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Home , Fidelity Contrafund, Fidelity Investments, The Vanguard Group

______SPECIAL REPORT Winter 2007

The Top Five Fidelity and Vanguard Funds

Independent Objective Advice on Fidelity and Vanguard Funds

Betro | Mileszko & Company

30 Mechanic Street Foxboro, MA 02035

www.betromileszko.com The Top Five Fidelity and Vanguard Funds

They are two of the largest and most successful fund companies in the world. Built by two charismatic leaders with distinctly different approaches and philosophies. Fidelity and Vanguard. Ned Johnson and Jack Bogle. vs. . Magellan vs. 500 Index. Internally managed funds vs. sub-advised funds.

The comparisons and competition go on but the results remain the same. Fidelity and Vanguard continue to dominant the world by providing investors with a vast array of investment options, extensive research, superior technology and resources to accommodate even the smallest investors.

Fidelity Investments

Year Founded Year Founded 1946 1975 Assets Under Management Approximately $1.5 trillion Approximately $1.3 trillion Number of Employees Number of Employees More than 44,000 More than 12,000 Number of Funds Number of Funds Approximately 427 Approximately 200 First Fund First Fund Fidelity Fund Wellington

Flagship Fund Flagship Fund Magellan 500 Index Number of Investors Number of Investors 23 million 9 million Best Known For Best Known For Active Management, Technology Low Cost Index Funds World Headquarters World Headquarters , Valley Forge, Pennsylvania Chairman Chairman Edward “Ned” Johnson, III John “Jack” Brennan

With more than 400 Fidelity funds and 200 Vanguard funds, the competition to stand out is fierce. Fidelity, who typically hires the best and brightest from the nation’s leading business schools, likes to cultivate investment talent internally by promoting the “best” analysts to portfolio manager of a sector fund. Only after much success and outstanding performance will he or she then be asked to manage a larger, more diversified fund portfolio. It is a highly competitive environment that results in the strongest and most talented managers handling the company’s largest and most successful funds.

By contrast, most actively managed Vanguard funds are handled by investment managers that are not part of the Vanguard Group. Vanguard analyzes a large universe of some of the top institutional investment firms in the world and then establishes a sub-advisory relationship with them to manage all or part of a Vanguard mutual fund portfolio. Through this sub-advisory relationship, individual investors gain access to these managers (some of which have minimum investments of as much as $50 million) through Vanguard, benefiting from each firms’ investing expertise in a particular style or asset class. The end result is a collection of top-notch managers that individual investors can invest with at a very low cost.

So which Fidelity and Vanguard funds offer the greatest potential for investors now?

Fidelity Investments – The Top Five

Fidelity Leveraged Company Stock

Lead Manager(s)/Tenure Trading Symbol Thomas T. Soviero / 2003 FLVCX Inception Date Style December 2000 Mid-Cap Blend Expense Ratio Fund Assets 0.83% $8.4 billion Correlation to S&P 500 Standard Deviation 59 12.64 Top Sector Number of Holdings Energy 214

Unlike most other stock funds at Fidelity, the idea behind Leveraged Company Stock originated from within Fidelity’s bond group. After having much success with Capital & Income, a “junk” bond fund, Fidelity managers realized that the equity or stock of highly leveraged companies had as much (if not more) appreciate potential as the high yield bonds they were investing in. Hence, the idea for Leveraged Company Stock was born.

The Fund will normally invest at least 80% of its assets in the common stock of highly leveraged companies as the name implies, as well as high yield bonds and foreign securities. It also has a considerable amount of flexibility to invest in securities that exhibit both “growth” and “value” characteristics. Despite the fund’s unique approach and style, it is generally categorized as a mid-cap blend fund. It’s no surprise that both the fund’s original manager, David Glancy, and current manager, Thomas Soviero worked in Fidelity’s high-yield fixed income group. The fund was introduced in December of 2000. Soviero, who also manages Fidelity’s Convertible Securities, Advisor High-Income Advantage and Advisor Leveraged Company Stock funds, has been the lead manager since July of 2003. Prior to managing Leveraged Company Stock, Soviero managed Fidelity’s High Income fund.

Despite much concern about a slowing economy, this fund is an ideal holding for aggressive investors seeking long term growth. We like the fund’s concentrated (top ten holdings account for 25% of fund assets) nature and its focus on the energy sector, a sector we believe continues to have tremendous growth potential. With a relatively low correlation to the S&P 500, the fund can be used as one component of diversified portfolio to reduce overall portfolio risk. But as a stand- alone fund, we expect a high degree of volatility along with superior returns.

Fidelity Select Energy Services

Lead Manager(s)/Tenure Trading Symbol John Dowd / 2005 FSESX Inception Date Style December 1985 Sector - Energy Expense Ratio Fund Assets 0.88% $2.5 billion Correlation to S&P 500 Standard Deviation 14 22.91 Top Sector Number of Holdings Energy 65

The Fidelity Select Energy Services fund is another excellent growth fund for aggressive investors. As the name suggests, the fund will normally invest in the common stock of companies that provide services, support, and equipment to the world’s largest energy companies. These companies could be in many different industries including oil and gas, electricity, and coal, as well as some of the newer sources of energy including nuclear, solar and ethanol.

The fund was established in December of 1985 and currently has over $2.5 billion in assets. Current manager, John Dowd, has managed the fund since December 2005. He also manages Fidelity’s Select Energy portfolio. The fund is highly concentrated with only 65 names, and the top ten holdings account for almost 70% of fund assets.

What we find most appealing about this fund is the sector and industry group it is investing in. With the global economy expanding rapidly and dwindling supplies of natural energy sources to fuel the continued expansion, we believe there will be a significant future demand for energy production. And with increased production will come a significant demand for services and equipment that support such production. These are the companies that Energy Services will invest in. But remember, this is a highly-concentrated sector fund which should not represent more than 10% or 15% of a diversified growth portfolio.

Fidelity International Discovery

Lead Manager(s)/Tenure Trading Symbol William J. Kennedy / 2004 FIGRX Inception Date Style December 1986 International – Broad Expense Ratio Fund Assets 1.03% $14.7 billion Correlation to MSCI EAFE Standard Deviation 95 11.28 Top Sector Number of Holdings UK/Western 273

Formerly known as International Growth & Income, the Fidelity International Discovery fund remains a top choice among Fidelity’s broadly diversified international equity funds. The fund has lots of flexibility in where and how it can invest. Historically, fund manager William Kennedy has favored large-cap stocks in the more developed regions of the world but this may not always be the case. Kennedy can and will go where he sees the best opportunities for shareholders. In addition to managing International Discovery, Kennedy also co- manages the Fidelity Worldwide fund. He has previously managed the Pacific Basin and Advisor funds.

With nearly 300 stocks in the fund, it remains well diversified with a concentration in Japan, the United Kingdom and . Top sector allocation remains , an area of the market that has suffered steep losses recently due to problems in the sub-prime lending and global credit markets. With many of these stocks now significantly undervalued, now may be the time to take advantage of an inevitable recovery.

With the global economic expansion still intact, we continue to favor broad-based international funds like International Discovery that can and will take advantage of any opportunities around the world. Furthermore, a weakening dollar relative to the Euro and the Yen will provide International Discovery investors with additional opportunities for gains through currency fluctuations. This is a growth fund and is only suitable for investors seeking long-term growth. Kennedy remains as one of Fidelity’s top international talents and we believe his record of outperformance will continue.

Fidelity Contrafund

Lead Manager(s)/Tenure Trading Symbol / 1990 FCNTX Inception Date Style May 1967 Large-Cap Growth Expense Ratio Fund Assets 0.89% $82.6 billion Correlation to S&P 500 Standard Deviation 71 9.1 Top Sector Number of Holdings Technology 403

Contrafund is one of Fidelity’s largest and most successful funds. Despite being able to invest in any area of the market, Contrafund is generally categorized as a large-cap growth fund. The fund normally invests in stocks whose value Fidelity believes has not been fully recognized by the market. Examples might include a company going through a major restructuring, a merger or acquisition, a change in management or a major new product introduction. The fund can invest in foreign securities as well as U.S. stocks that exhibit both “value” and “growth” characteristics.

Since 1990, fund manager William “Will” Danoff, has managed the fund with expert guidance. He ranks as one of Fidelity’s all-time best stock pickers and has a long and consistent record of outperforming the overall market. Currently, Danoff is holding just over 400 stocks in this $82 billion fund, with a overweight in Information Technology stocks. Foreign securities account for about 20% of fund assets. Top ten names include Google, Hewlett-Packard Company, Exxon Mobil, Apple Inc., and Proctor & Gamble.

Contrafund is currently closed to new investors unless you are able to buy it through your company’s retirement plan or through an investment advisor. Despite its very large size, we highly recommend this fund because of Danoff’s stock picking skills, its flexibility, and its large-cap nature. We believe large cap stocks are poised for a period of relative outperformance because their earnings consistency, attractive valuations and an ability to take advantage of a growing global economy through foreign subsidiaries. We also like the fund’s ability to invest in out-of-favor or under-valued stocks and would recommend using it to complement other core large cap holdings in a diversified strategy. The fund is a growth fund and therefore is only appropriate for long-term investors who are comfortable with a higher level of risk.

Fidelity Balanced

Lead Manager(s)/Tenure Trading Symbol Lawrence Rakers/George Fischer FBALX Inception Date Style November 1986 Moderate Allocation Expense Ratio Fund Assets 0.60% $28 billion Correlation to Dow Jones Moderate Index Standard Deviation 94 7.07 Top Sector Number of Holdings Financial Services 3142

You can’t argue with performance, and for shareholders of Fidelity’s Balanced fund, that’s precisely what they’ve received. The amazing thing about this fund is that it has consistently outperformed with significantly less risk. How? By losing less in downturns and keeping pace in up markets by investing in a combination of stocks and bonds. Fidelity Balanced seeks both current income and capital growth. Typically, the fund will invest approximately 60% of assets in stocks (including foreign) and 40% in bonds (both investment grade and junk bonds.)

The fund is co-managed by Larry Rakers (since 2002) who is responsible for stock investments and George Fischer (since 2004) who is in charge of the fixed income investments. The current allocation is about 62% stocks (foreign shares account for 6%) and 30% fixed income, reflecting a slight bias toward cash and equivalents relative to the fund’s neutral weightings. The equity allocation currently favors the Financials and Energy sectors, while more than half of the fixed income investments are in U.S Government securities.

With more than 3,100 holdings, the fund is very well diversified, making it an ideal choice for conservative investors seeking a balance between growth and income. Given the fund’s stellar track record and lower risk profile, we believe Fidelity Balanced will continue to provide investors with an ability to reduce risk and generate above average returns.

Vanguard Group – The Top Five

Vanguard 500 Index

Lead Manager(s)/Tenure Trading Symbol Michael H. Buek / 2005 VFINX Inception Date Style August 1976 Large-Cap Blend Expense Ratio Fund Assets 0.18% $129.3 billion Correlation to S&P 500 Standard Deviation 100 7.89 Top Sector Number of Holdings Financial Services 500

The Vanguard 500 is the granddaddy of all index funds. It is the single most meaningful fund in the Vanguard lineup and is the fund that most investors think of when Vanguard is mentioned. Why? Because the fund has consistently outperformed the vast majority of actively managed large-cap funds over the long haul by investing in some of the most successful companies in the world. As the name implies, the fund simply replicates or invests in the 500 large capitalization stocks that comprise the Standard & Poor’s 500 index. Many of the top holdings are household names including ExxonMobil, General Electric, AT&T, Citigroup and Microsoft.

Michael Buek, a member of Vanguard’s Quantitative Equity Group, has been the manager of the fund since April 2005. But being an index fund that simply mirrors a particular basket of stocks, there isn’t much “management” of the fund’s assets. Many other firms offer similar funds that track the S&P 500 stock index, though Vanguard’s fund ranks at the top in terms of low costs. At just .18% per year, investors can allocate portfolio assets to this broadly diversified fund and gain exposure to many of the world’s leading companies. The fund remains fully invested at all times and currently has the largest allocation to the Financial Services sector.

As mentioned above, we currently favor large cap stocks because of their earnings consistency, relative valuations and global reach. The Vanguard 500 Index fund is an excellent way to achieve large cap exposure to both “value” and “growth” stocks in a low-cost way and remains among our top choices of funds. The fund invests entirely in stocks and is therefore most appropriate for investors seeking long- term growth of assets. Investors may want to consider using this fund as a “core” large cap holding in conjunction with another actively managed large cap fund such as .

Vanguard Energy

Lead Manager(s)/Tenure Trading Symbol Bevilacqua/Bandtel/Troyer VGENX Inception Date Style May 1984 Sector – Energy Expense Ratio Fund Assets 0.25% $14.4 billion Correlation to S&P 500 Standard Deviation 20 19.2 Top Sector Number of Holdings Energy 90

The Vanguard Energy fund is one of Vanguard’s all-time best performing funds. As the name implies, the fund will normally invest most if not all of its assets in the stocks of companies in the energy sector. This would include companies such as ExxonMobil, ConocoPhillips, Chevron, Schlumberger and Royal Dutch Shell. Currently the fund holds about 100 stocks, with the top ten names representing about 37% of total funds assets.

The majority of the fund’s assets are managed by Jim Bevilacqua (since 1998) and Karl Bandtel (since 2005), both Senior Vice Presidents of Wellington Management. Based in Boston, Massachusetts, Wellington Management is one of the oldest and largest sub-advisor firms used by Vanguard. In 2006, Jim Troyer, a member of Vanguard’s Quantitative Equity group, was added to the manager lineup to help invest some of the cash that continues to flow rapidly into the fund. Using quantitative screens to select stocks, Troyer has helped bring the number of stocks in the fund to nearly 100. So far, the dilution of management responsibilities and the increase in the number of holdings has not hurt relative performance.

What we find most appealing about this fund is its excellent record of outperformance and the sector it is investing in. With the global economy expanding rapidly and dwindling supplies of natural energy sources to fuel the continued expansion, we believe there will be a significant future demand for energy production. These are the companies that Vanguard Energy will invest in. But, keep in mind this is a very aggressive sector fund and is only appropriate for investors with a very high risk tolerance level and should not represent more than 15% or 20% of a highly diversified portfolio.

Vanguard Emerging Markets ETF

Lead Manager(s)/Tenure Trading Symbol Vanguard Quantitative Equity Group VWO Inception Date Style March 2005 International – Emerging Markets Expense Ratio Fund Assets 0.30% $25.7 billion Correlation to MSCI EAFE Index Standard Deviation 72 (estimated) 16.77 (estimated) Top Sector Number of Holdings Asia - ex-Japan 837

In January of 2004, Vanguard introduced a large number of Exchange Traded Funds (ETFs) designed to track and mimic various market indexes and benchmarks. Despite creating direct competition for its own index funds, Vanguard decided to enter into the ETF market in reaction to their growing popularity and investor demand. It wasn’t until March of 2005, that Vanguard launched an ETF covering the emerging markets.

Managed by Vanguard’s Quantitative Equity Group, the fund has been designed to track a variation of the MSCI Emerging Markets Index. The fund currently holds nearly 850 stocks and is broadly diversified across many countries and regions of the world. The largest country allocation is Korea, representing about 15% of the fund’s assets.

Despite very strong performance over the past few years, we continue to believe there are significant investment opportunities in the emerging market countries. As the global economy continues to expand, the emerging market countries will continue to provide manufacturing and servicing support, and will ultimately profit from expansion.

For investors seeking diversification from U.S. stocks, we believe Vanguard’s Emerging Markets ETF is an excellent choice. But given the volatile nature of emerging market stocks, this fund should be used in conjunction with another international fund that invests in the more developed regions of the world to achieve the optimal level of diversification. This is a very aggressive fund that will experience large price movements and therefore is only appropriate for aggressive long-term investors comfortable with a high degree of risk.

Vanguard Global Equity

Lead Manager(s)/Tenure Trading Symbol Hosking/ VHGEX Inception Date Style August 1995 World Stock Expense Ratio Fund Assets 0.72% $8.1 billion Correlation to MSCI EAFE Standard Deviation 88 10.16 Top Sector Number of Holdings North America 647

Vanguard Global Equity continues to rank among Vanguard’s best performing funds of all time. By investing anywhere around the world (including the U.S.), the fund has consistently produced above average returns with a reasonable amount of risk. The fund seeks long term growth of capital by investing primarily in common stock. Up to 20% may be invested in emerging markets. We expect the fund will remain fully invested under most market conditions.

In an attempt to slow cash flows, the fund was temporarily closed, but eventually reopened to new investors in 2004. When it finally did reopen, Vanguard added another manager to the mix, Acadian , to help diversify holdings and allocate cash inflows. In April of 2006, a third manager (AllianceBernstein,) was added. The addition of a third management team has increased the number of stocks to more than 600.

Vanguard Global Equity is an excellent broadly diversified fund with exposure to a wide range of industries. We expect the fund to invest in a mix of stocks exhibiting both value and growth characteristics. Currently, the U. S. represents the largest country allocation at 35%, followed by the UK (9%), Japan (8%) and Germany (5.5%).

With the global economic expansion still intact, we continue to favor broad-based international funds like Global Equity that can and will take advantage of any opportunities around the world. This is a growth fund and is only suitable for investors seeking long-term growth. We expect the teams sub-advising the fund will continue to identify opportunities around the world and the record of outperformance will continue.

Vanguard PRIMECAP Core

Lead Manager(s)/Tenure Trading Symbol PRIMECAP Management / 2004 VPCCX Inception Date Style December 2004 Large-Cap Growth Expense Ratio Fund Assets 0.60% $3.4 billion Correlation to S&P 500 Standard Deviation 79 (estimate) 9.35 (estimate) Top Sector Number of Holdings Healthcare 137

Despite the fact that Vanguard PRIMECAP Core is less than three years old, we do not hesitate to add it to the list of top Vanguard funds to buy now. Why? Because the management team behind the scenes is well known and admired. PRIMECAP Management, a California based institutional investment firm, has earned its reputation by successfully managing Vanguard PRIMECAP and Vanguard Capital Opportunity, two of Vanguard’s best performing funds of all time. Unfortunately, both funds are now closed to new investors.

In the traditional PRIMECAP style of finding growth stocks at a reasonable price, the management team behind PRIMECAP Core seeks capital appreciation in primarily mid and large-cap companies across many different industries and sectors. The fund is currently holding about 140 stocks with an overweight in the Healthcare and Information Technology sectors. The top ten holdings, which represent about 26% of total fund assets, include well-known companies such as Eli Lilly, Novartis, Medtronic, Texas Instruments and Oracle.

As mentioned before, we believe large cap stocks are poised for a period of relative outperformance because of their earnings consistency, attractive valuations and an ability to take advantage of a growing global economy through foreign subsidiaries. We also like this fund’s approach to finding good long-term growth stocks at a reasonable price, and recommend using it to complement other core large cap holdings in a diversified strategy. PRIMECAP Core is a growth fund and therefore is only appropriate for long-term investors seeking growth and who are comfortable with a higher level of risk.

About Betro | Mileszko & Company

Betro | Mileszko & Company is a mutual fund research company and independent fee-based investment advisor specializing in Fidelity and Vanguard funds. The firm employs a tactical asset allocation strategy by combining both index and actively managed funds with the goal of achieving above average returns with less risk than the overall market. For more information about how we can help you make the most of your Fidelity and Vanguard investments, contact us at (508)698-4949 or visit us at www.betromileszko.com

Disclaimer: Data sources include Morningstar, Fidelity Investments and the Vanguard Group. All material provided herein has been obtained from a variety of sources believed to be reliable. However, Betro | Mileszko & Company cannot guarantee its accuracy and is not responsible for erroneous or incomplete data. Past performance does not indicate future results. This research publication is for informational purposes only and does not constitute a full description of investment services or performance. It is not a solicitation or offer to sell securities or investment services. Any reference to performance should not be interpreted to state or imply past performance indicates future results. Before investing, be sure to read through each fund’s prospectus carefully. Investments are not guaranteed and involve risks, including loss of capital. Recommendations made in this report may not be suitable for you. Please consult with an investment professional at Betro | Mileszko & Company about investment advice for your specific needs. Betro | Mileszko & Company is an independent Registered Investment Advisor and is not affiliated with Fidelity Investments or the Vanguard Group. All rights are reserved. Copyright © 2007 by Betro | Mileszko & Company, LLC.