VARIABLE INSURANCE PRODUCTS III, 485BPOS, 1998-04-24

VARIABLE INSURANCE PRODUCTS III
485BPOS, 1998-04-24

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1940 Act No. 811-7205
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 33-54837)
UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 11 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [x]
Amendment No. [x]
Variable Insurance Products Fund III
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Office)
Registrant's Telephone Number, Including Area Code 617-563-7000
Eric D. Roiter, Secretary, 82 Devonshire St., Boston, MA 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) Immediately upon filing pursuant to paragraph (b)
(x) On April 30, 1998, pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On [ ], pursuant to paragraph (a)(1) of Rule 485
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On [ ] pursuant to paragraph (a)(2) of Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and has filed the Notice required by
such Rule on March 30, 1998.

VARIABLE INSURANCE PRODUCTS FUND III
Initial Class
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption

1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
b *
c *
d Performance
4 a(i) Charter
a(ii), b,c Who May Want to Invest; Investment Principles and
Risks; Securities and Investment Practices
5 a Charter
b(i) The Funds at a Glance; FMR and Its Affiliates
b(ii) (iii),c The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses
f,g BT and Its Affiliates; Breakdown of Expenses
5A *
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page; Transaction Details
f,g Distributions and Taxes
h Who May Want to Invest
7 a FMR and Its Affiliates
b (i) (ii) Financial Highlights; Transaction Details
b (iii) (iv) (v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the goal of one or more of the funds matches your own.
To learn more about each fund and its investments, you can obtain a
copy of 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/VIPIIIL-PRO-0498

700547
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, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

<TABLE>
<CAPTION>
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KEY FACTS 3 THE FUNDS AT A GLANCE

5 WHO MAY WANT TO INVEST

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

THE FUNDS IN DETAIL 19 CHARTER How each fund is organized.

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

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

31 PERFORMANCE

ACCOUNT POLICIES 32 DISTRIBUTIONS AND TAXES

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

32 APPENDIX

</TABLE>

KEY FACTS

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 b illion
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 b illion
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 b roadly 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.
(RIGHT ARROW) MONEY MARKET SEEKS INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY, SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY INVESTING IN BONDS.
(RIGHT ARROW) 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.
(RIGHT ARROW) 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

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1.Selected Per-Share Data and Ratios

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

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

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

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

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

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 (In
millions) $ 1,021 $ 1,126 $ 809 $ 749 $ 353 $ 301 $ 271 $ 255 $ 143 $ 106

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

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

</TABLE>

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

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

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

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

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

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

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

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

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

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

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

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

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 (In millions) $ 325 $ 229 $ 182 $ 111 $ 122 $ 74 $ 45 $ 14 $ 6 $ 3

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

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

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

</TABLE>

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28.Selected Per-Share Data and Ratios

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

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

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

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

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

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

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

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, end
of period $ 13.58 $ 12.520 $ 12.050 $ 10.750 $ 11.990 $ 10.820 $ 9.550 $ 7.070 $ 8.110 $ 9.660

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 (In millions) $ 2,330 $ 1,589 $ 1,040 $ 569 $ 464 $ 201 $ 70 $ 30 $ 34 $ 30

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

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

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

44.Average commission
rateE $ .0389 $ .0370

</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

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45.Selected Per-Share Data and Ratios

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

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

48.Income from Investment Operations

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

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

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

52.Less Distributions

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

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

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, end of period $ 18.01 $ 16.93 $ 15.79 $ 13.79 $ 15.42 $ 13.32 $ 12.55 $ 10.24 $ 9.97

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 period (In
millions) $ 4,400 $ 3,641 $ 3,333 $ 3,291 $ 2,423 $ 732 $ 194 $ 36 $ 7

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

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

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

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

64.Average commission rateH $ .0408 $ .0163

</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>

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.
EQUITY-INCOME PORTFOLIO - INITIAL CLASS

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

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

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

106.Income from Investment Operations

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

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

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

110.Less Distributions

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

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

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

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

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

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 period
(In millions) $ 10,107 $ 6,961 $ 4,879 $ 2,284 $ 1,319 $ 593 $ 282 $ 154 $ 143 $ 52

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

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

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

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

122.Average commission rateE $ .0440 $ .0426

</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 (loss) 26.67 15.55 19.72 (.56) 3.80 2.71

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 assets .28%F .28%F .28%F .28%F .28%F .28%A,F

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

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

<TABLE>
<CAPTION>
<S> <C> <C>
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>

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.
GROWTH OPPORTUNITIES PORTFOLIO - INITIAL CLASS

<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 31 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

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

201.Income from Investment Operations

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

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

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

205.Less Distributions

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

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

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

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

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

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 period
(In millions) $ 7,727 $ 6,086 $ 4,163 $ 2,142 $ 1,384 $ 750 $ 371 $ 135 $ 77 $ 29

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

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

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

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

217.Average commission rateE $ .0428 $ .0416

</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 31 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988

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

221.Income from Investment Operations

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

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

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

225.Less Distributions

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

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

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

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

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

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

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 period
(In millions) $ 1,926 $ 1,668 $ 1,343 $ 1,298 $ 778 $ 181 $ 126 $ 81 $ 26 $ 9

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

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

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

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

238.Average commission rateG $ .0092 $ .0137

</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.
(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
(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 199 8; 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 in vestments, 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 s ecurities
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 Over seas 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.
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.
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)
Rating Average of total investments Rating Average of total
investments
INVESTMENT High Asset Asset Mgr: Equity- Growth & Growth High Asset
Asset Mgr: Equity- Growth & Growth
GRADE Income Manager Growth Balanced Income Income Opps Overseas
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
AAA 0.99 16.55 6.01 17.91 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 AA
0.00 0.24 0.08 0.50 0.00 0.00 0.00 0.00
Upper-medium
grade A 0.00 3.65 1.06 3.18 0.08 0.08 0.00 0.00 A 0.00 3.41
1.01 2.99 0.08 0.16 0.00 0.19
Medium grade Baa 0.00 4.12 1.41 3.37 0.19 0.15 0.00 0.00 BBB
0.59 5.96 2.06 5.10 0.30 0.35 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
BB 7.85 1.66 2.35 0.59 0.17 0.34 0.00 0.00
Speculative B 49.29 4.18 5.54 2.47 0.75 0.15 0.00 0.00 B
49.18 3.99 5.40 2.51 0.53 0.12 0.00 0.00
Highly speculative Caa 7.14 0.23 0.25 0.26 0.00 0.00 0.00 0.00
CCC 5.08 0.37 0.45 0.22 0.04 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 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 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 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.
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
charac teristics 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 limitation s 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 p urposes, 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 Marke t 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. Th ese fee s 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 Agency Pricing and
Fees Paid by Bookkeeping Fees
Initial Class
Paid by Fund

Money Market Portfolio 0.07% 0.0 1 %

Investment Grade Bond Portfolio 0.08% 0.0 4 %

High Income Portfolio 0.07% 0.0 4 %

Asset Manager Portfolio 0.07% 0.0 2 %

Asset Manager: Growth Portfolio 0.07% 0. 06 %

Balanced Portfolio 0.07% 0.0 6 %

Equity-Income Portfolio 0.07% 0.01%

Index 500 Portfolio 0.07% 0.04%

Growth & Income Portfolio 0.07% 0. 06 %

Growth Opportunities Portfolio 0.07% 0.0 5 %

Contrafund Portfolio 0.07% 0.0 2 %

Growth Portfolio 0.07% 0.0 1 %

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 ex penses,
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 C lass'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.
This prospectus is printed on recycled paper using soy-based inks.

VARIABLE INSURANCE PRODUCTS FUND III
Service Class
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption

1 a,b Cover Page
2 a,b,c *
3 a Financial Highlights
b *
c *
d Performance
4 a(i) Charter
a(ii), b,c Who May Want to Invest; Investment Principles and
Risks; Securities and Investment Practices
5 a Charter
b(i) The Funds at a Glance; FMR and Its Affiliates
b(ii) (iii),c The Funds at a Glance; FMR and Its
Affiliates; Breakdown of Expenses
d FMR and Its Affiliates; Breakdown of Expenses
e Breakdown of Expenses
f,g FMR and Its Affiliates; Breakdown of Expenses
5A *
6 a(i) (ii) Charter; FMR and Its Affiliates; Transaction Details
a(iii) *
b FMR and Its Affiliates
c,d *
e Cover Page; Transaction Details
f,g Distributions and Taxes
h Who May Want to Invest
7 a FMR and Its Affiliates
b (i) (ii) Financial Highlights; Transaction Details
b (iii) (iv) (v) *
c,d,e *
f Other Expenses
8 a Transaction Details
b,c *
d Transaction Details
9 *
_______________
* Not Applicable

Please read this prospectus before investing, and keep it on file for
future reference. It contains important information to help you decide
if the goal of one or more of the funds matches your own.
To learn more about each fund and its investments, you can obtain a
copy of 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.
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/VIPIIISC-PRO-0498
700548
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
SERVICE CLASS
Variable Insurance Products Fund, Variable Insurance Products Fund II
and Variable Insurance Products Fund III (the Trusts) are designed to
provide investment vehicles for variable annuity and variable life
insurance contracts of various insurance companies. The Trusts
currently offer Service Class shares of the following funds:
INCOME FUND
High Income Portfolio
ASSET ALLOCATION FUNDS
Asset Manager Portfolio
Asset Manager: Growth Portfolio
GROWTH & INCOME AND GROWTH FUNDS
Balanced Portfolio
Equity-Income Portfolio
Growth & Income Portfolio
Growth Opportunities Portfolio
Contrafund Portfolio
Growth Portfolio
Overseas Portfolio
PROSPECTUS
APRIL 30, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS

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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 11 CHARTER How each fund is organized.

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

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

19 PERFORMANCE

ACCOUNT POLICIES 20 DISTRIBUTIONS AND TAXES

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

20 APPENDIX

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KEY FACTS

THE FUNDS AT A GLANCE
The funds contained in this prospectus are designed to provide
investment vehicles for variable annuity and variable life insurance
contracts of various insurance companies.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946
and is now America's largest mutual fund manager. Beginning January 1,
1999, Fidelity Investments Money Management, Inc. (FIMM), a subsidiary
of FMR, will choose certain types of investments for Asset Manager,
Asset Manager: Growth, and Balanced Portfolios.
INCOME FUND
HIGH INCOME PORTFOLIO
GOAL: High current income.
STRATEGY: Invests mainly in high-yielding debt securities, with an
emphasis on lower-quality securities.
SIZE: As of December 31, 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.
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 b illion
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 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.
When fund shares are redeemed, they may be worth more or less than
their original cost. An investment in any one fund is not in itself a
balanced investment plan.
Each fund is composed of multiple classes of shares. All classes of a
fund have a common investment objective and investment portfolio.
Service Class shares of each fund are offered at net asset value and
are subject to a 12b-1 fee. 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. 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 Initial Class shares, which are not
offered through this prospectus, by calling Fidelity at
1-800-544-1916.
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.
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 b roadly 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 ( OTHER
THAN THE MONEY MARKET CATEGORY).
(SOLID BULLET) MONEY MARKET SEEKS INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY, SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY INVESTING IN BONDS.
(RIGHT ARROW) 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.
(RIGHT ARROW) 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. (High Income, Equity-Income, Growth,
and Overseas Portfolios) or Price Waterhouse LLP (Asset
Manager, Asset Manager: Growth, Balanced, 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.
HIGH INCOME PORTFOLIO - SERVICE CLASS
1.Selected Per-Share Data and Ratios

2.Year ended December 31 1997E

3.Net asset value, beginning of period $ 13.380

4.Income from Investment Operations

5. Net investment income .203D

6. Net realized and unrealized gain (loss) (.013)

7. Total from investment operations .190

8.Net asset value, end of period $ 13.570

9.Total returnB,C 1.42%

10.Net assets, end of period (000 omitted) $ 2,919

11.Ratio of expenses to average net assets .81%A

12.Ratio of expenses to average net assets after expense reductions .80%A,F

13.Ratio of net investment to average net assets 10.75%A

14.Portfolio turnover 118%

15.Average commission rateG $ .0389

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED AND 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 RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIOD SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'
EXPENSES.
G 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 - SERVICE CLASS
16.Selected Per-Share Data and Ratios

17.Year ended December 31 1997D

18.Net asset value, beginning of period $ 17.60

19.Income from Investment Operations

20. Net investment income .10C

21. Net realized and unrealized gain (loss) .29

22. Total from investment operations .39

23.Net asset value, end of period $ 17.99

24.Total returnB 2.22%

25.Net assets, end of period (000 omitted) $ 10

26.Ratio of expenses to average net assets .75%A

27.Ratio of net investment income to average net assets 3.52%A

28.Portfolio turnover 101%

29.Average commission rateE $ .0408

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
E A F UND 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 - SERVICE CLASS
30.Selected Per-Share Data and Ratios

31.Year ended December 31 1997D

32.Net asset value, beginning of period $ 15.94

33.Income from Investment Operations

34. Net investment income .07C

35. Net realized and unrealized gain (loss) .34

36. Total from investment operations .41

37.Net asset value, end of period $ 16.35

38.Total returnB 2.57%

39.Net assets, end of period (000 omitted) $ 10

40.Ratio of expenses to average net assets .87%A

41.Ratio of net investment income to average net assets 2.70%A

42.Portfolio turnover 90%

43.Average commission rateE $ .0399

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
E 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.
BALANCED PORTFOLIO - SERVICE CLASS
44.Selected Per-Share Data and Ratios

45.Year ended December 31 1997D

46.Net asset value, beginning of period $ 14.16

47.Income from Investment Operations

48. Net investment income .08C

49. Net realized and unrealized gain (loss) .35

50. Total from investment operations .43

51.Net asset value, end of period $ 14.59

52.Total returnB 3.04%

53.Net assets, end of period (000 omitted) $ 10

54.Ratio of expenses to average net assets .71%A

55.Ratio of net investment income to average net assets 3.43%A

56.Portfolio turnover 98%

57.Average commission rateE $ .0423

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
E 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.
EQUITY-INCOME PORTFOLIO - SERVICE CLASS
58.Selected Per-Share Data and Ratios

59.Year ended December 31 1997E

60.Net asset value, beginning of period $ 23.44

61.Income from Investment Operations

62. Net investment income .05D

63. Net realized and unrealized gain (loss) .78

64. Total from investment operations .83

65.Net asset value, end of period $ 24.27

66.Total returnB,C 3.54%

67.Net assets, end of period (000 omitted) $ 5,328

68.Ratio of expenses to average net assets .68%A

69.Ratio of expenses to average net assets after expense reductions .65%A,F

70.Ratio of net investment income to average net assets 1.63%A

71.Portfolio turnover 44%

72.Average commission rateG $ .0440

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED AND 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 RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIOD SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS'
EXPENSES.
G 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 - SERVICE CLASS
73.Selected Per-Share Data and Ratios

74.75.Year ended December 31 1997D

76.Net asset value, beginning of period $ 12.35

77.Income from Investment Operations

78. Net investment income .03C

79. Net realized and unrealized gain (loss) .49

80. Total from investment operations .52

81.Less Distributions

82. From net investment income (.08)

83. From net realized gain (.26)

84. Total distributions (.34)

85.Net asset value, end of period $ 12.53

86.Total returnB 4.29%

87.Net assets, end of period (000 omitted) $ 10

88.Ratio of expenses to average net assets .80%A

89.Ratio of net investment income to average net assets 1.24%A

90.Portfolio turnover 81%

91.Average commission rateE $ .0322

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED AND DO NOT REFLECT CHARGES ATTRIBUTABLE TO YOUR INSURANCE
COMPANY'S SEPARATE ACCOUNT. INCLUSION OF THESE CHARGES WOULD REDUCE
THE TOTAL RETURNS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF SERVICE
CLASS SHARES) TO DECEMBER 31, 1997.
E 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 OPPORTUNITIES PORTFOLIO - SERVICE CLASS

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92.Selected Per-Share Data and Ratios

93.Year ended December 31 1997E

94.Net asset value, beginning of period $ 18.50

95.Income from Investment Operations

96. Net investment income .04D

97. Net realized and unrealized gain (loss) .73

98. Total from investment operations .77

99.Net asset value, end of period $ 19.27

100.Total returnB,C 4.16%

101.Net assets, end of period (000 omitted) $ 2,589

102.Ratio of expenses to average net assets .84%A

103.Ratio of expenses to average net assets after expense reductions .83%A,F

104.Ratio of net investment income to average net assets 1.72%A

105.Portfolio turnover 26%

106.Average commission rateG $ .0377

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107.Selected Per-Share Data and Ratios

108.Year ended December 31 1997E

109.Net asset value, beginning of period $ 19.99

110.Income from Investment Operations

111. Net investment income .03D

112. Net realized and unrealized gain (loss) (.09)

113. Total from investment operations (.06)

114.Net asset value, end of period $ 19.93

115.Total returnB,C (.30)%

116.Net assets, end of period (000 omitted) $ 3,722

117.Ratio of expenses to average net assets .81%A

118.Ratio of expenses to average net assets after expense reductions .78%A,F

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

120.Portfolio turnover 142%

121.Average commission rateG $ .0336

</TABLE>

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

123.Year ended December 31 1997E

124.Net asset value, beginning of period $ 36.92

125.Income from Investment Operations

126. Net investment income .03D

127. Net realized and unrealized gain (loss) .14

128. Total from investment operations .17

129.Net asset value, end of period $ 37.09

130.Total returnB,C .46%

131.Net assets, end of period (000 omitted) $ 2,015

132.Ratio of expenses to average net assets .79%A

133.Ratio of expenses to average net assets after expense reductions .77%A,F

134.Ratio of net investment income to average net assets .70%A

135.Portfolio turnover 113%

136.Average commission rateG $ .0428

</TABLE>

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

138.Year ended December 31 1997E

139.Net asset value, beginning of period $ 19.36

140.Income from Investment Operations

141. Net investment income .01D

142. Net realized and unrealized gain (loss) (.17)

143. Total from investment operations (.16)

144.Net asset value, end of period $ 19.20

145.Total returnB,C (.83)%

146.Net assets, end of period (000 omitted) $ 931

147.Ratio of expenses to average net assets 1.02%A

148.Ratio of expenses to average net assets after expense reductions 1.01%A,F

149.Ratio of net investment income to average net assets .31%A

150.Portfolio turnover 67%

151.Average commission rateG $ .0092

</TABLE>

CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. High Income,
Equity-Income, Growth and Overseas Portfolio s are diversified
funds of Variable Insurance Products Fund (VIP); Asset Manager, Asset
Manager: Growth and Contrafund Portfolio s are diversified funds
of Variable Insurance Products Fund II (VIP II); and Growth & Income,
Balanced and Growth Opportunities Portfolio s are diversified
funds of Variable Insurance Products Fund III (VIP III). VIP, VIP II,
and VIP III are open-end management investment companies organized as
Massachusetts business trusts on November 13, 1981, March 21, 1988,
and July 14, 1994, respectively. There is a remote possibility that
one fund might become liable for a misstatement in the prospectus
about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. An insurance company issuing a variable
contract that participates in the funds will vote shares held in its
separate account as required by law and interpretations thereof, as
may be amended or changed from time to time. In accordance with
current law and interpretations thereof, a participating insurance
company is required to request voting instructions from policyowners
and must vote shares in the separate account in proportion to the
voting instructions received. With respect to funds of VIP and VIP II,
your insurance company is entitled to one vote for each share it owns.
With respect to funds of VIP III, the number of votes your insurance
company is entitled to is based upon the dollar value of its
investment. For a further discussion, please refer to your insurance
company's separate account prospectus.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust,
respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business
address at 82 Devonshire Street, Boston, Massachusetts 02109. It
includes a number of different subsidiaries and divisions which
provide a variety of financial services and products. The funds employ
various Fidelity companies to perform activities required for their
operation.
The funds are managed by FMR, which handles their business affairs
and, with the assistance of foreign 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.
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for High Income,
Asset Manager, Asset Manager: Growth, Balanced, Growth & Income,
Growth Opportunities, Contrafund, and Overseas Portfolios.
(small solid bullet) Fidelity Management & Research (Far East) Inc.
(FMR Far East), in Tokyo, Japan, serves as a sub-adviser for High
Income, Asset Manager, Asset Manager: Growth, Balanced, Growth &
Income, Growth Opportunities, Contrafund, and Overseas Portfolios.
(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda, serves as a sub-adviser for Overseas
Portfolio.
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L), in London, England, serves as a sub-adviser for
Overseas Portfolio.
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.

FIDELITY FACTS
Fidelity offers the broadest selection of mutual
funds in the world.
(right arrow) Number of Fidelity mutual funds: over 226
(right arrow) Assets in Fidelity mutual funds: over $529
billion
(right arrow) Number of shareholder accounts: over 34 million
(right arrow) Number of investment analysts and portfolio
managers: over 265

(checkmark)
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.
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. High Income Portfolio is most similar to Spartan High
Income Fund; Equity-Income Portfolio is most similar to Fidelity
Equity-Income Fund; Growth Portfolio is most similar to Fidelity
Growth Company Fund; Overseas Portfolio is most similar to Fidelity
Overseas Fund; Asset Manager Portfolio is most similar to Fidelity
Asset Manager; Contrafund Portfolio is most similar to Fidelity
Contrafund; Asset Manager: Growth Portfolio is most similar to
Fidelity Asset Manager: Growth; Growth & Income Portfolio is most
similar to Fidelity Growth & Income Portfolio; Balanced Portfolio is
most similar to Fidelity 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 Service 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.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of 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.
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.
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 may use
a variety of investment techniques to either increase or decrease a
fund's investment exposure to any currency.
FMR may use various techniques to hedge a portion of a
fund ' s risks, but there is no guarantee that these strategies
will work as inten ded . When fund shares are redeemed, they may
be worth more or less than their original cost.
FMR normally invests each fund's assets according to its investment
strategy. Each fund also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments
for temporary, defensive purposes. Overseas Portfolio m ay
invest in short-term debt securities and money market instruments for
cash management purposes.
HIGH INCOME PORTFOLIO
The fund seeks high current income by investing primarily in all types
of income-producing debt securities, preferred stocks, and convertible
securities. FMR normally invests at least 65% of the fund's total
assets in these securities. In choosing investments, the fund also
considers growth of capital. 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 Standard & Poor's
500 Index (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.
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 may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in
the funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
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 may
not purchase more than 10% of the outstanding voting securities of a
single issuer.
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.
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)
Rating Average of total investments Rating Average of total
investments
INVESTMENT High Asset Asset Mgr: Equity- Growth & Growth High Asset
Asset Mgr: Equity- Growth & Growth
GRADE Income Manager Growth Balanced Income Income Opps Overseas
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
AAA 0.99 16.55 6.01 17.91 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 AA
0.00 0.24 0.08 0.50 0.00 0.00 0.00 0.00
Upper-medium
grade A 0.00 3.65 1.06 3.18 0.08 0.08 0.00 0.00 A 0.00 3.41
1.01 2.99 0.08 0.16 0.00 0.19
Medium grade Baa 0.00 4.12 1.41 3.37 0.19 0.15 0.00 0.00 BBB
0.59 5.96 2.06 5.10 0.30 0.35 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 BB
7.85 1.66 2.35 0.59 0.17 0.34 0.00 0.00
Speculative B 49.29 4.18 5.54 2.47 0.75 0.15 0.00 0.00 B
49.18 3.99 5.40 2.51 0.53 0.12 0.00 0.00
Highly speculative Caa 7.14 0.23 0.25 0.26 0.00 0.00 0.00 0.00
CCC 5.08 0.37 0.45 0.22 0.04 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 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 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 D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

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.
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.
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., or Fitch IBCA, Inc., 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.
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.
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.
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, and Asset Manager 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.
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.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors
such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and
the management skill and creditworthiness of the issuer. Real
estate-related instruments may also be affected by tax and regulatory
requirements, such as those relating to the environment.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange contracts or swap
agreements, purchasing indexed securities, and selling securities
short.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other
borrower. They have additional risks beyond conventional debt
securities because they may entail less legal protection for a fund,
or there may be a requirement that the fund supply additional cash to
a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities and some
other securities may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: Each of Asset Manager, Asset Manager: Growth, Balanced,
Equity-Income, 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.
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. 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, each 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.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If a fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 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 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.
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.
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 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. Th ese
limitation s do not apply to U.S. Government securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
Each 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 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
i n 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 High Income, Asset Manager, Asset
Manager: Growth, Balanced, Growth & Income, Growth Opportunities,
Contrafund, and Overseas Portfolios. Each fund also pays OTHER
EXPENSES, which are explained on page .
FMR may, from time to time, agree to reimburse a fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by a fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated at any time without notice, can decrease a
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee
for each fund is calculated by adding a group fee rate to an
individual fund fee rate, 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% for
Asset Manager, Asset Manager: Growth, Balanced, Equity-Income, Growth
& Income, Growth Opportunities, Contrafund, Growth, and Overseas
Portfolios, or 0.37% for High Income Portfolio, and it drops as total
assets under management increase.
For December 1997, the group fee rate for High Income Portfolio 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 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

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 %

Growth & Income Portfolio 0. 49 %

Growth Opportunities Portfolio 0. 60 %

Contrafund Portfolio 0. 60 %

Growth Portfolio 0. 60 %

Overseas Portfolio 0. 75 %

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.
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.
OTHER EXPENSES
While management fee s are a significant component of th e
funds ' annual operating costs, th e fund s
ha ve other expenses as well.
FIIOC performs transfer agency, dividend disbursing, and shareholder
servicing functions for Service Class of each fund. Fidelity Service
Company, Inc. (FSC) calculates the net asset value per share (NAV) and
dividends for Service Class of each fund, maintains the general
accounting records for each fund, and administers the securities
lending program for each fund.
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 Agency Pricing and
Fees Paid by Bookkeeping
Service Class [A] Fees Paid by
Fund

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 %

Growth & Income Portfolio 0. 07 % 0. 06 %

Growth Opportunities Portfolio 0. 07 % 0. 05 %

Contrafund Portfolio 0. 07 % 0. 02 %

Growth Portfolio 0. 07 % 0. 01 %

Overseas Portfolio 0. 07 % 0. 04 %

[A] ANNUALIZED
The following figures are based on historical expenses, adjusted to
reflect current fees, of Service Class of each fund and are calculated
as a percentage of average net assets of Service Class of each fund.
Fund 12b-1 fee Total operating
expenses [A]

High Income Portfolio 0.10% 0. 81 %

Asset Manager Portfolio 0.10% 0. 75 %

Asset Manager: Growth Portfolio 0.10% 0. 87 %

Balanced Portfolio 0.10% 0. 71 %

Equity-Income Portfolio 0.10% 0. 68 %

Growth & Income Portfolio 0.10% 0. 80 %

Growth Opportunities Portfolio 0.10% 0. 84 %

Contrafund Portfolio 0.10% 0. 81 %

Growth Portfolio 0.10% 0. 79 %

Overseas Portfolio 0.10% 1.02 %

[A] ANNUALIZED
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 Service Class operating expenses
presented in the preceding table would have been:
Fund Service Class [A]

High Income Portfolio 0. 80 %

Equity-Income Portfolio 0. 65 %

Growth Opportunities Portfolio 0. 83 %

Contrafund Portfolio 0. 78 %

Growth Portfolio 0. 77 %

Overseas Portfolio 1.01 %

[A] ANNUALIZED
Effective November 3, 1997, FMR has voluntarily agreed to reimburse
Service Class of each 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 the following rates:
Fund Service Class

High Income Portfolio 1.10%

Asset Manager Portfolio 1.35%

Asset Manager: Growth Portfolio 1.10%

Balanced Portfolio 1.60%

Equity-Income Portfolio 1.60%

Growth & Income Portfolio 1.10%

Growth Opportunities Portfolio 1.60%

Contrafund Portfolio 1.10%

Growth Portfolio 1.60%

Overseas Portfolio 1.60%

Each 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 a fund to
reduce that fund's custodian or transfer agent fees.
Service Class shares of each fund have adopted a DISTRIBUTION AND
SERVICE PLAN. Under the plans, Service Class of each fund is
authorized to pay FDC (for remittance quarterly to an insurance
company) a 12b-1 fee as compensation for its services and expenses in
connection with the distribution of Service Class shares. Depending on
an insurance company's corporate structure and applicable state law,
FDC may remit payments to the insurance company's affiliated
broker-dealer or other affiliated company, rather than to the
insurance company itself.
Under the plans, Service Class of each fund may pay FDC a 12b-1 fee at
an annual rate of 0.25% of its average net assets, or such lesser
amount as the Trustees may determine from time to time. Service Class
of each fund currently pays FDC a 12b-1 fee at an annual rate of 0.10%
of its average net assets throughout the month. Service Class 12b-1
fee rates may be increased only when the Trustees believe that it is
in the best interests of Variable Product owners to do so. (For
purposes of this discussion, "Variable Product" refers to a variable
annuity contract or variable life insurance policy for which shares of
the funds are available as underlying investment options.)
Up to the full amount of the Service Class 12b-1 fee may be reallowed
to insurance companies as compensation for their services in
connection with the distribution of Service Class shares and for
providing support services to Variable Product owners, based upon the
level of such services provided. These services may include, without
limitation: answering questions about the funds from Variable Product
owners; receiving and answering correspondence from Variable Product
owners (including requests for prospectuses and statements of
additional information for the funds); performing sub-accounting with
respect to Variable Product values allocated to the funds; preparing,
printing and distributing reports of values to Variable Product owners
who have contract values allocated to the funds; printing and
distributing prospectuses, statements of additional information, any
supplements thereto, and shareholder reports; preparing, printing and
distributing marketing materials for Variable Products; assisting
customers in completing applications for Variable Products and
selecting underlying mutual fund investment options; preparing,
printing and distributing sub-account performance figures for
sub-accounts investing in fund shares; and providing other reasonable
assistance in connection with the distribution of fund shares to
insurers.
The Service Class plans specifically recognize that FMR may make
payments from its management fee revenue, past profits, or other
resources to FDC for expenses incurred in connection with the
distribution of Service Class shares, including payments made to
insurance companies and others that provide shareholder support
services or engage in the sale of Service Class shares. The Board of
Trustees of each fund has authorized such payments.
The following table states each fund'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

High Income Portfolio 118%

Asset Manager Portfolio 101%

Asset Manager: Growth Portfolio 90%

Balanced Portfolio 98%

Equity-Income Portfolio 44%

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.
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 591/2.
Each fund is treated as a separate entity for federal income tax
purposes. Each fund intends to pay out all of its net investment
income and net realized capital gains, if any, for each year. Each
fund will distribute any dividends at least annually. Normally, net
realized capital gains, if any, are distributed each year for a fund.
Such income and capital gain distributions from a fund are
automatically reinvested in additional shares of the same class of the
fund. Each fund makes dividend and capital gain distributions on a
per-share basis for each class. After each distribution from a fund,
the fund's share price drops by the amount of the distribution.
Because 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 Service C lass'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.
Each fund'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.
This prospectus is printed on recycled paper using soy-based inks.

VARIABLE INSURANCE PRODUCTS FUND III
CROSS REFERENCE SHEET
Part B Statement of Additional Information Caption

10, 11 Cover Page; Table of Contents

12 Description of the Trust

13 a,b,c Investment Policies and Limitations

d *

14 a, b, c Trustees and Officers

15 a, b *

c Trustees and Officers

16 a(i) FMR

a(ii) Trustees and Officers

a(iii),b Management Contracts

c *

d *

e *

f Distribution and Service Plans

g *

h Description of the Trust

i Contracts with FMR Affiliates

17 a, b, c Portfolio Transactions

d, e *

18 a Description of the Trust

b *

19 a Additional Purchase and Redemption
Information

b Valuation

c *

20 Distributions and Taxes

21 a (i), (ii) Contracts with FMR Affiliates

a(iii), b,c *

22 Performance

23 Financial Statements

_________
* Not Applicable

VARIABLE INSURANCE PRODUCTS FUND:
MONEY MARKET PORTFOLIO, HIGH INCOME PORTFOLIO, EQUITY-INCOME
PORTFOLIO,
GROWTH PORTFOLIO, AND OVERSEAS PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND II:
INVESTMENT GRADE BOND PORTFOLIO, ASSET MANAGER PORTFOLIO,
ASSET MANAGER: GROWTH PORTFOLIO, INDEX 500 PORTFOLIO, AND CONTRAFUND
PORTFOLIO
VARIABLE INSURANCE PRODUCTS FUND III:
BALANCED PORTFOLIO, GROWTH & INCOME PORTFOLIO,
AND GROWTH OPPORTUNITIES PORTFOLIO
INITIAL CLASS AND SERVICE CLASS
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectuses
(dated April 30, 1998) for Initial Class and Service Class shares.
Please retain this document for future reference. The funds' Annual
Reports are separate documents supplied with this SAI. To obtain a
free additional copy of a Prospectus or an Annual Report, please call
Fidelity at 1-800-544- 1916, or your insurance company.
TABLE OF CONTENTS PAGE

INVESTMENT POLICIES AND LIMITATIONS 3

PORTFOLIO TRANSACTIONS 12

VALUATION 16

PERFORMANCE 17

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 41

DISTRIBUTIONS AND TAXES 41

FMR 42

BT 42

TRUSTEES AND OFFICERS 42

MANAGEMENT CONTRACTS 45

DISTRIBUTION AND SERVICE PLANS 55

CONTRACTS WITH FMR AFFILIATES 57

CONTRACTS WITH BT AFFILIATES 57

DESCRIPTION OF THE TRUSTS 57

FINANCIAL STATEMENTS 58

APPENDIX 58

For more information on any Fidelity fund, including charges and
expenses, call or write for a free prospectus. Read it carefully
before you invest or send money.
VIP/VIPII/VIPIII-ptb-0498
700593
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Money Market Portfolio:
Fidelity Investments Money Management, Inc. (FIMM)
High Income, Asset Manager, Contrafund, Balanced, Growth
Opportunities, Growth & Income, and Asset Manager: Growth Portfolios:
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Index 500 Portfolio:
Bankers Trust Company (BT)
Overseas Portfolio:
FMR U.K.
FMR Far East
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited
(FIIA(U.K.)L)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company, Inc. (FIIOC)
CUSTODIANS
Money Market, High Income, and Investment Grade Bond Portfolios:
The Bank of New York
Equity-Income, Overseas, Asset Manager: Growth, Asset Manager,
Balanced, and Growth & Income Portfolios:
The Chase Manhattan Bank
Growth, Growth Opportunities, and Contrafund Portfolios:
Brown Brothers Harriman & Co.
Index 500 Portfolio:
BT
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with a fund's investment policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
MONEY MARKET PORTFOLIO
THE FOLLOWING ARE MONEY MARKET PORTFOLIO'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer (other than obligations
issued or guaranteed as to principal and interest by the United
States, its agencies or instrumentalities) if, as a result, more than
5% of its total assets would be invested in the securities of such
issuer, provided, however, that with respect to 25% of its total
assets, 10% of its assets may be invested in the securities of any
single issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) and
(ii) engage in reverse repurchase agreements for any purpose; provided
that (i) and (ii) in combination do not exceed 33 1/3% of the fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that come to exceed this amount will
be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry, except that
the fund will invest more than 25% of its total assets in the
financial services industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments;
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements; or
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS FOR MONEY MARKET PORTFOLIO ARE
NOT FUNDAMENTAL AND MAY BE CHANGED, AS REGULATORY AGENCIES PERMIT,
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to purchase a security (other
than securities issued or guaranteed by the U.S. government or any of
its agencies or instrumentalities) if, as a result, more than 5% of
its total assets would be invested in the securities of a single
issuer; provided that the fund may invest up to 10% of its total
assets in the first tier securities of a single issuer for up to three
business days. (This limit does not apply to investments of up to 10%
of total assets in securities of other open-end investment companies
managed by FMR or a successor or affiliate purchased pursuant to an
exemptive order granted by the SEC.)
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party. The fund will not borrow from
other funds advised by FMR or its affiliates if total outstanding
borrowings immediately after such borrowing would exceed 15% of the
fund's total assets.
(v) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by lending money (up to 10% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment adviser. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)
(viii) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
With respect to limitation (v), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets w as invested in illiquid securities,
it would consider appropriate steps to protect liquidity.
For the fund's policies on quality and maturity, see the section
entitled "Quality and Maturity" on page .
HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, GROWTH & INCOME,
BALANCED, GROWTH OPPORTUNITIES, INVESTMENT GRADE BOND,
ASSET MANAGER, INDEX 500, CONTRAFUND, AND ASSET MANAGER: GROWTH
PORTFOLIOS
THE FOLLOWING ARE HIGH INCOME, EQUITY-INCOME, GROWTH, OVERSEAS, GROWTH
& INCOME, BALANCED, GROWTH OPPORTUNITIES, INVESTMENT GRADE BOND, ASSET
MANAGER, INDEX 500, CONTRAFUND, AND ASSET MANAGER: GROWTH PORTFOLIOS'
FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. EACH
FUND MAY NOT:
(1) (for High Income, Equity-Income, Growth, Overseas, Investment
Grade Bond, Asset Manager, Asset Manager: Growth, Contrafund,
Balanced, Growth & Income, and Growth Opportunities Portfolios) with
respect to 75% of the fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a
result, (a) more than 5% of the fund's total assets would be invested
in the securities of that issuer, or (b) the fund would hold more than
10% of the outstanding voting securities of that issuer;
(for Index 500 Portfolio) with respect to 75% of the fund's total
assets, purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or securities of other investment companies) if, as
a result, (a) more than 5% of the fund's total assets would be
invested in the securities of that issuer, or (b) the fund would hold
more than 10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) (for High Income, Equity-Income, Growth, Overseas, Balanced, and
Growth Opportunities Portfolios) borrow money, except that the fund
(i) may borrow money for temporary or emergency purposes (not for
leveraging or investment) or (ii) engage in reverse repurchase
agreements, provided that (i) and (ii) in combination (borrowings) do
not exceed 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of the fund's total assets by reason of a
decline in net assets will be reduced within three days (exclusive of
Sundays and holidays) to the extent necessary to comply with the 33
1/3% limitation;
(for Investment Grade Bond, Asset Manager, Asset Manager: Growth,
Index 500, Contrafund, and Growth & Income Portfolios) borrow money,
except that the fund may borrow money for temporary or emergency
purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33
1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of its total assets
would be invested in the securities of companies whose principal
business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(9) (for Balanced and Growth Opportunities Portfolios) Each fund may,
notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS FOR HIGH INCOME, EQUITY-INCOME,
GROWTH, OVERSEAS, GROWTH & INCOME, BALANCED, GROWTH OPPORTUNITIES,
INVESTMENT GRADE BOND, ASSET MANAGER, INDEX 500, CONTRAFUND, AND ASSET
MANAGER: GROWTH PORTFOLIOS ARE NOT FUNDAMENTAL AND MAY BE CHANGED, AS
REGULATORY AGENCIES PERMIT, WITHOUT SHAREHOLDER APPROVAL.
(i) Each fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) Each fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) Each fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). Each fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) Each fund does not currently intend to purchase any security if,
as a result, more than 10% (Equity-Income, Growth, Investment Grade
Bond, Asset Manager, Asset Manager: Growth, Index 500, Contrafund,
Balanced, Growth & Income, and Growth Opportunities Portfolios) or
more than 15% (High Income and Overseas Portfolios) of its net assets
would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on resale or
because they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by: (a) lending money (up to 5% of
net assets for Equity-Income, Growth, Overseas, Asset Manager, Asset
Manager: Growth, Index 500, Contrafund, Balanced, Growth & Income, and
Growth Opportunities Portfolios and 7.5% of net assets for High Income
and Investment Grade Bond Portfolios) to a registered investment
company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) acquiring loans, loan participations, or
other forms of direct debt instruments and, in connection therewith,
assuming any associated unfunded commitments of the sellers. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)
(vi) Each fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(vii) (for Balanced and Growth Opportunities Portfolios) Each fund
does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, a fund were in a position where more
than 10% (Equity-Income, Growth, Investment Grade Bond, Asset Manager,
Asset Manager: Growth, Index 500, Contrafund, Balanced, Growth &
Income, and Growth Opportunities Portfolios ) or more than 15%
(High Income and Overseas Portfolios ) of its net assets
w as invested in illiquid securities, it would consider
appropriate steps to protect liquidity.
For the funds' limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page . For purposes of Index 500 Portfolio's limitation on
concentration in a single industry, the fund may use the industry
categorizations as defined by BARRA, Inc.
Higher yielding, fixed-income securities of the type in which High
Income Portfolio invests will at times be purchased at a discount from
or a premium over par value. The total return on such securities
includes the potential for a capital gain or loss. High Income
Portfolio generally does not intend to hold securities for the purpose
of achieving capital gains, however, unless current yields on these
securities remain attractive. Capital gain or loss may also be
realized upon the sale of portfolio securities.
The U.S. government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign investments
by U.S. investors such as the funds. If such restrictions should be
reinstituted, it might become necessary for Overseas Portfolio to
invest all or substantially all of its assets in U.S. securities. In
such event, the Board of Trustees would reevaluate the fund's
investment objective and policies.
In accordance with the funds' fundamental investment policies, there
are no limitations on the percentage of the funds' assets which may be
invested in any one type of instrument. Nor are there limitations on
the percentage of the funds' assets which may be invested in any
foreign country. However, in order to comply with diversification
requirements under Section 817(h) of the Internal Revenue Code of
1986, as amended, in connection with FMR serving as investment
adviser, each fund has agreed to certain non-fundamental limitations.
Please refer to your insurance company's separate account prospectus
for more information.
THE FOLLOWING PAGES CONTAIN MORE DETAILED INFORMATION ABOUT TYPES OF
INSTRUMENTS IN WHICH A FUND MAY INVEST, STRATEGIES FMR (BT FOR INDEX
500) MAY EMPLOY IN PURSUIT OF A FUND'S INVESTMENT OBJECTIVE, AND A
SUMMARY OF RELATED RISKS. FMR (BT FOR INDEX 500) MAY NOT BUY ALL OF
THESE INSTRUMENTS OR USE ALL OF THESE TECHNIQUES UNLESS IT BELIEVES
THAT DOING SO WILL HELP A FUND ACHIEVE ITS GOAL.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET ALLOCATION (ASSET MANAGER AND ASSET MANAGER: GROWTH
PORTFOLIOS ). The stock class includes domestic and foreign equity
securities of all types (other than adjustable rate preferred stocks,
which are included in the bond class). FMR seeks to maximize total
return within this asset class by actively allocating assets to
industry sectors expected to benefit from major trends, and to
individual stocks that FMR believes to have superior investment
potential. When FMR selects equity securities, it considers both
growth and anticipated dividend income. Securities in the stock class
may include common stocks, fixed-rate preferred stocks (including
convertible preferred stocks), warrants, rights, depositary receipts,
securities of closed-end investment companies, and other equity
securities issued by companies of any size, located anywhere in the
world.
The bond class includes all varieties of domestic and foreign
fixed-income securities maturing in more than one year. FMR will seek
to maximize total return within the bond class by adjusting a fund's
investments in securities with different credit qualities, maturities,
and coupon or dividend rates, and by seeking to take advantage of
yield differentials between securities. Securities in this class may
include bonds, notes, adjustable-rate preferred stocks, convertible
bonds, mortgage-related and asset-backed securities, domestic and
foreign government and government agency securities, zero coupon
bonds, and other intermediate and long-term securities. These
securities may be denominated in U.S. dollars or foreign currency.
The short-term/money market class includes all types of domestic and
foreign short-term and money market instruments. FMR will seek to
maximize total return within this asset class by taking advantage of
yield differentials between different instruments, issuers, and
currencies. Short-term and money market instruments may include
corporate debt securities, such as commercial paper and notes;
government securities issued by U.S. or foreign governments or their
agencies or instrumentalities; bank deposits and other financial
institution obligations; repurchase agreements involving any type of
security; and other similar short-term instruments. These instruments
may be denominated in U.S. dollars or foreign currency.
FMR may use its judgment to place a security in the most appropriate
class based on its investment characteristics. Fixed-income securities
may be classified in the bond or short-term/money market class
according to interest rate sensitivity as well as maturity. The funds
may also make other investments that do not fall within these classes.
In making asset allocation decisions, FMR will evaluate projections of
risk, market conditions, economic conditions, volatility, yields, and
returns. FMR's management will use database systems to help analyze
past situations and trends, research specialists in each of the asset
classes to help in securities selection, portfolio management
professionals to determine asset allocation and to select individual
securities, and its own credit analysis as well as credit analyses
provided by rating services.
ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds, or other credit enhancements.
Asset-backed security values may also be affected by the
creditworthiness of the servicing agent for the pool, the originator
of the loans or receivables, or the entities providing the credit
enhancement. In addition, these securities may be subject to
prepayment risk.
CLOSED-END INVESTMENT COMPANIES are investment companies that issue a
fixed number of shares which trade on a stock exchange or
over-the-counter. Closed-end investment companies are professionally
managed and may invest in any type of security. Shares of closed-end
investment companies may trade at a premium or a discount to their net
asset value. A fund may purchase shares of closed-end investment
companies to facilitate investment in certain foreign countries.
CONVERTIBLE SECURITIES are bonds, debentures, notes, preferred stocks
or other securities that may be converted or exchanged (by the holder
or by the issuer) into shares of the underlying common stock (or cash
or securities of equivalent value) at a stated exchange ratio. A
convertible security may also be called for redemption or conversion
by the issuer after a particular date and under certain circumstances
(including a specified price) established upon issue. If a convertible
security held by a fund is called for redemption or conversion, the
fund could be required to tender it for redemption, convert it into
the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields
higher than the underlying common stocks (but generally lower than
comparable non-convertible) securities. Because of this higher yield,
convertible securities generally sell at prices above their
"conversion value," which is the current market value of the stock to
be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time
depending on changes in the value of the underlying common stocks and
interest rates. When the underlying common stocks decline in value,
convertible securities will tend not to decline to the same extent
because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities.
However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. When the
underlying common stocks rise in value, the value of convertible
securities may also be expected to increase. At the same time,
however, the difference between the market value of convertible
securities and their conversion value will narrow, which means that
the value of convertible securities will generally not increase to the
same extent as the value of the underlying common stocks. Because
convertible securities may also be interest-rate sensitive, their
value may increase as interest rates fall and decrease as interest
rates rise. Convertible securities are also subject to credit risk and
are often lower-quality securities.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. A
non-money market fund may receive fees or price concessions for
entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of
price and yield fluctuations and the risk that the security will not
be issued as anticipated. Because payment for the securities is not
required until the delivery date, these risks are in addition to the
risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form
of leverage. When delayed-delivery purchases are outstanding, a fund
will set aside appropriate liquid assets in a segregated custodial
account to cover the purchase obligations. When a fund has sold a
security on a delayed-delivery basis, the fund does not participate in
further gains or losses with respect to the security. If the other
party to a delayed-delivery transaction fails to deliver or pay for
the securities, a fund could miss a favorable price or yield
opportunity or could suffer a loss.
A fund may renegotiate a delayed-delivery transaction and may sell the
underlying securities before delivery, which may result in capital
gains or losses for the fund.
DOMESTIC AND FOREIGN INVESTMENTS ( M ONEY M ARKET
PORTFOLIO ) include U.S. dollar-denominated time deposits,
certificates of deposit, and bankers' acceptances of U.S. banks and
their branches located outside of the United States, U.S. branches and
agencies of foreign banks, and foreign branches of foreign banks.
Domestic and foreign investments may also include U.S.
dollar-denominated securities issued or guaranteed by other U.S. or
foreign issuers, including U.S. and foreign corporations or other
business organizations, foreign governments, foreign government
agencies or instrumentalities, and U.S. and foreign financial
institutions, including savings and loan institutions, insurance
companies, mortgage bankers, and real estate investment trusts, as
well as banks.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and by
governmental regulations. Payment of interest and repayment of
principal on these obligations may also be affected by governmental
action in the country of domicile of the branch (generally referred to
as sovereign risk). In addition, evidence of ownership of portfolio
securities may be held outside of the United States and the fund may
be subject to the risks associated with the holding of such property
overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.
Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
federal and state regulation, as well as by governmental action in the
country in which the foreign bank has its head office.
Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic
developments, withholding taxes, seizures of foreign deposits,
currency controls, interest limitations, or other governmental
restrictions that might affect repayment of principal or payment of
interest, or the ability to honor a credit commitment. Additionally,
there may be less public information available about foreign entities.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing, and financial reporting
requirements comparable to those applicable to U.S. issuers.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks
inherent in U.S. investments.
Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments, and may be affected by
actions of foreign governments adverse to the interests of U.S.
investors. Such actions may include expropriation or nationalization
of assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There is no assurance that
FMR (BT for Index 500) will be able to anticipate these potential
events or counter their effects. In addition, the value of securities
denominated in foreign currencies and of dividends and interest paid
with respect to such securities will fluctuate based on the relative
strength of the U.S. dollar.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC)
markets located outside of the United States. Foreign stock markets,
while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some
foreign issuers may be less liquid and more volatile than securities
of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices (including those involving securities settlement
where fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in
increased risk or substantial delays in the event of a failed trade or
the insolvency of, or breach of duty by, a foreign broker-dealer,
securities depository or foreign subcustodian. In addition, the costs
associated with foreign investments, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than
with U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to U.S. issuers.
Adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less overall
governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. OTC markets
tend to be less regulated than stock exchange markets and, in certain
countries, may be totally unregulated. Regulatory enforcement may be
influenced by economic or political concerns, and investors may have
difficulty enforcing their legal rights in foreign countries.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject
to such restrictions.
American Depositary Receipts (ADRs) as well as other "hybrid" forms of
ADRs, including European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs), are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by
depository banks and generally trade on an established market in the
United States or elsewhere. The underlying shares are held in trust by
a custodian bank or similar financial institution in the issuer's home
country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various
services, including forwarding dividends and interest and corporate
actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However,
ADRs continue to be subject to many of the risks associated with
investing directly in foreign securities. These risks include foreign
exchange risk as well as the political and economic risks of the
underlying issuer's country.
The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be
significantly more volatile than those in more developed markets,
reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets
may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less
protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a
few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times.
FOREIGN CURRENCY TRANSACTIONS. A bond or equity fund may conduct
foreign currency transactions on a spot (i.e., cash) or forward basis
(i.e., by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange. A fund may use currency
forward contracts for any purpose consistent with its investment
objective.
The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by a fund. A
fund may also use swap agreements, indexed securities, and options and
futures contracts relating to foreign currencies for the same
purposes.
A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is
made or received. Entering into a forward contract for the purchase or
sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the
U.S. dollar price of the security. Forward contracts to purchase or
sell a foreign currency may also be used by a fund in anticipation of
future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected
by FMR (BT for Index 500).
A fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's
value. Such a hedge, sometimes referred to as a "position hedge,"
would tend to offset both positive and negative currency fluctuations,
but would not offset changes in security values caused by other
factors. A fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would
not hedge currency exposure as effectively as a direct hedge into U.S.
dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged
securities are denominated.
A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to
the currency that is sold, and increase exposure to the currency that
is purchased, much as if a fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause a fund to assume the risk of
fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set
aside appropriate liquid assets in a segregated custodial account to
cover currency forward contracts. As required by SEC guidelines, a
fund will segregate assets to cover currency forward contracts, if
any, whose purpose is essentially speculative. A fund will not
segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy
hedges.
Successful use of currency management strategies will depend on FMR's
(BT's for Index 500) skill in analyzing currency values. Currency
management strategies may substantially change a fund's investment
exposure to changes in currency exchange rates and could result in
losses to a fund if currencies do not perform as FMR (BT for Index
500) anticipates. For example, if a currency's value rose at a time
when FMR (BT for Index 500) had hedged a fund by selling that currency
in exchange for dollars, a fund would not participate in the
currency's appreciation. If FMR (BT for Index 500) hedges currency
exposure through proxy hedges, a fund could realize currency losses
from both the hedge and the security position if the two currencies do
not move in tandem. Similarly, if FMR (BT for Index 500) increases a
fund's exposure to a foreign currency and that currency's value
declines, a fund will realize a loss. There is no assurance that FMR's
(BT's for Index 500) use of currency management strategies will be
advantageous to a fund or that it will hedge at appropriate times.
FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements may
include agreements to purchase and sell foreign securities in exchange
for fixed U.S. dollar amounts, or in exchange for specified amounts of
foreign currency. Unlike typical U.S. repurchase agreements, foreign
repurchase agreements may not be fully collateralized at all times.
However, pursuant to certain state insurance regulations, any foreign
repurchase agreements a fund enters into will be secured by collateral
consisting of liquid assets having a market value of not less than
102% of the cash or assets transferred to the other party. The value
of a security purchased by a fund may be more or less than the price
at which the counterparty has agreed to repurchase the security. In
the event of default by the counterparty, the fund may suffer a loss
if the value of the security purchased is less than the agreed-upon
repurchase price, or if the fund is unable to successfully assert a
claim to the collateral under foreign laws. As a result, foreign
repurchase agreements may involve higher credit risks than repurchase
agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging market investments,
repurchase agreements with counterparties located in emerging markets
or relating to emerging market securities may involve issuers or
counterparties with lower credit ratings than typical U.S. repurchase
agreements.
FUNDS' RIGHTS AS SHAREHOLDERS. The funds do not intend to direct or
administer the day-to-day operations of any company. A fund, however,
may exercise its rights as a shareholder and may communicate its views
on important matters of policy to management, the Board of Directors,
and shareholders of a company when FMR (BT for Index 500) determines
that such matters could have a significant effect on the value of the
fund's investment in the company. The activities in which a fund may
engage, either individually or in conjunction with others, may
include, among others, supporting or opposing proposed changes in a
company's corporate structure or business activities; seeking changes
in a company's directors or management; seeking changes in a company's
direction or policies; seeking the sale or reorganization of the
company or a portion of its assets; or supporting or opposing
third-party takeover efforts. This area of corporate activity is
increasingly prone to litigation and it is possible that a fund could
be involved in lawsuits related to such activities. FMR (BT for Index
500) will monitor such activities with a view to mitigating, to the
extent possible, the risk of litigation against a fund and the risk of
actual liability if a fund is involved in litigation. No guarantee can
be made, however, that litigation against a fund will not be
undertaken or liabilities incurred.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, Options and Futures
Relating to Foreign Currencies, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will
comply with guidelines established by the SEC with respect to coverage
of options and futures strategies by mutual funds and, if the
guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held
in a segregated account cannot be sold while the futures or option
strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a
large percentage of a fund's assets could impede portfolio management
or the fund's ability to meet redemption requests or other current
obligations.
COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Index (S&P 500). Futures can be held
until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
Overseas Portfolio may invest in futures based on such indexes as the
CAC 40 (France), DAX 30 (Germany), EuroTop 100 (Europe), IBEX (Spain),
FTSE 100 (United Kingdom), All Ordinary (Australia), Hang Seng (Hong
Kong), and Nikkei 225, Nikkei 300 and TOPIX (Japan).
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a futures commission merchant (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive
all or a portion of this amount. Initial and variation margin payments
do not constitute purchasing securities on margin for purposes of a
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of a fund, the fund may be entitled to
return of margin owed to it only in proportion to the amount received
by the FCM's other customers, potentially resulting in losses to the
fund.
Although futures exchanges generally operate similarly in the U.S. and
abroad, foreign futures exchanges may follow different trading,
settlement and margin procedures than U.S. exchanges do. Futures
contracts traded outside the United States may involve greater risk of
loss than U.S.-traded contracts, including potentially greater risks
of losses due to insolvency of a futures broker, exchange member or
other party that may owe initial or variation margin to a fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond and equity
fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity
Futures Trading Commission (CFTC) and the National Futures
Association, which regulate trading in the futures markets. The funds
intend to comply with Rule 4.5 under the Commodity Exchange Act, which
limits the extent to which the funds can commit assets to initial
margin deposits and option premiums.
In addition, each fund (excluding Index 500) will not: (a) sell
futures contracts, purchase put options, or write call options if, as
a result, more than 25% of the fund's total assets would be hedged
with futures and options under normal conditions; (b) purchase futures
contracts or write put options if, as a result, the fund's total
obligations upon settlement or exercise of purchased futures contracts
and written put options would exceed 25% of its total assets; or (c)
purchase call options if, as a result, the current value of option
premiums for call options purchased by the fund would exceed 5% of the
fund's total assets. These limitations do not apply to options
attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
BT also intends to follow certain other limitations on Index 500's
futures and options activities. The fund will not purchase any option
if, as a result, more than 5% of its total assets would be invested in
option premiums. Under normal conditions, the fund will not enter into
any futures contract or option if, as a result, the sum of (i) the
current value of the assets hedged in the case of strategies involving
the sale of securities, and (ii) the current value of the indices or
other instruments underlying the fund's other futures or options
positions, would exceed 35% of the fund's total assets. These
limitations do not apply to options attached to, or acquired or traded
together with, their underlying securities, and do not apply to
securities that incorporate features similar to options.
The above limitations on the bond and equity funds' investments in
futures contracts and options, and the funds' policies regarding
futures contracts and options discussed elsewhere in this SAI, may be
changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible to enter into new positions or close out
existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and potentially
could require a fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and
are standardized as to contract size and delivery date. Most currency
futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency
call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. A fund may purchase and sell currency futures and may purchase
and write currency options to increase or decrease its exposure to
different foreign currencies. Currency options may also be purchased
and written in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected
to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in
the Yen, but will not protect a fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value
of a fund's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to
match the amount of currency options and futures to the value of the
fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater flexibility
to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer assumes the obligation
to pay the strike price for the option's underlying instrument if the
other party to the option chooses to exercise it. The writer may seek
to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the
secondary market is not liquid for a put option, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position. When writing an option on a
futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of each fund's (except Index 500's)
investments and, through reports from FMR, the Board monitors
investments in illiquid instruments. Under the supervision of the
Board of Trustees and FMR, BT determines the liquidity of Index 500's
investments and, through reports from FMR and/or BT, the Board
monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR (BT for Index 500) may consider
various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature
of the security (including any demand or tender features), and (5) the
nature of the marketplace for trades (including the ability to assign
or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by FMR (BT for Index 500) to
be illiquid include repurchase agreements not entitling the holder to
repayment of principal and payment of interest within seven days,
over-the-counter options, and non-government stripped fixed-rate
mortgage-backed securities. Also, FMR (BT for Index 500) may determine
some restricted securities, time deposits, government-stripped
fixed-rate mortgage-backed securities, loans and other direct debt
instruments, emerging market securities, and swap agreements to be
illiquid. However, with respect to over-the-counter options a fund
writes, all or a portion of the value of the underlying instrument may
be illiquid depending on the assets held to cover the option and the
nature and terms of any agreement the fund may have to close out the
option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by
the Board of Trustees. For Money Market, illiquid investments are
valued by this method for purposes of monitoring amortized cost
valuation.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a
specific instrument or statistic. Mortgage-indexed securities, for
example, could be structured to replicate the performance of mortgage
securities and the characteristics of direct ownership. Gold-indexed
securities typically provide for a maturity value that depends on the
price of gold, resulting in a security whose price tends to rise and
fall together with gold prices. Currency-indexed securities typically
are short-term to intermediate-term debt securities whose maturity
values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields
than U.S. dollar-denominated securities. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value
may increase when the specified currency value increases, resulting in
a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each
other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes
in the United States and abroad. Indexed securities may be more
volatile than the underlying instruments. Indexed securities are also
subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government
agencies.
In addition, for Index 500, indexed securities include commercial
paper, certificates of deposit, and other fixed-income securities
whose values at maturity or coupon interest rates are determined by
reference to the returns of the S&P 500 or comparable stock indices.
Indexed securities can be affected by stock prices as well as changes
in interest rates and the creditworthiness of their issuers and may
not track the indices as accurately as direct investments in the
indices.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will lend
through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the
cost of bank loans. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
ISSUER LOCATION. FMR determines where an issuer is located by looking
at such factors as the issuer's country of organization, the primary
trading market for the issuer's securities, and the location of the
issuer's assets, personnel, sales, and earnings. The issuer of a
security is considered to be located in a particular country if (1)
the security is issued or guaranteed by the government of that country
or any of its agencies, political subdivisions, or instrumentalities;
(2) the security has its primary trading market in that country; or
(3) the issuer is organized under the laws of that country, derives at
least 50% of its revenues or profits from goods sold, investments
made, or services performed in that country, or has at least 50% of
its assets located in that country.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other
borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt instruments are
subject to a fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
interest and repayment of principal. Direct debt instruments may not
be rated by any nationally recognized statistical rating service. If
scheduled interest or principal payments are not made, the value of
the instrument may be adversely affected. Loans that are fully secured
provide more protections than an unsecured loan in the event of
failure to make scheduled interest or principal payments. However,
there is no assurance that the liquidation of collateral from a
secured loan would satisfy the borrower's obligation, or that the
collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks and may
be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a
small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities
responsible for the repayment of the debt may be unable, or unwilling,
to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional
risks. For example, if a loan is foreclosed, the purchaser could
become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of
lender liability, a purchaser could be held liable as a co-lender.
Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are
not in the form of securities may offer less legal protection to the
purchaser in the event of fraud or misrepresentation. In the absence
of definitive regulatory guidance, FMR uses its research to attempt to
avoid situations where fraud or misrepresentation could adversely
affect a fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of
the loan, as specified in the loan agreement. Unless, under the terms
of the loan or other indebtedness, the purchaser has direct recourse
against the borrower, the purchaser may have to rely on the agent to
apply appropriate credit remedies against a borrower. If assets held
by the agent for the benefit of a purchaser were determined to be
subject to the claims of the agent's general creditors, the purchaser
might incur certain costs and delays in realizing payment on the loan
or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness may include letters of credit, revolving credit
facilities, or other standby financing commitments that obligate
purchasers to make additional cash payments on demand. These
commitments may have the effect of requiring a purchaser to increase
its investment in a borrower at a time when it would not otherwise
have done so, even if the borrower's condition makes it unlikely that
the amount will ever be repaid. A fund will set aside appropriate
liquid assets in a segregated custodial account to cover its potential
obligations under standby financing commitments.
Each fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see each fund's
investment limitations). For purposes of these limitations, a fund
generally will treat the borrower as the "issuer" of indebtedness held
by the fund. In the case of loan participations where a bank or other
lending institution serves as financial intermediary between a fund
and the borrower, if the participation does not shift to the fund the
direct debtor-creditor relationship with the borrower, SEC
interpretations require the fund, in appropriate circumstances, to
treat both the lending bank or other lending institution and the
borrower as "issuers" for these purposes. Treating a financial
intermediary as an issuer of indebtedness may restrict a fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different
companies and industries.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication
of the future performance of the high-yield bond market, especially
during periods of economic recession.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. If market
quotations are not available, lower-quality debt securities will be
valued in accordance with procedures established by the Board of
Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing high-yield debt securities than is the
case for securities for which more external sources for quotations and
last-sale information are available. Adverse publicity and changing
investor perceptions may affect the liquidity of lower-quality debt
securities and the ability of outside pricing services to value
lower-quality debt securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type. FMR will attempt to identify those
issuers of high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to
improve in the future. FMR's analysis focuses on relative values based
on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the
issuer.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MONEY MARKET SECURITIES are high-quality, short-term obligations.
Money market securities may be structured or may employ a trust or
other similar structure so that they are eligible investments for
money market funds. For example, put features can be used to modify
the maturity of a security or interest rate adjustment features can be
used to enhance price stability. If the structure does not perform as
intended, adverse tax or investment consequences may result. Neither
the Internal Revenue Service (IRS) nor any other regulatory authority
has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could
adversely affect the value, liquidity, or tax treatment of the income
received from these securities or the nature and timing of
distributions made by a fund.
MORTGAGE-BACKED SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage-backed security is an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations (or CMOs), make payments of both
principal and interest at a range of specific intervals; others make
semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage-backed securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject
to prepayment risk. Prepayment occurs when unscheduled or early
payments are made on the underlying mortgages, usually in response to
a reduction in interest rates. Mortgage-backed security values may
also be adversely affected when prepayments on underlying mortgages do
not occur. The prices of stripped mortgage-backed securities tend to
be more volatile in response to changes in interest rates than those
of non-stripped mortgage-backed securities.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
or private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities.
They may be issued in anticipation of future revenues and may be
backed by the full taxing power of a municipality, the revenues from a
specific project, or the credit of a private organization. The value
of some or all municipal securities may be affected by uncertainties
in the municipal market related to legislation or litigation involving
the taxation of municipal securities or the rights of municipal
securities holders. A municipal security may be owned directly or
through a participation interest.
OTHER INVESTMENT COMPANIES. A fund may purchase the shares of other
investment companies.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. They are
subject to the risk that the put provider is unable to honor the put
feature (purchase the security). Put providers often support their
ability to buy securities on demand by obtaining letters of credit or
other guarantees from other entities. Demand features, standby
commitments, and tender options are types of put features.
QUALITY AND MATURITY ( M ONEY M ARKET PORTFOLIO ).
Pursuant to procedures adopted by the Board of Trustees, the fund may
purchase only high-quality securities that FMR believes present
minimal credit risks. To be considered high-quality, a security must
be rated in accordance with applicable rules in one of the two highest
categories for short-term securities by at least two nationally
recognized rating services (or by one, if only one rating service has
rated the security) or, if unrated, judged to be of equivalent quality
by FMR.
High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in the
highest rating category (e.g., Standard & Poor's A-1) and second tier
securities are those deemed to be in the second highest rating
category (e.g., Standard & Poor's A-2). Split-rated securities may be
determined to be either first tier or second tier based on applicable
regulations.
The fund may not invest more than 5% of its total assets in second
tier securities. In addition, the fund may not invest more than 1% of
its total assets or $1 million (whichever is greater) in the second
tier securities of a single issuer.
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When determining
the maturity of a security, the fund may look to an interest rate
reset or demand feature.
REAL ESTATE INVESTMENT TRUSTS. Equity real estate investment trusts
own real estate properties, while mortgage real estate investment
trusts make construction, development, and long-term mortgage loans.
Their value may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as
those relating to the environment. Both types of trusts are dependent
upon management skill, are not diversified, and are subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the
1940 Act.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. As
protection against the risk that the original seller will not fulfill
its obligation, the securities are held in a separate account at a
bank, marked-to-market daily, and maintained at a value at least equal
to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as
delays and costs to a fund in connection with bankruptcy proceedings),
a fund will engage in repurchase agreement transactions with parties
whose creditworthiness has been reviewed and found satisfactory by FMR
(for Index 500, by BT or, under certain circumstances, by FMR or an
FMR affiliate). Pursuant to certain state insurance regulations, any
repurchase agreements a fund enters into will be secured by collateral
consisting of liquid assets having a market value of not less than
102% of the cash or assets transferred to the other party.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part
of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time it may
be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, a fund might obtain a less favorable price than prevailed
when it decided to seek registration of the security. However, in
general, Money Market anticipates holding restricted securities to
maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. While a reverse repurchase
agreement is outstanding, a fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. A fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been reviewed and found
satisfactory by FMR (for Index 500, by BT or, under certain
circumstances, by FMR or an FMR affiliate). Such transactions may
increase fluctuations in the market value of fund assets and may be
viewed as a form of leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp. Index 500 will not lend
securities to BT or its affiliates. BT receives a portion of the
securities lending income earned by Index 500.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR (for Index 500, by BT
or, under certain circumstances, by FMR or an FMR affiliate) to be of
good standing. Furthermore, they will be made only if, in FMR's (BT's
for Index 500) judgment, the consideration to be earned from such
loans would justify the risk.
FMR and BT understand that it is the current view of the SEC Staff
that a fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation). If Index 500 cannot recover the loaned
securities on termination, the fund may sell the collateral and
purchase a replacement investment in the market.
SHORT SALES "AGAINST THE BOX." A money market or growth fund may sell
securities short when it owns or has the right to obtain securities
equivalent in kind or amount to the securities sold short. Such short
sales are known as short sales "against the box." If a fund enters
into a short sale against the box, it will be required to set aside
securities equivalent in kind and amount to the securities sold short
(or securities convertible or exchangeable into such securities) and
will be required to hold such securities while the short sale is
outstanding.
Short sales against the box could be used to protect the net asset
value per share of a money market fund in anticipation of increased
interest rates, without sacrificing the current yield of the
securities sold short. A money market fund will incur transaction
costs in connection with opening and closing short sales against the
box. A growth fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing short
sales against the box.
SHORT SALES. A growth and income, asset allocation, or high income
fund may enter into short sales with respect to stocks underlying its
convertible security holdings. For example, if FMR anticipates a
decline in the price of the stock underlying a convertible security a
fund holds, it may sell the stock short. If the stock price
subsequently declines, the proceeds of the short sale could be
expected to offset all or a portion of the effect of the stock's
decline on the value of the convertible security. A fund currently
intends to hedge no more than 15% of its total assets with short sales
on equity securities underlying its convertible security holdings
under normal circumstances.
When a fund enters into a short sale, it will be required to set aside
securities equivalent in kind and amount to those sold short (or
securities convertible or exchangeable into such securities) and will
be required to hold them aside while the short sale is outstanding. A
fund will incur transaction costs, including interest expenses, in
connection with opening, maintaining, and closing short sales.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider whether adequate public information about the entity is
available and whether the entity may be subject to unfavorable
political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its
commitment.
SOVEREIGN DEBT OBLIGATIONS are issued or guaranteed by foreign
governments or their agencies, including debt of Latin American
nations or other developing countries. Sovereign debt may be in the
form of conventional securities or other types of debt instruments
such as loans or loan participations. Sovereign debt of developing
countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for
repayment of the debt may be unable or unwilling to repay principal
and pay interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of
principal and payment of interest may depend on political as well as
economic factors. Although some sovereign debt, such as Brady Bonds,
is collateralized by U.S. Government securities, repayment of
principal and payment of interest is not guaranteed by the U.S.
Government.
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are
created by separating the income and principal components of a U.S.
Government security and selling them separately. STRIPS (Separate
Trading of Registered Interest and Principal of Securities) are
created when the coupon payments and the principal payment are
stripped from an outstanding U.S. Treasury security by a Federal
Reserve Bank.
Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security
with a custodian for safekeeping. The custodian issues separate
receipts for the coupon payments and the principal payment, which the
dealer then sells.
Because the SEC does not consider privately stripped government
securities to be U.S. Government securities for purposes of Rule 2a-7,
a money market fund must evaluate them as it would non-government
securities pursuant to regulatory guidelines applicable to money
market funds.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of investments or market
factors. Depending on their structure, swap agreements may increase or
decrease a fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage
securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if a fund agreed to
exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and
interest rates. Caps and floors have an effect similar to buying or
writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a fund's investments
and its share price and yield.
Under a typical equity swap agreement, a counterparty such as a bank
or broker-dealer agrees to pay the fund a return equal to the dividend
payments and increase in value, if any, of an index or group of
stocks, and the fund agrees in return to pay a fixed or floating rate
of interest, plus any declines in value of the index. Swap agreements
can also have features providing for maximum or minimum exposure to a
designated index. In order to track the return of its designated index
effectively, Index 500 would generally have to own other assets
returning approximately the same amount as the interest rate payable
by the fund under the swap agreement.
The most significant factor in the performance of swap agreements is
the change in value of the specific index, the change in the specific
interest rate or currency, or other factors that determine the amounts
of payments due to and from a fund. If a swap agreement calls for
payments by a fund, the fund must be prepared to make such payments
when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses and, for Index 500, impairing the
fund's correlation with the S&P 500. A fund may be able to eliminate
its exposure under a swap agreement either by assignment or other
disposition, or by entering into an offsetting swap agreement with the
same party or a similarly creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
WARRANTS. Warrants are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time.
Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a
warrant may be more volatile than the price of its underlying
security, and a warrant may offer greater potential for capital
appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying security and do not represent any rights in
the assets of the issuing company. A warrant ceases to have value if
it is not exercised prior to its expiration date. These factors can
make warrants more speculative than other types of investments.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR (BT for Index 500) pursuant to authority
contained in the management contract (and, for Index 500, in the
sub-advisory agreement). FMR (BT for Index 500) is also responsible
for the placement of transaction orders for other investment companies
and accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by Money Market generally will be traded
on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR (BT for Index 500) considers various relevant
factors, including, but not limited to: the size and type of the
transaction; the nature and character of the markets for the security
to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions; and, if applicable ,
arrangements for payment of fund expenses.
Except for Index 500, if FMR grants investment management authority
to a sub-adviser (see the section entitled "Management Contracts"),
that sub-adviser is authorized to place orders for the purchase and
sale of portfolio securities, and will do so in accordance with the
policies described above.
Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
Each fund may execute portfolio transactions with
broker-dealers who provide research and execution services to the fund
or other accounts over which FMR or BT or their affiliates exercise
investment discretion. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing, or
selling securities; and the availability of securities or the
purchasers or sellers of securities. In addition, such
broker - dealers may furnish analyses and reports concerning
issuers, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and effect
securities transactions and perform functions incidental thereto (such
as clearance and settlement).
The selection of such broker-dealers for transactions in equity
securities is generally made by FMR (BT for Index 500) (to the extent
possible consistent with execution considerations) in accordance with
a ranking of broker-dealers determined periodically by FMR's (BT's for
Index 500) investment staff based upon the quality of research and
execution services provided.
For transactions in fixed-income securities, FMR's (BT's for Index
500) selection of broker-dealers is generally based on the
availability of a security and its price and, to a lesser extent, on
the overall quality of execution and other services, including
research, provided by the broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR (BT for Index 500) in
rendering investment management services to th at fund or its
other clients, and conversely, such research provided by
broker-dealers who have executed transaction orders on behalf of other
FMR (BT for Index 500) clients may be useful to FMR (BT for Index 500)
in carrying out its obligations to a fund. The receipt of such
research has not reduced FMR's (BT's for Index 500) normal independent
research activities; however, it enables FMR (BT for Index 500) to
avoid the additional expenses that could be incurred if FMR (BT for
Index 500) tried to develop comparable information through its own
efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer commissions for agency transactions
that are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher commissions, FMR
(BT for Index 500) must determine in good faith that such commissions
are reasonable in relation to the value of the brokerage and research
services provided by such executing broker-dealers, viewed in terms of
a particular transaction or FMR's (BT's for Index 500) overall
responsibilities to th at fund or its other clients. In
reaching this determination, FMR (BT for Index 500) will not attempt
to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR (BT for Index 500) is authorized to use research services provided
by and to place portfolio transactions with brokerage firms that have
provided assistance in the distribution of shares of the funds or
shares of other Fidelity funds to the extent permitted by law. FMR (BT
for Index 500) may use research services provided by and place agency
transactions with National Financial Services Corporation (NFSC) and
Fidelity Brokerage Services Japan (FBSJ), indirect subsidiaries
of FMR Corp. (and, for Index 500, BT Brokerage Corporation and
BT Futures Corporation, indirect subsidiaries of Bankers Trust New
York Corporation), if the commissions are fair, reasonable, and
comparable to commissions charged by non-affiliated, qualified
brokerage firms for similar services. Prior to December 9, 1997,
FMR used research services provided by and placed agency transactions
with Fidelity Brokerage Services (FBS), an indirect subsidiary of FMR
Corp.
FMR may allocate brokerage transactions to broker-dealers
(including affiliates of FMR) who have entered into
arrangements with FMR under which the broker-dealer allocates a
portion of the commissions paid by a fund toward reduction of
th at fund's expenses . The transaction quality must,
however, be comparable to those of other qualified broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
The Trustees of each fund periodically review FMR's or
BT's performance of its responsibilities in connection with the
placement of portfolio transactions on behalf of the fund and review
the commissions paid by the fund over representative periods of
time to determine if they are reasonable in relation to the benefits
to the fund.
Because a high turnover rate increases transaction costs and may
increase taxable gains, FMR carefully weighs the anticipated benefits
of short-term investing against these consequences. An increased
turnover rate is due to a greater volume of shareholder purchase
orders, short-term interest rate volatility and other special market
conditions. For the fiscal years ended December 31, 1997 and 1996, the
funds (except Money Market) had the following portfolio turnover
rates:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR HIGH EQUITY- GROWTH GROWTH OVERSEAS ASSET
INCOME INCOME OPPORTUNITIES MANAGER

1997 118 % 44 % 113 % 26 % 67 % 101 %

1996 123% 186% 81% 28% 92% 168%

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEAR ASSET MANAGER: BALANCED CONTRAFUND GROWTH & INCOME INVESTMENT INDEX 500
GROWTH GRADE BOND

1997 90 % 98 % 142 % 81 % 191 % 9 %

1996 120% 163% 178% 0% 81% 14%

</TABLE>

BROKERAGE COMMISSIONS. The following tables list the total brokerage
commissions paid, the percentage of the brokerage commissions paid to
brokerage firms that provided research services, and the commissions
paid to NFSC and FBS in dollars and as a percentage of the dollar
value of all transactions in which brokerage commissions were paid,
for the fiscal periods ended December 31, 1997, 1996, and 1995 for the
funds (no commissions were paid by Money Market or Investment Grade
Bond). The funds pay both commissions and spreads in connection with
the placement of portfolio transactions. The difference between the
percentage of brokerage commissions paid to, and the percentage of the
dollar amount of transactions effected through, NFSC is a result of
the low commission rates charged by NFSC.
HIGH INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 252,741 77 % $ 13,664 $ 0 5 % 0 % 7 % 0 %

1996 $ 501,544 69% $ 10,168 $ 0 2% 0% 2% 0%

1995 $ 185,561 95% $ 21,896 $ 0 12% 0% 16% 0%

</TABLE>

EQUITY-INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 6,731,778 91% $ 836,386 $ 13,815 12% 0% 21% 0%

1996 $ 13,450,350 66% $ 3,563,724 $ 19,906 27% 0% 40% 0%

1995 $ 5,473,128 94% $ 2,043,797 $ 33,242 37% 1% 51% 0%

</TABLE>

GROWTH OPPORTUNITIES PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 476,366 83 % $ 95,777 $ 5,043 20 % 1 % 29 % 0 %

1996 $ 195,409 64% $ 43,699 $ 2,978 22% 2% 33% 1%

1995 $ 105,477 67% $ 40,358 $ 100 38% 0% 58% 0%

</TABLE>

GROWTH PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % TO TO % TO NFSC % TO FBS % %
ENDED PAID TO
FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 9,024,141 94% $ 2,325,582 $ 17,682 26 % 0 % 36 % 0 %

1996 $ 4,689,993 68% $ 1,167,932 $ 41,903 25% 1% 37% 1%

1995 $ 3,835,624 97% $ 1,237,372 $ 13,081 32% 0% 43% 0%

</TABLE>

OVERSEAS PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 4,298,667 92 % $ 8,726 $ 286,119 0 % 7 % 1 % 7 %

1996 $ 4,851,584 86% $ 23,341 $ 338,852 1% 7% 2% 9%

1995 $ 2,495,829 96% $ 10,057 $ 240,170 0% 10% 1% 12%

</TABLE>

BALANCED PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 110,250 95 % $ 21,583 $ 110 20 % 0 % 29 % 0 %

1996 $ 138,649 70% $ 32,871 $ 1,221 24% 1% 39% 1%

1995 $ 65,835 89% $ 12,056 $ 195 18% 0% 37% 0%

</TABLE>

ASSET MANAGER PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 2,804,490 90 % $ 507,147 $ 32,266 18 % 1 % 24 % 0 %

1996 $ 5,969,816 85% $ 600,978 $ 27,964 10% 0% 22% 0%

1995 $ 12,537,406 96% $ 1,793,406 $ 218,281 14% 2% 33% 2%

</TABLE>

ASSET MANAGER: GROWTH PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 385,678 85 % $ 66,125 $ 3,506 17 % 1 % 20 % 0 %

1996 $ 296,932 70% $ 52,039 $ 2,173 18% 1% 30% 1%

1995 $ 335,353 93% $ 4,540 $ 14 13% 0% 30% 0%

</TABLE>

CONTRAFUND PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 6,500,753 95% $ 1,306,677 $ 86,392 20 % 1 % 30 % 1 %

1996 $ 4,846,349 73% $ 1,020,036 $ 8,210 21% 0% 32% 0%

1995 $ 672,767 97% $ 246,389 $ 0 37% 0% 49% 0%

</TABLE>

GROWTH & INCOME PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 314,270 85 % $ 65,536 $ 50 21 % 0 % 24 % 0 %

</TABLE>

INDEX 500 PORTFOLIO

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD TOTAL % PAID TO TO % TO NFSC % TO FBS % %
ENDED TO FIRMS NFSC FBS TRANSACTIONS TRANSACTIONS
PROVIDING THROUGH THROUGH
RESEARCH NFSC FBS

1997 $ 98,894 13 % $ 28 $ 371 0 % 0 % 0 % 0 %

1996 $ 51,591 91% $ 374 $ 0 1% 0% 0% 0%

1995 $ 133,659 31% $ 20 $ 0 0% 0% 0% 0%

</TABLE>

The Trustees of each fund have approved procedures in conformity
with Rule 10f-3 under the 1940 Act whereby a fund may purchase
securities that are offered in underwritings in which an affiliate of
FMR participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR or its affiliates ,
investment decisions for each fund are made independently (and by BT
for Index 500) from those of other funds managed by FMR or BT or
accounts managed by FMR or BT affiliates. It sometimes happens that
the same security is held in the portfolio of more than one of these
funds or accounts. Simultaneous transactions are inevitable when
several funds and accounts are managed by the same investment adviser,
particularly when the same security is suitable for the investment
objective of more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to each fund
and BT as sub-adviser to Index 500 outweighs any disadvantages that
may be said to exist from exposure to simultaneous transactions.
VALUATION
FSC normally determines each class's net asset value per share (NAV)
as of the close of the New York Stock Exchange (NYSE) (normally 4:00
p.m. Eastern time). The valuation of portfolio securities is
determined as of this time for the purpose of computing each class's
NAV.
MONEY MARKET PORTFOLIO
Portfolio securities and other assets are valued on the basis of
amortized cost. This technique involves initially valuing an
instrument at its cost as adjusted for amortization of premium or
accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
Securities of other investment companies are valued at their
respective NAVs.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund
used market valuations to determine its NAV. The converse would apply
during periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use
of the term "money market fund" are permitted pursuant to Rule 2a-7
under the 1940 Act. The fund must adhere to certain conditions under
Rule 2a-7, as summarized in the section entitled "Quality and
Maturity " on page 10.
The Board of Trustees oversees FMR's adherence to the provisions of
Rule 2a-7 and has established procedures designed to stabilize the
fund's NAV at $1.00. At such intervals as they deem appropriate, the
Trustees consider the extent to which NAV calculated by using market
valuations would deviate from $1.00 per share. If the Trustees believe
that a deviation from the fund's amortized cost per share may result
in material dilution or other unfair results to shareholders, the
Trustees have agreed to take such corrective action, if any, as they
deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action
could include selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind;
establishing NAV by using available market quotations; and such other
measures as the Trustees may deem appropriate.
HIGH INCOME AND INVESTMENT GRADE BOND PORTFOLIOS
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities and convertible securities may be valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services or
discontinue the use of any pricing service.
Most equity securities for which the primary market is the United
States are valued at last sale price or, if no sale has occurred, at
the closing bid price. Most equity securities for which the primary
market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which
they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or last bid price normally is
used.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. FSC gathers all exchange rates daily at the
close of the NYSE using the last quoted price on the local currency
and then translates the value of foreign securities from their local
currencies into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange on which that security is traded, then
that security will be valued as determined in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
EQUITY-INCOME, GROWTH, OVERSEAS, ASSET MANAGER, ASSET MANAGER: GROWTH,
INDEX 500, CONTRAFUND, BALANCED, GROWTH & INCOME AND GROWTH
OPPORTUNITIES PORTFOLIOS
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Most equity securities
for which the primary market is the United States are valued at last
sale price or, if no sale has occurred, at the closing bid price. Most
equity securities for which the primary market is outside the United
States are valued using the official closing price or the last sale
price in the principal market in which they are traded. If the last
sale price (on the local exchange) is unavailable, the last evaluated
quote or last bid price normally is used. Securities of other open-end
investment companies are valued at their respective NAVs.
Fixed-income securities and other assets for which market quotations
are readily available may be valued at market values determined by
such securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets. Or, fixed-income securities and convertible securities may be
valued on the basis of information furnished by a pricing service that
uses a valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the funds may use various pricing
services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. FSC gathers all exchange rates daily at the
close of the NYSE using the last quoted price on the local currency
and then translates the value of foreign securities from their local
currencies into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange on which that security is traded, then
that security will be valued as determined in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
A class may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. The share price of each
class of a bond or equity fund, the yield, if applicable, of each
class of a bond, equity, or money market fund, and the total
return fluctuate in response to market conditions and other factors,
and the value of a bond or equity fund's shares when redeemed
may be more or less than their original cost.
YIELD CALCULATIONS (MONEY MARKET PORTFOLIO). To compute the yield
for the money market fund for a period, the net change in value of
a hypothetical account containing one share reflects the value of
additional shares purchased with dividends from the one original share
and dividends declared on both the original share and any additional
shares. The net change is then divided by the value of the account at
the beginning of the period to obtain a base period return. This base
period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a n effective yield by
compounding the base period return over a one-year period. In addition
to the current yield, the money market fund may quote yields in
advertising based on any historical seven-day period. Yields for the
money market fund are calculated on the same basis as other money
market funds, as required by applicable regulation.
YIELD CALCULATIONS (EXC EPT MONEY MARKET PORTFOLIO). Yields for
a class are computed by dividing the class's pro rata share of the
fund's interest and dividend income for a given 30-day or
one-month period, net of expenses, by the average number of shares of
that class entitled to receive distributions during the period,
dividing this figure by the class's net asset value (NAV) at the end
of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Dividends
from equity investments are treated as if they were accrued on a daily
basis, solely for the purposes of yield calculations. In general,
interest income is reduced with respect to bonds trading at a premium
over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily
income. For a fund's investments denominated in foreign currencies,
income and expenses are calculated first in their respective
currencies, and are then converted to U.S. dollars, either when they
are actually converted or at the end of the 30-day or one month
period, whichever is earlier. Income is adjusted to reflect gains
and losses from principal repayments received by a fund with respect
to mortgage-related securities and other asset-backed securities.
Other c apital gains and losses generally are excluded from the
calculation as are gains and losses from currency exchange rate
fluctuations.
Income calculated for the purposes of calculating a class's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a class's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
In calculating a class's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing the class's yield.
Yield information may be useful in reviewing a class's performance and
in providing a basis for comparison with other investment
alternatives. However, a class's yield fluctuates, unlike
investments that pay a fixed interest rate over a stated period of
time. When comparing investment alternatives, investors should also
note the quality and maturity of the portfolio securities of
respective investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a class's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a class's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing the class's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of a class's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the
class's NAV over a stated period. A class's total return may be
calculated by using the performance data of a previously existing
class prior to the date that the new class commenced operations,
adjusted to reflect differences in sales charges but not 12b-1 fees.
Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in
a class over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if
the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years
would produce an average annual total return of 7.18%, which is the
steady annual rate of return that would equal 100% growth on a
compounded basis in ten years. While average annual total returns are
a convenient means of comparing investment alternatives, investors
should realize that a class's performance is not constant over time,
but changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year
performance of the class.
In addition to average annual total returns, a class may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a class's NAVs, adjusted
NAVs, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid by a fund and
reflects all elements of a class's return. Unless otherwise
indicated, a class's adjusted NAVs are not adjusted for sales charges,
if any.
MOVING AVERAGES. A growth, growth and income, or asset allocation
fund may illustrate performance using moving averages. A long-term
moving average is the average of each week's adjusted closing NAV for
a specified period. A short-term moving average is the average of each
day's adjusted closing NAV for a specified period. Moving Average
Activity Indicators combine adjusted closing NAVs from the last
business day of each week with moving averages for a specified period
to produce indicators showing when a NAV has crossed, stayed above, or
stayed below its moving average. On December 26, 1997, the 13-week and
39-week long-term moving averages were $23.68 and $22.46 for
Equity-Income - Initial Class; $36.87 and $34.95 for Growth - Initial
Class; $19.42 and $19.44 for Overseas - Initial Class; $17.68 and
$16.92 for Asset Manager - Initial Class; $16.01 and $15.25 for Asset
Manager: Growth - Initial Class; $111.61 and $105.59 for Index 500 -
Initial Class; $19.84 and $18.61 for Contrafund - Initial Class;
$14.29 and $13.74 for Balanced - Initial Class; $18.64 and $17.58 for
Growth Opportunities - Initial Class; and $12.16 and $11.44 for Growth
& Income - Initial Class, respectively. The initial offering of
Service Class shares of each fund (except Money Market, Investment
Grade Bond, and Index 500) began on November 3, 1997.
HISTORICAL FUND RESULTS. The following table shows each class's
yield (money market and bond funds) and total return for the
periods ended December 31, 1997. The initial offering of Service Class
shares of each fund (except Money Market, Investment Grade Bond, and
Index 500) began on November 3, 1997. A fund's Service Class returns
prior to the initial offering date are those of Initial Class, the
original class of the fund, which does not have a 12b-1 fee. Service
Class returns would have been lower if the applicable Service Class
12b-1 fee had been reflected in returns prior to the initial offering
date.
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS

<TABLE>
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AS OF 12/31/97

7-DAY/30-DAY ONE FIVE 10 ONE FIVE 10 YEARS/
YIELD YEAR YEARS YEARS/LIFE YEAR YEARS LIFE OF
OF FUND*
FUND*

MONEY MARKET PORTFOLIO:
5.56 % (7-DAY) 5.51 % 4.85 % 5.87 % 5.51 % 26.71 % 76.82 %
INITIAL CLASS

INVESTMENT GRADE
5.79% (30-DAY) 9.06 % 7.11 % 8.29 % 9.06 % 41.00 % 106.02 %
BOND PORTFOLIO:
INITIAL CLASS

INDEX 500 PORTFOLIO:
N/A 32.83 % 19.91 % 19.87 % 32.83 % 147.95 % 163.59 %
INITIAL CLASS

HIGH INCOME PORTFOLIO:
8.41% (30-DAY) 17.67 % 13.91 % 12.81 % 17.67 % 91.82 % 233.79 %
INITIAL CLASS

HIGH INCOME PORTFOLIO:
N/A 17.58 % 13.90 % 12.80 % 17.58 % 91.68 % 233.55 %
SERVICE CLASS

ASSET MANAGER PORTFOLIO:
N/A 20.65 % 12.98 % 12.73 % 20.65 % 84.11 % 171.19 %
INITIAL CLASS

ASSET MANAGER PORTFOLIO:
N/A 20.52 % 12.96 % 12.72 % 20.52 % 83.91 % 170.89 %
SERVICE CLASS

ASSET MANAGER:
N/A 25.07 % N/A 22.73 % 25.07 % N/A 84.69 %
GROWTH PORTFOLIO:
INITIAL CLASS

ASSET MANAGER:
N/A 24.99 % N/A 22.71 % 24.99 % N/A 84.58 %
GROWTH PORTFOLIO:
SERVICE CLASS

EQUITY-INCOME PORTFOLIO:
N/A 28.11 % 20.16 % 16.72 % 28.11 % 150.50 % 369.43 %
INITIAL CLASS

EQUITY-INCOME PORTFOLIO:
N/A 28.05 % 20.15 % 16.72 % 28.05 % 150.39 % 369.24 %
SERVICE CLASS

CONTRAFUND PORTFOLIO:
N/A 24.14 % N/A 28.16 % 24.14 % N/A 110.26 %
INITIAL CLASS

CONTRAFUND PORTFOLIO:
N/A 24.08 % N/A 28.14 % 24.08 % N/A 110.15 %
SERVICE CLASS

GROWTH PORTFOLIO:
N/A 23.48 % 18.00 % 17.19 % 23.48 % 128.82 % 388.38 %
INITIAL CLASS

GROWTH PORTFOLIO:
N/A 23.45 % 18.00 % 17.18 % 23.45 % 128.76 % 388.25 %
SERVICE CLASS

OVERSEAS PORTFOLIO:
N/A 11.56 % 14.12 % 9.62 % 11.56 % 93.54 % 150.57 %
INITIAL CLASS

OVERSEAS PORTFOLIO:
N/A 11.56 % 14.12 % 9.62 % 11.56 % 93.54 % 150.57 %
SERVICE CLASS

GROWTH & INCOME
N/A 30.09 % N/A 28.69% 30.09 % N/A 28.79 %
PORTFOLIO:
INITIAL CLASS

GROWTH & INCOME
N/A 30.10 % N/A 28.70% 30.10 % N/A 28.79 %
PORTFOLIO:
SERVICE CLASS

BALANCED PORTFOLIO:
N/A 22.18 % N/A 15.28 % 22.18 % N/A 53.07 %
INITIAL CLASS

BALANCED PORTFOLIO:
N/A 22.27 % N/A 15.30 % 22.27 % N/A 53.18 %
SERVICE CLASS

GROWTH OPPORTUNITIES
N/A 29.95 % N/A 26.81 % 29.95 % N/A 103.68 %
PORTFOLIO:
INITIAL CLASS

GROWTH OPPORTUNITIES
N/A 29.95 % N/A 26.81 % 29.95 % N/A 103.68 %
PORTFOLIO:
SERVICE CLASS

</TABLE>

Note: If FMR had not reimbursed certain expenses during these
periods, yields and total returns would have been lower.
* 10-year return for Money Market, High Income, Equity-Income, Growth
and Overseas Portfolios . Life of fund: Investment Grade Bond
Portfolio commenced operations December 5, 1988; Asset Manager
Portfolio commenced operations September 6, 1989; Index 500 Portfolio
commenced operations August 27, 1992; Contrafund, Asset Manager:
Growth, Balanced and Growth Opportunities Portfolios commenced
operations January 3, 1995; and Growth & Income Portfolio commenced
operations December 31, 1996.
The following tables show the income and capital elements of each
class's cumulative total return. The tables compare each class's
return to the record of the S&P 500, the Dow Jones Industrial Average
(DJIA), and the cost of living, as measured by the Consumer Price
Index (CPI), over the same period. The CPI information is as of the
month-end closest to the initial investment date for each class. The
S&P 500 and DJIA comparisons are provided to show how each class's
total return compared to the record of a broad unmanaged index of
common stocks and a narrower set of stocks of major industrial
companies, respectively, over the same period. Because each of Money
Market, High Income and Investment Grade Bond invests in fixed-income
securities, common stocks represent a different type of investment
from the fund. Common stocks generally offer greater growth potential
than the funds, but generally experience greater price volatility,
which means greater potential for loss. In addition, common stocks
generally provide lower income than a fixed-income investment such as
a money market or bond fund. Each of Index 500, Asset Manager, Asset
Manager: Growth, Equity-Income, Contrafund, Growth, Overseas, Growth &
Income, Balanced, and Growth Opportunities has the ability to invest
in securities not included in either index, and its investment
portfolio may or may not be similar in composition to the indexes.
The S&P 500 and DJIA returns are based on the prices of unmanaged
groups of stocks and, unlike each class's returns, do not include the
effect of brokerage commissions or other costs of investing.
The initial offering of Service Class shares of each fund (except
Money Market, Investment Grade Bond, and Index 500) began on November
3, 1997. A fund's Service Class figures prior to the initial offering
date are those of Initial Class, the original class of the fund, which
does not have a 12b-1 fee. Service Class figures would have been lower
if the applicable Service Class 12b-1 fee had been reflected in
figures prior to the initial offering date.
The following tables show the growth in value of a hypothetical
$10,000 investment in each class of each fund during the 10-year
period ended December 31, 1997, or life of each fund, as applicable,
assuming all distributions were reinvested. Total returns are based
on past results and are not an indication of future performance .
Tax consequences of different investments have not been factored into
the figures below.
MONEY MARKET PORTFOLIO. During the ten-year period ended December 31,
1997, a hypothetical $10,000 investment in Initial Class of Money
Market Portfolio would have grown to $ 17,682 .
MONEY MARKET PORTFOLIO - INITIAL CLASS INDICES

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YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS

1997 $ 10,000 $ 7,682 $ 0 $ 17,682 $ 52,577 $ 54,688 $ 13,977

1996 $ 10,000 $ 6,759 $ 0 $ 16,759 $ 39,424 $ 43,801 $ 13,744

1995 $ 10,000 $ 5,899 $ 0 $ 15,899 $ 32,063 $ 34,032 $ 13,302

1994 $ 10,000 $ 5,017 $ 0 $ 15,017 $ 23,305 $ 24,891 $ 12,972

1993 $ 10,000 $ 4,405 $ 0 $ 14,405 $ 23,002 $ 23,712 $ 12,634

1992 $ 10,000 $ 3,954 $ 0 $ 13,954 $ 20,896 $ 20,268 $ 12,296

1991 $ 10,000 $ 3,431 $ 0 $ 13,431 $ 19,412 $ 18,890 $ 11,950

1990 $ 10,000 $ 2,660 $ 0 $ 12,660 $ 14,877 $ 15,192 $ 11,594

1989 $ 10,000 $ 1,718 $ 0 $ 11,718 $ 15,356 $ 15,274 $ 10,927

1988 $ 10,000 $ 739 $ 0 $ 10,739 $ 11,661 $ 11,592 $ 10,442

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of Money Market Portfolio on January 1, 1988, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends for the period covered (their cash value at the time they
were reinvested), amounted to $ 17,682 . If distributions had not
been reinvested, the amount of distributions earned from the class
over time would have been smaller, and cash payments for the period
would have amounted to $ 5,714 for dividends . The fund did not
distribute any capital gains during the period.
HIGH INCOME PORTFOLIO. During the ten-year period ended December 31,
1997, a hypothetical $10,000 investment in Initial Class of High
Income Portfolio would have grown to $ 33,379 .
HIGH INCOME PORTFOLIO - INITIAL CLASS INDICES

1997 $ 14,029 $ 17,713 $ 1,637 $ 33,379

$ 52,577 $ 54,688 $ 13,977

1996 $ 12,934 $ 14,190 $ 1,244 $ 28,368 $ 39,424 $ 43,801 $ 13,744

1995 $ 12,448 $ 11,628 $ 801 $ 24,877 $ 32,063 $ 34,032 $ 13,302

1994 $ 11,105 $ 8,789 $ 714 $ 20,608 $ 23,305 $ 24,891 $ 12,972

1993 $ 12,386 $ 8,453 $ 112 $ 20,951 $ 23,002 $ 23,712 $ 12,634

1992 $ 11,178 $ 6,223 $ 0 $ 17,401 $ 20,896 $ 20,268 $ 12,296

1991 $ 9,866 $ 4,262 $ 0 $ 14,128 $ 19,412 $ 18,890 $ 11,950

1990 $ 7,304 $ 3,155 $ 0 $ 10,459 $ 14,877 $ 15,192 $ 11,594

1989 $ 8,378 $ 2,320 $ 0 $ 10,698 $ 15,356 $ 15,274 $ 10,927

1988 $ 9,979 $ 1,185 $ 0 $ 11,164 $ 11,661 $ 11,592 $ 10,442

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Initial
Class of High Income Portfolio on January 1, 1988, the net amount
invested in Initial Class shares was $10,000. The cost of the initial
investment ($10,000), together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested), amounted to
$ 24,456 . If distributions had not been reinvested, the amount
of distributions earned from the class over time would have been
smaller, and cash payments for the period would have amounted to
$ 8,399 for dividends and $ 744 for capital gain
distributions.
During the ten-year period ended December 31, 1997, a hypothetical
$10,000 investment in Service Class of High Income Portfolio would
have grown to $ 33,355 .
HIGH INCOME PORTFOLIO - SERVICE CLASS INDICES

1997 $ 14,019 $ 17,700 $ 1,636 $ 33,355 $ 52,577 $ 54,688 $ 13,977