it is in the best interests of
Variable Product owners to do so. (For purposes of this discussion,
"Variable Product" refers to a variable annuity contract or variable
life insurance policy for which shares of the funds are available as
underlying investment options.)

Up to the full amount of the Service Class 12b-1 fee may be reallowed
to insurance companies as compensation for providing services intended
to result in the sale of Service Class shares and/or support services
to Variable Product owners, based upon the level of such services
provided. These services may include, without limitation: answering
questions about the funds from Variable Product owners; receiving and
answering correspondence from Variable Product owners (including
requests for prospectuses and statements of additional information for
the funds); performing sub-accounting with respect to Variable Product
values allocated to the funds; preparing, printing and distributing
reports of values to Variable Product owners who have values allocated
to the funds; printing and distributing prospectuses, statements of
additional information, any supplements thereto, and shareholder
reports; preparing, printing and distributing marketing materials for
Variable Products; assisting customers in completing applications for
Variable Products and selecting underlying mutual fund investment
options; preparing, printing and distributing sub-account performance
figures for sub-accounts investing in fund shares; and providing other
reasonable assistance in connection with the distribution of fund
shares to insurers.

In addition, each Service Class plan specifically recognizes that FMR
may make payments from its management fee revenue, past profits, or
other resources to FDC for expenses incurred in connection with
providing services intended to result in the sale of Service Class
shares and/or shareholder support services, including payments made to
insurance companies and others that provide those services.
Currently, the Board of Trustees of each fund has authorized such
payments for Service Class.

Because 12b-1 fees are paid out of Service Class's assets on an
ongoing basis, they will increase the cost of your investment and may
cost you more than paying other types of sales charges.
To receive payments made pursuant to a Distribution and Service Plan
or record keeping fees, intermediaries must sign the appropriate
agreement with FDC in advance.

FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of the Variable Insurance Products funds,
provided that a fund receives brokerage services and commission rates
comparable to those of other broker-dealers.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand each
class's financial history. Service Class of each fund has under 5
years of financial history, beginning with its commencement of
operations date. Certain information reflects financial results for a
single class share. Total returns for each period include the
reinvestment of all dividends and distributions. This information has
been audited by ___________________, independent accountants, whose
report, along with each fund's financial highlights and financial
statements, are included in each fund's Annual Report. A free copy of
each Annual Report is available upon request.

[Financial Highlights to be filed by subsequent amendment.]

For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-1916, or your insurance company.

INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS 811-3329, 811-5511, AND
811-7205.

Fidelity Investments & (Pyramid) Design, and Fidelity are registered
trademarks of FMR Corp.

VIP/VIPII/VIPIIISC-pro-0499
1.700548.101

VARIABLE INSURANCE PRODUCTS FUND:
MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO, EQUITY-INCOME
PORTFOLIO,
GROWTH PORTFOLIO, AND OVERSEAS PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND II:
INVESTMENT GRADE BOND PORTFOLIO, ASSET MANAGER PORTFOLIO,
ASSET MANAGER: GROWTH PORTFOLIO, INDEX 500 PORTFOLIO, AND CONTRAFUND
PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND III:
BALANCED PORTFOLIO, GROWTH & INCOME PORTFOLIO,
GROWTH OPPORTUNITIES PORTFOLIO, AND MID CAP PORTFOLIO
INITIAL CLASS AND SERVICE CLASS
STATEMENT OF ADDITIONAL INFORMATION

APRIL 30, 199 9

This Statement of Additional Information (SAI) is not a prospectus .
Portions of the funds' Annual Reports are incorporated herein. The
Annual Reports are supplied with this SAI. To obtain a free
additional copy of a Prospectus (dated April 30, 1999) or an
Annual Report, please call Fidelity(registered trademark) at
1-800-544-1916, or your insurance company.

TABLE OF CONTENTS PAGE

Investment Policies and __
Limitations

Special Considerations __
Regarding Africa

Special Considerations __
Regarding Canada

Special Considerations __
Regarding Europe

Special Considerations __
Regarding Asia

Special Considerations __
Regarding Latin America

Special Considerations __
Regarding the Russian
Federation

Portfolio Transactions __

Valuation __

Performance __

Distributions and Taxes __

Trustees and Officers __

Control of Investment Advisers __

Management Contracts __

Distribution Services __

Transfer and Service Agent __
Agreements

Description of the Trusts __

Financial Statements __

Appendix __

For more information on any Fidelity fund, including charges and
expenses, call Fidelity at the number indicated above for a
free prospectus. Read it carefully before you invest or send money.

(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109

VIP/VIPII/VIPIII-ptb-0499
1.700593.101

INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with a fund's investment policies and limitations.

A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.

INVESTMENT LIMITATIONS OF MONEY MARKET PORTFOLIO

THE FOLLOWING ARE MONEY MARKET PORTFOLIO'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:

(1) purchase the securities of any issuer if, as a result, the fund
would not comply with any applicable diversification requirements for
a money market fund under the Investment Company Act of 1940 and the
rules thereunder, as such may be amended from time to time;

(2) issue senior securities, except in connection with the
insurance program established by the fund pursuant to an exemptive
order issued by the Securities and Exchange Commission or as otherwise
permitted under the Investment Company Act of 1940;

(3) borrow money, except that the fund may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) and
(ii) engage in reverse repurchase agreements for any purpose; provided
that (i) and (ii) in combination do not exceed 33 1/3% of the fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that come to exceed this amount will
be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33 1/3% limitation;

(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;

(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry, except that
the fund will invest more than 25% of its total assets in the
financial services industry;

(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);

(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments;

(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements; or

(9) invest in companies for the purpose of exercising control or
management.

THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE
NOT FUNDAMENTAL AND MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT,
WITHOUT SHAREHOLDER APPROVAL.

(i) The fund does not currently intend to purchase a security (other
than securities issued or guaranteed by the U.S. G overnment or
any of its agencies or instrumentalities or securities of other
money market funds ) if, as a result, more than 5% of its total
assets would be invested in securities of a single issuer;
provided that the fund may invest up to 10% of its total assets in the
first tier securities of a single issuer for up to three business
days.

(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.

(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.

(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party. The fund will not borrow from
other funds advised by FMR or its affiliates if total outstanding
borrowings immediately after such borrowing would exceed 15% of the
fund's total assets.

(v) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.

(vi) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.

(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by lending money (up to 10% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment adviser. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)

(viii) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
For purposes of limitation (i), certain securities subject to
guarantees (including insurance, letters of credit and demand
features) are not considered securities of their issuer, but are
subject to separate diversification requirements, in accordance with
industry standard requirements for money market funds.

With respect to limitation (v), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.

INVESTMENT LIMITATIONS OF HIGH INCOME, EQUITY-INCOME, GROWTH,
OVERSEAS, GROWTH & INCOME, BALANCED, GROWTH OPPORTUNITIES, INVESTMENT
GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, ASSET MANAGER:
GROWTH, AND MID CAP PORTFOLIOS

THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, GROWTH
& INCOME, BALANCED, GROWTH OPPORTUNITIES, INVESTMENT GRADE BOND, ASSET
MANAGER, INDEX 500, CONTRAFUND, ASSET MANAGER: GROWTH, AND MID CAP
PORTFOLIOS' FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR
ENTIRETY. EACH FUND MAY NOT:

(1) (for High Income, Equity-Income, Growth, Overseas, Investment
Grade Bond, Asset Manager, Index 500, Contrafund, Asset Manager:
Growth, and Mid Cap Portfolios) with respect to 75% of the fund's
total assets, purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or securities of other investment
companies) if, as a result, (a) more than 5% of the fund's total
assets would be invested in the securities of that issuer, or (b) the
fund would hold more than 10% of the outstanding voting securities of
that issuer;

(for Growth & Income, Balanced, and Growth Opportunities
Portfolios) with respect to 75% of the fund's total assets, purchase
the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, (a) more than 5% of the fund's
total assets would be invested in the securities of that issuer, or
(b) the fund would hold more than 10% of the outstanding voting
securities of that issuer;

(2) (for High Income, Equity-Income, Growth, Overseas, Growth &
Income, Balanced, Growth Opportunities, Investment Grade Bond, Asset
Manager, Index 500, Contrafund, and Asset Manager: Growth
Portfolios) issue senior securities, except in connection with
the insurance program established by the fund pursuant to an exemptive
order issued by the Securities and Exchange Commission or as
otherwise permitted under the Investment Company Act of 1940;

(for Mid Cap Portfolio) issue senior securities, except as
permitted under the Investment Company Act of 1940;

(3) (for High Income, Equity-Income, Growth, Overseas, Balanced,
Growth Opportunities, and Mid Cap Portfolios) borrow money, except
that the fund (i) may borrow money for temporary or emergency purposes
(not for leveraging or investment) or (ii) engage in reverse
repurchase agreements, provided that (i) and (ii) in combination
(borrowings) do not exceed 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the value of the fund's
total assets by reason of a decline in net assets will be reduced
within three days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;

(for Growth & Income, Investment Grade Bond, Asset Manager,
Index 500, Contrafund, and Asset Manager: Growth Portfolios)
borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33
1/3% limitation;

(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets
would be invested in the securities of companies whose principal
business activities are in the same industry;

(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or

(9) (for Balanced and Growth Opportunities Portfolios) Each fund may,
notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and limitations as the fund.

(for Mid Cap Portfolio) The fund may, notwithstanding any other
fundamental investment policy or limitation, invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.

THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME,
GROWTH, OVERSEAS, GROWTH & INCOME, BALANCED, GROWTH OPPORTUNITIES,
INVESTMENT GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, ASSET
MANAGER: GROWTH, AND MID CAP PORTFOLIOS ARE NOT FUNDAMENTAL AND
MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT, WITHOUT SHAREHOLDER
APPROVAL.

(i) Each fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.

(ii) Each fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.

(iii) Each fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). Each fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.

(iv) Each fund does not currently intend to purchase any security if,
as a result, more than 10% (Equity-Income, Growth, Investment Grade
Bond, Asset Manager, Asset Manager: Growth, Index 500, Contrafund,
Balanced, Growth & Income, Growth Opportunities, and Mid Cap
Portfolios) or more than 15% (High Income and Overseas Portfolios)
of its net assets would be invested in securities that are deemed to
be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of
in the ordinary course of business at approximately the prices at
which they are valued.

(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to 5% of
net assets for Equity-Income, Growth, Overseas, Asset Manager, Asset
Manager: Growth, Index 500, Contrafund, Balanced, Growth & Income,
Growth Opportunities, and Mid Cap Portfolios and 7.5% of net
assets for High Income and Investment Grade Bond Portfolios) to a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) acquiring loans, loan
participations, or other forms of direct debt instruments and, in
connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)

(vi) Each fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.

(vii) (for Balanced and Growth Opportunities Portfolios) Each fund
does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.

(for Mid Cap Portfolio) The fund does not currently intend to
invest all of its assets in the securities of a single open-end
management investment company managed by Fidelity Management &
Research Company or an affiliate or successor with substantially the
same fundamental investment objective, policies, and limitations as
the fund.

With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, a fund were in a position where more
than 10% (Equity-Income, Growth, Investment Grade Bond, Asset Manager,
Asset Manager: Growth, Index 500, Contrafund, Balanced, Growth &
Income, Growth Opportunities, and Mid Cap Portfolios) or more
than 15% (High Income and Overseas Portfolios) of its net assets was
invested in illiquid securities, it would consider appropriate steps
to protect liquidity.

For the funds' limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 8.

Fo r purposes of Index 500 Portfolio's limitation on
concentration in a single industry, the fund may use the industry
categorizations as defined by BARRA, Inc.

In accordance with the funds' fundamental investment policies, there
are no limitations on the percentage of the funds' assets which may be
invested in any one type of instrument. Nor are there limitations on
the percentage of the funds' assets which may be invested in any
foreign country. However, in order to comply with diversification
requirements under Section 817(h) of the Internal Revenue Code of
1986, as amended, in connection with FMR serving as investment adviser
to each fund (investment manager to Index 500) , each fund has
agreed to certain non-fundamental limitations. Please refer to your
insurance company's separate account prospectus for more information.

The following pages contain more detailed information about types
of instruments in which a fund may invest, strategies FMR (BT for
Index 500) may employ in pursuit of a fund's investment objective, and
a summary of related risks. FMR (BT for Index 500) may not buy all of
these instruments or use all of these techniques unless it believes
that doing so will help a fund achieve its goal.

AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.

ASSET ALLOCATION (ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS).
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, which are included
in the bond class). FMR seeks to maximize total return within this
asset class by actively allocating assets to industry sectors expected
to benefit from major trends, and to individual stocks that FMR
believes to have superior investment potential. When FMR selects
equity securities, it considers both growth and anticipated dividend
income. Securities in the stock class may include common stocks,
fixed-rate preferred stocks (including convertible preferred stocks),
warrants, rights, depositary receipts, securities of closed-end
investment companies, and other equity securities issued by companies
of any size, located anywhere in the world.

The bond class includes all varieties of domestic and foreign
fixed-income securities maturing in more than one year. FMR will seek
to maximize total return within the bond class by adjusting a fund's
investments in securities with different credit qualities, maturities,
and coupon or dividend rates, and by seeking to take advantage of
yield differentials between securities. Securities in this class may
include bonds, notes, adjustable-rate preferred stocks, convertible
bonds, mortgage-related and asset-backed securities, domestic and
foreign government and government agency securities, zero coupon
bonds, and other intermediate and long-term securities. These
securities may be denominated in U.S. dollars or foreign currency.

The short-term/money market class includes all types of domestic and
foreign short-term and money market instruments. FMR will seek to
maximize total return within this asset class by taking advantage of
yield differentials between different instruments, issuers, and
currencies. Short-term and money market instruments may include
corporate debt securities, such as commercial paper and notes;
government securities issued by U.S. or foreign governments or their
agencies or instrumentalities; bank deposits and other financial
institution obligations; repurchase agreements involving any type of
security; and other similar short-term instruments. These instruments
may be denominated in U.S. dollars or foreign currency.

FMR may use its judgment to place a security in the most appropriate
class based on its investment characteristics. Fixed-income securities
may be classified in the bond or short-term/money market class
according to interest rate sensitivity as well as maturity. The funds
may also make other investments that do not fall within these classes.
In making asset allocation decisions, FMR will evaluate projections of
risk, market conditions, economic conditions, volatility, yields, and
returns. FMR's management will use database systems to help analyze
past situations and trends, research specialists in each of the asset
classes to help in securities selection, portfolio management
professionals to determine asset allocation and to select individual
securities, and its own credit analysis as well as credit analyses
provided by rating services.

ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds, or other credit enhancements.
Asset-backed security values may also be affected by other factors
including changes in interest rates, the availability of information
concerning the pool and its structure, the creditworthiness of the
servicing agent for the pool, the originator of the loans or
receivables, or the entities providing the credit enhancement. In
addition, these securities may be subject to prepayment risk.

BORROWING Each fund may borrow from banks or from other
funds advised by FMR or its affiliates, or through reverse repurchase
agreements. If a fund borrows money, its share price may be subject
to greater fluctuation until the borrowing is paid off. If a fund
makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.

CASH MANAGEMENT A fund can hold uninvested cash or can
invest it in cash equivalents such as money market securities,
repurchase agreements or shares of money market funds. Generally,
these securities offer less potential for gains than other types of
securities.

CENTRAL CASH FUNDS are money market funds managed by FMR or
its affiliates that seek to earn a high level of current income while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity and diversification of their investments.

COMMON STOCK represents an equity or ownership interest in
an issuer. In the event an issuer is liquidated or declares
bankruptcy, the claims of owners of bonds and preferred stock take
precedence over the claims of those who own common stock.

CONVERTIBLE SECURITIES are bonds, debentures, notes, preferred stocks
or other securities that may be converted or exchanged (by the holder
or by the issuer) into shares of the underlying common stock (or cash
or securities of equivalent value) at a stated exchange ratio. A
convertible security may also be called for redemption or conversion
by the issuer after a particular date and under certain circumstances
(including a specified price) established upon issue. If a convertible
security held by a fund is called for redemption or conversion, the
fund could be required to tender it for redemption, convert it into
the underlying common stock, or sell it to a third party.

Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields
higher than the underlying common stocks, but generally lower than
comparable non-convertible securities. Because of this higher
yield, convertible securities generally sell at prices above their
"conversion value," which is the current market value of the stock to
be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time
depending on changes in the value of the underlying common stocks and
interest rates. When the underlying common stocks decline in value,
convertible securities will tend not to decline to the same extent
because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities.
However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. When the
underlying common stocks rise in value, the value of convertible
securities may also be expected to increase. At the same time,
however, the difference between the market value of convertible
securities and their conversion value will narrow, which means that
the value of convertible securities will generally not increase to the
same extent as the value of the underlying common stocks. Because
convertible securities may also be interest-rate sensitive, their
value may increase as interest rates fall and decrease as interest
rates rise. Convertible securities are also subject to credit
risk, and are often lower-quality securities.

DEBT SECURITIES are used by issuers to borrow money. The
issuer usually pays a fixed, variable or floating rate of interest,
and must repay the amount borrowed at the maturity of the security.
Some debt securities, such as zero coupon bonds, do not pay interest
but are sold at a deep discount from their face values. Debt
securities include corporate bonds, government securities, and
mortgage and other asset-backed securities.

DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying
the value of each investment by the time remaining to its maturity,
adding these calculations, and then dividing the total by the value of
the fund's portfolio. An obligation's maturity is typically determined
on a stated final maturity basis, although there are some exceptions
to this rule.

For example, if it is probable that the issuer of an instrument
will take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. Also, the maturities of mortgage securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.

DOMESTIC AND FOREIGN INVESTMENTS (MONEY MARKET PORTFOLIO) include U.S.
dollar-denominated time deposits, certificates of deposit, and
bankers' acceptances of U.S. banks and their branches located outside
of the United States, U.S. branches and agencies of foreign banks, and
foreign branches of foreign banks. Domestic and foreign investments
may also include U.S. dollar-denominated securities issued or
guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign
governments, foreign government agencies or instrumentalities, and
U.S. and foreign financial institutions, including savings and loan
institutions, insurance companies, mortgage bankers, and real estate
investment trusts, as well as banks.

The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and by
governmental regulation. Payment of interest and repayment of
principal on these obligations may also be affected by governmental
action in the country of domicile of the branch (generally referred to
as sovereign risk). In addition, evidence of ownership of portfolio
securities may be held outside of the United States and a fund
may be subject to the risks associated with the holding of such
property overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.

Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
federal and state regulation, as well as by governmental action in the
country in which the foreign bank has its head office.

Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic
developments, withholding taxes, seizures of foreign deposits,
currency controls, interest limitations, or other governmental
restrictions that might affect repayment of principal or payment of
interest, or the ability to honor a credit commitment. Additionally,
there may be less public information available about foreign entities.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing, and financial reporting
requirements comparable to those applicable to U.S. issuers.

EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks
inherent in U.S. investments. FMR limits the amount of each of High
Income, Equity-Income, Growth, Investment Grade Bond, Asset Manager
and Index 500 Portfolios' assets that may be invested in foreign
securities to 50%.

Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments, and may be affected by
actions of foreign governments adverse to the interests of U.S.
investors. Such actions may include expropriation or nationalization
of assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. Additionally,
governmental issuers of foreign debt securities may be unwilling to
pay interest and repay principal when due and may require that the
conditions for payment be renegotiated. There is no assurance that
FMR (BT for Index 500) will be able to anticipate these potential
events or counter their effects. In addition, the value of securities
denominated in foreign currencies and of dividends and interest paid
with respect to such securities will fluctuate based on the relative
strength of the U.S. dollar.

It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC)
markets located outside of the United States. Foreign stock markets,
while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some
foreign issuers may be less liquid and more volatile than securities
of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices (including those involving securities settlement
where fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in
increased risk or substantial delays in the event of a failed trade or
the insolvency of, or breach of duty by, a foreign broker-dealer,
securities depository or foreign subcustodian. In addition, the costs
associated with foreign investments, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than
with U.S. investments.

Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to U.S. issuers.
Adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less overall
governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. OTC markets
tend to be less regulated than stock exchange markets and, in certain
countries, may be totally unregulated. Regulatory enforcement may be
influenced by economic or political concerns, and investors may have
difficulty enforcing their legal rights in foreign countries.

Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject
to such restrictions.

American Depositary Receipts (ADRs) as well as other "hybrid" forms of
ADRs, including European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs), are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by
depository banks and generally trade on an established market in the
United States or elsewhere. The underlying shares are held in trust by
a custodian bank or similar financial institution in the issuer's home
country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various
services, including forwarding dividends and interest and corporate
actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However,
ADRs continue to be subject to many of the risks associated with
investing directly in foreign securities. These risks include foreign
exchange risk as well as the political and economic risks of the
underlying issuer's country.

The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be
significantly more volatile than those in more developed markets,
reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets
may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less
protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a
few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times.

FOREIGN CURRENCY TRANSACTIONS. A bond or equity fund may conduct
foreign currency transactions on a spot (i.e., cash) or forward basis
(i.e., by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange.

The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by a fund. A
fund may also use swap agreements, indexed securities, and options and
futures contracts relating to foreign currencies for the same
purposes.

A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is
made or received. Entering into a forward contract for the purchase or
sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the
U.S. dollar price of the security. Forward contracts to purchase or
sell a foreign currency may also be used by a fund in anticipation of
future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected
by FMR (BT for Index 500).

A fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's
value. Such a hedge, sometimes referred to as a "position hedge,"
would tend to offset both positive and negative currency fluctuations,
but would not offset changes in security values caused by other
factors. A fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would
not hedge currency exposure as effectively as a direct hedge into U.S.
dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged
securities are denominated.

A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to
the currency that is sold, and increase exposure to the currency that
is purchased, much as if a fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause a fund to assume the risk of
fluctuations in the value of the currency it purchases.

Successful use of currency management strategies will depend on FMR's
(BT's for Index 500) skill in analyzing currency values. Currency
management strategies may substantially change a fund's investment
exposure to changes in currency exchange rates and could result in
losses to a fund if currencies do not perform as FMR (BT for Index
500) anticipates. For example, if a currency's value rose at a time
when FMR (BT for Index 500) had hedged a fund by selling that currency
in exchange for dollars, a fund would not participate in the
currency's appreciation. If FMR (BT for Index 500) hedges currency
exposure through proxy hedges, a fund could realize currency losses
from both the hedge and the security position if the two currencies do
not move in tandem. Similarly, if FMR (BT for Index 500) increases a
fund's exposure to a foreign currency and that currency's value
declines, a fund will realize a loss. There is no assurance that FMR's
(BT's for Index 500) use of currency management strategies will be
advantageous to a fund or that it will hedge at appropriate times.

FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements
involve an agreement to purchase a foreign security and to sell
that security back to the original seller at an agreed-upon price in
either U.S. dollars or foreign currency. Unlike typical U.S.
repurchase agreements, foreign repurchase agreements may not be fully
collateralized at all times. However, pursuant to certain state
insurance regulations, any foreign repurchase agreements a fund enters
into will be secured by collateral consisting of liquid assets having
a market value of not less than 102% of the cash or assets transferred
to the other party. The value of a security purchased by a fund may be
more or less than the price at which the counterparty has agreed to
repurchase the security. In the event of default by the counterparty,
the fund may suffer a loss if the value of the security purchased is
less than the agreed-upon repurchase price, or if the fund is unable
to successfully assert a claim to the collateral under foreign laws.
As a result, foreign repurchase agreements may involve higher credit
risks than repurchase agreements in U.S. markets, as well as risks
associated with currency fluctuations. In addition, as with other
emerging market investments, repurchase agreements with counterparties
located in emerging markets or relating to emerging market securities
may involve issuers or counterparties with lower credit ratings than
typical U.S. repurchase agreements.

FUNDS' RIGHTS AS SHAREHOLDERS. The funds do not intend to direct or
administer the day-to-day operations of any company. A fund, however,
may exercise its rights as a shareholder and may communicate its views
on important matters of policy to management, the Board of Directors,
and shareholders of a company when FMR (BT for Index 500) determines
that such matters could have a significant effect on the value of the
fund's investment in the company. The activities in which a fund may
engage, either individually or in conjunction with others, may
include, among others, supporting or opposing proposed changes in a
company's corporate structure or business activities; seeking changes
in a company's directors or management; seeking changes in a company's
direction or policies; seeking the sale or reorganization of the
company or a portion of its assets; or supporting or opposing
third-party takeover efforts. This area of corporate activity is
increasingly prone to litigation and it is possible that a fund could
be involved in lawsuits related to such activities. FMR (BT for Index
500) will monitor such activities with a view to mitigating, to the
extent possible, the risk of litigation against a fund and the risk of
actual liability if a fund is involved in litigation. No guarantee can
be made, however, that litigation against a fund will not be
undertaken or liabilities incurred.

FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Combined Positions, Correlation of Price Changes, Futures
Contracts, Futures Margin Payments, Limitations on Futures and Options
Transactions, Liquidity of Options and Futures Contracts, Options and
Futures Relating to Foreign Currencies, OTC Options, Purchasing Put
and Call Options, and Writing Put and Call Options.

COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price , to reduce the risk of the written call
option in the event of a substantial price increase. Because combined
options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.

CORRELATION OF PRICE CHANGES . Because there are a limited
number of types of exchange-traded options and futures contracts, it
is likely that the standardized contracts available will not match a
fund's current or anticipated investments exactly. A fund may invest
in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.

FUTURES CONTRACTS. In purchasing a futures contract, the buyer
agrees to purchase a specified underlying instrument at a specified
future date. In selling a futures contract, the seller agrees to sell
a specified underlying instrument at a specified future date. The
price at which the purchase and sale will take place is fixed when the
buyer and seller enter into the contract. Some currently available
futures contracts are based on specific securities, such as U.S.
Treasury bonds or notes, and some are based on indices of securities
prices, such as the Standard & Poor's 500 Index (S&P 500). Futures can
be held until their delivery dates, or can be closed out before then
if a liquid secondary market is available.

Overseas Portfolio may invest in futures based on foreign indexes
such as the CAC 40 (France), DAX 30 (Germany), EuroTop 100
(Europe), IBEX (Spain), FTSE 100 (United Kingdom), All Ordinary
(Australia), Hang Seng (Hong Kong), and Nikkei 225, Nikkei 300 and
TOPIX (Japan).

The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.

FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures
contract is not required to deliver or pay for the underlying
instrument unless the contract is held until the delivery date.
However, both the purchaser and seller are required to deposit
"initial margin" with a futures broker, known as a futures commission
merchant (FCM), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value.
If the value of either party's position declines, that party will be
required to make additional "variation margin" payments to settle the
change in value on a daily basis. The party that has a gain may be
entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on
margin for purposes of a fund's investment limitations. In the event
of the bankruptcy of an FCM that holds margin on behalf of a fund, the
fund may be entitled to return of margin owed to it only in proportion
to the amount received by the FCM's other customers, potentially
resulting in losses to the fund.

Although futures exchanges generally operate similarly in the
United States and abroad, foreign futures exchanges may
follow trading , settlement and margin procedures that are
different from those for U.S. exchanges. Futures contracts traded
outside the United States may involve greater risk of loss than
U.S.-traded contracts, including potentially greater risk of
losses due to insolvency of a futures broker, exchange member or other
party that may owe initial or variation margin to a fund. Because
initial and variation margin payments may be measured in foreign
currency, a futures contract traded outside the United States may also
involve the risk of foreign currency fluctuation.

LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond and
equity fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity
Futures Trading Commission (CFTC) and the National Futures
Association, which regulate trading in the futures markets. The funds
intend to comply with Rule 4.5 under the Commodity Exchange Act, which
limits the extent to which the funds can commit assets to initial
margin deposits and option premiums.

In addition, each equity fund (excluding Index 500) will not:
(a) sell futures contracts, purchase put options, or write call
options if, as a result, more than 25% of the fund's total assets
would be hedged with futures and options under normal conditions; (b)
purchase futures contracts or write put options if, as a result, the
fund's total obligations upon settlement or exercise of purchased
futures contracts and written put options would exceed 25% of its
total assets under normal conditions ; or (c) purchase call
options if, as a result, the current value of option premiums for call
options purchased by the fund would exceed 5% of the fund's total
assets. These limitations do not apply to options attached to or
acquired or traded together with their underlying securities, and do
not apply to securities that incorporate features similar to options.

In addition, each bond fund will not: (a) sell futures contracts,
purchase put options, or write call options if, as a result, more than
25% of the fund's total assets would be hedged with futures and
options under normal conditions; (b) purchase futures contracts or
write put options if, as a result, the fund's total obligations upon
settlement or exercise of purchased futures contracts and written put
options would exceed 25% of its total assets; or (c) purchase call
options if, as a result, the current value of option premiums for call
options purchased by the fund would exceed 5% of the fund's total
assets. These limitations do not apply to options attached to or
acquired or traded together with their underlying securities, and do
not apply to securities that incorporate features similar to
options.

BT also intends to follow certain other limitations on Index 500's
futures and options activities. The fund will not purchase any option
if, as a result, more than 5% of its total assets would be invested in
option premiums. Under normal conditions, the fund will not enter into
any futures contract or option if, as a result, the sum of (i) the
current value of the assets hedged in the case of strategies involving
the sale of securities, and (ii) the current value of the indices or
other instruments underlying the fund's other futures or options
positions, would exceed 35% of the fund's total assets. These
limitations do not apply to options attached to, or acquired or traded
together with, their underlying securities, and do not apply to
securities that incorporate features similar to options.

The above limitations on the bond and equity funds' investments in
futures contracts and options, and the funds' policies regarding
futures contracts and options discussed elsewhere in this SAI, may be
changed as regulatory agencies permit.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no
assurance a liquid secondary market will exist for any particular
options or futures contract at any particular time. Options may have
relatively low trading volume and liquidity if their strike prices are
not close to the underlying instrument's current price. In addition,
exchanges may establish daily price fluctuation limits for options and
futures contracts, and may halt trading if a contract's price moves
upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible to enter into new positions or
close out existing positions. If the secondary market for a contract
is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and
potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a
result, a fund's access to other assets held to cover its options or
futures positions could also be impaired.

OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency
futures contracts are similar to forward currency exchange contracts,
except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery
date. Most currency futures contracts call for payment or delivery in
U.S. dollars. The underlying instrument of a currency option may be a
foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser
of a currency call obtains the right to purchase the underlying
currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.

The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. A fund may purchase and sell currency futures and may purchase
and write currency options to increase or decrease its exposure to
different foreign currencies. Currency options may also be purchased
and written in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected
to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in
the Yen, but will not protect a fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value
of a fund's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to
match the amount of currency options and futures to the value of the
fund's investments exactly over time.

OTC OPTIONS. Unlike exchange-traded options, which are
standardized with respect to the underlying instrument, expiration
date, contract size, and strike price, the terms of over-the-counter
(OTC) options (options not traded on exchanges) generally are
established through negotiation with the other party to the option
contract. While this type of arrangement allows the purchaser or
writer greater flexibility to tailor an option to its needs, OTC
options generally involve greater credit risk than exchange-traded
options, which are guaranteed by the clearing organization of the
exchanges where they are traded.

PURCHASING PUT AND CALL OPTIONS. By purchasing a put option,
the purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.

The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium plus related transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.

WRITING PUT AND CALL OPTIONS. The writer of a put or call
option takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the writer assumes
the obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
The writer may seek to terminate a position in a put option before
exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid for a put option,
however, the writer must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes.
When writing an option on a futures contract, a fund will be required
to make margin payments to an FCM as described above for futures
contracts.

If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.

Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.

ILLIQUID SECURITIES cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they
are valued. Difficulty in selling securities may result in a loss
or may be costly to a fund. Under the supervision of the Board of
Trustees, FMR determines the liquidity of each fund's (except Index
500's) investments and, through reports from FMR, the Board monitors
investments in illiquid securities . Under the supervision of
the Board of Trustees and FMR, BT determines the liquidity of Index
500's investments and, through reports from FMR and/or BT, the Board
monitors investments in illiquid securities . In determining the
liquidity of a fund's investments, FMR (BT for Index 500) may consider
various factors, including (1) the frequency and volume of
trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market and (4) the nature of the security and the market in which
it trades (including any demand , put, or tender
features , the mechanics and other requirements for transfer, any
letters of credit or other credit enhancement features, any ratings,
the number of holders, the method of soliciting offers, the time
required to dispose of the security, and the ability to assign or
offset the rights and obligations of the security ).

INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, or other
financial indicators. Indexed securities typically, but not always,
are debt securities or deposits whose value at maturity or coupon rate
is determined by reference to a specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the
values of one or more specified foreign currencies, and may offer
higher yields than U.S. dollar-denominated securities.
Currency-indexed securities may be positively or negatively indexed;
that is, their maturity value may increase when the specified currency
value increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline
when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each
other.

The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes
in the United States and abroad. Indexed securities may be more
volatile than the underlying instruments. Indexed securities are also
subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government
agencies.

In addition, for Index 500, indexed securities include commercial
paper, certificates of deposit, and other fixed-income securities
whose values at maturity or coupon interest rates are determined by
reference to the returns of the S&P 500 or comparable stock indices.
Indexed securities can be affected by stock prices as well as changes
in interest rates and the creditworthiness of their issuers and may
not track the S&P 500 as accurately as direct investments in the S&P
500.

INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will lend
through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the
cost of bank loans. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.

INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt
securities are medium and high-quality securities. Some may possess
speculative characteristics and may be more sensitive to economic
changes and to changes in the financial conditions of issuers. A debt
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service, Standard & Poor's, Duff
& Phelps Credit Rating Co., or Fitch IBCA Inc., or is unrated but
considered to be of equivalent quality by FMR.

ISSUER LOCATION. FMR determines where an issuer is located by looking
at such factors as the issuer's country of organization, the primary
trading market for the issuer's securities, and the location of the
issuer's assets, personnel, sales, and earnings. The issuer of a
security is considered to be located in a particular country if (1)
the security is issued or guaranteed by the government of the
country or any of its agencies, political subdivisions, or
instrumentalities; (2) the security has its primary trading market in
that country; or (3) the issuer is organized under the laws of that
country, derives at least 50% of its revenues or profits from goods
sold, investments made, or services performed in the country,
or has at least 50% of its assets located in the country.

LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other
borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt instruments
involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the purchaser in the
event of fraud or misrepresentation, or there may be a requirement
that a fund supply additional cash to a borrower on demand.

Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
interest and repayment of principal. If scheduled interest or
principal payments are not made, the value of the instrument may be
adversely affected. Loans that are fully secured provide more
protections than an unsecured loan in the event of failure to make
scheduled interest or principal payments. However, there is no
assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off
their indebtedness, or may pay only a small fraction of the amount
owed. Direct indebtedness of developing countries also involves a risk
that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal
when due.

Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional
risks. For example, if a loan is foreclosed, the purchaser could
become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of
lender liability, a purchaser could be held liable as a co-lender.
Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary.

A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of
the loan, as specified in the loan agreement. Unless, under the terms
of the loan or other indebtedness, the purchaser has direct recourse
against the borrower, the purchaser may have to rely on the agent to
apply appropriate credit remedies against a borrower. If assets held
by the agent for the benefit of a purchaser were determined to be
subject to the claims of the agent's general creditors, the purchaser
might incur certain costs and delays in realizing payment on the loan
or loan participation and could suffer a loss of principal or
interest.

Direct indebtedness may include letters of credit, revolving credit
facilities, or other standby financing commitments that obligate
purchasers to make additional cash payments on demand. These
commitments may have the effect of requiring a purchaser to increase
its investment in a borrower at a time when it would not otherwise
have done so, even if the borrower's condition makes it unlikely that
the amount will ever be repaid.

Each fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see each fund's
investment limitations). For purposes of these limitations, a fund
generally will treat the borrower as the "issuer" of indebtedness held
by the fund. In the case of loan participations where a bank or other
lending institution serves as financial intermediary between a fund
and the borrower, if the participation does not shift to the fund the
direct debtor-creditor relationship with the borrower, SEC
interpretations require a fund, in appropriate circumstances,
to treat both the lending bank or other lending institution and the
borrower as "issuers" for these purposes. Treating a financial
intermediary as an issuer of indebtedness may restrict a fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different
companies and industries.

LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.

The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.

Because the risk of default is higher for lower-quality debt
securities, FMR's research and credit analysis are an especially
important part of managing securities of this type. FMR will attempt
to identify those issuers of high-yielding securities whose financial
condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. FMR's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects, and the experience and managerial
strength of the issuer.

A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.

MONEY MARKET INSURANCE. The money market fund participates in a
mutual insurance company solely with other funds advised by FMR or its
affiliates. This company provides insurance coverage for losses on
certain money market instruments held by a participating fund
(eligible instruments), including losses from nonpayment of principal
or interest or a bankruptcy or insolvency of the issuer or credit
support provider, if any. The insurance does not cover losses
resulting from changes in interest rates or other market developments.
The money market fund is charged an annual premium for the insurance
coverage and may be subject to a special assessment of up to
approximately two and one-half times the fund's annual gross premium
if covered losses exceed certain levels. A participating fund may
recover no more than $100 million annually, including all other claims
of insured funds, and may only recover if the amount of the loss
exceeds 0.30% of its eligible instruments. The money market fund may
incur losses regardless of the insurance.

MONEY MARKET SECURITIES are high-quality, short-term obligations.
Money market securities may be structured to be, or may employ
a trust or other form so that they are , eligible
investments for money market funds. For example, put features can be
used to modify the maturity of a security or interest rate adjustment
features can be used to enhance price stability. If a structure
fails to function as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS)
nor any other regulatory authority has ruled definitively on certain
legal issues presented by certain structured securities. Future
tax or other regulatory determinations could adversely affect the
value, liquidity, or tax treatment of the income received from these
securities or the nature and timing of distributions made by
the fund.

MORTGAGE SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage security is an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage securities , such as
collateralized mortgage obligations (or " CMOs " ), make
payments of both principal and interest at a range of specified
intervals; others make semiannual interest payments at a predetermined
rate and repay principal at maturity (like a typical bond).
Mortgage securities are based on different types of mortgages,
including those on commercial real estate or residential properties.
Stripped mortgage securities are created when the interest and
principal components of a mortgage security are separated and
sold as individual securities. In the case of a stripped mortgage
security , the holder of the "principal-only" security (PO)
receives the principal payments made by the underlying mortgage, while
the holder of the "interest-only" security (IO) receives interest
payments from the same underlying mortgage.

Fannie Mae and Freddie Macs are pass-through securities issued by
Fannie Mae and Freddie Mac, respectively. Fannie Mae and Freddie Mac,
which guarantee payment of interest and repayment of principal on
Fannie Maes and Freddie Macs, respectively, are federally chartered
corporations supervised by the U.S. Government that act as
governmental instrumentalities under authority granted by Congress.
Fannie Mae is authorized to borrow from the U.S. Treasury to meet its
obligations. Fannie Maes and Freddie Macs are not backed by the full
faith and credit of the U.S. Government.

The value of mortgage securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage securities market as a whole. Non-government
mortgage securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage securities are subject
to prepayment risk , which is the risk that early principal payments
made on the underlying mortgages, usually in response to a reduction
in interest rates, will result in the return of principal to the
investor, causing it to be invested subsequently at a lower current
interest rate. Alternatively, in a rising interest rate environment,
mortgage security values may be adversely affected when prepayments on
underlying mortgages do not occur as anticipated, resulting in the
extension of the security's effective maturity and the related
increase in interest rate sensitivity of a longer-term instrument.
The prices of stripped mortgage securities tend to be more
volatile in response to changes in interest rates than those of
non-stripped mortgage securities.

In order to earn additional income for a fund, FMR may use a
trading strategy that involves selling mortgage securities and
simultaneously agreeing to purchase similar securities on a later date
at a set price. This trading strategy may result in an increased
portfolio turnover rate which increases costs and may increase taxable
gains.

MUNICIPAL SECURITIES are issued to raise money for a variety of public
or private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities.
They may be issued in anticipation of future revenues and may be
backed by the full taxing power of a municipality, the revenues from a
specific project, or the credit of a private organization. The value
of some or all municipal securities may be affected by uncertainties
in the municipal market related to legislation or litigation involving
the taxation of municipal securities or the rights of municipal
securities holders. A municipal security may be owned directly or
through a participation interest.

PREFERRED STOCK is a class of equity or ownership in an
issuer that pays dividends at a specified rate and that has precedence
over common stock in the payment of dividends. In the event an issuer
is liquidated or declares bankruptcy, the claims of owners of bonds
take precedence over the claims of those who own preferred and common
stock.

PUT FEATURES entitle the holder to sell a security back to the
i ssuer or a third party at any time or at specified
intervals. In exchange for this benefit, a fund may accept a lower
interest rate. Securities with put features are subject to the
risk that the put provider is unable to honor the put feature
(purchase the security). Put providers often support their ability to
buy securities on demand by obtaining letters of credit or other
guarantees from other entities. Demand features, standby commitments,
and tender options are types of put features.

REAL ESTATE INVESTMENT TRUSTS. Equity real estate investment trusts
own real estate properties, while mortgage real estate investment
trusts make construction, development, and long-term mortgage loans.
Their value may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as
those relating to the environment. Both types of trusts are dependent
upon management skill, are not diversified, and are subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the
1940 Act.

REPURCHASE AGREEMENTS involve an agreement to purchase a
security and to sell that security back to the original seller
at an agreed-upon price. The resale price reflects the purchase price
plus an agreed-upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. As protection
against the risk that the original seller will not fulfill its
obligation, the securities are held in a separate account at a bank,
marked-to-market daily, and maintained at a value at least equal to
the sale price plus the accrued incremental amount. The value of
the security purchased may be more or less than the price at which the
counterparty has agreed to purchase the security. In addition, delays
or losses could result if the other party to the agreement defaults or
becomes insolvent. The funds will engage in repurchase agreement
transactions with parties whose creditworthiness has been reviewed and
found satisfactory by FMR (for Index 500, by BT or, under certain
circumstances, by FMR or an FMR affiliate). Pursuant to certain state
insurance regulations, any repurchase agreements a fund enters into
will be secured by collateral consisting of liquid assets having a
market value of not less than 102% of the cash or assets transferred
to the other party.

RESTRICTED SECURITIES are subject to legal restrictions on their
sale. Difficulty in selling securities may result in a loss or be
costly to a fund. Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, or in a registered
public offering. Where registration is required, the holder of a
registered security may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted
to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop,
the holder might obtain a less favorable price than prevailed
when it decided to seek registration of the security.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The funds will enter
into reverse repurchase agreements with parties whose
creditworthiness has been reviewed and found satisfactory by FMR (for
Index 500, by BT or, under certain circumstances, by FMR or an FMR
affiliate). Such transactions may increase fluctuations in the market
value of fund assets and a fund's yield and may be viewed as a
form of leverage.

SECURITIES OF OTHER INVESTMENT COMPANIES, including shares of
closed-end investment companies, unit investment trusts, and open-end
investment companies, represent interests in professionally managed
portfolios that may invest in any type of instrument. Investing in
other investment companies involves substantially the same risks as
investing directly in the underlying instruments, but may involve
additional expenses at the investment company-level, such as portfolio
management fees and operating expenses. Certain types of investment
companies, such as closed-end investment companies, issue a fixed
number of shares that trade on a stock exchange or over-the-counter at
a premium or a discount to their net asset value. Others are
continuously offered at net asset value, but may also be traded in the
secondary market.

The extent to which a fund can invest in securities of other
investment companies is limited by federal securities laws. Index 500
may invest in investment companies that seek to track the performance
of indexes other than the indexes that the fund seeks to track.

SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or other institutions , including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp. Index 500 will not lend
securities to BT or its affiliates. BT receives a portion of the
securities lending income earned by Index 500.

Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income.
Because there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the
borrower fail financially, loans will be made only to parties deemed
by FMR (for Index 500, by BT or, under certain circumstances, by FMR
or an FMR-affiliate) to be of good standing. Furthermore, they will
only be made if, in FMR's (BT's for Index 500) judgment, the
consideration to be earned from such loans would justify the risk.

FMR and BT understand that it is the current view of the SEC Staff
that a fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.

Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation). If Index 500 cannot recover the loaned
securities on termination, the fund may sell the collateral and
purchase a replacement investment in the market.

SHORT SALES "AGAINST THE BOX" a re short sales of securities that a
fund owns or has the right to obtain (equivalent in kind or amount to
the securities sold). If a fund enters into a short sale against
the box, it will be required to set aside securities equivalent in
kind and amount to the securities sold short (or securities
convertible or exchangeable into such securities) and will be required
to hold such securities while the short sale is outstanding.

Short sales against the box could be used to protect the net asset
value per share (NAV) of a money market fund in anticipation of
increased interest rates, without sacrificing the current yield of the
securities sold short. A money market fund will incur transaction
costs in connection with opening and closing short sales against the
box. A n equity fund will incur transaction costs, including
interest expenses, in connection with opening, maintaining, and
closing short sales against the box.

SHORT SALES. Stocks underlying a fund's convertible security
holdings can be sold short. For example, if FMR anticipates a
decline in the price of the stock underlying a convertible security
held by a fund , it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be
expected to offset all or a portion of the effect of the stock's
decline on the value of the convertible security. Each fund
currently intends to hedge no more than 15% of its total assets with
short sales on equity securities underlying its convertible security
holdings under normal circumstances.

A fund will be required to set aside securities
equivalent in kind and amount to those sold short (or securities
convertible or exchangeable into such securities) and will be required
to hold them aside while the short sale is outstanding. A fund will
incur transaction costs, including interest expenses, in connection
with opening, maintaining, and closing short sales.

SOURCES OF CREDIT OR LIQUIDITY SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial
institutions. FMR may rely on its evaluation of the credit or
liquidity enhancement provider in determining whether to purchase
a security supported by such enhancement . In evaluating the
credit of a foreign bank or other foreign entities, FMR will consider
whether adequate public information about the entity is available and
whether the entity may be subject to unfavorable political or economic
developments, currency controls, or other government restrictions that
might affect its ability to honor its commitment. Changes in the
credit quality of the entity providing the enhancement could effect
the value of the security or a fund's share price.

SOVEREIGN DEBT OBLIGATIONS are issued or guaranteed by foreign
governments or their agencies, including debt of Latin American
nations or other developing countries. Sovereign debt may be in the
form of conventional securities or other types of debt instruments
such as loans or loan participations. Sovereign debt of developing
countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for
repayment of the debt may be unable or unwilling to repay principal
and pay interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of
principal and payment of interest may depend on political as well as
economic factors. Although some sovereign debt, such as Brady Bonds,
is collateralized by U.S. Government securities, repayment of
principal and payment of interest is not guaranteed by the U.S.
Government.

STRIPPED SECURITIES are the separate income or principal components
of a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.

Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security
with a custodian for safekeeping. The custodian issues separate
receipts for the coupon payments and the principal payment, which the
dealer then sells.

Because the SEC does not consider privately stripped government
securities to be U.S. Government securities for purposes of Rule 2a-7,
a money market fund must evaluate them as it would non-government
securities pursuant to regulatory guidelines applicable to money
market funds.

SWAP AGREEMENTS (INDEX 500 PORTFOLIO) Under a typical equity
swap agreement, a counterparty such as a bank or broker-dealer agrees
to pay the fund a return equal to the dividend payments and increase
in value, if any, of an index or group of stocks, and the fund agrees
in return to pay a fixed or floating rate of interest, plus any
declines in value of the index. Swap agreements can also have features
providing for maximum or minimum exposure to a designated index. In
order to track the return of its designated index effectively, Index
500 would generally have to own other assets returning approximately
the same amount as the interest rate payable by the fund under the
swap agreement.

The most significant factor in the performance of swap agreements
is the change in value of the specific index, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to
make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses and impairing the
fund's correlation with the S&P 500. A fund may be able to eliminate
its exposure under a swap agreement either by assignment or other
disposition, or by entering into an offsetting swap agreement with the
same party or a similarly creditworthy party.

SWAP AGREEMENTS (EXCEPT INDEX 500 PORTFOLIO) can be
individually negotiated and structured to include exposure to a
variety of different types of investments or market factors. Depending
on their structure, swap agreements may increase or decrease a fund's
exposure to long- or short-term interest rates (in the United States
or abroad), foreign currency values, mortgage securities, corporate
borrowing rates, or other factors such as security prices or inflation
rates. Swap agreements can take many different forms and are known by
a variety of names.

In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.

Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if a fund agreed to
exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and
interest rates. Caps and floors have an effect similar to buying or
writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a fund's investments
and its share price and yield.

The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other
factors that determine the amounts of payments due to and from a fund.
If a swap agreement calls for payments by the fund, the fund
must be prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of a swap
agreement would be likely to decline, potentially resulting in
losse s. A fund may be able to eliminate its exposure under a
swap agreement either by assignment or other disposition, or by
entering into an offsetting swap agreement with the same party or a
similarly creditworthy party.

TEMPORARY DEFENSIVE POLICIES.

Each of Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, Index 500, Growth & Income, Growth Opportunities,
Contrafund, Growth, Overseas, and Mid Cap Portfolios reserve the right
to invest without limitation in preferred stocks and investment-grade
debt instruments for temporary, defensive purposes.

Investment Grade Bond Portfolio reserves the right to invest
without limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.

High Income Portfolio reserves the right to invest without
limitation in investment-grade securities for temporary, defensive
purposes.

VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.

WARRANTS. Warrants are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time.
Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a
warrant may be more volatile than the price of its underlying
security, and a warrant may offer greater potential for capital
appreciation as well as capital loss.

Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying security and do not represent any rights in
the assets of the issuing company. A warrant ceases to have value if
it is not exercised prior to its expiration date. These factors can
make warrants more speculative than other types of investments.

WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS
involve a commitment to purchase or sell specific securities at a
predetermined price or yield in which payment and delivery take place
after the customary settlement period for that type of security.
Typically, no interest accrues to the purchaser until the security is
delivered.

When purchasing securities pursuant to one of these transactions,
the purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold
a security pursuant to one of these transactions, the fund does not
participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a fund could miss a favorable price or
yield opportunity or suffer a loss.

A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.

ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.

SPECIAL CONSIDERATIONS REGARDING AFRICA

Africa is a highly diverse and politically unstable continent of
over 50 countries and 720 million people. Civil wars, coups and even
genocidal warfare have beset much of this region in recent years.
Nevertheless, it is home to an abundance of natural resources,
including natural gas, aluminum, crude oil, copper, iron, bauxite,
cotton, diamonds and timber. Wealthier countries generally have strong
connections to European partners, and evidence of these relationships
is seen in the growing market capitalization and foreign investment of
these countries. Economic performance is closely tied to world
commodity markets, particularly oil, and also to weather conditions,
such as drought.

Five African countries are among the 20 fastest growing in the
world (Uganda, Ivory Coast, Botswana, Angola and Zimbabwe), with GDP
growth rates ranging from 5.5% to 6.0%. Two countries, Yemen and
Bahrain, are experiencing growth at or below 2.0%, and one country,
Libya, is experiencing (-4.0%) negative growth.

African economic growth is projected to remain higher than in any
recent year other than 1996. The relatively small effects of the Asian
crisis are attributable to the comparatively low levels of private
capital flows to most countries in the regions. Africa can be
negatively impacted from the slowdown in global growth, and its
effects on commodity prices.

Several African countries in the north have substantial oil
reserves and accordingly their economies react strongly to world oil
prices. They share a regional and sometimes religious identification
with the oil producing nations of the Middle East and can be strongly
affected by political and economic developments in those countries. As
in the south, weather conditions also have a strong impact on many of
their natural resources, and, as was the case in 1995, severe drought
can adversely effect economic growth.

Twelve African countries have active equity markets (Bahrain,
Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, Oman, South Africa,
Tunisia, Zambia, and Zimbabwe). The oldest market, in Egypt, was
established in 1883, while the youngest, in Zambia, was established in
1994. Four additional markets have been established since 1989, and
the mean age for all equity markets is 40 years old. A total of 1,830
firms are listed on the respective exchanges. Total market
capitalization for these countries in 1996 was $290 billion, an
average increase of 54% over 1995 levels.

The South African market is the largest in Africa and has a
capitalization of more than ten times that of all the other African
markets combined. In 1997, the country's Johannesburg Stock Exchange
fell by 6.8%, due largely to weakening commodity prices and a slowdown
in the South African economy. The market decline extended into 1998 as
the South African rand declined versus the world's major currencies.

SPECIAL CONSIDERATIONS REGARDING CANADA

Canada is a confederation of ten provinces with a parliamentary
system of government. Canada is the world's second largest nation by
landmass and is inhabited by 30.2 million people, most of whom are
descendants of France, the United Kingdom and indigenous peoples. The
country has a workforce of over 15 million people in various
industries such as trade, manufacturing, mining, finance, construction
and government. While the country has many institutions which closely
parallel the United States, such as a transparent stock market and
similar accounting practices, it differs from the United States in
that it has an extensive social welfare system, much more akin to
European welfare states.

The confederated structures combined with recent financial pressure
on the federal government have pushed provinces, Quebec in particular,
to call for a revaluation of the legal and financial relationships
between the federal government in Ottawa and the provinces. Recent
referendums on Quebec sovereignty have been narrowly defeated and the
issue appears far from resolved. However, in August of 1998, the
country's Supreme Court decided that Quebec does not have the right to
secede unilaterally, removing any immediate threat that Canada will
break up. Nevertheless, the Canadian markets could continue to react
to any periodic escalations of separatist calls.

Canada is one of the richest nations in the world in terms of
natural resources. The country is a major producer of such commodities
as forest products, mining, metals, and agricultural products.
Additionally, energy related products such as oil, gas, and
hydroelectricity are important components of their economy.
Accordingly, the Canadian stock market is strongly represented by
basic material stocks, and movements in the supply and demand of
industrial materials, agriculture, and energy, both domestically and
internationally, can have a strong effect on market performance.

The United States is Canada's largest trading partner and
approximately 80% of Canadian merchandise traded in 1997 was with the
United States. Automobiles and auto parts accounted for the largest
export items followed by energy, mining and forest products. Canada is
the largest energy supplier to the United States, while the United
States is Canada's largest foreign investor. United States investment
has been largely focused on financial, energy, metals and mining
businesses. The expanding economic and financial integration of the
United States and Canada will likely make the Canadian economy and
securities markets increasingly sensitive to U.S. economic and market
events.

For United States investors in Canadian markets, currency has
become an important determinant of investment return. Since Canada let
its dollar float in 1970, its value has been in a steady decline
against its United States counterpart. While the decline has enabled
Canada to stay competitive with its more efficient southern neighbor,
which buys four-fifths of its exports, United States investors have
seen their investment returns eroded by the impact of currency
conversion.

SPECIAL CONSIDERATIONS REGARDING EUROPE

Europe can be divided into two distinct categories of market
development: the developed economies of Western Europe and the
transition economies of Eastern Europe.

Any discussion of European national economies and securities
markets must be made with an eye to the impact that the European Union
(EU) and European Economic Monetary Union (EMU) will have upon the
future of these countries as well as the rest of the world. The scope
and magnitude of these economic and political initiatives dwarfs
anything attempted to date. If successful, the EU will change or erase
many political, economic, cultural and market distinctions that define
and differentiate each of the Continent's countries today. The third
and final stage of the EMU was scheduled to be implemented on January
1, 1999.

The EU consists of 15 countries of western Europe: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United
Kingdom. The six founding countries first formed an economic community
in the 1950s to bring down trade barriers such as taxes and quotas, to
eliminate technical restrictions such as special standards and
regulations for foreigners, and to coordinate various industrial
policies, such as those pertaining to agriculture. Since that time the
group has admitted new members and, in time, may expand its membership
to other nations such as those of Eastern Europe. The EU has as its
goal, the creation of a single, unified market that would be, at over
370 million people, the largest in the developed world and through
which goods, people and capital could move freely.

A second component of the EU is the establishment of a single
currency - the Euro, to replace each member country's domestic
currencies. In preparation for the creation of the Euro, the Exchange
Rate Mechanism (ERM) was established to keep the various national
currencies at a pre-specified value relative to each other. The year
1997 is significant for membership in the EU as it is the initial
reference year for evaluating debt levels and deficits within the
criteria set forth by the Maastricht treaty. Specifically, the
Maastricht criteria include, among other indicators, an inflation rate
below 3.3%, a public debt below 60% of GDP, and a deficit of 3% or
less of GDP. Failure to meet the Maastricht levels would disqualify
any country from membership.

On May 3, 1998 the European Council of Ministers formally announced
the "first wave" of EMU participants. They are: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. On January 1, 1999, the Euro becomes a currency,
while the bank notes used by EMU's eleven members remain legal tender.
After a three year transition period, the Euro will begin circulating
on January 1, 2002. Six months later, today's currencies will cease to
exist.

Many foreign and domestic businesses are establishing or increasing
their presence in Europe in anticipation of the new unified single
market. Clear, confident visions of a diverse, multi-industrial,
unified market under a single currency have been the impetus for much
of the recent corporate restructuring initiatives as well as for the
increased mergers and acquisitions activity in the region. A
successful EMU could prove to be an engine for sustained growth
throughout Europe.

While the securities markets view the introduction of the euro as
inevitable, the success of the union is not wholly assured. Europe
must grapple with a number of challenges, any one of which could
threaten the survival of this monumental undertaking. For example,
eleven disparate economies must adjust to a unified monetary system,
the absence of exchange rate flexibility and the loss of economic
sovereignty. The Continent's economies are diverse, its governments
decentralized and its cultures differ widely. Unemployment is
historically high and could pose a political risk that one or more
countries might exit the union placing the currency and banking system
in jeopardy.

For those countries in Western and Eastern Europe that will not be
included in the first round of the EU implementation, the prospects
for eventual membership serves as a strong political impetus for many
governments to employ tight fiscal and monetary policies. Particularly
for the Eastern European countries, aspirations to join the EU are
likely to push governments to act decisively. At the same time, there
could become an increasingly widening gap between rich and poor both
within the aspiring countries and also those countries who are close
to meeting membership criteria and those who are not. Realigning
traditional alliances could result in altering trading relationships
and potentially provoking divisive socio-economic splits.

The economies of Eastern Europe are embarking on the transition
from communism at different paces with appropriately different
characteristics. The transition countries also display sharp contrasts
in performance. Those that are most advanced in the transformation
process are now reaping the rewards of comprehensive reform and
stabilization policies pursued with determination over recent years.
These include Poland, the Baltic countries, Croatia, the Czech
Republic, Hungary, the Slovak Republic and Slovenia. Conversely, those
that are less advanced in the transition are struggling with a number
of policy challenges to strengthen their economies. Several countries
have made good progress, and in Armenia, Azerbaijan, Georgia,
Kazakhstan, and the Kyrgyz Republic, inflation has fallen considerably
in recent years. Nevertheless, the East European markets are
particularly vulnerable to weakness in the world's other emerging
countries and are particularly sensitive to events in Russia. For
example, in mid-1998 when economic and political turmoil forced the
Russian government to devalue its currency and restructure its debt
payments, the other markets in Eastern Europe suffered significant
destabilization of which the extent and duration is still unknown.

FRANCE. France is a republic of over 58 million people in
the historic if not the geographic center of Western Europe. The Fifth
French Republic, established in the early postwar period under Charles
de Gaulle, provides for a strong Presidency which can appoint its own
cabinet but must win approval of a parliamentary majority. The
government was founded upon the French cultural values of liberty,
brotherhood and egalitarianism. In France, this latter value often
translates into a government burden of providing job security. The
result is a large, vast bureaucracy in the public sector and strict
employment and labor laws in the private sector. In addition, a
significant portion of government economic policy revolves around
regulating and protecting domestic industries, particularly farming
and manufacturing. Finally, the French government frequently owns high
majority or minority interests in large companies, particularly
utility, transport and communications concerns. While privatization
has been a popular movement in many other European countries, it has
encountered a stalled stop-and-go cycle in France.

The French economy is the world's fourth-largest Western
industrialized economy, with a GDP of $1538 billion in 1996. The
nation has substantial agricultural resources, a diversified modern
industrial system, and a highly skilled labor force. France's economy
boasts a sophisticated industrial manufacturing base, which includes
not only high technology (information technology and
telecommunications, vehicles, aircraft, computer equipment, etc.) but
also a number of very large companies producing consumer goods. The
country's industrial structure is unusual for an industrialized
economy because the state still controls a large proportion of the
heavy strategic goods industries as well as institutions such as banks
and communications companies. The agricultural sector continues to be
important; however, most farms are small by European standards and
require massive government support. Exports are an economic strong
point and the nation has enjoyed trade surpluses in recent years.
Leading exports include chemicals, electronics and automotive and
aircraft machinery, while imports are dominated by petroleum,
industrial machinery and electronics. Their main trading partners are
the United States, Japan, and other EU countries.

The country is one of the largest consumers of nuclear energy,
obtaining nearly 75% of its total electricity needs from reactors.
While it has some small deposits of oil and gas, it remains heavily
dependent on imports for most of its needs.

In recent years, the country's economic growth has been hindered by
a series of general strikes. The government's efforts to reduce
spending to meet the Maastricht criteria have prompted strikes and
unrest from France's powerful trade unions. In addition, striking
workers have pushed their demands for a lower retirement age and a
reduction in the workweek. With an unemployment rate above 12%, the
country's labor markets are not functioning efficiently. France's
pay-as-you-go pension program is an additional deterrent to economic
growth as spending on pensions account for a tenth of GDP. While all
parties agree that the system must be replaced, no agreement has been
reached on an alternative.

France went to the polls in May 1997 after a surprise decision to
hold early elections by conservative President Jacques Chirac.
Chirac's calculation was to capitalize on popular support before he
was forced to undertake austere fiscal measures to meet the Maastricht
criteria. Voters responded that they were more concerned about the
country's high level of unemployment and Chirac's party lost enough
seats in the parliament that the president must now share power for
the remaining five years in office with a socialist-led government.
This change could set back the previous government's pledges to
continue its privatization initiatives, restrain spending, support the
franc, and endure fiscal austerity. It also calls into question
whether the French people have the will to adhere to the EMU
convergence criteria over the next few years.

The stock market in France has undergone both gradual and dramatic
changes in recent years, keeping pace with global trends toward
deregulation, privatization, and cross border activities, allowing
Paris to maintain its position as the world's fourth-largest financial
center. Until 1996, the Paris Bourse was the country's sole stock
exchange, providing access to all listed French securities. Since
then, foreign interest has been stimulated by the creation of new
markets, such as the Nouveau Marche, for riskier, growth oriented,
small corporations. While the listings of these combined markets are
fairly diverse, financial companies account for approximately
one-third of the total. The system underwent many regulatory changes
in the late 1980s, taking steps toward combating insider trading and
ensuring market transparency.

GERMANY. Germany is the largest economy in all of Europe and
is the third largest economy in the world behind the United States and
Japan. The country occupies a central position in Western Europe with
strong cultural and economic ties with the countries of Eastern Europe
and borders on no less than six other Western European countries. The
country's size, location and proven industrial ability have
historically thrust it to the center of European economic life, a
position it was able to re-attain in the wake of the post-war period.
More recently, Germany has used this position as a platform to
champion the cause of the European Union, and also to absorb and
transform the devastated economy of its former communist eastern half.

The German economy is heavily industrialized, with a strong
emphasis on manufacturing. The manufacturing sector is driven by small
and medium-sized companies, most of which are very efficient and
dynamic. Germany, nevertheless, has many large industries and
manufacturing is dominated by the production of motor vehicles,
precision engineering, brewing, chemicals, pharmaceuticals and heavy
metal products.

The economy has benefited from a strong export performance
throughout the decade. Exports, weighted heavily in the industrial
machinery, autos and chemicals sectors, have provided the economy with
positive trade balances. Exports are the main engine of GDP growth,
highlighting Germany's dependence on the prosperity of its trading
partners. Five out of its top six trading partners are fellow EU
members (the sixth is the United States), while very low levels of
trade are conducted with Asian and Latin American countries. Germany
stands very well poised to supply the emerging markets of central
Europe. It is already the largest European foreign investor in the
Czech Republic and the largest trading partner for Poland and Hungary.
Accordingly, any weakness in the emerging market economies might
likely dampen demand for German goods, to the detriment of the German
economy. As most of these emerging markets aspire to join the EU, it
is possible that a larger EU could alter Germany's trading
relationships due to new quotas, tax rates, exchange rates and other
factors which will come with EU membership.

The recent performance of the German economy must be evaluated
within the context of the 1990 reunification of the eastern and
western states. GDP growth dropped markedly during the early years of
reunification. Industry in Eastern Germany is still catching up.
Workers in Eastern Germany earn two-thirds of western wages but
produce only half as much. In addition, one of the byproducts of
assimilating East Germany into the state has been the need to
restructure many of the government services to accommodate the new and
substantially less affluent citizens. Significant tax and welfare
reforms have yet to be undertaken, and pressure is mounting on the
government to address these issues. Unemployment rates have begun to
cause some discontent among German citizens whose culture generally
places strong emphasis on a social compact. Any dissatisfaction could
be expressed at the polls during the 1998 elections.

Germany is faced with other significant economic challenges.
Unemployment is currently above 12% as the country experiences its
longest period of slow growth since the Second World War. The
government's ability to deal with the problem is limited by its
efforts to meet the stringent Maastricht criteria for convergence.
There are also growing concerns about the exodus of German companies
relocating abroad in order to avoid the country's high labor costs. In
the longer run, Germany's government must alter the peculiar mix of
capitalism, welfarism and consensus that sets the country apart. Those
decisions will be politically sensitive - especially if they
antagonize the powerful trade unions or the country's many family-run
firms.

Germany's stock market has enjoyed dramatic growth in volume as the
main DAX index has soared over the past two years. Much of the
market's strength has been attributed to the dollar's recovery and
rising corporate earnings. In addition, a number of changes have
occurred recently to support the share-buying explosion and to
establish a German equity culture. A number of initial public
offerings were launched as the government sought to divest itself of
ownership in such businesses as the nation's telephone utility and
post office businesses to ease budgetary pressures. The government
also created a supervisory authority which has outlawed insider
trading and established stiffer company reporting standards intended
to further increase the appeal of Germany's stock market.
Nevertheless, while there has been progress in broadening the investor
base, shares remain overwhelmingly in the hands of institutions and
companies.

The German central bank is one of the world's strongest and most
independent. Their high interest rates have contributed to a
controlled growth of the stock market and a steadily decreasing
inflation rate. Keeping the Deutsche Mark strong in leading up to EMU
has been a priority for the bank. Nevertheless, exports have thrived
despite the currency's strong position.
A founding member of the EU and the most ardent proponent of EMU,
Germany is seen as the primary player in Union economics and politics.
Seeking to consolidate this position, recent government policy has put
a strong emphasis on the maintenance of a strong currency and the
achievement of the Maastricht criteria.

NORDIC COUNTRIES. Increasing economic globalization and the
expansion of the EU have forced the Nordic Countries to scale back
their historically liberal welfare spending policies. While public
spending has dropped from average levels, the cutbacks in social
programs have sparked drops in domestic demand and increases in
unemployment. Nevertheless, the Nordic economies are experiencing
positive growth fueled largely by strong exports and low interest
rates. The approaching EMU deadline is putting pressure on each nation
to maintain their economies in line with requirements of the
Maastricht treaty criteria and the fiscal and political issues remain
central in political debates.

Of the Nordic countries, Finland, Denmark and Sweden are all
members of the EU. Only Norway has elected not to join. However, the
decision likely will not isolate the Norwegian economy from those of
its Nordic neighbors. The country maintains a "shadow membership" in
the EU, by which it seeks to stay as closely informed as possible and
to make its voice heard on the issues. This may ensure that it will
become more closely aligned with the rest of Europe as time passes.
One significant aspect of opting out of the EU is that the central
bank is free to pursue its own agenda, such as setting inflation
targets as opposed to exchange rate targets. Inflation patterns and
currency stability could prove to be issues that may separate the
policy decisions of Norway from the other Nordic countries.

Politically, the countries of this region are historically known
for their approach to policy making that emphasizes consensus. The
most common type of government among the Nordic countries is dominated
by long-standing, left-of-center parties which often align themselves
with smaller centrist parties for majority support. The landscape,
however, is so fractured that governing from a minority position is
common. The absence of a clear majority party slows and sometimes
arrests policy making. The strongest opposition comes from traditional
European conservative parties, which have gained support in recent
years with the decline of the welfare state and the need for the
libertarian policies necessary to compete and integrate with free
markets. None of the Nordic countries face any serious risk of any
anti-democratic political change. However, in Sweden, the prospects of
the present government will depend on its ability to create more jobs
and to prepare the economy for EMU. A large minority of voters are
also disappointed about the benefits which membership in the EU was
expected to bring and have been increasingly voicing anti-EU
sentiments. However, in May 1998, Finland was formally admitted in the
"first wave" of the EMU.

Industry in the region is heavily resource-oriented. Denmark's
agricultural sector remains the backbone of the economy although other
industries have been developing rapidly in recent years, with
engineering, food processing, pharmaceuticals, brewing and
shipbuilding gaining in importance. Finland's major industry is
forestry which supplies a large paper and timber products sector. It
also produces household goods and telecommunications equipment and has
an extremely important heavy goods sector producing ships, cement,
steel and machine tools. In Sweden, the manufacturing sector dominates
the economy and includes major industries which range from motor
vehicles to aerospace, chemicals, pharmaceuticals, timber, pulp and
paper. Several of the country's export-oriented industries (in
particular forestry, mining and steel) are suffering as the country's
high wages squeeze them out of foreign markets. Norway's oil-driven
economy has provided its citizens with one of the highest standards of
living in the world. However, they must prepare for the time, due to
arrive early in the next century, when their vast reserves run out.
Reliance on exports concentrated in a few sectors tie these countries
closely to one another.

Economically, the Nordic countries are strong export economies that
take advantage of their abundant natural resources. They are also very
closely tied both to each other and to the rest of Europe. Most
countries have witnessed low levels of positive growth in the last six
years. Finland is the exception. As a significant portion of its trade
is with Russia, Finland suffered in the early years of the collapse of
the Soviet Union. However, in the past two years its economy has
recorded some of the highest growth rates in Western Europe while
having the lowest rate of inflation. Similarly, after five years of
recession, the overall outlook for the Swedish economy is also vastly
improved. A stringent package of spending cuts and tax increases has
brought down the budget deficit to a level that is well within the EMU
target. Exports are recovering as other parts of Europe are coming out
of recession and its inflation is among the lowest in Western Europe.
However, the one weak spot in both countries' economies is a
persistently high unemployment rate. Finland's unemployment, at 17%,
is the second highest in Europe after Spain, and Finland's rate
represents only a marginal improvement over the previous year.
Norway's oil driven economy is the envy of many and unemployment is
just a little over five percent.

A portion of the region's unemployment woes can be attributed to
the cultural ethic which was advanced during the years of the welfare
state. Subsequent cuts in public spending, particularly in those
sectors that traditionally rely on large government spending,
exacerbated the problem. Labor market reform will be a critical issue
in these countries as public spending is cut back. Pensions and
structural issues such as union regulations all need to be reformed, a
task which brings both challenges and unpopularity to the government
that accepts it. Not only will labor market reforms give governments a
daunting challenge; they could also cause the public to regret their
participation in the EMU. One positive point is that the countries
boast very high standards of living, which create healthy and highly
educated workforces.

The stock markets in Scandinavia are of medium size, and frequently
are strongly influenced by a small number of large multinational
firms. For example, in Sweden thirty firms constituted 75% of the
market's total capitalization and market turnover in 1997. Weighing
heavily in the equity markets are the electronics, forest products,
mining and manufacturing sectors. Market capitalization is highest in
Sweden at $273 billion, while the others are between $74 and $94
billion. Sweden also leads in numbers of firms (261) listed. Other
countries' listings range from 126 (Finland) to 249 (Denmark).
Performance of Nordic country indexes tend to be skewed owing to the
dominant weightings that a few large companies have in the index. For
example, the market capitalization of Finnish telecommunications
equipment manufacturer Nokia comprises about one-third of the total
market capitalization of the Finnish exchange and has a substantial
impact upon the performance of the companies in the HEX Index.

UNITED KINGDOM. The United Kingdom is the world's sixth
largest economy and is home to one of the oldest, most established,
and most active stock markets. An island nation, it built an empire of
strategically located trading posts such as Hong Kong and India. While
today the empire is largely dissolved, trade remains a very key
component of the U.K. economy. Strong domestic sectors are services,
natural energy resources, and heavy industry, including steel, autos,
and machinery. Imports generally emphasize food and manufacturing
components. The United Kingdom's trading partners are predominately
established market economies, such as the United States, Japan, and
other member countries of the European Union. The United Kingdom, via
the North Sea, also has substantial petroleum resources.

The London Stock Exchange is comprised of six offices scattered
throughout Great Britain and Northern Ireland. It lists over 2900
firms, and trades both foreign and domestic securities as well as
securities issued by the British Government. A vast majority of the
firms listed (80%) are from the United Kingdom. Total market
capitalization in 1997 was over $5,440 billion. Such size prevents the
stock market from being overly sensitive to the performance of
individual firms.

In 1997 the U.K. posted its sixth year of recovery with GDP growth
of 3.5%, the third highest in the EU. The labor market also appears to
have improved as pay settlements and wages remain under control
despite the unemployment rate falling from 6.5% to 5% over the year.
The strengthening economy prompted a sharp acceleration in consumer
spending and, in response, the nation's Monetary Policy Committee was
forced to raise base rates. The interest rate rise added fuel to an
already robust sterling which rose 8.6% in 1997 after appreciating by
15.6% in 1996. This proved particularly damaging to the manufacturing
sector and, although exports held up well during the year, there were
early indications that a decline was underway. Inflation is low,
making the country attractive for foreign investment. Investment is
especially attractive to the United States, with which the United
Kingdom shares many market similarities. Each country is the other's
largest foreign investment partner.

Under Conservative Party leadership in the early 1980s, the United
Kingdom privatized many state-run utilities, such as British Gas and
British Telecom. The success of these efforts is evidence both of the
strong entrepreneurial spirit of British society and also a
fundamental rejection of the welfare state policies that dominated the
scene in the early post-war period. Even today, the Labour Party has
shed much of its socialist economic platform, reflecting a strong
break away from policies that continue to be popular in other European
countries. Eager to attract foreign investment the new administration
is not expected to undo any of the major reforms put in place by the
Conservatives during their last 18 years in power. Some changes could
include an increase in spending on social programs, a slowing of
privatization, and an increase in corporate taxes. Tight monetary
policy and interest rate hikes could be used to keep inflation below
the government's self-imposed 2.5% ceiling. In addition, the
government will probably wish to rebuild ties with the rest of the EU
and has already taken steps to get the pound back into the European
system by increasing the independence of the country's central bank.

Nevertheless, there appears to be some nervousness among many
investors who see the U.K. market lagging behind the continental
European stock markets where they see more compelling prospects for
economic growth. In addition, the manufacturing industry is suffering
from the pound's lofty valuation and many fear that an economic
slowdown could spread to the services sector.

The political scene in London is largely shaped by positions
regarding EMU. Pro Europe MPs in the Tory opposition leadership were
marginalized after the 1997 election, further polarizing the positions
of the two parties. Despite this expression of support, the United
Kingdom continues to be overtly less enthusiastic about EMU than other
countries in Europe and has not committed itself to immediately
joining the new currency once it is established. While the new
government has stated that it hopes to meet the Maastricht criteria,
it is less a self-imposed pressure on the U.K. government than it is
for other countries in the Union. Signing on to the EU Social Charter
would neutralize the policies which have set the United Kingdom above
other countries in attracting investment, such as wages and employment
conditions.

SPECIAL CONSIDERATIONS REGARDING ASIA

Asia has undergone an impressive economic transformation in the
past decade. Many developing economies, utilizing substantial foreign
investments, established themselves as inexpensive producers of
manufactured and re-manufactured consumer goods for export. As
household incomes rose, middle classes increased, stimulating domestic
consumption. In recent years, large projects in infrastructure and
energy resource development have been undertaken, and have benefited
from cheap labor, foreign investment, and a business friendly
regulatory environment. During the course of development, democratic
governments fought to maintain the stability and control necessary to
attract investment and provide labor. Subsequently, Asian countries
today are coming under increasing, if inconsistent, pressure from
western governments regarding human rights practices.

Manufacturing exports declined significantly in 1997, due to drops
in demand, increased competition, and strong performance of the U.S.
dollar. This significant decline is particularly true of electronics,
a critical industry for several Asian economies. Declines in exports
reveal how much of the recent growth in these countries is dependent
on their trading partners. Many Asian exports are priced in U.S.
dollars, while the majority of its imports are paid for in local
currencies. A stable exchange rate between the U.S. dollar and Asian
currencies is important to Asian trade balances.

Despite the impressive economic growth experienced by Asia's
emerging economies, currency and economic concerns have recently
roiled these markets. Over the summer of 1997, a plunge in Thailand's
currency set off a wave of currency depreciations throughout South and
Southeast Asia. The Thai crisis was brought on by the country's
failure to take steps to curb its current-account deficit, reduce
short-term foreign borrowing and strengthen its troubled banking
industry, which was burdened by speculative property loans. Most of
Southeast Asia's stock markets tumbled in reaction to these events.
Investors were heavy sellers as they became increasingly concerned
that other countries in the region, faced with similar problems, would
have to allow their currencies to weaken further or take steps that
would choke off economic growth and erode company profits. For U.S.
investors, the impact of the market declines were further exacerbated
by the effect of the decline in the value of local currencies versus
the U.S. dollar.

The same kind of concerns that effected Thailand and other
Southeast Asian countries subsequently spread to North Asia. To widely
varying degrees, Taiwan, South Korea and Hong Kong all faced related
currency and/or equity market declines. Due to continued weakness in
the Japanese economy combined with the reliance of Asian economies on
intra-Asian trade and capital flows, most of the region was mired in
their worst recessions since World War II.

Investors continue to face considerable risk in Asian markets as
political, economic and currency turmoil has continued to undermine
market valuations throughout the first half of 1998. Rising
unemployment, food shortages and declining purchasing power could lead
to social unrest and threaten the orderly functioning of government.
Currency devaluations also increase pressure on both the consumers who
must pay more for imported goods and on many businesses that must deal
with the rising costs of raw materials. For U.S. investors, weakening
local currencies erode their returns in these markets upon currency
translation. Certainly, the resolve of the region's governments to
adhere to International Monetary Fund-mandated benchmarks will be
sorely tested, as their implementation could further exacerbate these
pressures on the nation's populace and businesses. In addition,
Japan's paralysis is fast becoming a problem for Asia. Worsening
Japanese banking problems could lead to a contraction of credit for
all of Asia and slow rehabilitation in the region. Similarly, a
significant portion of both domestic and foreign investors have fled
these markets in favor of safer havens outside of the region and will
not likely return until they see more evidence that these problems are
being effectively addressed. The scope and magnitude of the tasks that
these countries face in resolving their problems could mean that
investors will see a continuation of high market volatility over an
extended period.

JAPAN. A country of 126 million with a labor force of 64
million people, Japan is renowned as the preeminent economic miracle
of the post-war era. Fueled by public investment, protectionist trade
policies, and innovative management styles, the Japanese economy has
transformed itself since the World War II into the world's second
largest economy. An island nation with limited natural resources,
Japan has developed a strong heavy industrial sector and is highly
dependent on international trade. Strong domestic industries are
automotive, electronics, and metals. Needed imports revolve around raw
materials such as oil, forest products, and iron ore. Subsequently,
Japan is sensitive to fluctuations in commodity prices. With only 19%
of its land suitable for cultivation, the agricultural industry is
small and largely protected. While the United States is Japan's
largest single trading partner, close to half of Japan's trade is
conducted with developing nations, almost all of which are in
southeast Asia. Investment patterns generally mirror these trade
relationships. Japan has over $100 billion of direct investment in the
United States.

The Tokyo Stock Exchange (TSE) is the largest of eight exchanges in
Japan. The exchanges divide the market for domestic stocks into two
sections, with larger companies assigned to the first section and
newly listed or smaller companies assigned to the second. In 1997,
1,805 firms were listed on the TSE, 96% of which were domestic. Some
believe that the TSE has a tendency to be strongly influenced by the
performance of a small circle of large cap firms that dominate the
market. The two key indexes are the Tokyo Stock Price Index (TOPIX)
and the Nikkei. In 1997, TSE performance was disappointing, with the
TOPIX down 28% for the year.

Since Japan's bubble economy collapsed seven years ago, the nation
has drifted between modest growth and recession. By mid-year 1998 the
world's second largest economic power had slipped into its deepest
recession since World War II. Much of the blame can be placed on
government inaction in implementing long-neglected structural reforms
despite strong and persistent proddings from the International
Monetary Fund and the G-7 nations. Steps have been taken to institute
deregulation and liberalization of protected areas of the economy, but
the pace of change has been disappointedly slow.

Unemployment levels, already at record rates when measured by the
broader criteria used in many other countries, have been an area of
increasing concern and a major cause of recent voter dissatisfaction
with recent governments. However, the most pressing need for action is
the daunting task of overhauling the nation's financial institutions
and securing public support for taxpayer-funded bailouts. Banks, in
particular, must dispose of their huge overhang of bad loans and trim
their balance sheets in preparation for greater competition from
foreign financial institutions as more areas of the financial sector
are opened. Successful financial sector reform would allow Japan's
financial institutions to act as a catalyst for economic recovery at
home and across the troubled Asian region. Further steps toward
complete financial liberalization are in the initial stages of
implementation. Proposals under consideration could lower many
barriers allowing foreign firms greater and cheaper access to funds,
and the recent relaxation of restrictions on the insurance market also
promise greater access to foreign companies. A large factor in
determining the pace and scope of recovery is the government's
handling of deregulation programs, a delicate task given the recent
changes in Japanese politics.

Recent political initiatives in Japan have fundamentally
transformed Japanese political life, ushering in a new attitude which
is strongly reverberating in the economy. The Japanese Parliament (the
Diet) had been consistently dominated by the Liberal Democratic Party
(LDP) since 1955. The LDP dynasty, recently fraught with scandal,
corruption, accusations of maintaining a virtual monopoly, effectively
ended in 1994 as a result of electoral reform measures that brought
Diet seats to previously underrepresented areas. The first election
under this new system was held in October 1996. While the LDP remained
as the ruling party, it did so from a minority position. A key result
of the electoral reforms has been a strengthening of ideas of
opposition parties. Indeed, many of the LDP's recent reforms
originated with the leaders of the opposition New Frontier Party. The
LDP's ability to consistently produce bold innovations in a
politically competitive environment is untested. The opposition
parties suffer from structural and organizational weaknesses.
Infighting and defections are common. This inexperience with a true
multi-party system has caused the rise and fall of four coalition
governments in recent years. Between the adjusting of the monolithic
LDP to a more demanding and competitive system and the settling of the
opposition parties, Japan's political environment remains unstable.
The desire for electoral reform arose out of what many see as a basic
change in Japanese public opinion in recent years. Faced with
recurring scandal and corruption, Japanese society has come to demand
more accountability from their leaders, more transparency in their
institutions, and less interference from their intensely bureaucratic
government. This attitude was reflected in the results of the recent
election where candidates of the LDP party were heavily defeated in an
election for the upper house of parliament and prime minister
Hashimoto was forced to resign. The election results were considered
to be a repudiation of the government's failure to come to grips with
the country's economic decline, widening corruption scandals and a
lack of any discernable progress in addressing the nation's banking
problems.

Nevertheless, sustaining reforms and recovery are not guaranteed.
Drops in consumption, increased budget deficits, or halting
deregulation could exacerbate the nation's economic woes. Furthermore,
as a trade-dependent nation long used to high levels of government
protection, it is unclear how the Japanese economy will react to the
potential adoption of the trade liberalization measures which are
constantly promoted by their trading partners. In addition, as the
largest economy in a rapidly changing and often volatile region of the
world, external events such as the Korean conflict could effect Japan.
As many of the governments of Southeast Asia frequently face domestic
discontent, and as many of these countries are Japanese trading
partners and investment recipients, their internal stability and its
impact on regional security are of tremendous importance to Japan.

Also of concern are Japan's trade and current-account surpluses. If
they continue to grow, they could lead to an increase in trade
friction between Japan and the United States. Additionally, with
inflationary pressures largely absent and wholesale prices falling,
Japan may be entering a period of deflation. A deflationary
environment would both hit corporate profits and increase the debt
burden of Japan's most highly leveraged companies.

CHINA AND HONG KONG. China is one of the world's last
remaining communist systems, and the only one that appears poised to
endure due to its measured embrace of capitalist institutions. It is
the world's most populous nation, with 1.22 billion people creating a
workforce of 699 million people. Today's Chinese economy, roughly
separated between the largely agricultural interior provinces and the
more industrialized coastal and southern provinces, has its roots in
the reforms of the recently deceased communist leader Deng Xiaoping.
Originally an orthodox communist system, China undertook economic
reforms in 1978 by providing broad autonomy to certain industries and
establishing special economic zones (SEZs) to attract foreign
investment (FDI). Attracted to low labor costs and favorable
government policies, investment flowed from many sources, with Hong
Kong, Taiwan, and the United States leading the way. Most of this
investment has been concentrated in the southern provinces,
establishing manufacturing facilities to process goods for re-export.

The result has been a steadily high level of real GDP growth,
averaging 11.35% per year so far this decade. With this growth has
come a doubling of total consumption, a tripling of real incomes for
many workers, and a reduction in the number of people living in
absolute poverty from 270 to 100 million people. Today there is a
market of more than 80 million people who are now able to afford
middle class western goods.

Such success has not come without negatives. As a communist system
in transition, there still exist high levels of subsidies to
state-owned enterprises (SOE) which are not productive. At the end of
1997, it was reported that close to half of the SOEs ran losses. In
addition, the inefficiencies endemic to communist systems, with their
parallel (thus redundant) political, economic and governmental policy
bodies, contribute to high levels of inflation. Fighting inflation and
attempting to cool runaway growth has forced the government to
repeatedly implement periods of fiscal and monetary austerity.
Periodic intervention seems to be their chosen method of guarding
against overheating.

Performance in 1997 reflects this dynamic between growth,
inflation, and the government's attempts to control them. Growth
slowed to 9.1%, largely as a result of a tightening of credits to
SOEs. Policy was a mix between a loose monetary stance and some
relatively austere fiscal positions. While growth was a priority, it
came at the cost of double-digit inflation.

China has two stock exchanges that are set up to accommodate
foreign investment, in Shenzhen and in Shanghai. In both cases,
foreign trading is limited to a special class of shares (Class B)
which was created for that purpose. Only foreign investors may own
Class B shares, but the government must approve sales of Class B
shares among foreign investors. As of December 1997, there were 51
companies with Class B shares on the two exchanges, for a total Class
B market capitalization of $2.1 billion U.S. dollars. In 1997, all of
China's stock market indices finished the year below the level at
which they began it. These markets were buoyed by strong speculative
buying in the year's second quarter. Market valuations peaked in
September and were subsequently hit by a heavy sell off from October
onwards.

In Shanghai, all "B" shares are denominated in Chinese renminbi but
all transactions in "B" shares must be settled in U.S. dollars. All
distributions made on "B" shares are also payable in U.S. dollars, the
exchange rate being the weighted average exchange rate for the U.S.
dollar as published by the Shanghai Foreign Exchange Adjustment
Center. In Shenzhen, the purchase and sale prices for "B" shares are
quoted in Hong Kong dollars. Dividends and other lawful revenue
derived from "B" shares are calculated in renminbi but payable in Hong
Kong dollars, the rate of exchange being the average rate published by
the Shenzhen Foreign Exchange Adjustment Center. There are no foreign
exchange restrictions on the repatriation of gains made on or income
derived from "B" shares, subject to the repayment of taxes imposed by
China thereon.

China's proven ability to nurture domestic consumption and expand
export markets leads many to believe that the bulk of its growth has
yet to be seen. Most sources, notably the World Bank, predict future
growth levels through the year 2000 of over 7%. This auspicious
indicator notwithstanding, there are a few special considerations
regarding China's future. While this list is not all-inclusive, it
does highlight some internal and external forces that have a strong
influence on the country's future.

To begin with the internal issues, one matter is that
infrastructure bottlenecks could prove to be a problem, as most FDI
has been concentrated in manufacturing and industry at the expense of
badly needed transportation and power improvements. Secondly, as with
all transition economies, the ability to develop and sustain a
credible legal, regulatory, and tax system could influence the course
of investments. Third, environmentalists warn of the current and
looming problems regarding pollution and resource destruction, a
common result of such industrial growth in developing economies which
can't afford effective environmental protection. This is a
particularly noteworthy issue, given the size of the country's
agricultural sector. Lastly, given China's unique method of transition
there exists the possibility that further economic liberalization
could give rise to new social issues which have heretofore been
effectively mitigated. One such issue is the possible dismantling of
inefficient state-owned enterprises, something which is potentially
socially explosive given the communist policy of providing social
welfare through the firm. Exposing what many economists feel is a high
level of open unemployment and widening the gap between the newly
empowered business class and the disenfranchised could pressure the
government to retreat on the road to reform and continue with massive
state spending.

Regarding external issues, China's position in the world economy
and its relationship with the United States also have a strong
influence on it's economic performance. The country has recently
enjoyed an almost uninterrupted positive trade balance. As the largest
country amidst the fastest growing region in the world, China and its
multi-million person ethnic diaspora have a significant role to play
in Asian growth. Should China ascend to become a member of the World
Trade Organization (WTO), as it desires, such movements of capital and
goods will become easier.

Export growth in China has recently been subject to fluctuations
caused by external political events, such as the U.S. elections and
debates over human rights issues. U.S. policy (specifically most
favored nation status) is frequently reconsidered by various elements
of the U.S. government in reaction to a variety of issues, from
nuclear proliferation to Tibetan rights. Significant changes in U.S.
policy could impact China's growth, as close to 9% of their GDP is
trade with the U.S. and the U.S. represents the third biggest investor
in China.

Perhaps the strongest influence on the Chinese economy is the
policy that is set by the political leaders in Beijing and this is
somewhat of an open question as the death of Deng has created a slight
vacuum in Chinese political society. A large part of Deng's strength
derived from a newly empowered business class endeared to him and it
is unclear if any of his successors can harness this loyalty as
effectively as he did. Sustained growth is one possible way to win
over this constituency, leading many to believe that the future
Chinese leadership will respect market forces at least as much as Deng
did. Choosing between double digit growth and reduced inflation could
continue to be a central economic question, with 1997 (Deng
influenced) decisions pointing to an acceptance of lower, albeit still
high, GDP growth.

Another key political player is the Chinese army. With provocative
situations occurring in Taiwan and the Korean peninsula, and with ever
present pressure from internal democrats, the military is in a
position of leverage regarding the shaping of the future political
scene. Finally, there is the communist party, long seen as a loser
amongst the beneficiaries of Deng's reforms. Many view the battle
between the party and the middle class as a zero sum game and as the
leadership settles, respective alliances and constituencies could
determine how much the government pursues its growth strategy.

As with almost all foreign investments, U.S. investors face the
significant risk of currency devaluation by the Chinese government.
Despite assurances from officials reemphasizing China's policy
commitment to maintain the current exchange rate of the renminbi
against the U.S. dollar, many observers believe that this policy will
be soon tested as China monitors the effect of regional devaluations
on exports. Government authorities feel that China has boosted its
international reputation by refraining from devaluing the renminbi at
a time when such a move could further destabilize the currencies of
its neighbors. Nevertheless, Chinese authorities have recently hinted
that a continued slide in the Japanese yen would make it very
difficult for them to maintain their promise not to devalue. If
efforts to prevent the slide in the yen fail, then China may be pushed
into devaluing their currency. For U.S. investors, a devaluation would
erode the investment returns on their investments.

The last significant force in the Chinese economy is the
acquisition on July 1, 1997 of Hong Kong as a Special Autonomous
Region (SAR). For the past 99 years as a British Colony, Hong Kong has
established itself as the world's freest market and more recently as
an economic gateway between China and the west.

A tiny, 814 square mile area adjacent to the coast of southern
China with a population of 6.3 million, Hong Kong has a long
established history as a global trading center. Originally a
manufacturing-based economy, most of these businesses have migrated to
southern China. In their place has emerged a developed, mature service
economy which currently accounts for approximately 80% of its Gross
Domestic Product. Hong Kong trades over $400 billion in goods and
services each year with countries throughout the world, notably China,
Japan, and the U.S. Its leading exports are textiles and electronics
while imports tend to revolve around foodstuffs and raw materials.
Hong Kong's currency, the HK dollar, was pegged to the US dollar at
HK7.7=$1 in 1983 and investors consider it to be a stable mechanism in
enduring confidence lapses and speculator attacks. The operation of a
currency board and accumulation of U.S. dollars in its monetary fund
is partly responsible for this stability.

The stock market (SEHK) listed 658 publicly traded companies by the
end of 1997, with total capitalization at $413 billion U.S. dollars. A
significant portion of SEHK firms are in real estate, and are
sensitive to fluctuations in the property markets. 1997 was a
tumultuous year for the Hong Kong stock market as a speculative attack
on the Hong Kong dollar in October provoked a global sell-off in
equities. Investors were shocked as the Hong Kong market, long
regarded as a safe-haven, plunged 40% in October. The stock market's
decline and the attack on the local currency sent interest rates
soaring, precipitating an erosion in local property values. This in
turn put additional pressure on the banking sector which is heavily
geared to real estate. The Hong Kong market's dramatic downturn
illustrates how vulnerable it is to the Asian region's economic
problems. The structural problems besetting Hong Kong's neighbors in
Southeast and Northeast Asia may not be quickly resolved. Exports to
the Asian region may remain depressed as the process of economic
reform in countries such as Thailand, Malaysia, Indonesia, Japan and
South Korea will likely hold back economic growth in the area.
Accordingly, Hong Kong and China will likely be more dependent upon
demand from the U.S. and Europe for some time to come.

As a trade center, Hong Kong's economy is very closely tied to that
of its trading partners, particularly China and the United States. In
the wake of Deng's reforms, Hong Kong and China have become
increasingly interdependent economically. Currently, China is Hong
Kong's largest trading partner. After Taiwan, Hong Kong is the largest
foreign investor in China, accounting for about 60 percent of overall
foreign direct investment. Hong Kong plays a particularly significant
role as an intermediary in U.S.-China trade. In 1996, it handled 56%
of China's exports to the U.S. and 49% of Chinese imports from the
U.S.

The critical question regarding the future of Hong Kong is how the
Chinese leadership will exert its influence now that it has become a
Special Autonomous Region (SAR). This new status is in accordance with
pledges made at the Joint Declaration on the Question of Hong Kong
made by the Chinese and British governments in 1984. Leading up to the
hand over of the colony, the Chinese government has pledged to uphold
the Basic Law of 1990 which states that Hong Kong's status as an
unfettered financial center will remain intact for at least 50 years
after 1997. Part of this status includes retaining the legal,
financial and monetary systems (specifically the HK$/US$ peg) which
guarantee economic freedom and foster market expansion.

Many investors and citizens are closely monitoring Chinese actions
in order to assess their actual commitment to these principles.
Already there is evidence of a clear, if slow, current of political
change coming from Beijing. Certain actions, such as the curbing of
media freedoms, indicate that there is the possibility of significant
interference from communist authorities. More significant was the
clash between the U.K. and Chinese governments over China's abolition
of the elected legislature and subsequent installation of governmental
leaders in both the executive and the legislature who are directly
appointed by Beijing. Mr. Tung Chee-hwa, appointed as the first Chief
Executive of the SAR, has surrounded himself with like-minded
Machiavellian figures who have strong ties to both market successes
and Beijing leaders. They are portrayed as believing in the powers of
capitalism and central authority, if not democracy, leading some to
speculate that the SAR could develop into a South Korean style of
corporatism which preserves the economic status quo without
incorporating further political freedoms.

In assessing the prospects for Hong Kong's future, it must be noted
that China has a very strong interest in a prosperous SAR.
Particularly if Beijing pursues a growth strategy as it has in the
past, Hong Kong can be a key agent in China's economic policy. Desire
for investment and new technologies necessary for modernization is a
strong incentive to send positive signals through the treatment of
Hong Kong. This is reinforced by the respect Hong Kong is due given
its role in China's recent dynamic performance.

To be sure, there are more adamant concerns over the effect of the
acquisition. Many are skeptical of Beijing's ability to leave the
currency alone. Some note the continuous drop in GDP as evidence that
Hong Kong has yet to mature as a service economy and that the
workforce hasn't fully adjusted to the switch out of manufacturing.
Additionally, by tying Hong Kong so closely with China, it now must
weather the ups and downs of Beijing's relationship with the U.S. Most
Favored Nation Status now means just as much, if not more, to the SAR
as it does to Beijing, with some asserting that revoking MFN could
result in substantial losses in trade, income, and jobs.

Hong Kong's competitive advantage has traditionally been a mix of
geography, market freedoms and entrepreneurial spirit. The
preservation of these advantages is now a function of the island's
independence from Beijing. Today's investors will be vigilant in
measuring how much of that independence is retained after July 1,
1997.

AUSTRALIA. Australia is a 3 million square mile continent
(about the size of the 48 continental United States) with a
predominantly European ethnic population of 18.2 million people. A
member of the British Commonwealth, its government is a democratic,
federal-state system.

The country has a western style capitalist economy with a workforce
of 9.2 million people that is concentrated in services, mining, and
agriculture. Australia's large agricultural sector specializes in
wheat and sheep rearing and together, these two activities account for
more than half of the country's export revenues. Australia also
possesses abundant natural resources such as bauxite, coal, iron ore,
copper, tin, silver, uranium, nickel, tungsten, mineral sands, lead,
zinc, diamonds, natural gas, and oil. The health of the country's
domestic economy is particularly sensitive to movements in the world
prices of these commodities. Primary trading partners are the United
States, Japan, South Korea, New Zealand, the United Kingdom and
Germany. Imports revolve around machinery and high technology
equipment.

Historically, Australia's strong points were its agricultural and
mining sectors. While this is still true to a large extent, the
government managed to boost its manufacturing sector by undertaking
protective measures in the 1970's and early 1980's. These have
subsequently been liberalized in an effort to spur growth in the
industrial sector. Today's economy is more diverse, as manufacturers'
share of total exports is increasing. Part of the government's effort
to make manufacturing more competitive was a floating of the
Australian dollar in 1984, precipitating an initial depreciation, and
a campaign to reduce taxes. Such reforms have attracted foreign
investment, particularly in the transport and manufacturing sectors.
Restrictions do exist on investment in certain areas as media, mining
and some real estate.

With inflation well under control but unemployment stubbornly high
and signs of cyclical slack in the economy, Australia's monetary
policy is focused on preserving the low inflation environment while
keeping monetary conditions conducive to stronger economic growth. The
government has set a goal of achieving a government budget surplus in
fiscal year 1998/1999.

Australia is fully integrated into the world economy, participating
in GATT and also more regional trade associations such as the Asia and
the Pacific Economic Cooperation (APEC) forum. Future growth could
result from their movement towards regional economic liberalization,
but a countervailing force is the reality that some export markets in
Europe could be lost to continued European economic integration.

After suffering a significant recession in 1990-91, the Australian
economy has enjoyed six years of expansion. The medium-term outlook
appears favorable, with domestic spending supported by low interest
rates, improving consumer confidence and a strengthening labor market.
GDP growth has increased steadily throughout 1997. However, weakness
in commodity prices, particularly metal prices, coupled with an
increase in the nation's current account deficit have placed
significant pressure on the Australian dollar.

Investors should be aware that, while Australia's prospects for
strong economic growth appear favorable over the long-term, many
sectors currently face significant risks arising from the recent
turbulence in Asian countries, which account altogether for almost 60
percent of Australia's exports. While projections already embody a
more subdued outlook for growth in these countries, there is a risk of
this outlook deteriorating further, especially in Japan and Korea.

Due to the large position that the agriculture and natural resource
sectors have in the nation's export driven economy, any weakness in
commodity prices may negatively impact both the economy and stock
prices. In addition, United States investors face the risk that their
investment returns from investments in Australia could be eroded if
the Australian currency declines relative to the United States
dollar.

INDONESIA. Indonesia is a country that encompasses over
17,000 islands on which live 195 million people. It is a mixed economy
that balances free enterprise with significant government
intervention. Deregulation policies, diversification of strong
domestic sectors, and investment in infrastructure projects have all
contributed to high levels of growth since the late 1980's.
Indonesia's economy grew at 7.1% in 1996, the exact average of its
performance for the current decade. Growth in the 1990's had been
fairly steady, hovering between 6.5-7.5% for the most part, peaking at
8.1% in 1995. Moderate growth in investment, including public
investment, and also in import growth, helped to slowdown GDP growth.
Growth has been accompanied by moderately high levels of
inflation.

In recent years, Indonesia had been undergoing a diversification of
the core of its economy. No longer strictly revolving around oil and
textiles, it is now gaining strength in high technology manufactures,
such as electronics. Indonesia consistently runs a positive trade
balance. Strong export performers are oil, gas, and textiles and
apparel. Oil, once responsible for 80% of export revenues, now
accounts for only 25%, an indication of how far other (mostly
manufacturing and apparel) sectors have developed. Main imports are
raw materials and capital goods.

However, as with many of its Asian neighbors, Indonesia's bright
prospects came to a sudden halt in August of 1997 when the plunging
Thai baht began to destabilize the rupiah. By mid-year 1998 the local
currency had fallen more than 80% against the dollar, and hugely
increased the cost of servicing foreign debts; a collapse of the real
economy, and a growing number of bad loans. Various central bank
initiatives, including a doubling of interest rates, failed to halt
the currency's depreciation. The nation's banks, unable to service
their extensive short-term borrowings, were suddenly in danger of
collapse. Of more than 200 local banks, a mere handful were estimated
to be solvent at mid-year 1998.

The social effects of this decline have been devastating. By the
end of 1998 the government expects 47% of the population to be living
below the poverty line and unemployment is expected to surpass 20% of
the workforce. This has led to an increase in social tensions and food
riots and large-scale strikes have broken out sporadically. Rioting
and attacks upon the country's business-oriented ethnic Chinese
population have prompted as many as 80,000 to flee the country. Rising
popular opposition forced President Suharto to resign less than three
months after being appointed to his seventh consecutive five-year term
and was replaced by his vice-president, B. J. Habibie. The political
upheaval and resulting uncertainty has resulted in the further erosion
in public confidence at home and abroad.

The breakdown in public confidence in the Indonesian economy will
likely be difficult to reverse, and will prolong the period of
recovery. Resumption of lending by multilateral institutions under a
rescue package drawn up by the International Monetary Fund (IMF) may
speed up the process of restoring the faith in the government's
efforts to shore up the banking system. Nevertheless, even if the two
critical outstanding issues of restructuring the corporate sector's
external debt and shoring up the banking sector can be resolved this
year, the economy will remain weak in 1999 and recover only slowly in
the following years.

The Indonesian stock market plunged to record lows in 1997 under
the combined impact of the country's economic implosion, political
uncertainty and social unrest. The market's retreat continued into
mid-1998 as domestic and foreign investors fled the market for safer
havens overseas. While many investors believe that the market's steep
decline has brought valuations of a number of Indonesian companies to
very attractive levels, there remains considerable risk particularly
for foreign investors. As with most foreign investments, United States
investors could see their investment returns eroded if the Indonesian
currency declines in value relative to the U.S. dollar. Secondly, any
escalation of rioting and other forms of social unrest could be a
major obstacle in the path of economic recovery. Thirdly, many
question the will of the Indonesian government and its people to
accept the conditions of economic reform as mandated by the IMF.
Fourth, the Indonesian economy, currency and securities markets are
extremely sensitive to events that take place within the Asian region
and their fortunes are somewhat dependent upon how well other Asian
nations resolve their own economic and currency problems.

MALAYSIA. 1997 saw Malaysia's GDP growth slow to 7.4%, down
from over 8.2% in 1996 and 9.5% in 1995. Inflation has been kept
relatively low at 3.8%. Performance in 1996 avoided the economy's
potential overheating as export growth, investment, and consumption
all slowed. A large part of Malaysia's recent growth is due to its
manufacturing industries, particularly electronics and semiconductors.
This has led to an increased reliance on imports; thus the economy is
sensitive to shifts in foreign production and demand. This is
particularly true regarding its main trading partners: the United
States, Japan, and Singapore. Such shifts were partly responsible for
the slowdown in 1997. In addition, monetary policies to stem the
threat of overheating were evident, but the country still needs
massive public and private investment to finance several large
infrastructure projects. Government industrial policy seeks investment
to create more value added high technology manufacturing and service
sectors in order to decrease the emphasis on low skilled
manufacturing. Already U.S. investors have invested over $9 billion,
and most of this is in electronics and energy projects.

However, like its Asian neighbors, Malaysia has stumbled in its
dash to become a developed nation by 2020. The grandiose ambitions of
Malaysian Prime Minister Mahathir Mohamad have been set back by its
worst-ever currency crisis, which also brought a sharp fall in the
country's stock market. An overheated property market, a growing
current-account deficit and a highly leveraged economy, precipitated
much of the country's problems. Following the sharp decline of
Thailand's currency, the Malaysian ringgit came under severe pressure.
The Malaysian central bank attempted to defend the currency and the
resulting spikes in interbank rates marked the start of a period of
escalating interest rates. Once the central bank ceased using foreign
exchange reserves to slow the ringgit's depreciation in the
region-wide currency slide, the Malaysian currency quickly weakened
versus the United States dollar and by year end had declined by 35%.

By mid-year 1998, the outlook for the Malaysian economy remained
bleak as economists predicted that the economy would shrink by at
least 5 percent this year, the first contraction in 13 years. The
likelihood that Malaysia will be forced to seek IMF assistance is
increasing. Although Malaysia does not have the high level of foreign
debt that has overwhelmed its Asian neighbors, domestic lending, at
170 percent of GDP, was the highest in Southeast Asia when the
currency crisis struck. The nation's banks are now faced with a
growing number of unpaid loans as more businesses are struggling to
stay afloat in the sagging economic environment.

Adding to the bleak outlook is the government's seemingly confused
and erratic response to the nation's serious economic and currency
crisis. The Prime Minister is increasingly at odds with the finance
minister on what policies the country has to institute to remedy the
country's serious problems. Prime Minister Mahathir has abandoned the
tight money, financially conservative recovery policy endorsed by the
IMF and has placed the blame for the nation's troubles on foreign
currency and stock market speculators. The move risks triggering
another round of currency devaluations, inflation and, in the long
run, economic collapse.

Investors should be aware that investing in Malaysia currently
entails a number of potential risks, not the least of which is the
increasingly erratic economic policies of the Malaysian government
that are counter to the advice of the IMF and many of the developed
nations. In addition, the government appears to be escalating its
hostile attitude toward foreign investors. In September of 1998
Malaysian authorities imposed new restrictions on the foreign exchange
and securities markets. Included were limitations in repatriating the
investment proceeds of foreign investors.

While the Malaysian population has been relatively passive during
the first year of the economic meltdown, there could be mounting
social unrest if the crisis is prolonged. Should the country finally
adopt IMF remedies the Malaysian people may be reluctant to accept the
additional sacrifices that they will be called upon to endure. This
could seriously undermine the recovery of Malaysia's economy as well
as its currency and stock market. An increasingly hostile government
towards foreign investors could also lead to additional curbs on the
free access to their funds. As with other Asian markets, currency risk
remains substantial.

SINGAPORE. Since achieving independence from the British in
1965, Singapore has repeatedly elected the People's Action Party (PAP)
as their government. It is a party that is so consistent it has only
offered up two prime ministers in this 32-year period. Elections in
January 1997 returned the PAP to power, signaling satisfaction with
their policy of close coordination with the private sector to
stimulate investment. Typical policies include selective tax
incentives, subsidies for R&D, and joint ventures with private firms.
While the combination of consistent leadership and interventionist
policies is sometimes seen as impeding civil liberties and
laissez-faire economics, it has produced an attractive investment
environment.

The Singapore economy is almost devoid of agriculture and natural
resources, not surprising given the island nation's geographic size.
Its strongest sector is manufacturing, particularly of electronics,
machinery and petroleum and chemical products. They produce 45% of the
world's computer disk drives. Major trading partners are Japan,
Malaysia and the United States.

The economic situation in Singapore registered a passable year in
1996 but weakened in early 1997, dragged down by the downturn in the
global electronics industry. However, it ended the year on a firmer
footing as real GDP growth rose from 4.1% in the first quarter to 7%
by the fourth quarter. Inflation remained low and the current account
balance maintained its large surplus. Property values have declined
recently, impacted by continuing oversupply.

Although Singapore boasts one of the strongest economies in Asia,
investors in that market face a number of possible risks. Chief among
these is that the country is not immune to the region's economic
troubles, as Singapore's neighbors account for nearly one-quarter of
its trade. Any prolonged regional economic downturn could slow its
growth. In addition, analysts believe that there is considerable
downside risk in the current Singapore dollar exchange rate and any
decline in the Singapore currency versus the U.S. dollar could erode
the investment return of United States investors in that market.
Lastly, manufacturing, a major pillar of Singapore's economy, is
unlikely to sustain growth into 1998 as recent indications point to
continued excess capacity in the computer electronics industry.

SOUTH KOREA. South Korea has been one of the more
spectacular economic stories of the post-war period. Coming out of a
civil war in the mid-1950's, the country found itself with a destroyed
economy and boundaries that excluded most of the peninsula's mineral
and industrial resources. It proceeded over the next 40 years to
create a society that includes a highly skilled and educated labor
force and an economy that exploited the large amounts of foreign aid
given to it by the United States and other countries. Exports of labor
intensive products such as textiles initially drove the economy and
were eventually replaced by heavy industries such as automobiles.

Hostile relations with North Korea dictate large expenditures on
the military and political uncertainty and potential famine in the
north has put the south on high alert. Any kind of significant
military effort could have multiple effects, both positive and
negative, on the economy. South Korea's lack of natural resources put
a premium on imported energy products, making the economy very
sensitive to oil prices.

Since 1991, GDP growth has fluctuated widely between 5% and 9%,
settling down at 5.6% last year. Currently the labor market is in need
of restructuring, and its rigidity has hurt performance. Relations
between labor and the large conglomerates, or Chaebols, could prove to
be a significant influence on future growth. Inflation in the same
period has been consistently dropping, save a brief rise in 1994 and
finished the year at 4.5%. The country consistently runs trade
deficits, and the current account deficit widened sharply in 1996,
more than doubling to $19.3 billion. South Korea's strong domestic
sectors are electronics, textiles and industrial machinery. Exports
revolve around electronics, textiles, automobiles, steel and footwear,
while imports focus on oil, food, chemicals and metals.

The stock market (Korea Stock Exchange) is currently undergoing
liberalization to include more foreign participation, which was only
first allowed in 1992, but the bond market remains off limits until
1999. Foreign ownership has since been increased to 55% for all listed
stocks except three. The foreign ownership liberalization is in
response to the KSE 1996 performance, which was down 18%. The number
of listed companies totaled 726 in 1997, a decline of 34 from the
previous year, while the market's capitalization plummeted 70 percent
from its 1996 level.

Over the calendar year 1997, the Korean stock market extended its
two-year decline plunging by 42% to its lowest year-end level since
1986. The collapse came as a direct result of the Asian region's
currency crisis and the failure of several Korean conglomerates. In
the summer of 1997 the South Korean won hit record lows against the
U.S. dollar as a series of nationwide labor strikes aggravated the
already escalating trade deficit. Despite aggressive official
intervention to support the local currency, the won had fallen from
860 to 914 to the U.S. dollar by year-end.

The Korean market poses risks for current and prospective
investors. The Korean government will need to maintain public support
to implement the radical and difficult restructuring of the economy
demanded by the IMF under a $58 million loan package. This opposition
could come from the country's major conglomerates that have yet to
institute necessary restructuring initiatives, and from workers
protesting against rising unemployment.

In addition, relations with its long-standing enemy, North Korea
have been worsening as widespread famine could prompt another attack
on its southern neighbor to divert the attention of its people from
their suffering. More importantly, South Korea's heavy reliance on
exporting to the Asian region holds its economy hostage to the
economic fortunes of its neighbors.

THAILAND. The Thai economy has witnessed a fundamental
transition in recent years. Traditionally it was a strong producer of
textiles, minerals and agricultural products, but more recently it has
tried to build high technology export industries. This proved
particularly fortuitous in the mid 1990s when flooding wiped out much
of their traditional exports, but the newer industries remained
strong, keeping the growth rate above 8%. (This level had been
achieved through the 1990s, giving the economy a name as one of the
fastest growing in the region.) Successive governments have also taken
steps toward reducing the influence of central planning, opening its
market to foreigners and abandoning five-year plans. This
restructuring is still underway, and the change can cause difficulty
at times.

The political situation in Thailand is tenuous. Democracy has a
short history in the country, and power is alternatively obtained by
the military, a non-elected bureaucratic elite, and democratically
elected officials. The frequent transfers of power have generally gone
without divisive, bloody conflicts, but there are bitter differences
between the military and the political parties. Free elections in 1992
and again in 1995 have produced non-military democratic leaders from
different parties, a healthy sign of party competition. More recently,
the dramatic downturn in the economy generated demands from all
sectors of society for the resignation of Prime Minister Chavalit. The
worsening economic situation threatened social stability of the nation
and the Prime Minister resigned after barely one year in power.

In 1997 GDP contracted by approximately 0.3%, compared with 7.2%
growth in 1996 and 8.6% in 1995. The 1997 current account deficit was
1.9% of GDP as against 7.9% in 1996. Inflation was 5.6%, however, the
government has projected a 16.2% rate for 1998. One cause for
Thailand's economic downturn was a decline in export growth as its
manufacturing industry faces stiff competition from low priced
competitors and its agriculture has suffered a severe drop in
production. In 1996, Thailand's currency, the baht, was linked to a
U.S. dollar dominated basket, and monetary policy had remained tight
to keep that link strong and avoid inflationary pressures.

The situation changed in early 1997, however, with the revelation
of many bad bank loans and a bubbling of property prices due to
over-investment. Many companies, faced with slowing exports, stopped
servicing their debts. Many other firms have stayed alive only with
infusions of public cash, and the government has been slow to let many
property laden financial firms fail. The stock market has reacted
strongly, dropping to new lows for the decade. Reluctant to float the
baht, indeed promising that it wouldn't, the government relented in
early July hoping to revive export and stock market growth. The
subsequent devaluation (approximately 20% against the dollar in the
first month) led to the need for a $16 billion loan coordinated by the
IMF to shore up foreign reserves. Most of the loan came from
neighboring countries led by Japan, indicating their desire to both
protect their own investments in Thailand, and also mitigate the
effect of the devaluation on their home currencies.

The total impact of the entire situation is negative, particularly
on inflation, unemployment and foreign debt. Significant turnover and
a major gamble on the currency has put the government in a precarious
position, especially given the fact that it is a six party coalition.
Dissatisfaction amongst the military, always a political factor, is
high.

The new Thai government has produced mixed results in their efforts
to remedy the country's serious economic woes. Crucial to Thailand's
recovery are both the outcome of newly instituted economic and banking
reforms and the outlook for both China's and Malaysia's economies.
Looking forward, currency risk remains high and the baht will likely
be highly vulnerable to regional contagion.

INDIA. India is the second most populous and seventh largest
country in the world. Although the country occupies only 2.4% of the
world's land area, it supports over 15% of the world's population.
Only China has a larger population. The Indian government is
classified as a federation, or union, and is, under its constitution a
"sovereign, socialist, secular, democratic republic" composed of 25
states and 7 union territories. Like the United States, it has a
federal form of government. However, the central government in India
has greater power in relation to its states, and is patterned after
the British parliamentary system.

India's population was estimated at 952 million in 1997 and has
been projected to double by the year 2028. Religion, caste, and
language are major determinants of social and political organization.
Although 83% of the people are Hindu, India also is the home of more
than 120 million Muslims - one of the world's largest Muslim
populations. Despite economic modernization and laws countering
discrimination against the lower end of the class structure, the caste
system remains an important factor in Indian society.

India has the world's fifth largest economy in terms of purchasing
power parity. About 62% of the population depends directly on
agriculture. Industry and services sectors are growing in importance
and account for 29% and 42% of GDP, respectively, while agriculture
contributes about 29%. More than 35% of the population lives below the
poverty line, but a large and growing middle class of 150 - 200
million has disposable income for consumer goods. In the industrial
sector, India now manufactures a variety of finished products for
domestic use and export.

India gained independence in 1947 after two centuries of British
colonial rule. Economic policies in the first four decades of
independence were driven by its leaders' deep distrust of foreign
economic interests and admiration for the Soviet model of centrally
planned industrialization. Accordingly, the country has followed a
policy regime that has been characterized by extreme protectionism and
public sector dominance in strategic sectors. Nevertheless, India has
developed a large and diversified private sector, and agriculture has
remained almost entirely in private hands.

India's treatment of foreign investment has been alternatively
encouraging, ambivalent or difficult, depending on the industry sector
involved. Most industries are open to limited investment by
multinational companies while others are closed to foreign investors.
Sectors closed to foreign investment currently number five: mineral
oils; railway transport; war ships and the military-related areas of
aircraft; atomic energy; and associated minerals. Although recent
measures have liberalized the investment limits on a number of major
industries, several political parties, deeply hostile to foreign
investment, have made these issues the subject of pre-election
rhetoric.

India has a large and active stock market which ranks twentieth
globally in market value. There are 23 recognized stock exchanges in
India. The BSE is the premier exchange; accounting for more than
one-third of trading volume, over 70% of listed capital and over 90%
of market capitalization. As of the end of 1997 there were 5,842
listed companies on the BSE with a total market value of US$128.27
billion.

Relations between India and its neighbors have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. More recently, India's nuclear tests prompted Pakistan to reply
in kind, despite Western efforts to dissuade it. Economic sanctions
imposed by the U.S. and other industrialized countries following the
nuclear tests in May of 1998 have not been without consequences. While
their short-term, direct effect on the economy has been relatively
modest, the indirect and medium-term consequences of sanctions could
become more serious. Relations with Nepal, with Bhutan and with China
are marred by China's two territorial claims in the nation's east and
north. Historical suspicions remain following the 1962 border war
between India and China and the two countries have continued to work
towards expanding their political and economic influence in the South
Asian region.

While India presents many attractions for U.S. investors, there
are a number of factors that could pose considerable risk to those
investing in this market: Contemporary politics have become
increasingly unpredictable since the resounding defeat of Congress in
1996 after decades at the helm. The alignment of political forces has
become increasingly erratic among factions, parties and interest
groups. Some factions within the current administration have been
hostile to foreign investment and could impose measures that would be
detrimental to the interests and rights of these investors.

India's foreign relations in the region remain fragile and the
possibility of increased tensions or open warfare is an ever-present
danger to the stability of the market. In addition, the monetary cost
of economic sanctions resulting from recent nuclear tests could
substantially impact economic growth and corporate profits. Sanctions
affect India in several ways. Crucially, there will be a deferment or
loss of direct aid and concessional loans, from multilateral agencies
(notably the World Bank) and bilateral donors (the U.S., Japan and
Canada, among others). The loss of export credit and guarantees,
notably from the US Export-Import Bank could delay and increase the
cost of large infrastructure and foreign investment projects. This, in
turn, could have a negative impact upon creditor and investor
confidence in the Indian market.

Relative to the more mature markets of the world, the level of
corporate disclosure in India is very low and companies are generally
less disposed to act in the best interests of their shareholders.
Accordingly, investors face a much more difficult task in ascertaining
the true investment worth of a particular stock.

As with most other emerging markets, the Indian market has been
negatively impacted by recent economic and currency turmoil in the
world's less developed regions and is likely to be similarly impacted
in any future weakness. Currency fluctuation is an additional risk to
U.S. investors as any weakening in the value of the Indian rupee
versus the U.S. dollar could erode the value of their investments upon
currency translation.

TAIWAN. Taiwan is one of the most densely populated
countries in the world, with a population of over 20 million, or 1,504
persons per square mile. Most Taiwanese are descendants of immigrants
who came from China's Fukien and Kwantung provinces over 100 years
ago. Mandarin is the official language while English is taught to all
students as their first foreign language, beginning in the seventh
grade.

Although settled by Chinese in the seventeenth century, Taiwan
(also called Formosa) was ruled by Japan from 1895-1945 and
subsequently reverted to Chinese administration at the end of World
War II. In 1949, nationalist leader Chiang Kai-shek took control of
the island after fleeing mainland China with two million supporters,
following his defeat at the hands of the communists. Since that time,
Taiwan has been governed by the right-wing Kuomintang (KMT) which was
founded by Chiang Kai-shek. In 1996 the island held its first popular
presidential elections in which the KMT retained its control.

Both the Taipei and Beijing governments consider Taiwan an integral
part of China. The KMT has vowed to reconquer the mainland while The
People's Republic of China has urged Taiwan to accept a peaceful
reunification with the mainland. China has proposed that they regain
sovereignty over Taiwan on the basis of a "`one country - two
systems'" arrangement similar to that of the recent reunification of
Hong Kong. Nevertheless, China has periodically threatened to annex
Taiwan through military action.

Under the KMT government, Taiwan achieved a remarkable record of
economic growth with the assistance of massive U.S. aid in the early
years of the post war period. Today, Taiwan has one of the world's
strongest economies and is among the ten leading capital exporters.
Between 1980 and 1990 real GDP expanded at an average annual rate of
7.9%. During 1990-95 an annual GDP growth rate of 6.6% was recorded.
In 1996, compared with the previous year, GDP increased by 5.7% in
real terms, while it was anticipated that growth would exceed 6.0% in
1997 and 1998. Between 1960 and 1973 the island's exports rose 20 fold
and real GDP increased 3.3 times. Even more remarkable, as the shift
of millions of people from villages to cities took place, was the high
level of employment. Between 1964 and 1995 the unemployment rate
rarely exceeded 2% of the work force in any year.

Prior to 1967 foreign sources played a large role in financing
capital formation expansion, but thereafter domestic savings financed
the entire growth of net capital formation. By 1986 the ratio of
national gross savings to GDP had reached 38.5%. Thereafter the ratio
declined, standing at 26.0% in 1996. The expansion of foreign trade
was the major reason for Taiwan's rapid capital growth. Much of the
growth in exports could be attributed to the competitiveness of its
exports in price and quality in world markets.

Since the mid-1990s the island's traditional reliance upon light
industry has gradually given way to high technology activities, as
emphasis shifted from labor-intensive to capital-intensive production.
The electrical and electronic machinery sector continued to show
particularly strong growth in the 1990s as did the chemical sector.
Taiwan also has eleven vehicle manufacturers, all of which have
contracted joint ventures with foreign companies. By the mid-1990s
Taiwan had become one of the world's largest producers of personal
computers and semiconductors.

Taiwan has a large and active stock market ranking twelfth by
market value among the world's markets. The TSE in Taipei is the only
official stock exchange in Taiwan, although there is also a small OTC
market. At the end of 1997 there were 404 companies listed on the TSE
with a market capitalization of US$288.1 billion. The market is
dominated by individual investors, who account for 90.7% of total
turnover in listed shares. Many local institutions, such as banks,
insurance companies or pension funds, are prohibited or restricted
from investing in listed shares. Foreign individuals and institutional
investors meeting certain criteria have been able to invest in the
market directly since 1990 but are subject to certain limits. Foreign
involvement in the market through qualified foreign institutional
investors and mutual funds is small but growing.

Investing in Taiwan entails special risks as well as those risks
that are common to other emerging markets. Taiwan's relations with The
People's Republic of China remain fragile. The conflict between the
entrenched nationalization of China and the nascent nationalism of
Taiwan persists and armed conflict between the two nations remains a
possibility. Beijing continues its policy of attempting to isolate
Taiwan and could use its growing economic power and political
influence to interfere with the nation's trade with the rest of the
world's economies.

In addition, the Taiwan market has been one of the most volatile
in Asia over the past decade. The country did not escape the effects
of the Asian economic and currency crises in 1997 and 1998 and could
continue to be negatively impacted by an extension of the current
regional turmoil. The nation's heavy dependence upon trade and
manufacturing partnerships with foreign companies also leaves it
particularly vulnerable to downturns in the global economies. Currency
fluctuation is an additional risk to U. S. investors as any weakening
in the value of the local currency versus the U.S. dollar could erode
the value of their investments upon currency conversion.

THE PHILIPPINES. The Philippines is a developing democratic
republic. After 300 years of Spanish rule, the United States acquired
the Philippines from Spain in 1898 and ruled for 48 years. The country
subsequently gained its independence from the United States in 1946.
The nation, as provided by the 1987 Constitution, is a democratic
republican state with a presidential form of government. However,
since its independence, the government has been periodically roiled by
military coups, martial law and political assassinations.

The Filipino population consists of approximately 70 million
people, primarily of Indo-Malay, Chinese and Spanish descent. Thirteen
percent of the population lives within the Metro Manila area. Most
Filipinos are bilingual, with English as the basic language in
business, government, schools, and everyday communication. While there
are 87 languages spoken throughout the Philippines, the official
language is Pilipino, which is spoken mainly in the Metro Manila area
and widely used in the mass media.

The Philippine economy is basically agricultural if
food-processing manufacture is included. Agriculture (including
forestry and fishing) contributed 21.5% of GDP in 1996, and engaged
39.8% of the employed labor force, while industry (including mining,
manufacturing, construction and power) contributed 31.9% of GDP and
engaged 16.5% of the employed labor force.

Manufacturing accounted for 22.6% of GDP in 1996 and engaged 9.8%
of the labor force. The principal branches of manufacturing are food
products, petroleum refineries, electrical machinery, chemical
products, beverages, metals and textiles.

The services sector contributed 46.6% of GDP in 1996, and engaged
43.7% of the employed labor force. Remittances from Filipino workers
abroad constituted the Government's principal source of foreign
exchange, while tourism remains a significant sector of the
economy.

In 1995 the Philippines recorded a trade deficit and a deficit on
the current account of the balance of payments. The principal source
of imports was Japan, which accounted for 22.1% of the total. Other
significant suppliers were the United States, Saudi Arabia, Singapore,
the Republic of Korea and Taiwan. The United States was the principal
market for exports (35.8%), while other purchasers were Japan,
Singapore and the United Kingdom.

Under the regime of General Fidel Ramos, installed in 1992, the
economic performance of the Philippines improved dramatically, owing
to extensive structural reforms, including the dismantling of
protectionist legislation and the liberalization of trade, foreign
investment and foreign exchange controls. However, economic growth was
adversely affected by the regional financial crisis in 1997. The
effective devaluation of the peso in July caused a collapse of the
stock market and led to rising inflation and the depletion of foreign
exchange reserves. The absence of large foreign investment inflows,
which had previously contributed to an overall surplus on the balance
of payments despite a recurrent account deficit, resulted in an
overall deficit in 1997.

The Philippine stock exchange (PSE) is the country's only exchange
and ranks thirty-sixth in total market capitalization among the
world's markets. The total number of companies listed on the exchange
was 221 in 1997. Individual domestic investors are the majority
participants while foreign investment is dominated by the Taiwanese,
who are closely followed by the Japanese and Hong Kong Chinese.
Foreign investors are generally allowed to acquire 100% of the equity
of a Philippine listed company, although there are businesses where
foreign ownership is restricted by law.

Foreign investors face special risks when investing in the
Philippines. The country's economy and stock market have historically
been highly sensitive to changes in the Asian region's economies and
this has been amply demonstrated in recent years. After posting
dramatic gains in the four years preceding Asia's financial crisis in
mid-1997, the Philippine stock market plummeted in response to the
spreading economic, political turmoil in Southeast Asia and Japan. The
market's weakness was further exacerbated as foreign investors pulled
out of the market in large numbers.

Weakening conditions in neighboring countries has also negatively
impacted the Philippine peso. Plummeting currencies in Thailand,
Indonesia, Singapore and Malaysia sent the Philippine peso into a
steady decline. Over the 1997 calendar year, the value of the peso
fell by 52 percent versus the U.S. dollar.

For U.S. investors, currency fluctuation presents an additional
risk to investing in the Philippines as a weakening peso can erode the
investment returns on their investments in that country.

Because the Philippines is highly dependent upon the United
States, Japan and the Southeast Asian countries as the primary
purchasers of its exports, its economy is particularly sensitive to
changes in the economic fortunes of these nations.

Although the Philippine political climate appears to have improved
over the past few years, investors should be aware that the country
has periodically been subjected to military coups, martial law, and
widespread political corruption since it gained independence. Several
past administrations have instituted policies that have also been
detrimental to the domestic economy and the rights of its citizens.
Cronyism and corruption have also been rampant in both government and
the business community to the detriment of the interests of corporate
shareholders.

PAKISTAN. The Islamic Republic of Pakistan was founded in
1947, when the British partitioned the South Asian subcontinent into
two states: India and Pakistan. (East Pakistan broke away to become
Bangladesh in 1971). The Pakistan constitution of 1973, amended
substantially in 1985, provides for a President (Chief of State) who
is elected by an electoral college consisting of both houses of the
federal parliament and members of the four provincial legislatures.
The National Assembly in a special session elects a Prime Minister.
Following the election, the President invites the Prime Minister to
create a government. The constitution permits a vote of "no
confidence" against the Prime Minister by a majority of the National
Assembly. In practice, the army has a strong voice in the
decision-making process and few Presidents have been able to oppose
its interests for long.

Relations between Pakistan and India have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. India has accused Pakistan of fomenting religious and political
unrest and in 1994 there were frequent disturbances in the region. The
two sides frequently exchange fire. More recently, India's nuclear
tests prompted Pakistan to reply in kind, despite Western efforts to
dissuade it. Economic sanctions imposed by the U.S. and other
industrialized countries following the nuclear tests have not been
without consequences. While their short-term, direct effect on the
economy has been relatively modest, the indirect and medium-term
consequences of sanctions could become more serious as the resumption
of IMF funding is currently in jeopardy.

With a per capita GDP of about $470, Pakistan is considered a
low-income country by the World Bank. No more than 39% of adults are
literate and life expectancy at birth is about 62 years. Relatively
few resources have been devoted to socio-economic development or
infrastructure projects. Inadequate provision of social services and
high population growth have contributed to a persistence of poverty
and unequal income distribution.

The country's principal natural resource is arable land (25% of
the total land area is under cultivation). Agriculture accounts for
24% of GDP and employs about 50% of the labor force. Wheat, cotton,
and rice together account for almost 70% of the value of total crop
output and are among the country's major exports. Pakistan's
manufacturing sector accounts for about 20% of GDP. Cotton textile
production and apparel manufacturing are Pakistan's largest
industries, accounting for about 50% of total exports. Other major
industries include cement, fertilizer, sugar, steel, tobacco,
chemicals, machinery and food processing.
Weak world demand for its exports and domestic political
uncertainty have contributed to the nation's widening trade deficit.
The nation continues to rely heavily on imports of such materials as
petroleum products, capital goods, industrial raw materials and
consumer products and the resulting external imbalance has left
Pakistan with a growing foreign debt burden. Annual debt service now
exceeds 27% of export earnings.

Pakistan has three stock exchanges located in Karachi, Lahore and
Islamabad. The Karachi Stock Exchange (KSE) is dominant, accounting
for approximately 80% of equity transactions in Pakistan. The KSE
ranks forty-eighth among the world's markets and had a market
capitalization of $11 billion in 1997. At the end of that year there
were 781 companies listed on the KSE. The combined market
capitalization of the 20 largest companies represented 71.7% of the
market total.

U.S. investors should be aware that there are a number of factors
that could pose special risks to investing in Pakistan securities.
Among these is the country's long history of government instability
marked by military coups, political assassinations and frequent
outbreaks of violent rioting, strikes and ethnic unrest. While recent
governments have made some progress on addressing some of the
country's social and economic ills, the current administration is
faced with a number of serious crises. The country appears to be close
to defaulting on its international commitments. With no debt
repayments made since August of 1998, Pakistan faces the possibility
of outright default unless it can secure a bailout package and debt
rescheduling. Recent talks with the IMF on a debt rescue package broke
down and a default could precipitate declines in the nation's trade
and currency. By November of 1998, foreign investment has slowed
dramatically in response to a rise in investment risk and new
restrictions imposed by the central bank designed to limit the outflow
of foreign exchange.

Corruption within the government and business community remains a
problem and corporate managements are generally not focused on
improving shareholder interests.

The threat of war with India over the disputed province of Kashmir
remains a threat to peace in the region and any outbreak of
hostilities would likely plunge the nation's economy into deep
depression and further erode the relative value of its currency versus
the world's major currencies.

SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA

Latin America represents one of the world's more advanced emerging
markets. With a total population of 427 million people and its
abundant natural resources, the area is a prime trading partner for
the United States and Canada. Latin American exports represent, on
average, 16.6% of GDP. Strong export sectors are petroleum,
manufactured goods, agricultural commodities such as coffee and beef,
and metals and mining products. GDP growth in Latin America as a
region was 3.4% in 1996, up from 0.1% in 1995. Recognizing the
important role of international trade as a component of GDP, the
countries of Latin America have formed strong regional trade
organizations, notably Mercado Comun del Sur (MERCOSUR). Talk of
extending the North American Free Trade Agreement (NAFTA) down through
Latin America indicates some desire to tie the economies even closer
to those of the north.

Politically, Latin American countries generally have strong
presidential systems closely modeled after the United States. The
transition to democracy is largely complete in most countries. All
countries enjoy good relations with the United States, with whom they
cooperate on a range of non-economic matters, such as preservation of
the environment and drug control. Monetarist minded governments were
responsible for the successful staving off of contagion from the 1995
currency crisis in Mexico, increasing their stature in the eyes of
most capital market participants.

ARGENTINA. Prior to 1989, Argentine politics were characterized by
populist leaders, sometimes democratically elected and sometimes not,
who ruled with the overt support of the military. Coups and outright
military rule were not uncommon. Economic policies were highly
protectionist, with significant barriers and restrictions on foreign
trade and investment. Markets were highly regulated and the state was
heavily involved in many industries. Inflation was routinely high and
growth stagnant.

President Carlos Menem was first elected to office in 1989 and
undertook a program of deregulation, liberalization and macroeconomic
reform. The results have been positive. GDP growth in 1997 was 8.0%,
up from 4.4% in 1996 and -4.4% in 1995. Argentina's growth, averaging
over 6% from 1991 to 1997, had been driven primarily by domestic
consumption. Immediately after the Mexican crisis, bank liquidity was
restrained. However, deposits have since returned to the system
surpassing the levels that existed prior to the crisis and liquidity
is very much improved. Lending also increased and consumer spending
rebounded although it has slowed somewhat due to the most recent
Brazilian crisis. The positive effect is that inflation, well over
150% at the beginning of the decade, was 0.4% in 1996. Still
troublesome for Argentina is unemployment, quite high at 15%. Menem's
economic liberalization policies have succeeded in attracting foreign
investment. From the U.S. alone, approximately $10 billion was
invested by 1996. Investors have been most attracted to the
telecommunications, finance, and energy sectors.

Argentina enjoys a positive trade balance. The export economy is
heavily weighted toward agriculture, which represents 60% of the total
value of all Argentine exports. Primary products are livestock,
oilseeds, and grain. Argentina's single biggest trading partner is
Brazil, and the United States is the second. Primary imports are
machinery, vehicles and chemicals.

The resignation of Economy Minister Domingo Cavallo in July 1996
was initially greeted with skepticism from the markets. Cavallo was
widely recognized as the man responsible for ensuring the
convertibility of the peso by pegging it to the dollar, a move which
saved Argentina from the hyperinflation and continuous drops in output
which could have followed from the Mexican crisis in 1994. Confidence
was quickly restored, however, with the appointment of Roque
Fernandez, who promptly reaffirmed commitment to Cavallo's plan and
introduced further measures for fiscal stability.

The next presidential election is due in 1999. In accordance with
the constitution, Menem, a member of the Peronist party, can not seek
a third consecutive term. The next election is likely to present a
third candidate to the voters beyond the traditional contestants from
the Peronist and Radical parties. Frepaso, a center-left alliance,
first emerged in the 1995 elections and by 1999 could build itself up
enough to promote a viable alternative to the older parties. It is
uncertain how policies would be effected by the systemic change from a
predominantly two party system to a three party one.

The Argentine stock market reached an all-time high in October of
1997 in response to rising corporate earnings and strong economic
growth. However, the market underwent a significant correction due
largely to the "contagion effect" of the Asian economic and currency
crisis and the Mervel index ended the year only 5.9% ahead. While
there was little direct impact from the Asian crisis on Argentina's
economy, foreign investors fled the market, as they feared that Asia's
currency problems would spread to Latin America.

The Argentine market may pose special risks for investors. As an
emerging nation, Argentina's stock market may be particularly
vulnerable to widespread economic, currency and market turmoil such as
we have seen recently in Asia. These crises may prompt investors to
become increasingly averse to emerging market exposure on concern that
the impact of these events will spread to other countries. In
addition, mutual funds that invest in emerging markets may be forced
to sell holdings in countries that have little similarity with the
markets in trouble, merely to raise cash to meet redemptions.
Similarly, the Asian crisis has accelerated a growing imbalance
between supply and demand for basic commodities such as oil, metals,
pulp, grains and others. This could impact the Argentinean stock
market where energy stocks (oil, gas and electricity) comprise
approximately 40% of the market's total value. A currency devaluation
by one or more of its Latin American neighbors could precipitate a
recession and political pressure for competitive devaluation to
protect the country's trade competitiveness.

While Argentina's political situation is relatively stable, there
is a high degree of dissatisfaction with the government's inability to
lower the country's high unemployment rate. This could eventually lead
to social unrest and a turnover of the government to the control of
parties less favorable to investors.

BRAZIL. Brazil is the largest country in South America and is home
to vast amounts of natural resources. Its 155 million people are
descendants from indigenous tribes and European immigrants. They live
in diverse socio-economic conditions, from the urban cities of Sao
Paolo to the undeveloped trading posts of the distant regions.
Industrial development has been concentrated in specific areas. The
disenfranchised population is quite large and is a source of many of
Brazil's social problems.

The Brazilian economy is currently undergoing extensive reforms,
stemming from a 1994 effort to stabilize the currency called the Real
Plan. With the aim of curbing inflation, a new currency, the Real, was
introduced and supported via a floating exchange band. The plan has
stabilized the exchange rate and controlled inflation which was at
2,700% in 1994. Inflation in 1995 dropped to 81%, and fell even
further in 1996, settling at 18.7%. Perhaps the most remarkable
achievement for the Brazilian economy in 1997 was the lowest rate of
inflation in the past 40 years, as the National Consumer Price Index
increased just 7.48%. At the same time, however, the Real Plan has
sent the trade and current account balances into a deficit. The
current account deficit is expected to reach $30 billion in 1998,
equivalent to 3.6% of GDP.

Other objectives of the administration of the current President,
Fernando Henrique Cardoso, are trade liberalization and privatization,
but these efforts are sporadic and often stalled by special interests
in the legislature. Some privatization efforts are performing well,
particularly in the utilities sector. Utilities and telecommunications
have been key draws for foreign investment, and foreign direct
investment (FDI) is coming in at record levels. In 1998 the country
received over $20 billion from privatizations. Still, there are
restrictions against investments in certain industries, such as metals
and mining.

Traditionally a primarily agricultural economy, a strong
industrial sector has developed which produces metals, chemicals, and
manufactured consumer goods. Agriculture still plays a significant
role, however, representing 11% of the GDP, 40% of exports and
employing over 35% of the workforce. Primary agricultural products are
grains, coffee, and cattle. Regarding energy and utilities, the
country is a leading producer of hydroelectric power, but they are
dependent on imports for oil.

Presidential elections were held in October of 1998 and President
Cardoso won with 53% of the vote. This should insure continuity in
policy, which will be much needed given the difficulties caused by the
recent instability in the global markets and its impact on Brazil.

In 1997 the Brazilian stock market rose to an all-time high in the
first quarter. Over the summer, the speculative attack on the Thai
currency triggered a sharp reversal in the Brazilian market, as
investors feared a raid on the Brazilian real. However, the market
ended the year with a gain of 4.34%. By mid-year 1998 the Brazilian
market plummeted amid growing concern that Brazil, Latin America's
largest economy, might suffer the confidence crisis that had caused
large currency devaluations in Russia and Asia.

Investing in Brazil could entail special risks: High unemployment
is the chief challenge facing Brazil's president Cardoso following his
reelection in October of 1998. Joblessness is at a record high and
social unrest could hinder his progress in subduing inflation and
denationalizing government ownership of many of its businesses. Brazil
could be a likely target for a renewed attack on its currency. The
economy is in a more precarious state: interest rates remain high and,
despite austerity measures, little progress has been made in reducing
the current account deficit. This poses particular risk for U.S.
investors who would see their investment returns eroded if the
Brazilian real were to be devalued.

Overall, Brazil remains vulnerable to both external shocks and
changing sentiment due to worsening domestic indicators or political
risk.

CHILE. Chile is a transition economy which has recently made great
strides toward putting its authoritarian, statist, past behind itself.
In all of Latin America, it is the country with the highest rates of
growth. Averaging 7.3% so far this decade, GDP grew at 6.0% in 1996,
down from 6.6% the previous year. Inflation has been steadily
declining and is down over 15% in the last five years. Inflation in
1997 was 6.0%, a 0.6% drop over 1996. Unemployment in 1996 was 6.2%,
particularly low for the Latin American region. Chile is still
considered to have one of the best performing stock markets in the
region.

Performance of the Chilean stock market was lackluster in 1997 as
weak copper prices and rising interest rates led to a contraction in
the domestic economy. Also contributing to the market's weakness was
the contagion effect of the Asian economic and currency crises, a
decline in pulp and steel prices, and uncertainty about the growth
prospects of its Latin American neighbors. These factors combined to
produce a 15% decline in the stock market for the 1997 calendar year.
The market weakness carried through into the first half of the next
year.

Eduardo Frei is President and is due for reelection in 1999.
President Frei has been trying to decentralize the government but
encounters stiff opposition from the powerful trade unions. Also high
on Frei's agenda is tax reform.

There is a considerable military component to political life in
Chile. In the legislature there is strong representation by parties
with authoritarian views. As part of the negotiated settlement with
coup leader General Augusto Pinochet in 1990, the army chain of
command ends with General Pinochet, not an elected official.
Furthermore, certain seats are reserved in the Senate for appointed
officials from the military. Pinochet must resign in 1998, and shortly
thereafter the reserved Senate seats will fall open to election. There
are constitutional reforms currently in progress further diminishing
the role and influence of the military, and thus the political
transition is still underway. A successful outcome requires that the
military acquiesce as it is stripped of its political powers.

Investors in the Chilean market face special risks: The Chilean
market is particularly sensitive to the fluctuation in the
international price of copper and pulp on the international markets
and they have a significant impact on the nation's economy and stock
market.

As is typical of most emerging markets, much of the Chilean market
equity is firmly held by controlling families and their associates.
Accordingly, these owners may not always act in the interests of
outside shareholders. In addition, any weakness in the Chilean
currency versus the dollar could erode the investment returns to U.S.
investors upon currency conversion.

MEXICO. The Mexican economy has recovered fairly well since the
currency crisis of December 1994 thanks in large part to growth in
exports, peso stabilization, and massive financial assistance from the
United States. GDP growth rose to 7.3%, with consumer spending and
investment leading the way. A major positive factor supporting growth
during 1997 was the strength of the peso, which closed the year little
changed from its 1996 year-end level. In addition, the nation's
inflation rate declined to 15.7% from the 27.7% rate of 1996. This
marked the second straight year of improvement. Inflation is the chief
concern of the central bank, which takes active measures such as the
setting of wage ceilings and the adjustment of interest rates to
control it. Domestic consumption, while improved, has yet to return to
pre-1994 levels, and has also contributed to the containment of
inflation.

The Mexican economy is very strong in manufacturing and natural
resources, specifically oil. Manufacturing alone counts for 22% of the
Mexican GDP and 21% of all urban employment. The economy is also very
closely tied to the United States, which is responsible for 60% of all
foreign investment and with whom it conducts over 75% of all trade.
Trade pacts such as NAFTA further integrate the economies, giving the
United States strong incentives to provide assistance in times of
crisis. NAFTA also enabled the recent recovery, given the ease with
which it allows increases in exports and investment. The Mexican stock
market listed 194 companies with total capitalization of $156 billion
in 1997.

Internally, the various people of the Mexican states have recently
experienced a great deal of dissatisfaction with their relationship to
the federal government. Most notably, in Chiapas there have been armed
uprisings by indigenous groups demanding further autonomy. While the
rebellions have not strongly shaken financial markets, they serve as a
reminder of the diversity of Mexico, of the vast socio-economic gaps
between various peoples, and of the potential for such groups to
demand the attention of both their government and the world.

Politically, the landscape changed fundamentally in July 1997. The
defeat of candidates from the Institutional Revolutionary Party (PRI)
in legislative elections signaled the end of decades of one party
rule. Citizens now have the confidence that their votes count and that
the PRI is no longer invincible. Winning every presidential election
since its founding in 1929, the PRI was the country's monolithic
political machine, maintaining power through rigged elections and
ruling in an environment rife with intrigue and corruption. Internal
pressures including armed rebellion from domestic interest groups,
extensive crises and scandals caused by intra-party rivalries and
corruption, and deteriorating relationships with foreign countries
over financial mismanagement and mutual social problems all
contributed to the establishment of fully free and unfettered
elections. Numerous electoral reforms implemented since 1989 have
aided in the further opening of the Mexican political system and
opposition parties have made historic gains in elections at all
levels. Much of the impetus for establishing a real two party system
in Mexico can be credited to President Zedillo and the PRI majority in
Congress. During 1995-96 the political parties negotiated
constitutional amendments to address electoral campaign fairness
issues, which passed unanimously. The response from the Mexican people
was clear as a record number of registered voters cast ballots. Though
they took the most votes (39%) for the 500-member Lower House of
Congress, the PRI has lost their majority. Mid-term elections held in
July of 1997, also saw large gains for opposition parties and marked a
significant step in Mexico's political transformation. Market reaction
to the new Mexican political world was positive. The IPC index,
consisting of 35 of the most representative stocks on the Mexican
Stock Exchange, rose 3.25% the day after the election. Further
financial implications of the new landscape are as yet uncertain.
Relevant considerations are the effect of the new configurations on
government consensus and policy making, the demands of newly empowered
groups on economic and other resources, the balance of power between
the executive and the legislature, and the ability of the government
to maintain law and order.

Mexico's stock market fell sharply in late 1997 and continued its
descent through mid-1998 as the worsening Asian economic and currency
crises threatened to cause problems for Mexico's trade balance and
raised questions concerning the sustainability of its economic growth.
Foreign investors fled the Mexican market, as they feared that Asia's
currency problems would spread to Latin America.

Investors in Mexico face a number of potential risks. As an
emerging nation, Mexico's stock market may be particularly vulnerable
to widespread economic, currency and stock market turmoil such as that
recently experienced in Asia and Russia. These crises may prompt
investors to become increasingly averse to emerging market exposure on
concern that the impact of these events will spread to other
countries. In addition, mutual funds that invest in emerging markets
may be forced to sell holdings in countries that have little
similarity with the troubled markets, merely to raise cash to meet
redemptions. Similarly, because the United States is Mexico's largest
trading partner, any economic downturn in the U.S. economy can have a
strongly adverse impact upon Mexico's economy and stock market.

While Mexico's political situation is relatively stable, there is
a high degree of dissatisfaction with the government's inability to
effectively address the nation's growing social problems, particularly
in the country's less developed regions. Occasional flair-ups of
strikes and armed rebellion could pose a threat to Mexico's political
and economic stability.

SPECIAL CONSIDERATIONS REGARDING THE RUSSIAN FEDERATION

The Russian Federation is the largest republic of the Commonwealth
of Independent States with a 1995 population of 147,500,000. It is
about one and four fifths of the land area of the United States and
occupies most of Eastern Europe and north Asia.

Russia has had a long history of political and economic turbulence.
The USSR lasted 69 years and for more than half that time it ranked as
a nuclear superpower. In the 1930's tens of millions of its citizens
were collectivized under state agricultural and industrial enterprises
and millions died in political purges and the vast penal and labor
system or in state-created famines. During World War II, as many as 20
million Soviet citizens died. After decades of communist rule, the
Soviet Union was dissolved on December 8, 1991 following a failed coup
attempt against the government of Mikhail Gorbachev. On the day that
the leaders declared that the Soviet Union ceased to exist, the Soviet
republics were invited to join with Russia in the Commonwealth of
Independent States (CIS). At one time or another those that have
agreed to join have included the Ukraine, Belarus, Moldova, Georgia,
Armenia, Azerbaijan, Uzbekistan, Turkmenistan, Tajikistan, Kazakhstan
and Kyrgyzstan, but a number have dropped out since or have only
observer status. Each of the republics is a sovereign state that
controls its own economy and natural resources and collects its own
taxes, providing only minimal support to the CIS.

Boris Yeltsin, President of Russia, inherited the mantle of
economic and political chaos. With the freeing of most prices he
staked his political life on the rapid creation of a free market
economy. Since 1991 Yeltsin and his Russian reformers have been faced
with the daunting task of stabilizing the Russian economy while
transforming it into a modern and efficient structure able to compete
in international markets and respond to the needs of the Russian
people. To date, their efforts have yielded widely mixed results. On
the one hand, they have made some impressive progress. Since 1992,
they have abolished central planning, decontrolled prices, unified the
foreign exchange market, made the ruble convertible, and privatized
two thirds of the economy. They have accomplished this in spite of the
crushing burdens inherited from the communist system: huge industrial
enterprises that are unprofitable, an obsolete capital stock, a
crumbling energy sector, huge external debt, and armies that had to be
repatriated and resettled at home.

Russia remains a paradox among the major economies of the world in
that it is a country marked by stagnation in production levels, but
has few constraints on growth. Labor supply is adequate and savings
are high. In addition, there is almost unlimited scope for increasing
productivity through the introduction of improved technologies,
production process and market-oriented managerial development. There
are 147 million consumers who are slowly increasing their buying power
and education standards are high. Russia is also rich in natural
resources. It has 40% of the world's natural gas reserves, 6% of its
oil, 25% of coal, diamonds, gold and nickel, and 30% of timber and
bauxite. Approximately ten million people are engaged in agriculture
and they produce half of the region's grain, meat, milk, and other
dairy products.

The main reason for the continued poor performance of the Russian
economy is the country's failure to mobilize the resources that are
available. While the official unemployment rate was at 10.6% in 1996,
up to half of the working population is, in effect, unemployed or, to
a significant degree, underemployed in inefficient and unproductive
industries. Much of the country's savings have been siphoned off
through capital flight. Russia's technological potential for
assimilating both domestic and foreign technologies is not being
exploited. Industry privatization and restructuring initiatives have
generally failed to mobilize the available factors of production as
the country's privatization program virtually ensures the predominance
of the old management teams that are largely non market-oriented in
their management approach. Approximately 80% of Russian privatized
companies continue to be majority-owned by insiders and only 10% are
owned by investors with large enough stakes to influence the running
of the company.

In July 1996, Boris Yeltsin was re-elected for a second term and it
was hoped that the election would mark the start of a more stable
period of economic growth. However, macroeconomic indicators in 1996
proved contradictory. On the one hand, the Russian government
continued its strict credit policies, and the annual inflation rate
for 1997 dropped to 11%, down from 22% in 1996. Inflation has since
remained below 3% a month through the first half of 1997. In addition,
expenditure cuts trimmed the budget deficit to 7% of GDP for the first
nine months of 1996.

By the end of 1997, GDP was up 0.4% following 1996's 6% fall, and
industrial production was up by 1.9%. Non-payment continues to
represent a serious problem for the economy, particularly in the
energy sector.

While Russia is widely believed to be one of the most risky markets
in Eastern Europe, it is also recognized for its potential for
positive returns. However, the market has been essentially liquidity
driven and concentrated in very few of the country's largest
companies. At just $129 billion, the total capitalization of the stock
market accounts for just 28.7 percent of GDP. The majority of
investors in Russian equities are small and medium-sized United States
hedge funds. In addition, several country specific funds have been
established to make direct and portfolio investments in Russian
companies. To facilitate foreign investment, a number of the larger
Russian companies have issued equity in the form of American
depository receipts while six big firms have issued securities in the
form of Russian depository certificates. These certificates are issued
and marketed by the Bank of New York. Any investment in Russia is
risky and deciding which companies will perform well at this stage of
the country's transformation is far from easy. A combination of poor
accounting standards, inept management, limited shareholder rights and
the criminalization of large sectors of the economy pose a significant
risk, particularly to foreign investors.

In 1996 the Russian market delivered the world's best stock market
performance and was among the top performing markets in the first half
of 1997. However, the market's strength masked a rapidly deteriorating
political and economic picture. Many of the country's economic reform
initiatives have floundered as the proceeds of IMF and other
assistance have been squandered or stolen. Taxes were not being
collected and Russian banks, suffering from a collapsed ruble, could
not meet the demands of either domestic depositors or foreign
creditors. In August of 1998 the Yeltsin government effectively
devalued the Russian ruble by approximately 34% to strengthen the
ailing banking system and stimulate demand for Russian exports. In
addition the government announced a restructuring of their local debt
that would allow a 90-day moratorium on banks' foreign loans and a
rescheduling of $40 billion in domestic debt. These actions were
viewed by investors as being tantamount to default and they fled the
Russian stock and bond markets. President Yeltsin's relations with the
communist dominated Duma worsened and there was talk among the body of
beginning impeachment proceedings against the president. By August of
1998 the ruble had fallen by 70 percent and food prices soared,
heightening fears of social unrest. By early September the Russian
economy appeared to be slipping out of control and the government in a
state of paralysis as the President and the Duma feuded over remedial
initiatives. Many observers fear that country's communist party could
regain control of the government and end free market reforms, which
could further negatively impact stock prices.

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR (BT for Index 500) pursuant to authority
contained in the management contract (and, for Index 500,
sub-advisory agreement). FMR (BT for Index 500) is also
responsible for the placement of transaction orders for other
investment companies and investment accounts for which it or
its affiliates act as investment adviser. In selecting broker-dealers,
subject to applicable limitations of the federal securities laws, FMR
(BT for Index 500) considers various relevant factors, including, but
not limited to: the size and type of the transaction; the nature and
character of the markets for the security to be purchased or sold; the
execution efficiency, settlement capability, and financial condition
of the broker-dealer firm; the broker-dealer's execution services
rendered on a continuing basis; the reasonableness of any commissions;
and, if applicable, arrangements for payment of fund expenses.

If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
above.

Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.

Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment accounts over which FMR or BT or their affiliates
exercise investment discretion. Such services may include advice
concerning the value of securities; the advisability of investing in,
purchasing, or selling securities; and the availability of securities
or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio
strategy, and performance of investment accounts; and effect
securities transactions and perform functions incidental thereto (such
as clearance and settlement).

The selection of such broker-dealers for transactions in equity
securities is generally made by FMR (BT for Index 500) (to the extent
possible consistent with execution considerations) in accordance with
a ranking of broker-dealers determined periodically by FMR's (BT's for
Index 500) investment staff based upon the quality of research and
execution services provided.

For transactions in fixed-income securities, FMR's (BT's for Index
500) selection of broker - dealers is generally based on the
availability of a security and its price and, to a lesser extent, on
the overall quality of execution and other services, including
research, provided by the broker-dealer.

The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR (BT for Index 500) in
rendering investment management services to that fund or its other
clients, and conversely, such research provided by broker-dealers who
have executed transaction orders on behalf of other FMR (BT for Index
500) clients may be useful to FMR (BT for Index 500) in carrying out
its obligations to a fund. The receipt of such research has not
reduced FMR's (BT's for Index 500) normal independent research
activities; however, it enables FMR (BT for Index 500) to avoid the
additional expenses that could be incurred if FMR (BT for Index 500)
tried to develop comparable information through its own efforts.

Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.

Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher commissions, FMR
(BT for Index 500) must determine in good faith that such commissions
are reasonable in relation to the value of the brokerage and research
services provided by such executing broker-dealers, viewed in terms of
a particular transaction or FMR's (BT's for Index 500) overall
responsibilities to that fund or its other clients. In reaching this
determination, FMR (BT for Index 500) will not attempt to place a
specific dollar value on the brokerage and research services provided,
or to determine what portion of the compensation should be related to
those services.

To the extent permitted by applicable law, FMR (BT for Index
500) is authorized to allocate portfolio transactions in a
manner that takes into account assistance received in the
distribution of shares of the funds or o ther Fidelity funds
(Index 500) and to use the research services of brokerage and other
firms that have provided such assistance . FMR (BT for Index 500)
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, for Index 500, BT Brokerage Corporation and BT Futures
Corp . , indirect subsidiaries of Bankers Trust
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.

FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.

Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment accounts which they or their affiliates manage,
unless certain requirements are satisfied. Pursuant to such
requirements, the Board of Trustees has authorized NFSC to execute
portfolio transactions on national securities exchanges in accordance
with approved procedures and applicable SEC rules.

The Trustees of each fund periodically review FMR's or BT's
performance of its responsibilities in connection with the placement
of portfolio transactions on behalf of the fund and review the
commissions paid by the fund over representative periods of time to
determine if they are reasonable in relation to the benefits to the
fund.

For the fiscal periods ended December 31, 1997 and 1998, the
portfolio turnover rates for each fund (except Money Market Portfolio)
are presented in the table below. [Variations in turnover rate may be
due to fluctuating volume of shareholder purchase and redemption
orders, market conditions, or changes in FMR's investment
outlook.]

FUND 1997 1998

HIGH INCOME PORTFOLIO 118%

EQUITY-INCOME PORTFOLIO 44%

GROWTH PORTFOLIO 113%

GROWTH OPPORTUNITIES PORTFOLIO 26%

OVERSEAS PORTFOLIO 67%

ASSET MANAGER PORTFOLIO 101%

ASSET MANAGER: GROWTH PORTFOLIO 90%

BALANCED PORTFOLIO 98%

CONTRAFUND PORTFOLIO 142%

GROWTH & INCOME PORTFOLIO 81%

INVESTMENT GRADE BOND PORTFOLIO 191%

INDEX 500 PORTFOLIO 9%

MID CAP PORTFOLIO N/A +

+ For the fiscal period December 14, 1998 through December 31,
1998.

[During the fiscal years ended December 31, 1998 and 1997, Index
500 Portfolio paid brokerage commissions of $_______ and $_______,
respectively, to BT Brokerage Corporation. BT Brokerage Corporation is
paid on a commission basis. During the fiscal year ended December 31,
1998, this amounted to approximately __% of the aggregate brokerage
commissions paid by the fund for transactions involving approximately
__% of the aggregate dollar amount of transactions for which the fund
paid brokerage commissions. The difference between the percentage of
aggregate brokerage commissions paid to, and the percentage of the
aggregate dollar amount of transactions effected through, BT Brokerage
Corporation is a result of the low commission rates charged by BT
Brokerage Corporation.]

[During the fiscal years ended December 31, 1998 and 1997, Index
500 Portfolio paid brokerage commissions of $_______ and $_______,
respectively, to BT Futures Corp. BT Futures Corp. is paid on a
commission basis. During the fiscal year ended December 31, 1998, this
amounted to approximately __% of the aggregate brokerage commissions
paid by the fund for transactions involving approximately __% of the
aggregate dollar amount of transactions for which the fund paid
brokerage commissions. The difference between the percentage of
aggregate brokerage commissions paid to, and the percentage of the
aggregate dollar amount of transactions effected through, BT Futures
Corp. is a result of the low commission rates charged by BT Futures
Corp.]

The following tables show the brokerage commissions paid by the
funds for the fiscal periods ended December 31, 1998, 1997, and 1996.
Significant changes in brokerage commissions paid by a fund from year
to year may result from changing asset levels throughout the year. A
fund may pay both commissions and spreads in connection with the
placement of portfolio transactions. For the fiscal years ended
December 31, [1998,] 1997 and 1996, Money Market Portfolio and
Investment Grade Bond Portfolio paid no brokerage commissions.
The following table shows the total amount of brokerage commissions
paid by each fund.
Total Amount Paid

HIGH INCOME PORTFOLIO

1998 $

1997 252,741

1996 501,544

EQUITY-INCOME PORTFOLIO

1998

1997 6,731,778

1996 13,450,350

GROWTH OPPORTUNITIES PORTFOLIO

1998

1997 476,366

1996 195,409

GROWTH PORTFOLIO

1998

1997 9,024,141

1996 4,689,993

OVERSEAS PORTFOLIO

1998

1997 4,298,667

1996 4,851,584

BALANCED PORTFOLIO

1998

1997 110,250

1996 138,649

ASSET MANAGER PORTFOLIO

1998

1997 2,804,490

1996 5,969,816

ASSET MANAGER: GROWTH PORTFOLIO

1998

1997 385,678

1996 296,932

CONTRAFUND PORTFOLIO

1998

1997 6,500,753

1996 4,846,349

GROWTH & INCOME PORTFOLIO

1998

1997+ 314,270

MID CAP PORTFOLIO

1998++

INDEX 500 PORTFOLIO

1998

1997 98,894

1996 51,591

+ Growth & Income commenced operations on December 31, 1996

++ Mid Cap commenced operations on December 14, 1998

Of the following tables, the first shows the total amount of
brokerage commissions paid by each fund to NFSC and FBS, as
applicable, for the past three fiscal years. The second table shows
the approximate percentage of aggregate brokerage commissions paid by
a fund to NFSC and FBS for transactions involving the approximate
percentage of the aggregate dollar amount of transactions for which
the fund paid brokerage commissions for the fiscal year ended December
31, 1998. NFSC and FBS are paid on a commission basis.

Total Amount Paid

To NFSC To FBS

HIGH INCOME PORTFOLIO

1998

1997 13,664 0

1996 10,168 0

EQUITY-INCOME PORTFOLIO

1998

1997 836,386 13,815

1996 3,563,724 19,906

GROWTH OPPORTUNITIES PORTFOLIO

1998

1997 95,777 5,043

1996 43,699 2,978

GROWTH PORTFOLIO

1998

1997 2,325,582 17,682

1996 1,167,932 41,903

OVERSEAS PORTFOLIO

1998

1997 8,726 286,119

1996 23,341 338,852

BALANCED PORTFOLIO

1998

1997 21,583 110

1996 32,871 1,221

ASSET MANAGER PORTFOLIO

1998

1997 507,147 32,266

1996 600,978 27,964

ASSET MANAGER: GROWTH PORTFOLIO

1998

1997 66,125 3,506

1996 52,039 2,173

CONTRAFUND PORTFOLIO

1998

1997 1,306,677 86,392

1996 1,020,036 8,210

GROWTH & INCOME PORTFOLIO

1998

1997+ 65,536 50

MID CAP PORTFOLIO

1998++

INDEX 500 PORTFOLIO

1998

1997 28 371

1996 374 0

+ Growth & Income commenced operations on December 31, 1996

++ Mid Cap commenced operations on December 14, 1998

<TABLE>
<CAPTION>
<S> <C> <C> <C>
% of Aggregate Commissions % of Aggregate Dollar Amount % of Aggregate Commissions
Paid to NFSC of Transactions Effected Paid to FBS
through NFSC

HIGH INCOME PORTFOLIO % % %

EQUITY-INCOME PORTFOLIO % % %

GROWTH OPPORTUNITIES PORTFOLIO % % %

GROWTH PORTFOLIO % % %

OVERSEAS PORTFOLIO % % %

BALANCED PORTFOLIO % % %

ASSET MANAGER PORTFOLIO % % %

ASSET MANAGER: GROWTH PORTFOLIO % % %

CONTRAFUND PORTFOLIO % % %

GROWTH & INCOME PORTFOLIO % % %

MID CAP PORTFOLIO % % %

INDEX 500 PORTFOLIO % % %

</TABLE>

<TABLE>
<CAPTION>
<S> <C>
% of Aggregate Dollar Amount
of Transactions Effected
through FBS

HIGH INCOME PORTFOLIO %

EQUITY-INCOME PORTFOLIO %

GROWTH OPPORTUNITIES PORTFOLIO %

GROWTH PORTFOLIO %

OVERSEAS PORTFOLIO %

BALANCED PORTFOLIO %

ASSET MANAGER PORTFOLIO %

ASSET MANAGER: GROWTH PORTFOLIO %

CONTRAFUND PORTFOLIO %

GROWTH & INCOME PORTFOLIO %

MID CAP PORTFOLIO %

INDEX 500 PORTFOLIO %

</TABLE>

[(dagger) The difference between the percentage of aggregate
brokerage commissions paid to, and the percentage of the aggregate
dollar amount of transactions effected through, NFSC and FBS is a
result of the low commission rates charged by NFSC and FBS.]

[NFSC and FBS have used a portion of the commissions paid by a fund
to reduce that fund's custodian or transfer agent fees.]

The following table shows the dollar amount of brokerage
commissions paid to firms that provided research services and the
approximate dollar amount of the transactions involved for the fiscal
year ended December 31, 1998.

<TABLE>
<CAPTION>
<S> <C> <C>
$ Amount of Commissions Paid $ Amount of Brokerage
to Firms that Provided Transactions Involved*
Research Services*

HIGH INCOME PORTFOLIO $ $

EQUITY-INCOME PORTFOLIO

GROWTH OPPORTUNITIES PORTFOLIO

GROWTH PORTFOLIO

OVERSEAS PORTFOLIO

BALANCED PORTFOLIO

ASSET MANAGER PORTFOLIO

ASSET MANAGER: GROWTH PORTFOLIO

CONTRAFUND PORTFOLIO

GROWTH & INCOME PORTFOLIO

MID CAP PORTFOLIO

INDEX 500 PORTFOLIO

</TABLE>

* The provision of research services was not necessarily a factor
in the placement of all this business with such firms.

[For the fiscal year ended December 31, 1998, [________] paid no
brokerage commissions to firms that provided research services.]

The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.

From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.

Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR or its affiliates,
investment decisions for each fund are made independently (and by BT
for Index 500) from those of other funds managed by FMR or BT or
investment accounts managed by FMR or BT affiliates. It
sometimes happens that the same security is held in the portfolio of
more than one of these funds or investment accounts.
Simultaneous transactions are inevitable when several funds and
investment accounts are managed by the same investment adviser,
particularly when the same security is suitable for the investment
objective of more than one fund or investment account.

When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to each fund
(investment manager to Index 500) and BT as sub-adviser to
Index 500 outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.

VALUATION

Each class's net asset value per share (NAV) is the value of a single
share. The NAV of each class is computed by adding the class's pro
rata share of the value of the applicable fund's investments, cash,
and other assets, subtracting the class's pro rata share of the
applicable fund's liabilities, subtracting the liabilities allocated
to the class, and dividing the result by the number of shares of that
class that are outstanding.

MONEY MARKET PORTFOLIO . Portfolio securities and other assets
are valued on the basis of amortized cost. This technique involves
initially valuing an instrument at its cost as adjusted for
amortization of premium or accretion of discount rather than its
current market value. The amortized cost value of an instrument may be
higher or lower than the price the fund would receive if it sold the
instrument.

Securities of other open-end investment companies are valued at
their respective NAVs.

At such intervals as they deem appropriate, the Trustees consider
the extent to which NAV calculated by using market valuations would
deviate from the $1.00 per share calculated using amortized cost
valuation. If the Trustees believe that a deviation from the fund's
amortized cost per share may result in material dilution or other
unfair results to shareholders, the Trustees have agreed to take such
corrective action, if any, as they deem appropriate to eliminate or
reduce, to the extent reasonably practicable, the dilution or unfair
results. Such corrective action could include selling portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming
shares in kind; establishing NAV by using available market quotations;
and such other measures as the Trustees may deem appropriate.

HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIO S. P ortfolio
securities are valued by various methods depending on the primary
market or exchange on which they trade. Fixed-income securities and
other assets for which market quotations are readily available may be
valued at market values determined by such securities' most recent bid
prices (sales prices if the principal market is an exchange) in the
principal market in which they normally are traded, as furnished by
recognized dealers in such securities or assets.

Or, fixed-income securities and convertible securities may be valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services or
discontinue the use of any pricing service.

Most equity securities for which the primary market is the United
States are valued at last sale price or, if no sale has occurred, at
the closing bid price. Most equity securities for which the primary
market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which
they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or closing bid price
normally is used.

Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.

I ndependent brokers or quotation services provide prices of
foreign securities in their local currency. FSC gathers all
exchange rates daily at the close of the NYSE using the last quoted
price on the local currency and then translates the value of foreign
securities from their local currencies into U.S. dollars. Any changes
in the value of forward contracts due to exchange rate fluctuations
and days to maturity are included in the calculation of NAV. If an
event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange or
market on which that security is traded, then that security will
be valued i n good faith by a committee appointed by the Board
of Trustees.

Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current val ue.

The procedures set forth above need not be used to determine the
value of the securities owned by a fund if, in the opinion of a
committee appointed by the Board of Trustees, some other method would
more accurately reflect the fair market value of such securities. For
example, securities and other assets for which there is no readily
available market value may be valued in good faith by a committee
appointed by the Board of Trustees. In making a good faith
determination of the value of a security, the committee may review
price movements in futures contracts and American Depository Receipts
(ADRs), market and trading trends, the bid/ask quotes of brokers and
off-exchange institutional trading.

EQUITY-INCOME, GROWTH, OVERSEAS, ASSET MANAGER, ASSET MANAGER: GROWTH,
INDEX 500, CONTRAFUND, BALANCED, GROWTH & INCOME , GROWTH
OPPORTUNITIES, AND MID CAP PORTFOLIOS. Portfolio securities are
valued by various methods depending on the primary market or exchange
on which they trade. Most equity securities for which the primary
market is the United States are valued at last sale price or, if no
sale has occurred, at the closing bid price. Most equity securities
for which the primary market is outside the United States are valued
using the official closing price or the last sale price in the
principal market in which they are traded. If the last sale price (on
the local exchange) is unavailable, the last evaluated quote or
closing bid price normally is used. Securities of other
open-end investment companies are valued at their respective NAVs.

Fixed-income securities and other assets for which market quotations
are readily available may be valued at market values determined by
such securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets. Or, fixed-income securities and convertible securities may be
valued on the basis of information furnished by a pricing service that
uses a valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the funds may use various pricing
services or discontinue the use of any pricing service.

Futures contracts and options are valued on the basis of market
quotations, if available.

I ndependent brokers or quotation services provide prices of
foreign securities in their local currency. FSC gathers all
exchange rates daily at the close of the NYSE using the last quoted
price on the local currency and then translates the value of foreign
securities from their local currencies into U.S. dollars. Any changes
in the value of forward contracts due to exchange rate fluctuations
and days to maturity are included in the calculation of NAV. If an
event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange or market
on which that security is traded, then that security will be
valued in good faith by a committee appointed by the Board of
Trustees.

The procedures set forth above need not be used to determine the
value of the securities owned by a fund if, in the opinion of a
committee appointed by the Board of Trustees, some other method would
more accurately reflect the fair value of such securities. For
example, securities and other assets for which there is no readily
available market value may be valued in good faith by a committee
appointed by the Board of Trustees. In making a good faith
determination of the value of a security, the committee may review
price movements in futures contracts and American Depository Receipts
(ADRs), market and trading trends, the bid/ask quotes of brokers and
off-exchange institutional trading.

PERFORMANCE

A class may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. The share price of each class
of a bond or equity fund, the yield, if applicable, of each class of a
bond, equity or money market fund, and return fluctuate in
response to market conditions and other factors, and the value of a
bond or equity fund's shares when redeemed may be more or less than
their original cost.

YIELD CALCULATIONS (MONEY MARKET PORTFOLIO). To compute the yield for
the money market fund for a period, the net change in value of a
hypothetical account containing one share reflects the value of
additional shares purchased with dividends from the one original share
and dividends declared on both the original share and any additional
shares. The net change is then divided by the value of the account at
the beginning of the period to obtain a base period return. This base
period return is annualized to obtain a current annualized yield. The
money market fund also may calculate an effective yield by compounding
the base period return over a one-year period. In addition to the
current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market
fund are calculated on the same basis as other money market funds, as
required by applicable regulation.

Yield information may be useful in reviewing the fund's performance
and in providing a basis for comparison with other investment
alternatives. However, the fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.

Investors should recognize that in periods of declining interest
rates the fund's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates the fund's yield
will tend to be somewhat lower. Also, when interest rates are falling,
the inflow of net new money to the fund from the continuous sale of
its shares will likely be invested in instruments producing lower
yields than the balance of the fund's holdings, thereby reducing the
fund's current yield. In periods of rising interest rates, the
opposite can be expected to occur.

YIELD CALCULATIONS (EXCEPT MONEY MARKET PORTFOLIO). Yields for a class
are computed by dividing the class's pro rata share of the fund's
interest and dividend income for a given 30-day or one-month period,
net of expenses, by the average number of shares of that class
entitled to receive distributions during the period, dividing this
figure by the class's NAV at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable
to all stock and bond funds. Dividends from equity investments are
treated as if they were accrued on a daily basis, solely for the
purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For a fund's investments
denominated in foreign currencies, income and expenses are calculated
first in their respective currencies, and then are converted to
U.S. dollars, either when they are actually converted or at the end of
the 30-day or one month period, whichever is earlier. Income is
adjusted to reflect gains and losses from principal repayments
received by a fund with respect to mortgage-related securities and
other asset-backed securities. Other capital gains and losses
generally are excluded from the calculation as are gains and losses
from currency exchange rate fluctuations.

Income calculated for the purposes of calculating a class's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a class's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.

In calculating a class's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing a class's yield.

Yield information may be useful in reviewing a class's performance and
in providing a basis for comparison with other investment
alternatives. However, a class's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.

Investors should recognize that in periods of declining interest rates
a class's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a class's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing a
class's current yield. In periods of rising interest rates, the
opposite can be expected to occur.

RETURN CALCULATIONS . Re turns quoted in advertising
reflect all aspects of a class's return, including the effect of
reinvesting dividends and capital gain distributions, and any change
in the class's NAV over a stated period. A class's return may
be calculated by using the performance data of a previously existing
class prior to the date that the new class commenced operations,
adjusted to reflect differences in sales charges but not 12b-1 fees.
A cumulative return reflects actual performance over a stated
period of time. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical
historical investment in a class over a stated period, and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative return
of 100% over ten years would produce an average annual
return of 7.18%, which is the steady annual rate of return that
would equal 100% growth on a compounded basis in ten years. Average
annual returns covering periods of less than one year are calculated
by determining a class's return for the period, extending that return
for a full year (assuming that return remains constant over the year),
and quoting the result as an annual return. While average
annual returns are a convenient means of comparing investment
alternatives, investors should realize that a class's performance is
not constant over time, but changes from year to year, and that
average annual returns represent averaged figures as opposed to
the actual year-to-year performance of a class.

In addition to average annual returns , a class may quote
unaveraged or cumulative returns reflecting the simple change
in value of an investment over a stated period. Average annual and
cumulative returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period.
R eturns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their
contributions to r eturn. R eturns may be quoted on a
before-tax or after-tax basis. R eturns, yields, if
applicable, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.

NET ASSET VALUE. Charts and graphs using a class's NAVs, adjusted
NAVs, and benchmark indexes may be used to exhibit performance.
An adjusted NAV includes any distributions paid by a fund and reflects
all elements of a class's return. Unless otherwise indicated, a
class's adjusted NAVs are not adjusted for sales charges, if any.

MOVING AVERAGES. A growth, growth & income, or asset allocation
fund may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV for
a specified period. A short-term moving average is the average of each
day's adjusted closing NAV for a specified period. Moving Average
Activity Indicators combine adjusted closing NAVs from the last
business day of each week with moving averages for a specified period
to produce indicators showing when an NAV has crossed, stayed
above, or stayed below its moving average. On December __,
1998 , the 13-week and 39-week long-term moving averages were as
follows:

FUND 13-WEEK 39-WEEK

Equity-Income - Initial Class

Equity-Income - Service Class

Growth - Initial Class

Growth - Service Class

Overseas - Initial Class

Overseas - Service Class

Asset Manager - Initial Class

Asset Manager - Service Class

Asset Manager: Growth -
Initial Class

Asset Manager: Growth -
Service Class

Index 500 -Initial Class

Contrafund - Initial Class

Contrafund - Service Class

Balanced - Initial Class

Balanced - Service Class

Growth Opportunities -
Initial Class

Growth Opportunities -
Service Class

Growth & Income - Initial Class

Growth & Income - Service Class

CALCULATING HISTORICAL MONEY MARKET FUND RESULTS. The
following table shows performance for the fund.

HISTORICAL MONEY MARKET FUND RESULTS. The following table shows the
fund's 7-day yield and return for the fiscal periods ended December
31, 1998.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Annual Returns Cumulative Returns

Seven-Day Yield One Year Five Years Ten Years One Year Five Years Ten Years

Money Market Portfolio: % % % % % % %
Initial Class

</TABLE>

[Note: If FMR had not reimbursed certain expenses during these
periods, the fund's returns would have been lower.]

[Note: If FMR had not reimbursed certain expenses during these
periods, the fund's yield would have been __%.]

CALCULATING HISTORICAL BOND FUND RESULTS. The following
table shows performance for each class of each fund. Service Class has
a 12b-1 fee of 0.10%, which is included in the yield and average
annual and cumulative returns.

HISTORICAL BOND FUND RESULTS. The following table shows each
class's yield and return for the fiscal periods ended December 31,
1998.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Annual Returns1 Cumulative Returns1

Thirty-Day Yield One Year Five Years Ten Years One Year Five Years Ten Years

Investment Grade Bond % % % % % % %
Portfolio:
Initial Class

High Income Portfolio: % % % % % % %
Initial Class

High Income Portfolio: % % % % % % %
Service Class

</TABLE>

1 Initial offering of Service Class of High Income took place on
November 3, 1997. Service Class returns prior to November 3, 1997 are
those of Initial Class, which has no 12b-1 fee. If Service Class's
12b-1 fee had been reflected, returns prior to November 3, 1997 would
have been lower.

[Note: If FMR had not reimbursed certain [class] expenses during
these periods, [ ]'s returns would have been lower.]

[Note: If FMR had not reimbursed certain [class] expenses during
these periods, [ ]'s yield would have been __%.]

CALCULATING HISTORICAL EQUITY FUND RESULTS. The following
table shows performance for each class of each fund. Service Class has
a 12b-1 fee of 0.10%, which is included in the [yield, if applicable,
and] average annual and cumulative returns.

HISTORICAL EQUITY FUND RESULTS. The following table shows each
class's [yield, if applicable, and] return for the fiscal periods
ended December 31, 1998.

Average Annual Returns1 Cumulative Returns1

One Year Five Years Ten Years/Life of Fund* One Year Five Years Ten Years/ Life of Fund*

Index 500 Portfolio: Initial ____% ____% ____% ____% ____% ____%
Class

Asset Manager Portfolio: ____% ____% ____% ____% ____% ____%
Initial Class

Asset Manager Portfolio: ____% ____% ____% ____% ____% ____%
Service Class

Asset Manager: Growth ____% N/A ____% ____% N/A ____%
Portfolio: Initial Class

Asset Manager: Growth ____% N/A ____% ____% N/A ____%
Portfolio: Service Class

Equity-Income Portfolio: ____% ____% ____% ____% ____% ____%
Initial Class

Equity-Income Portfolio: ____% ____% ____% ____% ____% ____%
Service Class

Contrafund Portfolio: ____% N/A ____% ____% N/A ____%
Initial Class

Contrafund Portfolio: ____% N/A ____% ____% N/A ____%
Service Class

Growth Portfolio: Initial ____% ____% ____% ____% ____% ____%
Class

Growth Portfolio: Service ____% ____% ____% ____% ____% ____%
Class

Overseas Portfolio: Initial ____% ____% ____% ____% ____% ____%
Class

Overseas Portfolio: Service ____% ____% ____% ____% ____% ____%
Class

Growth & Income Portfolio: ____% N/A ____% ____% N/A ____%
Initial Class

Growth & Income Portfolio: ____% N/A ____% ____% N/A ____%
Service Class

Balanced Portfolio: Initial ____% N/A ____% ____% N/A ____%
Class

Balanced Portfolio: Service ____% N/A ____% ____% N/A ____%
Class

Growth Opportunities ____% N/A ____% ____% N/A ____%
Portfolio: Initial Class

Growth Opportunities ____% N/A ____% ____% N/A ____%
Portfolio: Service Class

Mid Cap Portfolio: Initial ____% N/A ____% ____% N/A ____%
Class

Mid Cap Portfolio: Service ____% N/A ____% ____% N/A ____%
Class

</TABLE>

1 Initial offering of Service Class of each fund (except Index 500
and Mid Cap) took place on November 3, 1997. Service Class returns
prior to November 3, 1997 are those of Initial Class, which has no
12b-1 fee. If Service Class's 12b-1 fee had been reflected, returns
prior to November 3, 1997 would have been lower. Initial Class and
Service Class of Mid Cap commenced operations on December 14,
1998.

* Life of fund figures are from commencement of operations (August
27, 1992 for Index 500; January 3, 1995 for Contrafund, Asset Manager:
Growth, Balanced, and Growth Opportunities; December 31, 1996 for
Growth & Income; and December 14, 1998 for Mid Cap) through December
31, 1998.

[Note: If FMR had not reimbursed certain [class] expenses during
these periods, [ ]'s returns would have been lower.

The following tables show the income and capital elements of each
class's cumulative return. The tables compare each class's
return to the record of the Standard & Poor's 500 Index ( S&P
500), the Dow Jones Industrial Average (DJIA), and the cost of living,
as measured by the Consumer Price Index (CPI), over the same period.
The CPI information is as of the month-end closest to the initial
investment date for each class. The S&P 500 and DJIA comparisons are
provided to show how each class's return compared to the record
of a broad unmanaged index of common stocks and a narrower set of
stocks of major industrial companies, respectively, over the same
period. Because each of Money Market, High Income and Investment Grade
Bond invests in fixed-income securities, common stocks represent a
different type of investment from the fund s . Common stocks
generally offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investment s such as the fund s . Each
of Index 500, Asset Manager, Asset Manager: Growth, Equity-Income,
Contrafund, Growth, Overseas, Growth & Income, Balanced, Growth
Opportunities , and Mid Cap has the ability to invest in
securities not included in either index, and its investment portfolio
may or may not be similar in composition to the indexes. The S&P 500
and DJIA returns are based on the prices of unmanaged groups of stocks
and, unlike each class's returns, do not include the effect of
brokerage commissions or other costs of investing.

The following tables show the growth in value of a hypothetical
$10,000 investment in each class of each fund during the 10-year
period ended December 31, 199 8 , or life of each fund, as
applicable, assuming all distributions were reinvested. R eturns
are based on past results and are not an indication of future
performance. Tax consequences of different investments have not been
factored into the figures below.
MONEY MARKET PORTFOLIO. During the 10 -year period ended
December 31, 199 8 , a hypothetical $10,000 investment in Initial
Class of Money Market Portfolio would have grown to $ _____ .

MONEY MARKET INDEXES
PORTFOLIO -
INITIAL CLASS

Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1997 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1996 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1995 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1994 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1993 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1992 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1991 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1990 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

1989 $ 10,000 $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Money Market Portfolio on January 1, 198 9, the net
amount invested in Initial Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends for the period covered (their cash value at
the time they were reinvested ) amounted to $_____ . If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $ _____ for
dividends. The fund did not distribute any capital gains during the
period.

HIGH INCOME PORTFOLIO. During the 10 -year period ended December
31, 199 8 , a hypothetical $10,000 investment in Initial Class of
High Income Portfolio would have grown to $ _____ .

HIGH INCOME INDEXES
PORTFOLIO -
INITIAL CLASS

Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of High Income Portfolio on January 1, 198 9 , the net
amount invested in Initial Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the 10 -year period ended December 31, 199 8 , a
hypothetical $10,000 investment in Service Class of High Income
Portfolio would have grown to $ _____ .

HIGH INCOME INDEXES
PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Service
Class of High Income Portfolio on January 1, 198 9 , the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
High Income Portfolio took place on November 3, 1997. Service Class
returns prior to November 3, 1997 are those of Initial Class, which
has no 12b-1 fee. If Service Class's 12b-1 fee had been reflected,
returns prior to November 3, 1997 would have been lower.

EQUITY-INCOME PORTFOLIO. During the 10 -year period ended
December 31, 199 8 , a hypothetical $10,000 investment in Initial
Class of Equity-Income Portfolio would have grown to $ _____ .

EQUITY-INCOME INDEXES
PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Equity-Income Portfolio on January 1, 198 9 , the net
amount invested in Initial Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the 10 -year period ended December 31, 199 8 , a
hypothetical $10,000 investment in Service Class of Equity-Income
Portfolio would have grown to $ _____ .

EQUITY-INCOME INDEXES
PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Equity-Income Portfolio on January 1, 198 9 , the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000 ) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Equity-Income Portfolio took place on November 3, 1997. Service Class
returns prior to November 3, 1997 are those of Initial Class, which
has no 12b-1 fee. If Service Class's 12b-1 fee had been reflected,
returns prior to November 3, 1997 would have been lower.

GROWTH PORTFOLIO. During the 10 -year period ended December 31,
199 8 , a hypothetical $10,000 investment in Initial Class of
Growth Portfolio would have grown to $ _____ .

GROWTH PORTFOLIO - INDEXES
INITIAL CLASS

Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Growth Portfolio on January 1, 198 9 , the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the 10 -year period ended December 31, 199 8 , a
hypothetical $10,000 investment in Service Class of Growth Portfolio
would have grown to $ _____ .

GROWTH PORTFOLIO - INDEXES
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth Portfolio on January 1, 198 9 , the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ ____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ ____ for dividends and $ ____ for
capital gain distributions. Initial offering of Service Class of
Growth Portfolio took place on November 3, 1997. Service Class returns
prior to November 3, 1997 are those of Initial Class, which has no
12b-1 fee. If Service Class's 12b-1 fee had been reflected, returns
prior to November 3, 1997 would have been lower.

OVERSEAS PORTFOLIO. During the 10 -year period ended December
31, 199 8 , a hypothetical $10,000 investment in Initial Class of
Overseas Portfolio would have grown to $ _____ .

OVERSEAS PORTFOLIO INDEXES
- - INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Overseas Portfolio on January 1, 198 9 , the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the 10 -year period ended December 31, 199 8 , a
hypothetical $10,000 investment in Service Class of Overseas Portfolio
would have grown to $ _____ .

OVERSEAS PORTFOLIO INDEXES
- - SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Overseas Portfolio on January 1, 198 9 , the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Overseas Portfolio took place on November 3, 1997. Service Class
returns prior to November 3, 1997 are those of Initial Class, which
has no 12b-1 fee. If Service Class's 12b-1 fee had been reflected,
returns prior to November 3, 1997 would have been lower.

INVESTMENT GRADE BOND PORTFOLIO. During the 10-year period
ended December 31, 199 8 , a hypothetical $10,000
investment in Initial Class of Investment Grade Bond Portfolio would
have grown to $ _____ .

INVESTMENT GRADE INDEXES
BOND PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989 $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Investment Grade Bond Portfolio on January 1, 1989 ,
the net amount invested in Initial Class shares was $10,000. The cost
of the initial investment ($10,000) together with the aggregate
cost of reinvested dividends and capital gain distributions for the
period covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

ASSET MANAGER PORTFOLIO. During the period from September 6, 1989
(commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Asset Manager
Portfolio would have grown to $ _____ .

ASSET MANAGER INDEXES
PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From September 6, 1989 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Asset Manager Portfolio on September 6, 1989, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $_____ for dividends and $_____ for capital gain
distributions.

During the period from September 6, 1989 (commencement of operations)
to December 31, 199 8 , a hypothetical $10,000 investment in
Service Class of Asset Manager Portfolio would have grown to
$ _____ .

ASSET MANAGER INDEXES
PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992 $____ $_____ $__ $_____ $_____ $_____ $_____

1991 $____ $_____ $__ $_____ $_____ $_____ $_____

1990 $____ $_____ $__ $_____ $_____ $_____ $_____

1989* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From September 6, 1989 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Asset Manager Portfolio on September 6, 1989, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Asset Manager Portfolio took place on November 3, 1997. Service Class
returns prior to November 3, 1997 are those of Initial Class, which
has no 12b-1 fee. If Service Class's 12b-1 fee had been reflected,
returns prior to November 3, 1997 would have been lower.

ASSET MANAGER: GROWTH PORTFOLIO. During the period from January 3,
1995 (commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Asset Manager:
Growth Portfolio would have grown to $ _____ .

ASSET MANAGER: INDEXES
GROWTH PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Asset Manager: Growth Portfolio on January 3, 1995, the net
amount invested in Initial Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the period from January 3, 1995 (commencement of operations) to
December 31, 199 8 , a hypothetical $10,000 investment in Service
Class of Asset Manager: Growth Portfolio would have grown to
$ _____ .

ASSET MANAGER: INDEXES
GROWTH PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Asset Manager: Growth Portfolio on January 3, 1995, the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Asset Manager: Growth Portfolio took place on November 3, 1997.
Service Class returns prior to November 3, 1997 are those of Initial
Class, which has no 12b-1 fee. If Service Class's 12b-1 fee had been
reflected, returns prior to November 3, 1997 would have been
lower.

INDEX 500 PORTFOLIO. During the period from August 27, 1992
(commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Index 500
Portfolio would have grown to $ _____ .

INDEX 500 PORTFOLIO INDEXES
- - INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995 $____ $_____ $__ $_____ $_____ $_____ $_____

1994 $____ $_____ $__ $_____ $_____ $_____ $_____

1993 $____ $_____ $__ $_____ $_____ $_____ $_____

1992* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From August 27, 1992 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Index 500 Portfolio on August 27, 1992, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

CONTRAFUND PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Contrafund
Portfolio would have grown to $ _____ .

CONTRAFUND INDEXES
PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Contrafund Portfolio on January 3, 1995, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the period from January 3, 1995 (commencement of operations) to
December 31, 199 8 , a hypothetical $10,000 investment in Service
Class of Contrafund Portfolio would have grown to $ _____ .

CONTRAFUND INDEXES
PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Contrafund Portfolio on January 3, 1995, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Contrafund Portfolio took place on November 3, 1997. Service Class
returns prior to November 3, 1997 are those of Initial Class, which
has no 12b-1 fee. If Service Class's 12b-1 fee had been reflected,
returns prior to November 3, 1997 would have been lower.

BALANCED PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Balanced Portfolio
would have grown to $ _____ .

BALANCED PORTFOLIO INDEXES
- - INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Balanced Portfolio on January 3, 1995, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the period from January 3, 1995 (commencement of operations) to
December 31, 199 8 , a hypothetical $10,000 investment in Service
Class of Balanced Portfolio would have grown to $ _____ .

BALANCED PORTFOLIO INDEXES
- - SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Balanced Portfolio on January 3, 1995, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of
reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Balanced Portfolio took place on November 3, 1997. Service Class
returns prior to November 3, 1997 are those of Initial Class, which
has no 12b-1 fee. If Service Class's 12b-1 fee had been reflected,
returns prior to November 3, 1997 would have been lower.

GROWTH & INCOME PORTFOLIO. During the period from December 31, 1996
(commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Growth & Income
Portfolio would have grown to $ _____ .

GROWTH & INCOME INDEXES
PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $_____ $_____ $__ $_____ $_____ $_____ $_____

1997* $_____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From December 31, 1996 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Growth & Income Portfolio on December 31, 1996, the net
amount invested in Initial Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the period from December 31, 1996 (commencement of operations)
to December 31, 199 8 , a hypothetical $10,000 investment in
Service Class of Growth & Income Portfolio would have grown to
$ _____ .

GROWTH & INCOME INDEXES
PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $_____ $_____ $__ $_____ $_____ $_____ $_____

1997* $_____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From December 31, 1996 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth & Income Portfolio on December 31, 1996, the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Growth & Income Portfolio took place on November 3, 1997. Service
Class returns prior to November 3, 1997 are those of Initial Class,
which has no 12b-1 fee. If Service Class's 12b-1 fee had been
reflected, returns prior to November 3, 1997 would have been
lower.
GROWTH OPPORTUNITIES PORTFOLIO. During the period from January 3, 1995
(commencement of operations) to December 31, 199 8 , a
hypothetical $10,000 investment in Initial Class of Growth
Opportunities Portfolio would have grown to $ _____ .

GROWTH INDEXES
OPPORTUNITIES
PORTFOLIO -
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Growth Opportunities Portfolio on January 3, 1995, the net
amount invested in Initial Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions.

During the period from January 3, 1995 (commencement of operations) to
December 31, 199 8 , a hypothetical $10,000 investment in Service
Class of Growth Opportunities Portfolio would have grown to
$ _____ .

GROWTH INDEXES
OPPORTUNITIES
PORTFOLIO -
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998 $____ $_____ $__ $_____ $_____ $_____ $_____

1997 $____ $_____ $__ $_____ $_____ $_____ $_____

1996 $____ $_____ $__ $_____ $_____ $_____ $_____

1995* $____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From January 3, 1995 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Growth Opportunities Portfolio on January 3, 1995, the net
amount invested in Service Class shares was $10,000. The cost of the
initial investment ($10,000) together with the aggregate cost
of reinvested dividends and capital gain distributions for the period
covered (their cash value at the time they were reinvested)
amounted to $ _____ . If distributions had not been
reinvested, the amount of distributions earned from the class over
time would have been smaller, and cash payments for the period would
have amounted to $ _____ for dividends and $ _____ for
capital gain distributions. Initial offering of Service Class of
Growth Opportunities Portfolio took place on November 3, 1997. Service
Class returns prior to November 3, 1997 are those of Initial Class,
which has no 12b-1 fee. If Service Class's 12b-1 fee had been
reflected, returns prior to November 3, 1997 would have been
lower.

MID CAP PORTFOLIO. During the period from December 14, 1998
(commencement of operations) to December 31, 1998, a hypothetical
$10,000 investment in Initial Class of Mid Cap Portfolio would have
grown to $_____.

MID CAP PORTFOLIO - INDEXES
INITIAL CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998* $_____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From December 14, 1998 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Mid Cap Portfolio on December 14, 1998, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested) amounted to $_____. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $_____ for dividends
and $_____ for capital gain distributions.
During the period from December 14, 1998 (commencement of
operations) to December 31, 1998, a hypothetical $10,000 investment in
Service Class of Mid Cap Portfolio would have grown to $_____.

MID CAP PORTFOLIO - INDEXES
SERVICE CLASS
Fiscal Year
Ended Value of Initial Value of Reinvested Value of Reinvested Total Value S&P 500 DJIA Cost of Living**
$10,000 Investment Dividend Capital Gain
Distributions Distributions

1998* $_____ $_____ $__ $_____ $_____ $_____ $_____

</TABLE>

* From December 14, 1998 (commencement of operations).

** From month-end closest to initial investment date.

Explanatory Notes: With an initial investment of $10,000 in Service
Class of Mid Cap Portfolio on December 14, 1998, the net amount
invested in Service Class shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested) amounted to $_____. If
distributions had not been reinvested, the amount of distributions
earned from the class over time would have been smaller, and cash
payments for the period would have amounted to $_____ for dividends
and $_____ for capital gain distributions.

INTERNATIONAL INDICES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN

The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International
indexes database, the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database, and the performance of national stock
markets as measured in U.S. dollars by the Morgan Stanley Capital
International stock market ind ex es for the twelve months ended
December 31, 199 8 . Of course, these results are not indicative
of future stock market performance or the funds' performance. Market
conditions during the periods measured fluctuated widely. Brokerage
commissions and other fees are not factored into the values of the
ind ex es.

MARKET CAPITALIZATION. Companies outside the United States now make up
nearly two-thirds of the world's stock market capitalization.
According to Morgan Stanley Capital International, the size of the
markets as measured in U.S. dollars grew from $____ billion in
199 7 to $_____ billion in 199 8 .

The following table measures the total market capitalization of
certain countries according to the Morgan Stanley Capital
International indexes database. The value of the markets
are measured in billions of U.S. dollars as of December 31,
199 8 .

TOTAL MARKET CAPITALIZATION

Australia $_____ Japan $_____

Austria _____ Netherlands _____

Belgium _____ Norway _____

Canada _____ Singapore/Malaysia ____/____

Denmark _____ Spain _____

France _____ Sweden _____

Germany _____ Switzerland _____

Hong Kong _____ United Kingdom _____

Italy _____ United States _____

The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in
billions of U.S. dollars as of December 31, 199 8 .

TOTAL MARKET CAPITALIZATION - LATIN AMERICA

Argentina $ _____

Brazil $ _____

Chile $ _____

Colombia $ _____

Mexico $ _____

Venezuela $ _____

Total Latin America $ $_____

NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents
the performance of national stock markets as measured in U.S. dollars
by the Morgan Stanley Capital International stock market
indexes for the twelve months ended December 31, 199 8 .
The second table shows the same performance as measured in local
currency. Each table measures return based on the period's
change in price, dividends paid on stocks in the index, and the effect
of reinvesting dividends net of any applicable foreign taxes. These
are unmanaged indexes composed of a sampling of selected
companies representing an approximation of the market structure of the
designated country.

STOCK MARKET PERFORMANCE
MEASURED IN U.S. DOLLARS

Australia _____% Japan _____%

Austria _____ Netherlands _____

Belgium _____ Norway _____

Canada _____ Singapore/Malaysia ____/___

Denmark _____ Spain _____

France _____ Sweden _____

Germany _____ Switzerland _____

Hong Kong _____ United Kingdom _____

Italy _____ United States _____

STOCK MARKET PERFORMANCE
MEASURED IN LOCAL CURRENCY

Australia _____% Japan _____%

Austria ______ Netherlands _____

Belgium ______ Norway _____

Canada ______ Singapore/Malaysia ____/___

Denmark ______ Spain _____

France ______ Sweden _____

Germany ______ Switzerland _____

Hong Kong ______ United Kingdom _____

Italy ______ United States _____

The following table shows the average annualized stock market returns
measured in U.S. dollars as of December 31, 199 8 .

STOCK MARKET PERFORMANCE

Five Years Ended Ten Years Ended
December 31, 1998 December 31, 1998

Germany ____% ____%

Hong Kong _____ _____

Japan _____ _____

Spain _____ _____

United Kingdom _____ _____

United States _____ _____

PERFORMANCE COMPARISONS. A class's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
based on yield. In addition to the mutual fund rankings, a class's
performance may be compared to stock, bond, and money market mutual
fund performance ind ex es prepared by Lipper or other
organizations. When comparing these ind ex es, it is important to
remember the risk and return characteristics of each type of
investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability
of principal, but generally do not offer the higher potential returns
available from stock mutual funds.

From time to time, a class's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a class may quote Morningstar, Inc.
in its advertising materials. Morningstar, Inc. is a mutual fund
rating service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A bond fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.

A class's performance may also be compared to that of each
index representing the universe of securities in which the fund may
invest. The return of each index reflects reinvestment
of all dividends and capital gains paid by securities included in
each index. Unlike a class's returns, however, each
index's returns do not reflect brokerage commissions, transaction
fees, or other costs of investing directly in the securities included
in the index.

The Asset Allocation Composite Ind ex es (for Asset Manager and
Asset Manager: Growth) are hypothetical representations of the
performance of the funds' three asset classes according to their
respective weighting in each fund's neutral mix. The weightings are
rebalanced monthly. For periods after January 1, 1997, the
Asset Allocation Composite Index represents Asset Manager's three
asset classes according to their respective weighting s in the
fund's neutral mix (10% short-term/money market; 40%
bonds; and 50% stocks) . For periods after January 1,
1997, the Aggressive Asset Allocation Composite Index represents
Asset Manager: Growth's three asset classes according to their
respective weighting s in the fund's neutral mix (5%
short-term/money market; 25% bonds; and 70% stocks).
The following indexes are used to calculate the asset allocation
composite indexes: S&P 500 for the stock class, Lehman Brothers
Aggregate Bond Index for the bond class and the Lehman Brothers
3-Month Treasury Bill Index for the short-term/money market class. For
periods between June 1, 1992 and January 1, 1997, the Asset Allocation
Composite Index represented Asset Manager's three asset classes
according to their respective weightings in the fund's neutral mix
(20% short-term instruments; 40% bonds; and 40% stocks) during that
period of time. The following indexes are used to calculate the Asset
Allocation Composite Index during that period of time: the Lehman
Brothers 3-Month Treasury Bill Index, the Lehman Brothers U.S.
Treasury Index and the S&P 500. For periods prior to June 1, 1992, the
Asset Allocation Composite Index represented Asset Manager's three
asset classes according to their respective weightings in the fund's
neutral mix (30% money market instruments; 40% bonds; and 30% stocks)
during that period of time. The following indexes are used to
calculate the Asset Allocation Composite Index during that period of
time: the Lehman Brothers 3-Month Treasury Bill Index, the Lehman
Brothers U.S. Treasury Index, and the S&P 500. For periods prior to
January 1, 1997, the Aggressive Asset Allocation Composite Index
represented Asset Manager: Growth's three asset classes according to
their respective weightings in the fund's neutral mix (5% short-term
instruments; 30% bonds; and 65% stocks) during that period of time.
The following indexes are used to calculate the Aggressive Asset
Allocation Composite Index during that period of time: the Lehman
Brothers 3-Month Treasury Bill Index, the Lehman Brothers U.S.
Treasury Index, and the S&P 500.

S&P 500 is a market capitalization-weighted index of common
stocks.

LEHMAN BROTHERS AGGREGATE BOND INDEX is a market
value-weighted index for investment-grade fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities. Issues included in the index have an outstanding par value
of at least $100 million and maturities of at least one year.
Government and corporate issues include all public obligations of the
U.S. Treasury (excluding flower bonds and foreign-targeted issues) and
U.S. Government agencies, as well as nonconvertible investment-grade,
SEC-registered corporate debt. Mortgage-backed securities include 15-
and 30-year fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Fannie Mae. Asset-backed securities
include credit card, auto, and home equity loans.

LEHMAN BROTHERS U.S. TREASURY INDEX is a market value-weighted
index of public obligations of the U.S. Treasury with maturities of
one year or more. Issues in the index must have at least $100 million
par amount outstanding. Certain special issues, such as flower bonds,
targeted investor notes (TINs), and state and local government series
(SLGs) bonds are excluded.

LEHMAN BROTHERS 3-MONTH TREASURY BILL INDEX [to be added].

Asset Manager and Asset Manager: Growth have the ability to invest in
securities that are not included in any of the indexes , and
each fund's actual investment portfolio may not reflect the
composition or the weighting of the indexes used. The Lehman
Brothers 3-Month Treasury Bill Index, the Lehman Brothers U.S.
Treasury Index, the Lehman Brothers Aggregate Bond Index, the S&P
500 , and the A sset A llocation C omposite
Indexes include reinvestment of income or dividends , as
appropriate, and are based on the prices of unmanaged groups of
U.S. Treasury obligations , other fixed-income obligations or
stocks, as appropriate . Unlike each fund's returns, the
ind ex es do not include the effect of paying brokerage
commissions, spreads, or other costs of investing. Historical results
are used for illustrative purposes only and do not reflect the past or
future performance of the funds.

The following table represents the comparative ind ex es'
calendar year-to-year performance:

Lehman Brothers Lehman Brothers S&P 500
3-Month Treasury Lehman Brothers U.S. Treasury Index
Bill Index Aggregate
Bond Index

1998 _____% _____% ____% ____%

1997 6.40 _____% 9.57 33.36

1996 8.74 _____% 2.70 22.96

1995 8.21 _____% 18.35 37.58

1994 6.22 _____% -3.38 1.32

1993 2.92 _____% 10.68 10.08

1992 3.20 _____% 7.21 7.62

1991 4.26 _____% 15.29 30.47

1990 6.09 _____% 8.54 -3.10

1989 5.39 _____% 14.38 31.69

Balanced may compare its performance to that of the Fidelity
Balanced Composite Index which is a hypothetical representation of the
performance of the fund's general investment categories using a
weighting of 60% equity and 40% bond. The following indexes are used
to calculate the Fidelity Balanced Composite Index: Standard & Poor's
500 Index (S&P 500) for the equity category and the Lehman Brothers
Aggregate Bond Index for the bond category. The index weightings of
the Fidelity Balanced Composite Index are rebalanced monthly.

Each of Asset Manager, Asset Manager: Growth, Balanced, Contrafund,
Equity-Income, Growth & Income, Growth, Growth Opportunities, and
Index 500 may compare its performance to that of Standard & Poor's 500
Index, a market capitalization-weighted index of common stocks.

Equity-Income may also compare its performance to that of the
Russell 3000 Value Index, a market capitalization-weighted index of
U.S. domiciled value oriented stocks.

Growth may also compare its performance to that of the Russell 3000
Growth Index, a market capitalization-weighted index of U.S. domiciled
growth oriented stocks.

Mid Cap may compare its performance to that of the Standard &
Poor's MidCap 400 (registered trademark) Index, a market
capitalization-weighted index of 400 medium-capitalization stocks.

Overseas may compare its performance to that of the Morgan Stanley
Capital International Europe, Australasia, Far East (EAFE) Index, a
market capitalization-weighted index that is designed to represent the
performance of developed stock markets outside of the United States
and Canada. The index returns for periods after January 1, 1997 are
adjusted for tax withholding rates applicable to U.S.-based mutual
funds organized as Massachusetts business trusts. Effective October 1,
1998, the country of Malaysia was removed from this index. The index
returns reflect the inclusion of Malaysia prior to October 1, 1998.
Stocks are selected for the Morgan Stanley Capital International
(MSCI) index on the basis of industry representation, liquidity,
sufficient float, and avoidance of cross-ownership.

Each of Investment Grade Bond and Balanced may also compare its
performance to the Lehman Brothers Aggregate Bond Index, a market
value-weighted index for investment-grade fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities. Issues included in the index have an outstanding par value
of at least $100 million and maturities of at least one year.
Government and corporate issues include all public obligations of the
U.S. Treasury (excluding flower bonds and foreign-targeted issues) and
U.S. Government agencies, as well as nonconvertible investment-grade,
SEC-registered corporate debt. Mortgage-backed securities include 15-
and 30-year fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Fannie Mae. Asset-backed securities
include credit card, auto, and home equity loans.

High Income may compare its performance to that of the Merrill
Lynch High Yield Master Index, a market value-weighted index of all
domestic and yankee high-yield bonds with an outstanding par value of
at least $50 million and maturities of at least one year. Issues
included in the index have a credit rating lower than BBB-/Baa3 but
are not in default (DDD1 or lower). Split-rated issues (i.e., rated
investment-grade by one rating agency and high-yield by another) are
included in the index based on the issue's corresponding composite
rating. Structured-note issues, deferred interest bonds, and
pay-in-kind bonds are excluded.

A class may be compared in advertising to Certificates of
Deposit (CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, a fund may offer greater liquidity or higher
potential returns than CDs, a fund does not guarantee your principal
or your return, and fund shares are not FDIC insured.

Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different
ind ex es.

Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or ind ex es that may be developed
and made available in the future.

Money Market Portfolio may compare its performance or the performance
of securities in which it may invest to averages published by IBC
Financial Data, Inc. of Ashland, Massachusetts. These averages assume
reinvestment of distributions. IBC's MONEY FUND REPORT AVERAGESTM/All
Taxable (Money Market), which is reported in IBC's MONEY FUND
REPORTTM, covers over ___ taxable money market funds.

In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.

In advertising materials and registration statements, Fidelity and
insurance companies may refer to each portfolio of Variable Insurance
Products Fund (VIP), Variable Insurance Products Fund II (VIP II), and
Variable Insurance Products Fund III (VIP III) either with or without
the name "Fidelity" before the trust's name (or acronym). In either
case, however, the trust's name (or acronym) will appear before the
portfolio's name to distinguish the portfolio from other Fidelity
funds.

Each fund may be advertised as part of certain asset allocation
programs involving other Fidelity or non-Fidelity mutual funds. These
asset allocation programs may advertise a model portfolio and its
performance results.

A class may present its fund number, Quotron(trademark) number,
and CUSIP number, and discuss or quote the fund's current
portfolio manager.

VOLATILITY. A class of a bond or equity fund may quote various
measures of volatility and benchmark correlation in advertising. In
addition, the class may compare these measures to those of
other funds. Measures of volatility seek to compare a class's
historical share price fluctuations or returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and
correlation are calculated using averages of historical data. In
advertising, a bond, growth & income, or asset allocation fund
may also discuss or illustrate examples of interest rate sensitivity.

MOMENTUM INDICATORS indicate price movements over specific periods of
time for each class of an equity or bond fund. Each
point on the momentum indicator represents a class's percentage change
in price movements over that period.

A n equity, bond, or asset allocation fund may advertise
examples of the effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or
guard against loss in a declining market, the investor's average cost
per share can be lower than if fixed numbers of shares are purchased
at the same intervals. In evaluating such a plan, investors should
consider their ability to continue purchasing shares during periods of
low price levels.

Each fund is available only through the purchase of variable annuity
and variable life insurance contracts offering deferral of income
taxes on earnings, which may produce superior after-tax returns over
time. For example, a $1,000 investment earning a taxable return of 10%
annually would have an after-tax value of $1,949 after ten years,
assuming tax was deducted from the return each year at a 31% rate. An
equivalent tax-deferred investment would have an after-tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from
the tax-deferred earnings at the end of the ten-year period.
Individuals holding shares of a fund through a variable annuity or
variable life insurance contract may receive additional tax benefits
from the deferral of income taxes associated with variable contracts.
Individuals should consult their tax advisors to determine the effect
of holding variable contracts on their individual tax situations.

As of December 31, 199 8 , FMR advised over $ 34 billion in
municipal fund assets, $ 118 billion in taxable fixed-income
fund assets, $ 123 billion in money market fund assets,
$ 497 billion in equity fund assets, $ 13 billion in
international fund assets, and $ 29 billion in Spartan fund
assets. The funds may reference the growth and variety of money market
mutual funds and the adviser's innovation and participation in the
industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock) fund manager. FMR, its subsidiaries, and affiliates
maintain a worldwide information and communications network for the
purpose of researching and managing investments abroad.

In addition to performance rankings, each class of a bond or money
market fund may compare its total expense ratio to the average total
expense ratio of similar funds tracked by Lipper. A class's total
expense ratio is a significant factor in comparing bond and money
market investments because of its effect on yield.

YIELDS AND RETURNS QUOTED FOR A CLASS INCLUDE THE CLASS'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. BECAUSE YOU CAN PURCHASE SHARES OF EACH
FUND ONLY THROUGH A VARIABLE ANNUITY AND/OR A VARIABLE LIFE INSURANCE
CONTRACT, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. Excluding these charges from quotations of a class's
performance has the effect of increasing the performance quoted.

DISTRIBUTIONS AND TAXES

For a discussion of tax consequences of variable contracts, please
refer to your insurance company's separate account prospectus.

Variable contracts purchased through insurance company separate
accounts provide for the accumulation of all earnings from interest,
dividends, and capital appreciation without current federal income tax
liability to the owner. Depending on the variable contract,
distributions from the contract may be subject to ordinary income tax
and a 10% penalty tax on distributions before age 59. Only the portion
of a distribution attributable to income is subject to federal income
tax. Investors should consult with competent tax advisers for a more
complete discussion of possible tax consequences in a particular
situation.

Section 817(h) of the Internal Revenue Code provides that the
investments of a separate account underlying a variable insurance
contract (or the investments of a mutual fund, the shares of which are
owned by the variable separate account) must be "adequately
diversified" in order for the contract to be treated as an annuity or
life insurance for tax purposes. The Treasury Department has issued
regulations prescribing these diversification requirements. Each fund
intends to comply with these requirements.

TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code so that it will not be liable for federal tax on
income and capital gains distributed to shareholders. In order to
qualify as a regulated investment company, and avoid being subject to
federal income or excise taxes at the fund level, each fund intends to
distribute substantially all of its net investment income and net
realized capital gains within each calendar year as well as on a
fiscal year basis, and intends to comply with other tax rules
applicable to regulated investment companies. Income and capital gain
distributions are reinvested in additional shares of the same class of
the fund. This is done to preserve the tax-advantaged status of the
variable contracts. Money Market Portfolio may distribute any net
realized short-term capital gains once a year or more often as
necessary to maintain its NAV at $1.00. Money Market Portfolio does
not anticipate distributing long-term capital gains.

As of December 31, 1998, _______ Portfolio had a capital loss
carryforward aggregating approximately $______. This loss
carryforward, of which $_____ and $_____ will expire on December 31,
200_ and 200_, respectively, is available to offset future capital
gains.

TRUSTEES AND OFFICERS

The Trustees, Members of the Advisory Board, and executive officers of
the trust s are listed below. The Board of Trustees governs
each fund and is responsible for protecting the interests of
shareholders. The Trustees are experienced executives who meet
periodically throughout the year to oversee each fund's activities,
review contractual arrangements with companies that provide services
to each fund, and review each fund's performance. Except as
indicated, each individual has held the office shown or other offices
in the same company for the last five years. All persons named as
Trustees and Members of the Advisory Board also serve in similar
capacities for other funds advised by FMR or its affiliates .
The business address of each Trustee, Member of the Advisory Board,
and officer who is an "interested person" (as defined in the 1940 Act)
is 82 Devonshire Street, Boston, Massachusetts 02109, which is also
the address of FMR. The business address of all the other Trustees is
Fidelity Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235.
Those Trustees who are "interested persons" by virtue of their
affiliation with the trust , FMR or BT are
indicated by an asterisk (*).

*EDWARD C. JOHNSON 3d ( 68 ), Trustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman
and a Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc. Abigail Johnson, Vice President of certain
Equity Funds, is Mr. Johnson's daughter.

J. GARY BURKHEAD ( 57 ), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.

RALPH F. COX ( 66 ), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.

PHYLLIS BURKE DAVIS ( 67 ), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.

ROBERT M. GATES ( 55 ), Trustee (1997), is a consultant, author,
and lecturer (1993). Mr. Gates was Director of the Central
Intelligence Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates
served as Assistant to the President of the United States and Deputy
National Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.

E. BRADLEY JONES ( 71 ), Trustee. Prior to his retirement in
1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel
Company. He is a Director of TRW Inc. (original equipment and
replacement products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc. (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.

DONALD J. KIRK ( 66 ), Trustee, is Executive-in-Residence (1995)
at Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of National Arts Stabilization Inc. ,
Chairman of the Board of Trustees of the Greenwich Hospital
Association, Director of the Yale-New Haven Health Services Corp.
(1998), a Member of the Public Oversight Board of the American
Institute of Certified Public Accountants' SEC Practice Section
(1995), and as a Public Governor of the National Association of
Securities Dealers, Inc. (1996).

*PETER S. LYNCH ( 55 ), Trustee, is Vice Chairman and Director of
FMR. Prior to May 31, 1990, he was a Director of FMR and Executive
Vice President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.

WILLIAM O. McCOY ( 65 ), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).

GERALD C. McDONOUGH ( 70 ), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.

MARVIN L. MANN ( 65 ), Trustee (1993), is Chairman of the Board
of Lexmark International, Inc. (office machines, 1991). Prior
to 1991, he held the positions of Vice President of International
Business Machines Corporation ("IBM") and President and General
Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993), Imation Corp.
(imaging and information storage, 1997 ).

*ROBERT C. POZEN ( 52 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), Fidelity Management & Research (U.K.) Inc. (1997), and
Fidelity Management & Research (Far East) Inc. (1997). Previously, Mr.
Pozen served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp .

THOMAS R. WILLIAMS ( 70 ), Trustee, is President of The Wales
Group, Inc. (management and financial advisory services). Prior to
retiring in 1987, Mr. Williams served as Chairman of the Board of
First Wachovia Corporation (bank holding company), and Chairman and
Chief Executive Officer of The First National Bank of Atlanta and
First Atlanta Corporation (bank holding company). He is currently a
Director of ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).

DWIGHT D. CHURCHILL ( 45 ), is Vice President of Bond Funds,
Group Leader of the Bond Group, Senior Vice President of FMR (1997),
and Vice President of FIMM (1998). Mr. Churchill joined Fidelity in
1993 as Vice President and Group Leader of Taxable Fixed-Income
Investments.

BOYCE I. GREER ( 42 ), is Vice President of Money Market Funds
(1997), Group Leader of the Money Market Group (1997), Senior Vice
President of FMR (1997), and Vice President of FIMM (1998). Mr. Greer
served as the Leader of the Fixed-Income Group for Fidelity Management
Trust Company (1993-1995) and was Vice President and Group Leader of
Municipal Fixed-Income Investments (1996-1997).

ABIGAIL P. JOHNSON ( 37 ), is Vice President of certain Equity
Funds (1997), and is a Director of FMR Corp. (1994). Before assuming
her current responsibilities, Ms. Johnson managed a number of Fidelity
funds. Edward C. Johnson 3d, Trustee and President of the Funds, is
Ms. Johnson's father.

FRED L. HENNING, JR. ( 59 ), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.

BART A. GRENIER ( 39 ), is Vice President of certain High-Income
Bond Funds (1997). Mr. Grenier rejoined Fidelity in August 1997 from
DDJ Capital Management, LLC, where he had served as Managing Director
since April 1997. Mr. Grenier originally joined Fidelity in 1991 as a
senior analyst. Mr. Grenier served as a Director of High-Income Group
Research and as Director of U.S. Equity Research from 1994 to March
1996. He later became Group Leader of the Income-Growth and Asset
Allocation-Income Groups in 1996 and Assistant Equity Division Head in
1997.

ROBERT A. LAWRENCE ( 46 ), is Vice President of certain Equity
Funds (1997), Vice President of Fidelity Real Estate High Income Fund
(1995) and Fidelity Real Estate High Income Fund II (1996), and Senior
Vice President of FMR (1993).

RICHARD A. SPILLANE, JR. ( 47 ), is Vice President of certain
Equity Funds and Senior Vice President of FMR (1997). Since joining
Fidelity, Mr. Spillane is Chief Investment Officer for Fidelity
International, Limited. Prior to that position, Mr. Spillane served as
Director of Research.

ROBERT DUBY ( 52 ), is Vice President of VIP: Money Market
Portfolio (1997) and other funds advised by FMR. Prior to his current
responsibilities, Mr. Duby has managed a variety of Fidelity funds.

BARRY J. COFFMAN ( 39 ), is Vice President of VIP: High Income
Portfolio.

STEPHEN R. PETERSEN ( 42 ), is Vice President of VIP:
Equity-Income Portfolio (1997) and other funds advised by FMR. Prior
to his current responsibilities, Mr. Petersen managed a variety of
Fidelity funds.

JENNIFER UHRIG ( 37 ), is Vice President of VIP: Growth Portfolio
(1997) and other funds advised by FMR. Prior to her current
responsibilities, Ms. Uhrig has managed a variety of Fidelity funds.

RICHARD R. MACE, JR. ( 37 ), is Vice President of VIP: Overseas
Portfolio (1996) and other funds advised by FMR. Prior to his current
responsibilities, Mr. Mace has managed a variety of Fidelity funds.

KEVIN E. GRANT ( 38 ), is Vice President of VIP II: Investment
Grade Bond Portfolio (1997), VIP III: Balanced Portfolio (1996), and
other funds advised by FMR. Since joining Fidelity in 1993, Mr. Grant
has managed a variety of Fidelity funds. Prior to joining Fidelity,
Mr. Grant was vice president and chief mortgage strategist at Morgan
Stanley for three years.

RICHARD C. HABERMANN ( 58 ), is Vice President of VIP II: Asset
Manager Portfolio (1996), VIP II: Asset Manager: Growth Portfolio
(1996), and other funds advised by FMR. He is also Senior Vice
President of FMR (1993) and a managing director of Fidelity
Investments. Prior to his current responsibilities, Mr. Habermann has
managed a variety of Fidelity funds.

CHARLES S. MORRISON II ( 38 ), is Vice President of VIP II: Asset
Manager Portfolio (1997), VIP II: Asset Manager: Growth Portfolio
(1997), and other funds advised by FMR. Prior to assuming his current
responsibilities, Mr. Morrison managed a variety of Fidelity funds.

JOHN J. TODD ( 49 ), is Vice President of VIP II: Asset Manager
Portfolio (1996), VIP II: Asset Manager: Growth Portfolio (1996), and
other funds advised by FMR. Prior to his current responsibilities, Mr.
Todd has managed a variety of Fidelity funds.

WILLIAM DANOFF ( 38 ), is Vice President of VIP II: Contrafund
Portfolio (1995) and another fund advised by FMR. Since 1990, Mr.
Danoff has managed another Fidelity fund.

GEORGE A. VANDERHEIDEN ( 53 ), is Vice President of VIP III:
Growth Opportunities Portfolio (1995) and other funds advised by FMR.
Prior to his current responsibilities, Mr. Vanderheiden has managed a
variety of Fidelity funds.

STEVEN J. SNIDER (38), is Vice President of VIP II: Asset Manager
Portfolio (1998) and VIP II: Asset Manager: Growth Portfolio (1998).

ERIC D. ROITER ( 50 ), Secretary (1998), is Vice President (1998)
and General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).

RICHARD A. SILVER ( 51 ), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).

MATTHEW N. KARSTETTER (37), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).

STANLEY N. GRIFFITH (52), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.

JOHN H. COSTELLO ( 52 ), Assistant Treasurer, is an employee of
FMR.

LEONARD M. RUSH ( 52 ), Assistant Treasurer (1994), is an
employee of FMR (1994). Prior to becoming Assistant Treasurer of the
Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp.
(1993-1994) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).

THOMAS J. SIMPSON ( 40 ), Assistant Treasurer (1996), is
Assistant Treasurer of Fidelity's Fixed-Income Funds (1998) and an
employee of FMR (1996). Prior to joining FMR, Mr. Simpson was Vice
President and Fund Controller of Liberty Investment Services
(1987-1995).

The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended December 31, 199 8 .
COMPENSATION TABLE

AGGREGATE J. Gary Burkhead** Ralph F. Cox Phyllis Burke Davis Robert M. Gates Edward C. Johnson
COMPENSATION FROM 3d**
A FUND

Money Market $ 0 $___ $___ $___ $ 0

High Income 0 $___ ____ ____ 0

Equity-Income 0 $___ ____ ____ 0

Growth 0 $___ ____ ____ 0

Overseas 0 $___ ____ ____ 0

Investment Grade 0 $___ ____ ____ 0
Bond

Asset Manager 0 $___ ____ ____ 0

Index 500 0 $___ ____ ____ 0

Contrafund 0 $___ ____ ____ 0

Asset Manager: 0 $___ ____ ____ 0
Growth

Balanced 0 $___ ____ ____ 0

Growth & Income 0 $___ ____ ____ 0

Growth Opportunities 0 $___ ____ ____ 0

Mid Cap + 0 $___ ____ ____ 0

TOTAL COMPENSATION $ 0 $ 223,500 $220,500 $ 223,500 $ 0
FROM THE FUND
COMPLEX *, A

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
AGGREGATE E. Bradley Jones Donald J. Kirk Peter S. Lynch** William O. McCoy Gerald C. McDonough
COMPENSATION FROM
A FUND

Money Market $___ $___ $ 0 $___ $___

High Income ____ ____ 0 ____ ____

Equity-Income ____ ____ 0 ____ ____

Growth ____ ____ 0 ____ ____

Overseas ____ ____ 0 ____ ____

Investment Grade ____ ____ 0 ____ ____
Bond

Asset Manager ____ ____ 0 ____ ____

Index 500 ____ ____ 0 ____ ____

Contrafund ____ ____ 0 ____ ____

Asset Manager: ____ ____ 0 ____ ____
Growth

Balanced ____ ____ 0 ____ ____

Growth & Income ____ ____ 0 ____ ____

Growth Opportunities ____ ____ 0 ____ ____

Mid Cap + ____ ____ 0 ____ ____

TOTAL COMPENSATION $ 222,000 $226,500 $ 0 $ 223,500 $ 273,500
FROM THE FUND
COMPLEX *, A

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C>
AGGREGATE Marvin L. Mann Robert C. Pozen** Thomas R. Williams
COMPENSATION FROM
A FUND

Money Market $___ $ 0 $___

High Income ____ 0 ____

Equity-Income ____ 0 ____

Growth ____ 0 ____

Overseas ____ 0 ____

Investment Grade ____ 0 ____
Bond

Asset Manager ____ 0 ____

Index 500 ____ 0 ____

Contrafund ____ 0 ____

Asset Manager: ____ 0 ____
Growth

Balanced ____ 0 ____

Growth & Income ____ 0 ____

Growth Opportunities ____ 0 ____

Mid Cap + ____ 0 ____

TOTAL COMPENSATION $220,500 $ 0 $ 223,500
FROM THE FUND
COMPLEX *, A

</TABLE>

* Information is for the calendar year ended December 31, 199 8
for 237 funds in the complex.

** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.

+ Estimated.

A Compensation figures include cash, amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the calendar year ended December 31, 1998, the Trustees
accrued required deferred compensation from the funds as follows:
Ralph F. Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$75,000; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation: Ralph F. Cox, $55,039; William O. McCoy, $55,039;
Marvin L. Mann, $55,039; and Thomas R. Williams, $55,039.

B Compensation figures include cash, and may include amounts
required to be deferred and amounts deferred at the election of
Trustees.

C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $__; Phyllis Burke Davis, $__;
Robert M. Gates, $__; E. Bradley Jones, $__; Donald J. Kirk, $ __;
William O. McCoy, $__; Gerald C. McDonough, $__; Marvin L. Mann, $__;
and Thomas R. Williams, $__.

Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.

As of _______, 199_, approximately ____% of Money Market's, ____%
of Investment Grade Bond's, ____% of Index 500's, ____% of High
Income's, ____% of Asset Manager's, ____% of Asset Manager: Growth's,
____% of Equity-Income's, ____% of Contrafund's, ____% of Growth's,
____% of Overseas', ____% of Growth & Income's, ____% of Balanced's,
____% of Growth Opportunities', and ____% of Mid Cap's total
outstanding shares were held by FMR and/or an FMR affiliate. FMR Corp.
is the ultimate parent company of FMR and this FMR affiliate. By
virtue of his ownership interest in FMR Corp., as described in the
"Control of Investment Advisers" section on page __, Mr. Edward C.
Johnson 3d, President and Trustee of the funds, may be deemed to be a
beneficial owner of these shares. As of the above date, with the
exception of Mr. Johnson 3d's deemed ownership of the funds' shares,
the Trustees, Members of the Advisory Board, and officers of the funds
owned, in the aggregate, less than __% of each class's total
outstanding shares.

As of _______, 199 _ , the following owned of record or
beneficially 5% or more (up to and including 25%) of each class's
outstanding shares:

{INFORMATION TO BE INSERTED}

A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders.

CONTROL OF INVESTMENT ADVISERS

FMR Corp., organized in 1972, is the ultimate parent company of
FMR, FIMM, FMR U.K., and FMR Far East. The voting common stock of
FMR Corp. is divided into two classes. Class B is held predominantly
by members of the Edward C. Johnson 3d family and is entitled to 49%
of the vote on any matter acted upon by the voting common stock. Class
A is held predominantly by non-Johnson family member employees of FMR
Corp. and its affiliates and is entitled to 51% of the vote on any
such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under
which all Class B shares will be voted in accordance with the majority
vote of Class B shares. Under the 1940 Act , control of a
company is presumed where one individual or group of individuals owns
more than 25% of the voting stock of that company. Therefore, through
their ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.

At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.

Fidelity International Limited (FIL), a Bermuda company formed in
1968, is the ultimate parent company of FIIA and FIIA(U.K.)L. Edward
C. Johnson 3d, Johnson family members, and various trusts for the
benefit of the Johnson family own, directly or indirectly, more than
25% of the voting common stock of FIL. FIL provides investment
advisory services to non-U.S. investment companies and institutional
investors investing in securities throughout the world.

Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that sets
forth all employees' fiduciary responsibilities regarding the funds,
establishes procedures for personal investing and restricts certain
transactions. For example, all personal trades in most securities
require pre-clearance, and participation in initial public offerings
is prohibited. In addition, restrictions on the timing of personal
investing in relation to trades by Fidelity funds and on short-term
trading have been adopted.

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), a bank holding company, whose principal offices are also
at 130 Liberty Street, New York, New York 10006.

MANAGEMENT CONTRACTS

Each fund has entered into a management contract with FMR, pursuant
to which FMR furnishes investment advisory and other services.

MANAGEMENT AND SUB-ADVISORY SERVICES (INDEX 500 PORTFOLIO). FMR
provides Index 500 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 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.

BT has been advised by counsel that BT currently may perform the
services for the fund described herein without violation of the
Glass-Steagall Act or other applicable banking laws 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.

MANAGEMENT SERVICES (EXCEPT INDEX 500 PORTFOLIO). Under the terms
of its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees,
directs the investments of the fund in accordance with its investment
objective, policies, and limitations. FMR also provides each fund with
all necessary office facilities and personnel for servicing the fund's
investments, compensates all officers of each fund and all Trustees
who are "interested persons" of the trusts or of FMR, and all
personnel of each fund or FMR performing services relating to
research, statistical and investment activities.

In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.

MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR; for Index 500, the sub-advisory fee payable to BT; and the
fees payable to FSC and FIIOC, each fund or each class thereof, as
applicable, pays all of its expenses that are not assumed by those
parties. Each fund pays for typesetting, printing, and mailing proxy
material s to shareholders, legal expenses, and the fees of the
custodian (except Index 500), auditor, and non-interested Trustees.
Each 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 each fund's transfer agent agreement, FIIOC bears
the costs of providing these services to existing shareholders of the
applicable classes. Other expenses paid by each 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. Each fund is also
liable for such non-recurring expenses as may arise, including costs
of any litigation to which the fund may be a party, and any obligation
it may have to indemnify its officers and Trustees with respect to
litigation.

MANAGEMENT AND SUB-ADVISORY FEES (INDEX 500 PORTFOLIO). For the
services of FMR under the contract, Index 500 pays FMR and BT
monthly management and sub-advisory fees at the annual rate of 0.24%
of the fund's average net assets throughout the month. These
fees include management fees of 0.24% payable to FMR, and estimated
sub-advisory fees of less than 0.01% payable to BT (representing 40%
of net income from securities lending).

MANAGEMENT FEES (EXCEPT INDEX 500 PORTFOLIO). For the services of FMR
under the management contract, High Income, Investment Grade Bond,
Equity-Income, Balanced, Growth, Growth & Income, Growth
Opportunities, Overseas, Asset Manager, Contrafund, Asset Manager:
Growth and Mid Cap each pays FMR a monthly management fee which
has two components: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.

For the services of FMR under the management contract, Money Market
pays FMR a monthly management fee which has three components: a group
fee rate, an individual fund fee rate , and an income-based
component of 6% of the fund's monthly gross income in excess of
a n annualized 5% yield. For this purpose, gross income
includes interest accrued and/or discount earned (including both
original issue discount and market discount) on portfolio obligations,
less amortization of premium on portfolio obligations. The maximum
income-based component is an amount equal to an annual rate of
0.24% of the fund's average net assets throughout the
month .

The following is the fee schedule for Money Market, Investment
Grade Bond, and High Income Portfolios.

GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE FEE RATES

Average Group Assets Annualized Rate Group Net Assets Effective Annual
Fee Rate

0 - $3 billion .3700% $ 0.5 billion .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1690

24 - 30 .1800 200 .1652

30 - 36 .1750 225 .1618

36 - 42 .1700 250 .1587

42 - 48 .1650 275 .1560

48 - 66 .1600 300 .1536

66 - 84 .1550 325 .1514

84 - 120 .1500 350 .1494

120 - 156 .1450 375 .1476

156 - 192 .1400 400 .1459

192 - 228 .1350 425 .1443

228 - 264 .1300 450 .1427

264 - 300 .1275 475 .1413

300 - 336 .1250 500 .1399

336 - 372 .1225 525 .1385

372 - 408 .1200 550 .1372

408 - 444 .1175

444 - 480 .1150

480 - 516 .1125

Over 516 .1100

The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $ ___ billion of group net assets - the approximate
level for December 199 8 - was 0. ____ %, which is the
weighted average of the respective fee rates for each level of group
net assets up to $ ___ billion.

T he following is the fee schedule for Equity-Income, Balanced,
Growth, Growth & Income, Growth Opportunities, Overseas, Asset
Manager, Contrafund, Asset Manager: Growth, and Mid Cap
Portfolios.

GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE FEE RATES

Average Group Assets Annualized Group Net Effective Annual
Rate Assets Fee Rate

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

3 - 6 .4900 25 .4238

6 - 9 .4600 50 .3823

9 - 12 .4300 75 .3626

12 - 15 .4000 100 .3512

15 - 18 .3850 125 .3430

18 - 21 .3700 150 .3371

21 - 24 .3600 175 .3325

24 - 30 .3500 200 .3284

30 - 36 .3450 225 .3249

36 - 42 .3400 250 .3219

42 - 48 .3350 275 .3190

48 - 66 .3250 300 .3163

66 - 84 .3200 325 .3137

84 - 102 .3150 350 .3113

102 - 138 .3100 375 .3090

138 - 174 .3050 400 .3067

174 - 210 .3000 425 .3046

210 - 246 .2950 450 .3024

246 - 282 .2900 475 .3003

282 - 318 .2850 500 .2982

318 - 354 .2800 525 .2962

354 - 390 .2750 550 .2942

390 - 326 .2700

426 - 462 .2650

462 - 498 .2600

498 - 534 .2550

Over 534 .2500

The i ndividual fund fee rate for each fund (except Money
Market Portfolio) is set forth in the following chart. Based on
the average group net assets of the funds advised by FMR for December
199 8 , each fund's annual management fee rate would be
calculated as follows:

Group Fee Rate Individual Fund Fee Management Fee Rate
Rate

Investment Grade 0.____% + 0.30% = 0.____%
Bond

High Income 0.____% + 0.45% = 0.____%

Equity-Income 0.____% + 0.20% = 0.____%

Balanced 0.____% + 0.15% = 0.____%

Growth 0.____% + 0.30% = 0.____%

Growth & Income 0.____% + 0.20% = 0.____%

Growth Opportunities 0.____% + 0.30% = 0.____%

Overseas 0.____% + 0.45% = 0.____%

Asset Manager 0.____% + 0.25% = 0.____%

Contrafund 0.____% + 0.30% = 0.____%

Group Fee Rate Individual Fund Fee Management Fee Rate
Rate

Asset Manager: Growth 0.____% + 0.30% = 0.____%

Mid Cap 0.____% + 0.30% = 0.____%

</TABLE>

One-twelfth of the management fee rate is applied to each fund's
average net assets for the month, giving a dollar amount, which is the
fee for that month.

Money Market Portfolio's individual fund fee rate is 0.03%.
One-twelfth of the sum of the group fee rate and the individual
fund fee rate is applied to the fund's average net assets for the
month, giving a dollar amount which is the fee for that month to which
the income-based component is added.

The following table shows the amount of management fees paid by
each fund to FMR for the past three fiscal years.

FISCAL YEARS ENDED MANAGEMENT FEES
DECEMBER 31 PAID TO
FMR

Money Market 1998

1997

1996

Investment Grade Bond 1998

1997

1996

High Income 1998

1997

1996

Equity-Income 1998

1997

1996

Balanced 1998

1997

1996

Growth 1998

1997

1996

Growth & Income 1998

1997*

Growth Opportunities 1998

1997

1996

Overseas 1998

1997

1996

Asset Manager 1998

1997

1996

Contrafund 1998

1997

1996

Asset Manager: Growth 1998

1997

1996

FISCAL YEARS ENDED MANAGEMENT FEES
DECEMBER 31 PAID TO
FMR

Mid Cap 1998**

* Growth & Income commenced operations on December 31, 1996.

** Mid Cap commenced operations on December 14, 1998.

During the reporting period, FMR voluntarily modified the breakpoints
in the group fee rate schedules on January 1, 1996 to provide for
lower management fee rates as FMR's assets under management increase.

FMR may, from time to time, voluntarily reimburse all or a portion of
a class's operating expenses (exclusive of interest, taxes,
brokerage commissions, and extraordinary expenses, and, for Index 500,
sub-advisory fees associated with securities lending) , which is
subject to revision or termination. FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.

Expense reimbursements by FMR will increase a class's returns and
yield, and repayment of the reimbursement by a class will lower its
returns and yield.

[Effective [Date], FMR voluntarily agreed to reimburse [Name of
Class] if and to the extent that its aggregate operating expenses,
including management fees, were in excess of an annual rate of __% of
its average net assets. For the fiscal years ended December 31, 1998,
1997, and 1996, management fees incurred under the fund's contract
prior to reimbursement amounted to $____, $____, and $____
respectively [(after reduction for compensation to the non-interested
Trustees)], and management fees reimbursed by FMR amounted to $____,
$____, and $____, respectively.]

[During the past three fiscal [years/periods], FMR voluntarily
agreed to reimburse [Name(s) of Class(es)] if and to the extent that
its aggregate operating expenses, including management fees, were in
excess of an annual rate of its average net assets. The table[s] below
show[s] the period[s] of reimbursement and levels of expense
limitation[s] [IF NOT ALL CLASSES ARE IN REIMBURSEMENT: for the
applicable class[es]; the dollar amount of management fees incurred
under [the/each] fund's contract before reimbursement; and the dollar
amount of management fees reimbursed by FMR under the expense
reimbursement for [the/each] period.]

SUB-ADVISERS.

INDEX 500 PORTFOLIO and FMR have entered into a sub-advisory
agreement with BT. Pursuant to the sub-advisory agreement, FMR has
granted BT investment management authority as well as the authority to
buy and sell securities.

Under the sub-advisory agreement, for providing investment
management, securities lending and custodial services to the fund, FMR
pays BT fees at an annual rate of 0.006% of the average net assets of
the fund. In addition, as described above, under the sub-advisory
agreement, for such services the fund pays BT fees representing 40% of
net income from the fund's securities lending program. The remaining
60% of net income from the fund's securities lending program goes to
the fund.

For the fiscal years ended December 31, 1998, 1997, and 1996, the
fund paid FMR management fees of $_____, $_____, and $_____,
respectively, and for the fiscal years ended December 31, 1998 and
1997, the fund paid BT sub-advisory fees of $______ and $_____,
respectively.

On behalf of MONEY MARKET AND INVESTMENT GRADE BOND
PORTFOLIOS , FMR has entered into a sub-advisory agreement with FIMM
pursuant to which FIMM has primary responsibility for choosing
investments for the funds. Previously, FMR Texas Inc. (FMR Texas) had
primary responsibility for providing investment management services to
Money Market Portfolio. On January 23, 1998, FMR Texas was merged into
FIMM, which succeeded to the operations of FMR Texas.

On behalf of ASSET MANAGER, ASSET MANAGER: GROWTH, AND BALANCED
PORTFOLIOS , FMR has entered into sub-advisory agreements with FIMM
pursuant to which FIMM chooses certain investments for the funds.

Under the terms of the sub-advisory agreements for Money Market
Portfolio and Investment Grade Bond Portfolio, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR under its management
contract with each fund. The fees paid to FIMM are not reduced by any
voluntary or mandatory expense reimbursements that may be in effect
from time to time.

Under the terms of the sub-advisory agreements for Asset Manager
Portfolio, Asset Manager: Growth Portfolio, and Balanced Portfolio,
FMR pays FIMM fees equal to 50% of the management fee payable to FMR
with respect to that portion of the fund's assets that are managed by
FIMM. The fees paid to FIMM are not reduced by any voluntary or
mandatory expense reimbursements that may be in effect from time to
time.

On behalf of Money Market Portfolio, for the fiscal years ended
December 31, 1997 and 1996, FMR paid FMR Texas fees of
$1,162,818 and $974,519, respectively. On behalf of Money
Market Portfolio, for the fiscal year ended December 31, 1998,
FMR paid FIMM a fee of $______ .

On behalf of HIGH INCOME, BALANCED, GROWTH & INCOME, GROWTH
OPPORTUNITIES, ASSET MANAGER, CONTRAFUND, ASSET MANAGER:
GROWTH, and MID CAP PORTFOLIOS , FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. On behalf of
OVERSEAS PORTFOLIO, FMR has entered into sub-advisory agreements with
FMR U.K., FMR Far East, and FIIA. FIIA, in turn, has entered into a
sub-advisory agreement with FIIA(U.K.)L. Pursuant to the sub-advisory
agreements, FMR may receive investment advice and research services
outside the United States from the sub-advisers.

On behalf of High Income, Balanced, Growth & Income, Growth
Opportunities, Asset Manager, Contrafund, Asset Manager:
Growth, Mid Cap, and Overseas Portfolios, FMR may also grant FMR
U.K., FMR Far East, FIIA, and FIIA(U.K.)L investment management
authority, as well as the authority to buy and sell securities if FMR
believes it would be beneficial to a fund.

Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, and FIIA. FIIA, in turn, pays the fees of FIIA(U.K.)L. For
providing non-discretionary investment advice and research services,
the sub-advisers are compensated as follows:

(small solid bullet) FMR pays FMR U.K. and FMR Far East fees equal to
110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services.

(small solid bullet) FMR pays FIIA a fee equal to 30% of FMR's monthly
management fee with respect to the average net assets held by the fund
for which the sub-adviser has provided FMR with investment
advice and research services.

(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing investment
advice and research services.

On behalf of High Income, Balanced, Growth & Income, Growth
Opportunities, Asset Manager, Contrafund, Asset Manager:
Growt h, Mid Cap and Overseas Portfolios, for providing
discretionary investment management and executing portfolio
transactions, the sub-advisers are compensated as follows:

(small solid bullet) FMR pays FMR U.K., FMR Far East, and FIIA a fee
equal to 50% of its monthly management fee with respect to the fund's
average net assets managed by the sub-adviser on a discretionary
basis.

(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing
discretionary investment management services.

For investment advice and research services, [no fees] were
paid to FMR U.K. or FMR Far East on behalf of High Income Portfolio
for the past three fiscal years. For investment advice and research
services, [no fees] were paid to FIIA and FIIA(U.K.)L on behalf of
Overseas Portfolio for the past three fiscal years.

For providing investment advice and research services, fees paid to
FMR U.K. and FMR Far East on behalf of [High Income,] Balanced, Growth
& Income, Growth Opportunities, Asset Manager, Contrafund, Asset
Manager: Growth, Mid Cap and Overseas Portfolios [(and fees paid to
FIIA and FIIA(U.K.)L on behalf of Overseas Portfolio)] for the
past three fiscal years are shown in the tables below.

BALANCED PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

1997 $ 6,670 $ 6,406

1996 $4,632 $ 4,355

GROWTH & INCOME PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

1997 $ 7,591 $ 7,566

GROWTH OPPORTUNITIES PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

1997 $ 29,514 $ 28,662

1996 $ 15,833 $ 15,008

ASSET MANAGER PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

1997 $ 206,758 $ 194,817

1996 $ 308,946 $ 305,205

CONTRAFUND PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

1997 $ 189,013 $ 184,518

1996 $ 79,710 $ 78,354

ASSET MANAGER: GROWTH PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

1997 $ 16,483 $ 15,673

1996 $ 9,362 $ 9,146

MID CAP PORTFOLIO

Fiscal Year FMR U.K. FMR Far East
Ended
December 31

1998 $________ $________

OVERSEAS PORTFOLIO

Fiscal Year FMR U.K. FMR Far East FIIA FIIA(U.K.)L
Ended
December 31

1998 $_________ $_________ -- --

1997 $ 1,028,965 $ 984,199 -- --

1996 $ 934,318 $ 897,170 -- --

For discretionary investment management and execution of portfolio
transactions, [ no fees] were paid to FMR U.K. or FMR Far East
on behalf of High Income, Balanced, Growth & Income, Growth
Opportunities, Asset Manager, Contrafund, Asset Manager: Growth,
Mid Cap, and Overseas Portfolios for the past three fiscal
years.

DISTRIBUTION SERVICES

Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements
call for FDC to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of each fund, which are
continuously offered at NAV. Promotional and administrative expenses
in connection with the offer and sale of shares are paid by FMR.

The Trustees have approved Distribution and Service Plans on behalf of
Service Class of each fund (except Money Market, Investment Grade
Bond, and Index 500) and Initial Class of each fund (the Plans)
pursuant to Rule 12b-1 under the 1940 Act (the Rule). The Rule
provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to
result in the sale of shares of the fund except pursuant to a plan
approved on behalf of the fund under the Rule. The Plans, as approved
by the Trustees, allow Service Class and Initial Class and FMR
to incur certain expenses that might be considered to constitute
direct or indirect payment by the funds of distribution expenses.

Pursuant to the Service Class Plan for each fund (except Money Market,
Investment Grade Bond, and Index 500), FDC is paid a 12b-1 fee at an
annual rate of up to 0.25% of Service Class's average net assets
determined at the close of business on each day throughout the
month. Currently, the Trustees have approved a 12b-1 fee for
Service Class of each such fund at an annual rate of 0.10% of its
average net assets. This fee rate may be increased only when, in the
opinion of the Trustees, it is in the best interests of Variable
Product owners to do so. (For purposes of this discussion, "Variable
Product" refers to a variable annuity contract or variable life
insurance policy for which shares of the funds are available as
underlying investment options.)

FDC may reallow to insurance companies up to the full amount of
12b-1 fees paid by Service Class for providing services intended to
result in the sale of Service Class shares and/or support services to
Variable Product owners, based upon the level of such services
provided.

For the fiscal year ended December 31, 199 8 , Service Class of
each fund (except Money Market, Investment Grade Bond, and Index 500)
paid FDC the following 12b-1 fees, all of which were reallowed to
insurance companies:

Fund

High Income $___

Equity-Income $___

Growth $___

Overseas $___

Asset Manager $___

Asset Manager: Growth $___

Contrafund $___

Balanced $___

Growth Opportunities $___

Growth & Income $___

Mid Cap $___

Under each Initial Class Plan, if the payment of management fees by
the fund to FMR is deemed to be indirect financing by the fund of the
distribution of its shares, such payment is authorized by the Plan.
Each Initial Class Plan specifically recognizes that FMR may use its
management fee revenue, as well as its past profits or its other
resources, to pay FDC for expenses incurred in connection with
providing services intended to result in the sale of Initial Class
shares and/or shareholder support services. In addition, each Initial
Class Plan provides that FMR, directly or through FDC, may pay
intermediaries, such as banks, broker-dealers and other service
providers, that provide those services. Currently, the Board of
Trustees has authorized such payments for Initial Class shares.

Under each Service Class Plan, if the payment of management fees by
the fund to FMR is deemed to be indirect financing by the fund of the
distribution of its shares, such payment is authorized by the Plan.
Each Service Class Plan specifically recognizes that FMR may use its
management fee revenue, as well as its past profits or its other
resources, to pay FDC for expenses incurred in connection with
providing services intended to result in the sale of Service Class
shares and/or shareholder support services, including payments made to
insurance companies and others that provide those services. Currently,
the Board of Trustees has authorized such payments for Service Class
shares.

Payments made by FMR either directly or through FDC to
intermediaries for the fiscal year ended December 31,
199 8 amounted to the following:

Fund Initial Class Service Class

Money Market $______ N/A

High Income $______ $______

Equity-Income $______ $______

Growth $______ $______

Overseas $______ $______

Investment Grade Bond $______ N/A

Asset Manager $______ $______

Asset Manager: Growth $______ $______

Index 500 $______ N/A

Contrafund $______ $______

Balanced $______ $______

Growth Opportunities $______ $______

Growth & Income $______ $______

Mid Cap $______ $______

Prior to approving each Initial Class and Service Clas s Plan,
the Trustees carefully considered all pertinent factors relating to
the implementation of the Plan and determined that there is a
reasonable likelihood that the Plan will benefit the applicable class
of the fund and Variable Product owners. In particular, the Trustees
noted that each Initial Class Plan does not authorize payments by
Initial Class of a fund other than those made to FMR under its
management contract with the fund. To the extent that each Initial
Class and Service Class Plan gives FMR and FDC greater flexibility
in connection with the distribution of shares of the applicable class,
additional sales of fund shares or stabilization of cash flows
may result. Furthermore, certain shareholder support services may
be provided more effectively under the Plans by insurance
companies and their affiliates with whom Variable Product owners have
other relationships.

Each Service Class Plan does not provide for specific payments by
Service Class of any of the expenses of FDC, or obligate FDC or FMR to
perform any specific type or level of distribution activities or incur
any specific level of expense in connection with distribution
activities.

The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.

Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.

TRANSFER AND SERVICE AGENT AGREEMENTS

Each class of each fund has entered into a transfer agent agreement
with FIIOC, an affiliate of FMR. Under the terms of the agreements,
FIIOC maintains the master accounts of the participating insurance
companies. For providing transfer agency services, FIIOC receives an
asset-based fee of 0.067% for each account. For each fund (except
Money Market, Investment Grade Bond, and High Income), the asset-based
fees are subject to adjustment if the year-to-date total return of the
S&P 500 exceeds a positive or negative 15%. FIIOC pays out-of-pocket
expenses associated with providing transfer agent services. In
addition, FIIOC bears the expense of typesetting, printing and mailing
prospectuses, statements of additional information, and all other
reports, notices, and statements to shareholders allocable to the
master account of participating insurance companies.

Each fund has also entered into a service agent agreement with FSC,
an affiliate of FMR. Under the terms of the agreements, FSC calculates
the NAV and dividends for each class of each fund, maintains each
fund's portfolio and general accounting records, and administers High
Income, Equity-Income, Growth, Overseas, Investment Grade Bond, Asset
Manager, Asset Manager: Growth, Contrafund, Balanced, Growth
Opportunities, Growth & Income, and Mid Cap Portfolios' securities
lending program.

For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month. The annual fee rates for pricing and bookkeeping services are
as follows: for Money Market, 0.0150% of the first $500 million of
average net assets, 0.0075% of average net assets between $500 million
and $10 billion, and 0.0010% of average net assets in excess of $10
billion; for High Income, 0.0475% of the first $500 million of average
net assets, 0.0275% of average net assets between $500 million and $3
billion, and 0.0010% of average net assets in excess of $3 billion;
for Overseas, 0.0550% of the first $500 million of average net assets,
0.0425% of average net assets between $500 million and $3 billion, and
0.0010% of average net assets in excess of $3 billion; for Investment
Grade Bond, 0.0275% of the first $500 million of average net assets,
0.0175% of average net assets between $500 million and $3 billion, and
0.0010% of average net assets in excess of $3 billion; and for
Balanced, Growth & Income, Growth Opportunities, Equity-Income,
Growth, Asset Manager, Contrafund, Asset Manager: Growth, Index 500,
and Mid Cap, 0.0450% of the first $500 million of average net assets,
0.0265% of average net assets between $500 million and $3 billion, and
0.0010% of average net assets in excess of $3 billion. The fee, not
including reimbursement for out-of-pocket expenses, for Money Market
is limited to a minimum of $40,000 per year. The fee, not including
reimbursement for out-of-pocket expenses, for each fund (except Money
Market) is limited to a minimum of $60,000 per year.

Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.

Fund 1998 1997 1996

Money Market $_______ $ 133,309 $ 120,582

High Income $_______ $ 812,930 $ 662,535

Equity-Income $_______ $ 819,525 $ 809,457

Growth $_______ $ 816,139 $ 808,115

Overseas $_______ $ 803,038 $ 760,136

Investment Grade Bond $_______ $ 106,949 $ 82,156

Asset Manager $_______ $ 809,468 $ 808,547

Asset Manager: Growth $_______ $ 234,257 $ 87,337

Index 500 $_______ $ 599,917 $ 271,956

Contrafund $_______ $ 807,242 $ 622,337

Balanced $_______ $ 97,323 $ 59,115

Growth Opportunities $_______ $ 358,089 $ 167,116

Growth & Income $_______ $ 113,129 N/A

Mid Cap $_______ N/A N/A

For administering High Income, Equity-Income, Growth, Overseas,
Investment Grade Bond, Asset Manager, Asset Manager: Growth,
Contrafund, Balanced, Growth Opportunities, Growth & Income, and Mid
Cap Portfolios' securities lending program, FSC receives fees
based on the number and duration of individual securities loans. For
the fiscal years ended December 31, 1998, 1997, and 1996, the
funds paid [ no securities lending fees ] .

DESCRIPTION OF THE TRUSTS

TRUST ORGANIZATION. Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio, and Overseas Portfolio are
funds of Variable Insurance Products Fund, an open-end management
investment company organized as a Massachusetts business trust on
November 13, 1981. The Trustees are permitted to create additional
funds in the trust and to create additional classes of the funds.

Investment Grade Bond Portfolio, Asset Manager Portfolio, Index 500
Portfolio, Contrafund Portfolio, and Asset Manager: Growth Portfolio
are funds of Variable Insurance Products Fund II, an open-end
management investment company organized as a Massachusetts business
trust on March 21, 1988. The Trustees are permitted to create
additional funds in the trust and to create additional classes of the
funds.

Balanced Portfolio, Growth & Income Portfolio , Growth
Opportunities Portfoli o, and Mid Cap Portfolio are funds of
Variable Insurance Products Fund III, an open-end management
investment company organized as a Massachusetts business trust on July
14, 1994. On December 30, 1996, Variable Insurance Products Fund
III changed its name from Fidelity Advisor Annuity Fund to
Variable Insurance Products Fund III. On December 30, 1996,
Balanced Portfolio changed its name from Advisor Annuity Income &
Growth Fund to Balanced Portfolio. On December 30, 1996, Growth
Opportunities Portfolio changed its name from Advisor Annuity
Growth Opportunities Fund to Growth Opportunities Portfolio. The
Trustees are permitted to create additional funds in the trust and to
create additional classes of the funds.

Investments in each trust may be made only by the separate accounts of
insurance companies for the purpose of funding variable annuity and
variable life insurance contracts issued by insurance companies.

The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in a trust shall be charged with
the liabilities and expenses attributable to such fund, except that
liabilities and expenses may be allocated to a particular class. Any
general expenses of the respective trusts shall be allocated between
or among any one or more of its funds or classes.

SHAREHOLDER LIABILITY. Each trust is an entity commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust.

The Declaration of Trust for Variable Insurance Products Fund III
provides that the trust shall not have any claim against shareholders
except for the payment of the purchase prices of shares and requires
that each agreement, obligation, or instrument entered into or
executed by the trust or the Trustees relating to the trust shall
include a provision limiting the obligations created thereby to the
trust and its assets. The Declaration of Trust for each of Variable
Insurance Products Fund and Variable Insurance Products Fund II
contains an express disclaimer of shareholder liability for debts,
liabilities, obligations, and expenses of the trust or fund. The
Declaration of Trust for each of Variable Insurance Products Fund and
Variable Insurance Products Fund II provides that the trust shall not
have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation,
or instrument entered into or executed by the trust or the Trustees
relating to the trust or to a fund shall include a provision limiting
the obligations created thereby to the trust or to one or more funds
and its or their assets. The Declaration of Trust for each of Variable
Insurance Products Fund and Variable Insurance Products Fund II
further provides that shareholders of a fund shall not have a claim on
or right to any assets belonging to any other fund.

Each Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. Each Declaration of
Trust also provides that each fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote. Claims asserted against one class of shares may subject
holders of another class of shares to certain liabilities.

VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. Shareholders receive one vote for each dollar value of net
asset value they own. The voting rights of shareholders can be changed
only by a shareholder vote. Shares may be voted in the aggregate, by
fund and by class.

The shares have no preemptive or conversion rights. Shares are
fully paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
Variable Insurance Products Fund III or any of its funds may be
terminated upon the sale of its assets to another open-end management
investment company, or upon liquidation and distribution of its
assets, if approved by a vote of shareholders of the trust or the
fund. In the event of the dissolution or liquidation of the trust,
shareholders of each of its funds are entitled to receive the
underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of the fund
available for distribution.

Each of Variable Insurance Products Fund and Variable Insurance
Products Fund II or any of its funds may be terminated upon the sale
of its assets to, or merger with, another open-end management
investment company or series thereof, or upon liquidation and
distribution of its assets. Generally, the merger of a trust or a fund
with another entity or the sale of substantially all of the assets of
a trust or a fund to another entity requires approval by a vote of
shareholders of the trust or the fund. The Trustees may, however,
reorganize or terminate each trust or any of its funds without prior
shareholder approval. In the event of the dissolution or liquidation
of a trust, shareholders of each of its funds are entitled to receive
the underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of such fund
available for distribution.

CUSTODIANS. The Bank of New York, 110 Washington Street, New York, New
York, is custodian of the assets of Money Market, High Income and
Investment Grade Bond Portfolios; The Chase Manhattan Bank, 1 Chase
Manhattan Plaza, New York, New York, is custodian of the assets of
Equity-Income, Balanced, Growth & Income, Overseas, Asset Manager:
Growth, and Asset Manager Portfolios; and Brown Brothers Harriman &
Co., 40 Water Street, Boston, Massachusetts, is custodian of the
assets of Growth, Growth Opportunities, Contrafund , and Mid Cap
Portfolios. BT is custodian of the assets of Index 500 Portfolio.
Each custodian is responsible for the safekeeping of a fund's assets
and the appointment of any subcustodian banks and clearing agencies.
The Bank of New York and The Chase Manhattan Bank, each headquartered
in New York, also may serve as special purpose custodians of certain
assets in connection with repurchase agreement transactions.

FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. The Boston branch of Growth, Growth Opportunities,
Contrafund, and Mid Cap Portfolios' custodian leases its office
space from an affiliate of FMR at a lease payment which, when entered
into, was consistent with prevailing market rates. Transactions that
have occurred to date include mortgages and personal and general
business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential
custodial or other fund relationships.

AUDITORS. ___________ serves as the independent
accountant of Variable Insurance Products Fund, and ________
serves as the independent accountant of Variable Insurance
Products Fund II and Variable Insurance Products Fund III. Each
auditor examines financial statements for the funds and provides other
audit, tax, and related services.

FINANCIAL STATEMENTS

Each fund ' s financial statements and financial
highlights for the fiscal year ended December 31, 199 8 , and
report of the audito r , are included in the fund's Annual
Repor t and are incorporated herein by reference.

APPENDIX

ABOUT THE S&P 500. The S&P 500 is a well-known stock market index that
includes common stocks of companies representing a significant portion
of the market value of all common stocks publicly traded in the United
States. Stocks in the S&P 500 are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by
the stock's current price) with the __ largest stocks currently
comprising approximately __ % of the index's value. The
composition of the S&P 500 is determined by Standard & Poor's and is
based on such factors as the market capitalization and trading
activity of each stock and its adequacy as a representation of stocks
in a particular industry group. Standard & Poor's may change the
index's composition from time to time.

The performance of the S&P 500 is a hypothetical number that does not
take into account brokerage commissions and other costs of investing,
which the fund s bea r.

Although Standard & Poor's obtains information for inclusion in or for
use in the calculation of the S&P 500 from sources which it considers
reliable, Standard & Poor's does not guarantee the accuracy or the
completeness of the S&P 500 or any data included therein. Standard &
Poor's makes no warranty, express or implied, as to results to be
obtained by the licensee, owners of the fund s , or any other
person or entity from the use of the S&P 500 or any data included
therein in connection with the rights licensed hereunder or for any
other use. Standard & Poor's makes no express or implied warranties,
and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the S&P 500 and any
data included therein.

(TO BE ADDED IN SUBSEQUENT AMENDMENT) The following is a list of the
500 stocks comprising the S&P 500 as of _________, 1998 .

Variable Insurance Products Fund II

PART C. OTHER INFORMATION

Item 23. Exhibits

(a) Amended and Restated Declaration of Trust, dated
September 16, 1998, is filed herein as Exhibit
(a).

(b) Bylaws of the Trust, as amended and dated May 19,
1994, are incorporated herein by reference to
Exhibit 2(a) of Fidelity Union Street Trust's
(File No. 2-50318) Post-Effective Amendment No.
87.

(d) (1) Management Contract between the Registrant, on
behalf of Index 500 Portfolio, and Fidelity Man
agement & Research Company dated December 1, 1997
is incorporated herein by reference to
Exhibit 5(a) of Post-Effective Amendment No. 26.

(2) Management Contract between Investment Grade Bond
Portfolio and Fidelity Management & Re
search Company dated September 16, 1998, is filed
herein as Exhibit (d)(2).

(3) Sub-Advisory Agreement between Fidelity
Management & Research Company and Fidelity Man
agement & Research (U.K.) Inc. on behalf of Asset
Manager Portfolio dated September 16, 1998
is filed herein as Exhibit (d)(3).

(4) Sub-Advisory Agreement between Fidelity
Management & Research Company and Fidelity Man
agement & Research (Far East) Inc. on behalf of
Asset Manager Portfolio dated September 16,
1998 is filed herein as Exhibit (d)(4).

(5) Management Contract between Asset Manager
Portfolio and Fidelity Management & Research
Company dated September 16, 1998 is filed herein
as Exhibit (d)(5).

(6) Sub-Advisory Agreement among Fidelity Management
& Research Company, Fidelity
Management & Research (U.K.) Inc. and Variable
Insurance Products Fund II on behalf of Asset
Manager: Growth Portfolio, dated December 1,
1994, is incorporated herein by reference to Exhib
it 5(f) of Post-Effective Amendment No. 17.

(7) Sub-Advisory Agreement among Fidelity Management
& Research Company, Fidelity
Management & Research (Far East) Inc. and
Variable Insurance Products Fund II on behalf of
Asset Manager: Growth Portfolio, dated December
1, 1994, is incorporated herein by reference to
Exhibit 5(g) of Post-Effective Amendment No. 17.

(8) Management Contract between Asset Manager: Growth
Portfolio and Fidelity Management &
Research Company dated September 16, 1998 is
filed herein as Exhibit (d)(8).

(9) Management Contract between Contrafund Portfolio
and Fidelity Management & Research
Company dated September 16, 1998 is filed herein
as Exhibit (d)(9).

(10) Sub-Advisory Agreement among Fidelity Management
& Research Company, Fidelity
Management & Research (U.K.) Inc. and Variable
Insurance Products Fund II on behalf of Contra
fund Portfolio, dated December 1, 1994, is
incorporated herein by reference to Exhibit 5(j)
of Post-Effective Amendment No. 17.

(11) Sub-Advisory Agreement among Fidelity Management
& Research Company, Fidelity
Management & Research (Far East) Inc. and
Variable Insurance Products Fund II on behalf of
Contrafund Portfolio, dated December 1, 1994, is
incorporated herein by reference to Exhibit 5(k)
of Post-Effective Amendment No. 17.

(12) Sub-Advisory Agreement and Appendix A between
Fidelity Management & Research Company,
Bankers Trust Company, and the Registrant, on
behalf of Index 500 Portfolio, dated December 1,
1997 is incorporated herein by reference to
Exhibit 5(l) of Post-Effective Amendment No. 26

(13) Sub-Advisory Agreement between Fidelity
Management & Research Company and Fidelity
Investments Money Management, Inc. on behalf of
Asset Manager Portfolio, dated January 1,
1999, is filed herein as Exhibit (d)(13).

(14) Sub-Advisory Agreement between Fidelity
Management & Research Company and Fidelity
Investments Money Management, Inc. on behalf of
Asset Manager: Growth Portfolio, dated
January 1, 1999, is filed herein as Exhibit
(d)(14).

(15) Sub-Advisory Agreement between Fidelity
Management & Research Company and Fidelity
Investments Money Management, Inc. on behalf of
Investment Grade Bond Portfolio, dated
January 1, 1999, is filed herein as Exhibit
(d)(15).

(e) (1) General Distribution Agreement between Short-Term
Portfolio (currently known as Investment
Grade Bond Portfolio) and Fidelity Distributors
Corporation dated November 11, 1988, is
incorporated herein by reference to Exhibit 6(a)
of Post-Effective Amendment No. 17.

(2) General Distribution Agreement between Asset
Manager Portfolio and Fidelity Distributors
Corporation dated August 31, 1989, is
incorporated herein by reference to Exhibit 6(b)
of Post-Effective Amendment No. 17.

(3) General Distribution Agreement between Index 500
Portfolio and Fidelity Distributors
Corporation dated August 27, 1992, is
incorporated herein by reference to Exhibit 6(c)
of Post-
Effective Amendment No. 17.

(4) General Distribution Agreement between Asset
Manager: Growth Portfolio and Fidelity
Distributors Corporation dated December 1, 1994,
is incorporated herein by reference to Exhibit
6(d) of Post-Effective Amendment No. 17.

(5) General Distribution Agreement between Contrafund
Portfolio and Fidelity Distributors
Corporation dated December 1, 1994, is
incorporated herein by reference to Exhibit 6(e)
of Post-
Effective Amendment No. 17.

(6) Amendments, dated March 14, 1996 and July 15,
1996, to General Distribution Agreement
between Investment Grade Bond, Asset Manager,
Index 500, Asset Manager: Growth, and Contra
fund Portfolios and Fidelity Distributors
Corporation, are incorporated herein by
reference to
Exhibit 6(b) of Fidelity Court Street Trust's
(File No. 2-58774) Post-Effective Amendment No.
61.

(7) Form of Service Contract between Fidelity
Distributors Corporation and "Qualified
Recipients"
with respect to Initial Class shares of
Investment Grade Bond, Asset Manager, Asset
Manager:
Growth, and Contrafund Portfolios is incorporated
herein by reference to Exhibit 6(g) of Post-
Effective Amendment No. 25.

(8) Form of Service Contract between Fidelity
Distributors Corporation and "Qualified
Recipients"
with respect to Service Class shares of Asset
Manager, Asset Manager: Growth, and Contrafund
Portfolios is incorporated herein by reference to
Exhibit 6(h) of Post-Effective Amendment No.
25.

(f) (1) Retirement Plan for Non-Interested Person
Trustees, Directors or General Partners, as
amended on
November 16, 1995, is incorporated herein by
reference to Exhibit 7(a) of Fidelity Select
Portfolio's (File No. 2-69972) Post-Effective
Amendment No. 54.

(2) The Fee Deferral Plan for Non-Interested Person
Directors and Trustees of the Fidelity Funds,
effective as of September 14, 1995 and amended
through November 14, 1996, is incorporated
herein by reference to Exhibit 7(b) of Fidelity
Aberdeen Street Trust's (File No. 33-43529) Post-
Effective Amendment No. 19.

(g) (1) Custodian Agreement and Appendix C, dated
December 1, 1994, between The Bank of New York
and Variable Insurance Products Fund II on behalf
of Investment Grade Bond Portfolio is

incorporated herein by reference to Exhibit 8(a)
of Fidelity Hereford Street Trust's (File No.
33-52577) Post-Effective Amendment No. 4.

(2) Appendix A, dated June 18, 1998, to the Custodian
Agreement, dated December 1, 1994, between
The Bank of New York and Variable Insurance
Products Fund II on behalf of Investment Grade
Bond Portfolio is incorporated herein by
reference to Exhibit 8(b) of Fidelity Boston
Street Trust's
(File No. 33-17704) Post-Effective Amendment No.
22.

(3) Appendix B, dated June 18, 1998, to the Custodian
Agreement, dated December 1, 1994, between
The Bank of New York and Variable Insurance
Products Fund II on behalf of Investment Grade
Bond Portfolio is incorporated herein by
reference to Exhibit 8(c) of Fidelity Boston
Street Trust's

(File No. 33-17704) Post-Effective Amendment No.
22.

(4) Custodian Agreement and Appendix C, dated August
1, 1994, between The Chase Manhattan
Bank, N.A. and Variable Insurance Products Fund
II on behalf of Asset Manager Portfolio and
Asset Manager: Growth Portfolio is incorporated
herein by reference to Exhibit 8(a) of Fidelity
Investment Trust's (File No. 2-90649)
Post-Effective Amendment No. 59.

(5) Appendix A, dated February 26, 1998, to the
Custodian Agreement, dated August 1, 1994,
between The Chase Manhattan Bank, N.A. and
Variable Insurance Products Fund II on behalf of
Asset Manager Portfolio and Asset Manager: Growth
Portfolio is incorporated herein by reference
to Exhibit 8(b) of Fidelity Puritan Trust's (File
No. 2-11884) Post-Effective Amendment No. 116.

(6) Appendix B, dated June 18, 1998, to the Custodian
Agreement, dated August 1, 1994, between
The Chase Manhattan Bank, N.A. and Variable
Insurance Products Fund II on behalf of Asset
Manager Portfolio and Asset Manager: Growth
Portfolio is incorporated herein by reference to
Exhibit 8(c) of Fidelity Puritan Trust's (File
No. 2-11884) Post-Effective Amendment No. 116
(File No. 2-11884).

(7) Custodian Agreement and Appendix C, dated
September 1, 1994, between Brown Brothers
Harriman & Company and Variable Insurance
Products Fund II on behalf of Contrafund Portfolio
is incorporated herein by reference to Exhibit
8(a) of Fidelity Commonwealth Trust's (File No.
2-52322) Post-Effective Amendment No. 56.

(8) Appendix A, dated March 19, 1998, to the
Custodian Agreement, dated September 1, 1994,
between Brown Brothers Harriman & Company and
Variable Insurance Products Fund II on behalf
of Contrafund Portfolio is incorporated herein by
reference to Exhibit 8(e) of Fidelity Puritan
Trust's (File No. 2-11884) Post-Effective
Amendment No. 116.

(9) Appendix B, dated June 18, 1998, to the Custodian
Agreement, dated September 1, 1994, between
Brown Brothers Harriman & Company and Variable
Insurance Products Fund II on behalf of
Contrafund Portfolio is incorporated herein by
reference to Exhibit 8(f) of Fidelity Puritan
Trust's
(File No. 2-11884) Post-Effective Amendment No.
116.

(10) Custodian Agreement, Appendix A and Appendix C,
dated November 5, 1997, between Bankers
Trust Company and Variable Insurance Products
Fund II on behalf of Index 500 Portfolio is
incorporated herein by reference to Exhibit 8(q)
of Fidelity Commonwealth Trust's (File No.
2-52322) Post-Effective Amendment No. 65.

(11) Appendix B, dated December 17, 1997, to the
Custodian Agreement, dated November 5, 1997,
between Bankers Trust Company and Variable
Insurance Products Fund II on behalf of Index 500
Portfolio is incorporated herein by reference to
Exhibit 8(r) of Fidelity Commonwealth Trust's
(File No. 2-52322) Post-Effective Amendment No. 65.

(h) Not applicable.

(i) Not applicable.

(j) Not applicable.

(k) Not applicable.

(l) Not applicable.

(m) (1) Distribution and Service Plan pursuant to Rule
12b-1 for Investment Grade Bond Portfolio:
"Initial
Class" is incorporated herein by reference to
Exhibit 15(a) of Post-Effective Amendment No. 25.

(2) Distribution and Service Plan pursuant to Rule
12b-1 for Asset Manager Portfolio: Initial
Class is incorporated herein by reference to
Exhibit 15(b) of Post-Effective Amendment No. 25.

(3) Distribution and Service Plan pursuant to Rule
12b-1 for Index 500 Portfolio: Initial Class is
incorporated herein by reference to Exhibit 15(c)
of Post-Effective Amendment No. 25

(4) Distribution and Service Plan pursuant to Rule
12b-1 for Asset Manager: Growth Portfolio: Initial
Class is incorporated herein by reference to
Exhibit 15(d) of Post-Effective Amendment No. 25.

(5) Distribution and Service Plan pursuant to Rule
12b-1 for Contrafund Portfolio: Initial Class is
incorporated herein by reference to Exhibit 15(e)
of Post-Effective Amendment No. 25.

(6) Distribution and Service Plan pursuant to Rule
12b-1 for Asset Manager Portfolio: Service Class
is
incorporated herein by reference to Exhibit
15(f) of Post-Effective Amendment No. 25.

(7) Distribution and Service Plan pursuant to Rule
12b-1 for Asset Manager: Growth Portfolio:
Service Class is incorporated herein by reference
to Exhibit 15(g) of Post-Effective Amendment
No. 25.

(8) Distribution and Service Plan pursuant to Rule
12b-1 for Contrafund Portfolio: Service Class is
incorporated herein by reference to Exhibit 15(h)
of Post-Effective Amendment No. 25.

(n) Not applicable.

(o) Multiple Class of Shares Plan for VIP Funds dated
March 19, 1998 is incorporated herein by
reference to Exhibit 18 of Post-Effective
Amendment No. 27.

Item 24. Trusts Controlled by or under Common Control with this Trust

The Board of Trustees of the Trust is the same as the board of other
Fidelity funds, each of which has Fidelity Management & Research
Company, or an affiliate, as its investment adviser. In addition, the
officers of the Trust are substantially identical to those of the
other Fidelity funds. Nonetheless, the Trust takes the position that
it is not under common control with other Fidelity funds because the
power residing in the respective boards and officers arises as the
result of an official position with the respective trusts.
Item 25. Indemnification

Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Trust shall indemnify any present or past trustee or officer
to the fullest extent permitted by law against liability, and all
expenses reasonably incurred by him or her in connection with any
claim, action, suit or proceeding in which he or she is involved by
virtue of his or her service as a trustee or officer and against any
amount incurred in settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other adjudicatory body to
be liable to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties (collectively, "disabling conduct"), or not to have
acted in good faith in the reasonable belief that his or her action
was in the best interest of the Trust. In the event of a settlement,
no indemnification may be provided unless there has been a
determination, as specified in the Declaration of Trust, that the
officer or trustee did not engage in disabling conduct.

Pursuant to Section 11 of the Distribution Agreement, the Trust
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading
under the 1933 Act, or any other statute or the common law. However,
the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust by or on behalf of the Distributor. In no case is the indemnity
of the Trust in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any
liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.

Pursuant to the agreement by which Fidelity Investments Institutional
Operations Company, Inc. ("FIIOC") is appointed transfer agent, the
Registrant agrees to indemnify and hold FIIOC harmless against any
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from:

(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names FIIOC
and/or the Registrant as a party and is not based on and does not
result from FIIOC's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with
FIIOC's performance under the Transfer Agency Agreement; or

(2) any claim, demand, action or suit (except to the extent
contributed to by FIIOC's willful misfeasance, bad faith or negligence
or reckless disregard of duties) which results from the negligence of
the Registrant, or from FIIOC's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of FIIOC's
acting in reliance upon advice reasonably believed by FIIOC to have
been given by counsel for the Registrant, or as a result of FIIOC's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.

Item 26. Business and Other Connections of Investment Adviser

(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)

82 Devonshire Street, Boston, MA 02109

FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held,
during the past two fiscal years, the following positions of a
substantial nature.

Edward C. Johnson 3d Chairman of the Board and Director of FMR;
President and Chief Executive Officer of FMR
Corp.; Chairman of the Board and Director of FMR
Corp., Fidelity Investments Money Management,
Inc. (FIMM), Fidelity Management & Research
(U.K.) Inc. (FMR U.K.), and Fidelity Management
& Research (Far East) Inc. (FMR Far East);
Chairman of the Executive Committee of FMR;
Director of Fidelity Investments Japan Limited
(FIJ); President and Trustee of funds advised by
FMR.

Robert C. Pozen President and Director of FMR; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FIMM, FMR U.K., and
FMR Far East; Previously, General Counsel,
Managing Director, and Senior Vice President of
FMR Corp.

Peter S. Lynch Vice Chairman of the Board and Director of FMR.

John H. Carlson Vice President of FMR and of funds advised by FMR.

Dwight D. Churchill Senior Vice President of FMR and Vice President
of Bond Funds advised by FMR; Vice President of
FIMM.

Brian Clancy Vice President of FMR and Treasurer of FMR, FIMM,
FMR U.K., and FMR Far East.

Barry Coffman Vice President of FMR.

Arieh Coll Vice President of FMR.

Frederic G. Corneel Tax Counsel of FMR.

Stephen G. Manning Assistant Treasurer of FMR, FIMM, FMR U.K., FMR
Far East; Vice President and Treasurer of FMR
Corp.; Treasurer of Strategic Advisers, Inc.

William Danoff Senior Vice President of FMR and Vice President
of a fund advised by FMR.

Scott E. DeSano Vice President of FMR.

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

Walter C. Donovan Vice President of FMR.

Bettina Doulton Vice President of FMR and of funds advised by FMR.

Margaret L. Eagle Vice President of FMR and of funds advised by FMR.

William R. Ebsworth Vice President of FMR.

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

Gregory Fraser Vice President of FMR and of a fund advised by FMR.

Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
U.K., FMR Far East, and Strategic Advisers,
Inc.; Secretary of FIMM; Associate General
Counsel FMR Corp.

David L. Glancy Vice President of FMR and of a fund advised by FMR.

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

Boyce I. Greer Senior Vice President of FMR and Vice President
of Money Market Funds advised by FMR; Vice
President of FIMM.

Bart A. Grenier Senior Vice President of FMR; Vice President of
High-Income Funds advised by FMR.

Robert J. Haber Vice President of FMR.

Richard C. Habermann Senior Vice President of FMR; Vice President of
funds advised by FMR.

Fred L. Henning Jr. Senior Vice President of FMR and Vice President
of Fixed-Income Funds advised by FMR.

Bruce T. Herring Vice President of FMR.

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

Abigail P. Johnson Senior Vice President of FMR and Vice President
of funds advised by FMR; Director of FMR Corp.;
Associate Director and Senior Vice President of
Equity Funds advised by FMR.

David B. Jones Vice President of FMR.

Steven Kaye Senior Vice President of FMR and of a fund
advised by FMR.

Francis V. Knox Vice President of FMR; Compliance Officer of FMR
U.K. and FMR Far East.

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

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

Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.

Charles A. Mangum Vice President of FMR and of a fund advised by FMR.

Kevin McCarey Vice President of FMR and of a fund advised by FMR.

Neal P. Miller Vice President of FMR.

Jacques Perold Vice President of FMR.

Alan Radlo Vice President of FMR.

Eric D. Roiter Vice President, General Counsel and Clerk of FMR
and Secretary of funds advised by FMR.

Lee H. Sandwen Vice President of FMR.

Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.

Fergus Shiel Vice President of FMR.

Richard A. Silver Vice President of FMR.

Carol A. Smith-Fachetti Vice President of FMR.

Steven J. Snider Vice President of FMR and of funds advised by FMR.

Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.

Richard Spillane Senior Vice President of FMR; Associate Director
and Senior Vice President of Equity Funds
advised by FMR; Previously, Senior Vice
President and Director of Operations and
Compliance of FMR U.K.

Thomas M. Sprague Vice President of FMR and of funds advised by FMR.

Robert E. Stansky Senior Vice President of FMR and Vice President
of a fund advised by FMR.

Scott D. Stewart Vice President of FMR.

Thomas Sweeney Vice President of FMR.

Beth F. Terrana Senior Vice President of FMR and Vice President
of a fund advised by FMR.

Yoko Tilley Vice President of FMR.

Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.

Robert Tuckett Vice President of FMR.

Jennifer Uhrig Vice President of FMR and of funds advised by FMR.

George A. Vanderheiden Senior Vice President of FMR and Vice President
of funds advised by FMR; Director of FMR Corp.

Steven S. Wymer Vice President of FMR and of a fund advised by FMR.

(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)

25 Lovat Lane, London, EC3R 8LL, England

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

Edward C. Johnson 3d Chairman of the Board and Director of FMR U.K.,
FMR, FMR Corp., FIMM, and FMR Far East;
President and Chief Executive Officer of FMR
Corp.; Chairman of the Executive Committee of
FMR; Director of Fidelity Investments Japan
Limited (FIJ); President and Trustee of funds
advised by FMR.

Robert C. Pozen President and Director of FMR U.K.; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FIMM, FMR, and FMR Far
East; Previously, General Counsel, Managing
Director, and Senior Vice President of FMR Corp.

Brian Clancy Treasurer of FMR U.K., FMR Far East, FMR, and
FIMM and Vice President of FMR.

Stephen G. Manning Assistant Treasurer of FMR U.K., FMR, FMR Far
East, and FIMM; Vice President and Treasurer of
FMR Corp.; Treasurer of Strategic Advisers, Inc.

Francis V. Knox Compliance Officer of FMR U.K. and FMR Far East;
Vice President of FMR.

Jay Freedman Clerk of FMR U.K., FMR Far East, FMR Corp. and
Strategic Advisers, Inc.; Assistant Clerk of
FMR; Secretary of FIMM; Associate General
Counsel FMR Corp.

Susan Englander Hislop Assistant Clerk of FMR U.K., FMR Far East and FIMM.

Sarah H. Zenoble Senior Vice President and Director of Operations
and Compliance.

(3) FIDELITY MANAGEMENT & RESEARCH (Far East) INC. (FMR Far East)

Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan

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

Edward C. Johnson 3d Chairman of the Board and Director of FMR Far
East, FMR, FMR Corp., FIMM, and FMR U.K.;
Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR
Corp.; Director of Fidelity Investments Japan
Limited (FIJ); President and Trustee of funds
advised by FMR.

Robert C. Pozen President and Director of FMR Far East; Senior
Vice President and Trustee of funds advised by
FMR; President and Director of FIMM, FMR U.K.,
and FMR; Previously, General Counsel, Managing
Director, and Senior Vice President of FMR Corp.

Robert H. Auld Senior Vice President of FMR Far East.

Brian Clancy Treasurer of FMR Far East, FMR U.K., FMR, and
FIMM and Vice President of FMR.

Francis V. Knox Compliance Officer of FMR Far East and FMR U.K.;
Vice President of FMR.

Jay Freedman Clerk of FMR Far East, FMR U.K., FMR Corp. and
Strategic Advisers, Inc.; Assistant Clerk of
FMR; Secretary of FIMM; Associate General
Counsel FMR Corp.

Susan Englander Hislop Assistant Clerk of FMR Far East, FMR U.K. and FIMM.

Stephen G. Manning Assistant Treasurer of FMR Far East, FMR, FMR
U.K., and FIMM; Vice President and Treasurer of
FMR Corp.; Treasurer of Strategic Advisers, Inc.

Billy Wilder Vice President of FMR Far East; President and
Representative Director of Fidelity Investments
Japan Limited.

(4) FIDELITY INVESTMENTS MONEY MANAGEMENT, INC. (FIMM)

Contra Way, Merrimack, NH 03054

FIMM provides investment advisory services to Fidelity Management &
Research Company. The directors and officers of the Sub-Adviser have
held the following positions of a substantial nature during the past
two fiscal years.

Edward C. Johnson 3d Chairman of the Board and Director of FIMM, FMR,
FMR Corp., FMR Far East, and FMR U.K.; Chairman
of the Executive Committee of FMR; President and
Chief Executive Officer of FMR Corp.; Director
of Fidelity Investments Japan Limited (FIJ);
President and Trustee of funds advised by FMR.

Robert C. Pozen President and Director of FIMM; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FMR, FMR U.K., and FMR
Far East; Previously, General Counsel, Managing
Director, and Senior Vice President of FMR Corp.

Fred L. Henning Jr. Senior Vice President of FIMM; Senior Vice
President of FMR and Vice President of
Fixed-Income Funds advised by FMR.

Boyce I. Greer Vice President of FIMM; Senior Vice President of
FMR and Vice President of Money Market Funds
advised by FMR.

Dwight D. Churchill Vice President of FIMM; Senior Vice President of
FMR and Vice President of Bond Funds advised by
FMR.

Brian Clancy Treasurer of FIMM, FMR Far East, FMR U.K., and
FMR and Vice President of FMR.

Jay Freedman Secretary of FIMM; Clerk of FMR U.K., FMR Far
East, FMR Corp. and Strategic Advisers, Inc.;
Assistant Clerk of FMR; Secretary of FIMM;
Associate General Counsel FMR Corp.

Susan Englander Hislop Assistant Clerk of FIMM, FMR U.K. and FMR Far East.

Stephen G. Manning Assistant Treasurer of FIMM, FMR U.K., FMR Far
East, and FMR; Vice President and Treasurer of
FMR Corp.; Treasurer of Strategic Advisers, Inc.

(5) BANKERS TRUST COMPANY (BT)

One Bankers Trust Plaza, New York, NY 10006

BT provides investment advisory services to Index 500 Portfolio and
Fidelity Management & Research Company. The directors and officers of
BT have held, during the past two fiscal years, the following
positions of a substantial nature.

Frank N. Newman President, Chief Executive Officer, and Chair man
of the Board of BT and Bankers Trust New York
Corporation; Director of BT.

Richard H. Daniel Vice Chairman and Chief Financial Officer of BT
and Bankers Trust New York Corporation; Director
of BT.

George J. Vojta Vice Chairman of BT and Bankers Trust New York
Corporation; Director of BT.

Melvin A. Yellin Senior Managing Director and General Counsel of
BT and Bankers Trust New York Corporation.

David Marshall Senior Managing Director; Chief Information
Officer and Executive Vice President of Bankers
Trust New York Corporation.

Lee A. Ault III Director of BT.

Neil R. Austrian Director of BT.

George B. Beitzel Director of BT.

Philip A. Griffiths Director of BT.

William R. Howell Director of BT.

Vernon E. Jordan, Jr. Director of BT.

Hamish Maxwell Director of BT.

N. J. Nicholas Jr. Director of BT.

Russell E Palmer Director of BT.

Donald L. Staheli Director of BT.

Patricia Carry Stewart Director of BT.

G. Richard Thoman Director of BT.

Paul A. Volcker Director of BT.

Item 27. Principal Underwriters

(a) Fidelity Distributors Corporation (FDC) acts as distributor for
all funds advised by FMR or an affiliate.

(b)

Name and Principal Positions and Offices Positions and Offices

Business Address* with Underwriter with Fund

Edward C. Johnson 3d Director Trustee and President

Michael Mlinac Director None

James Curvey Director None

Martha B. Willis President None

Eric D. Roiter Senior Vice President Secretary

Caron Ketchum Treasurer and Controller None

Gary Greenstein Assistant Treasurer None

Jay Freedman Assistant Clerk None

Linda Holland Compliance Officer None

* 82 Devonshire Street, Boston, MA

Item 28. Location of Accounts and Records

All accounts, books, and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company, Fidelity Service
Company, Inc. or Fidelity Investments Institutional Operations
Company, Inc., 82 Devonshire Street, Boston, MA 02109, or the funds'
respective custodians: The Bank of New York, 110 Washington Street,
New York, NY; The Chase Manhattan Bank, 1 Chase Manhattan Plaza, New
York, NY; Brown Brothers Harriman & Co., 40 Water Street, Boston, MA;
and Bankers Trust Company, One Bankers Trust Plaza, New York, NY
10006.

Item 29. Management Services

Not applicable.

Item 30. Undertakings

The Registrant on behalf of Investment Grade Bond Portfolio, Asset
Manager Portfolio, Index 500 Portfolio, Asset Manager: Growth
Portfolio, and Contrafund Portfolio, undertakes (1) to call a meeting
of shareholders for the purpose of voting upon the questions of
removal of a trustee or trustees, when requested to do so by record
holders of not less than 10% of its outstanding shares; and (2) to
assist in communications with other shareholders pursuant to Section
16(c)(1) and (2), whenever shareholders meeting the qualifications set
forth in Section 16(c) seek the opportunity to communicate with other
shareholders with a view toward requesting a meeting.

The Registrant, on behalf of Investment Grade Bond Portfolio, Asset
Manager Portfolio, Index 500 Portfolio, Asset Manager: Growth
Portfolio, and Contrafund Portfolio, provided the information required
by Item 5A is contained in the annual report, undertakes to furnish to
each person to whom a prospectus has been delivered, upon their
request and without charge, a copy of the Registrant's latest annual
report to shareholders.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 28 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston, and Commonwealth of Massachusetts, on the 9th day
of February 1999.

VARIABLE INSURANCE PRODUCTS FUND II
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
<S> <C> <C>
(Signature) (Title) (Date)

/s/Edward C. Johnson 3d (dagger) President and Trustee February 9, 1999
Edward C. Johnson 3d (Principal Executive Officer)

/s/Richard A. Silver Treasurer February 9, 1999
Richard A. Silver

/s/Robert C Pozen Trustee February 9, 1999
Robert C. Pozen

/s/Ralph F. Cox* Trustee February 9, 1999
Ralph F. Cox

/s/Phyllis Burke Davis* Trustee February 9, 1999
Phyllis Burke Davis

/s/Robert M. Gates** Trustee February 9, 1999
Robert M. Gates

/s/E. Bradley Jones* Trustee February 9, 1999
E. Bradley Jones

/s/Donald J. Kirk* Trustee February 9, 1999
Donald J. Kirk

/s/Peter S. Lynch* Trustee February 9, 1999
Peter S. Lynch

/s/Marvin L. Mann* Trustee February 9, 1999
Marvin L. Mann

/s/William O. McCoy* Trustee February 9, 19998
William O. McCoy

/s/Gerald C. McDonough* Trustee February 9, 1999
Gerald C. McDonough

/s/Thomas R. Williams* Trustee February 9, 1999
Thomas R. Williams

</TABLE>

(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.

* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.

** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.

POWER OF ATTORNEY

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

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

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.

WITNESS my hand on the date set forth below.

/s/Robert M. Gates March 6, 1997
Robert M. Gates

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

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

</TABLE>

in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.

WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d July 17, 1997
Edward C. Johnson 3d

POWER OF ATTORNEY

We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.

WITNESS our hands on this nineteenth day of December, 1996.

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

/s/J. Gary Burkhead /s/William O. McCoy
J. Gary Burkhead William O. McCoy

/s/Ralph F. Cox /s/Gerald C. McDonough
Ralph F. Cox Gerald C. McDonough

/s/Phyllis Burke Davis /s/Marvin L. Mann
Phyllis Burke Davis Marvin L. Mann

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

/s/Donald J. Kirk
Donald J. Kirk

Exhibit (a)

DECLARATION OF TRUST

AMENDED AND RESTATED DECLARATION OF TRUST, made September 16, 1998 by
each of the Trustees whose signature is affixed hereto (the
"Trustees").

WHEREAS, the Trustees desire to amend and restate this Declaration of
Trust for the sole purpose of supplementing the Declaration of Trust
to incorporate amendments duly adopted; and

WHEREAS, this Trust was initially made on March 21, 1988 by Edward C.
Johnson 3d, J. Gary Burkhead, and Frank Nesvet in order to establish a
trust fund for the investment and reinvestment of funds contributed
thereto;

NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed in
trust under this Amended and Restated Declaration of Trust as herein
set forth below.

ARTICLE I
NAME AND DEFINITIONS

NAME

Section 1. This Trust shall be known as "Variable Insurance Products
Fund II."

DEFINITIONS

Section 2. Wherever used herein, unless otherwise required by the
context or specifically provided:

(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50%
requirement of the third sentence of Section 2(a)(42) of the 1940 Act,
whichever may be applicable), and "Principal Underwriter" shall have
the meanings given them in the 1940 Act, as modified by or interpreted
by any applicable order or orders of the Commission or any rules or
regulations adopted or interpretative releases of the Commission
thereunder;

(b) "Bylaws" shall mean the bylaws of the Trust, if any, as amended
from time to time;

(c) "Class" refers to the class of Shares of a Series of the Trust
established in accordance with the provisions of Article III;

(d) "Declaration of Trust" means this Amended and Restated
Declaration of Trust, as further amended or restated, from time to
time;

(e) "Net Asset Value" means the net asset value of each Series of the
Trust or Class thereof determined in the manner provided in Article X,
Section 3;

(f) "Shareholder" means a record owner of Shares of the Trust;

(g) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest of the Trust or each
Series shall be divided from time to time, including such Class or
Classes of Shares as the Trustees may from time to time create and
establish and including fractions of Shares as well as whole Shares as
consistent with the requirements of Federal and/or state securities
laws;

(h) "Series" refers to any series of Shares of the Trust established
in accordance with the provisions of Article III;

(i) "Trust" refers to Variable Insurance Products Fund II and
reference to the Trust, when applicable to one or more Series of the
Trust, shall refer to any such Series;

(j) "Trustees" refer to the individual trustees in their capacity as
trustees hereunder of the Trust and their successor or successors for
the time being in office as such trustee or trustees; and

(k) "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time.

ARTICLE II
PURPOSE OF TRUST

The purpose of this Trust is to provide investors a continuous source
of managed investment in securities.

ARTICLE III
BENEFICIAL INTEREST

SHARES OF BENEFICIAL INTEREST

Section 1. The beneficial interest in the Trust shall be divided into
such transferable Shares of one or more separate and distinct Series
or Classes of Series as the Trustees shall, from time to time, create
and establish. The number of authorized Shares of each Series, and
Class thereof, is unlimited. Each Share shall be without par value and
shall be fully paid and nonassessable. The Trustees shall have full
power and authority, in their sole discretion and without obtaining
any prior authorization or vote of the Shareholders or any Series or
Class of Shareholders of the Trust (a) to create and establish (and to
change in any manner) Shares or any Series or Classes thereof with
such preferences, voting powers, rights and privileges as the Trustees
may, from time to time, determine; (b) to divide or combine the Shares
or any Series or Classes thereof into a greater or lesser number; (c)
to classify or reclassify any issued Shares into one or more Series or
Classes of Shares; (d) to abolish any one or more Series or Classes of
Shares; and (e) to take such other action with respect to the Shares
as the Trustees may deem desirable.

ESTABLISHMENT OF SERIES AND CLASSES

Section 2. The establishment of any Series or Class thereof shall be
effective upon the adoption of a resolution by a majority of the then
Trustees setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series or Class.
At any time that there are no Shares outstanding of any particular
Series or Class previously established and designated, the Trustees
may by a majority vote abolish such Series or Class and the
establishment and designation thereof.

OWNERSHIP OF SHARES

Section 3. The ownership of Shares shall be recorded in the books of
the Trust or a transfer or similar agent. The Trustees may make such
rules as they consider appropriate for the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or
by any transfer or similar agent, as the case may be, shall be
conclusive as to who are the holders of Shares and as to the number of
Shares held from time to time by each Shareholder.

INVESTMENT IN THE TRUST

Section 4. The Trustees shall accept investments in the Trust from
such persons and on such terms as they may, from time to time,
authorize. Such investments may be in the form of cash, securities, or
other property in which the appropriate Series is authorized to
invest, valued as provided in Article X, Section 3. After the date of
the initial contribution of capital, the number of Shares to represent
the initial contribution may in the Trustees' discretion be considered
as outstanding, and the amount received by the Trustees on account of
the contribution shall be treated as an asset of the Trust. Subsequent
investments in the Trust shall be credited to each Shareholder's
account in the form of full Shares at the Net Asset Value per Share
next determined after the investment is received; provided, however,
that the Trustees may, in their sole discretion, (a) impose a sales
charge or other fee upon investments in the Trust or Series or any
Classes thereof, and (b) issue fractional Shares.

ASSETS AND LIABILITIES OF SERIES AND CLASSES

Section 5. All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange, or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be referred to as "assets
belonging to" that Series. In addition, any assets, income, earnings,
profits, and proceeds thereof, funds, or payments that are not readily
identifiable as belonging to any particular Series or Class, shall be
allocated by the Trustees between and among one or more of the Series
or Classes in such manner as they, in their sole discretion, deem fair
and equitable. Each such allocation shall be conclusive and binding
upon the Shareholders of all Series or Classes for all purposes, and
shall be referred to as assets belonging to that Series or Class. The
assets belonging to a particular Series shall be so recorded upon the
books of the Trust or of its agent or agents and shall be held by the
Trustees in trust for the benefit of the holders of Shares of that
Series.

The assets belonging to each particular Series shall be charged with
the liabilities of that Series and all expenses, costs, charges, and
reserves attributable to that Series, except that liabilities and
expenses may, in the Trustees' discretion, be allocated solely to a
particular Class and, in which case, shall be borne by that Class. Any
general liabilities, expenses, costs, charges, or reserves of the
Trust that are not readily identifiable as belonging to any particular
Series or Class shall be allocated and charged by the Trustees between
or among any one or more of the Series or Classes in such manner as
the Trustees, in their sole discretion, deem fair and equitable and
shall be referred to as "liabilities belonging to" that Series or
Class. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series or Classes for all purposes. Any creditor
of any Series may look only to the assets of that Series to satisfy
such creditor's debt. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or
belonging to any other Series.

NO PREEMPTIVE RIGHTS

Section 6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the
Trust or the Trustees.

STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY

Section 7. Shares shall be deemed to be personal property giving only
the rights provided in this instrument. Every shareholder by virtue of
having become a shareholder shall be held to have expressly assented
and agreed to be bound by the terms hereof. No Shareholder of the
Trust and of each Series shall be personally liable for the debts,
liabilities, obligations, and expenses incurred by, contracted for, or
otherwise existing with respect to, the Trust or by or on behalf of
any Series. The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum
of money or assessment whatsoever other than such as the Shareholder
may, at any time, personally agree to pay by way of subscription for
any Shares or otherwise. Every note, bond, contract, or other
undertaking issued by or on behalf of the Trust or the Trustees
relating to the Trust or to a Series shall include a recitation
limiting the obligation represented thereby to the Trust or to one or
more Series and its or their assets (but the omission of such a
recitation shall not operate to bind any Shareholder or Trustee).

ARTICLE IV
THE TRUSTEES

MANAGEMENT OF THE TRUST

Section 1. The business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable
to carry out that responsibility.

INITIAL TRUSTEES: ELECTION

Section 2. The initial Trustees shall be at least three individuals
who shall affix their signatures hereto. On a date fixed by the
Trustees, the Shareholders shall elect not less than three Trustees. A
Trustee shall not be required to be a Shareholder of the Trust.

TERM OF OFFICE OF TRUSTEES

Section 3. The Trustees shall hold office during the lifetime of this
Trust, and until its termination as hereinafter provided; except (a)
that any Trustee may resign his trust by written instrument signed by
him and delivered to the other Trustees, which shall take effect upon
such delivery or upon such later date as is specified therein; (b)
that any Trustee may be removed at any time by written instrument,
signed by at least two-thirds (2/3) of the number of Trustees prior to
such removal, specifying the date when such removal shall become
effective; (c) that any Trustee who requests in writing to be retired
or who has become incapacitated by illness or injury may be retired by
written instrument signed by a majority of the other Trustees,
specifying the date of his retirement; and (d) a Trustee may be
removed at any special meeting of the Trust by a vote of two-thirds
(2/3) of the outstanding Shares.

RESIGNATION AND APPOINTMENT OF TRUSTEES

Section 4. In case of the declination, death, resignation,
retirement, or removal of any of the Trustees, or in case a vacancy
shall, by reason of an increase in number of the Trustees, or for any
other reason, exist, the remaining Trustees shall fill such vacancy by
appointing such other person as they in their discretion shall see fit
consistent with the limitations under the 1940 Act. Such appointment
shall be evidenced by a written instrument signed by a majority of the
Trustees in office or by recording in the records of the Trust,
whereupon the appointment shall take effect. An appointment of a
Trustee may be made by the Trustees then in office in anticipation of
a vacancy to occur by reason of retirement, resignation or increase in
number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date
of said retirement, resignation or increase in number of Trustees. As
soon as any Trustee so appointed shall have accepted this Trust, the
Trust estate shall vest in the new Trustee or Trustees, together with
the continuing Trustees, without any further act or conveyance, and he
shall be deemed a Trustee hereunder. The foregoing power of
appointment is subject to the provisions of Section 16(a) of the 1940
Act, as modified by or interpreted by any applicable order or orders
of the Commission or any rules or regulations adopted or
interpretative releases of the Commission.

TEMPORARY ABSENCE OF TRUSTEES

Section 5. Any Trustee may, by power of attorney, delegate his power
for a period not exceeding six (6) months at any one time to any other
Trustee or Trustees, provided that in no case shall fewer than two
Trustees personally exercise the other powers hereunder except as
herein otherwise expressly provided.

NUMBER OF TRUSTEES

Section 6. The number of Trustees, not less than three (3) nor more
than twelve (12), serving hereunder at any time shall be determined by
the Trustees themselves.

Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled, or while any Trustee is physically or mentally
incapacitated by reason of disease or otherwise, the other Trustees
shall have all the powers hereunder and the certificate of the other
Trustees of such vacancy or incapacity shall be conclusive.

EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE

Section 7. The death, declination, resignation, retirement, removal,
incapacity, or inability of the Trustees, or any one of them, shall
not operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.

OWNERSHIP OF ASSETS OF THE TRUST

Section 8. The assets of the Trust shall be held separate and apart
from any assets now or hereafter held in any capacity other than as
Trustee hereunder by the Trustees or any successor Trustees. All of
the assets of the Trust shall at all times be considered as vested in
the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of
partition or possession thereof, but each Shareholder shall have a
proportionate undivided beneficial interest in the Trust.

ARTICLE V
POWERS OF THE TRUSTEES

POWERS

Section 1. The Trustees in all instances shall act as principals and
are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts
and to make and execute any and all contracts and instruments that
they may consider necessary or appropriate in connection with the
management of the Trust. Except as otherwise provided herein or in the
1940 Act, the Trustees shall not in any way be bound or limited by
present or future laws or customs in regard to trust investments, but
shall have full authority and power to make any and all investments
that they, in their discretion, shall deem proper to accomplish the
purpose of this Trust. Subject to any applicable limitation in this
Declaration of Trust or the Bylaws of the Trust, if any, the Trustees
shall have power and authority:

(a) To invest and reinvest cash and other property, and to hold cash
or other property uninvested without, in any event, being bound by or
limited by any present or future law or custom in regard to
investments by Trustees, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on, and lease any or all of the
assets of the Trust.

(b) To adopt Bylaws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to
the Shareholders.

(d) To employ one or more banks, trust companies, companies that are
members of a national securities exchange, or other entities permitted
under the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Commission or any rules or regulations adopted
or interpretative releases of the Commission thereunder, as custodians
of any assets of the Trust subject to any conditions set forth in this
Declaration of Trust or in the Bylaws, if any.

(e) To retain a transfer agent and Shareholder servicing agent, or
both.

(f) To provide for the distribution of interests of the Trust either
through a Principal Underwriter in the manner hereinafter provided for
or by the Trust itself, or both.

(g) To set record dates in the manner hereinafter provided for.

(h) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, manager,
custodian, underwriter, or other agent or independent contractor.

(i) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XII, Section 4 hereof.

(j) To vote or give assent or exercise any rights of ownership with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees
shall deem proper.

(k) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities.

(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or
either in its own name or in the name of a custodian or a nominee or
nominees.

(m) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article III and to establish Classes
of such Series having relative rights, powers, and duties as the
Trustees may provide consistent with applicable laws.

(n) To allocate assets, liabilities, and expenses of the Trust to a
particular Series or Class, as appropriate, or to apportion the same
between or among two or more Series or Classes, as appropriate,
provided that any liabilities or expenses incurred by a particular
Series or Class shall be payable solely out of the assets belonging to
that Series as provided for in Article III.

(o) To consent to or participate in any plan for the reorganization,
consolidation, or merger of any corporation or concern, any security
of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any
security held in the Trust.

(p) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy, including, but not
limited to, claims for taxes.

(q) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for.

(r) To borrow money, and to pledge, mortgage, or hypothecate the
assets of the Trust, subject to the applicable requirements of the
1940 Act.

(s) To establish, from time to time, a minimum total investment for
Shareholders and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon giving
notice to such Shareholder.

(t) To operate as and carry on the business of an investment company
and to exercise all the powers necessary and appropriate to the
conduct of such operations.

(u) To interpret the investment policies, practices or limitations of
any Series.

(v) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary,
suitable or proper for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power hereinbefore
set forth, either alone or in association with others, and to do every
other act or thing incidental or appurtenant to or growing out of or
connected with the aforesaid business or purposes, objects or powers.

(w) Notwithstanding any other provision hereof, to invest all of the
assets of any Series in a single open-end investment company,
including investment by means of transfer of such assets in exchange
for an interest or interests in such investment company.

The foregoing clauses shall be construed both as objects and powers,
and the foregoing enumeration of specific powers shall not be held to
limit or restrict in any manner the general powers of the Trustees.
Any action by one or more of the Trustees in their capacity as such
hereunder shall be deemed an action on behalf of the Trust or the
applicable Series and not an action in an individual capacity.

The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust or any Series or
Class thereof.

No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see
to the application of any payments made or property transferred to the
Trustees or upon their order.

TRUSTEES AND OFFICERS AS SHAREHOLDERS

Section 2. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of Shares to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may issue and sell
or cause to be issued and sold Shares to and buy such Shares from any
such person of any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and
purchase of such Shares; and all subject to any restrictions which may
be contained in the Bylaws, if any.

ACTION BY THE TRUSTEES

Section 3. Except as otherwise provided herein or in the 1940 Act,
the Trustees shall act by majority vote at a meeting duly called or by
unanimous written consent without a meeting or by telephone consent
provided a quorum of Trustees participate in any such telephonic
meeting, unless the 1940 Act requires that a particular action be
taken only at a meeting at which the Trustees are present in person.
At any meeting of the Trustees, a majority of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally or
in writing by the Chairman of the Trustees or by any two other
Trustees. Notice of the time, date, and place of all meetings of the
Trustees shall be given by the party calling the meeting to each
Trustee by telephone, telefax, telegram, or other electro-mechanical
means sent to his home or business address at least twenty-four (24)
hours in advance of the meeting or by written notice mailed to his
home or business address at least seventy-two (72) hours in advance of
the meeting. Notice need not be given to any Trustee who attends the
meeting without objecting to the lack of notice or who executes a
written waiver of notice with respect to the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may
delegate to any one of their number their authority to approve
particular matters or take particular actions on behalf of the Trust.
Written consents or waivers of Trustees may be executed in one or more
counterparts. Execution of a written consent or waiver and delivery
thereof to the Trust may be accomplished by telefax or other
electro-mechanical means.

CHAIRMAN OF THE TRUSTEES

Section 4. The Trustees may appoint one of their number to be
Chairman of the Board of Trustees. The Chairman shall preside at all
meetings of the Trustees, shall be responsible for the execution of
policies established by the Trustees and the administration of the
Trust, and may be the chief executive, financial and accounting
officer of the Trust.

ARTICLE VI
EXPENSES OF THE TRUST

TRUSTEE REIMBURSEMENT

Section 1. Subject to the provisions of Article III, Section 5, the
Trustees shall be reimbursed from the Trust estate or the assets
belonging to the appropriate Series for their expenses and
disbursements, including, without limitation, fees and expenses of
Trustees who are not Interested Persons of the Trust; interest
expense, taxes, fees and commissions of every kind; expenses of
pricing Trust portfolio securities; expenses of issue, repurchase and
redemption of shares including expenses attributable to a program of
periodic repurchases or redemptions, expenses of registering and
qualifying the Trust and its Shares under Federal and state laws and
regulations; charges of custodians, transfer agents, and registrars;
expenses of preparing and setting up in type prospectuses and
statements of additional information; expenses of printing and
distributing prospectuses sent to existing Shareholders; auditing and
legal expenses; reports to Shareholders; expenses of meetings of
Shareholders and proxy solicitations therefor; insurance expense;
association membership dues; and for such non-recurring items as may
arise, including litigation to which the Trust is a party; and for all
losses and liabilities by them incurred in administering the Trust,
and for the payment of such expenses, disbursements, losses, and
liabilities the Trustees shall have a lien on the assets belonging to
the appropriate Series prior to any rights or interests of the
Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.

ARTICLE VII
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, AND TRANSFER AGENT

INVESTMENT ADVISER

Section 1. Subject to a Majority Shareholder Vote, the Trustees may,
in their discretion and from time to time, enter into an investment
advisory or management contract(s) with respect to the Trust or any
Series thereof whereby the other party(ies) to such contract(s) shall
undertake to furnish the Trustees such management, investment
advisory, statistical, and research facilities and services and such
other facilities and services, if any, and all upon such terms and
conditions, as the Trustees may, in their discretion, determine.
Notwithstanding any provisions of this Declaration of Trust, the
Trustees may authorize the investment adviser(s) (subject to such
general or specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales or exchanges of portfolio securities
and other investment instruments of the Trust on behalf of the
Trustees or may authorize any officer, agent, or Trustee to effect
such purchases, sales, or exchanges pursuant to recommendations of the
investment adviser (and all without further action by the Trustees).
Any such purchases, sales, and exchanges shall be deemed to have been
authorized by all of the Trustees.

The Trustees may, subject to applicable requirements of the 1940 Act,
as modified by or interpreted by any applicable order or orders of the
Commission or any rules or regulations adopted or interpretative
releases of the Commission thereunder, including those relating to
Shareholder approval, authorize the investment adviser to employ one
or more sub-advisers from time to time to perform such of the acts and
services of the investment adviser, and upon such terms and
conditions, as may be agreed upon between the investment adviser and
sub-adviser.

PRINCIPAL UNDERWRITER

Section 2. The Trustees may in their discretion from time to time
enter into an exclusive or non-exclusive contract(s) on behalf of the
Trust or any Series or Class thereof providing for the sale of the
Shares, whereby the Trust may either agree to sell the Shares to the
other party to the contract or appoint such other party its sales
agent for such Shares. In either case, the contract shall be on such
terms and conditions as may be prescribed in the Bylaws, if any, and
such further terms and conditions as the Trustees may, in their
discretion, determine not inconsistent with the provisions of this
Article VII, or of the Bylaws, if any. Such contract may also provide
for the repurchase or sale of Shares by such other party as principal
or as agent of the Trust.

TRANSFER AGENT

Section 3. The Trustees may, in their discretion and from time to
time, enter into one or more transfer agency and Shareholder service
contracts whereby the other party shall undertake to furnish the
Trustees with transfer agency and Shareholder services. Such contracts
shall be on such terms and conditions as the Trustees may, in their
discretion, determine not inconsistent with the provisions of this
Declaration of Trust or of the Bylaws, if any. Such services may be
provided by one or more entities.

PARTIES TO CONTRACT

Section 4. Any contract of the character described in Sections 1, 2
and 3 of this Article VII or in Article IX hereof may be entered into
with any corporation, firm, partnership, trust or association,
although one or more of the Trustees or officers of the Trust may be
an officer, director, trustee, shareholder, or member of such other
party to the contract, and no such contract shall be invalidated or
rendered voidable by reason of the existence of any relationship, nor
shall any person holding such relationship be liable merely by reason
of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when
entered into was reasonable and fair and not inconsistent with the
provisions of this Article VII or the Bylaws, if any. The same person
(including a firm, corporation, partnership, trust, or association)
may be the other party to contracts entered into pursuant to Sections
1, 2 and 3 above or Article IX, and any individual may be financially
interested or otherwise affiliated with persons who are parties to any
or all of the contracts mentioned in this Section 4.

PROVISIONS AND AMENDMENTS

Section 5. Any contract entered into pursuant to Sections 1 and 2 of
this Article VII shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Commission or any
rules or regulations adopted or interpretative releases of the
Commission (or other applicable Act of Congress hereafter enacted),
with respect to its continuance in effect, its amendment, its
termination, and the method of authorization and approval of such
contract or renewal thereof.

ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS

VOTING POWERS

Section 1. The Shareholders shall have power to vote (a) for the
election of Trustees as provided in Article IV, Section 2; (b) for the
removal of Trustees as provided in Article IV, Section 3(d); (c) with
respect to any investment advisory or management contract as provided
in Article VII, Section 1 and 5; (d) with respect to any termination,
merger, consolidation, reorganization, or sale of assets of the Trust
or any of its Series or Classes as provided in Article XII, Section 4;
(e) with respect to the amendment of this Declaration of Trust as
provided in Article XII, Section 7; (f) to the same extent as the
shareholders of a Massachusetts business corporation, as to whether or
not a court action, proceeding or claim should be brought or
maintained derivatively or as a class action on behalf of the Trust or
the Shareholders, provided, however, that a Shareholder of a
particular Series shall not be entitled to bring any derivative or
class action on behalf of any other Series of the Trust; and (g) with
respect to such additional matters relating to the Trust as may be
required or authorized by law, by this Declaration of Trust, or the
Bylaws of the Trust, if any, or any registration of the Trust with the
Commission or any state, as the Trustees may consider desirable.

On any matter submitted to a vote of the Shareholders, all Shares
shall be voted by individual Series, except as provided in the
following sentence and except (a) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series;
and (b) when the Trustees have determined that the matter affects only
the interests of one or more Series, then only the Shareholders of
such Series shall be entitled to vote thereon. The Trustees may also
determine that a matter affects only the interests of one or more
Classes of a Series, in which case, any such matter shall be voted on
by such Class or Classes. A Shareholder of each Series or Class
thereof shall be entitled to one vote for each dollar of net asset
value (number of Shares owned times net asset value per share) of such
Series or Class thereof on any matter on which such Shareholder is
entitled to vote, and each fractional dollar amount shall be entitled
to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or
by proxy. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required or permitted
by law, this Declaration of Trust or any Bylaws of the Trust, if any,
to be taken by Shareholders.

MEETINGS

Section 2. The first Shareholders' meeting shall be held as specified
in Section 2 of Article IV at the principal office of the Trust or
such other place as the Trustees may designate. Special meetings of
the Shareholders of any Series may be called by the Trustees and shall
be called by the Trustees upon the written request of Shareholders
owning at least one-tenth (1/10) of the outstanding Shares entitled to
vote. Whenever ten or more Shareholders meeting the qualifications set
forth in Section 16(c) of the 1940 Act, as modified by or interpreted
by any applicable order or orders of the Commission or any rules or
regulations adopted or interpretative releases of the Commission, seek
the opportunity of furnishing materials to the other Shareholders with
a view to obtaining signatures on such a request for a meeting, the
Trustees shall comply with the provisions of said Section 16(c) with
respect to providing such Shareholders access to the list of the
Shareholders of record of the Trust or the mailing of such materials
to such Shareholders of record. Shareholders shall be entitled to at
least fifteen (15) days' notice of any meeting.

QUORUM AND REQUIRED VOTE

Section 3. A majority of Shares entitled to vote in person or by
proxy shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of
this Declaration of Trust permits or requires that holders of any
Series or Class shall vote as a Series or Class then a majority of the
aggregate number of Shares of that Series or Class entitled to vote
shall be necessary to constitute a quorum for the transaction of
business by that Series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be
held, within a reasonable time after the date set for the original
meeting, without the necessity of further notice. Except when a larger
vote is required by applicable law or by any provision of this
Declaration of Trust or the Bylaws, if any, a majority of the Shares
voted in person or by proxy shall decide any questions and a plurality
shall elect a Trustee, provided that where any provision of law or of
this Declaration of Trust permits or requires that the holders of any
Series or Class shall vote as a Series or Class, then a majority of
the Shares of that Series or Class voted on the matter shall decide
that matter insofar as that Series or Class is concerned. Shareholders
may act by unanimous written consent. Actions taken by a Series or
Class may be consented to unanimously in writing by Shareholders of
that Series or Class.

ARTICLE IX
CUSTODIAN

APPOINTMENT AND DUTIES

Section 1. The Trustees shall at all times employ a bank, a company
that is a member of a national securities exchange, trust company, or
other entity permitted under the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Commission or any
rules or regulations adopted or interpretative releases of the
Commission thereunder, having capital, surplus, and undivided profits
of at least two million dollars ($2,000,000), or such other amount as
shall be allowed by the Commission or by the 1940 Act, as custodian
with authority as its agent, but subject to such restrictions,
limitations and other requirements, if any, as may be contained in the
Bylaws of the Trust, if any:

(1) to hold the securities owned by the Trust and deliver the same
upon written order or oral order, if confirmed in writing, or by such
electro-mechanical or electronic devices as are agreed to by the Trust
and the custodian, if such procedures have been authorized in writing
by the Trust;

(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the
Trustees may direct; and

(3) to disburse such funds upon orders or vouchers;
and the Trust may also employ such custodian as its agent:

(1) to keep the books and accounts of the Trust and furnish clerical
and accounting services; and

(2) to compute, if authorized to do so, the Net Asset Value of any
Series or Class thereof in accordance with the provisions hereof; all
upon such basis of compensation as may be agreed upon between the
Trustees and the custodian.

The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and
services of the custodian, and upon such terms and conditions, as may
be agreed upon between the custodian and such sub-custodian and
approved by the Trustees, provided that in every case such
sub-custodian shall be a bank, a company that is a member of a
national securities exchange, trust company, or other entity permitted
under the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Commission or any rules or regulations adopted
or interpretative releases of the Commission thereunder, having
capital, surplus, and undivided profits of at least two million
dollars ($2,000,000), or such other amount as shall be allowed by the
Commission or by the 1940 Act.

CENTRAL DEPOSITORY SYSTEM

Section 2. Subject to such rules, regulations and orders as the
Commission may adopt, the Trustees may direct the custodian to deposit
all or any part of the securities owned by the Trust in a system for
the central handling of securities established by a national
securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934 or such
other person as may be permitted by the Commission or otherwise in
accordance with the 1940 Act, pursuant to which system all securities
of any particular Class or Series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities;
provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodian, subcustodians, or other
authorized agents.

ARTICLE X
DISTRIBUTIONS, REDEMPTIONS AND DETERMINATION
OF NET ASSET VALUE

DISTRIBUTIONS

Section 1.

(a) The Trustees may from time to time declare and pay dividends. The
amount of such dividends and the payment of them shall be wholly in
the discretion of the Trustees.

(b) The Trustees shall have power, to the fullest extent permitted by
the laws of Massachusetts, at any time to declare and cause to be paid
dividends on Shares of a particular Series, from the assets belonging
to that Series, which dividends, at the election of the Trustees, may
be paid daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees
may determine, and may be payable in Shares of that Series, or Classes
thereof, at the election of each Shareholder of that Series.

The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or related plans as
the Trustees shall deem appropriate.

(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a stock dividend pro
rata among the Shareholders of a particular Series, or Class thereof,
as of the record date of that Series or Class fixed as provided in
Article XII, Section 3.

REDEMPTIONS

Section 2. In case any holder of record of Shares of a particular
Series or Class of a Series desires to dispose of his Shares, he may
deposit at the office of the transfer agent or other authorized agent
of that Series a written request or such other form of request as the
Trustees may, from time to time, authorize, requesting that the Series
purchase the Shares in accordance with this Section 2; and the
Shareholder so requesting shall be entitled to require the Series to
purchase, and the Series or the principal underwriter of the Series
shall purchase his said Shares, but only at the Net Asset Value
thereof (as described in Section 3 hereof). The Series shall make
payment for any such Shares to be redeemed, as aforesaid, in cash or
property from the assets of that Series, and payment for such Shares
less any applicable sales charge and/or fees shall be made by the
Series or the principal underwriter of the Series to the Shareholder
of record within seven (7) days after the date upon which the request
is effective.

DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO ASSETS

Section 3. The term "Net Asset Value" of any Series or Class shall
mean that amount by which the assets of that Series or Class exceed
its liabilities, all as determined by or under the direction of the
Trustees. Such value per Share shall be determined separately for each
Series or Class of Shares and shall be determined on such days and at
such times as the Trustees may determine. Such determination shall be
made with respect to securities for which market quotations are
readily available, at the market value of such securities; and with
respect to other securities and assets, at the fair value as
determined in good faith by the Trustees, provided, however, that the
Trustees, without Shareholder approval, may alter the method of
appraising portfolio securities insofar as permitted under the 1940
Act and the rules, regulations, and interpretations thereof
promulgated or issued by the Commission or insofar as permitted by any
order of the Commission applicable to the Series. The Trustees may
delegate any of its powers and duties under this Section 3 with
respect to appraisal of assets and liabilities. At any time, the
Trustees may cause the value per Share last determined to be
determined again in similar manner and may fix the time when such
redetermined value shall become effective.

SUSPENSION OF THE RIGHT OF REDEMPTION

Section 4. The Trustees may declare a suspension of the right of
redemption or postpone the date of payment as permitted under the 1940
Act. Such suspension shall take effect at such time as the Trustees
shall specify, but not later than the close of business on the
business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment until the
Trustees shall declare the suspension at an end. In the case of a
suspension of the right of redemption, a Shareholder may either
withdraw his request for redemption or receive payment based on the
Net Asset Value per Share existing after the termination of the
suspension. In the event that any Series is divided into Classes, the
provisions of this Section, to the extent applicable as determined in
the discretion of the Trustees and consistent with applicable law, may
be equally applied to each such Class.

ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION

LIMITATION OF LIABILITY

Section 1. Provided they have exercised reasonable care and have
acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees shall not be responsible for or
liable in any event for neglect or wrongdoing of them or any officer,
agent, employee, or investment adviser of the Trust, but nothing
contained herein shall protect any Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

INDEMNIFICATION OF COVERED PERSONS

Section 2.

(a) Subject to the exceptions and limitations contained in Section
(b) below:

(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as "Covered Person") shall be
indemnified by the appropriate Series to the fullest extent permitted
by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit, or
proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;

(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.

(b) No indemnification shall be provided hereunder to a Covered
Person:

(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office; or (B) not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust; or

(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office,

(A) by the court or other body approving the settlement;

(B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based
upon a review of readily available facts (as opposed to a full
trial-type inquiry); or

(C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type
inquiry); provided, however, that any Shareholder may, by appropriate
legal proceedings, challenge any such determination by the Trustees,
or by independent counsel.

(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer, and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
Nothing contained herein shall affect any rights to indemnification to
which Trust personnel, other than Trustees and officers, and other
persons may be entitled by contract or otherwise under law.

(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character
described in Paragraph (a) of this Section 2 may be paid by the
applicable Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the applicable Series if
it is ultimately determined that he is not entitled to indemnification
under this Section 2; provided, however, that either (i) such Covered
Person shall have provided appropriate security for such undertaking;
(ii) the Trust is insured against losses arising out of any such
advance payments; or (iii) either a majority of the Trustees who are
neither interested persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 2.

INDEMNIFICATION OF SHAREHOLDERS

Section 3. In case any Shareholder or former Shareholder of any
Series of the Trust shall be held to be personally liable solely by
reason of his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his heirs, executors, administrators, or other
legal representatives or, in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled
out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising
from such liability. The Series shall, upon request by the
Shareholder, assume the defense of any claim made against the
Shareholder for any act or obligation of the Series and satisfy any
judgment thereon.

ARTICLE XII
MISCELLANEOUS

TRUST NOT A PARTNERSHIP, ETC.

Section 1. It is hereby expressly declared that a trust is created
hereby and not a partnership, joint stock association, corporation,
bailment, or any form of a legal relationship other than a trust. No
Trustee hereunder shall have any power to personally bind either the
Trust's officers or any Shareholder. All persons extending credit to,
contracting with, or having any claim against the Trust or the
Trustees shall look only to the assets of the appropriate Series for
payment under such credit, contract, or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past,
present, or future, shall be personally liable therefor. Nothing in
this Declaration of Trust shall protect a Trustee against any
liability to which the Trustee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the office of
Trustee hereunder.

TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE,
NO BOND OR SURETY

Section 2. The exercise by the Trustees of their powers and
discretions hereunder in good faith and with reasonable care under the
circumstances then prevailing, shall be binding upon everyone
interested. Subject to the provisions of Section 1 of this Article XII
and to Article XI, the Trustees shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take advice of
counsel or other experts with respect to the meaning and operation of
this Declaration of Trust, and subject to the provisions of Section 1
of this Article XII and to Article XI, shall be under no liability for
any act or omission in accordance with such advice or for failing to
follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is obtained.

ESTABLISHMENT OF RECORD DATES

Section 3. The Trustees may close the stock transfer books of the
Trust for a period not exceeding sixty (60) days preceding the date of
any meeting of Shareholders, or the date for the payment of any
dividends, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect;
or in lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for
payment of any dividends, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go
into effect, as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting,
or entitled to receive payment of any such dividend, or to any such
allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of Shares, and in such case such
Shareholders and only such Shareholders as shall be Shareholders of
record on the date so fixed shall be entitled to such notice of, and
to vote at, such meeting, or to receive payment of such dividend, or
to receive such allotment or rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any Shares on the
books of the Trust after any such record date fixed or aforesaid.

DURATION; TERMINATION OF TRUST, A SERIES OR A CLASS; MERGERS, ETC.

Section 4.1. Duration. The Trust shall continue without limitation of
time, but subject to the provisions of this Article XII.

Section 4.2. Termination of the Trust, a Series or a Class. (a)
Subject to applicable Federal and state law, the Trust or any Series
or Class thereof may be terminated (i) by Majority Shareholder Vote of
the Trust, each Series affected, or each Class affected, as the case
may be; or (ii) without the vote or consent of Shareholders by a
majority of the Trustees either at a meeting or by written consent.
The Trustees shall provide written notice to the affected Shareholders
of a termination effected under clause (ii) above. Upon the
termination of the Trust or the Series or Class,

(i) the Trust or the Series or Class shall carry on no business
except for the purpose of winding up its affairs;

(ii) the Trustees shall proceed to wind up the affairs of the Trust
or the Series or Class, and all of the powers of the Trustees under
this Declaration of Trust shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill or
discharge the contracts of the Trust or the Series or Class thereof;
collect its assets; sell, convey, assign, exchange, transfer, or
otherwise dispose of all or any part of the remaining Trust property
or Trust property allocated or belonging to such Series or Class to
one or more persons at public or private sale for consideration that
may consist in whole or in part of cash, securities, or other property
of any kind; discharge or pay its liabilities; and do all other acts
appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer, or other disposition of
all or substantially all the Trust property or Trust property
allocated or belonging to such Series or Class (other than as provided
in (iii) below) shall require Shareholder approval in accordance with
Section 4.3 below.

(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities, and
refunding agreements as they deem necessary for their protection, the
Trustees may distribute the remaining Trust property or the remaining
property of the terminated Series or Class, in cash or in kind or
partly each, among the Shareholders of the Trust or the Series or
Class according to their respective rights.

(b) After termination of the Trust or the Series or Class and
distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust and
file with the Secretary of The Commonwealth of Massachusetts, as
appropriate, an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all
further liabilities and duties with respect to the Trust or the
terminated Series or Class, and the rights and interests of all
Shareholders of the Trust or the terminated Series or Class shall
thereupon cease.

Section 4.3. Merger, Consolidation, and Sale of Assets. Subject to
applicable Federal and state law and except as otherwise provided in
Section 4.4 below, the Trust or any Series thereof may merge or
consolidate with any other corporation, association, trust, or other
organization or may sell, lease, or exchange all or substantially all
of the Trust property or Trust property allocated or belonging to such
Series, including its good will, upon such terms and conditions and
for such consideration when and as authorized at any meeting of
Shareholders called for such purpose by a Majority Shareholder Vote of
the Trust or affected Series, as the case may be. Any such merger,
consolidation, sale, lease, or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to Massachusetts
law.

Section 4.4. Incorporation; Reorganization. Subject to applicable
Federal and state law, the Trustees may without the vote or consent of
Shareholders cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any
other trust, partnership, limited liability company, association, or
other organization to take over all of the Trust property or the Trust
property allocated or belonging to such Series or to carry on any
business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust property or the
Trust property allocated or belonging to such Series to any such
corporation, trust, limited liability company, partnership,
association, or organization in exchange for the shares or securities
thereof or otherwise, and to lend money to, subscribe for the shares
or securities of, and enter into any contracts with any such
corporation, trust, partnership, limited liability company,
association, or organization, or any corporation, partnership, limited
liability company, trust, association, or organization in which the
Trust or such Series holds or is about to acquire shares or any other
interest. Subject to applicable Federal and state law, the Trustees
may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership,
limited liability company, association, or other organization. Nothing
contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one
or more corporations, trusts, partnerships, limited liability
companies, associations, or other organizations and selling,
conveying, or transferring the Trust property or a portion of the
Trust property to such organization or entities; provided, however,
that the Trustees shall provide written notice to the affected
Shareholders of any transaction whereby, pursuant to this Section 4.4,
the Trust or any Series thereof sells, conveys, or transfers
substantially all of its assets to another entity or merges or
consolidates with another entity.

FILING OF COPIES, REFERENCES, HEADINGS

Section 5. The original or a copy of this instrument and of each
declaration of trust supplemental hereto shall be kept at the office
of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each supplemental declaration of trust shall be
filed by the Trustees with the Secretary of The Commonwealth of
Massachusetts and the Boston City Clerk, as well as any other
governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a certificate by
an officer or Trustee of the Trust as to whether or not any such
supplemental declarations of trust have been made and as to any
matters in connection with the Trust hereunder, and with the same
effect as if it were the original, may rely on a copy certified by an
officer or Trustee of the Trust to be a copy of this instrument or of
any such supplemental declaration of trust. In this instrument or in
any such supplemental declaration of trust, references to this
instrument, and all expressions like "herein," "hereof" and
"hereunder," shall be deemed to refer to this instrument as amended or
affected by any such supplemental declaration of trust. Headings are
placed herein for convenience of reference only and in case of any
conflict, the text of this instrument, rather than the headings, shall
control. This instrument may be executed in any number of counterparts
each of which shall be deemed an original.

APPLICABLE LAW

Section 6. The Trust set forth in this instrument is made in The
Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of
said Commonwealth. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust, and the absence of a specific reference
herein to any such power, privilege, or action shall not imply that
the Trust may not exercise such power or privilege or take such
actions.

AMENDMENTS

Section 7. Except as specifically provided herein, the Trustees may,
without shareholder vote, amend or otherwise supplement this
Declaration of Trust by making an amendment, a Declaration of Trust
supplemental hereto or an amended and restated Declaration of Trust.
Shareholders shall have the right to vote (a) on any amendment that
would affect their right to vote granted in Section 1 of Article VIII;
(b) on any amendment that would alter the maximum number of Trustees
permitted under Section 6 of Article IV; (c) on any amendment to this
Section 7; (d) on any amendment as may be required by law or by the
Trust's registration statement filed with the Commission; and (e) on
any amendment submitted to them by the Trustees. Any amendment
required or permitted to be submitted to Shareholders that, as the
Trustees determine, shall affect the Shareholders of one or more
Series or Classes shall be authorized by vote of the Shareholders of
each Series or Class affected and no vote of shareholders of a Series
or Class not affected shall be required. Notwithstanding anything else
herein, any amendment to Article XI shall not limit the rights to
indemnification or insurance provided therein with respect to action
or omission of Covered Persons prior to such amendment.

FISCAL YEAR

Section 8. The fiscal year of the Trust shall end on a specified date
as set forth in the Bylaws, if any, provided, however, that the
Trustees may, without Shareholder approval, change the fiscal year of
the Trust.

USE OF THE WORD "FIDELITY"

Section 9. Fidelity Management & Research Company ("FMR") has
consented to the use by any Series of the Trust of the identifying
word "Fidelity" in the name of any Series of the Trust at some future
date. Such consent is conditioned upon the employment of FMR or a
subsidiary or affiliate thereof as investment adviser of each Series
of the Trust. As between the Trust and itself, FMR controls the use of
the name of the Trust insofar as such name contains the identifying
word "Fidelity." FMR may from time to time use the identifying word
"Fidelity" in other connections and for other purposes, including,
without limitation, in the names of other investment companies,
corporations, or businesses that it may manage, advise, sponsor or own
or in which it may have a financial interest. FMR may require the
Trust or any Series thereof to cease using the identifying word
"Fidelity" in the name of the Trust or any Series thereof if the Trust
or any Series thereof ceases to employ FMR or a subsidiary or
affiliate thereof as investment adviser.

Provisions in Conflict with Law or Regulations.

Section 10. (a) The provisions of this Declaration of Trust are
severable, and, if the Trustees shall determine, with the advice of
counsel, that any of such provisions is in conflict with the 1940 Act,
the regulated investment company provisions of the Internal Revenue
Code or with other applicable laws and regulations, the conflicting
provision shall be deemed never to have constituted a part of this
Declaration of Trust; provided, however, that such determination shall
not affect any of the remaining provisions of this Declaration of
Trust or render invalid or improper any action taken or omitted prior
to such determination.

(b) If any provision of this Declaration Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provisions in any
other jurisdiction or any other provision of this Declaration of Trust
in any jurisdiction.

IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this instrument as of the date set forth above.

[Signature Lines Omitted]

Exhibit (d)(2)

MANAGEMENT CONTRACT
between
VARIABLE INSURANCE PRODUCTS FUND II
INVESTMENT GRADE BOND PORTFOLIO
and
Fidelity MANAGEMENT & RESEARCH COMPANY

AGREEMENT AMENDED and RESTATED as of this 16th day of September 1998,
by and between Variable Insurance Products Fund II, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Fund"), on behalf of
Investment Grade Bond Portfolio (hereinafter called the "Portfolio"),
and Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Adviser") as set forth in its
entirety below.

Required authorization and approval by shareholders and Trustees
having been obtained, the Fund, on behalf of the Portfolio, and the
Adviser hereby consent, pursuant to Paragraph 6 of the existing
Management Contract dated January 1, 1993 to a modification of said
Contract in the manner set forth below. The Amended Management
Contract shall, when executed by duly authorized officers of the Fund
and Adviser, take effect on October 1, 1998.

1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the
supervision of the Fund's Board of Trustees, direct the investments of
the Portfolio in accordance with the investment objective, policies
and limitations as provided in the Portfolio's Prospectus or other
governing instruments, as amended from time to time, the Investment
Company Act of 1940 and rules thereunder, as amended from time to time
(the "1940 Act"), and such other limitations as the Portfolio may
impose by notice in writing to the Adviser. The Adviser shall also
furnish for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the
investments of the Portfolio; and shall pay the salaries and fees of
all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all
personnel of the Fund or the Adviser performing services relating to
research, statistical and investment activities. The Adviser is
authorized, in its discretion and without prior consultation with the
Portfolio, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the
Portfolio. The investment policies and all other actions of the
Portfolio are and shall at all times be subject to the control and
direction of the Fund's Board of Trustees.

(b) Management Services. The Adviser shall perform (or arrange for
the performance by its affiliates of) the management and
administrative services necessary for the operation of the Fund. The
Adviser shall, subject to the supervision of the Board of Trustees,
perform various services for the Portfolio, including but not limited
to: (i) providing the Portfolio with office space, equipment and
facilities (which may be its own) for maintaining its organization;
(ii) on behalf of the Portfolio, supervising relations with, and
monitoring the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be
necessary or desirable; (iii) preparing all general shareholder
communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered,
maintaining the registration and qualification of the Portfolio's
shares under federal and state law; and (vii) investigating the
development of and developing and implementing, if appropriate,
management and shareholder services designed to enhance the value or
convenience of the Portfolio as an investment vehicle.

The Adviser shall also furnish such reports, evaluations, information
or analyses to the Fund as the Fund's Board of Trustees may request
from time to time or as the Adviser may deem to be desirable. The
Adviser shall make recommendations to the Fund's Board of Trustees
with respect to Fund policies, and shall carry out such policies as
are adopted by the Trustees. The Adviser shall, subject to review by
the Board of Trustees, furnish such other services as the Adviser
shall from time to time determine to be necessary or useful to perform
its obligations under this Contract.

(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser. The Adviser 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 the other
accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides 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 the Adviser 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
Adviser and its affiliates have with respect to accounts over which
they exercise investment discretion. The Trustees of the Fund shall
periodically review the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.

The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.

2. It is understood that the Trustees, officers and shareholders of
the Fund are or may be or become interested in the Adviser as
directors, officers or otherwise and that directors, officers and
stockholders of the Adviser are or may be or become similarly
interested in the Fund, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.

3. The Adviser will be compensated on the following basis for the
services and facilities to be furnished hereunder. The Adviser shall
receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month, composed of a Group Fee
and an Individual Fund Fee.

(a) Group Fee Rate. The Group Fee Rate shall be based upon the
monthly average of the net assets of the registered investment
companies having Advisory and Service or Management Contracts with the
Adviser (computed in the manner set forth in the Fund's Declaration of
Trust or other organizational document) determined as of the close of
business on each business day throughout the month. The Group Fee Rate
shall be determined on a cumulative basis pursuant to the following
schedule:

Average Net Assets Annualized Fee Rate (for each level)

0 - $ 3 billion .3700%

3 - 6 .3400

6 - 9 .3100

9 - 12 .2800

12 - 15 .2500

15 - 18 .2200

18 - 21 .2000

21 - 24 .1900

24 - 30 .1800

30 - 36 .1750

36 - 42 .1700

42 - 48 .1650

48 - 66 .1600

66 - 84 .1550

84 - 120 .1500

120 - 156 .1450

156 - 192 .1400

192 - 228 .1350

228 - 264 .1300

264 - 300 .1275

300 - 336 .1250

336 - 372 .1225

372 - 408 .1200

408 - 444 .1175

444 - 480 .1150

480 - 516 .1125

Over - 516 .1100

(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
0.30%.

The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute
the Annual Management Fee Rate. One-twelfth of the Annual Management
Fee Rate shall be applied to the average of the net assets of the
Portfolio (computed in the manner set forth in the Fund's Declaration
of Trust or other organizational document) determined as of the close
of business on each business day throughout the month.

(c) In case of termination of this Contract during any month, the
fee for that month shall be reduced proportionately on the basis of
the number of business days during which it is in effect, and the fee
computed upon the average net assets for the business days it is so in
effect for that month.

4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (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
Fund's Trustees other than those who are "interested persons" of the
Fund or the Adviser; (iv) legal and audit expenses; (v) custodian,
registrar and transfer agent fees and expenses; (vi) fees and
expenses related to the registration and qualification of the Fund 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 relative net assets of the
Portfolio and other registered investment companies having Advisory
and Service or Management Contracts with the Adviser, of 50% of
insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (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 the legal obligation which the Portfolio may have to
indemnify the Fund's Trustees and officers with respect thereto.

5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the
Portfolio for any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be sustained
in the purchase, holding or sale of any security or other investment
instrument.

6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until
June 30, 1999 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 of the Fund or by vote of a
majority of the outstanding voting securities of the
Portfolio.

(b) This Contract may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.

(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 6, the terms of any continuance or modification of this
Contract must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to the Contract or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.

(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract, without payment
of any penalty, by action of its Trustees or Board of Directors, as
the case may be, or with respect to the Portfolio by vote of a
majority of the outstanding voting securities of the Portfolio. This
Contract shall terminate automatically in the event of its assignment.

7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust
or other organizational document and agrees that the obligations
assumed by the Fund pursuant to this Contract shall be limited in all
cases to the Portfolio and its assets, and the Adviser shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio or any other Portfolios of the Fund. In
addition, the Adviser shall not seek satisfaction of any such
obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Portfolio under the
Declaration of Trust or other organizational document are separate and
distinct from those of any and all other Portfolios.

8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.

The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, as now in effect or
as hereafter amended, and subject to such orders as may be granted by
the Commission.

IN WITNESS WHEREOF the parties have caused this instrument to be
signed on their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.

SIGNATURE LINES OMITTED

Exhibit (d)(3)

SUB-ADVISORY AGREEMENT
between
FIDELITY MANAGEMENT & RESEARCH COMPANY
and
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
and
VARIABLE INSURANCE PRODUCTS FUND II
ON BEHALF OF ASSET MANAGER PORTFOLIO

AGREEMENT made this 16th day of September, 1998, by and between
Fidelity Management & Research Company, a Massachusetts corporation
with principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Adviser"); Fidelity Management & Research
(U.K.) Inc. (hereinafter called the "Sub-Adviser"); and Variable
Insurance Products Fund II, a Massachusetts business trust which may
issue one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Asset Manager Portfolio (hereinafter
called the "Portfolio").

WHEREAS the Trust and the Adviser have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Adviser is
to act as investment manager of the Portfolio; and

WHEREAS the Sub-Adviser and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;

NOW THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Adviser and the
Sub-Adviser agree as follows:

1. Duties: The Adviser may, in its discretion, appoint the
Sub-Adviser to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Adviser shall be as agreed upon from
time to time by the Adviser and the Sub-Adviser. The Sub-Adviser shall
pay the salaries and fees of all personnel of the Sub-Adviser
performing services for the Portfolio relating to research,
statistical and investment activities.

(a) INVESTMENT ADVICE: If and to the extent requested by the
Adviser, the Sub-Adviser shall provide investment advice to the
Portfolio and the Adviser with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Adviser such factual information,
research reports and investment recommendations as the Adviser may
reasonably require. Such information may include written and oral
reports and analyses.

(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Adviser, the Sub-Adviser shall, subject to the supervision of the
Adviser, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Adviser may impose with respect
to the Portfolio by notice to the Sub-Adviser. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Adviser is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Adviser may
select. The Sub-Adviser may also be authorized, but only to the extent
such duties are delegated in writing by the Adviser, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Adviser shall at all times be subject to the control and direction
of the Adviser and the Trust's Board of Trustees.

(c) SUBSIDIARIES AND AFFILIATES: The Sub-Adviser may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Adviser shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Adviser: The
Sub-Adviser shall furnish such reports, evaluations, information or
analyses to the Trust and the Adviser as the Trust's Board of Trustees
or the Adviser may reasonably request from time to time, or as the
Sub-Adviser may deem to be desirable.

3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Adviser
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Adviser, which may include brokers or dealers
affiliated with the Adviser or Sub-Adviser. The Sub-Adviser 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 l934) to the Portfolio and/or to the other
accounts over which the Sub-Adviser or Adviser exercise investment
discretion. The Sub-Adviser is authorized to pay a broker or dealer
who provides 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 the Sub-Adviser 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
Sub-Adviser has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.

4. Compensation: The Adviser shall compensate the Sub-Adviser on the
following basis for the services to be furnished hereunder.

(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Adviser agrees
to pay the Sub-Adviser a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 110% of the Sub-Adviser's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Adviser, if any, in effect from time to time.

(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Adviser agrees
to pay the Sub-Adviser a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Adviser under its Management
Contract with the Adviser, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Adviser shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Adviser waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Adviser will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Adviser reduces its fees to reflect such waivers or reimbursements
and the Adviser subsequently recovers all or any portion of such
waivers or reimbursements, then the Sub-Adviser shall be entitled to
receive from the Adviser a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Adviser required by such limitations are in excess of the Adviser's
management fee, the Investment Management Fee paid to the Sub-Adviser
will be reduced to zero for that month, but in no event shall the
Sub-Adviser be required to reimburse the Adviser for all or a portion
of such excess reimbursements.

(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Adviser shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1)
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Adviser with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.

5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Adviser hereunder or by the Adviser under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (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 Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Adviser or the Adviser; (iv) legal and audit
expenses; (v) custodian, 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 therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Adviser,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (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 the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.

6. Interested Persons: It is understood that Trustees, officers and
shareholders of the Trust are or may be or become interested in the
Adviser or the Sub-Adviser as directors, officers or otherwise and
that directors, officers and stockholders of the Adviser or the
Sub-Adviser are or may be or become similarly interested in the Trust,
and that the Adviser or the Sub-Adviser may be or become interested in
the Trust as a shareholder or otherwise.

7. Services to Other Companies or Accounts: The services of the
Sub-Adviser to the Adviser are not to be deemed to be exclusive, the
Sub-Adviser being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Adviser's ability to meet all of its
obligations hereunder. The Sub-Adviser shall for all purposes be an
independent contractor and not an agent or employee of the Adviser or
the Trust.

8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Adviser, the Sub-Adviser shall not be
subject to liability to the Adviser, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.

9. Duration and Termination of Agreement; Amendments:

(a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 9, this Agreement shall continue in force until July
31, 1999 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.

(b) This Agreement may be modified by mutual consent of the Adviser,
the Sub-Adviser and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by any applicable order or orders of
the Securities and Exchange Commission (the "Commission") or any rules
or regulations adopted by, or interpretative releases of, the
Commission.

(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.

(d) Either the Adviser, the Sub-Adviser or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.

10. Limitation of Liability: The Sub-Adviser is hereby expressly put
on notice of the limitation of shareholder liability as set forth in
the Declaration of Trust or other organizational document of the Trust
and agrees that any obligations of the Trust or the Portfolio arising
in connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Adviser shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Adviser seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.

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 of 1940 as now in effect or as
hereafter amended.

IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.

SIGNATURE LINES OMITTED

Exhibit (d)(4)

SUB-ADVISORY AGREEMENT
between
FIDELITY MANAGEMENT & RESEARCH COMPANY
and
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
and
variable insurance products fund ii
on behalf of ASSET MANAGER PORTFOLIO

AGREEMENT made this 16th day of September 1998, by and between
Fidelity Management & Research Company, a Massachusetts corporation
with principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Adviser"); Fidelity Management & Research
(Far East) Inc. (hereinafter called the "Sub-Adviser"); and Variable
Insurance Products Fund II, a Massachusetts business trust which may
issue one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Asset Manager Portfolio (hereinafter
called the "Portfolio").

WHEREAS the Trust and the Adviser have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Adviser is
to act as investment manager of the Portfolio; and

NOW THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Adviser and the
Sub-Adviser agree as follows:

(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Adviser, the Sub-Adviser shall, subject to the supervision of the
Adviser, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Adviser may impose with respect
to the Portfolio by notice to the Sub-Adviser. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Adviser is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Adviser may
select. The Sub-Adviser may also be authorized, but only to the extent
such duties are delegated in writing by the Adviser, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Adviser shall at all times be subject to the control and direction
of the Adviser and the Trust's Board of Trustees.

4. Compensation: The Adviser shall compensate the Sub-Adviser on the
following basis for the services to be furnished hereunder.

(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Adviser agrees
to pay the Sub-Adviser a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 105% of the Sub-Adviser's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Adviser, if any, in effect from time to time.

(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Adviser agrees
to pay the Sub-Adviser a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Adviser under its Management
Contract with the Adviser, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Adviser shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Adviser waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Adviser will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Adviser reduces its fees to reflect such waivers or reimbursements
and the Adviser subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Adviser shall be entitled to
receive from the Adviser a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Adviser required by such limitations are in excess of the Adviser's
management fee, the Investment Management Fee paid to the Sub-Adviser
will be reduced to zero for that month, but in no event shall the
Sub-Adviser be required to reimburse the Adviser for all or a portion
of such excess reimbursements.

(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Adviser shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Adviser with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.

9. Duration and Termination of Agreement; Amendments:

(b) This Agreement may be modified by mutual consent of the Adviser,
the Sub-Adviser and the Portfolio, subject to the provisions of
Section 15 of the 1940 Act, as modified by or interpreted by any
applicable order or orders of the Securities and Exchange Commission
(the "Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.

11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts,
without giving effect to the choice of laws provisions thereof.
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 of 1940 as now in effect or as
hereafter amended.

SIGNATURE LINES OMITTED

Exhibit (d)(5)

MANAGEMENT CONTRACT
between
VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
and
FIDELITY MANAGEMENT & RESEARCH COMPANY

AGREEMENT AMENDED and RESTATED as of this 16th day of September 1998,
by and between Variable Insurance Products Fund II, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Fund"), on behalf of
Asset Manager Portfolio (hereinafter called the "Portfolio"), and
Fidelity Management & Research Company, a Massachusetts corporation
(hereinafter called the "Adviser") as set forth in its entirety below.

The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.

Average Net Assets Annualized Fee Rate (for each level)

0 - $ 3 billion .5200%

3 - 6 .4900

6 - 9 .4600

9 - 12 .4300

12 - 15 .4000

15 - 18 .3850

18 - 21 .3700

21 - 24 .3600

24 - 30 .3500

30 - 36 .3450

36 - 42 .3400

42 - 48 .3350

48 - 66 .3250

66 - 84 .3200

84 - 102 .3150

102 - 138 .3100

138 - 174 .3050

174 - 210 .3000

210 - 246 .2950

246 - 282 .2900

282 - 318 .2850

318 - 354 .2800

354 - 390 .2750

390 - 426 .2700

426 - 462 .2650

462 - 498 .2600

498 - 534 .2550

Over - 534 .2500

(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
0.25%.

The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute
the Annual Management Fee Rate. One-twelfth of the Annual Management
Fee Rate shall be applied to the average of the net assets of the
Portfolio (computed in the manner set forth in the Fund's Declaration
of Trust (or other organizational document) determined as of the
close of business on each business day throughout the month.

4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (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 Fund's
Trustees other than those who are "interested persons" of the Fund or
the Adviser; (iv) legal and audit expenses; (v) custodian, registrar
and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Fund 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 relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management
Contracts with the Adviser, of 50% of insurance premiums for fidelity
and other coverage; (x) its proportionate share of association
membership dues; (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 the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.

5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or other investment
instrument.

6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until July
31, 1999, 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 of the Fund or by vote of a majority
of the outstanding voting securities of the Portfolio.

(b) This Contract may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission ("the Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.

8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.

SIGNATURE LINES OMITTED

Exhibit (d)(8)

MANAGEMENT CONTRACT
between
VARIABLE INSURANCE PRODUCTS FUND II
Asset manager: growth portfolio
and
FIDELITY MANAGEMENT & RESEARCH COMPANY

AGREEMENT AMENDED and RESTATED as of this 16th day of September 1998,
by and between Variable Insurance Products Fund II, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Fund"), on behalf of
Asset Manager: Growth Portfolio (hereinafter called the "Portfolio"),
and Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Adviser") as set forth in its
entirety below.

Required authorization and approval by shareholders and Trustees
having been obtained, the Fund, on behalf of the Portfolio, and the
Adviser hereby consent, pursuant to Paragraph 6 of the existing
Management Contract dated November 1, 1994 to a modification of said
Contract in the manner set forth below. The Amended Management
Contract shall, when executed by duly authorized officers of the Fund
and Adviser, take effect on October 1, 1998.

The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.

3. The Adviser will be compensated on the following basis for the
services and facilities to be furnished hereunder. The Adviser shall
receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month composed of a Group Fee
and an Individual Fund Fee.

(a) Group Fee Rate. The Group Fee Rate shall be based upon the
monthly average of the net assets of the registered investment
companies having Advisory and Service or Management Contracts with the
Adviser (computed in the manner set forth in the Fund's Declaration of
Trust or other organizational document determined as of the close of
business on each business day throughout the month. The Group Fee Rate
shall be determined on a cumulative basis pursuant to the following
schedule:

Average Net Assets Annualized Fee Rate (for each level)

0 - $ 3 billion .5200%

3 - 6 .4900

6 - 9 .4600

9 - 12 .4300

12 - 15 .4000

15 - 18 .3850

18 - 21 .3700

21 - 24 .3600

24 - 30 .3500

30 - 36 .3450

36 - 42 .3400

42 - 48 .3350

48 - 66 .3250

66 - 84 .3200

84 - 102 .3150

102 - 138 .3100

138 - 174 .3050

174 - 210 .3000

210 - 246 .2950

246 - 282 .2900

282 - 318 .2850

318 - 354 .2800

354 - 390 .2750

390 - 426 .2700

426 - 462 .2650

462 - 498 .2600

498 - 534 .2550

Over - 534 .2500

(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
0.30%.

4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (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 Fund's
Trustees other than those who are "interested persons" of the Fund or
the Adviser; (iv) legal and audit expenses; (v) custodian, registrar
and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Fund 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 relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management
Contracts with the Adviser, of 50% of insurance premiums for fidelity
and other coverage; (x) its proportionate share of association
membership dues; (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 the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.

5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or other investment
instrument.

8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.

SIGNATURE LINES OMITTED

Exhibit (d)(9)

MANAGEMENT CONTRACT
between
VARIABLE INSURANCE PRODUCTS FUND II
contrafund portfolio
and
FIDELITY MANAGEMENT & RESEARCH COMPANY

AGREEMENT AMENDED and RESTATED as of this 16th day of September 1998,
by and between Variable Insurance Products Fund II, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Fund"), on behalf of
Contrafund Portfolio (hereinafter called the "Portfolio"), and
Fidelity Management & Research Company, a Massachusetts corporation
(hereinafter called the "Adviser") as set forth in its entirety below.

Required authorization and approval by shareholders and Trustees
having been obtained, the Fund, on behalf of the Portfolio, and the
Adviser hereby consent, pursuant to Paragraph 6 of the existing
Management Contract dated November 1, 1994 to a modification of said
Contract in the manner set forth below. The Amended Management
Contract shall, when executed by duly authorized officers of the Fund
and Adviser, take effect on October 1, 1998.

The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.

3. The Adviser will be compensated on the following basis for the
services and facilities to be furnished hereunder. The Adviser shall
receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month composed of a Group Fee
and an Individual Fund Fee.

(a) Group Fee Rate. The Group Fee Rate shall be based upon the
monthly average of the net assets of the registered investment
companies having Advisory and Service or Management Contracts with the
Adviser (computed in the manner set forth in the Fund's Declaration of
Trust or other organizational document determined as of the close of
business on each business day throughout the month. The Group Fee Rate
shall be determined on a cumulative basis pursuant to the following
schedule:

Average Net Assets Annualized Fee Rate (for each level)

0 - $ 3 billion .5200%

3 - 6 .4900

6 - 9 .4600

9 - 12 .4300

12 - 15 .4000

15 - 18 .3850

18 - 21 .3700

21 - 24 .3600

24 - 30 .3500

30 - 36 .3450

36 - 42 .3400

42 - 48 .3350

48 - 66 .3250

66 - 84 .3200

84 - 102 .3150

102 - 138 .3100

138 - 174 .3050

174 - 210 .3000

210 - 246 .2950

246 - 282 .2900

282 - 318 .2850

318 - 354 .2800

354 - 390 .2750

390 - 426 .2700

426 - 462 .2650

462 - 498 .2600

498 - 534 .2550

Over - 534 .2500

(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
0.30%.

4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (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 Fund's
Trustees other than those who are "interested persons" of the Fund or
the Adviser; (iv) legal and audit expenses; (v) custodian, registrar
and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Fund 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 relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management
Contracts with the Adviser, of 50% of insurance premiums for fidelity
and other coverage; (x) its proportionate share of association
membership dues; (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 the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.

5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or other investment
instrument.

6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until July
31, 1999 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 of the Fund or by vote of a majority
of the outstanding voting securities of the Portfolio.
(b) This Contract may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.

8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.

SIGNATURE LINES OMITTED

Exhibit (d)(13)

SUB-ADVISORY AGREEMENT
between
FIDELITY INVESTMENTS MONEY MANAGEMENT, INC.
and

FIDELITY MANAGEMENT & RESEARCH COMPANY

AGREEMENT made this 1st day of January, 1999, by and between Fidelity
Investments Money Management, Inc., a New Hampshire corporation with
principal offices at Contra Way, P.O. Box 9600, Merrimack, New
Hampshire (hereinafter called the ``Sub-Adviser") and Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the ``Adviser").

WHEREAS the Adviser has entered into a Management Contract with
Variable Insurance Products Fund II, a Massachusetts business trust
which may issue one or more series of shares of beneficial interest
(hereinafter called the ``Fund"), on behalf of Asset Manager Portfolio
(hereinafter called the ``Portfolio"), pursuant to which the Adviser
is to act as investment manager and adviser to the Portfolio, and

WHEREAS the Sub-Adviser was formed for the purpose of providing
investment management of money market and fixed-income mutual funds,
both taxable and tax-exempt, advising generally with respect to money
market and fixed-income instruments, and managing or providing advice
with respect to cash management.

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Adviser and the Sub-Adviser agree
as follows:

1. (a) The Sub-Adviser shall, subject to the supervision of the
Adviser, direct the investments of all or such portion of the
Portfolio's assets as the Adviser shall designate in accordance with
the investment objective, policies and limitations as provided in the
Portfolio's Prospectus or other governing instruments, as amended from
time to time, the Investment Company Act of l940 and rules thereunder,
as amended from time to time (the ``l940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser or Sub-Adviser. The Sub-Adviser shall also furnish for the
use of the Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the
Portfolio; and shall pay the salaries and fees of all personnel of the
Sub-Adviser performing services for the Portfolio relating to
research, statistical and investment activities. The Sub-Adviser is
authorized, in its discretion and without prior consultation with the
Portfolio or the Adviser, to buy, sell, lend and otherwise trade in
any stocks, bonds and other securities and investment instruments on
behalf of the Portfolio. The investment policies and all other
actions of the Portfolio are and shall at all times be subject to the
control and direction of the Fund's Board of Trustees.

(b) The Sub-Adviser shall also furnish such reports, evaluations,
information or analyses to the Fund and the Adviser as the Fund's
Board of Trustees or the Adviser may request from time to time or as
the Sub-Adviser may deem to be desirable. The Sub-Adviser shall make
recommendations to the Fund's Board of Trustees with respect to
Portfolio policies, and shall carry out such policies as are adopted
by the Trustees. The Sub-Adviser shall, subject to review by the
Board of Trustees, furnish such other services as the Sub-Adviser
shall from time to time determine to be necessary or useful to perform
its obligations under this Agreement and which are not otherwise
furnished by the Adviser.

(c) The Sub-Adviser shall place all orders for the purchase and sale
of portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Adviser, which may include brokers or
dealers affiliated with the Adviser or Sub-Adviser. The Sub-Adviser
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 l934) to the Portfolio and/or
the other accounts over which the Sub-Adviser, Adviser or their
affiliates exercise investment discretion. The Sub-Adviser is
authorized to pay a broker or dealer who provides 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 the Sub-Adviser 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 Sub-Adviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. The Trustees of the Fund shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.

2. As compensation for the services to be furnished by the
Sub-Adviser hereunder, the Adviser agrees to pay the Sub-Adviser a
monthly fee equal to 50% of the management fee which the Portfolio is
obligated to pay the Adviser under the Portfolio's Management Contract
with the Adviser in respect of that portion of the Portfolio's assets
managed by the Sub-Adviser during such month. Such fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Adviser, if any, in effect from time to time.

3. It is understood that Trustees, officers, and shareholders of the
Fund are or may be or become interested in the Adviser or the
Sub-Adviser as directors, officers or otherwise and that directors,
officers and stockholders of the Adviser or the Sub-Adviser are or may
be or become similarly interested in the Fund, and that the Adviser or
the Sub-Adviser may be or become interested in the Fund as a
shareholder or otherwise.

4. It is understood that the Portfolio will pay all its expenses
other than those expressly stated to be payable by the Sub-Adviser
hereunder or by the Adviser under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include,
without limitation, (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
Fund's Trustees other than those who are ``interested persons" of the
Fund, the Sub-Adviser or the Adviser; (iv) legal and audit expenses;
(v) custodian, registrar and transfer agent fees and expenses; (vi)
fees and expenses related to the registration and qualification of the
Fund 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 relative net assets of the Portfolio
and other registered investment companies having Advisory and Service
or Management Contracts with the Adviser, of 50% of insurance premiums
for fidelity and other coverage; (x) its proportionate share of
association membership dues; (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 the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.

5. The Services of the Sub-Adviser to the Adviser are not to be
deemed to be exclusive, the Sub-Adviser being free to render services
to others and engage in other activities, provided, however, that such
other services and activities do not, during the term of this
Agreement, interfere, in a material manner, with the Sub-Adviser's
ability to meet all of its obligations with respect to rendering
investment advice hereunder. The Sub-Adviser shall for all purposes
be an independent contractor and not an agent or employee of the
Adviser or the Fund.

6. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part
of the Sub-Adviser, the Sub-Adviser shall not be subject to liability
to the Advisor, the Trust or to any shareholder of the Portfolio for
any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.

7. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 7, this Agreement shall continue in force until June
30, 1999, and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Fund's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.

(b) This Agreement may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretive releases of, the Commission.

(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 7, the terms of any continuance or modification of the
Agreement must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to such Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.

(d) Either the Adviser, the Sub-Adviser or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or by vote of a majority of its
outstanding voting securities. This Agreement shall terminate
automatically upon the termination of the Management Contract between
the Fund, on behalf of the Portfolio, and the Adviser. This Agreement
shall terminate automatically in the event of its assignment.

8. The Sub-Adviser is hereby expressly put on notice of the
limitation of shareholder liability as set forth in the Declaration of
Trust or other organizational document of the Fund and agrees that any
obligations of the Fund or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Adviser shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Adviser seek satisfaction of any such obligation
from the Trustees or any individual Trustee.

9. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAWS PROVISIONS THEREOF.

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 of 1940 as now in effect or as
hereafter amended.

SIGNATURE LINES OMITTED

Exhibit (d)(14)

SUB-ADVISORY AGREEMENT
between
FIDELITY INVESTMENTS MONEY MANAGEMENT, INC.
and
FIDELITY MANAGEMENT & RESEARCH COMPANY

WHEREAS the Adviser has entered into a Management Contract with
Variable Insurance Products Fund II, a Massachusetts business trust
which may issue one or more series of shares of beneficial interest
(hereinafter called the ``Fund"), on behalf of Asset Manager: Growth
Portfolio (hereinafter called the ``Portfolio"), pursuant to which the
Adviser is to act as investment manager and adviser to the Portfolio,
and

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Adviser and the Sub-Adviser agree
as follows:

(d) Either the Adviser, the Sub-Adviser or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or by vote of a majority of its
outstanding voting securities. This Agreement shall terminate
automatically upon the termination of the Management Contract between
the Fund, on behalf of the Portfolio, and the Adviser. This Agreement
shall terminate automatically in the event of its assignment.

9. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAWS PROVISIONS THEREOF.

SIGNATURE LINES OMITTED

Exhibit (d)(15)

SUB-ADVISORY AGREEMENT
between
FIDELITY INVESTMENTS MONEY MANAGEMENT, INC.
and
FIDELITY MANAGEMENT & RESEARCH COMPANY

WHEREAS the Adviser has entered into a Management Contract with
Variable Insurance Products Fund II, a Massachusetts business trust
which may issue one or more series of shares of beneficial interest
(hereinafter called the ``Fund"), on behalf of Investment Grade Bond
Portfolio (hereinafter called the ``Portfolio"), pursuant to which the
Adviser is to act as investment manager and adviser to the Portfolio,
and

NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Adviser and the Sub-Adviser agree
as follows:

(d) Either the Adviser, the Sub-Adviser or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or by vote of a majority of its
outstanding voting securities. This Agreement shall terminate
automatically upon the termination of the Management Contract between
the Fund, on behalf of the Portfolio, and the Adviser. This Agreement
shall terminate automatically in the event of its assignment.

9. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAWS PROVISIONS THEREOF.

SIGNATURE LINES OMITTED