SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-57167)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 55 [X]
and
REGISTRATION STATEMENT (No. 811-2676)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 55 [X]
Fidelity School Street Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-563-7000
Eric D. Roiter, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
( ) on ( ) 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).
(x) on (April 8, 1998) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date
for a previously filed
post-effective amendment.
FIDELITY SCHOOL STREET TRUST:
FIDELITY STRATEGIC INCOME FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Fund at a Glance; Who May Want to
Invest
3 a .............................. *
b .............................. *
c, d .............................. *
4 a i............................. Charter
ii........................... The Fund at a Glance; Investment Principles and
Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment Principles
and Risks
5 a .............................. Charter
b i............................. Cover Page: The Fund at a Glance; Charter; Doing
Business with Fidelity
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. Charter
d .............................. Charter; Breakdown of Expenses
e .............................. Cover Page; Charter
f .............................. Expenses
g i............................. Charter
ii............................ *
5A .............................. *
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Transaction Details; Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
h .............................. *
7 a .............................. Cover Page; Charter
b .............................. Expenses; How to Buy Shares; Transaction Details
c .............................. Sales Charge Reductions and Waivers
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trust
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i........................... FMR, Portfolio Transactions
ii.......................... Trustees and Officers
iii......................... Management Contract
b ............................ Management Contract
c, d ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plan
g ............................ *
h ............................ Description of the Trust
i ............................ Contracts with FMR Affiliates
17 a ............................ Portfolio Transactions
b ............................ *
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trust
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information
Valuation of Portfolio Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ *
b ............................ *
23 ............................ *
</TABLE>
* Not Applicable
FIDELITY
STRATEGIC INCOME
FUND
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the
fund invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a
copy of the fund's Statement of Additional Information (SAI) dated
April 8, 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, call Fidelity at 1-800-544-8888.
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.
The fund 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.
(fund number ###, trading symbol xxxxx)
The fund seeks high current income by investing primarily in debt
securities. The fund may also seek capital appreciation.
PROSPECTUS
APRIL 8, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
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.
XXX--pro-0498
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly operating
expenses.
PERFORMANCE
THE FUND IN DETAIL 9 CHARTER How the fund is organized.
INVESTMENT PRINCIPLES AND RISKS The
fund's overall approach to investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and what
they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different ways to
set up your account, including
tax-advantaged retirement plans.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money out
and closing your account.
INVESTOR SERVICES Services to help you
manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
TRANSACTION DETAILS Share price
calculations and the timing of purchases
and redemptions.
EXCHANGE RESTRICTIONS
APPENDIX
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current income with the potential for capital
appreciation. As with any mutual fund, there is no assurance that the
fund will achieve its goal.
STRATEGY: Invests primarily in fixed-income securities, allocated
among four general investment categories: high yield securities, U.S.
Government and investment-grade securities, emerging market
securities, and foreign developed market securities. The fund's
neutral mix, or the benchmark for its combination of investments in
each category over time, is approximately 40% high yield, 30% U.S.
Government and investment-grade, 15% emerging markets and 15% foreign
developed markets.
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 the fund. Foreign
affiliates of FMR may help choose investments for the fund.
WHO MAY WANT TO
INVEST
This non-diversified fund may be appropriate for investors who want
high current income with some potential for capital growth from a
portfolio of debt instruments with a focus on 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
securities, including defaulted securities.
The fund may also be appropriate for investors who want to pursue
their investment goals in markets outside of the United States. By
including international investments in your portfolio, you can achieve
additional diversification and participate in growth opportunities
around the world.
The value of the fund's investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other economic and political news both here and
abroad. 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
you sell your shares, they may be worth more or less than what you
paid for them. By itself, the fund does not constitute a balanced
investment plan.
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. STRATEGIC INCOME
IS IN THE INCOME 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.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
(CHECKMARK)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of the fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page __, for an explanation of how and when
these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions None
Annual account maintenance fee (for accounts under $2,500) $12.00
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing
shareholder statements and financial reports. The fund's expenses are
factored into its share price or dividends and are not charged
directly to shareholder accounts (see "Breakdown of Expenses" page ).
The following figures are based on estimated expenses of the fund and
are calculated as a percentage of average net assets of the fund. [A
portion of the brokerage commissions that the fund pays is used to
reduce the fund's expenses. In addition, the fund has entered into
arrangements with its custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to reduce
custodian and transfer agent expenses. Including this reduction, the
total fund operating expenses presented in the table would be __%.]
Management fee [(after reimbursement)] %
12b-1 fee None
Other expenses %
Total fund operating expenses [(after reimbursement)] %
EXAMPLES: Let's say, hypothetically, that the fund's annual return is
5% and that your shareholder transaction expenses and the fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
1 year $
3 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
UNDERSTANDING
EXPENSES
OPERATING A MUTUAL FUND
INVOLVES A VARIETY OF EXPENSES
FOR PORTFOLIO MANAGEMENT,
SHAREHOLDER STATEMENTS, TAX
REPORTING, AND OTHER SERVICES.
THESE EXPENSES ARE PAID FROM
THE FUND'S ASSETS, AND THEIR
EFFECT IS ALREADY FACTORED INTO
ANY QUOTED SHARE PRICE OR
RETURN. ALSO, AS AN INVESTOR,
YOU MAY PAY CERTAIN EXPENSES
DIRECTLY.
(CHECKMARK)
PERFORMANCE
This section would normally show how the fund has performed over time.
Because the fund was new when this prospectus was printed, its
performance is not included. Twice a year, you will receive a report
detailing the fund's recent strategies, performance, and holdings. For
current performance, call 1-800-544-8888.
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.
Average annual total returns covering periods of less than one year
assume that performance will remain constant for the rest of the year.
YIELD refers to the income generated by an investment in the 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
shareholders. This difference may be significant for funds whose
investments are denominated in foreign currencies. In calculating
yield, the 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 the
fund's yield.
MERRILL LYNCH HIGH YIELD MASTER INDEX is a market capitalization
weighted index of all domestic and yankee high-yield bonds. Issues
included in the index have maturities of at least one year and have a
credit rating lower than BBB-/Baa3, but are not in default.
Unlike the fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Multi-Sector Income Funds
Average. As of ____, the average reflected the performance of ___
mutual funds with similar investment objectives. This average,
published by Lipper Analytical Services, Inc., excludes the effect of
sales loads.
UNDERSTANDING
PERFORMANCE
Because this fund invests in
fixed-income securities, its
performance is related to
changes in interest rates. Funds
that hold short-term bonds are
usually less affected by
changes in interest rates than
long-term bond funds. For that
reason, long-term bond funds
typically offer higher yields
and carry more risk than
short-term bond funds.
(checkmark)
THE FUND IN DETAIL
CHARTER
STRATEGIC INCOME IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund
is a non-diversified fund of Fidelity School Street Trust, an open-end
management investment company organized as a Massachusetts business
trust on September 10, 1976.
THE 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
fund's activities, review contractual arrangements with companies that
provide services to the fund, and review the fund's performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUND 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. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which handles its business affairs and,
with the assistance of foreign affiliates, chooses the fund's
investments. Beginning January 1, 1999, FIMM, located in Merrimack,
New Hampshire, will select certain types of investments for the fund.
Affiliates assist FMR with foreign securities:
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England,
(small solid bullet) Fidelity Management & Research Far East Inc. (FMR
Far East), in Tokyo, Japan,
(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda,
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L), in London, England, and
(small solid bullet) Fidelity Investment Japan Ltd. (FIJ), in Tokyo,
Japan.
PORTFOLIO MANAGER INFORMATION FOR NEW FUND WILL BE FILED BY SUBSEQUENT
AMENDMENT AND INSERTED HERE.
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 Service Company, Inc. (FSC) performs transfer agent servicing
functions for the 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,
FIJ, 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 the fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
STRATEGIC INCOME FUND seeks a high level of current income by
investing primarily in debt securities. The fund may also seek capital
appreciation.
The fund invests primarily in fixed-income securities, allocated among
four general investment categories: high yield securities, U.S.
Government and investment-grade securities, emerging market
securities, and foreign developed market securities. The fund's
neutral mix, or the benchmark for its combination of investments in
each category over time, is approximately 40% high yield, 30% U.S.
Government and investment-grade, 15% emerging markets and 15% foreign
developed markets.
FMR regularly reviews the fund's allocation and makes changes
gradually over time to favor investments that it believes provide the
most favorable outlook for achieving the fund's objective. In normal
market environments, FMR expects the fund's asset allocation to
approximate the neutral mix within a range of plus or minus 10% of
assets per category. There are no absolute limits on the percent of
assets invested in each category, however, and FMR reserves the right
to change the neutral mix from time to time.
The HIGH YIELD category includes high-yielding, lower-quality debt
securities consisting mainly of U.S. securities of a quality grade
lower than BBB. The U.S. GOVERNMENT AND INVESTMENT-GRADE category
includes mortgage securities, U.S. Government securities, government
agency securities and other U.S. dollar-denominated securities of
investment-grade quality. The EMERGING MARKET category includes
corporate and governmental debt securities of issuers located in
emerging markets. The FOREIGN DEVELOPED MARKET category includes
corporate and governmental debt securities of issuers located in
developed foreign markets. These investment categories are only
general guidelines, and FMR may use its judgment as to which category
an investment falls within. The fund may also make investments that do
not fall within these categories.
By allocating its investments across different types of fixed-income
securities, the fund attempts to moderate the significant risks of
each investment category through diversification. Diversification,
when successful, can mean higher returns with decreased volatility.
However, each of the fund's four investment categories may experience
periods of volatile returns, and it is possible for all investment
categories to decline at the same time.
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.
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.
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 intended.
When you sell your shares of a fund, they may be worth more or less
than what you paid for them.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of the fund's limitations and more
detailed information about the fund's investments are contained in the
fund's 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 the fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in the fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
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 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 interest of its shareholders.
DEBT RATINGS
MOODY'S STANDARD & POOR'S
INVESTORS SERVICE
Rating Rating
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa AA
Upper-medium grade A A
Medium grade Baa BBB
LOWER QUALITY
Moderately speculative Ba BB
Speculative B B
Highly speculative Caa CCC
Poor quality Ca CC
Lowest quality, no interest C C
In default, in arrears -- D
REFER TO THE APPENDIX FOR A MORE COMPLETE DISCUSSION OF THESE RATINGS.
THE FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S OR S&P TO
DETERMINE COMPLIANCE WITH ITS DEBT QUALITY
POLICY.
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.
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 or economic conditions in foreign
countries, fluctuations in foreign currencies, withholding or other
taxes, operational risks, increased regulatory burdens, 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 developing countries, more volatile than U.S.
investments.
EXPOSURE TO EMERGING MARKETS. Investing in emerging markets involves
risks over and above those generally associated with foreign
investing. The extent of economic development, political stability,
and market depth varies widely in comparison to more developed
markets. Emerging market economies may be subject to greater social,
economic, and political uncertainties or may be based on only a few
industries. All of these factors can make emerging market securities
more volatile and potentially less liquid than domestic securities.
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 issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, the 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.
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. The fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, commodity prices, currency exchange rates, 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 the fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with the 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
the 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 the fund.
RESTRICTIONS: The fund 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.
OTHER INSTRUMENTS may include securities of closed-end investment
companies.
CASH MANAGEMENT. The 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. A fund that is not diversified may be more sensitive to
changes in the market value of a single issuer or industry.
RESTRICTIONS: The fund is considered non-diversified. Generally, to
meet federal tax requirements at the close of each quarter, the fund
does not invest more than 25% of its total assets in any issuer and,
with respect to 50% of total assets, does not invest more than 5% of
its total assets in any issuer. These limitations do not apply to U.S.
Government securities or to securities of other investment companies.
The 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. The fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If the fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If the fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: The 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 the fund's securities. The fund may also lend
money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the
fund's total assets.
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.
STRATEGIC INCOME FUND seeks a high level of current income. The fund
may also seek capital appreciation.
The 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.
The fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 331/3% of the fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily
operations. Expenses paid out of the fund's assets are reflected in
its share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
The 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. The fund also pays OTHER EXPENSES,
which are explained on page .
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by the 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 the
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee
is calculated by adding a group fee rate to an individual fund fee
rate, and multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
[FMR has voluntarily agreed to limit the fund's total operating
expenses to an annual rate of __% of average net assets. This
guarantee will continue until ___.]
For December 1997, the group fee rate was __%. The individual fund fee
rate is 0.45%.
The total management fee rate for the fiscal year ending December 31,
1998[, after reimbursement,] is estimated to be __%.
UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in FMR's
total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will pay
a lower rate as FMR's assets
under management increase.
(checkmark)
FMR HAS SUB-ADVISORY AGREEMENTS with four affiliates: FMR U.K., FMR
Far East, FIJ, and FIIA. FIIA in turn has a sub-advisory agreement
with FIIA (U.K.)L. FMR U.K. focuses on issuers based in Europe. FMR
Far East focuses on issuers based in Asia and the Pacific Basin. FIJ
focuses on issuers based in Japan and elsewhere around the world. FIIA
focuses on issuers based in Hong Kong, Australia, New Zealand, and
Southeast Asia (other than Japan). FIIA (U.K.)L focuses on issuers
based in the United Kingdom and Europe.
The sub-advisers are compensated for providing investment research and
advice. 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
FIJ and FIIA 30% of its management fee 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, FIJ, and FIIA a fee equal to
50% of its management fee rate with respect to the 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.
Beginning January 1, 1999, FIMM will select certain investments for
the fund. FMR will pay FIMM a fee equal to 50% of its management fee
(before expense reimbursements) with respect to the fund's investments
that FIMM manages.
OTHER EXPENSES
While the management fee is a significant component of the fund's
annual operating costs, the fund has other expenses as well.
The fund contracts with FSC to perform transfer agency, dividend
disbursing, shareholder servicing, and accounting functions. These
services include processing shareholder transactions, valuing the
fund's investments, handling securities loans, and calculating the
fund's share price and dividends.
The 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 the fund to
reduce the fund's custodian or transfer agent fees.
The fund has adopted a DISTRIBUTION AND SERVICE PLAN. This 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 fund
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, the fund's shares.
Currently, the Board of Trustees has authorized such payments.
The fund's annualized portfolio turnover rate is expected to exceed
100% in the first fiscal period. This rate varies from year to year.
High turnover rates increase transaction costs and may increase
taxable capital gains. FMR considers these effects when evaluating the
anticipated benefits of short-term investing.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of
America's first mutual funds. Today, Fidelity is the largest mutual
fund company in the country, and is known as an innovative provider of
high-quality financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, FBSI. Fidelity is also a
leader in providing tax-sheltered retirement plans for individuals
investing on their own or through their employer.
Fidelity is committed to providing investors with practical
information to make investment decisions. Based in Boston, Fidelity
provides customers with complete service 24 hours a day, 365 days a
year, through a network of telephone service centers around the
country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity
has over __ walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or
intend to purchase individual securities as part of your total
investment portfolio, you may consider investing in the fund through a
brokerage account.
You may purchase or sell shares of the fund through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in the fund. Certain features
of the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
The account guidelines that follow may not apply to certain retirement
accounts. If you are investing through a retirement account or if your
employer offers the fund through a retirement program, you may be
subject to additional fees. For more information, please refer to your
program materials, contact your employer, or call your retirement
benefits number or Fidelity directly, as appropriate.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over ___
(solid bullet) Assets in Fidelity mutual
funds: over $___ billion
(solid bullet) Number of shareholder
accounts: over __ million
(solid bullet) Number of investment
analysts and portfolio
managers: over ___
(checkmark)
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
Retirement plans provide individuals with tax-advantaged ways to save
for retirement, either with tax-deductible contributions or tax-free
growth. Retirement accounts require special applications and typically
have lower minimums.
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow
individuals under age 70 with compensation to contribute up to $2,000
per tax year. Married couples can contribute up to $4,000 per tax
year, provided no more than $2,000 is contributed on behalf of either
spouse. (These limits are aggregate for Traditional and Roth IRAs.)
Contributions may be tax deductible, subject to certain income limits.
(solid bullet) ROTH IRAS allow individuals to make non-deductible
contributions of up to $2,000 per tax year. Married couples can
contribute up to $4,000 per tax year, provided no more than $2,000 is
contributed on behalf of either spouse. (These limits are aggregate
for Traditional and Roth IRAs.) Eligibility is subject to certain
income limits. Qualified distributions are tax-free.
(solid bullet) ROTH CONVERSION IRAS allow individuals with assets held
in a Traditional IRA or Rollover IRA to convert those assets to a Roth
Conversion IRA. Eligibility is subject to certain income limits.
Qualified distributions are tax-free.
(solid bullet) ROLLOVER IRAS help retain special tax advantages for
certain eligible rollover distributions from employer-sponsored
retirement plans.
(solid bullet) PROFIT SHARING OR MONEY PURCHASE PENSION PLANS (KEOGHS)
allow self-employed individuals or small business owners to make
tax-deductible contributions for themselves and any eligible
employees.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide
small business owners or those with self-employment income (and their
eligible employees) with many of the same advantages as a Keogh, but
with fewer administrative requirements.
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS) allow employees of
businesses with 25 or fewer employees to contribute a percentage of
their wages on a tax-deferred basis. These plans must have been
established by the employer prior to January 1, 1997.
(solid bullet) SIMPLE IRAS provide small business owners and those
with self-employment income (and their eligible employees) with many
of the advantages of a 401(k) plan, but with fewer administrative
requirements.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of
501(c)(3) tax-exempt institutions, including schools, hospitals, and
other charitable organizations.
(solid bullet) 401(K) PLANS allow employees of organizations of all
sizes to contribute a percentage of their wages on a tax-deferred
basis. These accounts need to be established by the trustee of the
plan.
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS) are available
to employees of most state and local governments and their agencies
and to employees of tax-exempt institutions.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of the fund is the fund's net asset value
per share (NAV). The fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received in proper form. The fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
The fund reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions"
on page __. Purchase orders may be refused if, in FMR's opinion, they
would disrupt management of a fund.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
IF YOU ARE INVESTING THROUGH A TAX-ADVANTAGED RETIREMENT PLAN, such as
an IRA, for the first time, you will need a special application.
Retirement investing also involves its own investment procedures. Call
1-800-544-8888 for more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For certain Fidelity retirement accounts(double dagger) $500
TO ADD TO AN ACCOUNT $250
For certain Fidelity retirement accounts(double dagger) $250
Through regular investment plans* $100
MINIMUM BALANCE $2,000
For certain Fidelity retirement accounts(double dagger) $500
(double dagger)These lower minimums apply to Fidelity Traditional IRA,
Roth IRA, Roth Conversion IRA, Rollover IRA, SEP-IRA and Keogh
accounts.
*For more information about regular investment plans, please refer to
"Investor Services," page __.
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. There is no minimum account balance or initial or
subsequent investment minimum for certain retirement accounts funded
through salary deduction, or accounts opened with the proceeds of
distributions from Fidelity retirement accounts. Refer to the program
materials for details.
<TABLE>
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE 1-800-544-7777
(PHONE_GRAPHIC) (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER
FIDELITY FUND (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME REGISTRATION, ACCOUNT WITH THE SAME REGISTRATION,
INCLUDING NAME, ADDRESS, AND INCLUDING NAME, ADDRESS, AND
TAXPAYER ID NUMBER. TAXPAYER ID NUMBER.
(SMALL SOLID BULLET) USE FIDELITY MONEY LINE TO TRANSFER
FROM YOUR BANK ACCOUNT. CALL BEFORE
YOUR FIRST USE TO VERIFY THAT THIS
SERVICE IS IN PLACE ON YOUR ACCOUNT.
MAXIMUM MONEY LINE: UP TO
$100,000.
</TABLE>
<TABLE>
<CAPTION>
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MAIL
(MAIL_GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE
APPLICATION. (SMALL SOLID BULLET) MAKE YOUR CHECK PAYABLE TO THE
MAKE YOUR CHECK PAYABLE TO THE COMPLETE NAME OF THE FUND. INDICATE
COMPLETE NAME OF THE FUND. MAIL TO YOUR FUND ACCOUNT NUMBER ON YOUR
THE ADDRESS INDICATED ON THE CHECK AND MAIL TO THE ADDRESS PRINTED
APPLICATION. ON YOUR ACCOUNT STATEMENT.
(SMALL SOLID BULLET) EXCHANGE BY MAIL: CALL
1-800-544-6666 FOR INSTRUCTIONS.
</TABLE>
<TABLE>
<CAPTION>
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IN PERSON
(HAND_GRAPHIC) (SMALL SOLID BULLET) BRING YOUR APPLICATION
AND CHECK TO A (SMALL SOLID BULLET) BRING YOUR CHECK TO A FIDELITY INVESTOR
FIDELITY INVESTOR CENTER. CALL CENTER. CALL 1-800-544-9797 FOR THE
1-800-544-9797 FOR THE CENTER CENTER NEAREST YOU.
NEAREST YOU.
</TABLE>
<TABLE>
<CAPTION>
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WIRE
(WIRE_GRAPHIC) (SMALL SOLID BULLET) CALL 1-800-544-7777 TO
SET UP YOUR (SMALL SOLID BULLET) NOT AVAILABLE FOR RETIREMENT ACCOUNTS.
ACCOUNT AND TO ARRANGE A WIRE (SMALL SOLID BULLET) WIRE TO:
TRANSACTION. NOT AVAILABLE FOR BANKERS TRUST COMPANY,
RETIREMENT ACCOUNTS. BANK ROUTING #021001033,
(SMALL SOLID BULLET) WIRE WITHIN 24 HOURS TO: ACCOUNT #00163053.
BANKERS TRUST COMPANY, SPECIFY THE COMPLETE NAME OF THE
BANK ROUTING #021001033, FUND AND INCLUDE YOUR ACCOUNT
ACCOUNT #00163053. NUMBER AND YOUR NAME.
SPECIFY THE COMPLETE NAME OF THE
FUND AND INCLUDE YOUR NEW ACCOUNT
NUMBER AND YOUR NAME.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AUTOMATICALLY
(AUTOMATIC_GRAPHIC) (SMALL SOLID BULLET) NOT AVAILABLE. (SMALL SOLID BULLET) USE FIDELITY AUTOMATIC ACCOUNT
BUILDER. SIGN UP FOR THIS SERVICE
WHEN OPENING YOUR ACCOUNT, OR CALL
1-800-544-6666 TO ADD IT.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of the fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. The fund's NAV is normally calculated each
business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone or in writing. Call 1-800-544-6666 for a
retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$2,000 worth of shares in the account to keep it open ($500 for
retirement accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
ACCOUNT TYPE SPECIAL REQUIREMENTS
<TABLE>
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PHONE 1-800-544-7777
(PHONE_GRAPHIC) ALL ACCOUNT TYPES EXCEPT (SMALL SOLID BULLET) MAXIMUM CHECK REQUEST: $100,000.
RETIREMENT (SMALL SOLID BULLET) FOR MONEY LINE TRANSFERS TO YOUR BANK ACCOUNT;
MINIMUM: $10; MAXIMUM: UP TO $100,000.
ALL ACCOUNT TYPES (SMALL SOLID BULLET) YOU MAY EXCHANGE TO OTHER FIDELITY FUNDS IF
BOTH ACCOUNTS ARE REGISTERED WITH THE SAME
NAME(S), ADDRESS, AND TAXPAYER ID NUMBER.
MAIL OR IN PERSON
(MAIL_GRAPHIC)
(HAND_GRAPHIC) INDIVIDUAL, JOINT TENANT, (SMALL SOLID BULLET) THE LETTER OF INSTRUCTION MUST BE SIGNED BY ALL
SOLE PROPRIETORSHIP, PERSONS REQUIRED TO SIGN FOR TRANSACTIONS,
UGMA, UTMA EXACTLY AS THEIR NAMES APPEAR ON THE ACCOUNT.
RETIREMENT ACCOUNT (SMALL SOLID BULLET) THE ACCOUNT OWNER SHOULD COMPLETE A
RETIREMENT DISTRIBUTION FORM. CALL
1-800-544-6666 TO REQUEST ONE.
TRUST (SMALL SOLID BULLET) THE TRUSTEE MUST SIGN THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF THE TRUSTEE'S NAME IS NOT
IN THE ACCOUNT REGISTRATION, PROVIDE A COPY OF THE
TRUST DOCUMENT CERTIFIED WITHIN THE LAST 60 DAYS.
BUSINESS OR ORGANIZATION (SMALL SOLID BULLET) AT LEAST ONE PERSON AUTHORIZED BY CORPORATE
RESOLUTION TO ACT ON THE ACCOUNT MUST SIGN THE
LETTER.
(SMALL SOLID BULLET) INCLUDE A CORPORATE RESOLUTION WITH CORPORATE
SEAL OR A SIGNATURE GUARANTEE.
EXECUTOR, ADMINISTRATOR, (SMALL SOLID BULLET) CALL 1-800-544-6666 FOR INSTRUCTIONS.
CONSERVATOR, GUARDIAN
</TABLE>
<TABLE>
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WIRE (WIRE_GRAPHIC) ALL ACCOUNT TYPES EXCEPT (SMALL SOLID BULLET) YOU MUST SIGN UP FOR THE WIRE FEATURE BEFORE
RETIREMENT USING IT. TO VERIFY THAT IT IS IN PLACE, CALL
1-800-544-6666. MINIMUM WIRE: $5,000.
(SMALL SOLID BULLET) YOUR WIRE REDEMPTION REQUEST MUST BE RECEIVED
IN PROPER FORM BY FIDELITY BEFORE 4:00 P.M.
EASTERN TIME FOR MONEY TO BE WIRED ON THE
NEXT BUSINESS DAY.
</TABLE>
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(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone or in writing.
Note that exchanges out of the fund are limited to four per calendar
year, and that they may have tax consequences for you. For details on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or
revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer
money by phone between your bank account and your fund account. Most
transfers are complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 MONTHLY OR QUARTERLY (SMALL SOLID BULLET) FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE SECTION ON THE FUND
APPLICATION.
(SMALL SOLID BULLET) FOR EXISTING ACCOUNTS, CALL 1-800-544-6666 FOR AN APPLICATION.
(SMALL SOLID BULLET) TO CHANGE THE AMOUNT OR FREQUENCY OF YOUR INVESTMENT, CALL
1-800-544-6666 AT LEAST THREE BUSINESS DAYS PRIOR TO YOUR NEXT
SCHEDULED INVESTMENT DATE.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 EVERY PAY PERIOD (SMALL SOLID BULLET) CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION, OR CALL
1-800-544-6666 FOR AN AUTHORIZATION FORM.
(SMALL SOLID BULLET) CHANGES REQUIRE A NEW AUTHORIZATION FORM.
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FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, bimonthly, (small solid bullet) To establish, call 1-800-544-6666 after both accounts are
quarterly, or annually opened.
(small solid bullet) To change the amount or frequency of your investment, call
1-800-544-6666.
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A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income
and capital gains to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains are normally
distributed in December and February.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on
the application, call 1-800-544-6666 for instructions. The fund offers
four options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions
will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned
this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each
dividend distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital
gain distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of
the date the fund deducts the distribution from its NAV. The mailing
of distribution checks will begin within seven days, or longer for a
December ex-dividend date.
UNDERSTANDING
DISTRIBUTIONS
AS A FUND SHAREHOLDER, YOU ARE
ENTITLED TO YOUR SHARE OF THE
FUND'S NET INCOME AND GAINS
ON ITS INVESTMENTS. THE FUND
PASSES ITS EARNINGS ALONG TO ITS
INVESTORS AS DISTRIBUTIONS.
THE FUND EARNS INTEREST FROM ITS
INVESTMENTS. THESE ARE PASSED
ALONG AS DIVIDEND
DISTRIBUTIONS. THE FUND MAY
REALIZE CAPITAL GAINS IF IT SELLS
SECURITIES FOR A HIGHER PRICE
THAN IT PAID FOR THEM. THESE
ARE PASSED ALONG AS CAPITAL
GAIN DISTRIBUTIONS.
(CHECKMARK)
TAXES
As with any investment, you should consider how your investment in the
fund will be taxed. If your account is not a tax-advantaged retirement
account, you should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax, and may also be subject to state or local taxes. If you live
outside the United States, your distributions could also be taxed by
the country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are
taxable as if they were paid on December 31.
For federal tax purposes, the fund's income and short-term capital
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of the fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when the fund has realized but
not yet distributed capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the
fund and its investments, and these taxes generally will reduce the
fund's distributions. However, if you meet certain holding period
requirements with respect to your fund shares, an offsetting tax
credit may be available to you. If you do not meet such holding period
requirements, you may still be entitled to a deduction for certain
foreign taxes. In either case, your tax statement will show more
taxable income or capital gains than were actually distributed by the
fund, but will also show the amount of the available offsetting credit
or deduction.
There are tax requirements that all funds must follow in order to
avoid federal taxation. In its effort to adhere to these requirements,
the fund may have to limit its investment activity in some types of
instruments.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates the fund's NAV as of the close
of business of the NYSE, normally 4:00 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
The fund's assets are valued on the basis of information furnished by
a pricing service or market quotations, if available, or by another
method that the Board of Trustees believes accurately reflects fair
value. 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 effect 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. 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.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify
that your social security or taxpayer identification number is correct
and that you are not subject to 31% backup withholding for failing to
report income to the IRS. If you violate IRS regulations, the IRS can
require the fund to withhold 31% of your taxable distributions and
redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to redeem and
exchange by telephone, call Fidelity for instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during
periods of unusual market activity), consider placing your order by
mail or by visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased
at the next NAV calculated after your investment is received in proper
form. Note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) The fund reserves the right to limit the number
of checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees the fund or
its transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first
business day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money
order, U.S. Treasury check, Federal Reserve check, or direct deposit
instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements
with FDC may enter confirmed purchase orders on behalf of customers by
phone, with payment to follow no later than the time when the fund is
priced on the following business day. If payment is not received by
that time, the financial institution could be held liable for
resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at
the next NAV calculated after your order is received in proper form.
Note the following:
(small solid bullet) Normally, redemption proceeds will be mailed to
you on the next business day, but if making immediate payment could
adversely affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday
will continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day
after your phone call.
(small solid bullet) The fund may hold payment on redemptions until it
is reasonably satisfied that investments made by check or Fidelity
Money Line have been collected, which can take up to seven business
days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays),
when trading on the NYSE is restricted, or as permitted by the SEC.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for
that year. The fee, which is payable to the transfer agent, is
designed to offset in part the relatively higher costs of servicing
smaller accounts. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $2,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send
the proceeds to you. Your shares will be redeemed at the NAV on the
day your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the fund
without reimbursement from the fund. Qualified recipients are
securities dealers who have sold fund shares or others, including
banks and other financial institutions, under special arrangements in
connection with FDC's sales activities. In some instances, these
incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or
expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of the
fund for shares of other Fidelity funds. However, you should note the
following:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) If you exchange into a fund with a sales charge,
you pay the percentage-point difference between that fund's sales
charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already
paid a sales charge of 2% on your shares and you exchange them into a
fund with a 3% sales charge, you would pay an additional 1% sales
charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund
performance and shareholders, the fund reserves the right to
temporarily or permanently terminate the exchange privilege of any
investor who makes more than four exchanges out of the fund per
calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, will be counted
together for purposes of the four exchange limit.
(small solid bullet) The exchange limit may be modified for accounts
in certain institutional retirement plans to conform to plan exchange
limits and Department of Labor regulations. See your plan materials
for further information.
(small solid bullet) The fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would
be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
(small solid bullet) Your exchanges may be restricted or refused if
the fund receives or anticipates simultaneous orders affecting
significant portions of the fund's assets. In particular, a pattern of
exchanges that coincides with a "market timing" strategy may be
disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any
time. The fund reserves the right to terminate or modify the exchange
privilege in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to 1.00% and trading fees of up to 1.50% of
the amount exchanged. Check each fund's prospectus for details.
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 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 - Debt rated 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.
From Filler pages
FIDELITY STRATEGIC INCOME FUND
A FUND OF FIDELITY SCHOOL STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 8, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus
(dated April 8, 1998). Please retain this document for future
reference. To obtain a free additional copy of the Prospectus, please
call Fidelity at 1-800-544-8888.
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TABLE OF CONTENTS PAGE
INVESTMENT POLICIES AND LIMITATIONS
SPECIAL CONSIDERATIONS REGARDING AFRICA
SPECIAL CONSIDERATIONS REGARDING CANADA
SPECIAL CONSIDERATIONS REGARDING EUROPE
SPECIAL CONSIDERATIONS REGARDING JAPAN, THE PACIFIC BASIN, AND SOUTHEAST ASIA
SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA
PORTFOLIO TRANSACTIONS
VALUATION
PERFORMANCE
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
DISTRIBUTIONS AND TAXES
FMR
TRUSTEES AND OFFICERS
MANAGEMENT CONTRACT
DISTRIBUTION AND SERVICE PLAN
CONTRACTS WITH FMR AFFILIATES
DESCRIPTION OF THE TRUST
APPENDIX
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INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited
(FIIA(U.K.)L)
Fidelity Investments Japan Ltd. (FIJ)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
XXX-ptb-0498
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 the 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 the fund's investment policies and limitations.
The 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 (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. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL
INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) 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;
(3) 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;
(4) 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;
(5) 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);
(6) 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
(7) 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.
(8) The 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 managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL:
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(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 (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). 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 15% 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 lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) 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.)
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more that 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page .
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the Investment Company Act of
1940. These transactions may include 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-BACKED SECURITIES. Asset-backed securities represent interests
in pools of consumer loans (generally unrelated to mortgage loans) and
most often are structured as pass-through securities. Interest and
principal payments ultimately depend upon payment of the underlying
loans by individuals, although the securities may be supported by
letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the
servicing agent for the loan pool, the originator of the loans, or the
financial institution providing the credit enhancement.
CLOSED-END INVESTMENT COMPANIES. The fund may purchase the shares of
closed-end investment companies to facilitate investment in certain
countries. Shares of closed-end investment companies may trade at a
premium or a discount to their net asset value.
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.
COUNTRIES NOT CONSIDERED TO HAVE EMERGING MARKETS. As of ___, 1998
the following countries are not considered to have emerging markets:
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the
United States.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on
a delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund 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. The fund may receive fees for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund
assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. Because the fund is not required to pay for
securities until the delivery date, these risks are in addition to the
risks associated with the fund's other investments. If the 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, the fund will set aside appropriate liquid assets in a
segregated custodial account to cover its purchase obligations. When
the 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, the fund could miss a favorable
price or yield opportunity, or could suffer a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are
delivered, which may result in capital gains or losses.
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. 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.
Foreign investments involve a risk of local political, economic, 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
the possibility of 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 will be
able to anticipate these potential events or counter their effects.
These risks are magnified for investments in developing countries,
which may have relatively unstable governments, economies based on
only a few industries, and securities markets that trade a small
number of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States.
Foreign markets may offer less protection to investors than U.S.
markets. It is anticipated that in most cases the best available
market for foreign securities will be on an exchange or in
over-the-counter 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 (particularly those located in
developing countries) may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading
practices, including those involving securities settlement where fund
assets may be released prior to receipt of payment, may result in
increased risk in the event of a failed trade or the insolvency of a
foreign broker-dealer, and may involve substantial delays. In
addition, the costs of foreign investing, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than
for U.S. investors. In general, there is less overall governmental
supervision and regulation of securities exchanges, brokers, and
listed companies than in the United States. It may also be difficult
to enforce legal rights in foreign countries. 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.
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 an alternative 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.
FOREIGN CURRENCY TRANSACTIONS. A 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.
Successful use of currency management strategies will depend on FMR's
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 anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR 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 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 use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FUND'S RIGHTS AS A SHAREHOLDER. The fund does not intend to direct or
administer the day-to-day operations of any company. The 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 determines that such
matters could have a significant effect on the value of the fund's
investment in the company. The activities that the fund may engage in,
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 the fund
could be involved in lawsuits related to such activities. FMR will
monitor such activities with a view to mitigating, to the extent
possible, the risk of litigation against the fund and the risk of
actual liability if the fund is involved in litigation. No guarantee
can be made, however, that litigation against the fund will not be
undertaken or liabilities incurred.
FUTURES AND OPTIONS. The following sections 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 fund will comply
with guidelines established by the Securities and Exchange Commission
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 the fund's
assets could impede portfolio management or the fund's ability to meet
redemption requests or other current obligations.
COMBINED POSITIONS. The fund may purchase and write 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, the fund may purchase a put option and
write a call option on the same underlying instrument, in order to
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, in order 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 the fund's
current or anticipated investments exactly. The fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which it 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 the
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. The 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 the 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. When a fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future
date. When a fund sells a futures contract, it agrees to sell the
underlying instrument at a specified future date. The price at which
the purchase and sale will take place is fixed when the fund enters
into the contract. Futures can be held until their delivery dates, or
can be closed out before then if a liquid secondary market is
available.
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 the fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When the 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 the
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of the 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.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund intends to
file 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, before engaging in any purchases or
sales of futures contracts or options on futures contracts. The fund
intends to comply with Rule 4.5 under the Commodity Exchange Act,
which limits the extent to which the fund can commit assets to initial
margin deposits and option premiums.
In addition, the fund 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.
The above limitations on the fund's investments in futures contracts
and options, and the fund's 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 for the fund 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 the fund to continue to hold
a position until delivery or expiration regardless of changes in its
value. As a result, the 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. The fund may purchase and sell currency futures and may
purchase and write currency options to increase or decrease its
exposure to different foreign currencies. The fund may also purchase
and write currency options 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 the fund's investments.
A currency hedge, for example, should protect a Yen-denominated
security from a decline in the Yen, but will not protect the fund
against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the 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 fund 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 fund
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 fund 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 fund may terminate its position in
a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund
will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the
strike price. The fund 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 paid, 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. When the fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the fund 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.
When writing an option on a futures contract, the fund will be
required to make margin payments to an FCM as described above for
futures contracts. The fund may seek to terminate its position in a
put option it writes 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 the fund has written, however, the fund 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.
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 fund 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 the fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of the fund's investments,
FMR 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 the fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal
and interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR
may determine some restricted securities, 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 the 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. If through a change in values, net assets, or
other circumstances, the fund were in a position where more than 15%
of its net assets was invested in illiquid securities, it would seek
to take appropriate steps to protect liquidity.
INDEXED SECURITIES. The fund may purchase securities 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.
Gold-indexed securities, for example, 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 of equivalent issuers. 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. At the same time, indexed securities
are 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. Indexed securities may be more volatile than the underlying
instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, the fund has received permission to lend
money to, and borrow money from, other funds advised by FMR or its
affiliates. 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. The 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. The 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.
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 the 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
principal and interest. Direct debt instruments may not be rated by
any nationally recognized rating service. If the fund does not receive
scheduled interest or principal payments on such indebtedness, the
fund's share price and yield could be adversely affected. Loans that
are fully secured offer the fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal.
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 to the fund. For example, if a loan is foreclosed, the fund
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, the fund 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 fund in the event of fraud or
misrepresentation. In the absence of definitive regulatory guidance,
the fund relies on FMR's research in an attempt to avoid situations
where fraud or misrepresentation could adversely affect the 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 fund has direct recourse
against the borrower, it 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 the fund were determined to be subject to the
claims of the agent's general creditors, the fund 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 purchased by the fund may include letters of
credit, revolving credit facilities, or other standby financing
commitments obligating the fund to pay additional cash on demand.
These commitments may have the effect of requiring the fund 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. The fund will set aside
appropriate liquid assets in a segregated custodial account to cover
its potential obligations under standby financing commitments.
The fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see limitation 4).
For purposes of these limitations, the 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 the 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 the 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. 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 corporate 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 ability of outside
pricing services to value lower-quality debt securities and the fund's
ability to dispose of these 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 held by the fund. In considering
investments for the fund, 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.
The 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.
MORTGAGE-BACKED SECURITIES. The fund may purchase mortgage-backed
securities issued by government and non-government entities such as
banks, mortgage lenders, or other financial institutions. A
mortgage-backed security may be 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 variety of 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. Other types of
mortgage-backed securities will likely be developed in the future, and
the fund may invest in them if FMR determines they are consistent with
the fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers. In addition, regulatory or tax
changes may adversely affect the mortgage 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,
which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
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 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the 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. To
protect the fund from risk that the original seller will not fulfill
its obligation, the securities are held in an account of the fund 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 the fund in connection with bankruptcy
proceedings), it is the fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
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, the 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, the fund might obtain a less favorable price than prevailed
when it decided to seek registration of the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the
fund sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. The fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory
by FMR. Such transactions may increase fluctuations in the market
value of the fund's assets and may be viewed as a form of leverage.
SECURITIES LENDING. The 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.
Securities lending allows the 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 to be of
good standing. Furthermore, they will only be made if, in FMR's
judgment, the consideration to be earned from such loans would justify
the risk.
FMR understands 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 any
security in which the fund is authorized to invest. Investing this
cash subjects that investment, as well as the security loaned, to
market forces (i.e., capital appreciation or depreciation).
SHORT SALES. The 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 the 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. The 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 the 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.
The 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. Each fund may purchase sovereign debt
instruments 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 interest when due,
and may require renegotiation or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend
on political as well as economic factors.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security (IO)
receives interest payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall,
prepayment rates tend to increase, which tends to reduce prices of IOs
and increase prices of POs. Rising interest rates can have the
opposite effect.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease the 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. The fund is not limited to any particular form of swap
agreement if FMR determines it is consistent with the fund's
investment objective and policies.
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 the fund's investment exposure from
one type of investment to another. For example, if the 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 the fund's investments
and its share price and yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors
that determine the amounts of payments due to and from the fund. If a
swap agreement calls for payments by the 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.
The fund expects to be able to eliminate its exposure under swap
agreements either by assignment or other disposition, or by entering
into an offsetting swap agreement with the same party or a similarly
creditworthy party.
The fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If the 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 the 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 OR FLOATING RATE OBLIGATIONS bear variable or floating
interest rates and carry rights that permit holders to demand payment
of the unpaid principal balance plus accrued interest from the issuers
or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated
base rate while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed
to result in a market value for the instrument that approximates its
par value.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep 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 very volatile when
interest rates change. In calculating its dividends, the fund takes
into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
A broker-dealer creates a DERIVATIVE ZERO by separating the interest
and principal components of a U.S. Treasury security and selling them
as two individual securities. CATS (Certificates of Accrual on
Treasury Securities), TIGRs (Treasury Investment Growth Receipts), and
TRs (Treasury Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of
Registered Interest and Principal of Securities) by separating the
interest and principal components of an outstanding U.S. Treasury bond
and selling them as individual securities. Bonds issued by the
Resolution Funding Corporation (REFCORP) and the Financing Corporation
(FICO) can also be separated in this fashion. ORIGINAL ISSUE ZEROS are
zero coupon securities originally issued by the U.S. Government, a
government agency, or a corporation in zero coupon form.
SPECIAL CONSIDERATIONS REGARDING AFRICA
Africa is a highly diverse and politically unstable continent of over
50 countries and 720 million people. Much of this region has been
beset by civil wars, coups and even genocidal warfare in recent years.
Nevertheless, it is home to an abundance of natural resources,
including natural gas, aluminum, crude oil, copper, iron, bauxite,
cotton, diamonds and timber. Wealthier countries generally have strong
connections to European partners, and evidence of these relationships
is seen in the growing market capitalization and foreign investment.
Economic performance is closely tied to world commodity markets,
particularly oil, and also to agricultural conditions, such as
drought.
Five African countries are among the 20 fastest growing in the world
(Uganda, Ivory Coast, Botswana, Angola and Zimbabwe), with 1996 GDP
growth rates ranging from 5.0% to 6.2%.
Several African countries in the north have substantial oil reserves
and accordingly their economies react strongly to world oil prices.
They share a regional and sometimes religious identification with the
oil producing nations of the Middle East and can be strongly affected
by political and economic developments in those countries. As in the
south, weather conditions also have a strong impact on many of their
natural resources, and, as was the case in 1995, severe drought can
adversely effect economic growth.
Ten African countries have active equity markets (Botswana, Egypt,
Ghana, Kenya, Morocco, Nigeria, South Africa, Tunisia, Zambia,
Zimbabwe). The oldest market, in Egypt, was established in 1883, while
the youngest, in Zambia, was established in 1994. Four additional
markets have been established since 1989, and the mean age for all
equity markets is 40 years old. A total of 1,697 firms are listed on
the respective exchanges. Total market capitalization for these
countries in 1996 was 280 billion, an average increase of 63% over
1995 levels.
SPECIAL CONSIDERATIONS REGARDING CANADA
Canada is one of the richest nations in the world in terms of natural
resources. Within this sector particularly strong commodities are
forest products, mining and metals products, and agricultural products
such as grains. Additionally, energy related products such as oil, gas
and hydroelectricity are important components of their economy.
Accordingly, the Canadian stock market is strongly represented by such
basic materials stocks, and movements in the supply and demand of
industrial materials, agriculture, and energy, both domestically and
internationally, can have a strong effect on market performance.
Canada is a confederation of 10 provinces with a parliamentary system
of government. The area, the world's second largest nation by
landmass, is inhabited by 30.2 million people, most of whom are
decedents of France, the United Kingdom and indigenous peoples. The
country has a work force of over 15 million, spread out over a variety
of industries from trade, manufacturing, and mining to finance,
construction and government. While the country has many institutions
which closely parallel the US, such as a transparent stock market and
similar accounting practices, it differs from the US in that it has an
extensive social welfare system, much more akin to European welfare
states.
The confederated structures combined with recent financial pressure on
the federal government have pushed some provinces, Quebec in
particular, to call for a reevaluation of the legal and financial
relationships between the federal government in Ottawa and the
provinces. This issue came to a head in 1995 with a referendum on
Quebec sovereignty, which was ultimately won by Ottawa
(50.56%-49.44%). The very narrow defeat of the referendum and the
return of Bloc Quebecois to parliament with a lower but still
substantial number of seats indicate that the issue is far from
resolved. Accordingly, a large amount of the government's energy is
spent considering new constitutional arrangements. In the meantime,
markets react to the periodic escalations of separatist calls with
caution.
The current government of the Liberal party was reelected in June 1997
with a clear majority of 155 of the 301 parliamentary seats. This is a
drop in majority status during their previous government, during which
they held 60% of the seats. Opposition is currently divided amongst 4
parties, none of which occupies more than 60 seats. The historical
opposition to the Liberals, the Conservatives, has had to fight back
onto the political stage after being marginalized in the 1993
elections. Reclaiming enough seats in 1997 to be restored to official
status, the Conservatives currently hold 20 seats.
Economically, GDP growth in Canada was 1.5% in 1996, down from 2.3% in
1995. Driving growth was optimism in the government's stability and
fiscal health following the Quebec referendum and the achievement of a
current account surplus (which was subsequently lost, then regained in
early 1997). Particularly strong market performers were financial
services, real estate, utilities and merchandising. Consumer demand
was strong in 1996, financed by borrowing.
The Bank of Canada is fairly independent from the government and has
the latitude to manipulate interest rates to keep inflation within its
self imposed target of less than 3%. The Canadian dollar has benefited
from internal fiscal successes, specifically the balancing of the
current account. Despite the strong link to the US dollar, the Bank of
Canada won't automatically raise rates in response to US hikes.
The US is Canada's biggest trading partner, representing over 75% of
total trade. Strong export industries are energy, mining and forest
products. Canada is the largest energy supplier to the US. Main
imports are industrial machinery and chemicals. The US is also
Canada's largest foreign investor, responsible for 71% of all FDI in
Canada (worth approximately $87 billion). Main targets for investment
are metals and mining industries, energy, and finance.
Recently the Finance Ministry has kept demands for spending on social
programs at bay in the name of eradicating the budget deficit. Once
they feel this is firmly behind them, social spending could possibly
resume.
Privatization programs, meeting gathering opposition from trade
unions, interest groups and the general public, are slowly shrinking,
with many large-scale services remaining public.
There are four primary securities exchanges in Canada: Toronto,
Montreal, Vancouver, and Alberta. The Toronto and Montreal exchanges
list the older, larger, more established firms. Combined, these two
exchanges accounted for 95.2% of the total trading value in 1996. The
Vancouver and Alberta exchanges list smaller, younger start up firms
which tend to represent the natural resource sectors. In 1996 these
two exchanges accounted for 4.8% of the total value of equity trading.
SPECIAL CONSIDERATIONS REGARDING EUROPE
Europe can be divided into 2 categories of market development: the
developed economies of Western Europe1, and the transition economies
of Eastern Europe2. As a whole, Europe witnessed a slowdown in growth
in 1996, down to 1.7% from its 1995 level of 2.5%. Inflation decreased
to 4.6%, down from 5.1% in 1995. The weak growth performance in
Germany had an effect on the region as a whole, largely due to the
role Germany plays as a primary trading partner to most European
countries.
In the west, GDP growth averaged 2.5%, unemployment 9.2% and inflation
6.8%3. Twelve of the countries enjoy both positive trade balances and
positive current accounts balances, while seven do not. Likewise, in
the east growth averaged 3.1%, while inflation averaged 26%4. All
countries save Bulgaria saw trade and current accounts deficits.
Stock market performance in the western countries was strong. Over
9100 firms, both foreign and domestic, are listed on the exchanges
throughout the region. Total market capitalization in the west was
over $9 trillion in 1996. Market capitalization totals grew over their
1995 levels on an average of 31%, with notable performances by Turkey
and Greece, both growing by almost 50%. Trading value turnover
increased in all countries save Austria and Ireland, and the average
increase across the region was 29%.
The European Union (EU) consists of 15 countries of western Europe:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the UK.
The 6 founding countries first formed an economic community in the
1950's to bring down trade barriers such as taxes and quotas, to
eliminate technical restrictions such as special standards and
regulations for foreigners, and coordinate various industrial
policies, such as agriculture. The group has admitted new members in
the 1970's and most recently in 1995 when Austria, Finland and Sweden
joined. By that time the community had changed its legal status to the
European Union (EU) and reaffirmed their goal of creating a single,
unified market that would, at 372.6 million people, be the largest in
the developed world. The notion is to create a union through which
goods, people, and capital could move freely. A second component of
the EU is the creation of a single currency to replace each of the
member countries' domestic currencies. In preparation for the creation
of this currency, to be called the Euro, the Exchange Rate Mechanism
(ERM) was established to keep the various national currencies with a
pre-specified value relative to each other. In 1999 there is planned
the establishment of the Economic and Monetary Union (EMU), as set
forth by the Maastricht Treaty. At this point the Euro will be
introduced and those countries which both qualify and desire to join
will join. Beyond 1999 there will be opportunities for new countries
to join the EMU.
1. Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal,
Spain, Sweden, Switzerland, Turkey, United Kingdom.
2. Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.
3. This average inflation rate includes the exceptionally high rate in
Turkey (86.0%). Without this outlier, inflation across the region
averaged 2.4%.
4. This average inflation rate includes the exceptionally high rate in
Bulgaria (125.0%). Without this outlier, inflation across the region
averaged 17.0%.
The year 1997 is significant for members of the EU as it is the
initial reference year for evaluating debt levels and deficits within
the criteria set forth by the Maastricht treaty. Specifically, the
Maastricht criteria includes, amongst other indicators, an inflation
rate below 3.3%, a public debt below 60% of GDP, and a deficit of 3%
or less of GDP. Failure to meet the Maastricht levels could delay the
realization of EMU by 1999. Many political battles are currently being
waged over the issue of how much debt and deficit reducing policies
should be undertaken. Pressure to increase fiscal spending is strong,
particularly given the slow growth and high unemployment. Indeed,
unemployment rates, which range from 3.2% in Luxembourg to 22% in
Spain and which average 9.9%, are currently seen as the biggest
threats to EMU.
In 1996, the EU averaged a 6.85% inflation rate, a 75.98% government
debt, and a 3.62% budget deficit. Only three countries meet the
necessary debt levels, four countries meet the required deficit
levels, and only 1 meets both (Luxembourg). Broadly speaking, the
success of left of center parties in recent elections in various
countries is a signal that citizens and at least some politicians are
now more hesitant to move rapidly toward EMU.
Many foreign and domestic firms are establishing themselves or
increasing their activity in Europe in anticipation of the unified
single market. Clear, confident signals of what a diverse,
multi-industrial, unified market under a single currency could look
like have been the impetus for increases in market activity, corporate
development and mergers and acquisitions. A successful EMU could prove
be an engine for sustained growth.
Nevertheless, much discussion of liberalizing the Maastricht criteria
is coming about as 1999 approaches and the prospects of achieving a
successful implementation of the EMU is seen by many as slim. Should
this happen, the political ramifications and the strength of the EMU
would become unpredictable, as many politicians have staked their
credibility on meeting the EMU deadline.
In the meantime, the expansion of the EU to include other countries in
western and Eastern Europe serves as a strong political impetus for
many governments to employ tight fiscal and monetary policies.
Particularly for the eastern European countries, aspirations to join
the EU are likely to push governments to act decisively. At the same
time, there could become an increasingly obvious gap between rich and
poor both within the aspiring countries and also between those
countries who are close to meeting membership criteria and those who
are not. Realigning traditional alliances could result in altering
trading relationships and potentially provoking divisive
socio-economic splits.
The economies of the east are embarking on the transition from
communism at different paces with appropriately different
characteristics. War torn Croatia's economy crossed firmly into
positive growth levels for the first time since it split from
Yugoslavia while the rapidly developing Polish and Czech economies
continued their strong advance, responded to rising levels of
investment, domestic consumption, exchange rate stability, and export
growth. To be sure, one country's recipe for success is unique from
all other countries. Inflation and unemployment levels differ widely,
and the search for a `transition strategy' remains confined to the
dictates of local conditions.
In some countries, such as Albania and Romania, political events and
policy failures severely hindered economic recovery. In others, such
as Serbia, extreme political events prevent the gathering of accurate
macroeconomic data. Politically, what separates these countries from
the rest is not that they have relied on the leadership of former
communists, but that these politicians have continued to reject the
libertarian economic principles that their counterparts in other
eastern countries have been implementing. Part of this rejection
includes the failure to establish an effective and legitimate legal
infrastructure. This position isolates these countries from both the
west and their multinational organizations.
For the more developed eastern economies, partnership with western
institutions such as the EU and NATO serve as incentives to balance
the demands of the citizens with fiscal austerity. As relationships
develop and confidence rises, investment in these economies increases.
In the east established stock markets now exist in Bulgaria, Croatia,
Czech Republic, Hungary, Poland, Slovenia and Slovakia. Over 330
firms are listed on the various exchanges, and in 1996 total market
capitalization was $38.3 billion. This represents an average increase
of 193% over 1995. Trading value turnover in 1996 went up 287% on
average.
Strong sectors for these economies are mostly industrial such as
automotives and machinery. Also strong are manufacturing sectors,
chemicals and pharmaceuticals. Service industries are not extensively
developed, but financial services are increasing. Natural resources,
particularly oil and minerals, are weak.
As this region continues to develop, it is possible that the massive
drops in output that followed the collapse of the Soviet Union are
well behind and that for many economies a significant corner has been
turned toward positive growth. Economies, which work to tie their
future to an integrated, global economy, are likely to continue to
receive the aid and investment from the west that has helped bring
them along so far. Still, the key component of a successful transition
for all of these countries is political commitment to support the
civil institutions that will ultimately replace the monolithic welfare
state. With 113 million people, diverse industry and an well-educated
work force, Eastern Europe is a promising market.
REAL GDP ANNUAL RATE OF GROWTH (ANNUAL % CHANGE)
1997
DENMARK __%
FRANCE __%
GERMANY __%
ITALY __%
NETHERLANDS __%
SPAIN __%
SWITZERLAND __%
UNITED KINGDOM __%
Source: The Economist. The LGT Guide to World Equity Markets 1997.
For national stock market index performance, please see the section on
Performance beginning on page __.
SPECIAL CONSIDERATIONS REGARDING JAPAN, THE PACIFIC BASIN, AND
SOUTHEAST ASIA
Asia has undergone an impressive economic transformation in the past
decade. Many developing economies, utilizing massive foreign
investments, established themselves as inexpensive producers of
manufactured and re-manufactured consumer goods for export. As
household incomes rose, birth was given to rising middle classes,
stimulating domestic consumption. More recently, large projects in
infrastructure and energy resource development have been undertaken,
again utilizing cheap labor, foreign investment, and a business
friendly regulatory environment. During the course of development,
governments, which are democratic, at least in a formal sense, fought
to maintain the stability and control necessary to attract investment
and provide labor. Subsequently, Asian countries today are coming
under increasing, if inconsistent, pressure from western governments
regarding human rights practices.
GDP growth in Asia increased in 1996 to 4.9% over its 1995 level of
3.2%. It is the fastest growing region of the world, with China
leading the way at 9.1%. Of the 20 fastest growing economies in the
world, half of them are in Asia. Inflation in 1996 was reduced to
2.6%, down from 3.0% the previous year. Nevertheless it is a
significant concern given the areas high levels of domestic
consumption and capital inflows.
Manufacturing exports declined significantly in 1996, due to drops in
demand, increased competition, and also strong US dollar performance.
This is particularly true of electronics, a critical industry for
several Asian economies. Declines in exports reveal how much of the
recent growth in these countries is dependent on their trading
partners. Many Asian exports are priced in dollars, while the majority
of its imports are paid for in local currencies. A stable exchange
rate between the dollar and other Asian currencies is important to
Asian trade balances.
Despite the impressive economic growth experienced by Asia's emerging
economies, currency and economic concerns have recently roiled these
markets. Over the summer of 1997, a plunge in Thailand's currency set
off a wave of currency depreciations throughout South and Southeast
Asia. The Thai crisis was brought on by the country's failure to take
steps to curb its current-account deficit, reduce short-term foreign
borrowing and strengthen its troubled banking industry, which was
burdened by speculative property loans. Most of the area's stock
markets tumbled in reaction to these events. Investors were heavy
sellers as they became increasingly concerned that other countries in
the region, faced with similar problems, would have to allow their
currencies to weaken further or take steps that would choke off
economic growth and erode company profits. For U.S. investors, the
impact of the market declines were further exacerbated by the effect
of the decline in the value of their local currencies versus the U.S.
dollar.
The same kinds of concerns that affected Thailand and other Southeast
Asian countries subsequently spread to North Asia. To widely varying
degrees, Taiwan, South Korea, and Hong Kong all faced related currency
and/or equity market declines. Of these, the South Korean situation
was the most severe. Revelations of this country's poor lending
practices and high levels of corporate indebtedness led to steep,
extended declines in the value of the won, high interest rates, and
tumbling equity markets. Due to continued weakness in the Japanese
economy combined with the reliance of Asian economies on intra-Asian
trade and capital flows, many experts believed that the entire
region's economic growth would slow in the near term.
JAPAN. A country of 126 million with a labor force of 64 million
people, Japan is renowned as the preeminent economic miracle of the
post war era. Fueled by public investment, protectionist trade
policies, and innovative management styles, the Japanese economy has
transformed itself since the war into the world's second largest
economy. An island nation with limited natural resources, Japan has
developed a strong heavy industrial sector and is highly dependent on
international trade. Strong domestic industries are automotive,
electronics, and metals. Needed imports revolve around raw materials
such as oil, forest products, and iron ore. Subsequently, Japan is
sensitive to fluctuations in commodity prices. With only 19% of its
land suitable for cultivation, the agricultural industry is small and
largely protected. While the U.S. is Japan's largest single trading
partner, close to half of Japan's trade is conducted with developing
nations, almost all of which are in southeast Asia. Investment
patterns generally mirror these trade relationships. Japan has over
$100 billion of direct investment in the United States.
The Tokyo Stock Exchange (TSE) is the largest of eight exchanges in
Japan. The exchanges divide the market for domestic stocks into two
sections, with larger companies assigned to the first section and
newly listed or smaller companies assigned to the second. In 1996,
1,833 firms were listed on the TSE, 96% of which were domestic. Some
believe that the TSE has a tendency to be strongly influenced by the
performance of a small circle of large cap firms that dominate the
market. The two key indexes are the Tokyo Stock Price Index (TOPIX)
and the Nikkei. In 1996, TSE performance was lackluster, with the
TOPIX down about 7%.
CHINA AND HONG KONG. China is one of the world's last remaining
communist systems, and the only one that appears poised to endure due
to its measured embrace of capitalist institutions. It is the world's
most populous nation, with 1.3 billion people creating a work force of
630 million. Today's Chinese economy, roughly separated between the
largely agricultural interior provinces and the more industrialized
coastal and southern provinces, has its roots in the reforms of the
recently deceased communist leader Deng Xiaoping. Originally an
orthodox communist system, China undertook economic reforms in 1978 by
providing broad autonomy to certain industries and establishing
special economic zones (SEZ's) to attract foreign investment (FDI).
Attracted to low labor costs and favorable government policies,
investment flowed from many sources, with Hong Kong, Taiwan, and the
United States leading the way. Most of the investment, totaling $37
billion by the end of 1995, has located in the southern provinces,
establishing manufacturing facilities to process goods for re-export.
The result has been a steadily high level of real GDP growth,
averaging 11.35% per year so far this decade. With this growth has
come a doubling of total consumption, a tripling of real incomes for
many workers, and a reduction in the number of people living in
absolute poverty from 270 to 100 million. Today there is a market of
more that 80 million who are now able to afford middle class western
goods.
China has two stock exchanges that are set up to accommodate foreign
investment, in Shenzhen and in Shanghai. In both cases, foreign
trading is limited to a special class of shares (Class B) which was
created for that purpose. Only foreign investors may own Class B
shares, but the government must approve sales of Class B shares among
foreign investors. As of December 1996, there were 42 companies with
Class B shares on the two exchanges, for a total Class B market
capitalization of U.S. $4.7 billion.
AUSTRALIA. Australia is a 3 million sq. mile continent (about the size
of the 48 continental United States) with a predominantly European
ethnic population of 18.2 million people. A member of the British
Commonwealth, its government is a democratic, federal-state system.
The country has a western style capitalist economy with a work force
of 9.2 million that is concentrated in services, mining, and
agriculture. Australia's natural resources are bauxite, coal, iron
ore, copper, tin, silver, uranium, nickel, tungsten, mineral sands,
lead, zinc, diamonds, natural gas, and oil. Primary trading partners
are the US, Japan, South Korea, New Zealand, UK and Germany. Imports
revolve around machinery and high technology equipment, while exports
are heavy in the agricultural and mineral products, making them
sensitive to world commodity prices.
Historically, Australia's strong points were its agricultural and
mining sectors. While this is still true to a large extent, the
government managed to boost its manufacturing sector by undertaking
protective measures in the 1970's and early 1980's. These have
subsequently been liberalized in an effort to kindle growth in the
industrial sector. Today's economy is more diverse, as manufactures'
share of total exports is increasing. Part of the government's effort
to make manufacturing more competitive was a floating of the
Australian dollar in 1984, precipitating an initial depreciation, and
a campaign to reduce taxes. Such reforms have attracted foreign
investment, particularly in the transport and manufacturing sectors.
Restrictions do exist on investment in certain areas as media, mining
and some real estate. In 1995, cumulative US investment in Australia
totaled more than $65 billion and accounted for 21% of total foreign
investment.
GDP growth reached 3.6% in 1996; a steady increase over the days of
the early 1990's which saw a recession. The recession was followed in
1992 by a jump in growth (from 0.4-2.8%), but this initial boost seems
to have leveled off. The election of a new Liberal/National coalition
government after 13 years of Labor rule has brought with it new
efforts to cut public spending and eliminate the projected $6 billion.
budget deficit. This step, coupled with a steady unemployment rate
(8%), could slow down the recent ascent in growth.
Australia is fully integrated into the world economy, participating in
GATT and also more regional trade associations such as the Asia and
the Pacific Economic Cooperation (APEC) forum. Future growth could
result from their movement towards regional economic liberalization,
but a countervailing force is the reality that some export markets in
Europe could be lost to continued European economic integration.
INDONESIA. Indonesia is a country that encompasses over 17,000 islands
on which live 195 million people. It is a mixed economy that balances
free enterprise with significant government intervention. Deregulation
policies, diversification of strong domestic sectors, and investment
in infrastructure projects have all contributed to high levels of
growth since the late 1980's. Indonesia's economy grew at 7.1% in
1996, the exact average if its performance for the current decade.
Growth in the 1990's has been fairly steady, hovering between 6.5-7.5%
for the most part, peaking at 8.1% in 1995. Moderate growth in
investment, including public investment, and also in import growth,
helped to slowdown GDP growth. Growth has been accompanied by
moderately high levels of inflation, ranging from the recent high of
9.7% in 1993 to a low of 7.1%, as witnessed last year.
Indonesia is currently undergoing a diversification of the core of its
economy. No longer strictly revolving around oil and textiles, it now
gaining strength in high technology manufactures, such as electronics.
Indonesia consistently runs a positive trade balance. Strong export
performers are oil, gas, and textiles and apparel. Oil, once
responsible for 80% of export revenues, now accounts for only 25%, an
indication of how far other (mostly manufacturing and apparel) sectors
have developed. Main imports are raw materials and capital goods.
In 1994 the country underwent deregulation measures which further
boosted investment. By 1996, FDI levels dropped from the record high
in 1995, and the trend was away from large projects including
infrastructure to smaller more manageable projects. Many consider this
a reflection of a desire to avoid the notoriously nepotism ridden
bureaucracy.
The Indonesian government is strongly authoritarian. Treatment of
political opponents, workers and ethnic minorities has put Indonesia
in the world spotlight with criticism of its human rights practices.
One source of outspoken popular discontent is the glaring discrepancy
in income distribution, particularly across ethnic lines. World
attention to the problems in Indonesia has given support to the
various causes, but it does not seem to have had much impact on the
government. Efforts to impose sanctions on the country by both federal
and state level politicians in the US have so far proven unsuccessful,
but are likely to continue to persist.
Politically, the ruling party, Golkar, faces frequent challenges from
unofficially sanctioned opposition parties, but these efforts are
effectively marginalized. The key political question in Indonesia is
who will replace the aging ruler, President Suharto who, at 76, has
been the county's only leader for over 30 years. His long tenure and
the country's nascent democratic institutions leave the question of
proper succession open. During his career he has amassed support from
a directly appointed insider bureaucracy of political and business
elites which features immediate members of his family. As well, he has
relied strongly upon the army to provide the force necessary to
contain social unrest. Which amongst these two institutions will
emerge to replace Suharto is far from clear, and the surrounding
intrigue could lead to some instability. As economic policies have
been crafted to benefit Suharto's supporters in the business
community, any deviation from Suharto's position would likely impact
the economy. Additionally, a key ingredient to Indonesia's success has
been their ability to contain social unrest. Maintaining this control,
especially in the face of recently escalated tensions and political
uncertainty, is an important anchor for economic performance. Proof of
this is the Jakarta Stock Exchange's volatile reaction to riots in
July 1995.
MALAYSIA. 1996 saw Malaysia's GDP growth slow to 8.3%, down from over
9% in 1994 and 1995. Inflation has been kept relatively low at 3.8%.
Performance in 1996 avoided the economy's potential overheating as
export growth, investment, and consumption all slowed. This helped to
bring the current account deficit down by $1.7 billion to settle at
approximately 6.0% of GDP.
A large part of Malaysia's recent growth is due to its manufacturing
industries, particularly electronics and especially semiconductors.
This has led to an increased reliance on imports; thus the economy is
sensitive to shifts in foreign production and demand. This is
particularly true regarding its main trading partners: the US, Japan,
and Singapore. Such shifts were partly responsible for the slowdown in
1996. In addition, monetary policies to stem the threat of overheating
were evident, but the country still needs massive public and private
investment to finance several large infrastructure projects.
Government industrial policy seeks investment to create more value
added high technology manufacturing and service sectors in order to
decrease the emphasis on low skilled manufacturing. Already US
investors have invested over $9 billion, and most of this is in
electronics and energy projects.
Unemployment remains extremely low (2.6%) and labor for completing the
various projects is becoming costly, especially as industry has to go
abroad to search for higher skilled workers. Wages have soared so high
that Malaysia no longer qualifies for the special trading benefits
that the US and the EU bestow upon developing nations. This could hurt
exports. A further catch is that rapidly increasing wages could cause
inflationary pressures, yet a shortage of labor could threaten
development.
The political situation in Malaysia is stable and could possibly
remain so up to and including the next election in the year 2000.
SINGAPORE. Since achieving independence from the British in 1965,
Singapore has repeatedly elected the People's Action Party (PAP) as
their government. It is a party that is so consistent it has only
offered up two prime ministers in this 32-year period. Elections in
January 1997 returned the PAP to power, signaling satisfaction with
their policy of close coordination with the private sector to
stimulate investment. Typical policies include selective tax
incentives, subsidies for R&D, and joint ventures with private firms.
While the combination of consistent leadership and interventionist
policies is sometimes seen as impeding civil liberties and
laissez-faire economics, it has produced an attractive investment
environment.
The Singapore economy is almost devoid of agriculture and natural
resources, not surprising given the island nation's geographic size.
Its strongest sector is manufacturing, particularly of electronics,
machinery and petroleum and chemical products. They produce 45% of the
world's computer disk drives. Major trading partners are Japan,
Malaysia and the US.
The economic situation in Singapore registered a passable year in
1996. The regional trend toward slowed electronics exports made clear
the country's strong reliance on this sector. GDP growth dropped from
8.8% to 6.5%, while inflation remained low (1.4%) and the current
account balance maintained its large surplus. Property values have
gone up recently, partially in response to uncertainty surrounding
Hong Kong. Interest rates are consistently low, and wages high,
leaving some at a loss to explain the repeatedly low inflation rate.
SOUTH ASIA. Although India's economy has grown at an average rate of
7% over the past three years, growth has slowed to about 6% during
1997. Economic growth, which had been fueled by strong industrial and
export sectors, slowed along with growth in these sectors. It is
uncertain whether India will be able to sustain the high growth rates
it experienced through 1996. Subsidies amount to almost 15% of GDP,
while agriculture accounts for about 25%. In 1997, annual inflation
has been approximately 3.8% down from about 6.6% the previous year.
During 1997, the current account deficit has been roughly 1.2% of GDP,
down from 1.5% in 1996. The exchange rate has been gradually devalued
in the 1980's and 1990's, and could be devalued further. Beginning in
1992, industry, financial markets, and the country's trade have been
gradually liberalized. Fifty-five percent of India's population is
illiterate, roughly half live in poverty, and unemployment remains
high.
Since the dissolution of the Narasimha Rao government in early 1996,
India has experienced several weak, coalition governments that have
been unable to consolidate their position for an extended period.
Partially as a result, economic reforms have proceeded slowly through
gradually. Future changes in government could weaken or set back the
reform process.
India does not enjoy trouble-free relations with its neighbors. India
and Pakistan have fought two wars since their independence in 1947 and
have yet to resolve a continuing dispute over the status of the
norther Indian state of Kashmir. Various Kashmiri separatist groups,
Indian, and Pakistani military have been involved in armed conflict
within the state. Neither India nor Pakistan have signed the
Comprehensive Nuclear Test Ban Treaty, which prohibits nuclear weapons
testing. A border dispute with China and questions over the
involvement of elements within India in the internal affairs of Sri
Lanka also affect India's relations with these countries.
The other, smaller South Asian countries of Pakistan, Bangladesh, and
Sri Lanka share with India the challenges of reducing poverty and
illiteracy and improving infrastructure and economic growth. While
each of these countries has taken steps to liberalize their economies,
their economies are far from mature, as are their legal and regulatory
systems. In addition, because they have small and relatively less
diversified economies and public markets, they are susceptible to
external economic shocks, which may result in currency declines. Sri
Lanka has been plagued by internal challenges to its security, while
Pakistan has faced significant political infighting and instability.
Bangladesh's largely agricultural economy is heavily dependent on the
severity of the monsoons.
SOUTH KOREA. South Korea is one of the more spectacular economic
stories of the post war period. Coming out of a civil war in the
mid-1950's the country found itself with a destroyed economy and
boundaries that excluded most of the peninsula's mineral and
industrial resources. It proceeded over the next 40 years to create a
society that includes a highly skilled and educated labor force and an
economy that exploited the large amounts of foreign aid given to it by
the US and other countries. Exports of labor intensive products such
as textile initially drove the economy, to be replaced later by heavy
industries such as automobiles.
Hostile relations with North Korea dictate large expenditures on the
military, and political uncertainty and potential famine in the north
has put the south on high alert. Any kind of significant military
effort could have multiple effects, both positive and negative, on the
economy. South Korea's lack of natural resources put a premium on
imported energy products, making the economy very sensitive to oil
prices.
Since 1991, GDP growth has fluctuated widely between 5% and 9%,
settling down at 6.8% last year. Currently the labor market is in need
of restructuring, and its rigidity has hurt performance. Relations
between labor and the large conglomerates, or Chaebols, could prove to
be a significant influence on future growth. Inflation in the same
period has been consistently dropping, save a brief rise in 1994, and
finished the year at 4.5%. The country consistently runs trade
deficits, and the current account deficit widened sharply in 1996,
more than doubling to $19.3 billion. South Korea's strong domestic
sectors are electronics, textiles and industrial machinery. Exports
revolve around electronics, textiles, automobiles, steel and footwear,
while imports focus on oil, food, chemicals and metals.
The stock market (Korea Stock Exchange) is currently undergoing
liberalization to include more foreign participation, which was only
first allowed in 1992, but the bond market remains off limits until
1999. Liberalization is in response to the KSE 1996 performance, which
was down 18%. While the number of listed companies increased by 39 in
1996, total market capitalization fell 24% from its 1995 level.
THAILAND. The political situation in Thailand is tenuous. Democracy
has a short history in the country, and power is alternatively
obtained by the military, a non-elected bureaucratic elite, and
democratically elected officials. The frequent transfers of power have
generally gone without divisive, bloody conflicts, but there are
bitter differences between the military and the political parties.
Free elections in 1992 and again in 1995 have produced non-military
democratic leaders from different parties, a healthy sign of party
competition. While democratic institutions are stabilizing, the
current government is under increasing pressure due to recent poor
economic performance.
The Thai economy has witnessed a fundamental transition in recent
years. Traditionally it was a strong producer of textiles, minerals
and agricultural products, but more recently it has tried to build
high tech export industries. This proved particularly fortuitous in
the mid 1990's when flooding wiped out much of their traditional
exports, but the newer industries remained strong, keeping the growth
rate above 8%. (This level had been achieved through the 1990's,
giving the economy a name as one of the fastest growing in the
region.) The government has also taken steps toward reducing the
influence of central planning, opening its market to foreigners and
abandoning five-year plans. This restructuring is still underway, and
the change can cause difficulty at times.
GDP growth slowed a bit last year to 7.2%, down from 8.6% in 1995. The
current account deficit was 7.9% of GDP, and inflation was 5.8%, both
considered high but steady and controllable results in line with
recent years' performance. One cause for the slowdown was a decline in
export growth as its manufacturing industry faces stiff competition
from low priced competitors and its agriculture suffers drops in
production. In 1996, Thailand's currency, the baht, was linked to a US
dollar dominated basket, and monetary policy had remained tight to
keep that link strong and avoid inflationary pressures.
The situation changed in early 1997, however, with the revelation of
many bad bank loans and a bubbling of property prices due to
over-investment. Many companies, faced with slowing exports, stopped
servicing their debts. Many other firms have stayed alive only with
infusions of public cash, and the government has been slow to let many
property laden financial firms fail. The stock market has reacted
strongly, dropping to new lows for the decade. Reluctant to float the
baht, indeed promising that it wouldn't, the government relented in
early July hoping to revive export and stock market growth. The
subsequent devaluation (approximately 20% against the dollar in the
first month) led to the need for a $16 billion loan coordinated by the
IMF to shore up foreign reserves. Most of the loan came from
neighboring countries led by Japan, indicating their desire to both
protect their own investments in Thailand, and also mitigate the
effect of the devaluation on their home currencies
The total impact of the entire situation is negative, particularly on
inflation, unemployment and foreign debt. Significant turnover and a
major gamble on the currency has put the government in a precarious
position, especially given the fact that it is a six party coalition.
Dissatisfaction amongst the military, always a political factor, is
high.
EMERGING MARKETS: ASIA
MARKET CAPITALIZATION IN U.S. DOLLARS
DECEMBER 1996
$ BILLIONS
INDIA 132.97
INDONESIA 91.00
KOREA 138.91
MALAYSIA 322.00
PAKISTAN 11.75
PHILIPPINES 80.69
SINGAPORE 182.00
TAIWAN 274.00
THAILAND 95.92
Source: The Economist. The LGT Guide to World Equity Markets 1997.
REAL GDP ANNUAL RATE OF GROWTH
(ANNUAL % CHANGE)
1996
CHINA 9.1%
HONG KONG 4.3%
INDIA 5.7%
INDONESIA 7.1%
JAPAN 3.9%
KOREA 6.8%
MALAYSIA 8.3%
PHILIPPINES 5.5%
SINGAPORE 6.5%
TAIWAN 5.8%
THAILAND 7.2%
Source: The Economist. The LGT Guide to World Equity Markets 1997.
For national stock market index performance, please see the section on
Performance beginning on page __.
SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA
Latin America represents one of the world's more advanced emerging
markets. With a total population of 427 million and its abundant
natural resources, the area is a prime trading partner for the US and
Canada. In Latin America exports represent, on average, 16.6% of GDP.
Strong export sectors are petroleum, manufactured goods, agricultural
commodities such as coffee and beef, and metals and mining products.
GDP growth in Latin America as a region was 3.4% in 1996, up from 0.1%
in 1995. Recognizing the important role of international trade as a
component of GDP, the countries of Latin America have formed strong
regional trade organizations, notably MERCOSUR. Talk of extending
NAFTA down through Latin America indicates some desire to tie the
economies even closer to those of the north.
Politically, Latin American countries generally have strong
presidential systems closely modeled on the US. Their transition to
democracy, largely complete in most countries, nevertheless allows for
a considerable military influence, reflecting the strong authoritarian
leanings of a large portion of the population. The countries all enjoy
good relations with the United States, with whom they cooperate on a
range of non-economic matters, such as preservation of the environment
and drug control. Monetarist minded governments were responsible for
the successful staving off of contagion from the recent currency
crisis in Mexico, increasing their stature in the eyes of most capital
market participants.
ARGENTINA. Prior to 1989, Argentine politics were characterized by
populist leaders, sometimes democratically elected and sometimes not,
who ruled with the overt support of the military. Coups and outright
military rule were not uncommon. Economic polices were highly
protectionist, with significant barriers and restrictions on foreign
trade and investment. Markets were highly regulated and the state was
heavily involved in many industries. Inflation was routinely high and
growth stagnant.
President Carlos Menem was first elected to office in 1989 and
undertook a program of deregulation, liberalization and macroeconomic
reform. The results have been positive. Growth in 1996 was 4.4%, up
from -4.4% in 1995. Argentina's growth, averaging over 7% from 1991 to
1994, has been driven primarily by domestic consumption. In the wake
of the Mexican currency crisis, however, banking liquidity has been
restrained. While deposits have increased in reaction to peso
stabilization, lending has not, putting downward pressure on consumer
spending. The positive effect is that inflation, well over 150% at the
beginning of the decade, was 0.4% in 1996. Still troublesome for
Argentina is unemployment, quite high at 17%. Menem's economic
liberalization policies have succeeded in attracting foreign
investment. From the US alone, approximately $10 billion was invested
by 1996. Investors have been most attracted to the telecommunications,
finance, and energy sectors.
Argentina enjoys a positive trade balance. The export economy is
heavily weighted toward agriculture, which represents 60% of the total
value of all Argentine exports. Primary products are livestock,
oilseeds, and grain. Argentina's single biggest trading partner is
Brazil, and the US is the second. Primary imports are machinery,
vehicles and chemicals.
The resignation of Economy Minister Domingo Cavallo in July 1996 was
initially greeted with skepticism from the markets. Cavallo was widely
recognized as the man responsible for ensuring the convertibility of
the peso by pegging it to the dollar, a move which saved Argentina
from the hyperinflation and continuous drops in output which could
have followed from the Mexican crisis in 1994. Confidence was quickly
restored, however, with the appointment of Roque Fernandez, who
promptly reaffirmed commitment to Cavallo's plan and introduced
further measures for fiscal stability.
The central bank's main priority is maintaining convertibility against
the dollar. It is very active in the foreign exchange market and even
assists local firms with liquidity problems.
Legislative elections to be held in October, 1997 could prove to be
critical for Menem, who still has an extensive economic reform agenda
which includes further privatizations, labor market reforms and a
revamped tax policy. Failure to retain a friendly majority in the
Lower House of congress could deprive Menem of the support he needs to
pass such reforms.
The next presidential election is due in 1999. In accordance with the
constitution, Menem, a member of the Peronist party, can not seek a
third consecutive term. The next election is likely to present a third
candidate to the voters beyond the traditional contestants from the
Peronist and Radical parties. Frepaso, a center-left alliance, first
emerged in the 1995 elections and by 1999 could build itself up enough
to promote a viable alternative to the older parties. It is uncertain
how policies would be effected by the systemic change from a
predominantly two party system to a three way game.
BRAZIL. Brazil is the largest country in South America and is home to
vast amounts of natural resources. Its 155 million people are
descendants from indigenous tribes and European immigrants. They live
in diverse socio-economic conditions, from the urban cities of Sao
Paolo to the undeveloped trading posts of the distant regions.
Industrial development has been concentrated in specific areas. The
disenfranchised population is quite large and is a source of many of
Brazil's social problems.
The Brazilian economy is currently undergoing extensive reforms,
stemming from a 1994 effort to stabilize the currency called the Real
Plan. With the aim of curbing inflation, a new currency, the Real, was
introduced and supported via a floating exchange band. The plan has
stabilized the exchange rate and controlled inflation, which was
reeling out of control in 1994 at 2,700%. Inflation in 1995 dropped to
81%, and fell even further in 1996, settling at 18.7%. At the same
time, however, the Real Plan has sent the trade and current account
balances into a deficit. The current account soared from $1 billion to
$18 billion, and increased further in 1996 to $27 billion.
Other objectives of the administration of the current President,
Fernando Henrique Cardoso, are trade liberalization and privatization,
but these efforts are sporadic and often stalled by special interests
in the legislature. Some privatization efforts are performing well,
particularly in the utilities sector. Utilities and telecommunications
have been key draws for foreign investment, and foreign direct
investment (FDI) is coming in at record levels. In 1996 the country
received over $9.5 billion, with $2.4 billion coming from the US.
Still, there are restrictions against investments in certain
industries, such as metals and mining.
Similarly with trade liberalization, the government increased import
restrictions in an effort to shrink the trade deficit and slow the
growth of import consumption. This consumption was a main contributor
to GDP growth in 1996, though growth was down 1% to 3.2%.
Traditionally a primarily agricultural economy, a strong industrial
sector has developed which produces metals, chemical, and manufactured
consumer goods. Agriculture still plays a significant role, however,
representing 11% of the GDP, 40% of exports and employing over 35% of
the work force. Primary agricultural products are grains, coffee, and
cattle. Regarding energy and utilities, the country is a leading
producer of hydroelectric power, but they are dependent on imports for
oil.
Presidential elections will be held in 1998. President Cardoso hopes
to stand for re-election but currently is unable to, given a
constitutional provision on term limits. Efforts to gather
congressional support for constitutional reform, allowing Cardoso to
stand, could result in a great deal of special interest concessions,
translating into more public spending and horse-trading over fiscal
reforms.
CHILE. Chile is a transition economy which has recently made great
strides toward putting its authoritarian, statist, past behind itself.
In all of Latin America, it is the country with the highest rates of
growth. Averaging 7.3% so far this decade, GDP grew at 6.7% in 1996,
down from 8.5% the previous year. Inflation has been steadily
declining and is down over 15% in the last five years. Inflation in
1996 was 7.4%, a 0.8% drop over 1995. Unemployment in 1996 was 6.6%,
particularly low for the Latin American region. Despite the fact that
market capitalization fell $8 billion in 1996 to $64 billion, Chile is
still considered to have one of the best performing stock markets in
the region.
Chile has a strong, interventionist central bank which focuses more on
the investment community than it does on the government. Active steps
are taken to control demand and inflation. One example is the practice
of restricting short-term flows of foreign capital through the
country.
Interest rate hikes in 1996 are said to have restrained growth, but
other factors include unfavorable weather conditions that hurt
agricultural and hydroelectric power production. Mining and metals
were strong performers in 1996. Of particular note was the strong
showing of the country's copper industry.
Eduardo Frei is President and is due for reelection in 1999. President
Frei has been trying to decentralize the government but encounters
stiff opposition from the powerful trade unions. Also high on Frei's
agenda is tax reform.
There is a considerable military component to political life in Chile.
In the legislature there is strong representation by parties with
authoritarian views. As part of the negotiated settlement with coup
leader General Augusto Pinochet in 1990, the army chain of command
ends with General Pinochet, not an elected official. Furthermore,
certain seats are reserved in the Senate for appointed officials from
the military. Pinochet must resign in 1998, and shortly thereafter the
reserved Senate seats will fall open to election. There are
constitutional reforms currently in progress further diminishing the
role and influence of the military, and thus the political transition
is still underway. A successful outcome requires that the military
acquiesce as it is stripped of its political powers.
MEXICO. The Mexican economy recovered fairly well in 1996 from the
currency crisis of December 1994 thanks in large part to growth in
exports, peso stabilization, and massive financial assistance from the
United States. Growth rebounded from its negative position of -6.2% in
1995 to reach 5.1% in 1996. The peso devaluation of 1994, prompted by
mounting foreign debt, was effective in reducing the current account
deficit from $30 billion to just over $1 billion, and it also pushed
Mexico into a positive trade balance. The current account deficit
increased in 1996 to $3.7 billion, but the trade surplus was
maintained. Inflation jumped from 7% to over 50% in the year after the
crisis, but was controlled in 1996, registering a drop to 28%.
Inflation is the chief concern of the central bank, which takes active
measures such as the setting of wage ceilings and manipulation of
interest rates to control it. Domestic consumption is sluggish and has
yet to return to pre-1994 levels, also contributing to the containment
inflation.
The Mexican economy is very strong in manufacturing and natural
resources, specifically oil. Manufacturing alone counts for 22% of the
Mexican GDP and 21% of all urban employment. The economy is also very
closely tied to the US, which is responsible for 60% of all foreign
investment and with whom it conducts over 75% of all trade. Trade
pacts such as the North American Free Trade Agreement further
integrate the economies, giving the US strong incentives to provide
assistance in times of crisis. NAFTA also enabled the recent recovery,
given the ease with which it allows increases in exports and
investment. The Mexican stock market listed 193 companies with total
capitalization of $106 billion in 1996, a 17% rise over 1995.
Internally, the various people of the Mexican states have recently
experienced a great deal of dissatisfaction with their relationship to
the federal government. Most notably, in Chiapas there have been armed
uprisings by indigenous groups demanding further autonomy. While the
rebellions have not strongly shaken financial markets, they serve as a
reminder of the diversity of Mexico, of the vast socio-economic gaps
between various peoples, and of the potential for such groups to
demand the attention of both their government and the world.
Politically, the landscape changed fundamentally in July 1997. The
defeat of candidates from the Institutional Revolutionary Party (PRI)
in legislative elections signaled the end of decades of one party
rule. Citizens now have the confidence that their votes count and that
the PRI is no longer invincible. Winning every presidential election
since its founding in 1929, the PRI was the country's monolithic
political machine, maintaining power through rigged elections and
ruling in an environment rife with intrigue and corruption. Internal
pressures including armed rebellion from domestic interest groups,
extensive crises and scandals caused by intra-party rivalries and
corruption, and deteriorating relationships with foreign countries
over financial mismanagement and mutual social problems all
contributed to the establishment of fully free and unfettered
elections. The response from the Mexican people was clear. Though
they took the most votes (39%) for the 500-member Lower House of
congress, the PRI has lost their majority, and the President is now
forced to accommodate the interests of the opposition parties. Market
reaction to the new Mexican political world was positive. The IPC
index, consisting of 35 of the most representative stocks on the
Mexican Stock Exchange, rose 3.25% the day after the election. Further
financial implications of the new landscape are as yet uncertain.
Relevant considerations are the effect of the new configurations on
government consensus and policy making, the demands of newly empowered
groups on economic and other resources, the balance of power between
the executive and the legislature, and the ability of the government
to maintain law and order.
EMERGING MARKETS: LATIN AMERICA
MARKET CAPITALIZATION IN U.S. DOLLARS
DECEMBER 1996
$ BILLIONS:
ARGENTINA 44.7
BRAZIL 429.3
CHILE 65.6
MEXICO 107.0
PERU 13.8
VENEZUELA 10.0
Source: The Economist, The LGT Guide to World Equity Markets, 1997
For national stock market index performance, please see the section on
Performance beginning on page __.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the fund by FMR pursuant to authority contained in the
management contract. If FMR grants investment management authority to
the sub-advisers (see the section entitled "Management Contract"), the
sub-advisers are authorized to place orders for the purchase and sale
of portfolio securities, and will do so in accordance with the
policies described below. FMR 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. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR 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; and the reasonableness of any
commissions. 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.
The fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other accounts
over which FMR or its 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; effect
securities transactions, and perform functions incidental thereto
(such as clearance and settlement). The selection of such
broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the fund may be useful to FMR in rendering investment
management services to the fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to the fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive 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 the fund to pay such higher commissions,
FMR 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 overall responsibilities to the fund
and its other clients. In reaching this determination, FMR 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 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 fund or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services (FBS), indirect subsidiaries of FMR Corp., if the commissions
are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. From
September 1992 through December 1994, FBS operated under the name
Fidelity Brokerage Services Limited (FBSL). As of January 1995, FBSL
was converted to an unlimited liability company and assumed the name
FBS.
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 periodically review FMR'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.
The fund's annualized turnover rate for its first fiscal period is not
expected to exceed 400%. 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.
From time to time the Trustees will review whether the recapture for
the benefit of the fund of some portion of the brokerage commissions
or similar fees paid by the fund on portfolio transactions is legally
permissible and advisable. The 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
the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the
same as those of other funds managed by FMR, investment decisions for
the fund are made independently from those of other funds managed by
FMR or accounts managed by FMR 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 the fund is
concerned. In other cases, however, the ability of the fund to
participate in volume transactions will produce better executions and
prices for the fund. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to the fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
Fidelity Service Company, Inc. (FSC) normally determines the fund'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 the fund's NAV.
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 fund 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 the 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
The fund may quote performance in various ways. All performance
information supplied by the fund in advertising is historical and is
not intended to indicate future returns. The fund's share price,
yield, and total return fluctuate in response to market conditions and
other factors, and the value of fund shares when redeemed may be more
or less than their original cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing 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 entitled to
receive distributions during the period, dividing this figure by the
fund'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 the 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. Capital 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 the fund'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, the fund'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 the fund'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 fund's yield.
Yield information may be useful in reviewing the fund's performance
and in providing a basis for comparison with other investment
alternatives. However, the fund'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
the fund's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates the fund's yield
will tend to be somewhat lower. Also, when interest rates are falling,
the inflow of net new money to the 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
fund'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 the fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the fund's
NAV over a stated period. Average annual total returns are calculated
by determining the growth or decline in value of a hypothetical
historical investment in the fund 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. Average annual total
returns covering periods of less than one year are calculated by
determining the fund's total return for the period, extending that
return for a full year (assuming that return remains constant over the
year), and quoting the result as an annual return. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the fund'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 fund.
In addition to average annual total returns, the fund 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 the fund's net asset values,
adjusted net asset values, and benchmark indices may be used to
exhibit performance. An adjusted NAV includes any distributions paid
by the fund and reflects all elements of its return. Unless otherwise
indicated, the fund's adjusted NAVs are not adjusted for sales
charges, if any.
The fund may compare its total return to the record of the Standard &
Poor's 500 Index (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 S&P 500 and DJIA comparisons would show how
the fund'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. Because the fund 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 fund, 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 the fund. The S&P 500 and DJIA returns are based on
the prices of unmanaged groups of stocks and, unlike the fund's
returns, do not include the effect of brokerage commissions or other
costs of investing.
INTERNATIONAL INDICES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International
Indices database, the total market capitalization of Latin American
countries according to the International Finance Corporation Emerging
Markets database, and the performance of national stock markets as
measured in U.S. dollars by the Morgan Stanley Capital International
stock market indices for the twelve months ended October 31, 199_. Of
course, these results are not indicative of future stock market
performance or the funds' performance. Market conditions during the
periods measured fluctuated widely. Brokerage commissions and other
fees are not factored into the values of the indices.
MARKET CAPITALIZATION. Companies outside the U.S. now make up nearly
two-thirds of the world's stock market capitalization. According to
Morgan Stanley Capital International, the size of the markets as
measured in U.S. dollars grew from $____ billion in 19__ to $____
billion in 199_.
The following table measures the total market capitalization of
certain countries according to the Morgan Stanley Capital
International Indices database. The value of the markets are measured
in billions of U.S. dollars as of October, 199_.
TOTAL MARKET CAPITALIZATION
AUSTRALIA $ JAPAN $
AUSTRIA NETHERLANDS
BELGIUM NORWAY
CANADA SINGAPORE/MALAYSIA
DENMARK SPAIN
FRANCE SWEDEN
GERMANY SWITZERLAND
HONG KONG UNITED KINGDOM
ITALY UNITED STATES
The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in
billions of U.S. dollars as of October 30, 199_.
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
Argentina $
Brazil
Chile
Colombia
Mexico
Venezuela
Total Latin America $______
NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents
the performance of national stock markets as measured in U.S. dollars
by the Morgan Stanley Capital International stock market indices for
the twelve months ended October 31, 199_. The second table shows the
same performance as measured in local currency. Each table measures
total return based on the period's change in price, dividends paid on
stocks in the index, and the effect of reinvesting dividends net of
any applicable foreign taxes. These are unmanaged indices composed of
a sampling of selected companies representing an approximation of the
market structure of the designated country.
STOCK MARKET PERFORMANCE (CUMULATIVE TOTAL RETURNS)
MEASURED IN U.S. DOLLARS
Australia % Japan %
Austria Netherlands
Belgium Norway
Canada Singapore/Malaysia
Denmark Spain
France Sweden
Germany Switzerland
Hong Kong United Kingdom
Italy United States
STOCK MARKET PERFORMANCE (CUMULATIVE TOTAL RETURNS)
MEASURED IN LOCAL CURRENCY
Australia % Japan %
Austria Netherlands
Belgium Norway
Canada Singapore/Malaysia
Denmark Spain
France Sweden
Germany Switzerland
Hong Kong United Kingdom
Italy United States
The following table shows the average annualized stock market returns
measured in U.S. dollars as of October 31, 199_.
STOCK MARKET PERFORMANCE
Five Years Ended Ten Years Ended
October 31, 199_ October 31, 199_
Germany
Hong Kong
Japan
Spain
United Kingdom
United States
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
funds based on yield. In addition to the mutual fund rankings, the
fund's performance may be compared to stock, bond, and money market
mutual fund performance indices prepared by Lipper or other
organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of
investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability
of principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, the fund's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, the fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising.
The fund's performance may also be compared to that of a benchmark
index representing the universe of securities in which the fund may
invest. The total return of a benchmark index reflects reinvestment of
all dividends and capital gains paid by securities included in the
index. Unlike the fund's returns, however, the index returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
The fund may compare its performance to that of the Merrill Lynch High
Yield Master Index, a market capitalization weighted index of all
domestic and yankee high-yield bonds with an outstanding par value of
at least $50 million and maturities of at least one year. Issues
included in the index have a credit rating lower than BBB-/Baa3 but
are not in default (DDD1 or lower). Split-rated issues (i.e., rated
investment-grade by one rating agency and high-yield by another) are
included in the index based on the issue's corresponding composite
rating. Structured-note issues, deferred interest bonds, and
pay-in-kind bonds are excluded.
The fund may compare its performance to that of the Fidelity Strategic
Income Composite Benchmark which is a hypothetical representation of
the performance of the fund's general investment categories according
to their respective weighting in the fund's neutral mix. The Fidelity
Strategic Income Composite Benchmark represents Strategic Income's
four general investment categories according to their respective
weighting in the fund's neutral mix (40% high yield, 30% U.S.
Government and investment-grade, 15% emerging markets and 15% foreign
developed markets). The following indices are used to calculate the
Fidelity Strategic Income Composite Benchmark: high yield - the
Merrill Lynch High Yield Master Index (40%), a market capitalization
weighted index of all domestic and yankee high-yield bonds with an
outstanding par value of at least $50 million and maturities of at
least one year; U.S. Government and investment-grade - the Salomon
Brothers Mortgage Index (15%), a market capitalization weighted index
of 15- and 30-year fixed-rate securities backed by mortgage pools of
the Government National Mortgage Association (GNMA), Fannie Mae and
Federal Home Loan Mortgage Corporation (FHLMC), and Fannie Mae and
FHLMC balloon mortgages with fixed-rate coupons; U.S. Government and
investment-grade - the Salomon Brothers Non-U.S. Dollar World
Government Bond Index (15%), is a market-capitalization weighted index
that tracks the performance of 16 world Government bond markets,
excluding the United States. Issues included in the Index have
fixed-rate coupons and maturities of at least one year; emerging
markets - the J.P. Morgan Emerging Markets Bond Index Plus (15%), a
markets capitalization weighted total return index of U.S. dollar-and
other external currency-denominated Brady bonds, loans, Eurobonds, and
local market debt instruments traded in emerging markets; foreign
developed markets - the Salomon Brothers Treasury 1-10 Year Index
(15%), a market capitalization weighted index of U.S. Treasury and
U.S. government agency securities with fixed-rate coupons and weighted
average lives between one and 10 years.
The fund may be compared in advertising to Certificates of Deposit
(CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, the fund may offer greater liquidity or higher
potential returns than CDs, the fund does not guarantee your principal
or your return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
The fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. The fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare the fund's historical share price fluctuations or
total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. All
measures of volatility and correlation are calculated using averages
of historical data. In advertising, the fund may also discuss or
illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the
fund's percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
The fund may be available for purchase through retirement plans or
other programs offering deferral of, or exemption from, income taxes,
which may produce superior after-tax returns over time. For example, a
$1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of [most recent practicable date], FMR advised over $__ billion in
tax-free fund assets, $__ billion in money market fund assets, $___
billion in equity fund assets, $__ billion in international fund
assets, and $___ billion in Spartan fund assets. The fund may
reference the growth and variety of money market mutual funds and the
adviser's innovation and participation in the industry. The equity
funds under management figure represents the largest amount of equity
fund assets under management by a mutual fund investment adviser in
the United States, making FMR America's leading equity (stock) fund
manager. FMR, its subsidiaries, and affiliates maintain a worldwide
information and communications network for the purpose of researching
and managing investments abroad.
In addition to performance rankings, the fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. The fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its net asset value per share (NAV)
is calculated each day the New York Stock Exchange (NYSE) is open for
trading. The NYSE has designated the following holiday closings for
1998: New Year's Day, Martin Luther King's Birthday, President's Day,
Good Friday, Memorial Day, Independence Day(observed), Labor Day,
Thanksgiving Day, and Christmas Day. Although FMR expects the same
holiday schedule to be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, the fund will not process
wire purchases and redemptions on days when the Federal Reserve Wire
System is closed.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
Securities and Exchange Commission (SEC). To the extent that portfolio
securities are traded in other markets on days when the NYSE is
closed, the fund's NAV may be affected on days when investors do not
have access to the fund to purchase or redeem shares. In addition,
trading in some of the fund's portfolio securities may not occur on
days when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing the fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the
1940 Act), the fund is required to give shareholders at least 60 days'
notice prior to terminating or modifying its exchange privilege. Under
the Rule, the 60-day notification requirement may be waived if (i) the
only effect of a modification would be to reduce or eliminate an
administrative fee, redemption fee, or deferred sales charge
ordinarily payable at the time of an exchange, or (ii) the fund
suspends the redemption of the shares to be exchanged as permitted
under the 1940 Act or the rules and regulations thereunder, or the
fund to be acquired suspends the sale of its shares because it is
unable to invest amounts effectively in accordance with its investment
objective and policies.
In the Prospectus, the fund has notified shareholders that it reserves
the right at any time, without prior notice, to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would
be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and
the U.S. Postal Service cannot deliver your checks, or if your checks
remain uncashed for six months, Fidelity may reinvest your
distributions at the then-current NAV. All subsequent distributions
will then be reinvested until you provide Fidelity with alternate
instructions.
DIVIDENDS. Because the fund's income is primarily derived from
interest, dividends from the fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do
not qualify for the dividends-received deduction. A portion of the
fund's dividends derived from certain U.S. Government obligations may
be exempt from state and local taxation. Gains (losses) attributable
to foreign currency fluctuations are generally taxable as ordinary
income, and therefore will increase (decrease) dividend distributions.
As a consequence, FMR may adjust the fund's income distributions to
reflect the effect of currency fluctuations. However, if foreign
currency losses exceed the fund's net investment income during a
taxable year, all or a portion of the distributions made in the same
taxable year would be recharacterized as a return of capital to
shareholders, thereby reducing each shareholder's cost basis in his or
her fund. The fund will send each shareholder a notice in January
describing the tax status of dividend and capital gain distributions
for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund
on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains, regardless of the length
of time shareholders have held their shares. If a shareholder receives
a capital gain distribution on shares of the fund, and such shares are
held six months or less and are sold at a loss, the portion of the
loss equal to the amount of the capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by the fund are taxable to shareholders as dividends, not
as capital gains.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Foreign governments
may also impose taxes on other payments or gains with respect to
foreign securities. If, at the close of its fiscal year, more than 50%
of the fund's total assets are invested in securities of foreign
issuers, the fund may elect to pass through foreign taxes paid and
thereby allow shareholders to take a credit or deduction on their
individual tax returns.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company
and avoid being subject to federal income or excise taxes at the fund
level, the fund intends to distribute substantially all of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies.
If the fund purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the
Internal Revenue Code, it may be subject to U.S. federal income tax on
a portion of any excess distribution or gain from the disposition of
such shares. Interest charges may also be imposed on the fund with
respect to deferred taxes arising from such distributions or gains.
Generally, the fund will elect to mark-to-market any PFIC shares.
Unrealized gains will be recognized as income for tax purposes and
must be distributed to shareholders as dividends.
The fund is treated as a separate entity from the other funds of
Fidelity School Street Trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting the fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal income taxes, shareholders may be
subject to state and local taxes on fund distributions, and shares may
be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether the fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the Investment Company Act of 1940 (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, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments,
P.O. Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who
are "interested persons" by virtue of their affiliation with either
the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (67), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity Management & Research
(Far East) Inc.
J. GARY BURKHEAD (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Fund, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive
Vice President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (64), Trustee (1993) is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993), Imation Corp. (imaging and information storage, 1997), and
Infomart (marketing services, 1991), a Trammell Crow Co. In addition,
he serves as the Campaign Vice Chairman of the Tri-State United Way
(1993) and is a member of the University of Alabama President's
Cabinet.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1997),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
BART A. GRENIER, (38), is Vice President of certain High-Income Bond
Funds (1997). Mr. Grenier rejoined Fidelity in August 1997 from DDJ
Capital Management, LLC, where he had served as Managing Director
since April 1997. Mr. Grenier originally joined Fidelity in 1991 as a
senior analyst. Mr. Grenier served as a Director of High-Income Group
Research and as Director of U.S. Equity Research from 1994 to March
1996. He later became Group Leader of the Income-Growth and Asset
Allocation-Income Groups in 1996 and Assistant Equity Division Head in
1997.
[If applicable, portfolio manager information will be filed by
subsequent amendment and inserted here.]
ERIC D. ROITER (49), Secretary, is Vice President (1998) and General
Counsel of FMR (1998). Mr. Roiter was an Adjunct Member, Faculty of
Law, at Columbia University Law School (1996-1997). Prior to joining
Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton (1981-1997)
and served as an Assistant General Counsel of the U.S. Securities and
Exchange Commission (1979-1981).
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (51), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of the fund for his
or her services for the fiscal year ended December 31, 1997.
COMPENSATION TABLE
Trustees Aggregate Total
and Compensation Compensation
Members of the Advisory Board from from the
Strategic Income Fund Complex*
[B,]C A
[,+]
J. Gary Burkhead ** $ $
Ralph F. Cox $
Phyllis Burke Davis $
Robert M. Gates *** $
Edward C. Johnson 3d ** $
E. Bradley Jones $
Donald J. Kirk $
Peter S. Lynch ** $
William O. McCoy**** $
Gerald C. McDonough $
Marvin L. Mann $
Robert C. Pozen** $
Thomas R. Williams $
* Information is for the calendar year ended December 31, 1997 for ___
funds in the complex.
** Interested Trustees of the fund and Mr. Burkhead are compensated by
FMR.
***Mr. Gates was appointed to the Board of Trustees effective March 1,
1997.
****Mr. McCoy was appointed to the Board of Trustees effective January
1, 1997.
+ Estimated
[TREASURER'S OFFICE WILL ANCHOR THIS FOOTNOTE AS APPROPRIATE FOR YOUR
FUND(S): A Compensation figures include cash, a pro rata portion of
benefits accrued under the retirement program for the period ended
December 30, 1996 and required to be deferred, and may include amounts
deferred at the election of Trustees.]
[[IF YOUR SAI INCLUDES ONLY FUNDS THAT COMMENCED OPERATIONS ON OR
AFTER JANUARY 1, 1997:
[TREASURER'S OFFICE WILL ANCHOR THIS FOOTNOTE AS APPROPRIATE FOR YOUR
FUND(S):B Compensation figures include cash.]]
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, [FOR FUNDS
WHOSE TRUSTS ARE ABLE TO APPOINT OR HAVE ELECTED MR. GATES AS TRUSTEE:
Robert M. Gates, $__,] E. Bradley Jones, $__, Donald J. Kirk, $__,
[FOR FUNDS WHOSE TRUSTS ARE ABLE TO APPOINT OR HAVE ELECTED MR. MCCOY
AS TRUSTEE: William O. McCoy, $__,] Gerald C. McDonough, $__, Edward
H. Malone, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and related
crediting of estimated benefits to the Trustees' Plan accounts did not
result in a material cost to the funds.
As of the public offering of shares of the fund, approximately 100% of
the fund's total outstanding shares was held by [FMR] [[and] [an] FMR
affiliate[s]]. FMR Corp. is the ultimate parent company of [FMR]
[[and] [this/these] FMR affiliate[s]]. By virtue of his ownership
interest in FMR Corp., as described in the "FMR" section on page ___,
Mr. Edward C. Johnson 3d, President and Trustee of the fund, may be
deemed to be a beneficial owner of these shares.
MANAGEMENT CONTRACT
FMR is the fund's manager pursuant to a management contract dated ___,
which was approved by FMR, as the then sole shareholder, on ___.
MANAGEMENT SERVICES. The fund employs FMR to furnish investment
advisory and other services. Under the terms of its management
contract with the fund, FMR acts as investment adviser and, subject to
the supervision of the Board of Trustees, directs the investments of
the fund in accordance with its investment objective, policies, and
limitations. FMR also provides the fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of the fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of the
fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of the fund. These services include
providing facilities for maintaining the fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with the fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, pricing and bookkeeping agent, and
securities lending agent, the fund pays all of its expenses that are
not assumed by those parties. The fund pays for the typesetting,
printing, and mailing of its proxy materials to shareholders, legal
expenses, and the fees of the custodian, auditor and non-interested
Trustees. The fund's management contract further provides that the
fund will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders; however, under the terms of the fund's transfer agent
agreement, the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by the fund
include interest, taxes, brokerage commissions, the fund's
proportionate share of insurance premiums and Investment Company
Institute dues, and the costs of registering shares under federal
securities laws and making necessary filings under state securities
laws. The fund is also liable for such non-recurring expenses as may
arise, including costs of any litigation to which the fund may be a
party, and any obligation it may have to indemnify its officers and
Trustees with respect to litigation.
MANAGEMENT FEE. For the services of FMR under the management contract,
the fund pays FMR a monthly management fee which has two components: a
group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual Fee
Assets Rate Assets Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1690
24 - 30 .1800 200 .1652
30 - 36 .1750 225 .1618
36 - 42 .1700 250 .1587
42 - 48 .1650 275 .1560
48 - 66 .1600 300 .1536
66 - 84 .1550 325 .1514
84 - 120 .1500 350 .1494
120 - 156 .1450 375 .1476
156 - 192 .1400 400 .1459
192 - 228 .1350 425 .1443
228 - 264 .1300 450 .1427
264 - 300 .1275 475 .1413
300 - 336 .1250 500 .1399
336 - 372 .1225 525 .1385
372 - 408 .1200 550 .1372
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over 516 .1100
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $___ billion of group net assets - the approximate level for
December 1997 - was ___%, which is the weighted average of the
respective fee rates for each level of group net assets up to $__
billion.
The fund's individual fund fee rate is 0.45%. Based on the average
group net assets of the funds advised by FMR for December 1997, the
fund's annual management fee rate would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management
Fee Rate
Strategic Income 0.___% + 0.45% = 0.___%
</TABLE>
One-twelfth of this annual management fee rate is applied to the
fund's net assets averaged for the most recent month, giving a dollar
amount, which is the fee for that month.
FMR may, from time to time, voluntarily reimburse all or a portion of
the fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to
be repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase the fund's total returns
and yield, and repayment of the reimbursement by the fund will lower
its total returns and yield.
[Effective [Date], FMR voluntarily agreed, subject to revision or
termination, to reimburse the fund if and to the extent that its
aggregate operating expenses, including management fees, were in
excess of an annual rate of __% of its average net assets.]
SUB-ADVISERS. On behalf of Strategic Income, FMR has entered into
sub-advisory agreements with FMR U.K., FMR Far East, FIJ, and FIIA.
FIIA, in turn, has entered into a sub-advisory agreement with
FIIA(U.K.)L. Pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from
the sub-advisers.
On behalf of the fund, FMR may also grant the sub-advisers investment
management authority as well as the authority to buy and sell
securities if FMR believes it would be beneficial to the fund.
Currently, FMR U.K., FMR Far East, FIJ, FIIA, and FIIA(U.K.)L each
focus on issuers in countries other than the United States such as
those in Europe, Asia, and the Pacific Basin.
FMR U.K. and FMR Far East, which were organized in 1986, are wholly
owned subsidiaries of FMR. FIJ and FIIA are wholly owned subsidiaries
of Fidelity International Limited (FIL), a Bermuda company formed in
1968 which primarily provides investment advisory services to non-U.S.
investment companies and institutional investors investing in
securities throughout the world. Edward C. Johnson 3d, Johnson family
members, and various trusts for the benefit of the Johnson family own,
directly or indirectly, more than 25% of the voting common stock of
FIL. FIJ was organized in Japan in 1986. FIIA was organized in Bermuda
in 1983. FIIA(U.K.)L was organized in the United Kingdom in 1984, and
is a direct subsidiary of Fidelity Investments Management Limited and
an indirect subsidiary of FIL.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, FIJ, and FIIA. FIIA, in turn, pays the fees of FIIA(U.K.)L.
For providing non-discretionary investment advice and research
services the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K. and FMR Far East fees equal to
110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services.
(small solid bullet) FMR pays FIIA and FIJ fees equal to 30% of FMR's
monthly management fee with respect to the average net assets held by
the fund for which the sub-adviser has provided FMR with investment
advice and research services.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing investment
advice and research services.
For providing discretionary investment management and executing
portfolio transactions, the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K., FMR Far East, FIJ, and FIIA a
fee equal to 50% of its monthly management fee with respect to the
fund's average net assets managed by the sub-adviser on a
discretionary basis.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing
discretionary investment management services.
DISTRIBUTION AND SERVICE PLAN
The Trustees have approved a Distribution and Service Plan on behalf
of the fund (the Plan) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plan, as approved by the Trustees, allows the fund and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the fund of distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. The Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, the Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has authorized such
payments for shares.
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that the Plan does not authorize payments by the fund other than
those made to FMR under its management contract with the fund. To the
extent that the Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares may result. Furthermore, certain shareholder support
services may be provided more effectively under the Plan by local
entities with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the fund might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
The fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plan. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
The fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreement, FSC performs
transfer agency, dividend disbursing, and shareholder services for the
fund.
For providing transfer agency services, FSC receives an annual account
fee and an asset-based fee each based on account size and fund type
for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in each Fidelity Freedom Fund,
a fund of funds managed by an FMR affiliate, according to the
percentage of the Freedom Fund's assets that is invested in the fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
The fund has also entered into a service agent agreement with FSC.
Under the terms of the agreement, FSC calculates the NAV and dividends
for the fund, maintains the fund's portfolio and general accounting
records, and administers the fund's securities lending program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on the fund's average daily net assets throughout the month.
The annual fee rates for pricing and bookkeeping services are 0.0400%
of the first $500 million of average net assets and 0.0200% of average
net assets in excess of $500 million. The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 and a maximum of $800,000 per year.
For administering the fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
The fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreement calls for FDC to use all
reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered at
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Strategic Income Fund is a fund of
Fidelity School Street Trust, an open-end management investment
company organized as a Massachusetts business trust on September 10,
1976 under the name Fidelity Municipal Bond Fund. The trust's name was
changed to Fidelity Mid-Term Municipals on February 28, 1977. The
trust's name was later changed to Fidelity Limited Term Municipals on
April 15, 1977 and to Fidelity School Street Trust on June 17, 1993.
Currently, there are four funds in the trust: Fidelity Strategic
Income Fund, Spartan Intermediate Municipal Income Fund, Fidelity
International Bond Fund, and Fidelity New Markets Income Fund.
In the event that FMR ceases to be the investment adviser to the trust
or a fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of
each fund and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund are segregated on the books of account,
and are to be charged with the liabilities with respect to such fund
and with a share of the general expenses of the trust. Expenses with
respect to the trust are to be allocated in proportion to the asset
value of the respective funds, except where allocations of direct
expense can otherwise be fairly made. The officers of the trust,
subject to the general supervision of the Board of Trustees, have the
power to determine which expenses are allocable to a given fund, or
which are general or allocable to all of the funds. In the event of
the dissolution or liquidation of the trust, shareholders of each fund
are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the
trust. The Declaration of Trust provides that the trust shall not have
any claim against shareholders except for the payment of the purchase
price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the trust or the Trustees
include a provision limiting the obligations created thereby to the
trust and its assets. The Declaration of Trust provides for
indemnification out of each fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of
Trust also provides that each fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar
value of net asset value you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the trust or a
fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of the entire trust, the purpose
of voting on removal of one or more Trustees. The trust or any fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
trust or the fund, as determined by the current value of each
shareholder's investment in the fund or trust. If not so terminated,
the trust and its funds will continue indefinitely. Each fund may
invest all of its assets in another investment company.
_________________________, is custodian of the assets of Fidelity
Strategic Income Fund. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of any subcustodian
banks and clearing agencies. The custodian takes no part in
determining the investment policies of a fund or in deciding which
securities are purchased or sold by a fund. However, a fund may invest
in obligations of the custodian and may purchase securities from or
sell securities to the custodian. [TAILOR IF BONY AND/OR CHASE IS
PRIMARY CUSTODIAN: [The Bank of New York] [and] [The Chase Manhattan
Bank], [each] headquartered in New York, also may serve as [a] special
purpose custodian[s] of certain assets in connection with repurchase
agreement transactions.]
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. [IF BROWN BROTHERS HARRIMAN IS CUSTODIAN FOR ANY FUND
IN DOCUMENT: The Boston branch of [the fund/[Name(s) of Fund(s)]]'s
custodian leases its office space from an affiliate of FMR at a lease
payment which, when entered into, was consistent with prevailing
market rates.] Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
AUDITOR. ____________________ serves as the fund's independent
accountant. The auditor examines financial statements for the fund and
provides other audit, tax, and related services.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) 1. Not applicable
(b) Exhibits:
1. (a) Amended and Restated Declaration of Trust, dated January 19,
1995, is incorporated herein by reference to Exhibit 1(a) of
Post-Effective Amendment No. 45.
2. (a) Bylaws of the Trust are incorporated herein by reference to
Exhibit 2(a) of Fidelity Union Street Trust's (File No. 2-50318)
Post-Effective Amendment No. 87.
3. Not applicable.
4. Not applicable.
5. (a) Management Contract between Fidelity Limited Term Municipals
(currently known as Spartan Intermediate Municipal Income Fund) and
Fidelity Management & Research Company dated January 1, 1995 is
incorporated herein by reference to Exhibit 5(a) of Post-Effective
Amendment No. 45.
(b) Management Contract, dated October 1, 1997, between Fidelity
Global Bond Fund (currently known as Fidelity International Bond Fund)
and Fidelity Management & Research Company, is incorporated herein by
reference to Exhibit 5(vvv) of Fidelity Investment Trust's
Post-Effective Amendment No. 73 (File No. 2-90649).
(c) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf
of Fidelity Global Bond Fund (currently known as Fidelity
International Bond Fund) dated April 1, 1992 is incorporated herein by
reference to Exhibit 5(ppp) of Fidelity Investment Trust's
Post-Effective Amendment No. 58 (File No. 2-90649).
(d) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. on behalf of
Fidelity Global Bond Fund (currently known as International Bond Fund)
dated April 1, 1992 is incorporated herein by reference to Exhibit
5(qqq) of Fidelity Investment Trust's Post-Effective Amendment No. 58
(File No. 2-90649).
(e) Sub-Advisory Agreement between Fidelity International Investment
Advisors and Fidelity International Investment Advisors (U.K.) Limited
on behalf of Fidelity Global Bond Fund (currently known as Fidelity
International Bond Fund) dated April 1, 1992 is incorporated herein by
reference to Exhibit 5(rrr) of Fidelity Investment Trust's
Post-Effective Amendment No. 58 (File No. 2-90649).
(f) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity International Investment Advisors on behalf of
Fidelity Global Bond Fund (currently known as Fidelity International
Bond Fund) dated April 1, 1992 is incorporated herein by reference to
Exhibit 5(sss) of Fidelity Investment Trust's Post-Effective Amendment
No. 58 (File No. 2-90649)
(g) Form of Sub-Advisory Agreement, dated February 26, 1998 between
Fidelity Investments Japan Limited, Fidelity Management & Research
Company, and Fidelity School Street Trust on behalf of Fidelity
International Bond Fund (formerly known as Fidelity Global Bond Fund)
is incorporated herein by reference to Exhibit 5(g) of Post-Effective
Amendment No. 54.
(h) Management Contract, dated October 1, 1997, between Fidelity New
Markets Income Fund and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(bbbb) of Fidelity
Investment Trust's Post-Effective Amendment No. 73 (File No. 2-90649).
(i) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf
of Fidelity New Markets Income Fund dated April 15, 1993 is
incorporated herein by reference to Exhibit 5(bb) of Fidelity
Investment Trust's Post-Effective Amendment No. 48 (File No. 2-90649).
(j) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc. dated April 15,
1993 on behalf of Fidelity New Markets Income Fund is incorporated
herein by reference to Exhibit 5(pp) of Fidelity Investment Trust's
Post-Effective Amendment No. 48 (File No. 2-90649)
(k) Sub-Advisory Agreement between Fidelity International Investment
Advisors and Fidelity International Investment Advisors (U.K.) Limited
on behalf of Fidelity New Markets Income Fund is incorporated herein
by reference to Exhibit 5(fff) of Fidelity Investment Trust's
Post-Effective Amendment No. 50 (File No. 2-90649).
(l) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity International Investment Advisors on behalf of
Fidelity New Markets Income Fund is incorporated herein by reference
to Exhibit 5(ttt) of Post-Effective Amendment No. 50.
(m) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Investments Japan Limited on behalf of Fidelity
New Markets Income Fund dated April 15, 1993 is incorporated herein by
reference to Exhibit 5(dddd) of Fidelity Investment Trust's
Post-Effective Amendment No. 58 (File No. 2-90649).
(n) Form of Management Contract between Fidelity School Street
Trust, on behalf of Fidelity Strategic Income Fund, and Fidelity
Management & Research Company, is filed herein as Exhibit 5(n).
(o) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company, Fidelity Management & Research (U.K.) Inc. and
Fidelity School Street Trust on behalf of Fidelity Strategic Income
Fund is filed herein as Exhibit 5(o).
(p) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company, Fidelity Management & Research (Far East) Inc. and
Fidelity School Street Trust on behalf of Fidelity Strategic Income
Fund is filed herein as Exhibit 5(p).
(q) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company, Fidelity Investments Japan Limited and Fidelity
School Street Trust on behalf of Fidelity Strategic Income Fund is
filed herein as Exhibit 5(q).
(r) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company, Fidelity International Investment Advisors and
Fidelity School Street Trust on behalf of Fidelity Strategic Income
Fund is filed herein as Exhibit 5(r).
(s) Form of Sub-Advisory Agreement between Fidelity International
Investment Advisors and Fidelity International Investment Advisors
(U.K.) Limited with respect to Fidelity School Street Trust: Fidelity
Strategic Income Fund is filed herein as Exhibit 5(s).
6. (a) General Distribution Agreement between Fidelity Limited Term
Municipals (currently known as Spartan Intermediate Municipal Income
Fund) and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(a) of Post-Effective
Amendment No. 45.
(b) Amendment, dated January 1, 1988, to the General Distribution
Agreement between Fidelity Limited Term Municipals (currently known as
Spartan Intermediate Municipal Income Fund) and Fidelity Distributors
Corporation, is incorporated herein by reference to Exhibit 6(b) of
Post-Effective Amendment No. 45.
(c) Amendments to the General Distribution Agreement between the
Fidelity Limited Term Municipals (currently known as Spartan
Intermediate Municipal Income Fund) and Fidelity Distributors
Corporation, dated March 14, 1996 and July 15, 1996, are incorporated
herein by reference to Exhibit 6(a) of Fidelity Court Street Trust's
Post-Effective Amendment No. 61 (File No. 2-58774).
(d) General Distribution Agreement between Fidelity Global Bond Fund
(currently known as Fidelity International Bond Fund) and Fidelity
Distributors Corporation dated April 1, 1987 is incorporated herein by
reference to Exhibit 6(b) of Fidelity Investment Trust's
Post-Effective Amendment No. 58 (File No. 2-90649).
(e) Amendment, dated January 1, 1988, to General Distribution
Agreement between Fidelity Global Bond Fund (currently known as
Fidelity International Bond Fund) and Fidelity Distributors
Corporation dated April 1, 1987 is incorporated herein by reference to
Exhibit 6(c) of Fidelity Investment Trust's Post-Effective Amendment
No. 58 (File No. 2-90649).
(h) General Distribution Agreement between Fidelity New Markets
Income Fund and Fidelity Distributors Corporation is incorporated
herein by reference to Exhibit 6(o) of Fidelity Investment Trust's
Post-Effective Amendment No. 50 (File No. 2-90649).
(i) Amendments to the General Distribution Agreement between
Fidelity Global Bond Fund (currently known as Fidelity International
Bond Fund) and Fidelity New Markets Income Fund and Fidelity
Distributors Corporation, dated March 14, 1996 and July 15, 1996, are
incorporated herein by reference to Exhibit 6(a) of Fidelity Court
Street Trust's Post-Effective Amendment No. 61 (File No. 2-58774).
(j) Form of General Distribution Agreement between Fidelity School
Street Trust with respect to Fidelity Strategic Income Fund and
Fidelity Distributors Corporation is filed herein as Exhibit 6(j).
7. (a) Retirement Plan for Non-Interested Person Trustees,
Directors or General Partners, as amended on November 16, 1995, is
incorporated herein by reference to Exhibit 7(a) of Fidelity Select
Portfolio's (File No. 2-69972) Post-Effective Amendment No. 54.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's (File No.
33-43529) Post-Effective Amendment No. 19.
8. (a) Custodian Agreement, Appendix B, and Appendix C, dated
December 1, 1994, between UMB Bank, n.a. and Fidelity School Street
Trust on behalf of Fidelity Limited Term Municipals (currently known
as Spartan Intermediate Municipal Income Fund) is incorporated herein
by reference to Exhibit 8 of Fidelity California Municipal Trust's
Post-Effective Amendment No. 28 (File No. 2-83367).
(b) Appendix A, dated September 18, 1997, to the Custodian
Agreement, dated December 1, 1994, between UMB Bank, n.a. and Fidelity
School Street Trust on behalf of Fidelity Limited Term Municipals
(currently known as Spartan Intermediate Municipal Income Fund) is
incorporated herein by reference to Exhibit 8(b) of Fidelity Municipal
Trust II's Post-Effective Amendment No. 17 (File No. 33-43986).
(c) Custodian Agreement and Appendix C, dated August 1, 1994 between
The Chase Manhattan Bank, N.A. and Fidelity Investment Trust on behalf
of Fidelity Global Bond Fund (currently known as Fidelity
International Bond Fund) and Fidelity New Markets Income Fund is
incorporated herein by reference to Exhibit 8(a) of Fidelity
Investment Trust's Post-Effective Amendment No. 59 (File No. 2-90649).
(d) Appendix A, dated October 17, 1996 to the Custodian Agreement,
dated August 1, 1994, between The Chase Manhattan Bank, N.A. and
Fidelity Investment Trust on behalf of Fidelity Global Bond Fund
(currently known as Fidelity International Bond fund) and Fidelity New
Markets Income Fund is incorporated herein by reference to Exhibit
8(c) of Fidelity Charles Street Trust's Post-Effective Amendment No.
57 (File No. 2-73133).
(e) Appendix B, dated September 18, 1997 to the Custodian Agreement,
dated August 1, 1994, between The Chase Manhattan Bank, N.A. and
Fidelity Investment Trust on behalf of Fidelity Global Fund (currently
known as Fidelity International Bond Fund) and Fidelity New Markets
Income Fund is incorporated herein by reference to Exhibit 8(b) of
Fidelity Charles Street Trust's Post-Effective Amendment No. 62 (File
No. 2-73133).
(f) Fidelity Group Repo Custodian Agreement among The Bank of New
York, J. P. Morgan Securities, Inc., and Fidelity Investment Trust on
behalf of Fidelity Global Bond Fund (currently known as Fidelity
International Fund) and Fidelity New Markets Income Fund, dated
February 12, 1996, is incorporated herein by reference to Exhibit 8(d)
of Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(g) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between The Bank of New York and Fidelity Investment Trust on behalf
of Fidelity Global Bond Fund (currently known as Fidelity
International Bond Fund) and Fidelity New Markets Income Fund, dated
February 12, 1996, is incorporated herein by reference to Exhibit 8(e)
of Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(h) Fidelity Group Repo Custodian Agreement among Chemical Bank,
Greenwich Capital Markets, Inc., and Fidelity Investment Trust on
behalf of Fidelity Global Bond Fund (currently known as Fidelity
International Bond Fund) and Fidelity New Markets Income Fund, dated
November 13, 1995, is incorporated herein by reference to Exhibit 8(f)
of Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(i) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between Chemical Bank and Fidelity Investment Trust on behalf of
Fidelity Global Bond Fund (currently known as Fidelity International
Bond Fund) and Fidelity New Markets Income Fund, dated November 13,
1995, is incorporated herein by reference to Exhibit 8(g) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(j) Joint Trading Account Custody Agreement between The Bank of New
York and Fidelity Investment Trust on behalf of Fidelity Global Bond
Fund (currently known as Fidelity International Bond Fund) and
Fidelity New Markets Income Fund, dated May 11, 1995, is incorporated
herein by reference to Exhibit 8(h) of Fidelity Institutional Cash
Portfolios' (File No. 2-74808) Post-Effective Amendment No. 31.
(k) First Amendment to Joint Trading Account Custody Agreement
between The Bank of New York and Fidelity Investment Trust on behalf
of Fidelity Global Bond Fund (currently known as Fidelity
International Bond Fund) and Fidelity New Markets Income Fund, dated
July 14, 1995, is incorporated herein by reference to Exhibit 8(i) of
Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
9. Not applicable.
10. Not applicable.
11. Not applicable
12. Not applicable.
13. Not applicable.
14. (a) Fidelity Individual Retirement Account Custodial Agreement
and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(a) of Fidelity Union Street Trust's
(File No. 2-50318) Post-Effective Amendment No. 87.
(b) Fidelity Institutional Individual Retirement Account
Custodial Agreement and Disclosure Statement, as currently in effect,
is incorporated herein by reference to Exhibit 14(d) of Fidelity Union
Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(c) National Financial Services Corporation Individual
Retirement Account Custodial Agreement and Disclosure Statement, as
currently in effect, is incorporated herein by reference to Exhibit
14(h) of Fidelity Union Street Trust's (File No. 2-50318)
Post-Effective Amendment No. 87.
(d) Fidelity Portfolio Advisory Services Individual
Retirement Account Custodial Agreement and Disclosure Statement, as
currently in effect, is incorporated herein by reference to Exhibit
14(i) of Fidelity Union Street Trust's (File No. 2-50318)
Post-Effective Amendment No. 87.
(e) Fidelity 403(b)(7) Custodial Account Agreement, as
currently in effect, is incorporated herein by reference to Exhibit
14(e) of Fidelity Union Street Trust's (File No. 2-50318)
Post-Effective Amendment No. 87.
(f) National Financial Services Corporation Defined
Contribution Retirement Plan and Trust Agreement, as currently in
effect, is incorporated herein by reference to Exhibit 14(k) of
Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(g) The CORPORATEplan for Retirement Profit
Sharing/401K Plan, as currently in effect, is incorporated herein by
reference to Exhibit 14(l) of Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
(h) The CORPORATEplan for Retirement Money Purchase
Pension Plan, as currently in effect, is incorporated herein by
reference to Exhibit 14(m) of Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
(i) Fidelity Investments Section 403(b)(7) Individual
Custodial Account Agreement and Disclosure Statement, as currently in
effect, is incorporated herein by reference to Exhibit 14(f) of
Fidelity Commonwealth Trust's (File No. 2-52322) Post Effective
Amendment No. 57.
(j) Plymouth Investments Defined Contribution Retirement
Plan and Trust Agreement, as currently in effect, is incorporated
herein by reference to Exhibit 14(o) of Fidelity Commonwealth Trust's
(File No. 2-52322) Post Effective Amendment No. 57.
(k) The Fidelity Prototype Defined Benefit Pension Plan and
Trust Basic Plan Document and Adoption Agreement, as currently in
effect, is incorporated herein by reference to Exhibit 14(d) of
Fidelity Securities Fund's (File No. 2-93601) Post Effective Amendment
No. 33.
(l) The Institutional Prototype Plan Basic Plan Document,
Standardized Adoption Agreement, and Non-Standardized Adoption
Agreement, as currently in effect, is incorporated herein by reference
to Exhibit 14(o) of Fidelity Securities Fund's (File No. 2-93601) Post
Effective Amendment No. 33.
(m) The CORPORATEplan for Retirement 100SM Profit
Sharing/401(k) Basic Plan Document, Standardized Adoption Agreement,
and Non-Standardized Adoption Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(f) of Fidelity
Securities Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(n) The Fidelity Investments 401(a) Prototype Plan for
Tax-Exempt Employers Basic Plan Document, Standardized Profit Sharing
Plan Adoption Agreement, Non-Standardized Discretionary Contribution
Plan No. 002 Adoption Agreement, and Non-Standardized Discretionary
Contribution Plan No. 003 Adoption Agreement, as currently in effect,
is incorporated herein by reference to Exhibit 14(g) of Fidelity
Securities Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(o) Fidelity Investments 403(b) Sample Plan Basic Plan
Document and Adoption Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(p) of Fidelity
Securities Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(p) Fidelity Defined Contribution Retirement Plan and Trust
Agreement, as currently in effect, is incorporated herein by reference
to Exhibit 14(c) of Fidelity Securities Fund's (File No. 2-93601) Post
Effective Amendment No. 33.
(q) Fidelity SIMPLE-IRAPlan Adoption Agreement, Company
Profile Form, and Plan Document, as currently in effect, as
incorporated herein by reference to Exhibit 14(q) of Fidelity Aberdeen
Street Trust's (File No. 33-43529) of Post-Effective Amendment No. 19.
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Limited Term Municipal Income Fund (currently known as
Spartan Intermediate Municipal Income Fund) is incorporated herein by
reference to Exhibit 15(a) of Post-Effective Amendment No. 54.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Global Bond Fund (currently known as Fidelity International
Bond Fund) is incorporated herein by reference to Exhibit 15(a) of
Fidelity Investment Trust's Post-Effective Amendment No. 73 (File No.
2-90649).
(c) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity New Markets Income Fund is incorporated herein by reference
to Exhibit 15(b) of Fidelity Investment Trust's Post-Effective
Amendment No. 73 (File No. 2-90649).
(d) Form of Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Strategic Income Fund is filed herein as Exhibit 15(d).
16. (a) A schedule for the computation of 30 day yield calculations
on behalf of Fidelity Limited Term Municipal Income Fund (currently
known as Spartan Intermediate Municipal Income Fund) is incorporated
herein by reference to Exhibit 16(a) of Post-Effective Amendment No.
48.
(b) A schedule for computation of total return is incorporated
herein by reference to Exhibit 16(a) of Post-Effective Amendment No.
45.
(c) A schedule for the computation of adjusted net asset value is
incorporated herein by reference to Exhibit 16(b) of Post-Effective
Amendment No. 45.
(d) A revised schedule for the computation of after-tax total return
is incorporated herein by reference to Exhibit 16(c) of Post-Effective
Amendment No. 43.
(e) A schedule for the computation of moving averages is
incorporated herein by reference to Exhibit 16(c) of Post-Effective
Amendment No. 45.
17. Not applicable.
18. Not applicable.
Item 25. Persons Controlled by or under Common Control with Registrant
The Board of Trustees of Registrant is the same as the boards of
other funds advised by FMR, each of which has Fidelity Management &
Research Company as its investment adviser. In addition, the officers
of these funds are substantially identical. Nonetheless, the
Registrant takes the position that it is not under common control with
these other funds since the power residing in the respective boards
and officers arises as the result of an official position with the
respective funds.
Item 26. Number of Holders of Securities
November 30, 1997
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity Limited Term Municipals 20,355 (currently known as
Spartan Intermediate Municipal Income Fund)
Fidelity Global Bond Fund 15,270 (currently known as
Fidelity International Bond Fund)
Fidelity New Markets Income 35,030
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Registrant shall indemnify any present or past Trustee or
officer to the fullest extent permitted by law against liability and
all expenses reasonably incurred by him in connection with any claim,
action, suit, or proceeding in which he is involved by virtue of his
service as a Trustee, an officer, or both. Additionally, amounts paid
or incurred in settlement of such matters are covered by this
indemnification. Indemnification will not be provided in certain
circumstances, however. These include instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of
the duties involved in the conduct of the particular office involved.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense arising by reason of
any person acquiring any shares, based upon the ground that the
registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Registrant included a materially misleading statement or
omission. However, the Registrant does not agree to indemnify the
Distributor or hold it harmless to the extent that the statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Registrant by or on behalf of the
Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of
willful misfeasance, bad faith, gross negligence, and reckless
disregard of the obligations and duties under the Distribution
Agreement.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("Service") is appointed sub-transfer agent, the Transfer Agent agrees
to indemnify Service for Service's losses, claims, damages,
liabilities and expenses (including reasonable counsel fees and
expenses) (losses) to the extent that the Transfer Agent is entitled
to and receives indemnification from the Portfolio for the same
events. Under the Transfer Agency Agreement, the Registrant agrees to
indemnify and hold the Transfer Agent harmless against any losses,
claims, damages, liabilities, or expenses (including reasonable
counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder which names the
Transfer Agent and/or the Registrant as a party and is not based on
and does not result from the Transfer Agent's willful misfeasance, bad
faith or negligence or reckless disregard of duties, and arises out of
or in connection with the Transfer Agent's performance under the
Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by the Transfer Agent's willful misfeasance, bad faith
or negligence or reckless disregard of duties) which results from the
negligence of the Registrant, or from the Transfer Agent's acting upon
any instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a
result of the Transfer Agent's acting in reliance upon advice
reasonably believed by the Transfer Agent to have been given by
counsel for the Registrant, or as a result of the Transfer Agent's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("Service") is appointed transfer agent, the Registrant agrees to
indemnify and hold Service harmless against any losses, claims,
damages, liabilities or expenses (including reasonable counsel fees
and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names the
Service and/or the Registrant as a party and is not based on and does
not result from Service's willful misfeasance, bad faith or negligence
or reckless disregard of duties, and arises out of or in connection
with Service's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by Service's willful misfeasance, bad faith or
negligence or reckless disregard of duties) which results from the
negligence of the Registrant, or from Service's acting upon any
instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a
result of Service's acting in reliance upon advice reasonably believed
by Service to have been given by counsel for the Registrant, or as a
result of Service's acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held,
during the past two fiscal years, the following positions of a
substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of the
Board and Director of FMR, FMR Corp., Fidelity
Investments Money Management, Inc., FMR (U.K.)
Inc., and FMR (Far East) Inc.; Chairman of the Board
and Representative Director of Fidelity Investments
Japan Limited; President and Trustee of funds advised
by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of Fidelity Investments Money Management,
Inc., FMR (U.K.) Inc., and FMR (Far East) Inc.;
General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
John Carlson Vice President of FMR.
Dwight D. Churchill Senior Vice President of FMR.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR
William Danoff Senior Vice President of FMR and of a fund advised by
FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of
Fidelity Investments Money Management, Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Senior Vice President of FMR.
Bart A. Grenier Vice President of High-Income Funds advised by
FMR;Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of Equity
funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
Bruce Herring Vice President of FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Senior Vice President of FMR and of a fund advised by
FMR; Associate Director and Senior Vice President of
Equity funds advised by FMR.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR and Vice President of
Fidelity Real Estate High Income and Fidelity Real
Estate High Income II funds advised by FMR;
Associate Director and Senior Vice President of Equity
funds advised by FMR; Vice President of High Income
funds advised by FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Mark G. Lohr Vice President of FMR; Treasurer of FMR, FMR (U.K.)
Inc., FMR (Far East) Inc., and Fidelity Investments
Money Management, Inc.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Charles Mangum Vice President of FMR.
Kevin McCarey Vice President of FMR.
Diane McLaughlin Vice President of FMR.
Neal P. Miller Vice President of FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Scott Orr Vice President of FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Kennedy P. Richardson Vice President of FMR.
Eric Roiter Vice President and General Counsel of FMR and
Secretary of funds advised by FMR.
Mark Rzepczynski Vice President of FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Fergus Shiel Vice President of FMR.
Carol Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by FMR;
Senior Vice President and Director of Operations and
Compliance of FMR (U.K.) Inc.
Thomas Sprague Vice President of FMR.
Robert E. Stansky Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Scott Stewart Vice President of FMR.
Cynthia Strauss Vice President of FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
25 Lovat Lane, London, EC3R 8LL, England
FMR U.K. provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR U.K.,
FMR, FMR Corp., Fidelity Investments Money
Management, Inc., and FMR (Far East) Inc.; Chairman
of the Executive Committee of FMR; President and
Chief Executive Officer of FMR Corp.; Chairman of the
Board and Representative Director of Fidelity
Investments Japan Limited; President and Trustee of
funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of Fidelity Investments Money Management,
Inc., FMR (U.K.) Inc., and FMR (Far East) Inc.;
General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
Mark G. Lohr Treasurer of FMR U.K., FMR, FMR (Far East) Inc., and
Fidelity Investments Money Management, Inc.; Vice
President of FMR.
Stephen G. Manning Assistant Treasurer of FMR U.K., FMR, FMR (Far
East) Inc., and Fidelity Investments Money
Management, Inc.; Treasurer of FMR Corp.
Francis V. Knox Compliance Officer of FMR U.K.; Vice President of
FMR.
Jay Freedman Clerk of FMR U.K., FMR (Far East) Inc., and FMR
Corp.; Assistant Clerk of FMR; Secretary of Fidelity
Investments Money Management, Inc.
(3) FIDELITY MANAGEMENT & RESEARCH COMPANY (FAR EAST) INC. (FMR FAR
EAST)
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan
FMR Far East provides investment advisory services to Fidelity
Management & Research Company and Fidelity Management Trust Company.
The directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR Far
East, FMR, FMR Corp., Fidelity Investments
Money Management, Inc., and FMR (U.K.) Inc.;
Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR
Corp.; Chairman of the Board and Representative
Director of Fidelity Investments Japan Limited;
President and Trustee of funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of Fidelity Investments
Money Management, Inc., FMR (U.K.) Inc., and
FMR (Far East) Inc.; General Counsel,
Managing Director, and Senior Vice President of
FMR Corp.
Bill Wilder Vice President of FMR Far East; President and
Representative Director of Fidelity Investments
Japan Limited.
Mark G. Lohr Treasurer of FMR Far East, FMR, FMR (U.K.)
Inc., and Fidelity Investments Money
Management, Inc.; Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR Far East, FMR,
FMR (U.K.) Inc., and Fidelity Investments
Money Management, Inc.; Vice President and
Treasurer of FMR Corp.
Jay Freedman Clerk of FMR Far East, FMR (U.K.) Inc., and
FMR Corp.; Assistant Clerk of FMR; Secretary
of Fidelity Investments Money Management, Inc.
Robert Auld Vice President of FMR Far East.
(4) FIDELITY INTERNATIONAL INVESTMENT ADVISORS
Pembroke Hall, 42 Crow Lane, Pembroke HM19, Bermuda
The directors and officers of Fidelity International Investment
Advisors (FIIA) have held, during the past two fiscal years, the
following positions of a substantial nature.
Anthony J. Bolton Director of FIIA, FIIA (U.K.) L, FIML (U.K.),
FISL (U.K.), and Fidelity Investments
International.
Charles T. Collis Director of FIIA and numerous other companies
in the Fidelity International Group of Companies
(FIL); Partner in Conyers, Dill & Pearman,
Hamilton, Bermuda.
William R. Ebsworth Director of FIIA and numerous Fidelity
Investment Far East Companies; Vice President
of FMR (Far East) Inc.
Brett P. Goodin Director, Vice President, Secretary and Chief
Legal Officer of many FIL companies.
Simon Haslam Director of FIIA, FISL (U.K.), and FII; Chief
Financial Officer of FIL; Company Secretary of
Fidelity Investments Group of Companies
(U.K.).
K.C. Lee Director of FIIA and Fidelity Investments
Management (Hong Kong) Limited.
Peter Phillips Director of FIIA and Fidelity Investments
Management (Hong Kong) Limited.
Terrence V. Richards Assistant Secretary of FIIA.
David J. Saul President and Director of FIIA; Director of
Fidelity International Limited; and numerous
companies and funds in the FIL group.
(5) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
26 Lovat Lane, London, EC3R 8LL, England
The directors and officers of Fidelity International Investment
Advisors (U.K.) Limited (FIIA (U.K.) L) have held, during the past two
fiscal years, the following positions of a substantial nature.
Anthony J. Bolton Director of FIIA (U.K.) L, FIIA, FIML (U.K.),
FISL (U.K.), and Fidelity Investments
International.
Pamela Edwards Director of FIIA (U.K.) L, FISL (U.K.), and FII;
Director of Legal Services for Europe.
Simon Haslam Director of FIIA, FISL (U.K.), and FII; Chief
Financial Officer of FIL (U.K.); Company
Secretary of Fidelity Investments Group of
Companies (U.K.).
Sally Walden Director of FIIA (U.K.) L and FISL (U.K.).
Sally Williams Assistant Company Secretary of Fidelity
International Group of Companies (U.K.).
Emma Barratt Assistant Company Secretary of Fidelity
International Group of Companies (U.K.).
(6) FIDELITY INVESTMENTS JAPAN LIMITED
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan
The directors and officers of Fidelity Investments Japan Limited
(FIJ) have held, during the past two fiscal years, the following
positions of a substantial nature.
Edward C. Johnson 3d Chairman of the Board and Representative
Director of FIJ; Chairman of the Board and
Director of FMR (Far East) Inc., FMR, FMR
Corp., FMR (U.K.) Inc., and Fidelity
Investments Money Management, Inc.;
Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR
Corp.; President and Trustee of funds advised
by FMR.
Yasuo Kuramoto Vice Chairman, Representative Director of FIJ.
Billy Wilder President and Representative Director of FIJ;
Vice President of FMR (Far East) Inc.
Simon Fraser Director and Chief Investment Officer of FIJ.
Simon Haslam Director of FIJ; Chief Financial Officer of
Fidelity International Limited.
Nobuhide Kamiyama Director and General Manager of Planning and
Marketing of FIJ.
Noboru Kawai Director and General Manager of
Administration of FIJ.
Lawrence Repeta Director and General Manager of Information
Systems and Trading of FIJ.
Hiroshi Yamashita Managing Director and Portfolio Manager of
FIJ.
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for
most funds advised by FMR.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
James Curvey Director None
Martha B. Willis President None
Eric D. Roiter Vice President Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Company, Inc. 82 Devonshire Street, Boston, MA 02109, or the
fund's respective custodian, The Chase Manhattan Bank, 4 Chase
MetroTech Center, Brooklyn, N.Y. and UMB Bank, n.a., 1010 Grand
Avenue, Kansas City, MO.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant, on behalf of Spartan Intermediate Municipal Income
Fund, Fidelity International Bond Fund and Fidelity New Markets Income
Fund provided the information required by Item 5A is contained in the
annual report, undertakes to furnish to each person to whom a
prospectus has been delivered, upon their request and without charge,
a copy of the Registrant's latest annual report to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 55 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston, and Commonwealth of Massachusetts, on the 20th day
of January 1998.
Fidelity School Street Trust
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d (dagger) President and Trustee January 20, 1998
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer January 20, 1998
Richard A. Silver
/s/Robert C. Pozen Trustee January 20, 1998
Robert C. Pozen
/s/Ralph F. Cox * Trustee January 20, 1998
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee January 20, 1998
Phyllis Burke Davis
/s/Robert M. Gates ** Trustee January 20, 1998
Robert M. Gates
/s/E. Bradley Jones * Trustee January 20, 1998
E. Bradley Jones
/s/Donald J. Kirk * Trustee January 20, 1998
Donald J. Kirk
/s/Peter S. Lynch * Trustee January 20, 1998
Peter S. Lynch
/s/Marvin L. Mann * Trustee January 20, 1998
Marvin L. Mann
/s/William O. McCoy * Trustee January 20, 1998
William O. McCoy
/s/Gerald C. McDonough * Trustee January 20, 1998
Gerald C. McDonough
/s/Thomas R. Williams * Trustee January 20, 1998
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash Portfolios
Fidelity Advisor Series III Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series VII Fidelity Money Market Trust
Fidelity Advisor Series VIII Fidelity Mt. Vernon Street Trust
Fidelity Beacon Street Trust Fidelity Municipal Trust
Fidelity Boston Street Trust Fidelity Municipal Trust II
Fidelity California Municipal Trust Fidelity New York Municipal Trust
Fidelity California Municipal Trust II Fidelity New York Municipal Trust II
Fidelity Capital Trust Fidelity Phillips Street Trust
Fidelity Charles Street Trust Fidelity Puritan Trust
Fidelity Commonwealth Trust Fidelity Revere Street Trust
Fidelity Concord Street Trust Fidelity School Street Trust
Fidelity Congress Street Fund Fidelity Securities Fund
Fidelity Contrafund Fidelity Select Portfolios
Fidelity Corporate Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Court Street Trust Fidelity Summer Street Trust
Fidelity Court Street Trust II Fidelity Trend Fund
Fidelity Covington Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Daily Money Fund Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Union Street Trust II
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Newbury Street Trust
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund Variable Insurance Products Fund III
Fidelity Hastings Street Trust
</TABLE>
in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
Exhibit 5(n)
FORM OF
MANAGEMENT CONTRACT
between
FIDELITY SCHOOL STREET TRUST:
FIDELITY STRATEGIC INCOME FUND
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this __ day of _____, 1998, by and between Fidelity
School Street Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Fund"), on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio"), and Fidelity Management &
Research Company, a Massachusetts corporation (hereinafter called the
"Adviser") as set forth in its entirety below.
1. (a) Investment Advisory Services. The Adviser undertakes to act
as investment adviser of the Portfolio and shall, subject to the
supervision of the Fund's Board of Trustees, direct the investments of
the Portfolio in accordance with the investment objective, policies
and limitations as provided in the Portfolio's Prospectus or other
governing instruments, as amended from time to time, the Investment
Company Act of 1940 and rules thereunder, as amended from time to time
(the "1940 Act"), and such other limitations as the Portfolio may
impose by notice in writing to the Adviser. The Adviser shall also
furnish for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the
investments of the Portfolio; and shall pay the salaries and fees of
all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all
personnel of the Fund or the Adviser performing services relating to
research, statistical and investment activities. The Adviser is
authorized, in its discretion and without prior consultation with the
Portfolio, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the
Portfolio. The investment policies and all other actions of the
Portfolio are and shall at all times be subject to the control and
direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for
the performance by its affiliates of) the management and
administrative services necessary for the operation of the Fund. The
Adviser shall, subject to the supervision of the Board of Trustees,
perform various services for the Portfolio, including but not limited
to: (i) providing the Portfolio with office space, equipment and
facilities (which may be its own) for maintaining its organization;
(ii) on behalf of the Portfolio, supervising relations with, and
monitoring the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be
necessary or desirable; (iii) preparing all general shareholder
communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered,
maintaining the registration and qualification of the Portfolio's
shares under federal and state law; and (vii) investigating the
development of and developing and implementing, if appropriate,
management and shareholder services designed to enhance the value or
convenience of the Portfolio as an investment vehicle.
The Adviser shall also furnish such reports, evaluations, information
or analyses to the Fund as the Fund's Board of Trustees may request
from time to time or as the Adviser may deem to be desirable. The
Adviser shall make recommendations to the Fund's Board of Trustees
with respect to Fund policies, and shall carry out such policies as
are adopted by the Trustees. The Adviser shall, subject to review by
the Board of Trustees, furnish such other services as the Adviser
shall from time to time determine to be necessary or useful to perform
its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser. The Adviser shall use its best efforts
to seek to execute portfolio transactions at prices which are
advantageous to the Portfolio and at commission rates which are
reasonable in relation to the benefits received. In selecting brokers
or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) to the Portfolio and/or the other
accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to
the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Adviser and its affiliates have with respect to accounts over which
they exercise investment discretion. The Trustees of the Fund shall
periodically review the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of
the Fund are or may be or become interested in the Adviser as
directors, officers or otherwise and that directors, officers and
stockholders of the Adviser are or may be or become similarly
interested in the Fund, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
3. The Adviser will be compensated on the following basis for the
services and facilities to be furnished hereunder. The Adviser shall
receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month, composed of a Group Fee
and an Individual Fund Fee.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the
monthly average of the net assets of the registered investment
companies having Advisory and Service or Management Contracts with the
Adviser (computed in the manner set forth in the fund's Declaration of
Trust or other organizational document) determined as of the close of
business on each business day throughout the month. The Group Fee
Rate shall be determined on a cumulative basis pursuant to the
following schedule:
Average Net Assets Annualized Fee Rate (for each level)
0 - $ 3 billion .3700%
3 - 6 .3400
6 - 9 .3100
9 - 12 .2800
12 - 15 .2500
15 - 18 .2200
18 - 21 .2000
21 - 24 .1900
24 - 30 .1800
30 - 36 .1750
36 - 42 .1700
42 - 48 .1650
48 - 66 .1600
66 - 84 .1550
84 - 120 .1500
120 - 156 .1450
156 - 192 .1400
192 - 228 .1350
228 - 264 .1300
264 - 300 .1275
300 - 336 .1250
336 - 372 .1225
372 - 408 .1200
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over - 516 .1100
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
0.45%.
The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute
the Annual Management Fee Rate. One-twelfth of the Annual Management
Fee Rate shall be applied to the average of the net assets of the
Portfolio (computed in the manner set forth in the Fund's Declaration
of Trust or other organizational document) determined as of the close
of business on each business day throughout the month.
(c) In case of termination of this Contract during any month, the fee
for that month shall be reduced proportionately on the basis of the
number of business days during which it is in effect, and the fee
computed upon the average net assets for the business days it is so in
effect for that month.
4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase or sale of securities and
other investment instruments; (iii) fees and expenses of the Fund's
Trustees other than those who are "interested persons" of the Fund or
the Adviser; (iv) legal and audit expenses; (v) custodian, registrar
and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Fund and the Portfolio's
shares for distribution under state and federal securities laws; (vii)
expenses of printing and mailing reports and notices and proxy
material to shareholders of the Portfolio; (viii) all other expenses
incidental to holding meetings of the Portfolio's shareholders,
including proxy solicitations therefor; (ix) a pro rata share, based
on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management
Contracts with the Adviser, of 50% of insurance premiums for fidelity
and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements
thereto; (xii) expenses of printing and mailing Prospectuses and
Statements of Additional Information and supplements thereto sent to
existing shareholders; and (xiii) such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or
proceedings to which the Portfolio is a party and the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or other investment
instrument.
6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until June
30, 19__ and indefinitely thereafter, but only so long as the
continuance after such date shall be specifically approved at least
annually by vote of the Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Portfolio.
(b) This Contract may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 6, the terms of any continuance or modification of this
Contract must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to the Contract or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract, without payment
of any penalty, by action of its Trustees or Board of Directors, as
the case may be, or with respect to the Portfolio by vote of a
majority of the outstanding voting securities of the Portfolio. This
Contract shall terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust
or other organizational document and agrees that the obligations
assumed by the Fund pursuant to this Contract shall be limited in all
cases to the Portfolio and its assets, and the Adviser shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio or any other Portfolios of the Fund. In
addition, the Adviser shall not seek satisfaction of any such
obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Portfolio under the
Declaration of Trust or other organizational document are separate and
distinct from those of any and all other Portfolios.
8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, as now in effect or
as hereafter amended, and subject to such orders as may be granted by
the Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit 5(o)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY STRATEGIC INCOME
FUND
AGREEMENT made this ___ day of ____, 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Management & Research
(U.K.) Inc. (hereinafter called the "Sub-Advisor"); and Fidelity
School Street Trust, a MassachusettS business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 110% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers or reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1)
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 199_ and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit 5(p)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY STRATEGIC INCOME
FUND
AGREEMENT made this ___ day of ____, 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Management & Research
(Far East) Inc. (hereinafter called the "Sub-Advisor"); and Fidelity
School Street Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 105% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 199_ and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit 5(q)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INVESTMENTS JAPAN LIMITED
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY STRATEGIC INCOME FUND
AGREEMENT made this ___ day of ____, 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Investments Japan
Limited, a Japanese company with principal offices at Shiroyama JT
Mori Building, 19th Floor, 3-1 Toranomon 4-chome, Minato-ku, Tokyo
105, Japan (hereinafter called the "Sub-Advisor"); and Fidelity School
Street Trust, a Massachusetts business trust which may issue one or
more series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity Strategic Income Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor has been formed in part for the purpose of
researching and compiling information and recommendations with respect
to the economies of various countries, and securities of issuers
located in such countries, and providing investment advisory services
in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect
to the portion of the investments of the Portfolio under its
management, the Sub-Advisor is authorized to make investment decisions
on behalf of the Portfolio with regard to any stock, bond, other
security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as
the Sub-Advisor may select. The Sub-Advisor may also be authorized,
but only to the extent such duties are delegated in writing by the
Advisor, to provide additional investment management services to the
Portfolio, including but not limited to services such as managing
foreign currency investments, purchasing and selling or writing
futures and options contracts, borrowing money, or lending securities
on behalf of the Portfolio. All investment management and any other
activities of the Sub-Advisor shall at all times be subject to the
control and direction of the Advisor and the Trust's Board of
Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 199_ and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, all as of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit 5(r)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY STRATEGIC INCOME
FUND
AGREEMENT made this ___ day of _____, 1998 by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity International Investment
Advisors, a Bermuda company with principal offices at Pembroke Hall,
Pembroke, Bermuda (hereinafter called the "Sub-Advisor"); and Fidelity
School Street Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 199_ and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit 5(s)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
AND
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AGREEMENT made this ___ day of ____, 1998, by and between Fidelity
International Investment Advisors (U.K.) Limited, 27-28 Lovat Lane,
London, England (hereinafter called the "U.K. Sub-Advisor") and
Fidelity International Investment Advisors, a Bermuda company with
principal offices at Pembroke Hall, Pembroke, Bermuda (hereinafter
called the "Sub-Advisor").
WHEREAS Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Advisor"), has entered into a
Management Contract with Fidelity School Street Trust, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Trust"), on behalf of
Fidelity Strategic Income Fund (hereinafter called the "Portfolio"),
pursuant to which the Advisor is act as investment advisor to the
Portfolio, and
WHEREAS, the Sub-Advisor has entered into a Sub-Advisory Agreement
with the Advisor (the "Sub-Advisory Agreement") pursuant to which the
Sub-Advisor, directly or through certain of its subsidiaries or other
affiliated persons, shall provide investment advice or investment
management and order execution services to the Portfolio, and
WHEREAS the U.K. Sub-Advisor has personnel in Western Europe and has
been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located outside of North
America, principally in the U.K. and Europe.
NOW THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Sub-Advisor and the U.K.
Sub-Advisor agree as follows:
1. Duties: The Sub-Advisor may, in its discretion, appoint the U.K.
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio, in
connection with the Sub-Advisor's duties under the Sub-Advisory
Agreement. The services and the portion of the investments of the
Portfolio advised or managed by the U.K. Sub-Advisor shall be as
agreed upon from time to time by the Sub-Advisor and the U.K.
Sub-Advisor. The U.K. Sub-Advisor shall pay the salaries and fees of
all personnel of the U.K. Sub-Advisor performing services for the
Portfolio relating to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall provide investment advice to
the Sub-Advisor with respect to all or a portion of the investments of
the Portfolio, and in connection with such advice shall furnish the
Sub-Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such
information may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall manage all or a portion of the
investments of the Portfolio in accordance with the investment
objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to
time, the Investment Company Act of 1940 (the "1940 Act") and rules
thereunder, as amended from time to time, and such other limitations
as the Trust or Advisor may impose with respect to the Portfolio by
notice to the U.K. Sub-Advisor. With respect to the portion of the
investments of the Portfolio under its management, the U.K.
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the U.K. Sub-Advisor
may select. The U.K. Sub-Advisor may also be authorized, but only to
the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign
currency investments, purchasing and selling or writing futures and
options contracts, borrowing money or lending securities on behalf of
the Portfolio. All investment management and any other activities of
the U.K. Sub-Advisor shall at all times be subject to the control and
direction of the Sub-Advisor, the Advisor and the Trust's Board of
Trustees.
2. Information to be Provided to the Trust and the Advisor: The
U.K. Sub-Advisor shall furnish such reports, evaluations, information
or analyses to the Trust, the Advisor, and the Sub-Advisor as the
Trust's Board of Trustees, the Advisor or the Sub-Advisor may
reasonably request from time to time, or as the U.K. Sub-Advisor may
deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the U.K.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the U.K. Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor, Sub-Advisor or U.K. Sub-Advisor.
The U.K. Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the
Portfolio and at commission rates which are reasonable in relation to
the benefits received. In selecting brokers or dealers qualified to
execute a particular transaction, brokers or dealers may be selected
who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of l934) to
the Portfolio and/or to the other accounts over which the U.K.
Sub-Advisor, the Sub-Advisor or Advisor exercise investment
discretion. The U.K. Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in
excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the U.K. Sub-Advisor
determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed
in terms of either that particular transaction or the overall
responsibilities which the U.K. Sub-Advisor and the Sub-Advisor have
with respect to accounts over which they exercise investment
discretion. The Trustees of the Trust shall periodically review the
commissions paid by the Portfolio to determine if the commissions paid
over representative periods of time were reasonable in relation to the
benefits to the Portfolio.
4. Compensation: The Sub-Advisor shall compensate the U.K.
Sub-Advisor on the following basis for the services to be furnished
hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly U.K. Sub-Advisory Fee.
The U.K. Sub-Advisory Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly Investment Management
Fee. The Investment Management Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (b) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(c) PROVISION OF MULTIPLE SERVICES: If the U.K. Sub-Advisor shall
have provided both investment advisory services under subparagraph (a)
and investment management services under subparagraph (b) of paragraph
1 for the same portion of the investments of the Portfolio for the
same period, the fees paid to the U.K. Sub-Advisor with respect to
such investments shall be calculated exclusively under subparagraph
(b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the U.K.
Sub-Advisor hereunder, by the Sub-Advisor under the Sub-Advisory
Agreement or by the Advisor under the Management Contract with the
Portfolio.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor, the Sub-Advisor or the U.K. Sub-Advisor as directors,
officers or otherwise and that directors, officers and stockholders of
the Advisor, the Sub-Advisor or the U.K. Sub-Advisor are or may be or
become similarly interested in the Trust, and that the Advisor, the
Sub-Advisor or the U.K. Sub-Advisor may be or become interested in the
Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The Services of the
U.K. Sub-Advisor to the Sub-Advisor are not to be deemed to be
exclusive, the U.K. Sub-Advisor being free to render services to
others and engage in other activities, provided, however, that such
other services and activities do not, during the term of this
Agreement, interfere, in a material manner, with the U.K.
Sub-Advisor's ability to meet all of its obligations hereunder. The
U.K. Sub-Advisor shall for all purposes be an independent contractor
and not an agent or employee of the Advisor, the Sub-Advisor or the
Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the U.K. Sub-Advisor, the U.K. Sub-Advisor
shall not be subject to liability to the Sub-Advisor, the Advisor, the
Trust or to any shareholder of the Portfolio for any act or omission
in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale
of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 199_ and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the U.K. Sub-Advisor, the Sub-Advisor and the Portfolio subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor, the U.K. Sub-Advisor or the
Portfolio may, at any time on sixty (60) days' prior written notice to
the other parties, terminate this Agreement, without payment of any
penalty, by action of its Board of Trustees or Directors, or with
respect to the Portfolio by vote of a majority of its outstanding
voting securities. This Agreement shall terminate automatically in
the event of its assignment.
10. Limitation of Liability: The U.K. Sub-Advisor is hereby
expressly put on notice of the limitation of shareholder liability as
set forth in the Declaration of Trust or other organizational document
of the Trust and agrees that any obligations of the Trust or the
Portfolio arising in connection with this Agreement shall be limited
in all cases to the Portfolio and its assets, and the U.K. Sub-Advisor
shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Portfolio. Nor shall the U.K.
Sub-Advisor seek satisfaction of any such obligation from the Trustees
or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit 6(j)
FORM OF
GENERAL DISTRIBUTION AGREEMENT
between
FIDELITY SCHOOL STREET TRUST
and
FIDELITY DISTRIBUTORS CORPORATION
Agreement made this ___ day of , 1998, between Fidelity
School Street Trust, a Massachusetts business trust having its
principal place of business in Boston, Massachusetts and which may
issue one or more series of beneficial interest ("Issuer"), with
respect to shares of Fidelity Strategic Income Fund, a series of the
Issuer, and Fidelity Distributors Corporation, a Massachusetts
corporation having its principal place of business in Boston,
Massachusetts ("Distributors").
In consideration of the mutual promises and undertakings herein
contained, the parties agree as follows:
1. Sale of Shares - The Issuer grants to Distributors the right to
sell shares on behalf of the Issuer during the term of this Agreement
and subject to the registration requirements of the Securities Act of
1933, as amended ("1933 Act"), and of the laws governing the sale of
securities in the various states ("Blue Sky Laws") under the following
terms and conditions: Distributors (i) shall have the right to sell,
as agent on behalf of the Issuer, shares authorized for issue and
registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among the funds advised by
Fidelity Management & Research Company ("FMR") or any of its
affiliates.
2. Sale of Shares by the Issuer - The rights granted to Distributors
shall be nonexclusive in that the Issuer reserves the right to sell
its shares to investors on applications received and accepted by the
Issuer. Further, the Issuer reserves the right to issue shares in
connection with the merger or consolidation, or acquisition by the
Issuer through purchase or otherwise, with any other investment
company, trust, or personal holding company.
3. Shares Covered by this Agreement - This Agreement shall apply to
unissued shares of the Issuer, shares of the Issuer held in its
treasury in the event that in the discretion of the Issuer treasury
shares shall be sold, and shares of the Issuer repurchased for resale.
4. Public Offering Price - Except as otherwise noted in the Issuer's
current Prospectus and/or Statement of Additional Information, all
shares sold to investors by Distributors or the Issuer will be sold at
the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per share, as determined in
the manner described in the Issuer's current Prospectus and/or
Statement of Additional Information, plus a sales charge (if any)
described in the Issuer's current Prospectus and/or Statement of
Additional Information. The Issuer shall in all cases receive the net
asset value per share on all sales. If a sales charge is in effect,
Distributors shall have the right subject to such rules or regulations
of the Securities and Exchange Commission as may then be in effect
pursuant to Section 22 of the Investment Company Act of 1940 to pay a
portion of the sales charge to dealers who have sold shares of the
Issuer. If a fee in connection with shareholder redemptions is in
effect, the Issuer shall collect the fee on behalf of Distributors
and, unless otherwise agreed upon by the Issuer and Distributors,
Distributors shall be entitled to receive all of such fees.
5. Suspension of Sales - If and whenever the determination of net
asset value is suspended and until such suspension is terminated, no
further orders for shares shall be processed by Distributors except
such unconditional orders as may have been placed with Distributors
before it had knowledge of the suspension. In addition, the Issuer
reserves the right to suspend sales and Distributors' authority to
process orders for shares on behalf of the Issuer if, in the judgment
of the Issuer, it is in the best interests of the Issuer to do so.
Suspension will continue for such period as may be determined by the
Issuer.
6. Solicitation of Sales - In consideration of these rights granted to
Distributors, Distributors agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the Issuer. This shall not prevent Distributors from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. This does not obligate
Distributors to register as a broker or dealer under the Blue Sky Laws
of any jurisdiction in which it is not now registered or to maintain
its registration in any jurisdiction in which it is now registered.
If a sales charge is in effect, Distributors shall have the right to
enter into sales agreements with dealers of its choice for the sale of
shares of the Issuer to the public at the public offering price only
and fix in such agreements the portion of the sales charge which may
be retained by dealers, provided that the Issuer shall approve the
form of the dealer agreement and the dealer discounts set forth
therein and shall evidence such approval by filing said form of dealer
agreement and amendments thereto as an exhibit to its currently
effective Registration Statement under the 1933 Act.
7. Authorized Representations - Distributors is not authorized by the
Issuer to give any information or to make any representations other
than those contained in the appropriate registration statements or
Prospectuses and Statements of Additional Information filed with the
Securities and Exchange Commission under the 1933 Act (as these
registration statements, Prospectuses and Statements of Additional
Information may be amended from time to time), or contained in
shareholder reports or other material that may be prepared by or on
behalf of the Issuer for Distributors' use. This shall not be
construed to prevent Distributors from preparing and distributing
sales literature or other material as it may deem appropriate.
8. Portfolio Securities - Portfolio securities of the Issuer may be
bought or sold by or through Distributors, and Distributors may
participate directly or indirectly in brokerage commissions or
"spreads" for transactions in portfolio securities of the Issuer.
9. Registration of Shares - The Issuer agrees that it will take all
action necessary to register shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be
available for sale the number of shares Distributors may reasonably be
expected to sell. The Issuer shall make available to Distributors
such number of copies of its currently effective Prospectus and
Statement of Additional Information as Distributors may reasonably
request. The Issuer shall furnish to Distributors copies of all
information, financial statements and other papers which Distributors
may reasonably request for use in connection with the distribution of
shares of the Issuer.
10. Expenses - The Issuer shall pay all fees and expenses (a) in
connection with the preparation, setting in type and filing of any
registration statement, Prospectus and Statement of Additional
Information under the 1933 Act and amendments for the issue of its
shares, (b) in connection with the registration and qualification of
shares for sale in the various states in which the Board of Trustees
of the Issuer shall determine it advisable to qualify such shares for
sale (including registering the Issuer as a broker or dealer or any
officer of the Issuer as agent or salesman in any state), (c) of
preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Issuer in their capacity as such,
and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements
thereto sent to existing shareholders.
As provided in the Distribution and Service Plan adopted by the
Issuer, it is recognized by the Issuer that FMR may make payment to
Distributors with respect to any expenses incurred in the distribution
of shares of the Issuer, such payments payable from the past profits
or other resources of FMR including management fees paid to it by the
Issuer.
11. Indemnification - The Issuer agrees to indemnify and hold harmless
Distributors and each of its directors and officers and each person,
if any, who controls Distributors within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages, or expense and reasonable
counsel fees incurred in connection therewith) arising by reason of
any person acquiring any shares, based upon the ground that the
registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Issuer (as from time to time amended) included an untrue
statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading under the 1933 Act, or any other statute or the common law.
However, the Issuer does not agree to indemnify Distributors or hold
it harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Issuer by or on behalf of Distributors. In no case (i) is the
indemnity of the Issuer in favor of Distributors or any person
indemnified to be deemed to protect Distributors or any person against
any liability to the Issuer or its security holders to which
Distributors or such person would otherwise be subject by reason of
wilful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Issuer to
be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against Distributors or any person
indemnified unless Distributors or person, as the case may be, shall
have notified the Issuer in writing of the claim within a reasonable
time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon
Distributors or any such person (or after Distributors or such person
shall have received notice of service on any designated agent).
However, failure to notify the Issuer of any claim shall not relieve
the Issuer from any liability which it may have to Distributors or any
person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this paragraph. The Issuer
shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to
enforce any claims, but if the Issuer elects to assume the defense,
the defense shall be conducted by counsel chosen by it and
satisfactory to Distributors or person or persons, defendant or
defendants in the suit. In the event the Issuer elects to assume the
defense of any suit and retain counsel, Distributors, officers or
directors or controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel
retained by them. If the Issuer does not elect to assume the defense
of any suit, it will reimburse Distributors, officers or directors or
controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them.
The Issuer agrees to notify Distributors promptly of the commencement
of any litigation or proceedings against it or any of its officers or
trustees in connection with the issuance or sale of any of the shares.
Distributors also covenants and agrees that it will indemnify and
hold harmless the Issuer and each of its Board members and officers
and each person, if any, who controls the Issuer within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the 1933 Act or
any other statute or common law, alleging any wrongful act of
Distributors or any of its employees or alleging that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Issuer (as from time to time amended) included an untrue statement of
a material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon, and in
conformity with information furnished to the Issuer by or on behalf of
Distributors. In no case (i) is the indemnity of Distributors in
favor of the Issuer or any person indemnified to be deemed to protect
the Issuer or any person against any liability to which the Issuer or
such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties under this Agreement, or (ii) is Distributors to be liable
under its indemnity agreement contained in this paragraph with respect
to any claim made against the Issuer or any person indemnified unless
the Issuer or person, as the case may be, shall have notified
Distributors in writing of the claim within a reasonable time after
the summons or other first written notification giving information of
the nature of the claim shall have been served upon the Issuer or any
such person (or after the Issuer or such person shall have received
notice of service on any designated agent). However, failure to
notify Distributors of any claim shall not relieve Distributors from
any liability which it may have to the Issuer or any person against
whom the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to
Distributors, it shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit
brought to enforce the claim, but if Distributors elects to assume the
defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Issuer, to its officers and Board and to any
controlling person or persons, defendant or defendants in the suit.
In the event that Distributors elects to assume the defense of any
suit and retain counsel, the Issuer or controlling persons, defendant
or defendants in the suit, shall bear the fees and expense of any
additional counsel retained by them. If Distributors does not elect
to assume the defense of any suit, it will reimburse the Issuer,
officers and Board or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. Distributors agrees to notify the Issuer
promptly of the commencement of any litigation or proceedings against
it in connection with the issue and sale of any of the shares.
12. Effective Date - This agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force
until March 31, 199 and thereafter from year to year, provided
continuance is approved annually by the vote of a majority of the
Board members of the Issuer, and by the vote of those Board members of
the Issuer who are not "interested persons" of the Issuer and, if a
plan under Rule 12b-1 under the Investment Company Act of 1940 is in
effect, by the vote of those Board members of the Issuer who are not
"interested persons" of the Issuer and who are not parties to the
Distribution and Service Plan or this Agreement and have no financial
interest in the operation of the Distribution and Service Plan or in
any agreements related to the Distribution and Service Plan, cast in
person at a meeting called for the purpose of voting on the approval.
This Agreement shall automatically terminate in the event of its
assignment. As used in this paragraph, the terms "assignment" and
"interested persons" shall have the respective meanings specified in
the Investment Company Act of 1940 as now in effect or as hereafter
amended. In addition to termination by failure to approve continuance
or by assignment, this Agreement may at any time be terminated by
either party upon not less than sixty days' prior written notice to
the other party.
13. Notice - Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Issuer, at 82 Devonshire Street,
Boston, Massachusetts, and if to Distributors, at 82 Devonshire
Street, Boston, Massachusetts.
14. Limitation of Liability - Distributors is expressly put on notice
of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Issuer
and agrees that the obligations assumed by the Issuer under this
contract shall be limited in all cases to the Issuer and its assets.
Distributors shall not seek satisfaction of any such obligation from
the shareholders or any shareholder of the Issuer. Nor shall
Distributors seek satisfaction of any such obligation from the
Trustees or any individual Trustee of the Issuer. Distributors
understands that the rights and obligations of each series of shares
of the Issuer under the Issuer's Declaration of Trust or other
organizational document are separate and distinct from those of any
and all other series.
15. This agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
IN WITNESS WHEREOF, the Issuer has executed this instrument in its
name and behalf, and its seal affixed, by one of its officers duly
authorized, and Distributors has executed this instrument in its name
and behalf by one of its officers duly authorized, as of the day and
year first above written.
[SIGNATURE LINES OMITTED]
Exhibit 15(d)
FORM OF
DISTRIBUTION AND SERVICE PLAN
FIDELITY SCHOOL STREET TRUST: FIDELITY STRATEGIC INCOME FUND
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Strategic Income Fund (the "Portfolio"), a series of shares
of Fidelity School Street Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that the Adviser may use its
management fee revenues as well as past profits or its resources from
any other source, to make payment to the Distributor with respect to
any expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to
pay, a management fee to the Adviser. To the extent that any payments
made by the Portfolio to the Adviser, including payment of management
fees, should be deemed to be indirect financing of any activity
primarily intended to result in the sale of shares of the Portfolio
within the context of Rule 12b-1 under the Act, then such payments
shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the approval by a vote of a
majority of the Trustees of the Fund, including a majority of Trustees
who are not "interested persons" of the Fund (as defined in the Act)
and who have no direct or indirect financial interest in the operation
of this Plan or in any agreements related to this Plan (the
"Independent Trustees"), cast in person at a meeting called for the
purpose of voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until April 30, 199_ and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount
spent by the Portfolio for distribution, or any amendment of the
Management Contract to increase the amount to be paid by the Portfolio
thereunder shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Portfolio, and
(b) any material amendments of this Plan shall be effective only upon
approval in the manner provided in the first sentence in this
paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust or other organizational
document, any obligations assumed by the Portfolio pursuant to this
Plan and any agreements related to this Plan shall be limited in all
cases to the Portfolio and its assets, and shall not constitute
obligations of any other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
