VARIABLE INSURANCE PRODUCTS III, 497, 1998-05-04

VARIABLE INSURANCE PRODUCTS III
497, 1998-05-04

Previous: PROVIDENTMUTUAL VARIABLE LIFE SEPARATE ACCOUNT, 497, 1998-05-04

Next: CM MULTI ACCOUNT A, 497J, 1998-05-04

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a
copy of the fund's most recent financial report and portfolio listing
or a copy of the Statement of Additional Information (SAI) dated April
30, 1998. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is available along with other related materials
on the SEC's Internet Web site (http://www.sec.gov). The SAI is
incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-1916, or your insurance company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in
your state due to various insurance regulations. Please check with
your insurance company for availability. If the fund in this
prospectus is not available in your state, this prospectus is not to
be considered a solicitation. Please read this prospectus in
conjunction with the prospectus of the separate account of the
specific insurance product that accompanies this prospectus and keep
them on file for future reference.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
lIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIPIII-BAL-pro-0498
700591

VARIABLE
INSURANCE
PRODUCTS
FUND III
INITIAL CLASS
Variable Insurance Products Fund III (the Trust) is designed to
provide investment vehicles for variable annuity and variable life
insurance contracts of various insurance companies. Balanced Portfolio
is a fund of the Trust.
BALANCED PORTFOLIO seeks both income and growth of capital by
investing in a diversified portfolio of equity and fixed-income
securities.
PROSPECTUS
APRIL 30, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

<TABLE>
<CAPTION>
<S> <C> <C>
KEY FACTS 2 THE FUND AT A GLANCE

2 WHO MAY WANT TO INVEST

4 FINANCIAL HIGHLIGHTS A summary of the fund's financial
data.

THE FUND IN DETAIL 4 CHARTER How the fund is organized.

5 INVESTMENT PRINCIPLES AND RISKS The fund's overall
approach to investing.

7 BREAKDOWN OF EXPENSES How operating costs are
calculated and what they include.

8 PERFORMANCE

ACCOUNT POLICIES 9 DISTRIBUTIONS AND TAXES

9 TRANSACTION DETAILS Share price calculations and the
timing of purchases and redemptions.

</TABLE>

KEY FACTS

THE FUND AT A GLANCE
Balanced Portfolio is designed to provide an investment vehicle for
variable annuity and variable life insurance contracts of various
insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946
and is now America's largest mutual fund manager. Beginning January 1,
1999, Fidelity Investments Money Management, Inc. (FIMM), a subsidiary
of FMR, will choose certain types of investments for the fund.
GOAL: Both income and growth of capital. As with any mutual fund,
there is no assurance that the fund will achieve its goal.
STRATEGY: Invests in a diversified portfolio of equity and
fixed-income securities.
SIZE: As of December 31, 1997, the fund had over $214 million in
assets.
WHO MAY WANT TO INVEST
The fund is designed for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns.
The fund is designed for investors who seek a combination of growth
and income from equity and some bond investments.
The value of the fund's investments and the income they generate will
vary from day to day, and generally reflect market conditions,
interest rates, and other company, political, or economic news both
here and abroad. In the short-term, stock prices can fluctuate
dramatically in response to these factors. Over time, however, stocks
have shown greater growth potential than other types of securities.
The prices of bonds generally move in the opposite direction from
interest rates. When fund shares are redeemed, they may be worth more
or less than their original cost. By itself, the fund does not
constitute a balanced investment plan.
The fund is composed of multiple classes of shares. All classes of the
fund have a common investment objective and investment portfolio.
Initial Class shares, the original class of shares, are offered at net
asset value and are not subject to a 12b-1 fee. Service Class shares
are offered at net asset value and are subject to a 12b-1 fee. Because
Initial Class shares are not subject to a 12b-1 fee, Initial Class
shares are expected to have a higher total return than Service Class
shares (excluding charges and expenses attributable to any particular
insurance product). Insurance companies may obtain more information
about Service Class shares, which are not offered through this
prospectus, by calling Fidelity at 1-800-544-1916.

THE SPECTRUM OF FIDELITY
FUNDS
BROAD CATEGORIES OF FIDELITY FUNDS ARE PRESENTED
HERE IN ORDER OF ASCENDING RISK. GENERALLY,
INVESTORS SEEKING TO MAXIMIZE RETURN MUST
ASSUME GREATER RISK. BALANCED PORTFOLIO IS IN THE
GROWTH AND INCOME CATEGORY.
(SOLID BULLET) MONEY MARKET SEEKS INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY, SHORT-TERM INVESTMENTS.
(SOLID BULLET) INCOME SEEKS INCOME BY INVESTING IN BONDS.
(SOLID BULLET) ASSET ALLOCATION SEEKS HIGH TOTAL RETURN WITH
REDUCED RISK THROUGH A MIX OF STOCKS, BONDS,
AND SHORT-TERM AND MONEY MARKET INSTRUMENTS.
(RIGHT ARROW) GROWTH AND INCOME SEEKS LONG-TERM GROWTH
AND INCOME BY INVESTING IN STOCKS AND BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM GROWTH BY INVESTING
MAINLY IN STOCKS.
(CHECKMARK)
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by Price
Waterhouse LLP, independent accountants. The fund's financial
highlights, financial statements, and report of the auditor are
included in the fund's Annual Report and are incorporated by reference
into (are legally a part of) the fund's SAI.
SELECTED PER-SHARE DATA
1.Years ended December 31 1997 1996 1995C

2.Net asset value, beginning of period $ 12.23 $ 11.17 $ 10.00

3.Income from Investment Operations

4. Net investment income .44H .33 .14

5. Net realized and unrealized gain (loss) 2.22 .78 1.25

6. Total from investment operations 2.66 1.11 1.39

7.Less Distributions

8. From net investment income (.31) (.01)D (.14)

9. From net realized gain -- (.04)D (.08)

10. Total distributions (.31) (.05) (.22)

11.Net asset value, end of period $ 14.58 $ 12.23 $ 11.17

12.Total returnA,B 22.18% 9.98% 13.92%

13.RATIOS AND SUPPLEMENTAL DATA

<TABLE>
<CAPTION>
<S> <C> <C> <C>
14.Net assets, end of period (In millions) $ 215 $ 103 $ 43

15.Ratio of expenses to average net assets .61% .72% 1.42%E

16.Ratio of expenses to average net assets after expense reductions .60%F .71%F 1.42%

17.Ratio of net investment income to average net assets 3.28% 3.63% 3.56%

18.Portfolio turnover rate 98% 163% 248%

19.Average commission rateG $ .0423 $ .0165

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1995.
D THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK
TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
THE FUND IN DETAIL

CHARTER
BALANCED PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund
is a diversified fund of Variable Insurance Products Fund III (VIP
III), an open-end management investment company organized as a
Massachusetts business trust on July 14, 1994.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
fund's activities, review contractual arrangements with companies that
provide services to the fund, and review the fund's performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. An insurance company issuing a variable
contract that participates in the fund will vote shares held in its
separate account as required by law and interpretations thereof, as
may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance
company is required to request voting instructions from policy owners
and must vote shares in the separate account in proportion to the
voting instructions received. The number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your insurance
company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust,
respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business
address at 82 Devonshire Street, Boston, Massachusetts 02109. It
includes a number of different subsidiaries and divisions which
provide a variety of financial services and products. The fund employs
various Fidelity companies to perform activities required for its
operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.)
Inc. (FMR U.K.), in London, England, and Fidelity Management &
Research (Far East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR
with foreign investments. Beginning January 1, 1999, FIMM, located in
Merrimack, New Hampshire, will select certain types of investments for
the fund.
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 1997. He also manages another Fidelity fund. Mr. Avery joined
Fidelity as an analyst in 1995. Previously, he was an analyst for
Putnam Investments from 1993 to 1994. Mr. Avery received his MBA from
The Wharton School at the University of Pennsylvania in 1993.
Kevin Grant is Vice President of VIP III: Balanced Portfolio and
manager of its fixed-income investments since March 1996. He also
manages several other Fidelity funds. Mr. Grant joined Fidelity as a
portfolio manager in 1993.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to that of
Fidelity Advisor Balanced Fund. The performance of a separate account
investing in the fund is not expected to be the same as the
performance of the fund due in part to dissimilarities in their
investments. Various insurance-related costs at the insurance
company's separate account will also affect performance.
The fund sells its shares to separate accounts of insurance companies
that are both affiliated and unaffiliated with FMR. The fund currently
does not foresee any disadvantages to policyowners arising out of the
fact that the fund offers its shares to separate accounts of various
insurance companies to serve as the investment medium for their
variable products. Nevertheless, the Board of Trustees intends to
monitor events in order to identify any material irreconcilable
conflicts which may possibly arise, and to determine what action, if
any, should be taken in response to such conflicts. If such a conflict
were to arise, one or more insurance companies' separate accounts
might be required to withdraw its investments in the fund and shares
of another fund may be substituted. This might force the fund to sell
securities at disadvantageous prices. In addition, the Board of
Trustees may refuse to sell shares of the fund to any separate account
or may suspend or terminate the offering of shares of the fund if such
action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.

Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Investments Institutional Operations Company, Inc. (FIIOC)
performs transfer agent servicing functions for Initial Class of the
fund.
FMR Corp. is the ultimate parent company of FMR, FIMM, FMR U.K., and
FMR Far East. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the
Investment Company Act of 1940 (the 1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out the fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The fund seeks both income and growth of capital by investing in a
diversified portfolio of equity and fixed-income securities with
income, growth of income, and capital appreciation potential.
FMR manages the fund to maintain a balance between stocks and bonds.
When FMR's outlook is neutral, it will invest approximately 60% of the
fund's assets in stocks and other equity securities and the remainder
in bonds and other fixed-income securities. FMR may vary from this
target if it believes stocks or bonds offer more favorable
opportunities, but will always invest at least 25% of the fund's total
assets in fixed-income senior securities (including debt securities
and preferred stock).
The fund may buy securities that are not currently paying income but
offer prospects for future income. The fund may invest in securities
of foreign issuers. In selecting investments for the fund, FMR will
consider such factors as the issuer's financial strength, its outlook
for increased dividend or interest payments, and the potential for
capital gains.
The value of the fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the
activities of individual companies and general market and economic
conditions. Bonds values fluctuate based on changes in interest rates
and in the credit quality of the issuer. Investments in foreign
securities may involve risks in addition to those of U.S. investments,
including increased political and economic risk, as well as exposure
to currency fluctuations.
FMR may use various investment techniques to hedge a portion of the
fund's risks, but there is no guarantee that these strategies will
work as FMR intends. Also, as a mutual fund, the fund seeks to spread
investment risk by diversifying its holdings among many companies and
industries. Of course, when fund shares are redeemed, they may be
worth more or less than their original cost.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of the fund's limitations and more
detailed information about the fund's investments are contained in the
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with the fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in the fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, contact
your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks,
convertible securities, and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation.
Although equity securities have a history of long-term growth in
value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase more than 10% of the outstanding voting securities of a
single issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. 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 have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics, and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices
of these securities may fluctuate more than higher-quality securities
and may decline significantly in periods of general or regional
economic difficulty.
The following table provides a summary of ratings assigned to debt
holdings (not including money market instruments) in the fund's
portfolio. These figures are dollar-weighted averages of month-end
portfolio holdings during the fiscal year ended December 31, 1997, and
are presented as a percentage of total security investments. These
percentages are historical and do not necessarily indicate the fund's
current or future debt holdings.
FISCAL YEAR ENDED DECEMBER 31, 1997 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(AS OF % OF INVESTMENTS) (AS OF % OF INVESTMENTS)
Rating Average of Rating Average of
total investments total investments
INVESTMENT GRADE
Highest quality Aaa 18.23% AAA 17.91%
High quality Aa 1.27% AA 0.50%
Upper-medium grade A 3.18% A 2.99%
Medium grade Baa 3.37% BBB 5.10%
LOWER QUALITY
Moderately speculative Ba 1.30% BB 0.59%
Speculative B 2.47% B 2.51%
Highly speculative Caa 0.26% CCC 0.22%
Poor quality Ca 0.00% CC 0.02%
Lowest quality, no interest C 0.00% C 0.00%
In default, in arrears ---- 0.00% D 0.00%
REFER TO THE FUND'S SAI FOR A MORE COMPLETE DISCUSSION OF THESE
RATINGS.
THE FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S OR S&P TO
DETERMINE COMPLIANCE WITH ITS DEBT QUALITY POLICY. SECURITIES NOT
RATED BY MOODY'S OR S&P AMOUNTED TO 0.22% OF THE FUND'S
INVESTMENTS. THIS PERCENTAGE MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS, AS WELL AS
UNRATED SECURITIES. UNRATED LOWER-QUALITY SECURITIES AMOUNTED
TO 0.22% OF THE FUND'S INVESTMENTS.
FOR FOREIGN GOVERNMENT SECURITIES NOT INDIVIDUALLY RATED BY A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION, FMR ASSIGNS THE
RATING OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
RESTRICTIONS: Purchase of a debt security is consistent with the
fund's debt quality policy if it is rated at or above the stated level
by Moody's Investors Service (Moody's) or rated in the equivalent
categories by Standard & Poor's (S&P), or is unrated but judged by FMR
to be of equivalent quality. The fund currently intends to limit its
investments in lower than Baa-quality debt securities to less than 35%
of its assets.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These
include risks relating to political, economic, or regulatory
conditions in foreign countries; fluctuations in foreign currencies;
withholding or other taxes; trading, settlement, custodial, and other
operational risks; and the potentially less stringent investor
protection and disclosure standards of foreign markets. 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. All of these factors can make
foreign investments, especially those in emerging markets, more
volatile and potentially less liquid than U.S. investments.
ASSET-BACKED SECURITIES include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the market's
perception of the servicer of the pool, and any credit enhancement
provided. In addition, these securities may be subject to prepayment
risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange contracts or swap
agreements, purchasing indexed securities, and selling securities
short.
FMR can use these practices to adjust the risk and return
characteristics of the fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with the fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of
the fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other
borrower. They have additional risks beyond conventional debt
securities because they may entail less legal protection for a fund,
or there may be a requirement that the fund supply additional cash to
a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities, and some
other securities, may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result,
more than 10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include securities of closed-end investment
companies and real estate-related instruments.
CASH MANAGEMENT. The fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase a security if, as a result, more than 5% would be
invested in the securities of any one issuer. This limitation does not
apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If the fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If the fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering the fund's securities. The fund may also lend
money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the
fund's total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above,
the fund also follows certain limitations imposed by the IRS on
separate accounts of insurance companies relating to the tax-deferred
status of variable contracts. More specific information may be
contained in your insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
The fund seeks both income and growth of capital by investing in a
diversified portfolio of equity and fixed-income securities with
income, growth of income, and capital appreciation potential.
With respect to 75% of its total assets, the fund may not purchase a
security if, as a result, more than 5% would be invested in the
securities of any one issuer and may not purchase more than 10% of the
outstanding voting securities of a single issuer. These limitations do
not apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
The fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 33% of its total assets.
Loans, in the aggregate, may not exceed 33% of the fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily
operations. Expenses paid out of Initial Class's assets are reflected
in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services. The fund also pays OTHER EXPENSES,
which are explained at right.
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by the fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated at any time without notice, can decrease the
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee
is calculated by adding a group fee rate to an individual fund fee
rate, multiplying the result by the fund's monthly average net assets,
and dividing by twelve.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52%, and it
drops as total assets under management increase.
For December 1997, the group fee rate was 0.29%. The individual fund
fee rate is 0.15%. The total management fee for the fiscal year ended
December 31, 1997 was 0.45% of the fund's average net assets.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on
issuers based outside the United States. Under the sub-advisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to the fund's investments that the
sub-adviser manages on a discretionary basis.
For the fiscal year ended December 31, 1997, FMR, on behalf of the
fund, paid FMR U.K. and FMR Far East fees equal to less than 0.01% of
the fund's average net assets.
Beginning January 1, 1999, FIMM will select certain investments for
the fund. FMR will pay FIMM a fee equal to 50% of its management fee
(before expense reimbursements) with respect to the fund's investments
that FIMM manages.
OTHER EXPENSES
While the management fee is a significant component of the fund's
annual operating costs, the fund has other expenses as well.
FIIOC performs transfer agency, dividend disbursing, and shareholder
servicing functions for Initial Class of the fund. Fidelity Service
Company, Inc. (FSC) calculates the net asset value per share (NAV) and
dividends for Initial Class of the fund, maintains the fund's general
accounting records, and administers the fund's securities lending
program.
For the fiscal year ended December 31, 1997, Initial Class of the fund
paid fees equal to 0.07% of Initial Class's average net assets for
transfer agency and related services, and the fund paid fees equal to
0.06% of the fund's average net assets for pricing and bookkeeping
services. These amounts are before expense reductions, if any.
For the fiscal year ended December 31, 1997, Initial Class's total
expenses amounted to 0.61% of Initial Class's average net assets. A
portion of the brokerage commissions that the fund pays is used to
reduce the fund's expenses. In addition, the fund has entered into
arrangements with its custodian whereby credits realized as a result
of uninvested cash balances are used to reduce custodian expenses.
Including these reductions, the total Initial Class operating expenses
would have been 0.60%.
Effective January 3, 1995, FMR has voluntarily agreed to reimburse
Initial Class of the fund to the extent that total operating expenses
(excluding interest, taxes, brokerage commissions, and extraordinary
expenses), as a percentage of its average net assets, exceed 1.50%.
The fund also pays other expenses, such as legal, audit, and custodian
fees; in some instances, proxy solicitation costs; and the
compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by the fund to
reduce the fund's custodian or transfer agent fees.
Initial Class shares of the fund have adopted a DISTRIBUTION AND
SERVICE PLAN. This Plan 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 the
distribution of Initial Class shares. FMR, directly or through FDC,
may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services
for, Initial Class shares. Currently, the Board of Trustees has
authorized such payments.
The fund's portfolio turnover rate for the fiscal year ended December
31, 1997 was 98%. This rate varies from year to year.
PERFORMANCE
The fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields
are calculated according to a standard that is required for all stock
and bond funds. Because this differs from other accounting methods,
the quoted yield may not equal the income actually paid to
policyholders.
In calculating yield, a fund may from time to time use a security's
coupon rate instead of its yield to maturity in order to reflect the
risk premium on that security. This practice will have the effect of
reducing the fund's yield.
Other illustrations of fund performance may show moving averages over
specified periods.
The fund's recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all shareholders.
For additional performance information, contact your insurance company
for a free annual report.
TOTAL RETURNS AND YIELDS QUOTED FOR A CLASS INCLUDE THE CLASS'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. BECAUSE SHARES OF THE FUND MAY BE
PURCHASED ONLY THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE
CONTRACTS, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. Excluding these charges from quotations of a class's
performance has the effect of increasing the performance quoted. You
should bear in mind the effect of these charges when comparing the
fund's performance to that of other mutual funds.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
ACCOUNT POLICIES

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a
copy of the fund's most recent financial report and portfolio listing,
or a copy of the Statement of Additional Information (SAI) dated April
30, 1998. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is available along with other related materials
on the SEC's Internet Web site (http://www.sec.gov).The SAI is
incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-1916, or your insurance company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in
your state due to various insurance regulations. Please check with
your insurance company for availability. If the fund in this
prospectus is not available in your state, this prospectus is not to
be considered a solicitation. Please read this prospectus in
conjunction with the prospectus of the separate account of the
specific insurance product that accompanies this prospectus and keep
them on file for future reference.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
lIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIPIII-GRO-pro-0498
700592

VARIABLE
INSURANCE
PRODUCTS
FUND III
INITIAL CLASS
Variable Insurance Products Fund III (the Trust) is designed to
provide investment vehicles for variable annuity and variable life
insurance contracts of various insurance companies. Growth
Opportunities Portfolio is a fund of the Trust.
GROWTH OPPORTUNITIES PORTFOLIO seeks to provide capital growth by
investing mainly in common stocks and securities convertible into
common stocks.
PROSPECTUS
APRIL 30, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

<TABLE>
<CAPTION>
<S> <C> <C>
KEY FACTS 2 THE FUND AT A GLANCE

2 WHO MAY WANT TO INVEST

4 FINANCIAL HIGHLIGHTS A summary of the fund's financial
data.

THE FUND IN DETAIL 4 CHARTER How the fund is organized.

5 INVESTMENT PRINCIPLES AND RISKS The fund's overall
approach to investing.

7 BREAKDOWN OF EXPENSES How operating costs are
calculated and what they include.

8 PERFORMANCE

ACCOUNT POLICIES 9 DISTRIBUTIONS AND TAXES

9 TRANSACTION DETAILS Share price calculations and the
timing of purchases and redemptions.

</TABLE>

KEY FACTS

THE FUND AT A GLANCE
Growth Opportunities Portfolio is designed to provide an investment
vehicle for variable annuity and variable life insurance contracts of
various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946
and is now America's largest mutual fund manager.
GOAL: Capital growth. As with any mutual fund, there is no assurance
that the fund will achieve its goal.
STRATEGY: Invests primarily in common stocks and securities
convertible into common stocks.
SIZE: As of December 31, 1997, the fund had over $1.0 billion in
assets.
WHO MAY WANT TO INVEST
The fund is designed for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns.
The fund is designed for investors who want to be invested in the
stock market for its long-term growth potential. The fund invests for
growth and does not pursue income.
The value of the fund's investments will vary from day to day, and
generally reflect market conditions, interest rates, and other
company, political, or economic news. In the short-term, stock prices
can fluctuate dramatically in response to these factors. Over time,
however, stocks have shown greater growth potential than other types
of securities. When fund shares are redeemed, they may be worth more
or less than their original cost. By itself, the fund does not
constitute a balanced investment plan.
The fund is composed of multiple classes of shares. All classes of the
fund have a common investment objective and investment portfolio.
Initial Class shares, the original class of shares, are offered at net
asset value and are not subject to a 12b-1 fee. Service Class shares
are offered at net asset value and are subject to a 12b-1 fee. Because
Initial Class shares are not subject to a 12b-1 fee, Initial Class
shares are expected to have a higher total return than Service Class
shares (excluding charges and expenses attributable to any particular
insurance product). Insurance companies may obtain more information
about Service Class shares, which are not offered through this
prospectus, by calling Fidelity at 1-800-544-1916.

THE SPECTRUM OF FIDELITY
FUNDS
BROAD CATEGORIES OF FIDELITY FUNDS ARE PRESENTED
HERE IN ORDER OF ASCENDING RISK. GENERALLY,
INVESTORS SEEKING TO MAXIMIZE RETURN MUST
ASSUME GREATER RISK. GROWTH OPPORTUNITIES
PORTFOLIO IS IN THE GROWTH CATEGORY.
(SOLID BULLET) MONEY MARKET SEEKS INCOME AND STABILITY
BY INVESTING IN HIGH-QUALITY, SHORT-TERM
INVESTMENTS.
(SOLID BULLET) INCOME SEEKS INCOME BY INVESTING IN BONDS.
(SOLID BULLET) ASSET ALLOCATION SEEKS HIGH TOTAL RETURN WITH
REDUCED RISK THROUGH A MIX OF STOCKS, BONDS,
AND SHORT-TERM AND MONEY MARKET INSTRUMENTS.
(SOLID BULLET) GROWTH AND INCOME SEEKS LONG-TERM GROWTH
AND INCOME BY INVESTING IN STOCKS AND BONDS.
(RIGHT ARROW) GROWTH SEEKS LONG-TERM GROWTH BY INVESTING
MAINLY IN STOCKS.
(CHECKMARK)
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by Price
Waterhouse LLP, independent accountants. The fund's financial
highlights, financial statements, and report of the auditor are
included in the fund's Annual Report and are incorporated by reference
into (are legally a part of) the fund's SAI.
SELECTED PER-SHARE DATA
20.Years ended December 31 1997 1996 1995C

21.Net asset value, beginning of period $ 15.40 $ 13.07 $ 10.00

22.Income from Investment Operations

23. Net investment income .29G .26 .11

24. Net realized and unrealized gain (loss) 4.18 2.12 3.14

25. Total from investment operations 4.47 2.38 3.25

26.Less Distributions

27. From net investment income (.25) -- (.11)

28. From net realized gain (.35) (.05) (.07)

29. Total distributions (.60) (.05) (.18)

30.Net asset value, end of period $ 19.27 $ 15.40 $ 13.07

31.Total returnA,B 29.95% 18.27% 32.52%

32.RATIOS AND SUPPLEMENTAL DATA

<TABLE>
<CAPTION>
<S> <C> <C> <C>
33.Net assets, end of period (In millions) $ 1,026 $ 383 $ 164

34.Ratio of expenses to average net assets .74% .77% .85%D

35.Ratio of expenses to average net assets after expense reductions .73%E .76%E .83%E

36.Ratio of net investment income to average net assets 1.68% 2.29% 2.49%

37.Portfolio turnover rate 26% 28% 38%

38.Average commission rateF $ .0377 $ .0367

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1995.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
THE FUND IN DETAIL

CHARTER
GROWTH OPPORTUNITIES PORTFOLIO IS A MUTUAL FUND: an investment that
pools shareholders' money and invests it toward a specified goal. The
fund is a diversified fund of Variable Insurance Products Fund III
(VIP III), an open-end management investment company organized as a
Massachusetts business trust on July 14, 1994.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
fund's activities, review contractual arrangements with companies that
provide services to the fund, and review the fund's performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. An insurance company issuing a variable
contract that participates in the fund will vote shares held in its
separate account as required by law and interpretations thereof, as
may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance
company is required to request voting instructions from policyowners
and must vote shares in the separate account in proportion to the
voting instructions received. The number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your insurance
company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust,
respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business
address at 82 Devonshire Street, Boston, Massachusetts 02109. It
includes a number of different subsidiaries and divisions which
provide a variety of financial services and products. The fund employs
various Fidelity companies to perform activities required for its
operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.)
Inc. (FMR U.K.), in London, England, and Fidelity Management &
Research (Far East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR
with foreign investments.
George Vanderheiden is Vice President and manager of VIP III: Growth
Opportunities Portfolio, which he has managed since January 1995. He
also manages several other Fidelity funds. Mr. Vanderheiden joined
Fidelity in 1971 and has worked as a portfolio manager since 1980.
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.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to that of
Fidelity Advisor Growth Opportunities Fund. The performance of a
separate account investing in the fund is not expected to be the same
as the performance of the fund due in part to dissimilarities in their
investments. Various insurance-related costs at the insurance
company's separate account will also affect performance.
The fund sells its shares to separate accounts of insurance companies
that are both affiliated and unaffiliated with FMR. The fund currently
does not foresee any disadvantages to policyowners arising out of the
fact that the fund offers its shares to separate accounts of various
insurance companies to serve as the investment medium for their
variable products. Nevertheless, the Board of Trustees intends to
monitor events in order to identify any material irreconcilable
conflicts which may possibly arise, and to determine what action, if
any, should be taken in response to such conflicts. If such a conflict
were to arise, one or more insurance companies' separate accounts
might be required to withdraw its investments in the fund and shares
of another fund may be substituted. This might force the fund to sell
securities at disadvantageous prices. In addition, the Board of
Trustees may refuse to sell shares of the fund to any separate account
or may suspend or terminate the offering of shares of the fund if such
action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.

(checkmark)
FIDELITY FACTS
Fidelity offers the broadest selection of mutual
funds in the world.
(solid bullet) Number of Fidelity mutual funds: over 226
(solid bullet) Assets in Fidelity mutual funds: over
$529 billion
(solid bullet) Number of shareholder accounts: over
34 million
(solid bullet) Number of investment analysts and portfolio
managers: over 265
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Investments Institutional Operations Company, Inc. (FIIOC)
performs transfer agent servicing functions for Initial Class of the
fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., and FMR Far
East. Members of the Edward C. Johnson 3d family are the predominant
owners of a class of shares of common stock representing approximately
49% of the voting power of FMR Corp. Under the Investment Company Act
of 1940 (the 1940 Act), control of a company is presumed where one
individual or group of individuals owns more than 25% of the voting
stock of that company; therefore, the Johnson family may be deemed
under the 1940 Act to form a controlling group with respect to FMR
Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out the fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The fund seeks capital growth by investing primarily in common stocks
and securities convertible into common stocks. FMR normally invests at
least 65% of the fund's total assets in securities of companies that
FMR believes have long-term growth potential. Although the fund
invests primarily in common stock and securities convertible into
common stock, it has the ability to purchase other securities, such as
preferred stock and bonds, that may produce capital growth. The fund
may invest in foreign securities without limitation.
The value of the fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the
activities of individual companies and general market and economic
conditions. Investments in foreign securities may involve risks in
addition to those of U.S. investments, including increased political
and economic risk, as well as exposure to currency fluctuations.
FMR may use various investment techniques to hedge a portion of the
fund's risks, but there is no guarantee that these strategies will
work as FMR intends. Also, as a mutual fund, the fund seeks to spread
investment risk by diversifying its holdings among many companies and
industries. Of course, when fund shares are redeemed, they may be
worth more or less than their original cost.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of the fund's limitations and more
detailed information about the fund's investments are contained in the
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with the fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in the fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, contact
your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks,
convertible securities, and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation.
Although equity securities have a history of long-term growth in
value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase more than 10% of the outstanding voting securities of a
single issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. 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 have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices
of these securities may fluctuate more than higher-quality securities
and may decline significantly in periods of general or regional
economic difficulty.
The following table provides a summary of ratings assigned to debt
holdings (not including money market instruments) in the fund's
portfolio. These figures are dollar-weighted averages of month-end
portfolio holdings during the fiscal year ended December 31, 1997, and
are presented as a percentage of total security investments. These
percentages are historical and do not necessarily indicate the fund's
current or future debt holdings.
FISCAL YEAR ENDED DECEMBER 31, 1997 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(AS A % OF INVESTMENTS) (AS A % OF INVESTMENTS)
AVERAGE OF AVERAGE OF
RATING TOTAL INVESTMENTS RATING TOTAL INVESTMENTS
INVESTMENT GRADE
HIGHEST QUALITY AAA 12.47% AAA 12.47%
HIGH QUALITY AA 0.00% AA 0.00%
UPPER-MEDIUM GRADE A 0.00% A 0.00%
MEDIUM GRADE BAA 0.00% BBB 0.00%
LOWER QUALITY
MODERATELY SPECULATIVE BA 0.00% BB 0.00%
SPECULATIVE B 0.00% B 0.00%
HIGHLY SPECULATIVE CAA 0.00% CCC 0.00%
POOR QUALITY CA 0.00% CC 0.00%
LOWEST QUALITY, NO INTEREST C 0.00% C 0.00%
IN DEFAULT, IN ARREARS --- 0.00% D 0.00%
REFER TO THE FUND'S SAI FOR A MORE COMPLETE DISCUSSION OF THESE
RATINGS.
THE FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S OR S&P TO
DETERMINE COMPLIANCE WITH ITS DEBT QUALITY POLICY. SECURITIES NOT
RATED BY MOODY'S OR S&P AMOUNTED TO 0.00% OF THE FUND'S
INVESTMENTS. THIS PERCENTAGE MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS, AS WELL AS
UNRATED SECURITIES. UNRATED LOWER-QUALITY SECURITIES AMOUNTED
TO 0.00% OF THE FUND'S INVESTMENTS.
FOR FOREIGN GOVERNMENT SECURITIES NOT INDIVIDUALLY RATED BY A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION, FMR ASSIGNS THE
RATING OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
RESTRICTIONS: Purchase of a debt security is consistent with the
fund's debt quality policy if it is rated at or above the stated level
by Moody's Investors Service (Moody's) or rated in the equivalent
categories by Standard & Poor's (S&P), or is unrated but judged by FMR
to be of equivalent quality. The fund currently intends to limit its
investments in lower than Baa-quality debt securities to less than 35%
of its assets.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These
include risks relating to political, economic, or regulatory
conditions in foreign countries; fluctuations in foreign currencies;
withholding or other taxes; trading, settlement, custodial, and other
operational risks; and the potentially less stringent investor
protection and disclosure standards of foreign markets. 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. All of these factors can make
foreign investments, especially those in emerging markets, more
volatile and potentially less liquid than U.S. investments.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange contracts or swap
agreements, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return
characteristics of the fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with the fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of
the fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other
borrower. They have additional risks beyond conventional debt
securities because they may entail less legal protection for a fund,
or there may be a requirement that the fund supply additional cash to
a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities, and some
other securities, may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result,
more than 10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include securities of closed-end investment
companies and real estate-related instruments.
CASH MANAGEMENT. The fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase a security if, as a result, more than 5% would be
invested in the securities of any one issuer. This limitation does not
apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If the fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If the fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering the fund's securities. The fund may also lend
money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the
fund's total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above,
the fund also follows certain limitations imposed by the IRS on
separate accounts of insurance companies relating to the tax-deferred
status of variable contracts. More specific information may be
contained in your insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
The fund seeks to provide capital growth by investing primarily in
common stocks and securities convertible into common stocks.
With respect to 75% of its total assets, the fund may not purchase a
security if, as a result, more than 5% would be invested in the
securities of any one issuer and may not purchase more than 10% of the
outstanding voting securities of a single issuer. These limitations do
not apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
The fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 33% of the fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily
operations. Expenses paid out of Initial Class's assets are reflected
in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services. The fund also pays OTHER EXPENSES,
which are explained below.
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by the fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated at any time without notice, can decrease the
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee
is calculated by adding a group fee rate to an individual fund fee
rate, multiplying the result by the fund's monthly average net assets,
and dividing by twelve.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52%, and it
drops as total assets under management increase.
For December 1997, the group fee rate was 0.29%. The individual fund
fee rate is 0.30%. The total management fee for the fiscal year ended
December 31, 1997 was 0.60% of the fund's average net assets.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on
issuers based outside the United States. Under the sub-advisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to the fund's investments that the
sub-adviser manages on a discretionary basis.
For the fiscal year ended December 31, 1997, FMR, on behalf of the
fund, paid FMR U.K. and FMR Far East fees equal to less than 0.01% of
the fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's
annual operating costs, the fund has other expenses as well.
FIIOC performs transfer agency, dividend disbursing, and shareholder
servicing functions for Initial Class of the fund. Fidelity Service
Company, Inc. (FSC) calculates the net asset value per share (NAV) and
dividends for Initial Class of the fund, maintains the fund's general
accounting records, and administers the fund's securities lending
program.
For the fiscal year ended December 31, 1997, Initial Class of the fund
paid fees equal to 0.07% of Initial Class's average net assets for
transfer agency and related services, and the fund paid fees equal to
0.05% of the fund's average net assets for pricing and bookkeeping
services. These amounts are before expense reductions, if any.
For the fiscal year ended December 31, 1997, Initial Class's total
expenses amounted to 0.74% of Initial Class's average net assets. A
portion of the brokerage commissions that the fund pays is used to
reduce the fund's expenses. In addition, the fund has entered into
arrangements with its custodian whereby credits realized as a result
of uninvested cash balances are used to reduce custodian expenses.
Including these reductions, the total Initial Class operating expenses
would have been 0.73%.
Effective January 3, 1995, FMR has voluntarily agreed to reimburse
Initial Class of the fund to the extent that total operating expenses
(excluding interest, taxes, brokerage commissions, and extraordinary
expenses), as a percentage of its average net assets, exceed 1.50%.
The fund also pays other expenses, such as legal, audit, and custodian
fees; in some instances, proxy solicitation costs; and the
compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by the fund to
reduce the fund's custodian or transfer agent fees.
Initial Class shares of the fund have adopted a DISTRIBUTION AND
SERVICE PLAN. This Plan 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 the
distribution of Initial Class shares. FMR, directly or through FDC,
may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services
for, Initial Class shares. Currently, the Board of Trustees has
authorized such payments.
The fund's portfolio turnover rate for the fiscal year ended December
31, 1997 was 26%. This rate varies from year to year.
PERFORMANCE
The fund's total return may be quoted in advertising in accordance
with current law and interpretations thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
Other illustrations of fund performance may show moving averages over
specified periods.
The fund's recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all shareholders.
For additional performance information, contact your insurance company
for a free annual report.
TOTAL RETURNS 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 FUND MAY BE PURCHASED ONLY
THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS, YOU
SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE PRODUCT YOU
HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES.
Excluding these charges from quotations of a class's performance has
the effect of increasing the performance quoted. You should bear in
mind the effect of these charges when comparing the fund's performance
to that of other mutual funds.
TOTAL RETURNS ARE BASED ON PAST RESULTS AND ARE NOT AN INDICATION OF
FUTURE PERFORMANCE.
ACCOUNT POLICIES

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the fund's goal matches your own.
To learn more about the fund and its investments, you can obtain a
copy of the fund's most recent financial report and portfolio listing
or a copy of the Statement of Additional Information (SAI) dated April
30, 1998. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is available along with other related materials
on the SEC's Internet Web site (http://www.sec.gov). The SAI is
incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-1916, or your insurance company.
Shares of the fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. The fund may not be available in
your state due to various insurance regulations. Please check with
your insurance company for availability. If the fund in this
prospectus is not available in your state, this prospectus is not to
be considered a solicitation. Please read this prospectus in
conjunction with the prospectus of the separate account of the
specific insurance product that accompanies this prospectus and keep
them on file for future reference.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
Like all mutual funds, THESE SECURITIES HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIPIII-G&I-pro-0498
700590

VARIABLE
INSURANCE
PRODUCTS
FUND III
INITIAL CLASS
Variable Insurance Products Fund III (the Trust) is designed to
provide investment vehicles for variable annuity and variable life
insurance contracts of various insurance companies. Growth & Income
Portfolio is a fund of the Trust.
GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation by investing
mainly in equity securities.
PROSPECTUS
APRIL 30, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

<TABLE>
<CAPTION>
<S> <C> <C>
KEY FACTS 17 THE FUND AT A GLANCE

2 WHO MAY WANT TO INVEST

4 FINANCIAL HIGHLIGHTS A summary of the fund's financial
data.

THE FUND IN DETAIL 4 CHARTER How the fund is organized.

20 INVESTMENT PRINCIPLES AND RISKS The fund's overall
approach to investing.

7 BREAKDOWN OF EXPENSES How operating costs are
calculated and what they include.

8 PERFORMANCE

ACCOUNT POLICIES 9 DISTRIBUTIONS AND TAXES

9 TRANSACTION DETAILS Share price calculations and the
timing of purchases and redemptions.

</TABLE>

KEY FACTS

THE FUND AT A GLANCE
Growth & Income Portfolio is designed to provide an investment vehicle
for variable annuity and variable life insurance contracts of various
insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946
and is now America's largest mutual fund manager.
GOAL: High total return through a combination of current income and
capital appreciation. As with any mutual fund, there is no assurance
that the fund will achieve its goal.
STRATEGY: Invests mainly in equity securities of companies that pay
current dividends and offer potential growth of earnings.
SIZE: As of December 31, 1997, the fund had over $345 million in
assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who seek a combination of
growth and income from equity and some bond investments.
The value of the fund's investments and the income they generate will
vary from day to day, and generally reflect market conditions,
interest rates, and other company, political, or economic news both
here and abroad. In the short-term, stock prices can fluctuate
dramatically in response to these factors. Over time, however, stocks
have shown greater growth potential than other types of securities.
The prices of bonds generally move in the opposite direction from
interest rates. When fund shares are redeemed, they may be worth more
or less than their original cost. By itself, the fund does not
constitute a balanced investment plan.
The fund is composed of multiple classes of shares. All classes of the
fund have a common investment objective and investment portfolio.
Initial Class shares, the original class of shares, are offered at net
asset value and are not subject to a 12b-1 fee. Service Class shares
are offered at net asset value and are subject to a 12b-1 fee. Because
Initial Class shares are not subject to a 12b-1 fee, Initial Class
shares are expected to have a higher total return than Service Class
shares (excluding charges and expenses attributable to any particular
insurance product). Insurance companies may obtain more information
about Service Class shares, which are not offered through this
prospectus, by calling Fidelity at 1-800-544-1916.

THE SPECTRUM OF FIDELITY
FUNDS
BROAD CATEGORIES OF FIDELITY FUNDS ARE
PRESENTED HERE IN ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO MAXIMIZE
RETURN MUST ASSUME GREATER RISK. GROWTH &
INCOME PORTFOLIO IS IN THE GROWTH AND INCOME
CATEGORY.
(SOLID BULLET) MONEY MARKET SEEKS INCOME AND STABILITY
BY INVESTING IN HIGH-QUALITY, SHORT-TERM
INVESTMENTS.
(SOLID BULLET) INCOME SEEKS INCOME BY INVESTING IN BONDS.
(SOLID BULLET) ASSET ALLOCATION SEEKS HIGH TOTAL RETURN WITH
REDUCED RISK THROUGH A MIX OF STOCKS, BONDS,
AND SHORT-TERM AND MONEY MARKET INSTRUMENTS.
(RIGHT ARROW) GROWTH AND INCOME SEEKS LONG-TERM GROWTH
AND INCOME BY INVESTING IN STOCKS AND BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM GROWTH BY INVESTING
MAINLY IN STOCKS.
(CHECKMARK)
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by Price
Waterhouse LLP, independent accountants. The fund's financial
highlights, financial statements, and report of the auditor are
included in the fund's Annual Report and are incorporated by reference
into (are legally a part of) the fund's SAI.
SELECTED PER-SHARE DATA
39.Years ended December 31 1997 1996D

40.Net asset value, beginning of period $ 9.90 $ 10.00

41.Income from Investment Operations

42. Net investment income .13G --

43. Net realized and unrealized gain (loss) 2.84 (.10)

44. Total from investment operations 2.97 (.10)

45.Less Distributions

46. From net investment income (.08) --

47. From net realized gain (.26) --

48. Total distributions (.34) --

49.Net asset value, end of period $ 12.53 $ 9.90

50.Total returnB,C 30.09% (1.00)%

51.RATIOS AND SUPPLEMENTAL DATA

52.Net assets, end of period (In millions) $ 345 $ 0.99

53.Ratio of expenses to average net assets .70% 1.00%A,E

54.Ratio of net investment income to average net assets 1.14% 3.89%A

55.Portfolio turnover rate 81% 0%

56.Average commission rateF $ .0322 $ .0120

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D DECEMBER 31, 1996 (COMMENCEMENT OF OPERATIONS).
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
F A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE
FOR SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
THE FUND IN DETAIL

CHARTER
GROWTH & INCOME PORTFOLIO IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund
is a diversified fund of Variable Insurance Products Fund III (VIP
III) , an open-end management investment company organized as a
Massachusetts business trust on July 14, 1994.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee
the fund's activities, review contractual arrangements with companies
that provide services to the fund, and review the fund's performance.
The trustees serve as trustees for other Fidelity funds. The
majority of trustees are not otherwise affiliated with Fidelity.
T HE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove
trustees, change fundamental policies, approve a management contract,
or for other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. An insurance company issuing a variable
contract that participates in the fund will vote shares held in its
separate account as required by law and interpretations thereof, as
may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance
company is required to request voting instructions from policyowners
and must vote shares in the separate account in proportion to the
voting instructions received. The number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your
insurance company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust,
if a matter affects just that class of shares, fund, or trust,
respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business
address at 82 Devonshire Street, Boston, Massachusetts 02109. It
includes a number of different subsidiaries and divisions which
provide a variety of financial services and products. The fund employs
various Fidelity companies to perform activities required for its
operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.)
Inc. (FMR U.K.), in London, England, and Fidelity Management &
Research (Far East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR
with foreign investments.
Steven Kaye is Vice President and manager of VIP III: Growth &
Income Portfolio, which he has managed since April 1998. He also
manages another Fidelity fund. Since joining Fidelity in 1985, Mr.
Kaye has worked as an analyst, manager, and assistant director of
equity research.
Louis Salemy is associate manager of VIP III: Growth & Income
Portfolio, which he has managed since April 1998. Previously, he
managed other Fidelity funds. Since joining Fidelity in 1992, Mr.
Salemy has worked as an analyst, manager, and portfolio assistant.
The fund has an investment objective similar to that of an existing
Fidelity fund. The fund's objective is most similar to that of
Fidelity Growth & Income Fund. The performance of a separate account
investing in the fund is not expected to be the same as the
performance of the fund due in part to dissimilarities in their
investments. Various insurance-related costs at the insurance
company's separate account will also affect performance.
The fund sells its shares to separate accounts of insurance companies
that are both affiliated and unaffiliated with FMR. The fund currently
does not foresee any disadvantages to policyowners arising out of the
fact that the fund offers its shares to separate accounts of various
insurance companies to serve as the investment medium for their
variable products. Nevertheless, the Board of Trustees intends to
monitor events in order to identify any material irreconcilable
conflicts which may possibly arise, and to determine what action, if
any, should be taken in response to such conflicts. If such a conflict
were to arise , one or more insurance companies' separate
accounts might be required to withdraw its investments in the fund and
shares of another fund may be substituted. This might force the fund
to sell securities at disadvantageous prices. In addition, the Board
of Trustees may refuse to sell shares of the fund to any separate
account or may suspend or terminate the offering of shares of the fund
if such action is required by law or regulatory authority or is in the
best interests of the shareholders of the fund.

INVESTORS SERVICE STANDARD & POOR'S

(AS A % OF INVESTMENTS) (AS A % OF INVESTMENTS)
Average of Average of

Rating total investments Rating total investments
INVESTMENT GRADE

Highest quality Aaa 0.00% AAA 0.00%

High quality Aa 0.00% AA 0.00%

Upper-medium grade A 0.08% A 0.16%

Medium grade Baa 0.15% BBB 0.35%
LOWER QUALITY

Moderately speculative Ba 0.59% BB 0.34%

Speculative B 0.15% B 0.12%

Highly speculative Caa 0.00% CCC 0.00%

Poor quality Ca 0.00% CC 0.00%

Lowest quality, no interest C 0.00% C 0.00%

In default, in arrears -- 0.00% D 0.00%
REFER TO THE FUND'S SAI FOR A MORE COMPLETE DISCUSSION OF THESE
RATINGS.
THE FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S OR S&P
TO DETERMINE COMPLIANCE WITH ITS DEBT QUALITY POLICY. SECURITIES NOT
RATED BY MOODY'S OR S&P AMOUNTED TO 0.00% OF
THE FUND'S INVESTMENTS. THIS PERCENTAGE MAY INCLUDE SECURITIES
RATED BY OTHER NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS,
AS WELL AS UNRATED SECURITIES. UNRATED LOWER-QUALITY
SECURITIES AMOUNTED TO 0.00% OF THE FUND'S INVESTMENTS.
FOR FOREIGN GOVERNMENT SECURITIES NOT INDIVIDUALLY RATED BY A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION, FMR ASSIGNS THE
RATING OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.

EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These
include risks relating to political , economic , or
regulatory conditions in foreign countries ; fluctuations in
foreign currencies ; withholding or other taxes ; trading,
settlement, custodial, and other operational risks ; and the
potentially less stringent investor protection and disclosure
standards of foreign markets. 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. All of these factors can make foreign
investments, especially those in emerging markets , more
volatile and potentially less liquid than U.S. investments.
ASSET-BACKED SECURITIES include interests in pools of debt
securities, commercial or consumer loans, or other receivables. The
value of these securities depends on many factors, including changes
in interest rates, the availability of information concerning the pool
and its structure, the credit quality of the underlying assets, the
market's perception of the servicer of the pool, and any credit
enhancement provided. In addition, these securities may be subject to
prepayment risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys
a security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various
techniques to increase or decrease its exposure to changing security
prices, interest rates, currency exchange rates, commodity prices, or
other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, entering into currency exchange contracts or swap
agreements, purchasing indexed securities, and selling securities
short.
FMR can use these practices to adjust the risk and return
characteristics of the fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with the fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of
the fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other
borrower. They have additional risks beyond conventional debt
securities because they may entail less legal protection for the fund,
or there may be a requirement that the fund supply additional cash to
a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities, and some
other securities, may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result,
more than 10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include securities of closed-end investment
companies and real estate-related instruments.
CASH MANAGEMENT. The fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry.
RESTRICTIONS: With respect to 75% of its total assets, the fund may
not purchase a security if, as a result, more than 5% would be
invested in the securities of any one issuer. This
limitation does not apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation do es not apply to U.S.
Government securities.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If the fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If the fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 33 1/3 % of its
total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering the fund's securities. The fund may also lend
money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the
fund's total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above,
the fund also follows certain limitations imposed by the IRS on
separate accounts of insurance companies relating to the tax-deferred
status of variable contracts. More specific information may be
contained in your insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
The fund seeks high total return through a combination of current
income and capital appreciation.
With respect to 75% of its total assets, the fund may not purchase a
security if, as a result, more than 5% would be invested in the
securities of any one issuer and may not purchase more than 10%
of the outstanding voting securities of a single issuer. These
limitations do not apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
The fund may borrow only for temporary or emergency purposes, but
not in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 331/3% of the fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily
operations. Expenses paid out of Initial Class's assets are
reflected in its share price.
The fund pays a MANAGEMENT FEE to FMR for managing its
investments and business affairs. FMR in turn pays fees to
affiliates who provide assistance with these services. T he fund
also pays OTHER EXPENSES , which are explained at right .
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by the fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated at any time without notice, can decrease the
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month.
The fee is calculated by adding a group fee rate to an individual
fund fee rate, multiplying the result by the fund's monthly
average net assets , and dividing by twelve .
The group fee rate is based on the average net assets of all
the mutual funds advised by FMR. This rate cannot rise above 0.52%,
and it drops as total assets under management increase.
For December 1997, the group fee rate was 0.29%. The individual
fund fee rate is 0.20%. The total management fee for the fiscal
year ended December 31, 1997 was 0.49% of the fund's average net
assets.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on
issuers based outside the United States. Under the sub-advisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to the fund's investments that the
sub-adviser manages on a discretionary basis.
For the fiscal year ended December 31, 1997, FMR, on behalf of the
fund, paid FMR U.K. and FMR Far East fees equal to less than 0.01% of
the fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's
annual operating costs, the fund has other expenses as well.
FIIOC performs transfer agency, dividend disbursing , and
shareholder servicing functions for Initial Class of the fund.
Fidelity Service Co mpany, Inc. (FSC) calculates the net asset
value per share (NAV) and dividends for Initial Class of the
fund , maintains the fund's general accounting records , and
administers the fund's securities lending program .
For the fiscal year ended December 31, 1997, Initial Class of the fund
paid fees equal to 0.07% of Initial Class's average net assets for
transfer agency and related services, and the fund paid fees equal to
0.06% of the fund's average net assets for pricing and bookkeeping
services. These amounts are before expense reductions, if any.
For the fiscal year ended December 31, 1997, Initial Class's total
expenses amounted to 0.70% of Initial Class's average net assets.
Effective December 31, 1996, FMR has voluntarily agreed to reimburse
Initial Class of the fund to the extent that total operating expenses
(excluding interest, taxes, brokerage commissions, and extraordinary
expenses), as a percentage of its average net assets, exceed 1.00%.
The fund also pays other expenses, such as legal, audit, and custodian
fees; in some instances, proxy solicitation costs; and the
compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by the fund to
reduce the fund's custodian or transfer agent fees.
Initial Class shares of the fund have adopted a DISTRIBUTION AND
SERVICE PLAN. This Plan 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 the
distribution of Initial Class shares. FMR, directly or through FDC,
may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services
for, Initial Class shares. Currently, the Board of Trustees has
authorized such payments.
The fund's portfolio turnover rate for the fiscal year ended
December 31, 1997 was 81%. This rate varies from year to
year.
PERFORMANCE
The fund's total return and yield may be quoted in advertising in
accordance with current law and interpretations thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over
a given period of time, expressed as an annual percentage rate. Yields
are calculated according to a standard that is required for all stock
and bond funds. Because this differs from other accounting methods,
the quoted yield may not equal the income actually paid to
policyholders.
In calculating yield, the fund may from time to time use a
security ' s coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing the fund ' s yield.
Other illustrations of fund performance may show moving averages over
specified periods.
The fund's recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all
shareholders. For additional performance information, contact your
insurance company for a free annual report.
TOTAL RETURNS AND YIELDS QUOTED FOR A CLASS INCLUDE THE
CLASS'S EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES
ATTRIBUTABLE TO ANY PARTICULAR INSURANCE PRODUCT. BECAUSE SHARES OF
THE FUND MAY BE PURCHASED ONLY THROUGH VARIABLE ANNUITY AND VARIABLE
LIFE INSURANCE CONTRACTS, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS
OF THE INSURANCE PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT
CHARGES AND EXPENSES. Excluding these charges from quotations of a
class's performance has the effect of increasing the performance
quoted. You should bear in mind the effect of these charges when
comparing the fund's performance to that of other mutual funds.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
ACCOUNT POLICIES

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the goal of one or more of the funds matches your own.
To learn more about each fund and its investments, you can obtain a
copy of each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated April 30, 1998. The SAI has been filed with the Securities and
Exchange Commission (SEC) and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov). The SAI
is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-1916, or your insurance company.
Shares of each fund may be purchased only by the separate accounts of
insurance companies, for the purpose of funding variable annuity and
variable life insurance contracts. Particular funds may not be
available in your state due to various insurance regulations. Please
check with your insurance company for available funds. Inclusion in
this prospectus of a fund that is not available in your state is not
to be considered a solicitation. Please read this prospectus in
conjunction with the prospectus of the separate account of the
specific insurance product that accompanies this prospectus and keep
them on file for future reference.
INVESTMENTS IN MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT
THE FUND WILL MAINTAIN A STABLE $1.00 SHARE PRICE.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
VIP/VIPII/VIPIII-SMPRO-0498
701851
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
HIGH INCOME PORTFOLIO MAY INVEST SIGNIFICANTLY IN LOWER-QUALITY DEBT
SECURITIES, SOMETIMES CALLED "JUNK BONDS." THESE SECURITIES CARRY
GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN OTHER DEBT
SECURITIES.

VARIABLE
INSURANCE PRODUCTS
FUNDS
INITIAL CLASS
Variable Insurance Products Fund, Variable Insurance Products Fund II
and Variable Insurance Products Fund III (the Trusts) are designed to
provide investment vehicles for variable annuity and variable life
insurance contracts of various insurance companies. The Trusts
currently offer Initial Class shares of the following funds:
MONEY MARKET FUND
Money Market Portfolio
INCOME FUNDS
Investment Grade Bond Portfolio
High Income Portfolio
ASSET ALLOCATION FUNDS
Asset Manager Portfolio
Asset Manager: Growth Portfolio
GROWTH & INCOME AND GROWTH FUNDS
Balanced Portfolio
Equity-Income Portfolio
Index 500 Portfolio
Growth & Income Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio
PROSPECTUS
APRIL 30, 199 8 (FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
CONTENTS

KEY FACTS 2 THE FUNDS AT A GLANCE

4 WHO MAY WANT TO INVEST

6 FINANCIAL HIGHLIGHTS A summary of
each fund's financial data.

THE FUNDS IN DETAIL 21 CHARTER How each fund is organized.

22 INVESTMENT PRINCIPLES AND RISKS Each
fund's overall approach to investing.

29 BREAKDOWN OF EXPENSES How
operating costs are calculated and what
they include.

32 PERFORMANCE

ACCOUNT POLICIES 32 DISTRIBUTIONS AND TAXES

33 TRANSACTION DETAILS Share price
calculations and the timing of purchases
and redemptions.

33 APPENDIX

KEY FACTS

THE FUNDS AT A GLANCE
The funds contained in this prospectus are designed to provide
investment vehicles for variable annuity and variable life insurance
contracts of various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946
and is now America's largest mutual fund manager. Fidelity Investments
Money Management, Inc. (FIMM), a subsidiary of FMR, chooses
investments for Money Market Portfolio. Beginning January 1, 1999,
FIMM will choose investments for Investment Grade Bond Portfolio.
Beginning January 1, 1999, FIMM will choose certain types of
investments for Asset Manager, Asset Manager: Growth, and Balanced
Portfolios.
Bankers Trust Company (BT) is a wholly-owned subsidiary of Bankers
Trust New York Corporation, the seventh largest bank holding company
in the United States. BT currently serves as sub-adviser to Index 500
Portfolio and manages the fund's portfolio.
MONEY MARKET FUND
MONEY MARKET PORTFOLIO
GOAL: Income while maintaining a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term money market securities
of all types.
SIZE: As of December 31, 1997, the fund had over $1.0 billion in
assets.
INCOME FUNDS
INVESTMENT GRADE BOND PORTFOLIO
GOAL: High current income.
STRATEGY: Invests normally in investment-grade debt securities. FMR
uses the Lehman Brothers Aggregate Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of December 31, 1997, the fund had over $324 million in
assets.
HIGH INCOME PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in high-yielding debt securities, with an
emphasis on lower-quality securities.
SIZE: As of December 31, 1997, the fund had over $2.3 billion in
assets.
ASSET ALLOCATION FUNDS
ASSET MANAGER PORTFOLIO
GOAL: High total return with reduced risk over the long term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
and money market instruments, both here and abroad, to pursue its
goal. The fund has a neutral mix which represents the way the fund's
investments will generally be allocated over the long term. This mix
will vary over short-term periods as fund management gradually adjusts
the fund's holdings - within defined ranges - based on the current
outlook for the different markets.
Neutral Mix
Stocks 50%
(can range
from
30-70%)
Row: 1, Col: 1, Value: 20.0
Row: 1, Col: 2, Value: 40.0
Row: 1, Col: 3, Value: 40.0
Bonds 40%
(can range from
20-60%)
Short-Term/Money
Market 10%
(can range from
0-50%)
SIZE: As of December 31, 1997, the fund had over $4.3 billion in
assets.
ASSET MANAGER: GROWTH PORTFOLIO
GOAL: Maximum total return over the long term.
STRATEGY: The fund diversifies across stocks, bonds, and short-term
and money market instruments, both here and abroad, to pursue its
goal. The fund has a neutral mix which represents the way the fund's
investments will generally be allocated over the long term. This mix
will vary over short-term periods as fund management gradually adjusts
the fund's holdings - within defined ranges - based on the current
outlook for the different markets.
Neutral Mix
Stocks 70%
(can range
from
50-100%)
Row: 1, Col: 1, Value: 5.0
Row: 1, Col: 2, Value: 65.0
Row: 1, Col: 3, Value: 30.0
Bonds 25%
(can range from
0-50%)
Short-Term/Money
Market 5%
(can range from
0-50%)
SIZE: As of December 31, 1997, the fund had over $483 million in
assets.
GROWTH & INCOME AND GROWTH FUNDS
BALANCED PORTFOLIO
GOAL: Both income and growth of capital.
STRATEGY: Invests in a diversified portfolio of equity and
fixed-income securities.
SIZE: As of December 31, 1997, the fund had over $214 million in
assets.
EQUITY-INCOME PORTFOLIO
GOAL: Reasonable income. The fund also considers the potential for
capital appreciation.
STRATEGY: Invests mainly in income-producing equity securities.
SIZE: As of December 31, 1997, the fund had over $10.1 billion in
assets.
INDEX 500 PORTFOLIO
GOAL: Total return that corresponds to that of the Standard & Poor's
500 Index (S&P 500(registered trademark)).
STRATEGY: Invests in equity securities of companies that compose the
S&P 500 and in other instruments that are based on the value of the
index.
SIZE: As of December 31, 1997, the fund had over $2.0 billion in
assets.
GROWTH & INCOME PORTFOLIO
GOAL: High total return through a combination of current income and
capital appreciation.
STRATEGY: Invests mainly in equity securities of companies that pay
current dividends and offer potential growth of earnings.
SIZE: As of December 31, 1997, the fund had over $345 million in
assets.
GROWTH OPPORTUNITIES PORTFOLIO
GOAL: Capital growth.
STRATEGY: Invests primarily in common stocks and securities
convertible into common stocks.
SIZE: As of December 31, 1997, the fund had over $1.0 billion in
assets.
CONTRAFUND PORTFOLIO
GOAL: Capital appreciation.
STRATEGY: Invests mainly in equity securities of companies where value
is not fully recognized by the public.
SIZE: As of December 31, 1997, the fund had over $4.1 billion in
assets.
GROWTH PORTFOLIO
GOAL: Capital appreciation.
STRATEGY: Invests mainly in common stocks, although its investments
are not restricted to any one type of security.
SIZE: As of December 31, 1997, the fund had over $7.7 billion in
assets.
OVERSEAS PORTFOLIO
GOAL: Long-term growth of capital.
STRATEGY: Invests mainly in equity securities outside the United
States.
SIZE: As of December 31, 1997, the fund had over $1.9 billion in
assets.
AS WITH ANY INVESTMENT OPTION, THERE IS NO ASSURANCE THAT A FUND WILL
ACHIEVE ITS GOAL.
WHO MAY WANT TO INVEST
The value of each fund's (except Money Market Portfolio's) investments
and, as applicable, the income they generate, will vary from day to
day, and generally reflect changes in market conditions, interest
rates, and other company, political, and economic news both here and
abroad. In the short-term, stock prices can fluctuate dramatically in
response to these factors. The securities of smaller, less well-known
companies may be more volatile than those of larger companies. Bond
values fluctuate based on changes in interest rates and the credit
quality of the issuer, and may be subject to prepayment risk, which
can limit their price appreciation potential in periods of declining
interest rates. Over time, however, stocks, although more volatile,
have shown greater growth potential than other types of securities.
Investments in foreign securities may involve risks in addition to
those of U.S. investments, including increased political and economic
risk, as well as exposure to currency fluctuations.
Except for Money Market Portfolio shares, when fund shares are
redeemed, they may be worth more or less than their original cost. An
investment in any one fund is not in itself a balanced investment
plan.
Each fund (except Money Market Portfolio, Investment Grade Bond
Portfolio, and Index 500 Portfolio) is composed of multiple classes of
shares. All classes of a fund have a common investment objective and
investment portfolio. Initial Class shares, the original class of
shares, of each fund are offered at net asset value and are not
subject to a 12b-1 fee. Service Class shares of each fund (except
Money Market Portfolio, Investment Grade Bond Portfolio, and Index 500
Portfolio) are offered at net asset value and are subject to a 12b-1
fee. Because Initial Class shares are not subject to a 12b-1 fee,
Initial Class shares are expected to have a higher total return than
Service Class shares (excluding charges and expenses attributable to
any particular insurance product). Insurance companies may obtain more
information about Service Class shares, which are not offered through
this prospectus, by calling Fidelity at 1-800-544-1916.
MONEY MARKET PORTFOLIO
The fund may be appropriate for investors who would like to earn
income at current money market rates while preserving the value of
their investment. The fund is managed to keep its share price stable
at $1.00. The rate of income will vary from day to day, generally
reflecting short-term interest rates.
INVESTMENT GRADE BOND PORTFOLIO
The fund may be appropriate for investors who seek high current income
with a focus on investment-grade debt securities. The fund's level of
risk and potential reward depend on the quality and maturity of its
investments. With its focus on medium- to high-quality investments,
the fund has a moderate risk level and yield potential.
HIGH INCOME PORTFOLIO
The fund is designed for investors who want high current income with
some potential for capital growth from a portfolio of lower-quality
debt securities and income-producing equity securities. The fund may
be appropriate for long-term, aggressive investors who understand the
potential risks and rewards of investing in lower-quality debt,
including defaulted securities. Investors must be willing to accept
the fund's greater price movements and credit risks.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
The funds may be appropriate for investors who want to diversify among
domestic and foreign stocks, bonds, short-term and money market
instruments, and other types of securities, in one fund. Asset Manager
Portfolio spreads its assets among all three asset classes moderating
both its risk and return potential. Asset Manager: Growth Portfolio,
while spreading its assets among all three asset classes, uses a more
aggressive approach by focusing on stocks for a higher potential
return.
Because each fund owns different types of investments, its performance
is affected by a variety of factors. The value of each fund's
investments and the income they generate will vary from day to day,
and generally reflect interest rates, market conditions, and other
company, political, and economic news. Performance also depends on
FMR's skill in allocating assets.
BALANCED PORTFOLIO
The fund is designed for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns.
The fund is designed for investors who seek a combination of growth
and income from equity and some bond investments.
EQUITY-INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who want some income from
equity and bond investments, but also want to be invested in the stock
market for its long-term growth potential.
INDEX 500 PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who want to keep expenses low
while pursuing growth of capital and income through a portfolio of
securities that includes common stocks of companies representing a
significant portion of the market value of all common stocks publicly
traded in the United States, as measured by the S&P 500.
Because the fund seeks to track, rather than beat, the performance of
the S&P 500, the fund is not managed in the same manner as other
mutual funds. BT generally does not judge the merits of any particular
stock as an investment. Therefore, you should not expect to achieve
the potentially greater results that could be obtained by a fund that
aggressively seeks growth.
GROWTH & INCOME PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who seek a combination of
growth and income from equity and some bond investments.
GROWTH OPPORTUNITIES PORTFOLIO
The fund is designed for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns.
The fund is designed for investors who want to be invested in the
stock market for its long-term growth potential. The fund invests for
growth and does not pursue income.
CONTRAFUND PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who are looking for an
investment approach that follows a contrarian philosophy. This
approach focuses on companies whose values FMR believes are not fully
recognized by the public.
GROWTH PORTFOLIO
The fund may be appropriate for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term
returns. The fund is designed for those who want to pursue growth
wherever it may arise, and who understand that this strategy often
leads to investments in smaller companies. The fund invests for growth
and does not pursue an income strategy.
OVERSEAS PORTFOLIO
The fund may be appropriate for investors who want to pursue their
investment goals in markets outside the United States. By including
international investments in your portfolio, you can achieve
additional diversification and participate in growth opportunities
around the world. However, it is important to note that investments in
foreign securities involve risks in addition to those of U.S.
investments.
In addition to general risks, international investing involves
different or increased risks. The performance of international funds
depends upon currency values, the political and regulatory
environment, and overall economic factors in the countries in which a
fund invests. These risks are particularly significant for funds that
invest in emerging markets. See "INVESTMENT PRINCIPLES AND RISKS" on
page .
A broadly diversified fund could be appropriate for investors first
entering the international markets or those who are interested in
broad participation in multiple markets around the world.
THE SPECTRUM OF
FIDELITY FUNDS
BROAD CATEGORIES OF FIDELITY
FUNDS ARE PRESENTED HERE IN
ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO
MAXIMIZE RETURN MUST ASSUME
GREATER RISK. THE FUNDS IN THIS
PROSPECTUS ARE IN ONE OF THE
FOLLOWING CATEGORIES.
(SOLID BULLET) MONEY MARKET SEEKS
INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY,
SHORT-TERM INVESTMENTS.
(SOLID BULLET) INCOME SEEKS INCOME BY
INVESTING IN BONDS.
(SOLID BULLET) ASSET ALLOCATION SEEKS
HIGH TOTAL RETURN WITH REDUCED
RISK THROUGH A MIX OF STOCKS,
BONDS, AND SHORT-TERM AND
MONEY MARKET INSTRUMENTS.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
(CHECKMARK)
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by
Coopers & Lybrand L.L.P. (Money Market, High Income, Equity-Income,
Growth, and Overseas Portfolios) or Price Waterhouse LLP (Investment
Grade Bond, Asset Manager, Asset Manager: Growth, Balanced, Index 500,
Growth & Income, Growth Opportunities, and Contrafund Portfolios),
independent accountants. The funds' financial highlights, financial
statements, and reports of the auditors are included in the funds'
Annual Reports and are incorporated by reference into (are legally a
part of) the funds' SAI.
MONEY MARKET PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.Selected Per-Share Data and Ratios

2.Years ended December 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
31

3.Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
beginning of period

4.Income from Investment .053 .052 .057 .042 .032 .038 .059 .078 .087 .071
Operations
Net interest income

5.Less Distributions (.053) (.052) (.057) (.042) (.032) (.038) (.059) (.078) (.087) (.071)
From net interest income

6.Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
end of period

7.Total returnA,B 5.51% 5.41% 5.87% 4.25% 3.23% 3.90% 6.09% 8.04% 9.12% 7.39%

8.Net assets, end of period $ 1,021 $ 1,126 $ 809 $ 749 $ 353 $ 301 $ 271 $ 255 $ 143 $ 106
(In millions)

9.Ratio of expenses to .31% .30% .33% .27% .22%C .24% .38% .56% .67% .60%
average net assets

10.Ratio of net interest 5.32% 5.28% 5.72% 4.32% 3.16% 3.85% 5.93% 7.76% 8.70% 7.16%
income to average net
assets

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11.Selected Per-Share Data and Ratios

12.Years ended December 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988D
31

13.Net asset value, $ 12.240 $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000 $ 10.000
beginning of period

14.Income from
Investment .759F .670 .320 .733 .641 .672 .455 .826 .827 .052
Operations
Net investment income

15. Net realized and .291 (.290) 1.530 (1.163) .559 .058 1.165 (.220) .160 --
unrealized
gain (loss)

16. Total from
investment 1.050 .380 1.850 (.430) 1.200 .730 1.620 .606 .987 .052
operations

17.Less Distributions (.730) (.620) (.390) -- (.628) (.680) (.460) (.826) (.827) (.052)
From net investment
income

18. In excess of net -- -- -- -- (.002) -- -- -- -- --
investment income

19. From net realized
gain -- -- -- (.010) (.050) (.160) -- -- (.020) --

20. In excess of net -- -- -- (.020) (.010) -- -- -- -- --
realized gain

21. Total
distributions (.730) (.620) (.390) (.030) (.690) (.840) (.460) (.826) (.847) (.052)

22.Net asset value, $ 12.560 $ 12.240 $ 12.480 $ 11.020 $ 11.480 $ 10.970 $ 11.080 $ 9.920 $ 10.140 $ 10.000
end of period

23.Total returnB,C 9.06% 3.19% 17.32% (3.76)% 10.96% 6.65% 16.38% 6.21% 10.26% .52%

24.Net assets, end of
period $ 325 $ 229 $ 182 $ 111 $ 122 $ 74 $ 45 $ 14 $ 6 $ 3

(In millions)

25.Ratio of expenses
to .58% .58% .59% .67% .68% .76% .80%E .80%E .80%E .80%A,E
average net assets

26.Ratio of net
investment 6.34% 6.49% 6.53% 6.53% 6.85% 7.11% 7.73% 8.26% 8.19% 6.99%A
income to average net assets

27.Portfolio turnover
rate 191% 81% 182% 143% 70% 119% 128% 122% 67% 0%

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28.Selected Per-Share Data and Ratios

29.Years ended
December 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
31

30.Net asset value, $ 12.520 $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660 $ 9.680
beginning of period

31.Income from
Investment 1.124C .927 .856 .770 .728 .790 .890 .858 1.202 1.110
Operations
Net investment income

32. Net realized and .936 .643 1.224 (.910) 1.332 1.290 1.590 (1.040) (1.550) (.020)
unrealized gain (loss)

33. Total from investment 2.060 1.570 2.080 (.140) 2.060 2.080 2.480 (.182) (.348) 1.090
operations

34.Less Distributions (.890) (.920) (.780) (.730) (.794) (.810) -- (.858) (1.202) (1.110)
From net investment
income

35. In excess of net -- -- -- -- (.036) -- -- -- -- --
investment income

36. From net realized
gain (.110) (.180) -- (.370) (.060) -- -- -- -- --

37. Total distributions (1.000) (1.100) (.780) (1.100) (.890) (.810) -- (.858) (1.202) (1.110)

38.Net asset value, $ 13.58 $ 12.520 $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660
end of period

39.Total returnA,B 17.67% 14.03% 20.72% (1.64)% 20.40% 23.17% 35.08% (2.23)% (4.17)% 11.64%

40.Net assets, end of
period $ 2,330 $ 1,589 $ 1,040 $ 569 $ 464 $ 201 $ 70 $ 30 $ 34 $ 30

(In millions)

41.Ratio of expenses
to .71% .71% .71% .71% .64%D .67% .97% 1.00%D .93% .99%
average net assets

42.Ratio of net
investment 8.88% 9.09% 9.32% 8.75% 8.69% 10.98% 12.94% 11.36% 12.94% 11.41%
income to average net assets

43.Portfolio turnover
rate 118% 123% 132% 122% 155% 160% 154% 156% 124% 139%

44.Average commission $ .0389 $ .0370
rateE

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
ASSET MANAGER PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
45.Selected Per-Share Data and Ratios

46.Years ended December 1997 1996 1995 1994 1993 1992 1991 1990 1989D
31

47.Net asset value, $ 16.93 $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97 $ 10.00
beginning of period

48.Income from
Investment Operations

49. Net investment .57E .63 .30 .45 .33 .32 .35 .41 .09
income

50. Net realized and 2.58 1.55 1.99 (1.33) 2.39 1.09 1.96 .26 (.01)
unrealized gain (loss)

51. Total from investment 3.15 2.18 2.29 (.88) 2.72 1.41 2.31 .67 .08
operations

52.Less Distributions

53. From net investment (.59) (.57) (.29) (.29) (.33) (.31) -- (.40) (.09)
income

54. In excess of net -- -- -- -- (.04) -- -- -- --
investment income

55. From net realized gain (1.48) (.47) -- (.46) (.25) (.33) -- -- (.02)

56. Total distributions (2.07) (1.04) (.29) (.75) (.62) (.64) -- (.40) (.11)

57.Net asset value, $ 18.01 $ 16.93 $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97
end of period

58.Total returnB,C 20.65% 14.60% 16.96% (6.09)% 21.23% 11.71% 22.56% 6.72% .81%

59.Net assets, end of $ 4,400 $ 3,641 $ 3,333 $ 3,291 $ 2,423 $ 732 $ 194 $ 36 $ 7
period (In millions)

60.Ratio of expenses to .65% .74% .81% .81% .88% .91% 1.08% 1.25%F 2.50%A,F
average net assets

61.Ratio of expenses to .64%G .73%G .79%G .80%G .88% .91% 1.08% 1.25% 2.50%A
average net assets after
expense reductions

62.Ratio of net investment 3.43% 3.60% 3.54% 4.07% 3.64% 4.89% 5.89% 5.92% 4.77%A
income to average net
assets

63.Portfolio turnover rate 101% 168% 256% 85% 113% 92% 110% 117% 158%A

64.Average commission $ .0408 $ .0163
rateH

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D FOR THE PERIOD SEPTEMBER 6, 1989 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1989.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
ASSET MANAGER: GROWTH PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C>
65.Selected Per-Share Data and Ratios

66.Years ended December 31 1997 1996 1995C

67.Net asset value, beginning of period $ 13.10 $ 11.77 $ 10.00

68.Income from Investment Operations

69. Net investment income .36G .21 .10

70. Net realized and unrealized gain (loss) 2.92 2.08 2.20

71. Total from investment operations 3.28 2.29 2.30

72.Less Distributions

73. From net investment income -- (.21) (.11)

74. From net realized gain (.02) (.75) (.42)

75. Total distributions (.02) (.96) (.53)

76.Net asset value, end of period $ 16.36 $ 13.10 $ 11.77

77.Total returnA,B 25.07% 20.04% 23.02%

78.Net assets, end of period (In millions) $ 483 $ 253 $ 68

79.Ratio of expenses to average net assets .77% .87% 1.00%D

80.Ratio of expenses to average net assets after expense reductions .76%E .85%E 1.00%

81.Ratio of net investment income to average net assets 2.44% 2.63% 1.69%

82.Portfolio turnover rate 90% 120% 343%

83.Average commission rateF $ .0399 $ .0211

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1995.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
BALANCED PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C>
84.Selected Per-Share Data and Ratios

85.Years ended December 31 1997 1996 1995C

86.Net asset value, beginning of period $ 12.23 $ 11.17 $ 10.00

87.Income from Investment Operations

88. Net investment income .44H .33 .14

89. Net realized and unrealized gain (loss) 2.22 .78 1.25

90. Total from investment operations 2.66 1.11 1.39

91.Less Distributions

92. From net investment income (.31) (.01)D (.14)

93. From net realized gain -- (.04)D (.08)

94. Total distributions (.31) (.05) (.22)

95.Net asset value, end of period $ 14.58 $ 12.23 $ 11.17

96.Total returnA,B 22.18% 9.98% 13.92%

97.Net assets, end of period (In millions) $ 215 $ 103 $ 43

98.Ratio of expenses to average net assets .61% .72% 1.42%E

99.Ratio of expenses to average net assets after expense reductions .60%F .71%F 1.42%

100.Ratio of net investment income to average net assets 3.28% 3.63% 3.56%

101.Portfolio turnover rate 98% 163% 248%

102.Average commission rateG $ .0423 $ .0165

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
103.Selected Per-Share Data and Ratios

104.Years ended December 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
31

105.Net asset value, $ 21.03 $ 19.27 $ 15.35 $ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01 $ 9.42
beginning of period

106.Income from
Investment Operations

107. Net investment .36D .35 .41 .41 .37 .40 .50 .58 .60 .53
income

108. Net realized and 5.06 2.30 4.69 .64 2.06 1.57 2.43 (2.38) 1.29 1.59
unrealized gain (loss)

109. Total from 5.42 2.65 5.10 1.05 2.43 1.97 2.93 (1.80) 1.89 2.12
investment
operations

110.Less Distributions

111. From net investment (.36) (.03) (.40) (.37) (.35) (.42) (.59) (.59) (.52) (.53)
income

112. In excess of net -- -- -- -- (.04) -- -- -- -- --
investment income

113. From net realized (1.81) (.86) (.78) (.77) -- -- -- (.39) (.09) --
gain

114. Total distributions (2.17) (.89) (1.18) (1.14) (.39) (.42) (.59) (.98) (.61) (.53)

115.Net asset value, $ 24.28 $ 21.03 $ 19.27 $ 15.35 $ 15.44 $ 13.40 $ 11.85 $ 9.51 $ 12.29 $ 11.01
end of period

116.Total returnA,B 28.11% 14.28% 35.09% 7.07% 18.29% 16.89% 31.44% (15.29)% 17.34% 22.71%

117.Net assets, end of $ 10,107 $ 6,961 $ 4,879 $ 2,284 $ 1,319 $ 593 $ 282 $ 154 $ 143 $ 52
period
(In millions)

118.Ratio of expenses to .58% .58% .61% .60% .62% .65% .74% .78% .85% 1.13%
average net assets

119.Ratio of expenses to .57%C .56%C .61% .58%C .62% .65% .74% .78% .85% 1.13%
average net assets after
expense reductions

120.Ratio of net investment 1.65% 1.97% 2.56% 2.83% 2.87% 3.52% 4.83% 6.01% 5.82% 5.36%
income to average net assets

121.Portfolio turnover 44% 186% 87% 134% 120% 74% 107% 94% 78% 69%
rate

122.Average commission $ .0440 $ .0426
rateE

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING FOR THE PERIOD.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
INDEX 500 PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
123.Selected Per-Share Data and Ratios

124.Years ended December 31 1997 1996 1995 1994 1993 1992D

125.Net asset value, beginning of period $ 89.05 $ 75.71 $ 56.22 $ 55.74 $ 52.60 $ 50.00

126.Income from Investment Operations

127. Net investment income 1.80E 1.04 .85 1.14 1.31 .44

128. Net realized and unrealized gain 26.67 15.55 19.72 (.56) 3.80 2.71
(loss)

129. Total from investment operations 28.47 16.59 20.57 .58 5.11 3.15

130.Less Distributions

131. From net investment income (1.03) (.91) (.95) -- (1.28) (.47)

132. From net realized gain (2.09) (2.34) (.11) (.10) (.60) (.08)

133. In excess of net realized gain -- -- (.02) -- (.09) --

134. Total distributions (3.12) (3.25) (1.08) (.10) (1.97) (.55)

135.Net asset value, end of period $ 114.40 $ 89.05 $ 75.71 $ 56.22 $ 55.74 $ 52.60

136.Total returnB,C 32.83% 22.71% 37.19% 1.04% 9.74% 6.31%

137.Net assets, end of period (In millions) $ 2,098 $ 823 $ 246 $ 51 $ 25 $ 18

138.Ratio of expenses to average net .28%F .28%F .28%F .28%F .28%F .28%A,F
assets

139.Ratio of net investment income to 1.74% 2.26% 2.70% 2.81% 2.65% 2.89%A
average net assets

140.Portfolio turnover rate 9% 14% 16% 2% 9% 0%

141.Average commission rateG $ .0268 $ .0315

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D FOR THE PERIOD AUGUST 27, 1992 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1992.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING FOR THE PERIOD.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
GROWTH & INCOME PORTFOLIO - INITIAL CLASS
142.Selected Per-Share Data and Ratios

143.Years ended December 31 1997 1996D

144.Net asset value, beginning of period $ 9.90 $ 10.00

145.Income from Investment Operations

146. Net investment income .13G --

147. Net realized and unrealized gain (loss) 2.84 (.10)

148. Total from investment operations 2.97 (.10)

149.Less Distributions

150. From net investment income (.08) --

151. From net realized gain (.26) --

152. Total distributions (.34) --

153.Net asset value, end of period $ 12.53 $ 9.90

154.Total returnB,C 30.09% (1.00)%

155.Net assets, end of period (In millions) $ 345 $ 0.99

156.Ratio of expenses to average net assets .70% 1.00%A,E

157.Ratio of net investment income to average net assets 1.14% 3.89%A

158.Portfolio turnover rate 81% 0%

159.Average commission rateF $ .0322 $ .0120

<TABLE>
<CAPTION>
<S> <C> <C> <C>
160.Selected Per-Share Data and Ratios

161.Years ended December 31 1997 1996 1995C

162.Net asset value, beginning of period $ 15.40 $ 13.07 $ 10.00

163.Income from Investment Operations

164. Net investment income .29G .26 .11

165. Net realized and unrealized gain (loss) 4.18 2.12 3.14

166. Total from investment operations 4.47 2.38 3.25

167.Less Distributions

168. From net investment income (.25) -- (.11)

169. From net realized gain (.35) (.05) (.07)

170. Total distributions (.60) (.05) (.18)

171.Net asset value, end of period $ 19.27 $ 15.40 $ 13.07

172.Total returnA,B 29.95% 18.27% 32.52%

173.Net assets, end of period (In millions) $ 1,026 $ 383 $ 164

174.Ratio of expenses to average net assets .74% .77% .85%D

175.Ratio of expenses to average net assets after expense reductions .73%E .76%E .83%E

176.Ratio of net investment income to average net assets 1.68% 2.29% 2.49%

177.Portfolio turnover rate 26% 28% 38%

178.Average commission rateF $ .0377 $ .0367

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1995.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
CONTRAFUND PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C>
179.Selected Per-Share Data and Ratios

180.Years ended December 31 1997 1996 1995C

181.Net asset value, beginning of period $ 16.56 $ 13.79 $ 10.00

182.Income from Investment Operations

183. Net investment income .16F .14 .06

184. Net realized and unrealized gain (loss) 3.73 2.76 3.91

185. Total from investment operations 3.89 2.90 3.97

186.Less Distributions

187. From net investment income (.14) -- (.06)

188. From net realized gain (.37) (.13) (.12)

189. Total distributions (.51) (.13) (.18)

190.Net asset value, end of period $ 19.94 $ 16.56 $ 13.79

191.Total returnA,B 24.14% 21.22% 39.72%

192.Net assets, end of period (In millions) $ 4,108 $ 2,394 $ 877

193.Ratio of expenses to average net assets .71% .74% .72%

194.Ratio of expenses to average net assets after expense reductions .68%D .71%D .72%

195.Ratio of net investment income to average net assets .90% 1.33% 1.07%

196.Portfolio turnover rate 142% 178% 132%

197.Average commission rateE $ .0336 $ .0343

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1995.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
GROWTH PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
198.Selected Per-Share Data and Ratios

199.Years ended December 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
31

200.Net asset value, $ 31.14 $ 29.20 $ 21.69 $ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72 $ 10.14
beginning of period

201.Income from
Investment Operations

202. Net investment .20C .22 .08 .12 .12 .09 .09C .24 .24 .19
income

203. Net realized and 6.91 3.82 7.55 (.12) 3.64 1.64 5.72 (1.98) 3.41 1.39
unrealized gain (loss)

204. Total from 7.11 4.04 7.63 -- 3.76 1.73 5.81 (1.74) 3.65 1.58
investment
operations

205.Less Distributions

206. From net investment (.21) (.08) (.12) (.12) (.11) (.05) (.21) (.21) (.19) --
income

207. From net realized (.94) (2.02) -- (1.27) (.21) (.43) -- (.32) -- --
gain

208. In excess of net -- -- -- -- (.12) -- -- -- -- --
realized gain

209. Total distributions (1.15) (2.10) (.12) (1.39) (.44) (.48) (.21) (.53) (.19) --

210.Net asset value, $ 37.10 $ 31.14 $ 29.20 $ 21.69 $ 23.08 $ 19.76 $ 18.51 $ 12.91 $ 15.18 $ 11.72
end of period

211.Total returnA,B 23.48% 14.71% 35.36% (.02)% 19.37% 9.32% 45.51% (11.73)% 31.51% 15.58%

212.Net assets, end of $ 7,727 $ 6,086 $ 4,163 $ 2,142 $ 1,384 $ 750 $ 371 $ 135 $ 77 $ 29
period
(In millions)

213.Ratio of expenses to .69% .69% .70% .70% .71% .75% .84% .88% 1.02% 1.24%
average net assets

214.Ratio of expenses to .67%D .67%D .70% .69%D .71% .75% .84% .88% 1.02% 1.24%
average net assets after
expense reductions

215.Ratio of net investment .58% .81% .37% .69% .72% .83% .56% 2.69% 2.83% 1.91%
income to average net assets

216.Portfolio turnover 113% 81% 108% 122% 159% 262% 261% 88% 111% 155%
rate

217.Average commission $ .0428 $ .0416
rateE

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
OVERSEAS PORTFOLIO - INITIAL CLASS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
218.Selected Per-Share Data and Ratios

219.Years ended December 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
31

220.Net asset value, $ 18.84 $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11 $ 9.35
beginning of period

221.Income from Investment
Operations

222. Net investment income .30C .32C,D .17 .19 .06 .16 .24 .18 .07 .09

223. Net realized and 1.70 1.88 1.34 .08 4.16 (1.54) .74 (.39) 2.57 .67
unrealized gain (loss)

224. Total from investment 2.00 2.20 1.51 .27 4.22 (1.38) .98 (.21) 2.64 .76
operations

225.Less Distributions

226. From net investment (.33) (.20) (.06) (.08) (.18) (.18) (.17) (.04) (.08) --
income

227. In excess of net -- -- -- -- (.04) -- -- -- -- --
investment income

228. From net realized gain (1.31) (.22) (.02) -- -- -- (.14)H -- -- --

229. In excess of net -- -- (.04) -- (.05) -- -- -- -- --
realized gain

230. Total distributions (1.64) (.42) (.12) (.08) (.27) (.18) (.31) (.04) (.08) --

231.Net asset value, end of $ 19.20 $ 18.84 $ 17.06 $ 15.67 $ 15.48 $ 11.53 $ 13.09 $ 12.42 $ 12.67 $ 10.11
period

232.Total returnA,B 11.56% 13.15% 9.74% 1.72% 37.35% (10.72)% 8.00% (1.67)% 26.28% 8.13%

233.Net assets, end of $ 1,926 $ 1,668 $ 1,343 $ 1,298 $ 778 $ 181 $ 126 $ 81 $ 26 $ 9
period
(In millions)

234.Ratio of expenses to .92% .93% .91% .92% 1.03% 1.14% 1.26% 1.41% 1.50%E 1.50%E
average net assets

235.Ratio of expenses to .90%F .92%F .91% .92% 1.03% 1.14% 1.26% 1.41% 1.50% 1.50%
average net assets after
expense reductions

236.Ratio of net investment 1.55% 1.84% 1.88% 1.28% 1.21% 1.86% 2.33% 1.89% .66% .84%
income to average net assets

237.Portfolio turnover rate 67% 92% 50% 42% 42% 61% 168% 100% 78% 95%

238.Average commission $ .0092 $ .0137
rateG

</TABLE>

A TOTAL RETURNS DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D NET INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND FROM
VOLVO AB WHICH AMOUNTED TO $.05 PER SHARE.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'S EXPENSES.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
H INCLUDES AMOUNTS DISTRIBUTED FROM NET REALIZED GAIN ON FOREIGN
CURRENCY RELATED TRANSACTIONS TAXABLE AS ORDINARY INCOME.
THE FUNDS IN DETAIL

CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. Money Market, High
Income, Equity-Income, Growth and Overseas Portfolios are diversified
funds of Variable Insurance Products Fund (VIP); Investment Grade
Bond, Asset Manager, Index 500, Asset Manager: Growth and Contrafund
Portfolios are diversified funds of Variable Insurance Products Fund
II (VIP II); and Growth & Income, Balanced and Growth Opportunities
Portfolios are diversified funds of Variable Insurance Products Fund
III (VIP III). VIP, VIP II, and VIP III are open-end management
investment companies organized as Massachusetts business trusts on
November 13, 1981, March 21, 1988, and July 14, 1994, respectively.
There is a remote possibility that one fund might become liable for a
misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity or BT.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. An insurance company issuing a variable
contract that participates in the funds will vote shares held in its
separate account as required by law and interpretations thereof, as
may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance
company is required to request voting instructions from policy owners
and must vote shares in the separate account in proportion to the
voting instructions received. With respect to funds of VIP and VIP II,
your insurance company is entitled to one vote for each share it owns.
With respect to funds of VIP III, the number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your insurance
company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust,
respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business
address at 82 Devonshire Street, Boston, Massachusetts 02109. It
includes a number of different subsidiaries and divisions which
provide a variety of financial services and products. The funds employ
various Fidelity companies to perform activities required for their
operation.
The funds are managed by FMR, which handles their business affairs
and, with the assistance of affiliates for certain funds, chooses
their investments. Beginning January 1, 1999, FIMM, located in
Merrimack, New Hampshire, will select certain types of investments for
Asset Manager, Asset Manager: Growth, and Balanced Portfolios.
Beginning January 1, 1999, FIMM will have primary responsibility for
providing investment management services for Investment Grade Bond
Portfolio.
(small solid bullet) FIMM has primary responsibility for providing
investment management services for Money Market Portfolio.
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for High Income,
Asset Manager, Asset Manager: Growth, Balanced, Growth & Income,
Growth Opportunities, Contrafund, and Overseas Portfolios.
(small solid bullet) Fidelity Management & Research (Far East) Inc.
(FMR Far East), in Tokyo, Japan, serves as a sub-adviser for High
Income, Asset Manager, Asset Manager: Growth, Balanced, Growth &
Income, Growth Opportunities, Contrafund, and Overseas Portfolios.
FIDELITY FACTS (checkmark)
Fidelity offers the broadest selection of mutual funds in the world.
(bullet) Number of Fidelity mutual funds: over 226
(bullet) Assets in Fidelity mutual funds: over $529 billion
(bullet) Number of shareholder accounts: over 34 million
(bullet) Number of investment analysts and portfolio managers: over
265
(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda, serves as a sub-adviser for Overseas
Portfolio.
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L), in London, England, serves as a sub-adviser for
Overseas Portfolio.
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. Previously, he was division head for international equities and
director of international research from 1991 to 1996. 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. Mr. Avery received his MBA
from The Wharton School at the University of Pennsylvania in 1993.
Kevin Grant is Vice President and manager of VIP II: Investment Grade
Bond Portfolio, which he has managed since February 1997. He also is
Vice President of VIP III: Balanced Portfolio and manager of its
fixed-income investments since March 1996. He also manages several
other Fidelity funds. Mr. Grant joined Fidelity as a portfolio manager
in 1993.
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.
Steven Kaye is Vice President and manager of VIP III: Growth & Income
Portfolio, which he has managed since April 1998. He also manages
another Fidelity fund. Since joining Fidelity in 1985, Mr. Kaye has
worked as an analyst, manager, and assistant director of equity
research.
Louis Salemy is associate manager of VIP III: Growth & Income
Portfolio, which he has managed since April 1998. Previously, he
managed other Fidelity funds. Since joining Fidelity in 1992, Mr.
Salemy has worked as an analyst, manager, and portfolio assistant.
George Vanderheiden is Vice President and manager of VIP III: Growth
Opportunities Portfolio, which he has managed since January 1995. He
also manages several other Fidelity funds. Mr. Vanderheiden joined
Fidelity in 1971 and has worked as a portfolio manager since 1980.
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.
Will Danoff is Vice President and manager of VIP II: Contrafund
Portfolio, which he has managed since inception. 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.
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; High Income Portfolio is most similar to Spartan High Income
Fund; Equity-Income Portfolio is most similar to Fidelity
Equity-Income Fund; Growth Portfolio is most similar to Fidelity
Growth Company Fund; Overseas Portfolio is most similar to Fidelity
Overseas Fund; Investment Grade Bond Portfolio is most similar to
Fidelity Investment Grade Bond Fund; Asset Manager Portfolio is most
similar to Fidelity Asset Manager; Index 500 Portfolio is most similar
to Spartan Market Index Fund; Contrafund Portfolio is most similar to
Fidelity Contrafund; Asset Manager: Growth Portfolio is most similar
to Fidelity Asset Manager: Growth; Growth & Income Portfolio is most
similar to Fidelity Growth & Income Portfolio; Balanced Portfolio is
most similar to Fidelity Advisor Balanced Fund; and Growth
Opportunities Portfolio is most similar to Fidelity Advisor Growth
Opportunities Fund. The performance of a separate account investing in
a fund is not expected to be the same as the performance of the fund
due in part to dissimilarities in their investments. Various
insurance-related costs at the insurance company's separate account
will also affect performance.
Each fund sells its shares to separate accounts of insurance companies
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. In addition, the Board of
Trustees may refuse to sell shares of any fund to any separate account
or may suspend or terminate the offering of shares of any fund if such
action is required by law or regulatory authority or is in the best
interests of the shareholders of the fund.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Investments Institutional Operations Company, Inc. (FIIOC)
performs transfer agent servicing functions for Initial Class of each
fund.
FMR Corp. is the ultimate parent company of FMR, FIMM, FMR U.K., and
FMR Far East. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the
Investment Company Act of 1940 (the 1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
Fidelity International Limited (FIL) is the parent company of FIIA and
FIIA(U.K.)L. The Johnson family group also owns, directly or
indirectly, more than 25% of the voting common stock of FIL.
BT AND ITS AFFILIATES
Index 500 Portfolio is managed by FMR, which handles its business
affairs. BT, Index 500 Portfolio's sub-adviser, chooses the fund's
investments. FMR supervises the sub-adviser and, in conjunction with
the Board of Trustees, reviews the sub-adviser's performance of its
duties. BT also acts as Index 500 Portfolio's custodian.
BT, a New York banking corporation with principal offices at 130
Liberty Street, New York, New York 10006, is a wholly-owned subsidiary
of Bankers Trust New York Corporation.
BT, subject to the supervision and direction of the Board of Trustees
and FMR, makes investment decisions for Index 500 Portfolio, places
orders to buy, sell and lend the fund's investments, and manages the
fund in accordance with its investment objective and policies. BT may
utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist in its role as sub-adviser. BT places orders for
portfolio transactions with broker-dealers and other firms of its
choosing, which may include affiliates of BT or FMR.
BT investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
FMR and BT may use their broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of the funds' investments varies in response to many
factors. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions.
The yield and share price of a bond fund change daily based on changes
in interest rates and market conditions, and in response to other
economic, political or financial events. The types and maturities of
the securities a bond fund purchases and the credit quality of their
issuers will impact a bond fund's reaction to these events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
In general, bond prices rise when interest rates fall and fall when
interest rates rise. Longer-term bonds are usually more sensitive to
interest rate changes. In other words, the longer the maturity of a
bond, the greater the impact a change in interest rates is likely to
have on the bond's price. In addition, short-term interest rates and
long-term interest rates do not necessarily move in the same amount or
in the same direction. A short-term bond tends to react to changes in
short-term interest rates and a long-term bond tends to react to
changes in long-term interest rates.
The price of a bond is affected by the credit quality of its issuer.
Changes in the financial condition of an issuer, changes in general
economic conditions, and changes in specific economic conditions that
affect a particular type of issuer can impact the credit quality of an
issuer. Lower quality bonds generally tend to be more sensitive to
these changes than higher quality bonds.
Many types of debt securities, including mortgage securities, are
subject to prepayment risk. Prepayment risk occurs when the issuer of
a security can prepay principal prior to the security's maturity.
Securities subject to prepayment risk generally offer less potential
for gains during a declining interest rate environment, and similar or
greater potential for loss in a rising interest rate environment. In
addition, the potential impact of prepayment features on the price of
a debt security may be difficult to predict and result in greater
volatility.
Funds which invest in foreign securities have increased economic and
political risks as they are exposed to events and factors in the
various world markets. This is especially true for funds that invest
in emerging markets. Also, because certain of the funds' investments
are denominated in foreign currencies, changes in the value of foreign
currencies can significantly affect a fund's share price. FMR (BT for
Index 500 Portfolio) may use a variety of investment techniques to
either increase or decrease a fund's investment exposure to any
currency.
FMR (BT for Index 500 Portfolio) may use various techniques to hedge a
portion of a fund's risks, but there is no guarantee that these
strategies will work as intended. When fund shares are redeemed, they
may be worth more or less than their original cost.
FMR (BT for Index 500 Portfolio) normally invests each fund's assets
according to its investment strategy. High Income, Asset Manager,
Asset Manager: Growth, Balanced, Equity-Income, Index 500, Growth &
Income, Growth Opportunities, Contrafund, Growth, and Overseas
Portfolios also reserve the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes. Overseas Portfolio may invest in short-term debt
securities and money market instruments for cash management purposes.
Investment Grade Bond Portfolio reserves the right to invest without
limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.
MONEY MARKET PORTFOLIO
The fund seeks to earn a high level of current income while
maintaining a stable $1.00 share price by investing in high-quality,
short-term securities. The fund invests only in high-quality U.S.
dollar-denominated money market securities of domestic and foreign
issuers, including U.S. Government securities and repurchase
agreements. The fund also may enter into reverse repurchase
agreements.
The fund complies with industry-standard requirements on the quality,
maturity, and diversification of its investments, which are designed
to help maintain a stable $1.00 share price. Of course, there is no
guarantee that the fund will maintain a stable $1.00 share price. The
fund will purchase only high-quality securities that FMR believes
present minimal credit risks and will observe maturity restrictions on
securities it buys. In general, securities with longer maturities are
more vulnerable to price changes, although they may provide higher
yields. It is possible that a major change in interest rates or a
default on the fund's investments could cause its share price (and the
value of an investment) to change.
The fund earns income at current money market rates. It stresses
income, preservation of capital, and liquidity, and does not seek the
higher yields or capital appreciation that more aggressive investments
may provide. The fund's yield will vary from day to day and generally
reflects current short-term interest rates and other market
conditions.
It is important to note that neither the fund nor its yield is insured
or guaranteed by the U.S. Government.
INVESTMENT GRADE BOND PORTFOLIO
The fund seeks as high a level of current income as is consistent with
the preservation of capital by investing primarily in a broad range of
fixed-income securities. FMR normally invests at least 65% of the
fund's total assets in investment-grade, fixed-income securities such
as bonds, notes and debentures.
In managing the fund, FMR selects a benchmark index that is
representative of the universe of securities in which the fund
invests. FMR uses this benchmark as a guide in structuring the fund
and selecting its investments. The benchmark index for the fund is the
Lehman Brothers Aggregate Bond Index, a market value weighted
benchmark of investment-grade fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities,
with maturities of one year or more. FMR manages the fund to have
similar overall interest rate risk to the Index. As of December 31,
1997, the dollar-weighted average maturities of the fund and the Index
were approximately 7.9 and 8.68 years, respectively.
FMR allocates 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.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund invests. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
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 final maturity.
HIGH INCOME PORTFOLIO
The fund seeks high current income by investing primarily in all types
of income-producing debt securities, preferred stocks, and convertible
securities. FMR normally invests at least 65% of the fund's total
assets in these securities. In choosing investments, the fund also
considers growth of capital. The fund may also invest in futures
contracts and other derivatives to adjust its investment exposure.
Although the fund has no limits on the quality and maturity of its
investments, its strategy typically leads to lower-quality,
fixed-income securities. These investments may present the risk of
default or may be in default. If consistent with its investment
objective, however, the fund can also invest in common stocks, other
equity securities, and debt securities not currently paying interest
but which are expected to do so in the future. Performance is also
especially affected by individual company news. The success of the
fund's investment strategy depends on FMR's analysis of a company's
relative values and its potential for success in light of its current
financial situation, its industry position, economic conditions, and
interest rate trends.
ASSET MANAGER AND ASSET MANAGER: GROWTH PORTFOLIOS
Each fund seeks to achieve its investment objective by allocating its
assets among stocks, bonds, short-term and money market instruments,
and other instruments of U.S. and foreign issuers. Each fund, however,
has a different objective and pursues its objective by investing
within different asset allocation ranges.
ASSET MANAGER seeks high total return with reduced risk over the long
term.
ASSET MANAGER: GROWTH seeks to maximize total return over the long
term.
Each fund allocates its assets among the following classes, or types,
of investments. The STOCK CLASS includes equity securities of all
types. The BOND CLASS includes all varieties of fixed-income
securities maturing in more than one year. The SHORT-TERM/MONEY MARKET
CLASS includes all types of short-term and money market instruments.
FMR may use its judgment to place a security in the most appropriate
class based on its investment characteristics. Fixed-income securities
may be classified in the bond or short-term/money market class
according to interest rate sensitivity as well as maturity. The funds
may also make other investments that do not fall within these classes.
FMR has the ability to allocate each fund's assets within specified
ranges. Each fund's NEUTRAL MIX represents the benchmark for its
combination of investments in each asset class over time. FMR may
change the neutral mix from time to time. The range and approximate
neutral mix for each asset class are shown below.
ASSET MANAGER
Range Neutral mix
STOCK CLASS 30-70% 50%
BOND CLASS 20-60% 40%
SHORT-TERM/MONEY
MARKET CLASS 0-50% 10%
Asset Manager's approach spreads the fund's assets among all three
classes, moderating both the risk and return potential of stocks,
bonds, and short-term and money market instruments.
ASSET MANAGER: GROWTH
Range Neutral mix
STOCK CLASS 50-100% 70%
BOND CLASS 0-50% 25%
SHORT-TERM/MONEY
MARKET CLASS 0-50% 5%
Asset Manager: Growth's more aggressive approach focuses on stocks for
high potential returns. However, because the fund can invest in bonds
and short-term and money market instruments, its return may not be as
high as a fund that invests only in stocks.
Because the funds are subject to the risks of each investment type,
the funds and their performance are affected by many factors.
In pursuit of each fund's objective, FMR will not try to pinpoint the
precise moment when a major reallocation should be made. Instead, FMR
regularly reviews each fund's allocations and makes changes gradually
to favor investments that it believes will provide the most favorable
outlook for achieving the fund's objective. Under normal
circumstances, a single reallocation will not involve more than 10% of
Asset Manager's total assets or more than 20% of Asset Manager:
Growth's total assets. Although FMR uses its expertise and resources
in allocating assets, FMR's decisions may not be advantageous to a
fund.
Each fund diversifies across investment types more than most mutual
funds. No one mutual fund, however, can provide an appropriate
balanced investment plan for all investors.
BALANCED PORTFOLIO
The fund seeks both income and growth of capital by investing in a
diversified portfolio of equity and fixed-income securities with
income, growth of income, and capital appreciation potential.
FMR manages the fund to maintain a balance between stocks and bonds.
When FMR's outlook is neutral, it will invest approximately 60% of the
fund's assets in stocks and other equity securities and the remainder
in bonds and other fixed-income securities. FMR may vary from this
target if it believes stocks or bonds offer more favorable
opportunities, but will always invest at least 25% of the fund's total
assets in fixed-income senior securities (including debt securities
and preferred stock).
The fund may buy securities that are not currently paying income but
offer prospects for future income. The fund may invest in securities
of foreign issuers. In selecting investments for the fund, FMR will
consider such factors as the issuer's financial strength, its outlook
for increased dividend or interest payments, and the potential for
capital gains.
EQUITY-INCOME PORTFOLIO
The fund seeks reasonable income by investing primarily in
income-producing equity securities. FMR normally invests at least 65%
of the fund's total assets in these securities. The fund has the
flexibility, however, to invest the balance in all types of domestic
and foreign securities, including bonds. The fund seeks a yield that
exceeds the yield on the securities comprising the S&P 500. The fund
does not expect to invest in debt securities of companies that do not
have proven earnings or credit. When choosing the fund's investments,
FMR also considers the potential for capital appreciation.
INDEX 500 PORTFOLIO
The fund seeks to provide investment results that correspond to the
total return of a broad range of common stocks publicly traded in the
United States.
To achieve this objective, the fund attempts to duplicate the
composition and total return of the S&P 500. The S&P 500 is made up of
500 common stocks, most of which trade on the New York Stock Exchange
(NYSE). Standard & Poor's (S&P) is neither an affiliate nor a sponsor
of the fund, and inclusion of a stock in the index does not imply that
it is a good investment. The S&P 500 is a widely recognized, unmanaged
index of common stock prices. It is generally acknowledged that the
S&P 500 broadly represents the performance of publicly traded common
stocks in the United States. Total returns for the S&P 500 assume
reinvestment of dividends but do not include the effect of brokerage
commissions or other fees. At some time in the future FMR may, subject
to shareholders' approval and 30 days' notice, select another index if
such a standard of comparison is deemed to be more representative of
the performance of U.S. common stocks.
Under normal conditions the fund seeks to invest at least 80% of its
assets (65% if fund assets are below $20 million) in equity securities
of companies that compose the S&P 500.
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 may not track the S&P 500 perfectly. Differences between the
S&P 500 and the fund's portfolio may cause differences in performance.
Even if the fund's investments match the S&P 500 exactly, its returns
could differ on a day-to-day basis because of differences in how the
fund and the S&P 500 are valued. The fund normally values all of its
investments at 4:00 p.m. Eastern time. The S&P 500 is valued by its
sponsor, who may use different closing prices than the fund does. In
addition, the fund's ability to replicate the S&P 500's returns will
depend to some extent on transaction costs and the size and frequency
of cash flows into and out of the fund.
The fund seeks to achieve a 98% or better correlation between its
total return and the total return of the S&P 500. BT uses an indexing
technique to structure the fund's portfolio similarly to that of the
S&P 500. FMR monitors correlation between the performance of the fund
and that of the S&P 500 on a monthly basis. Correlation is measured by
comparing the fund's monthly total returns to those of the S&P 500
over the most recent 36-month period. In the unlikely event that the
fund cannot achieve a correlation of 98% or better, the trustees will
consider alternative arrangements.
The fund may purchase short-term debt securities for cash management
purposes and may use various techniques, such as stock index futures,
to adjust its exposure to the S&P 500.
GROWTH & INCOME PORTFOLIO
The fund seeks high total return through a combination of current
income and capital appreciation by investing mainly in equity
securities. The fund expects to invest the majority of its assets in
domestic and foreign equity securities, with a focus on those that pay
current dividends and show potential earnings growth. However, the
fund may buy debt securities as well as equity securities that are not
currently paying dividends, but offer prospects for capital
appreciation or future income.
GROWTH OPPORTUNITIES PORTFOLIO
The fund seeks capital growth by investing primarily in common stocks
and securities convertible into common stocks. FMR normally invests at
least 65% of the fund's total assets in securities of companies that
FMR believes have long-term growth potential. Although the fund
invests primarily in common stock and securities convertible into
common stock, it has the ability to purchase other securities, such as
preferred stock and bonds, that may produce capital growth. The fund
may invest in foreign securities without limitation.
CONTRAFUND PORTFOLIO
The fund seeks capital appreciation by investing in securities of
companies whose value FMR believes is not fully recognized by the
public. The fund normally invests primarily in common stock and
securities convertible into common stock, but it has the flexibility
to invest in other types of securities.
The types of companies the fund may invest in include:
(small solid bullet) 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;
(small solid bullet) companies whose earnings potential has increased
or is expected to increase more than generally perceived;
(small solid bullet) 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; or
(small solid bullet) companies that are undervalued in relation to
securities of other companies in the same industry.
The fund's strategy can lead to investments in small and medium-sized
companies, which carry more risk than larger ones. These companies,
especially small-sized ones, may rely on limited product lines and
markets, financial resources, or other factors. This may make them
more susceptible to setbacks or downturns.
GROWTH PORTFOLIO
The fund seeks capital appreciation by investing primarily in common
stocks. The fund, however, is not restricted to any one type of
security and may pursue capital appreciation through the purchase of
bonds and preferred stocks. The fund does not place any emphasis on
dividend income from its investments, except when FMR believes this
income will have a favorable influence on the market value of the
security. Growth may be measured by factors such as earnings or gross
sales.
Companies with strong growth potential often have new products,
technologies, distribution channels, or other opportunities. Often,
these domestic and foreign companies are small and mid-sized companies
that have higher than average price/earnings (P/E) ratios. A high P/E
ratio means that the stock is more expensive than average relative to
the company's earnings. However, companies with strong growth
potential may also be larger companies that hold a strong industry or
market position.
OVERSEAS PORTFOLIO
The fund seeks long-term growth of capital by investing primarily in
foreign securities. The fund defines foreign securities as securities
of issuers whose principal activities are located outside the United
States. Normally, at least 65% of the fund's total assets will be
invested in foreign securities. The fund may also invest in U.S.
issuers.
The fund normally diversifies its investments across different
countries and regions. In allocating the fund's assets 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.
The fund may invest in the securities of any issuer, including
companies and other business organizations as well as governments and
government agencies. The fund, however, expects to invest primarily in
equity securities, but may also invest in debt securities of any
quality.
This broadly diversified fund increases diversification by spreading
investments among securities of both developed and emerging markets,
different countries and geographic regions.
FMR determines where an issuer is located by looking at such factors
as its country of organization, the primary trading market for its
securities, and the location of its assets, personnel, sales, and
earnings.
International funds have increased economic and political risks as
they are exposed to events and factors in the various world markets.
These risks may be greater for funds that invest in emerging markets.
Also, because many of the fund's investments are denominated in
foreign currencies, changes in the value of foreign currencies can
significantly affect the fund's share price. FMR may use a variety of
investment techniques to either increase or decrease the fund's
exposure to any currency.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR (BT for Index
500 Portfolio) may employ in pursuit of a fund's investment objective,
and a summary of related risks. Any restrictions listed supplement
those discussed earlier in this section. A complete listing of each
fund's limitations and more detailed information about each fund's
investments are contained in the funds' SAI. Policies and limitations
are considered at the time of purchase; the sale of instruments is not
required in the event of a subsequent change in circumstances.
FMR (BT for Index 500 Portfolio) may not buy all of these instruments
or use all of these techniques unless it believes that they are
consistent with a fund's investment objective and policies and that
doing so will help a fund achieve its goal. Fund holdings and recent
investment strategies are detailed in each fund's financial reports,
which are sent to shareholders twice a year. For a free SAI or
financial report, contact your insurance company.
EQUITY SECURITIES may include common stocks, preferred stocks,
convertible securities, and warrants. Common stocks, the most familiar
type, represent an equity (ownership) interest in a corporation.
Although equity securities have a history of long-term growth in
value, their prices fluctuate based on changes in a company's
financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.
RESTRICTIONS: With respect to 75% of its total assets, each fund
(other than Money Market Portfolio) may not purchase more than 10% of
the outstanding voting securities of a single issuer. For Index 500
Portfolio, this limitation does not apply to securities of other
investment companies.
High Income Portfolio may invest up to 20% of its total assets in
common stocks and other equity securities.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. 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 have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Lower-quality debt securities (sometimes called "junk bonds") are
considered to have speculative characteristics and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices
of these securities may fluctuate more than higher-quality securities
and may decline significantly in periods of general or regional
economic difficulty. Lower-quality securities may be thinly traded,
making them difficult to sell promptly at an acceptable price. Adverse
publicity and changing investor perceptions may affect the ability to
obtain prices for or to sell these securities.
The default rate of lower-quality debt securities is likely to be
higher when issuers have difficulty meeting projected goals or
obtaining additional financing. This could occur during economic
recessions or periods of high interest rates. If an issuer defaults,
the fund may try to protect the interests of security holders if it
determines such action to be in the best interest of its shareholders.
The table on page provides a summary of ratings assigned to debt
holdings (not including money market instruments) in certain of the
funds' portfolios. These figures are dollar-weighted averages of
month-end portfolio holdings during the fiscal year ended December 31,
1997, and are presented as a percentage of total security investments.
These percentages are historical and do not necessarily indicate a
fund's current or future debt holdings.
RESTRICTIONS: For each of Balanced, Equity-Income, Growth & Income,
Growth Opportunities, Contrafund, Growth, and Overseas Portfolios,
purchase of a debt security is consistent with the fund's debt quality
policy if it is rated at or above the stated level by Moody's
Investors Service (Moody's) or rated in the equivalent categories by
Standard & Poor's (S&P), or is unrated but judged by FMR to be of
equivalent quality.

STANDARD & POOR'S
(as a % of investments)
Rating Average of total investments
INVESTMENT High Asset Asset Mgr: Equity- Growth & Growth
GRADE Income Manager Growth Balanced Income Income Opps Overseas
Highest quality AAA 0.99 16.55 6.01 17.91 0.00 0.00 12.47 0.00
High quality AA 0.00 0.24 0.08 0.50 0.00 0.00 0.00 0.00
Upper-medium grade A 0.00 3.41 1.01 2.99 0.08 0.16 0.00 0.19
Medium grade BBB 0.59 5.96 2.06 5.10 0.30 0.35 0.00 0.00
LOWER QUALITY
Moderately speculative BB 7.85 1.66 2.35 0.59 0.17 0.34 0.00 0.00
Speculative B 49.18 3.99 5.40 2.51 0.53 0.12 0.00 0.00
Highly speculative CCC 5.08 0.37 0.45 0.22 0.04 0.00 0.00 0.00
Poor quality CC 0.45 0.01 0.01 0.02 0.00 0.00 0.00 0.00
Lowest quality, no interest C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
In default, in arrears D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
REFER TO THE APPENDIX FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
THE FUNDS DO NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S OR S&P TO
DETERMINE COMPLIANCE WITH THEIR DEBT QUALITY POLICIES.
SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO 3.79% OF HIGH
INCOME'S, 0.52% OF ASSET MANAGER'S, 0.56% OF
ASSET MANAGER: GROWTH'S, 0.22% OF BALANCED'S, 0.02% OF
EQUITY-INCOME'S, 0.00% OF GROWTH & INCOME'S, 0.00% OF
GROWTH OPPORTUNITIES', AND 0.14% OF OVERSEAS' INVESTMENTS. THESE
PERCENTAGES MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS, AS WELL AS
UNRATED SECURITIES. UNRATED LOWER-QUALITY SECURITIES AMOUNTED
TO 3.79% OF HIGH INCOME'S, 0.45% OF ASSET MANAGER'S, 0.54% OF ASSET
MANAGER: GROWTH'S, 0.22% OF BALANCED'S, 0.02%
OF EQUITY-INCOME'S, 0.00% OF GROWTH & INCOME'S, 0.00% OF GROWTH
OPPORTUNITIES', AND 0.14% OF OVERSEAS' INVESTMENTS.
FOR FOREIGN GOVERNMENT SECURITIES NOT INDIVIDUALLY RATED BY A
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION, FMR ASSIGNS
THE RATING OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
FISCAL YEAR ENDED DECEMBER 31, 1997 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE
(as a % of investments)
Rating Average of total investments
INVESTMENT High Asset Asset Mgr: Equity- Growth & Growth
GRADE Income Manager Growth Balanced Income Income Opps Overseas
Highest quality Aaa 0.99 16.67 5.95 18.23 0.00 0.00 12.47 0.00
High quality Aa 0.00 0.72 0.23 1.27 0.05 0.00 0.00 0.28
Upper-medium grade A 0.00 3.65 1.06 3.18 0.08 0.08 0.00 0.00
Medium grade Baa 0.00 4.12 1.41 3.37 0.19 0.15 0.00 0.00
LOWER QUALITY
Moderately speculative Ba 6.41 3.00 2.62 1.30 0.35 0.59 0.00 0.00
Speculative B 49.29 4.18 5.54 2.47 0.75 0.15 0.00 0.00
Highly speculative Caa 7.14 0.23 0.25 0.26 0.00 0.00 0.00 0.00
Poor quality Ca 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Lowest quality, no interest C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
In default, in arrears -- 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
For each of Asset Manager and Asset Manager: Growth Portfolios,
purchase of a debt security is consistent with the fund's debt quality
policy if it is rated at or above the stated level by Moody's, S&P,
Duff & Phelps Credit Rating Co. (Duff & Phelps), or Fitch IBCA, Inc.
(Fitch), or is unrated but judged by FMR to be of equivalent quality.
Each of Growth and Contrafund Portfolios currently intends to limit
its investments in lower than Baa-quality debt securities to 5% of its
assets.
Each of Equity-Income, Asset Manager: Growth, Asset Manager, Overseas,
Growth & Income, Balanced, and Growth Opportunities Portfolios
currently intends to limit its investments in lower than Baa-quality
debt securities to less than 35% of its assets.
Investment Grade Bond Portfolio normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities. A security is considered to be
investment-grade if it is rated investment-grade by Moody's, S&P, Duff
& Phelps, or Fitch, or is unrated but judged by FMR to be of
equivalent quality.
MONEY MARKET SECURITIES are high-quality, short-term instruments
issued by the U.S. Government, corporations, financial institutions,
and other entities. These securities may carry fixed, variable, or
floating interest rates. Money market securities may be structured or
may employ a trust or similar structure so that they are eligible
investments for money market funds. If the structure does not perform
as intended, adverse tax or investment consequences may result.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by Fannie Mae are supported
by the instrumentality's right to borrow money from the U.S. Treasury
under certain circumstances. Other U.S. Government securities such as
those issued by the Federal Farm Credit Banks Funding Corporation are
supported only by the credit of the entity that issued them.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose a fund to the credit risk of
the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security
and a fund's share price.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These
include risks relating to political, economic, or regulatory
conditions in foreign countries; fluctuations in foreign currencies;
withholding or other taxes; trading, settlement, custodial, and other
operational risks; and the potentially less stringent investor
protection and disclosure standards of foreign markets. 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. All of these factors can make
foreign investments, especially those in emerging markets, more
volatile and potentially less liquid than U.S. investments.
RESTRICTIONS: FMR limits the amount of each of High Income,
Equity-Income, Growth, Investment Grade Bond, Asset Manager and Index
500 Portfolios' assets that may be invested in foreign securities to
50%.
EXPOSURE TO EMERGING MARKETS. 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 economic
development; political stability; market depth, infrastructure, and
capitalization; and regulatory oversight is generally less than in
more developed markets. Emerging market economies may be subject to
greater social, economic, regulatory, and political uncertainties. All
of these factors generally make emerging market securities more
volatile and potentially less liquid than securities issued in more
developed markets.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS (ADRS
AND EDRS) are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial
institution. Designed for use in U.S. and European securities markets,
respectively, ADRs and EDRs are alternatives to the purchase of the
underlying securities in their national markets and currencies.
ASSET-BACKED SECURITIES include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the market's
perception of the servicer of the pool, and any credit enhancement
provided. In addition, these securities may be subject to prepayment
risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a
benchmark rate changes. These interest rate adjustments may be
designed to help stabilize the security's price.
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 of the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S.
repurchase agreements, and may be denominated in foreign currencies.
They also may involve greater risk of loss if the counterparty
defaults. Some counterparties in these transactions may be less
creditworthy than those in the U.S. markets.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund temporarily transfers possession of a portfolio instrument to
another party in return for cash. This could increase the risk of
fluctuation in the fund's yield or in the market value of its assets.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund may
accept a lower interest rate. The credit quality of the investment may
be affected by the creditworthiness of the put provider. Demand
features, standby commitments, and tender options are types of put
features.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors
such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and
the management skill and creditworthiness of the issuer. Real
estate-related instruments may also be affected by tax and regulatory
requirements, such as those relating to the environment.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange contracts or swap
agreements, purchasing indexed securities, and selling securities
short.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. For Index 500
Portfolio, BT can use these practices in its effort to track the
return of the S&P 500. If FMR (BT for Index 500 Portfolio) judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other
borrower. They have additional risks beyond conventional debt
securities because they may entail less legal protection for a fund,
or there may be a requirement that the fund supply additional cash to
a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR (BT for Index 500 Portfolio), under the supervision of the
Board of Trustees (and FMR), to be illiquid, which means that they may
be difficult to sell promptly at an acceptable price. The sale of some
illiquid securities and some other securities may be subject to legal
restrictions. Difficulty in selling securities may result in a loss or
may be costly to a fund.
RESTRICTIONS: Each of Money Market, Investment Grade Bond, Asset
Manager, Asset Manager: Growth, Balanced, Equity-Income, Index 500,
Growth & Income, Growth Opportunities, Contrafund, and Growth
Portfolios may not purchase a security if, as a result, more than 10%
of its assets would be invested in illiquid securities. Each of High
Income and Overseas Portfolios may not purchase a security if, as a
result, more than 15% of its assets would be invested in illiquid
securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
WARRANTS are instruments which entitle the holder to buy an equity
security at a specific price for a specific period of time. The price
of a warrant tends to be more volatile than the price of its
underlying security, and a warrant ceases to have value if it is not
exercised prior to its expiration date. In addition, changes in the
value of a warrant do not necessarily correspond to changes in the
value of its underlying security.
FINANCIAL SERVICES INDUSTRY. Companies in the financial services
industry are subject to various risks related to that industry, such
as government regulation, changes in interest rates, and exposure on
loans, including loans to foreign borrowers. If a fund invests
substantially in this industry, its performance may be affected by
conditions affecting the industry.
RESTRICTIONS: Money Market Portfolio will invest more than 25% of its
total assets in the financial services industry.
OTHER INSTRUMENTS may include securities of closed-end investment
companies, real estate-related instruments, convertible securities,
and preferred stocks.
CASH MANAGEMENT. A fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. Index 500 Portfolio may also invest in similar money
market funds managed by BT or other investment managers. A major
change in interest rates or a default on a money market fund's
investments could cause its share price to change.
RESTRICTIONS: Money Market Portfolio does not currently intend to
invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry.
RESTRICTIONS: Money Market Portfolio may not invest more than 5% of
its total assets in any one issuer, except that the fund may invest up
to 10% of its total assets in certain other money market funds and in
the highest quality securities of a single issuer for up to three
business days. These limitations do not apply to U.S. Government
securities.
With respect to 75% of its total assets, each of Investment Grade
Bond, High Income, Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, Index 500, Growth & Income, Growth Opportunities,
Contrafund, Growth, and Overseas Portfolios may not purchase a
security if, as a result, more than 5% would be invested in the
securities of any one issuer. This limitation does not apply to U.S.
Government securities or, for Index 500 Portfolio, to securities of
other investment companies.
Each fund (other than Money Market Portfolio) may not invest more than
25% of its total assets in any one industry. This limitation does not
apply to U.S. Government securities.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If a fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund (other than Money Market Portfolio) may borrow
only for temporary or emergency purposes, but not in an amount
exceeding 331/3% of its total assets. Money Market Portfolio may
borrow only for temporary or emergency purposes, or engage in reverse
repurchase agreements, but not in an amount exceeding 331/3% of its
total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. For Index 500 Portfolio, BT receives a
portion of securities lending income as a sub-advisory fee. Securities
lending could result in a loss or a delay in recovering a fund's
securities. A fund may also lend money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a
fund's total assets.
INTERNAL REVENUE SERVICE (IRS) LIMITATIONS. In addition to the above,
each fund also follows certain limitations imposed by the IRS on
separate accounts of insurance companies relating to the tax-deferred
status of variable contracts. More specific information may be
contained in your insurance company's separate account prospectus.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
MONEY MARKET PORTFOLIO seeks as high a level of current income as is
consistent with preservation of capital and liquidity by investing in
money market instruments.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current
income as is consistent with the preservation of capital.
HIGH INCOME PORTFOLIO seeks a high level of current income by
investing primarily in high yielding, fixed-income securities, while
also considering growth of capital.
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds,
and short-term instruments.
ASSET MANAGER: GROWTH PORTFOLIO seeks to maximize total return by
allocating its assets among stocks, bonds, short-term instruments, and
other investments.
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.
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.
With respect to 75% of its total assets, each fund (other than Money
Market Portfolio) may not purchase a security if, as a result, more
than 5% would be invested in the securities of any one issuer and may
not purchase more than 10% of the outstanding voting securities of a
single issuer. These limitations do not apply to U.S. Government
securities or, for Index 500 Portfolio, to securities of other
investment companies.
Each fund (other than Money Market Portfolio) may not invest more than
25% of its total assets in any one industry. This limitation does not
apply to U.S. Government securities. Money Market Portfolio will
invest more than 25% of its total assets in the financial services
industry.
Each fund (other than Money Market Portfolio) may borrow only for
temporary or emergency purposes, but not in an amount exceeding 33% of
its total assets. Money Market Portfolio may borrow only for temporary
or emergency purposes, or engage in reverse repurchase agreements, but
not in an amount exceeding 33% of its total assets.
Loans, in the aggregate, may not exceed 33% of a fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a class's assets are reflected in
that class's share price.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services for Money Market, High Income, Asset
Manager, Asset Manager: Growth, Balanced, Growth & Income, Growth
Opportunities, Contrafund, and Overseas Portfolios. FMR and Index 500
Portfolio pay sub-advisory fees to BT for managing the fund's
investments, administering its securities lending program, and for
custodial services. Each fund also pays OTHER EXPENSES, which are
explained on page .
FMR may, from time to time, agree to reimburse a fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by a fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated at any time without notice, can decrease a
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month.
The fee for each fund (other than Money Market and Index 500
Portfolios) is calculated by adding a group fee rate to an individual
fund fee rate, multiplying the result by the fund's monthly average
net assets, and dividing by twelve.
The fee for Money Market Portfolio is calculated by multiplying the
sum of two components by the fund's average net assets and adding an
income-based fee. One component, the group fee rate, is discussed
below. The other component, the individual fund fee rate, is 0.03%.
The income-based fee is 6% of the fund's gross income in excess of a
5% yield and cannot rise above 0.24% of the fund's average net assets.
The management and sub-advisory fees for Index 500 Portfolio are
calculated and paid every month to FMR and BT, respectively. Index 500
Portfolio pays the fees at the annual rate of 0.24% of its average net
assets. These fees include a management fee of 0.24% payable to FMR
and an estimated sub-advisory fee of less than 0.01% payable to BT
(representing 40% of net income from securities lending).
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, Growth Opportunities, Contrafund, Growth, and Overseas
Portfolios, or 0.37% for Money Market, High Income, and Investment
Grade Bond Portfolios, and it drops as total assets under management
increase.
For December 1997, the group fee rate for each of Money Market,
Investment Grade Bond, and High Income Portfolios was 0.14%, and the
group fee rate for each of Asset Manager, Asset Manager: Growth,
Balanced, Equity-Income, Growth & Income, Growth Opportunities,
Contrafund, Growth, and Overseas Portfolios was 0.29%.
The individual fund fee rate for Balanced Portfolio is 0.15%. The
individual fund fee rate for each of Equity-Income and Growth & Income
Portfolios is 0.20%. The individual fund fee rate for Asset Manager
Portfolio is 0.25%. The individual fund fee rate for each of
Investment Grade Bond, Asset Manager: Growth, Growth Opportunities,
Contrafund, and Growth Portfolios is 0.30%. The individual fund fee
rate for each of High Income and Overseas Portfolios is 0.45%.
The following table states the total management fee, as a percentage
of a fund's average net assets, for each fund for the fiscal year
ended December 31, 1997:
Fund Total
Management
Fee

Money Market Portfolio 0.21%

Investment Grade Bond Portfolio 0.44%

High Income Portfolio 0.59%

Asset Manager Portfolio 0.55%

Asset Manager: Growth Portfolio 0.60%

Balanced Portfolio 0.45%

Equity-Income Portfolio 0.50%

Index 500 Portfolio 0.27[A]

Growth & Income Portfolio 0.49%

Growth Opportunities Portfolio 0.60%

Contrafund Portfolio 0.60%

Growth Portfolio 0.60%

Overseas Portfolio 0.75%

[A] EFFECTIVE DECEMBER 1, 1997, THE FUND'S MANAGEMENT FEE RATE WAS
REDUCED FROM 0.28% TO 0.24%.
FMR HAS SUB-ADVISORY AGREEMENTS with three affiliates: FMR U.K., FMR
Far East, and FIIA. FIIA in turn has a sub-advisory agreement with
FIIA(U.K.)L. These sub-advisers are compensated for providing FMR with
investment research and advice on issuers based outside the United
States. FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services. FMR pays
FIIA a fee equal to 30% of its management fee rate associated with
investments for which the sub-adviser provided investment advice. FIIA
pays FIIA(U.K.)L a fee equal to 110% of the cost of providing these
services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K., FMR Far East, and FIIA a fee equal to 50%
of its management fee rate with respect to a fund's investments that
the sub-adviser manages on a discretionary basis. FIIA pays
FIIA(U.K.)L a fee equal to 110% of the cost of providing these
services.
For the fiscal year ended December 31, 1997, FMR, on behalf of each of
Asset Manager: Growth, Balanced, Growth & Income, and Growth
Opportunities Portfolios, paid FMR U.K. and FMR Far East fees equal to
less than 0.01% of the fund's average net assets. For the fiscal year
ended December 31, 1997, FMR, on behalf of Asset Manager Portfolio,
paid FMR U.K. and FMR Far East fees equal to 0.01% and less than
0.01%, respectively, of the fund's average net assets. For the fiscal
year ended December 31, 1997, FMR, on behalf of Contrafund Portfolio,
paid FMR U.K. and FMR Far East fees equal to 0.01% and 0.01%,
respectively, of the fund's average net assets. For the fiscal year
ended December 31, 1997, FMR, on behalf of Overseas Portfolio, paid
FMR U.K. and FMR Far East fees equal to 0.05% and 0.05%, respectively,
of the fund's average net assets. For the fiscal year ended December
31, 1997, FMR paid no fees to FMR U.K. or FMR Far East on behalf of
High Income Portfolio, or to FIIA on behalf of Overseas Portfolio.
FIMM is Money Market Portfolio's sub-adviser and has primary
responsibility for managing its investments. FMR is responsible for
providing other management services. FMR pays FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
FMR paid FMR Texas Inc., the predecessor company to FIMM, a fee equal
to 0.10% of Money Market Portfolio's average net assets for the fiscal
year ended December 31, 1997.
Beginning January 1, 1999, FIMM will select certain investments for
Asset Manager, Asset Manager: Growth, and Balanced Portfolios. FMR
will pay FIMM a fee equal to 50% of its management fee (before expense
reimbursements) with respect to each fund's investments that FIMM
manages.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing Investment Grade Bond Portfolio's investments. FMR will pay
FIMM 50% of its management fee (before expense reimbursements) for
FIMM's services.
BT is Index 500 Portfolio's sub-adviser under an agreement with FMR
and the fund. 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 fund's average net assets. In addition, the fund pays
BT fees equal to 40% of net income from the fund's securities lending
program. The remaining 60% of net income from the fund's securities
lending program goes to the fund.
OTHER EXPENSES
While management fees and sub-advisory fees, as applicable, are a
significant component of the funds' annual operating costs, the funds
have other expenses as well.
FIIOC performs transfer agency, dividend disbursing, and shareholder
servicing functions for Initial Class of each fund. Fidelity Service
Company, Inc. (FSC) calculates the net asset value per share (NAV) and
dividends for Initial Class of each fund, maintains the general
accounting records for each fund, and (except for Money Market and
Index 500 Portfolios) administers the securities lending program for
each fund.
For the fiscal year ended December 31, 1997, transfer agency and
pricing and bookkeeping fees paid (as a percentage of average net
assets) amounted to the following. These amounts are before expense
reductions, if any.
Fund Transfer Pricing and
Agency Fees Bookkeeping
Paid by Fees
Initial Class Paid by Fund

Money Market Portfolio 0.07% 0.01%

Investment Grade Bond Portolio 0.08% 0.04%

High Income Portfolio 0.07% 0.04%

Asset Manager Portfolio 0.07% 0.02%

Asset Manager: Growth Portfolio 0.07% 0.06%

Balanced Portfolio 0.07% 0.06%

Equity-Income Portfolio 0.07% 0.01%

Index 500 Portfolio 0.07% 0.04%

Growth & Income Portfolio 0.07% 0.06%

Growth Opportunities 0.07% 0.05%
Portfolio

Contrafund Portfolio 0.07% 0.02%

Growth Portfolio 0.07% 0.01%

Overseas Portfolio 0.07% 0.04%

The following figures are based on historical expenses, adjusted to
reflect current fees, of Initial Class of each fund and are calculated
as a percentage of average net assets of Initial Class of each fund.
Fund Total operating
expenses

Money Market Portfolio 0.31%

Investment Grade Bond Portfolio 0.58%

High Income Portfolio 0.71%

Asset Manager Portfolio 0.65%

Asset Manager: Growth Portfolio 0.77%

Balanced Portfolio 0.61%

Equity-Income Portfolio 0.58%

Index 500 Portfolio 0.28%

Growth & Income Portfolio 0.70%

Growth Opportunities Portfolio 0.74%

Contrafund Portfolio 0.71%

Growth Portfolio 0.69%

Overseas Portfolio 0.92%

A portion of the brokerage commissions that certain funds pay is used
to reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized as a result
of uninvested cash balances are used to reduce custodian expenses.
Including these reductions, the total Initial Class operating expenses
presented in the preceding table would have been:
Fund Initial Class

Asset Manager Portfolio 0.64%

Asset Manager: Growth Portfolio 0.76%

Balanced Portfolio 0.60%

Equity-Income Portfolio 0.57%

Growth Opportunities Portfolio 0.73%

Contrafund Portfolio 0.68%

Growth Portfolio 0.67%

Overseas Portfolio 0.90%

FMR has voluntarily agreed to reimburse Initial Class of certain funds
to the extent that total operating expenses (with the exceptions noted
below), as a percentage of its average net assets, exceed the
following rates:
Fund Initial Class Effective Date

Investment Grade Bond Portfolio 0.80% 12/5/88

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

Index 500 Portfolio 0.28% 8/27/92

Growth & Income Portfolio 1.00% 12/31/96

Growth Opportunities 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

If these agreements were not in effect, total operating expenses, as a
percentage of average net assets, of Initial Class of Index 500
Portfolio would have been 0.40%.
Expenses eligible for reimbursement do not include interest, taxes,
brokerage commissions, or extraordinary expenses. In addition, for
Index 500 Portfolio, sub-advisory fees paid by the fund associated
with securities lending are not eligible for reimbursement.
Each fund also pays other expenses, such as legal, audit, and (except
Index 500 Portfolio) custodian fees; in some instances, proxy
solicitation costs; and the compensation of trustees who are not
affiliated with Fidelity. A broker-dealer may use a portion of the
commissions paid by a fund to reduce that fund's custodian or transfer
agent fees.
Initial Class shares of each fund have adopted a DISTRIBUTION AND
SERVICE PLAN. Each Plan 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 the
distribution of Initial Class shares. FMR, directly or through FDC,
may make payments to third parties, such as banks or broker-dealers,
that engage in the sale of, or provide shareholder support services
for, Initial Class shares. Currently, the Board of Trustees of each
fund has authorized such payments.
The following table states each fund's (except Money Market
Portfolio's) portfolio turnover rate for the fiscal year ended
December 31, 1997. These rates vary from year to year. High turnover
rates increase transaction costs. FMR considers this effect when
evaluating the anticipated benefits of short-term investing.
Fund Portfolio
Turnover Rate

Investment Grade Bond Portfolio 191%

High Income Portfolio 118%

Asset Manager Portfolio 101%

Asset Manager: Growth Portfolio 90%

Balanced Portfolio 98%

Equity-Income Portfolio 44%

Index 500 Portfolio 9%

Growth & Income Portfolio 81%

Growth Opportunities Portfolio 26%

Contrafund Portfolio 142%

Growth Portfolio 113%

Overseas Portfolio 67%

PERFORMANCE
A fund's total return and/or yield may be quoted in advertising in
accordance with current law and interpretations thereof.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields
are calculated according to a standard that is required for all stock
and bond funds. Because this differs from other accounting methods,
the quoted yield may not equal the income actually paid to
policyholders. This difference may be significant for funds whose
investments are denominated in foreign currencies. When a yield
assumes that income earned is reinvested, it is called an EFFECTIVE
YIELD.
SEVEN-DAY YIELD illustrates the income earned by an investment in a
money market fund over a recent seven-day period. Since money market
funds maintain a stable $1.00 share price, current seven-day yields
are the most common illustration of money market fund performance.
In calculating yield, a fund may from time to time use a security's
coupon rate instead of its yield to maturity in order to reflect the
risk premium on that security. This practice will have the effect of
reducing a fund's yield.
Other illustrations of equity fund performance may show moving
averages over specified periods.
The funds' recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all shareholders.
For additional performance information, contact your insurance company
for a free annual report.
TOTAL RETURNS AND YIELDS QUOTED FOR A CLASS INCLUDE THE CLASS'S
EXPENSES, BUT MAY NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO ANY
PARTICULAR INSURANCE PRODUCT. BECAUSE SHARES OF THE FUNDS MAY BE
PURCHASED ONLY THROUGH VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE
CONTRACTS, YOU SHOULD CAREFULLY REVIEW THE PROSPECTUS OF THE INSURANCE
PRODUCT YOU HAVE CHOSEN FOR INFORMATION ON RELEVANT CHARGES AND
EXPENSES. Excluding these charges from quotations of a class's
performance has the effect of increasing the performance quoted. You
should bear in mind the effect of these charges when comparing a
fund's performance to that of other mutual funds.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
ACCOUNT POLICIES

DISTRIBUTIONS AND TAXES
For a discussion of the tax status of your variable insurance
contract, refer to the prospectus of your insurance company's separate
account. It is suggested you keep all statements you receive to assist
in your personal recordkeeping.
It is expected that shares of the funds will be held under the terms
of variable annuity and variable life insurance contracts. Under
current tax law, dividend or capital gain distributions from any fund
are not currently taxable when left to accumulate within a variable
annuity or variable life insurance contract. Depending on the variable
contract, withdrawals from the contract may be subject to ordinary
income tax and, in addition, to a 10% penalty tax on withdrawals
before age 59.
Each fund is treated as a separate entity for federal income tax
purposes. Each fund intends to pay out all of its net investment
income and net realized capital gains, if any, for each year.
Dividends from Money Market Portfolio are declared daily and paid
monthly. Investment Grade Bond, High Income, Asset Manager, Asset
Manager: Growth, Balanced, Equity-Income, Index 500, Growth & Income,
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. Such
income and capital gain distributions from a fund are automatically
reinvested in additional shares of the same class of the fund. Each
fund (except Money Market Portfolio) makes dividend and capital gain
distributions on a per-share basis for each class. After each
distribution from a fund, the fund's share price drops by the amount
of the distribution. Because dividend and capital gain distributions
are reinvested, the total value of an account will not be affected
because, although the shares will have a lower price, there will be
correspondingly more of them.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates Initial Class's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
A CLASS'S NAV is the value of a single share. The NAV of each class is
computed by adding that class's pro rata share of the value of the
applicable fund's investments, cash, and other assets, subtracting
that class's pro rata share of the value of the applicable fund's
liabilities, subtracting the liabilities allocated to that class, and
dividing the result by the number of shares of that class that are
outstanding.
Money Market Portfolio's assets are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value and helps Money Market Portfolio maintain a stable $1.00
share price.
Each fund's (other than Money Market Portfolio's) assets are valued
primarily on the basis of market quotations or on the basis of
information furnished by a pricing service. Short-term securities with
remaining maturities of sixty days or less for which quotations and
information furnished by a pricing service are not readily available
are valued on the basis of amortized cost. This method minimizes the
affect of changes in a security's market value. Foreign securities are
valued on the basis of quotations from the primary market in which
they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. In addition, if quotations and
information furnished by a pricing service are not readily available,
or if the values have been materially affected by events occurring
after the closing of a foreign market, assets may be valued by another
method that the Board of Trustees believes accurately reflects fair
value.
A CLASS'S OFFERING PRICE (price to buy one share) is its NAV. A
class's REDEMPTION PRICE (price to sell one share) is its NAV.
EACH FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time. Each fund also reserves the right to reject any
specific purchase order. Purchase orders may be refused if, in FMR's
opinion, they would disrupt management of a fund.
INVESTMENTS AND REDEMPTIONS. Investments may be made only by separate
accounts established and maintained by insurance companies for the
purpose of funding variable annuity and variable life insurance
contracts. Please refer to the prospectus of your insurance company's
separate account for information on how to invest in and redeem from a
fund.
Each participating insurance company receives orders from its variable
contract owners to purchase or redeem shares of the funds each
business day. That night, all orders received by that insurance
company on that business day are aggregated, and the insurance company
places a net purchase or redemption order for shares of one or more
funds the morning of the next business day. These orders are generally
executed at the NAV that was computed at the close of the previous
business day in order to provide a match between the variable contract
owners' orders to the insurance companies and the insurance companies'
orders to a fund. In some cases, an insurance company's order for fund
shares may be executed at the NAV next computed after the order is
actually transmitted to a fund.
Redemption proceeds will normally be wired to the insurance company on
the next business day after receipt of the redemption instructions by
a fund, but in no event later than 7 days following receipt of
instructions. Each fund may suspend redemptions or postpone payment
dates on days when the NYSE is closed (other than weekends or
holidays), when trading on the NYSE is restricted, or as permitted by
the SEC.
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF CORPORATE BONDS
Moody's ratings for obligations with an original remaining maturity in
excess of one year fall within nine categories. They range from Aaa
(highest quality) to C (lowest quality). Moody's applies numerical
modifiers of 1, 2, or 3 to each generic rating classification from Aa
through B. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
on the lower end of its generic rating category.
AAA - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect
to principal or interest.
CA - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest-rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF CORPORATE BONDS
Debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA to CCC may be modified by the addition of a plus sign (+) or minus
sign (-) to show relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC - The rating CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating will also be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
INDEX 500 PORTFOLIO is not sponsored, endorsed, sold, or promoted by
S&P. S&P makes no representation or warranty, express or implied, to
participants in the fund or any member of the public regarding the
advisability of investing in securities generally or in the fund
particularly or the ability of the S&P 500 to track general stock
market performance. S&P's only relationship to the Licensee is the
licensing of certain trademarks and trade names of S&P and of the S&P
500, which is determined, composed, and calculated by S&P without
regard to the Licensee or the fund. S&P has no obligation to take the
needs of the Licensee or the participants in the fund into
consideration in determining, composing, or calculating the S&P 500.
S&P is not responsible for and has not participated in the
determination of the timing of, prices at, or quantities of the fund
to be issued or in the determination or calculation of the equation by
which the fund is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing, or trading
of the fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P
500 or any data included therein and S&P shall have no liability for
any errors, omissions, or interruptions therein. S&P makes no
warranty, express or implied, as to results to be obtained by the
Licensee, participants in the fund, or any other person or entity from
the use of the S&P 500 or any data included therein. S&P makes no
express or implied warranties, and expressly disclaims all warranties
or merchantability or fitness for a particular purpose or use with
respect to the S&P 500 or any data included therein. Without limiting
any of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect, or consequential damages (including lost
profits), even if notified of the possibility of such damages.
"Standard & Poor's(registered trademark)," "S&P(registered
trademark)," "S&P 500(registered trademark)," "Standard & Poor's 500,"
and "500" are trademarks of McGraw-Hill, Inc. and have been licensed
for use by FDC.