Fund Points – Fidelity International Portfolio Fund

As of June 30, 2001

Portfolio Manager: Dick Habermann

Fund’s Benchmark: MSCI World Index

The market capitalization of the fund

The Fund has a mid- to large-capitalization bias; mid-cap companies are used to complement the large global market leaders.

General market overview

Global equity markets continued to struggle during the second quarter of 2001, with the MSCI World Index declining 1.08%, in Canadian dollar terms. Increasing concerns about slowing global economic growth, and its effect on corporate profits, depressed investor sentiment. Although the broad U.S. market rebounded modestly from its first-quarter decline, equities in Europe, Japan, and Southeast Asia fell 5.52%, 1.19%, and 5.81%, respectively (all in Canadian dollar terms). The Fund rose 0.76% to outperform its benchmark index. Good security selection in the U.S., Southeast Asia, and Japan helped performance, particularly in the retailing, software and services, and household and personal products sectors. Reduced exposure to European equities also benefited relative performance.

Fund’s structure

The Fund maintains a well-diversified portfolio in terms of industry sectors and geographic weightings. The portfolio manager continues to position the Fund defensively in the current environment.

Mr. Habermann increased exposure to U.S. equities during the second quarter, taking advantage of attractive valuations and gradually positioning the Fund for a rebound in the U.S. economy.

Exposure to Japan increased from a slightly underweight position at the end of the first quarter to a modest overweight position at the end of June. Fund exposure to European equities decreased gradually during the quarter, as the Fund made a modest increase in its U.S. equity exposure.

Highlighted regions, market trends, and portfolio manager’s outlook:

United States

The Fund ended the second quarter with overweight exposure to the U.S. equity market, relative to the benchmark index. The U.S. economy continues to show definite signs of slowing. After four years of unprecedented levels of corporate earnings growth, a number of large U.S. companies disappointed investors by missing earnings forecasts and trimming expectations for the first half of 2001.

While the Federal Reserve Board aggressively reduced interest rates during the first half of 2001, the cuts have not yet proved to be the catalyst for a market rebound that many investors had anticipated. The portfolio manager believes that the effect of these cuts may not be seen for several months. Equity valuations continue to be scrutinized, and investors have begun to refocus on company fundamentals. Valuations have come down considerably from their highs and many of the broader markets are beginning to show signs of reverting toward their longer-term historical means. This suggests that share prices may not yet have bottomed.

Although 2000 was the first year since 1990 that the S&P 500 index posted negative returns, Mr. Habermann is cautiously optimistic about the latter part of 2001, believing that lower interest rates and tax cuts could help support business and consumer confidence, and allow companies to modestly grow earnings in the months ahead. Mr. Habermann believes that the U.S. equity market may not make a significant rebound until early 2002; however, he has begun to build positions in attractively valued companies in anticipation of this occurring.

Europe

Increases in the cost of energy and weakness in the euro throughout 2000 pushed the core rate of inflation higher in the Eurozone, and higher costs remain a concern. At the same time, economic growth in the region continues to show signs of slowing. The European Central Bank finally gave in to growing pressure and cut rates by 25 basis points in May. However, concerns about inflation are limiting the ECB’s ability to reduce rates even further and stimulate economic growth.

Equity valuations in continental Europe are down significantly. An overweight position in continental Europe proved beneficial to the Fund during 2000. However, the lead portfolio manager began trimming relative exposure late in the year in anticipation of a sharp slowdown in the region. Relative to other regions, many markets in continental Europe now appear less attractive on a risk/return basis. Despite these challenges, the European equity sub-portfolio manager continues to add value to the portfolio through excellent security selection. The portfolio manager will continue to modestly underweight the region going forward.

Japan

The global economic slowdown began to depress exports in the fourth quarter of 2000, and revised economic data from the second half of 2000 indicate that Japan is still in the midst of an economic downturn. Although Japan is less dependent on exports than many other developed markets, domestic demand continues to show weakness, as the country struggles with deflationary pressures. Forward-looking data appear to indicate that the Japanese economy may continue to slow in the coming months.

Although deflationary pressures and structural problems continued to weigh on the economy, select investment opportunities in the Japanese market remained relatively attractive on a risk/reward basis, as valuations have trended lower with declining markets. The outlook for the economy was recently strengthened somewhat by the election of the new Japanese Prime Minister, who has made restructuring a central tenet of economic policy. However, many domestic investors remain skeptical of the government’s ability to follow through on reforms. For foreign equity investors, the focus remains on the restructuring efforts of Japanese corporations and their move towards a more shareholder-friendly business culture.

While the Japanese market was difficult to navigate in 2000, decreased valuations have increased the risk of being underweight in this market.

Southeast Asia

Equity valuations for select companies in the region are relatively attractive, with levels in Taiwan, South Korea, and Singapore near their historical lows. Despite these low valuations, technology companies could experience further downward pressure. Investors are becoming more conservative and less willing to pay high prices for future growth rates. In Hong Kong, equities remain slightly more expensive, on a historical basis, than elsewhere in the region.

Economic growth in the region continues to slow. Waning domestic demand, which has declined in sympathy with recent equity market performance, is the main cause of the slowdown. Electronics exports have also slowed in recent months, particularly in Taiwan, South Korea, and Singapore. Slowing growth among the world’s larger economies will continue to depress demand for the region’s exports. Falling prices for computer memory chips are also hurting the region’s prospects.

In addition, political and economic instability continues to weigh upon investor sentiment. Mr. Habermann believes it is crucial to take a selective investment approach to countries such as South Korea, Singapore, and Taiwan, to distinguish the good companies from those that have done little to restructure.