The Fidelity Investors Association is currently publishing four model portfolios in Fidelity Watch. These model portfolios are intended to help you meet your personal investment objectives. To utilize this approach, simply choose the model portfolio(s) that best suits your objectives, then allocate your investment assets among these funds within the ranges indicated. Fund or allocation changes to the models are detailed in Fidelity Watch. Any updates to the models between issues are posted on the telephone hotline and on FIAonline.com on Fridays by 2:00 PM EST. Any previous model portfolio changes, during the quarter, are listed on FIAonline.com (See Model Portfolio Updates). If you plan to follow one of the model portfolios, check the Model Portfolio Updates page of the website for any changes in that model’s holdings since the current issue. The current hotline telephone number and password to access model portfolio updates on the website is listed at the bottom of page 8 of Fidelity Watch and page 4 of GM/Delphi 401k Investor and Ford/Visteon 401k Investor

Income and Preservation of Capital Model
This model is the most conservative of all the Fidelity Watch portfolios. It holds investments in income funds, money market funds, and equity funds. The goal of this model is to focus on current income while attempting to maintain the purchasing power of capital invested. We utilize lower volatility (lower risk) funds to target the overall risk level for the model between 20% to 50% that of the S&P 500 Index. This conservative approach minimizes the chance of a loss over a short-term investment horizon. However, it is possible for this model to experience a loss in any given year. This model does carry interest rate risk; i.e. it can experience a decline when interest rates rise. We try to reduce this risk by keeping a portion of the model in funds less sensitive to interest rates and/or in money market funds. This model is most appropriate for money needed within the next two to three years. It is also appropriate for longer-term money for more conservative investors.

Growth & Income Model
This model combines growth and income. It holds investments in a mix of income, growth & income, equity, and money market funds. The goal of this model is to provide income with conservative growth while limiting exposure to a down market. The target risk level is 40% to 70% that of the overall market (40% to 70% the volatility of the S&P 500 Index). Although this model typically carries less risk than the S&P 500 Index, it is possible for it to experience a decline of 20% or more in a down market or in periods of rising interest rates. The Growth & Income Model carries more risk than the Income Model, but is less volatile than the Growth Models. It is appropriate for a conservative to moderate risk tolerant investor’s capital that can be invested for at least three years.

Growth I Model
This model seeks long-term growth from a diversified portfolio of stock and bond funds. A portion of the model may be held in an income fund from time to time to reduce the overall risk level of the model. The target risk level is 60% to 100% that of the overall stock market (60% to 100% of the risk of the S&P 500 Index). Because of the risk level, investors choosing this model should be prepared for near average market volatility. It is possible for the growth model to experience a loss of 30% or more in a market downturn. Because of this increased volatility, assets invested in this model should not be needed for at least 5 years. This model is well suited for long-term 401(k) assets.

Growth II Model
The Growth II Model is the most aggressive and speculative of any of the Fidelity Watch model portfolios. This model seeks long-term growth from a portfolio of sector funds and diversified stock and bond funds. A portion of the model may be held in an income fund from time to time to reduce the overall risk level of the model. It will carry higher risk than the Growth I Model. The target risk level for this model is 80% to 120% that of the overall market (80% to 120% that of the S&P 500 Index). Because of this extremely high volatility, investors utilizing this model should be willing to commit investments for at least 7 years to average out market swings and realize superior long-term results. This model is not for the faint-of-heart. Because of its high volatility, it can experience declines of 40% or more in a down market.

If you follow this model, remember there is an increased chance that any given trade will result in a loss. If you are uncomfortable with the idea of taking losses and moving on, or the potential for severe short-term losses in a market downturn, you should consider one of our other models. The lower level of risk and lower portfolio turnover in both our Income and Growth & Income Models make them better suited to risk-averse investors

Deciding Which Models to Follow
When deciding which models to follow and how to allocate money between them, it is important to look at all of your investments together and ensure they are diversified in line with your investment objectives, tolerance for risk, and your investment time horizon. First, you must determine if you are a risk-prone investor (high tolerance for risk) or a risk-averse investor (low tolerance for risk). In the preceding sections we discussed the target risk levels for each model as well as potential losses in a market downturn. The models have been presented in order of increasing level of risk, with the Income and Preservation of Capital Model carrying the lowest risk and Growth II Model the highest risk.

The second area to consider is your investment time horizon, or the length of time before you will need the money you have invested. Money that may be needed at a moment’s notice should be kept in a money market fund or other suitable account where the funds are immediately available with no risk of principal loss. Money not needed for 2 to 3 years is suitable for the Income Model. Long-term money, such as that invested in a 401(k), 403(b), or IRA, can be allocated among the Growth & Income, Growth I, and Growth II models depending on your tolerance for risk.

Considering both your investment time horizon and your tolerance for risk together can help you make the decision between these models. Risk-averse or conservative investors should consider the Income and Growth & Income models. Longer term investors with a moderate tolerance for risk and willing to accept near average stock market risk should consider the Growth & Income and Growth I models. Investors looking for potentially higher long-term returns and who are willing to accept higher risk, aggressive, and speculative investing, can consider the Growth I and II models.

While each investor must determine his or her own tolerance for risk, these are points to remember as you determine which model portfolios to follow given your own investment objectives.

Portfolio Turnover
Another consideration in choosing which model to follow is portfolio turnover, or the number of changes a model will incur over time. Our goal for the more conservative model portfolios is to keep portfolio turnover low. However, our aggressive growth model portfolios (Fidelity Watch Growth II and 401k Investor Aggressive Growth models) will incur more frequent changes. Model portfolio changes made for a new quarter are detailed in each issue of the newsletter. Any changes between quarterly issues are made only on Fridays and are listed on the telephone hotline and "Model Portfolio Updates" page of FIAonline.com. All changes since the last issue are also listed on the Model Portfolio Updates page of the website.

If you are a growth investor and desire a model portfolio with fewer changes, consider the Growth I Model over the Growth II Model. Portfolio changes occur far less frequently.