New Multi-Manager Group Fund

October 26, 2007

Portfolio Manager Appointment
Effective October 25, 2007:
The Multi-Manager Group led by Robert Stansky and including John Avery (Industrials and Materials), Matthew Friedman (Energy), Adam Hetnarski (Technology), Steven Kaye (Health Care), Robert Lee (Consumer Staples), John Roth (Consumer Discretionary), Douglas Simmons (Telecommunications Services and Utilities), and Pierre Sorel (Financials), has been named portfolio manager of VIP Contrafund Portfolio, succeeding William Danoff. Danoff will continue to manage Fidelity Contrafund and Fidelity Advisor New Insights Fund. Portfolio managers in the Multi-Manager Group will manage individual sector or sectors of the broad portfolio. As group manager, Stansky is responsible for managing daily cash flows, directing risk management and overseeing the broad portfolio. Participation by the portfolio managers in the group is in addition to their current managerial responsibilities. John Avery continues to manage Fidelity Fund; Matthew Friedman continues to manage Fidelity Value Strategies Fund, Fidelity Advisor Value Strategies Fund, and VIP Value Strategies Portfolio; Adam Hetnarski continues to manage Fidelity Advisor Capital Development Fund; Robert Lee continues to manage Fidelity Select Consumer Staples Portfolio, Fidelity Advisor Consumer Staples Fund, and VIP Consumer Staples Portfolio; John Roth continues to manage Fidelity New Millennium Fund; and Douglas Simmons continues to manage Fidelity Utilities Fund, Fidelity Select Utilities Growth Portfolio, Fidelity Advisor Utilities Fund and VIP Utilities Portfolio.

Fidelity has long been the 800 lb gorilla in the no-load mutual fund room — but over the last several years, when it comes to fund sales, team-managed American funds (despite their onerous front-end loads) have been the top banana. American funds are team managed and broker sold – both good for the business’ bottom line and, for the most part, not punitive for investors in their funds. But, American funds lack the broad diversification of Fidelity’s lineup – making it a poor choice for a one-stop shop, even if it was a no-load shop. (My top 3 spots based on quantity and quality of offerings: Fidelity by a mile, Vanguard trailing, and T. Rowe Price trailing Vanguard.) Moreover, Fidelity’s team-managed funds will be run as a composite of individual manager’s contributions to their area of expertise – not ruled by an investment committee.

Not A Performance, But A Business Decision
Net, net (and apples to apples) the performance differential between American’s team managed funds that correlate with Fidelity’s single managed ones is basically indistinguishable; they’re both pretty good. But, from a business perspective, American’s team-managed model wins. Fidelity’s moderate move into team-managed funds does a few things; first, it creates even more choices for Fidelity investors. Second, it enables Fidelity to not have to close a fund if it gets too big, and then go through the expense of launching and marketing a clone fund to replace it; all they have to do in their team-managed funds is add another manager. Second, it’s an insurance policy for Fidelity; if a star manager leaves from a fund they run and whose performance track record they own, assets could follow that manager out the door. With a team-managed fund, assets are likely to be stickier by virtue of one manager leaving will have no (or at least not as much of a) noticeable impact.

Investor Impact
I don’t care if 100 monkeys typing in buy and sell orders, outperforms one rocket scientist in an ivory tower. For us, what matters most is the track record of the manager to team of managers — are the returns better than the benchmark, better than the peer group, and within our risk tolerance range? If the answer to any one of those questions is no, team-managed or not, it’s time to sell.

Stansky Backdrop
When Stansky "left" Fidelity and his underperforming tenure managing their flagship Magellan fund I said that I expected him to re- emerge running a new type of product. While it took two years, we now can see that Stansky never left the building — but is he a good choice to lead the team- managed products? I’d argue in his favor for managing managers; he’s deeply respected and well regarded by his peers and juniors; he knows how to manage the slings and arrows of what can be a very public position, and he has the knowledge base to deliver expert and experienced guidance. But, the numbers won’t lie — and he’ll have to be able to deliver out-performance, not simply relative to his benchmark, and not just to his Fidelity peers, but versus the 800 lb gorilla in the team-managed fund room, American funds.

Additional Fidelity change: Effective November 1, Advisor New Insights will be reopened to new accounts. The fund has been closed since April 2006. With the fund closed over the past year and a half, cash flows have slowed considerably. In addition, through the manager transition on VIP Contrafund, Danoff is handing over a significant portion of his total assets under management to the MMG. In light of these two factors, Fidelity believes that the time is right to make this fund available again to advisor clients.