SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No.2-67004)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No.30 [X]
and
REGISTRATION STATEMENT (No. 811-3010)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 30 [X]
Fidelity Advisor Series VII
(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
Arthur S. Loring, 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)(i)
(x) on (February 26, 1996) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on ( ) pursuant to paragraph (a)(ii) 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.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the Notice required by such Rule
on November 15, 1995.
FIDELITY ADVISOR CLASS A & CLASS B PROSPECTUS
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
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1 .............................. Cover Page
2 a .............................. **
b,c .............................. *
3 a .............................. **
b .............................. **
c .............................. Performance
d .............................. Cover Page
4 a i............................. Charter
ii........................... Investment Principles and Risks; Securities and
Investment Practices
b .............................. Securities and Investment Practices
c .............................. Who May Want to Invest; Investment Principles
and Risks; Securities and Investment Practices
5 a .............................. *
b i............................. Cover Page; FMR and Its Affiliates
ii........................... FMR and Its Affiliates; Charter; Breakdown of
Expenses
iii.......................... Expenses; Breakdown of Expenses
c .............................. FMR and Its Affiliates
d .............................. Charter; Breakdown of Expenses; Cover Page;
FMR and Its Affiliates
e .............................. FMR and its Affiliates; Breakdown of Expenses
f .............................. Expenses
g .............................. Expenses; FMR and Its Affiliates
5A .............................. Charter
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares; Investor
Services; Transaction Details; Exchange
Restrictions; Sales Charge Reductions and Waivers
iii.......................... *
b ............................. FMR and Its Affiliates
c .............................. Charter
d .............................. Cover Page; Charter
e .............................. Cover Page; How to Buy Shares; How to Sell
Shares; Investor Services; Exchange Restrictions;
Sales Charge Reductions and Waivers
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. How to Buy Shares; Transaction Details
c .............................. Sales Charge Reductions and Waivers
d .............................. How to Buy Shares
e .............................. Transaction Details; Breakdown of Expenses
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
** To Be Filed By Amendment
FIDELITY ADVISOR FUNDS
CLASS A AND CLASS B
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
the applicable fund's most recent financial report and portfolio listing or
a copy of the Statement of Additional Information (SAI) dated February 26,
1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, contact Fidelity
Distributors Corporation (FDC), 82 Devonshire Street, Boston, MA 02109, or
your Investment Professional.
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 RISK S , INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
EMERGING MARKETS INCOME, HIGH YIELD, STRATEGIC INCOME AND HIGH INCOME
MUNICIPAL MAY EACH INVEST WITHOUT LIMITATION IN LOWER-QUALITY DEBT
SECURITIES, SOMETIMES CALLED "JUNK BONDS." INVESTORS SHOULD CONSIDER THAT
THESE SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN
OTHER DEBT SECURITIES. REFER TO "INVESTMENT PRINCIPLES AND RISKS" ON PAGE
FOR FURTHER INFORMATION.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES
HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
ACOM-pro-296
GROWTH FUNDS: Class(es)
Fidelity Advisor Overseas Fund A, B
Fidelity Advisor Mid Cap Fund A, B
Fidelity Advisor Equity Growth Fund A
(formerly Advisor Equity Portfolio Growth)
Fidelity Advisor Global Resources Fund A, B
Fidelity Advisor Growth Opportunities A
Fund
Fidelity Advisor Strategic Opportunities A, B
Fund
Fidelity Advisor Large Cap Fund A, B
GROWTH AND INCOME FUNDS:
Fidelity Advisor Equity Income Fund A, B
Fidelity Advisor Income & Growth Fund A
TAXABLE INCOME FUNDS:
Fidelity Advisor Emerging Markets A, B
Income Fund
Fidelity Advisor High Yield Fund A, B
Fidelity Advisor Strategic Income Fund A, B
Fidelity Advisor Government Investment A, B
Fund
Fidelity Advisor Intermediate Bond Fund A, B
(formerly Advisor Limited Term Bond Fund)
Fidelity Advisor Short Fixed-Income Fund A
MUNICIPAL FUNDS:
Fidelity Advisor High Income Municipal A, B
Fund
Fidelity Advisor Intermediate Municipal A, B
Income Fund (formerly Advisor Limited Term
Tax-Exempt Fund)
Fidelity Advisor Short-Intermediate A
Municipal Income Fund (formerly Advisor
Short-IntermediateTax-Exempt Fund)
STATE MUNICIPAL FUNDS:
Fidelity Advisor California Municipal A, B
Income Fund
Fidelity Advisor New York Municipal A, B
Income Fund (formerly Advisor New York
Tax-Free Fund)
PROSPECTUS
FEBRUARY 26, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
<TABLE>
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KEY FACTS WHO MAY WANT TO INVEST
EXPENSES Each class's sales charge (load) and its yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary of each fund's financial
data.
PERFORMANCE How each fund has done over time.
THE FUNDS IN DETAIL CHARTER How each fund is organized.
INVESTMENT PRINCIPLES AND RISKS Each fund's overall
approach to investing.
BREAKDOWN OF EXPENSES How operating costs are
calculated and what they include.
YOUR ACCOUNT TYPES OF ACCOUNTS Different ways to set up your
account, including tax-sheltered 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, AND TAXES
ACCOUNT POLICIES
TRANSACTION DETAILS Share price calculations and the
timing of purchases and redemptions.
EXCHANGE RESTRICTIONS
SALES CHARGE REDUCTIONS AND WAIVERS
APPENDIX A
45 APPENDIX B
</TABLE>
KEY FACTS
WHO MAY WANT TO INVEST
Class A and Class B shares are offered to investors who engage an
investment professional for investment advice.
Overseas, Mid Cap , Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap , Equity Income,
Income & Growth, High Yield, Government Investment, Intermediate
Bond , Short Fixed-Income, High Income Municipal, and Intermediate
Municipal Income are diversified funds.
Emerging Markets Income, Strategic Income, Short-Intermediate Municipal
Income , California Municipal Income , and New York Municipal
Income are non-diversified funds. Non-diversified funds may invest a
greater portion of their assets in securities of individual issuers
than diversified funds. As a result, changes in the market value of
a single issuer could cause greater fluctuations in share value than
would occur in a more diversified fund.
Overseas, Mid Cap , Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap , Equity Income,
and Income & Growth are designed for investors who are willing to ride out
stock market fluctuations in pursuit of potentially high long-term returns.
Overseas, Mid Cap , Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities and Large Cap are designed
for investors who want to be invested in the stock market for its long-term
growth potential. These funds invest for growth and do not pursue income.
Equity Income and Income & Growth are designed for those investors who seek
a combination of growth and income from equity and some bond investments.
Emerging Markets Income, High Yield, and Strategic Income are designed 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. These funds 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.
Government Investment, Intermediate Bond , and Short Fixed-Income are
designed for investors who seek high current income from a portfolio of
investment-grade debt securities. These funds also invest consistent with
consideration of capital preservation.
High Income Municipal, Intermediate Municipal Income and
Short-Intermediate Municipal Income are designed for investors in
higher tax brackets who seek high current income that is free from federal
income tax. Intermediate Municipal Income and Short-Intermediate
Municipal Income also invest consistent with consideration of
capital preservation. High Income Municipal focuses on lower-quality debt
securities and 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.
California Municipal Income is designed for investors in higher tax
brackets who seek high current income that is free from federal and
California income taxes. New York Municipal Income is d e signed for
investors in higher tax brackets who seek high current income that is free
from federal and New York State and City personal income taxes.
The value of each fund's investments and, as applicable, the income they
generate, will vary from day to day, and generally reflect changes in
market conditions, interest rates and other company, political, and
economic news. In the short term, stock prices can fluctuate dramatically
in response to these factors. The securities of small, less well-known
companies may be more volatile than those of larger companies. The value
of bonds fluctuates based on changes in interest rates and in the credit
quality of the issuer. Over time, however, stocks, although more volatile,
have shown greater growth potential than other types of securities.
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.
The investments of Strategic Income, Government Investment, Intermediate
Bond , and Short Fixed-Income are also subject to prepayments, which can
lower a fund's yield, particularly in periods of declining interest rates.
In addition, Overseas, Global Resources, Emerging Markets Income and
Strategic Income 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.
Each fund is not in itself a balanced investment plan. You should consider
your investment objective and tolerance for risk when making an investment
decision. When you sell your fund shares, they may be worth more or less
than what you paid for them.
Each fund is composed of multiple classes of shares. Each class of a fund
has a common investment objective and investment portfolio. Class A shares
have a front-end sales charge, or may be subject to a contingent deferred
sales charge (CDSC), and pay a distribution fee. Class B shares do not have
a front-end sales charge, but do have a CDSC, and pay a distribution fee
and a shareholder service fee. Institutional Class shares have no sales
charge, and do not pay a distribution fee or a shareholder service fee, but
are only available to certain types of investors. See "Sales Charge
Reductions and Waivers," page 52, for Institutional Class eligibility
information. You may obtain more information about Institutional Class
shares, which are not offered through this prospectus, by calling
1-800-423-7020 or from your investment professional. Contact your
investment professional to discuss which class is appropriate for you.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell,
exchange, or hold shares of a fund. Lower front-end sales charges may be
available with purchases of $50,000 or more. See "Transaction Details,"
page , for an explanation of how and when these charges apply.
A CDSC is imposed on Class B shares only if you redeem Class B shares
within three years of purchase for Intermediate Bond and Intermediate
Municipal Income, or within five years of purchase for all other funds .
See "Transaction Details, " page 48, for information about the CDSC.
<TABLE>
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Clas Clas
s A s B
Maximum sales charge on purchases of: 3.50 None
Overseas, Mid Cap, Equity Growth, Global Resources, %
Growth Opportunities, Strategic Opportunities,
Large Cap, Equity Income, and Income & Growth (the Equity Funds)
(as a % of offering price)
</TABLE>
<TABLE>
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Maximum sales charge on purchases of: 3.50 None
Emerging Markets Income, High Yield, Strategic Income, %
Government Investment, California Municipal Income, New York Municipal Income, and High Income Municipal (the
Bond Funds) (as a % of offering price)
</TABLE>
<TABLE>
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Maximum sales charge on purchases of: 2.75 None
Intermediate Bond and Intermediate Municipal Income (the Intermediate Term Bond Funds) (as a % of offering price) %
</TABLE>
<TABLE>
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Maximum sales charge on purchases of: 1.50 None
Short-Fixed Income and Short-Intermediate Municipal Income (the Short-Term Bond Funds) (as a % of offering price) %
</TABLE>
<TABLE>
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Maximum CDSC for all funds that offer Class B shares (except the Intermediate-Term Bond Funds)
(as a % of the None 4.00%
lesser of * [A]
original purchase price or redemption proceeds)
</TABLE>
<TABLE>
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Maximum CDSC for the Intermediate-Term Bond Funds (as a % of the lesser of original
purchase price or None 3.00%
redemption proceeds) * [B]
</TABLE>
Maximum sales charge on None None
reinvested distributions
Redemption fee None None
Exchange fee None None
Annual account maintenance fee $12.0 $12.0
(for accounts under $2,500) 0 0
[A] DECLINES OVER 5 YEARS FROM 4.00% TO 0%.
[B] DECLINES OVER 3 YEARS FROM 3.00% TO 0% .
* A CONTINGENT DEFERRED SALES CHARGE OF 0.25% IS ASSESSED ON CERTAIN
REDEMPTIONS OF CLASS A SHARES THAT WERE PURCHASED WITHOUT AN INITIAL SALES
CHARGE. SEE "TRANSACTION DETAILS."
ANNUAL OPERATING EXPENSES are paid out of each fund's assets. Each fund
pays a management fee to Fidelity Management & Research Company (FMR) that,
for Overseas, Mid Cap , Growth Opportunities, Strategic
Opportunities, and Large Cap varies based on performance. Each
fund also incurs other expenses for services such as maintaining
shareholder records and furnishing shareholder statements and financial
reports.
12b-1 fees for Class A and Class B include a distribution fee and, for
Class B, a shareholder service fee. Distribution fees are paid by
each class to Fidelity Distributors Corporation (FDC) for services and
expenses in connection with the distribution of the applicable class's
shares. Shareholder service fees are paid by Class B to investment
professionals for services and expenses incurred in connection with
providing personal service and/or maintenance of Class B shareholder
accounts. Long-term shareholders may pay more than the economic equivalent
of the maximum sales charges permitted by the National Association of
Securities Dealers, Inc. , due to 12b-1 fees.
Each class's expenses are factored into its share price or dividends and
are not charged directly to shareholder accounts (see "Breakdown of
Expenses" on page ).
The following are projections based on estimated or historical expenses,
adjusted for current fees, of each class of each fund, and are calculated
as a percentage of average net assets of the applicable class of each fund.
A portion of the brokerage commissions that the funds paid was used to
reduce other expenses. Including this reduction, total operating expenses
presented in the table for Class A would have been ___% Overseas; __%
(Equity Growth); ___% (Global Resources); __% (Growth Opportunities); ___%
(Equity Income); and ___% (Income & Growth).
EQUITY FUNDS
Operating Expenses Class A Class B
OVERSEAS Management fee % %
12b-1 fee (including 0.25% Shareholder 0.50 1.00
Service Fee for Class B shares) % %
Other expenses
% %[A]
Total operating expenses % %
<TABLE>
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MID CAP Management fee % %
12b-1 fee (including 0.25% Shareholder 0.50 1.00
Service Fee for Class B shares) % %
Other expenses
%[A] %[A]
Total operating expenses % %
EQUITY GROWTH Management fee % *
12b-1 fee 0.50 *
%
Other expenses *
%
Total operating expenses % *
GLOBAL RESOURCES Management fee % %
12b-1 fee (including 0.25% Shareholder 0.50 1.00
Service Fee for Class B shares) % %
Other expenses
% %[A]
Total operating expenses % %
GROWTH OPPORTUNITIES Management fee % *
12b-1 fee 0.50 *
%
Other expenses % *
Total operating expenses % *
STRATEGIC OPPORTUNITIES Management fee % %
12b-1 fee (including 0.25% Shareholder 0.50 1.00
Service Fee for Class B shares) % %
Other expenses %
[B] %
Total operating expenses % %
LARGE CAP Management fee % %
12b-1 fee (including 0.25% Shareholder 0.50 1.00
Service Fee for Class B shares) % %
Other expenses
%[A] %[A]
Total operating expenses % %
EQUITY INCOME Management fee % %
12b-1 fee (including 0.25% Shareholder 0.50 1.00
Service Fee for Class B shares) % %
Other expenses
% %
Total operating expenses % %
INCOME & GROWTH Management fee % *
12b-1 fee 0.50 *
%
Other expenses % n/a
[B]
Total operating expenses % n/a
</TABLE>
* FUND DOES NOT OFFER CLASS B SHARES
[A] Projections based on estimated expenses for first year
[B] Includes the effect of annualizing a voluntary reimbursement of fees by
FMR.
TAXABLE INCOME FUNDS
Operating Expenses Class A Class B
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EMERGING MARKETS INCOME Management fee % %
12b-1 fee (including 0.25% Shareholder 0.90
Service Fee for Class B shares) 0.25 %
%
Other expenses (after reimbursement) % %
Total operating expenses % %
HIGH YIELD Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses %
%
Total operating expenses % %
STRATEGIC INCOME Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses (after reimbursement)
% %
Total operating expenses % %
GOVERNMENT INVESTMENT Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses (after reimbursement)
% %
Total operating expenses % %
INTERMEDIATE BOND Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses (after reimbursement) %
%
Total operating expenses % %
SHORT FIXED-INCOME Management fee % *
12b-1 fee (Distribution fee) 0.15 *
%
Other expenses *
%
Total operating expenses % *
</TABLE>
MUNICIPAL FUNDS
Operating Expenses Class A Class B
<TABLE>
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HIGH INCOME MUNICIPAL Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses (after reimbursement-Class % %
B)
Total operating expenses % %
INTERMEDIATE MUNICIPAL INCOME Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses (after reimbursement)
% %
Operating Expenses Class A Class B
Total operating expenses % %
SHORT-INTERMEDIATE MUNICIPAL INCOME Management fee % *
12b-1 fee (Distribution fee) 0.15 *
%
Other expenses (after reimbursement) *
%
Total operating expenses % *
</TABLE>
STATE MUNICIPAL FUNDS
<TABLE>
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Operating Expenses Class A Class B
NEW YORK MUNICIPAL INCOME Management fee % %
12b-1 fee (including 0.25% Shareholder 0.25 0.90
Service Fee for Class B shares) % %
Other expenses (after reimbursement) % %
Total operating expenses % [A] %[A]
CALIFORNIA MUNICIPAL INCOME Management fee % %
12b-1 fee (Distribution fee) 0.25 0.90
%[A] %[A]
Other expenses (after reimbursement)
% %
Total operating expenses % %
</TABLE>
* FUND DOES NOT OFFER CLASS B SHARES
[A] PROJECTIONS ARE BASED ON ESTIMATED EXPENSES FOR FIRST YEAR.
EXPENSE TABLE EXAMPLE: You would pay the following expenses, including the
maximum front-end sales charge or CDSC, as applicable, on a $1,000
investment, assuming a 5% annual return and either (1) full redemption or
(2) no redemption, at the end of each time period:
[B] AFTER REIMBURSEMENT.
<TABLE>
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EQUITY FUNDS
Examples
Full Redemption No
Redempt
ion
Class A Class B Class B
OVERSEAS After 1 year $ $ [A] $
After 3 $ $ [A] $
years
After 5 $ n/a n/a
years
After 10 $ n/a n/a
years[B]
MID CAP After 1 year $ $ [A] $
After 3 $ $ [A] $
years
EQUITY GROWTH After 1 year $ * *
After 3 $ * *
years
After 5 $ * *
years
After 10 $ * *
years
GLOBAL RESOURCES After 1 year $ $ [A] $
After 3 $ $ [A] $
years
After 5 $ n/a n/a
years
After 10 $ n/a n/a
years[B]
Examples
Full Redemption No
Redempt
ion
Class A Class B Class B
GROWTH OPPORTUNITIES After 1 year $ * *
After 3 $ * *
years
After 5 $ * *
years
After 10 $ * *
years
STRATEGIC OPPORTUNITIES After 1 year $ $[A] $
After 3 $ $[A] $
years
After 5 $ $[A] $
years
After 10 $ $ $
years[B]
LARGE CAP After 1 year $ $[A] $
After 3 $ $[A] $
years
EQUITY INCOME After 1 year $ $[A] $
After 3 $ $ [A] $
years
After 5 $ $ [A] $
years
After 10 $ $ $
years [B]
INCOME & GROWTH After 1 year $ * *
After 3 $ * *
years
After 5 $ * *
years
After 10 $ * *
years
* FUND DOES NOT OFFER CLASS B SHARES
[A] REFLECTS DEDUCTION OF APPLICABLE CDSC.
[B] REFLECTS CONVERSION TO CLASS A SHARES AFTER SIX YEARS.
TAXABLE INCOME FUNDS
Examples
Full Redemption No
Redempt
ion
Class A Class B Class B
EMERGING MARKETS INCOME After 1 year $ $[A] $
After 3 $ $[A] $
years
After 5 $ $[A] $
years
After 10 $ $ $
years[B]
HIGH YIELD After 1 year $ $[A] $
After 3 $ $[A] $
years
After 5 $ $[A] $
years
After 10 $ $ $
years[B]
</TABLE>
STRATEGIC INCOME After 1 year $ $[A] $
After 3 $ $[A] $
years
After 5 $ $[A] $
years
After 10 $ $ $
years[B]
GOVERNMENT INVESTMENT After 1 year $ $[A] $
After 3 $ $[A] $
years
After 5 $ $[A] $
years
After 10 $ $ $
years[B]
INTERMEDIATE BOND After 1 year $ $[A] $
After 3 $ $[A] $
years
After 5 $ $ $
years[C]
After 10 $ $ $
years[C]
SHORT FIXED-INCOME After 1 year $ * *
After 3 $ * *
years
After 5 $ * *
years
After 10 $ * *
years
* FUND DOES NOT OFFER CLASS B SHARES
[A] REFLECTS DEDUCTION OF APPLICABLE CDSC.
[B] REFLECTS CONVERSION TO CLASS A SHARES AFTER SIX YEARS.
[C] REFLECTS CONVERSION TO CLASS A SHARES AFTER FOUR YEARS.
MUNICIPAL FUNDS
Examples
Full Redemption No
Redempt
ion
Class A Class B Class B
HIGH INCOME MUNICIPAL After 1 year $ $[A] $
After 3 $ $ [A] $
years
After 5 $ $[A] $
years
After 10 $ $ $
years[B]
INTERMEDIATE MUNICIPAL INCOME After 1 year $ $ [A] $
After 3 $ $ [A] $
years
After 5 $ $ $
years[C]
After 10 $ $ $
years[C]
SHORT-INTERMEDIATE MUNICIPAL INCOME After 1 year $ * *
After 3 $ * *
years
After 5 $ * *
years
After 10 $ * *
years
STATE MUNICIPAL FUNDS
Examples
Full Redemption No
Redempt
ion
Class A Class B Class B
CALIFORNIA MUNICIPAL INCOME After 1 year $ $ [A] $
After 3 $ $ [A] $
years
NEW YORK MUNICIPAL INCOME After 1 year $ $ [A] $
After 3 $ $ [A] $
years
* FUND DOES NOT OFFER CLASS B SHARES
[A] REFLECTS DEDUCTION OF APPLICABLE CDSC.
[B] REFLECTS CONVERSION TO CLASS A SHARES AFTER SIX YEARS.
[C] REFLECTS CONVERSION TO CLASS A SHARES AFTER FOUR YEARS.
THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
FMR has voluntarily agreed to reimburse Class A and Class B of certain
funds to the extent that total operating expenses as a percentage of their
respective average net assets exceed the following rates:
Class Effectiv Class B Effectiv
A e e
Date Date
Overseas 2.25% 1/1/96 2.75% 10/30/95
Global Resources 2.25% 1/1/96 2.75% 10/30/95
Income & Growth 1.75% 1/1/96 * *
Emerging Markets Income 1.50% 3/10/94 2.15% 1/1/96
High Yield 1.35% 7/1/95 2.00% 1/1/96
Strategic Income 1.35% 10/31/94 2.00% 1/1/96
Government Investment 1.00% 7/1/95 1.65% 1/1/96
Intermediate Bond 1.00% 7/1/95 1.65% 1/1/96
Short Fixed-Income 1.00% 7/1/95 * *
High Income Municipal 1.00% 7/1/95 1.65% 1/1/96
Intermediate Municipal Income 1.00% 7/1/95 1.65% 1/1/96
Short-Intermediate Municipal Income 0.90% 7/1/95 * *
* FUND DOES NOT OFFER CLASS B SHARES.
If these agreements were not in effect, other expenses as a percentage of
average net assets would have been the following amounts:
Other Expenses
Class Class B
A
Overseas
Global Resources
Income & Growth *
Emerging Markets Income
High Yield
Strategic Income
Government Investment
Other Expenses
Class Class B
A
Intermediate Bond
High Income Municipal
Short Fixed-Income *
Intermediate Municipal Income
Short-Intermediate Municipal Income *
New York Municipal Income [A]
* Fund does not offer Class B shares
[A] Annualized
Interest, taxes, brokerage commissions, or extraordinary expenses are not
included in these expense limitations.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow and each fund's financial
statements are included in each fund's Annual Report and have been
audited by _______________ or _________ (Overseas). Their reports on the
financial statements and financial highlights are included in each Annual
Report. The financial statements, the financial highlights, and the reports
are incorporated by reference into the funds' SAI, which may be obtained
free of charge from FDC or your investment professional.
THE FINANCIAL HIGHLIGHTS TABLES WILL BE FILED BY SUBSEQUENT
AMENDMENT.
PERFORMANCE
Mutual fund performance is commonly measured as TOTAL RETURN and/or YIELD.
For Overseas, Global Resources, Growth Opportunities, Income & Growth,
High Yield, Government Investment, Short Fixed-Income, High Income
Municipal,California Municipal Income and New York Municipal Income the
fiscal year runs from November 1 to October 31. For Mid Cap, Equity
Growth, Large Cap, Equity Income, Intermediate Bond, Intermediate Municipal
Income and Short-Intermediate Municipal Income the fiscal year runs from
December 1 to November 30. For Strategic Income, Strategic Opportunities
and Emerging Markets Income the fiscal year runs from January 1 to December
31. The tables below show the funds' performance history compared to a
measure of inflation. Mid Cap, Large Cap, and California Municipal Income
are expected to commence operations on or about February 26, 1996. For
additional performance information, see Appendix B, beginning on page ___.
GROWTH FUNDS - CLASS A
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years 10 Past 1 year Past 5 years Life of fund
Years/Life of
fund
OVERSEAS - CLASS A [B] % % % % % %
OVERSEAS - CLASS A (LOAD ADJ.) [A] % % % % % %
EQUITY GROWTH - CLASS A [C] % % % % % %
EQUITY GROWTH - CLASS A (LOAD ADJ.) [A] % % % % % %
GLOBAL RESOURCES - CLASS A [B] % % % % % %
GLOBAL RESOURCES - CLASS A (LOAD ADJ.) % % % % % %
[A]
GROWTH OPPORTUNITIES - CLASS A [B] % % % % % %
GROWTH OPPORTUNITIES - CLASS A (LOAD % % % % % %
ADJ.) [A]
STRATEGIC OPPORTUNITIES - CLASS A [D] % % % % % %
STRATEGIC OPPORTUNITIES - CLASS A (LOAD % % % % % %
ADJ.)[A]
EQUITY INCOME - CLASS A [C] % % % % % %
EQUITY INCOME - CLASS A (LOAD ADJ.)[A] % % % % % %
INCOME & GROWTH - CLASS A [B] % % % % % %
INCOME & GROWTH - CLASS A (LOAD ADJ.)[A] % % % % % %
Consumer Price Index % % % % % %
</TABLE>
A LOAD-ADJUSTED RETURNS INCLUDE THE EFFECT OF PAYING A FUND'S MAXIMUM
FRONT-END SALES CHARGE OR APPLICABLE CDSC.
B FISCAL YEAR ENDED OCTOBER 31, 1995
C FISCAL YEAR ENDED NOVEMBER 30, 1995
D FISCAL YEAR ENDED DECEMBER 31, 1995
TAXABLE INCOME FUNDS - CLASS A
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years Life of fund Past 1 year Past 5 years Life of fund
EMERGING MARKETS INCOME - CLASS A [D] % % % % % %
EMERGING MARKETS INCOME - CLASS A % % % % % %
(LOAD ADJ.)[A]
HIGH YIELD - CLASS A [B] % % % % % %
HIGH YIELD - CLASS A (LOAD ADJ.)[A] % % % % % %
STRATEGIC INCOME - CLASS A [D] % % % % % %
STRATEGIC INCOME - CLASS A (LOAD ADJ.)[A] % % % % % %
GOVERNMENT INVESTMENT - CLASS A [B] % % % % % %
GOVERNMENT INVESTMENT - CLASS A (LOAD % % % % % %
ADJ.)[A]
INTERMEDIATE BOND - CLASS A [C] % % % % % %
INTERMEDIATE BOND - CLASS A (LOAD % % % % % %
ADJ.)[A]
SHORT FIXED-INCOME - CLASS A [B] % % % % % %
SHORT FIXED-INCOME - CLASS A (LOAD % % % % % %
ADJ.)[A]
</TABLE>
MUNICIPAL FUNDS - CLASS A
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years Life of fund Past 1 year Past 5 years Life of fund
HIGH INCOME MUNICIPAL - CLASS A [B] % % % % % %
HIGH INCOME MUNICIPAL - CLASS A % % % % % %
(LOAD ADJ.)[A]
INTERMEDIATE MUNICIPAL INCOME - CLASS % % % % % %
A [C]
INTERMEDIATE MUNICIPAL INCOME - CLASS % % % % % %
A
(LOAD ADJ.)[A]
SHORT-INTERMEDIATE MUNICIPAL INCOME - % % % % % %
CLASS A [C]
SHORT-INTERMEDIATE MUNICIPAL INCOME - % % % % % %
CLASS A (LOAD ADJ.)[A]
</TABLE>
STATE MUNICIPAL FUNDS - CLASS A
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years Life of fund Past 1 year Past 5 years Life of fund
NEW YORK MUNICIPAL INCOME - CLASS A % % % % % %
[B]
NEW YORK MUNICIPAL INCOME - CLASS A % % % % % %
(LOAD ADJ.)[A]
Consumer Price Index % % % % % %
</TABLE>
A LOAD-ADJUSTED RETURNS INCLUDE THE EFFECT OF PAYING A FUND'S MAXIMUM
FRONT-END SALES CHARGE OR APPLICABLE CDSC.
B FISCAL YEAR ENDED OCTOBER 31, 1995
C FISCAL YEAR ENDED NOVEMBER 30, 1995
D FISCAL YEAR ENDED DECEMBER 31, 1995
GROWTH FUNDS - CLASS B
OVERSEAS - CLASS B % % % % % %
OVERSEAS - CLASS B (LOAD ADJ.)[A] % % % % % %
GLOBAL RESOURCES - CLASS B % % % % % %
GLOBAL RESOURCES - CLASS B (LOAD % % % % % %
ADJ.)[A]
STRATEGIC OPPORTUNITIES - CLASS B % % % % % %
STRATEGIC OPPORTUNITIES - CLASS B (LOAD % % % % % %
ADJ.)[A]
EQUITY INCOME - CLASS B % % % % % %
EQUITY INCOME - CLASS B (LOAD ADJ.)[A] % % % % % %
TAXABLE INCOME FUNDS - CLASS B
EMERGING MARKETS INCOME - CLASS B % % % % % %
EMERGING MARKETS INCOME - CLASS B (LOAD % % % % % %
ADJ.)[A]
HIGH YIELD - CLASS B % % % % % %
HIGH YIELD - CLASS B (LOAD ADJ.)[A] % % % % % %
STRATEGIC INCOME - CLASS B % % % % % %
STRATEGIC INCOME - CLASS B (LOAD ADJ.)[A] % % % % % %
GOVERNMENT INVESTMENT - CLASS B % % % % % %
GOVERNMENT INVESTMENT - CLASS B (LOAD % % % % % %
ADJ.)[A]
INTERMEDIATE BOND - CLASS B % % % % % %
INTERMEDIATE BOND - CLASS B (LOAD % % % % % %
ADJ.)[A]
MUNICIPAL FUNDS - CLASS B
HIGH INCOME MUNICIPAL - CLASS B % % % % % %
HIGH INCOME MUNICIPAL - CLASS B % % % % % %
(LOAD ADJ.)[A]
INTERMEDIATE MUNICIPAL INCOME - CLASS % % % % % %
B
INTERMEDIATE MUNICIPAL INCOME - CLASS % % % % % %
B
(LOAD ADJ.)[A]
STATE MUNICIPAL FUNDS - CLASS B
NEW YORK MUNICIPAL INCOME - CLASS B % % % % % %
NEW YORK MUNICIPAL INCOME - CLASS B % % % % % %
(LOAD ADJ.)[A]
Consumer Price Index % % % % % %
A LOAD-ADJUSTED RETURNS INCLUDE THE EFFECT OF PAYING A FUND'S MAXIMUM
FRONT-END SALES CHARGE OR APPLICABLE CDSC.
C FISCAL YEAR ENDED NOVEMBER 30, 1995
B FISCAL YEAR ENDED OCTOBER 31, 1995
D FISCAL YEAR ENDED DECEMBER 31, 1995
The exclusion of any applicable sales charge from a performance calculation
produces a higher return.
If FMR had not reimbursed certain fund expenses during these periods,
yields and total returns would have been lower.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund 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.
Average annual and cumulative total returns usually will include the effect
of paying the maximum applicable sales charge.
YIELD refers to the income generated by an investment in a 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 a fund whose investments are
denominated in foreign currencies.
In calculating yield, a 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 a fund's
yield.
A TAX-EQUIVALENT YIELD shows what an investor would have to earn before
taxes to equal a tax-free yield.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is each fund's applicable Lipper Funds
Average, which reflects the performance of mutual funds with similar
objectives. Each fund's applicable average assumes reinvestment of
distributions, and is published by Lipper Analytical Services, Inc.
Each class of each of the Equity Funds may quote its adjusted net
asset value including all distributions paid. This value may be averaged
over specified periods and may be used to calculate a class's moving
average.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
For current performance or a free annual report, please contact your
investment professional.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE
NOT AN INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. Equity Growth, Mid Cap
and Large Cap are diversified funds of Fidelity Advisor Series I, a
Massachusetts business trust organized on June 24, 1983. Growth
Opportunities, Income & Growth, High Yield, Government Investment and Short
Fixed-Income are diversified funds of Fidelity Advisor Series II, a
Massachusetts business trust organized on April 24, 1986. Equity Income is
a diversified fund of Fidelity Advisor Series III, a Massachusetts business
trust organized on May 17, 1982. Intermediate Bond is a diversified
fund of Fidelity Advisor Series IV, a Massachusetts business trust
organized on May 6, 1983. New York Municipal Income and
California Municipal Income are non-diversified funds and Global
Resources and High Income Municipal are diversified funds of Fidelity
Advisor Series V, a Massachusetts business trust organized on April 24,
1986. Intermediate Municipal Income is a diversified fund and
Short-Intermediate Municipal Income is a non-diversified fund of
Fidelity Advisor Series VI, a Massachusetts business trust organized on
June 1, 1983. Overseas is a diversified fund of Fidelity Advisor Series
VII, a Massachusetts business trust organized on March 21, 1980. Emerging
Markets Income and Strategic Income are non-diversified funds and Strategic
Opportunities is a diversified fund of Fidelity Advisor Series VIII, a
Massachusetts business trust organized on September 23, 1983. Each trust is
an open-end management investment company. There is a remote possibility
that one fund might become liable for a misstatement in the prospectus
about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review the funds' performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL 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.
The transfer agent will mail proxy materials in advance, including a voting
card and information about the proposals to be voted on. For shareholders
of Overseas, Mid Cap , Equity Growth, Strategic Opportunities,
Large Cap , Emerging Markets Income, and Strategic Income, you are
entitled to one vote for each share you own. For shareholders of Global
Resources, Growth Opportunities, Equity Income, Income & Growth, High
Yield, Government Investment, Intermediate Bond, Short Fixed-Income,
High Income Municipal, Intermediate Municipal Income ,
Short-Intermediate Municipal Income , California Municipal Income,
and New York Municipal Income the number of votes you are entitled to
is based upon the dollar value of your investment.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust, respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The funds employ various Fidelity
companies to perform activities required for their operation.
The funds are managed by FMR, which chooses each fund's investments
and handles its business affairs. FMR chooses the investments for each fund
with the assistance of foreign affiliates(except Government Investment,
High Income Municipal, Intermediate Municipal Income ,
Short-Intermediate Municipal Income, California Municipal Income, and
New York Municipal Income .)
As of __, 19_, FMR advised funds having approximately __million
shareholder accounts with a total value of more than $__ billion.
Affiliates assist FMR with foreign securities: Fidelity Management &
Research (U.K.) Inc. (FMR U.K.), in London, England; Fidelity Management &
Research Far East Inc. (FMR Far East), in Tokyo, Japan; Fidelity
International Investment Advisors (FIIA), in Pembroke, Bermuda; Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.), in Kent,
England; and Fidelity Investment Japan Ltd. (FIJ), in Tokyo, Japan.
John H. Carlson is lead manager of Advisor Strategic Income, which he
has managed since August 1995, and is manager of the fund's emerging market
investments. Mr. Carlson is also manager of Advisor Emerging Markets
Income, which he has managed since joining Fidelity in June 1995. Mr.
Carlson also manages New Markets Income. Previously, he was executive
director of emerging markets at Lehman Brothers. From 1990 to 1992, Mr.
Carlson was executive vice president of capital markets for Daiwa
Securities America.
Bettina E. Doulton is vice president and manager of Advisor
Equity Income, which she has managed since August 1993. Ms. Doulton
is also manager of VIP Equity-Income, which she has managed since July 1993
and Value Fund, which she has managed since March 1995. Previously, she
managed Select Automotive Portfolio and assisted on Magellan(registered
trademark). Ms. Doulton also served as an analyst following the domestic
and European automotive and tire manufacturing industry as well as the
gaming and lodging industry. Ms. Doulton joined Fidelity in 1986.
Margaret L. Eagle is vice president and manager of Advisor High Yield,
which she has managed since it began in January 1987, and has been
manager of Advisor Strategic Income's high yield investments since January
1996. Ms. Eagle also manages several pension fund accounts .
Previously, she managed Spartan High Income and High Income (now Capital &
Income). She also managed the bond portion of Puritan(registered
trademark). Ms. Eagle joined Fidelity in 1980.
Daniel R. Frank is vice president and manager of Advisor Strategic
Opportunities, which he has managed since its inception in December 1983.
Previously he was an assistant to Peter Lynch on Magellan(registered
trademark). Mr. Frank joined Fidelity in 1979.
Kevin Grant is vice president and manager of Advisor Intermediate Bond,
which he has managed since October 1995, and has been manager of Advisor
Strategic Income's domestic investment grade and U.S. Government
investments since January 1996. Mr. Grant also manages Spartan Ginnie Mae,
Ginnie Mae, and Mortgage Securities. Previously, he was vice president and
chief strategist for mortgage-backed securities at Morgan Stanley and an
investment director at Aetna Bond Investors. Mr. Grant joined Fidelity in
1993.
Robert E. Haber is vice president and manager of Advisor Income & Growth,
which he has managed since January 1987. Mr. Haber also manages Balanced
and co-manages Global Balanced. Previously, he managed Convertible
Securities. Mr. Haber joined Fidelity in 1985.
John R. Hickling is vice president and manager of Advisor Overseas, which
he has managed since February 1993. Mr. Hickling also manages Overseas and
VIP: Overseas. Previously, he managed Emerging Markets, Europe, Pacific
Basin, Japan, and International Growth & Income. Mr. Hickling joined
Fidelity in 1982.
Robert Ives is manager of Advisor Government Investment, which he has
managed since February 1995. Mr. Ives also manages Spartan Government
Income and Government Securities. Previously, he managed Ginnie Mae,
Spartan Ginnie Mae and Mortgage Securities. Mr. Ives joined Fidelity in
1991, after receiving an M.B.A. from the University of Chicago.
Jonathan Kelly has been manager of Advisor Strategic Income's foreign
bond investments in developed markets since January 1996. Mr. Kelly also
manages Global Bond. Previously, he managed Advisor Emerging Markets
Income, and New Markets Income. Mr. Kelly joined Fidelity in 1991, after
receiving his M.B.A. from the Wharton School at the University of
Pennsylvania. Mr. Kelly worked in the money management field prior to
business school.
Norman Lind is vice president and manager of Advisor Short-Intermediate
Municipal Income, which he has managed since October 1995. Mr. Lind also
manages Advisor New York Municipal Income, New York Tax-Free Insured, New
York Tax-Free High Yield, Spartan New York Municipal High Yield, Spartan
Intermediate Municipal, Spartan Short-Intermediate Municipal, and Spartan
New York Intermediate Municipal. Previously, he served as the leader of the
municipal bond research group. Mr. Lind joined Fidelity in 1986.
Malcolm W. MacNaught is vice president and manager of Advisor Global
Resources, which he has managed since December 1987. Mr. MacNaught also
manages Select Precious Metals and Minerals and Select American Gold. Mr.
MacNaught joined Fidelity in 1968.
John McDowell is manager of Advisor Large Cap, which he has managed
since February 1995. Mr. McDowell also has been a senior vice president
for Fidelity Management Trust Company and lead portfolio manager for
Fidelity Earnings Growth discipline accounts since 1990. Mr. McDowell
joined Fidelity in 1985.
Charles Morrison is manager of Advisor Short Fixed-Income, which he has
managed since February 1995. He also manages Spartan Short-Term Income and
Short-Term Bond. Mr. Morrison is vice president of Fidelity Management
Trust Company. He joined Fidelity in 1987.
David Murphy is manager of Advisor Intermediate Municipal Income ,
which he has managed since March 1995. Mr. Murphy also manages High
Yield Tax-Free, Spartan Municipal Income , and Limited Term Municipals.
Previously, he managed Advisor Short-Intermediate Municipal Income,
Spartan Short-Intermediate Municipal, Spartan Intermediate Municipal,
Spartan New Jersey Municipal High-Yield, and Spartan New York Intermediate
Municipal. Mr. Murphy joined Fidelity in 1989.
Jonathan Short is manager of Advisor California Municipal Income, which
he has managed since February 1996. Mr. Short also manages Minnesota
Tax-Free, Spartan Arizona Municipal Income, California Tax-Free High Yield,
California Tax-Free Insured, Spartan California Municipal High Yield, and
Spartan California Intermediate Municipal. Previously, he was a municipal
bond analyst. Mr. Short joined Fidelity in 1990, after receiving his M.B.A.
from the Massachusetts Institute of Technology.
Tanya M. Roy is manager of Advisor High Income Municipal, which she has
managed since August 1995. Ms. Roy also manages Aggressive Tax-Free and
Spartan Aggressive Municipal. Previously, she managed Municipal Bond and
was a municipal bond analyst. Ms. Roy joined Fidelity in 1989 .
Robert E. Stansky is vice president and manager of Advisor Equity Growth,
which he has managed since April 1987. Mr. Stansky also manages Growth
Company. Previously, he managed Emerging Growth and Select Defense and
Aerospace. Mr. Stansky joined Fidelity in 1983.
Jennifer F. Uhrig is manager of Advisor Mid Cap, which she has managed
since February 1995. Ms. Uhrig also manages Mid Cap Stick. Previously,
she managed Select Retail, Select Developing Communication, and Select
Telecommunications. Ms. Uhrig joined Fidelity in 1987 .
George A. Vanderheiden is vice president and manager of Advisor Growth
Opportunities, which he has managed since November 1987. Mr. Vanderheiden
also manages Destiny I and Destiny II. He is a managing director of FMR
Corp. and leader of the growth group. Mr. Vanderheiden joined Fidelity in
1971.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
FDC distributes and markets Fidelity's funds and services. Fidelity
Investments Institutional Operations Company (FIIOC) performs certain
transfer agent servicing functions for Class A and Class B shares of each
fund.
FMR Corp. is the ultimate parent company of FMR, FMR Texas, 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 FIIAL U.K.. The Johnson family group also owns, directly or indirectly,
more than 25% of the voting common stock of FIL.
UMB Bank, n.a. (UMB) is the transfer agent for High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income and New York Municipal Income , although it
employs FIIOC to perform these functions for both Class A and Class
B of each fund. UMB is located at 1010 Grand Avenue, Kansas City,
Missouri 64106.
A broker-dealer may use a portion of the commissions paid by Overseas,
Equity Growth, Global Resources, Growth Opportunities, Strategic
Opportunities, Equity Income, Income & Growth and High Yield to reduce
custodian or transfer agent fees for those funds. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to carry out
a fund's transactions, provided that the fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of each fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the
activities of individual companies and general market and economic
conditions.
The value of bonds fluctuates based on changes in interest rates, market
conditions, other economic and political news, and on their quality and
maturity. In general, bond prices rise when interest rates fall, and vice
versa. This effect is usually more pronounced for longer-term securities.
Lower-quality securities offer higher yields, but also carry more risk.
The total return from a bond is a combination of income and price gains
or losses. While income is the most important component of bond returns
over time, a fund's emphasis on income does not mean that the fund invests
only in the highest-yielding bonds available, or that it can avoid risks to
principal. In selecting investments for each fund, FMR considers a bond's
income potential together with its potential for price gains or losses.
FMR focuses on assembling a portfolio of income-producing securities that
it believes will provide the best tradeoff between risk and return within
the range of securities that are eligible investments for a fund.
International funds have increased economic and political risks as they are
exposed to events and factors in the various world markets. This is
especially true for funds that invest in emerging markets. Also, because
many of the funds' investments are denominated in foreign currencies,
changes in the value of foreign currencies can significantly affect a
fund's share price. FMR may use a variety of investment techniques to
either increase or decrease a fund's investment exposure to any
currency.
FMR may use various investment techniques to hedge a portion of the funds'
risks, but there is no guarantee that these strategies will work as FMR
intends. When you sell your shares, they may be worth more or less than
what you paid for them.
If you are subject to the federal alternative minimum tax, you should note
that each of High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income may invest up to 100% of its assets in municipal
securities issued to finance private activities. The interest from
these investments is a tax-preference item for purposes of the tax.
OVERSEAS FUND seeks growth of capital primarily through investments in
foreign securities.
The fund defines foreign securities as securities of issuers whose
principal activities are outside of the United States. The fund currently
intends to invest at least 65% of its total assets in securities of issuers
from at least three different countries outside of North America (the
United States, Canada, Mexico and Central America). There is no limit on
investments in any one region, country, or currency, although the fund
normally invests in at least three different countries. The fund expects to
invest most of its assets in securities of issuers located in developed
countries in these general geographic areas: the Americas (other than the
United States), the Far East and Pacific Basin, and Western Europe.
The fund may invest in many types of issuers, including companies and other
business organizations as well as governments and their agencies. The fund
expects that equity securities (including shares of closed-end investment
companies and depositary receipts) will account for the majority of its
investments. Although the majority of the fund's investments are expected
to be in equity securities, the fund may also purchase debt securities,
including lower-quality, higher yielding securities. FMR will not emphasize
income in choosing investments unless FMR believes the income will
contribute to the securities' growth potential. FMR may also invest a
portion of the fund's assets in high-quality, short-term debt securities,
bank deposits and money market instruments (including repurchase
agreements) denominated in U.S. dollars or foreign currencies.
FMR determines where an issuer is located by looking at such factors as its
country of organization, the primary trading market for its securities, and
the location of its assets, personnel, sales, and earnings. When allocating
the fund's investments among countries and regions, FMR considers such
factors as the potential for economic growth, expected levels of inflation,
governmental policies and the outlook for currency relationships. Although
the fund may invest significantly in the United States, the fund currently
intends to be as fully invested in non-U.S. issuers as is practicable in
light of the fund's cash flow and cash needs.
MID CAP FUND seeks long-term growth of capital.
The fund seeks long-term growth of capital by investing primarily in equity
securities of companies with medium market capitalizations. FMR normally
invests at least 65% of the fund's total assets in these securities. The
fund has the flexibility, however, to invest the balance in other market
capitalizations and security types.
Medium market capitalization companies are those whose market
capitalization falls within the capitalization range of the S&P MidCap 400
at the time of the fund's investment. The S&P MidCap 400 Index is an
unmanaged index of medium-capitalization stocks. Companies whose
capitalization falls outside this range after purchase continue to be
considered medium-capitalized for purposes of the 65% policy. As of August
31, 1995, the S&P MidCap 400 included companies with capitalizations of
between $72 million and 6.5 billion.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks, since they can be subject to more
abrupt or erratic movements. However, they tend to involve less risk than
stocks of small capitalization companies.
EQUITY GROWTH seeks to achieve capital appreciation by investing
primarily in common and preferred stock and securities convertible into the
common stock of companies with above-average growth characteristics.
The fund, under normal conditions, will invest at least 65% of its total
assets in common and preferred stock. The fund looks for domestic and
foreign companies with above-average growth characteristics compared to the
average of the companies included in the Standard & Poor's Composite
Index of 500 Shares (S&P 500). The S&P 500 is a registered trademark of
Standard & Poor's Corporation. Growth may be measured by factors such
as earnings or gross sales. Companies with strong growth potential often
have new products, technologies, distribution channels, or other
opportunities. As a general rule, these companies may include smaller, less
well-known companies, and companies whose stocks have higher than average
price/earnings (P/E) ratios. The market prices of these stocks may be
particularly sensitive to economic, market, or company news. FMR may also
pursue growth in larger or revitalized companies or companies that hold a
strong position in the market. These growth characteristics may be found in
mature or declining industries.
GLOBAL RESOURCES FUND seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in
securities of foreign and domestic companies that own or develop natural
resources, or supply goods and services to such companies, or in physical
commodities.
The fund, under normal conditions, will invest at least 65% of its total
assets in securities of foreign and domestic companies that own or develop
natural resources, or supply goods and services to such companies, or in
physical commodities. FMR will seek securities whose prices directly
reflect positive changes in the value of an underlying natural resource or
whose issuers will benefit from particular phases in the overall economic
cycle. Accordingly, the fund may shift its emphasis from one natural
resource industry to another depending upon prevailing trends or
developments. The fund may also invest in securities of companies in other
industries, and in corporate and governmental debt securities of all types.
The fund expects to invest a majority of its assets in the securities of
companies that have their principal business activities in at least three
different countries (including the United States).
A company will be deemed to have substantial ownership of, or activities in
natural resources if, at the time those company's securities are acquired,
at least 50% of the company's assets are involved, either directly or
through subsidiaries, in exploring, mining, refining, processing,
transporting, fabricating, dealing in, or owning natural resources. Natural
resources include precious metals (e.g., gold, platinum and silver),
ferrous and nonferrous metals (e.g., iron, aluminum and copper), strategic
metals (e.g., uranium and titanium), hydrocarbons (e.g., coal, oil and
natural gases), chemicals, forest products, real estate, food products and
other basic commodities.
Although the fund is authorized to invest up to 50% of its assets in
physical commodities, it currently intends to invest no more than 25% of
its total assets in them, and intends to limit its physical commodity
investments to readily marketable precious metals. Precious metals, at
times, have been subject to substantial price fluctuations over short
periods of time and may be affected by unpredictable international monetary
and political policies such as currency devaluations or revaluations,
economic and social conditions within a country, trade imbalances, or trade
or currency restrictions between countries.
GROWTH OPPORTUNITIES FUND seeks to provide capital growth by investing
primarily in common stocks and securities convertible into common stocks.
The fund, under normal conditions, will invest at least 65% of its total
assets in securities of companies that FMR believes have long-term growth
potential. Although the fund invests primarily in common stock and
securities convertible into common stock, it has the ability to purchase
other securities, such as preferred stock and bonds, that may produce
capital growth. The fund may invest in foreign securities without
limitation.
STRATEGIC OPPORTUNITIES FUND seeks capital appreciation by investing
primarily in securities of companies believed by FMR to involve a "special
situation."
The fund, under normal conditions, will invest at least 65% of its total
assets in companies involving a special situation. The term "special
situation" refers to FMR's identification of an unusual, and possibly
non-repetitive, development taking place in a company or a group of
companies in an industry.
A special situation may involve one or more of the following
characteristics:
(small solid bullet) A technological advance or discovery, the offering of
a new or unique product or service, or changes in consumer demand or
consumption forecasts.
(small solid bullet) Changes in the competitive outlook or growth potential
of an industry or a company within an industry, including changes in the
scope or nature of foreign competition or the development of an emerging
industry.
(small solid bullet) New or changed management, or material changes in
management policies or corporate structure.
(small solid bullet) Significant economic or political occurrences abroad,
including changes in foreign or domestic import and tax laws or other
regulations.
(small solid bullet) Other events, including natural disasters, favorable
litigation settlements, or a major change in demographic patterns.
"Special situations" often involve breaks with past experience. They can be
relatively aggressive investments. In seeking capital appreciation, the
fund also may invest in securities of companies not involving a special
situation, but which are companies with valuable fixed assets and whose
securities are believed by FMR to be undervalued in relation to the
companies' assets, earnings, or growth potential. FMR intends to invest
primarily in common stocks and securities that are convertible into common
stocks; however, it also may invest in debt securities of all types and
quality if FMR believes that investing in these securities will result in
capital appreciation. The fund may invest up to 30% of its assets in
foreign investments.
LARGE CAP FUND seeks long term growth of capital.
The fund seeks long-term growth of capital by investing primarily in equity
securities of companies with large market capitalizations. FMR normally
invests at least 65% of the fund's total assets in these securities. The
fund has the flexibility, however, to invest the balance in other market
capitalizations and security types.
FMR defines large market capitalization companies as those with market
capitalizations of $1 billion or more at the time of the fund's investment.
Companies whose capitalization falls below this level after purchase
continue to be considered large-capitalized for purposes of the 65% policy.
Companies with large market capitalizations typically have a large number
of publicly held shares and a high trading volume, resulting in a high
degree of liquidity. These tend to be quality companies with strong
management organizations. However, large capitalization companies may have
less growth potential than smaller companies and may be able to react less
quickly to changes in the marketplace.
EQUITY INCOME FUND seeks a yield from dividend and interest income
which exceeds the composite dividend yield on securities comprising the S&P
500. In addition, consistent with the primary objective of obtaining
dividend and interest income, the fund will consider the potential for
achieving capital appreciation.
The fund, under normal conditions, will invest at least 65% of its total
assets in income-producing equity securities. For purposes of this policy,
equity securities are defined as common and preferred stocks. The balance
of the fund's assets will tend to be invested in debt securities, a high
percentage of which are expected to be convertible into common stocks. The
fund does not intend to invest in securities of issuers without proven
earnings and/or credit histories. Because the fund invests for income, as
well as capital appreciation, investors should not expect capital
appreciation comparable with funds which seek only capital appreciation.
The yield on the fund's assets generally will increase or decrease from
year to year in accordance with market conditions and in relation to the
changes in yields of the stocks included in the S&P 500.
INCOME & GROWTH FUND seeks both income and growth of capital by investing
in a diversified portfolio of equity and fixed-income securities with
income, growth of income and capital appreciation potential.
The fund invests in equity securities, convertible securities, common and
preferred stocks, and fixed-income securities that provide income or
opportunities for capital growth. The fund may buy securities that are not
currently paying income but offer prospects for future income. The fund may
invest in securities of foreign issuers. In selecting investments for the
fund, FMR will consider such factors as the issuer's financial strength,
its outlook for increased dividend or interest payments, and the potential
for capital gains.
EMERGING MARKETS INCOME FUND seeks a high level of current income by
investing primarily in debt securities and other instruments of issuers in
emerging markets. As a secondary objective, the fund seeks capital
appreciation.
The fund, under normal conditions, will invest at least 65% of its total
assets in debt securities and other instruments of issuers in emerging
markets. Countries with emerging markets include countries (i) that have an
emerging stock market, as defined by the International Finance Corporation,
(ii) with low-to middle-income economies, according to the World Bank, or
(iii) that are listed in World Bank publications as "developing."
The fund emphasizes countries with relatively low gross national product
per capita compared to the world's major economies, and with the potential
for rapid economic growth. FMR expects that emerging market opportunities
will be found mainly in Latin America, Asia, Africa, and emerging European
nations. FMR determines where an issuer is located by looking at such
factors as its country of organization, the primary trading market for its
securities, and the location of its assets, personnel, sales, and earnings.
There is no limit on investments in any one region, country, or currency,
although the fund normally invests in at least three different countries.
The fund may also invest a portion of its assets in common and preferred
stocks of emerging markets issuers, debt securities of non-emerging market
foreign issuers, and lower-quality debt securities of U.S. issuers. FMR
does not currently anticipate that these investments will exceed
approximately 20% of the fund's total assets. The fund may invest in
securities of any maturity. In addition, for cash management purposes, the
fund will ordinarily invest a portion of its assets in high-quality,
short-term debt securities and money market instruments, including
repurchase agreements and bank deposits denominated in U.S. or foreign
currencies.
HIGH YIELD FUND seeks a combination of a high level of income and the
potential for capital gains by investing in a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon
securities, such as bonds, debentures and notes, convertible securities and
preferred stocks.
The fund, under normal conditions, will invest at least 65% of its total
assets in income producing debt securities and preferred stocks, including
convertible and zero coupon securities. The fund may also invest in
securities issued or guaranteed by the U.S. Government, any state or any of
their respective subdivisions, agencies or instrumentalities, and
securities of foreign issuers, including securities of foreign governments.
The fund may invest up to 35% of its total assets in equity securities,
including common stocks, warrants and rights.
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, investment
grade securities, emerging market securities, and international 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%
investment-grade, 15% emerging market and 15% international.
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 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 INTERNATIONAL 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.
GOVERNMENT INVESTMENT FUND seeks a high level of current income by
investing primarily in obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities.
The fund, under normal circumstances, will invest at least 65% of its total
assets in government securities. The fund considers "government securities"
to include those which are subject to repurchase agreements. The fund
invests primarily in obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, including U.S.
Treasury bonds, notes and bills, Government National Mortgage Association
mortgage-backed pass-through certificates (Ginnie Maes) and mortgage-backed
securities issued by the Federal National Mortgage Association (Fannie
Maes) or the Federal Home Loan Mortgage Corporation (Freddie Macs). These
securities may or may not be fully backed by the U.S. Government. In
seeking current income, the fund also may consider the potential for
capital gain.
Although the fund can invest in securities of any maturity, FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to government bonds with maturities between five and twelve
years. As of the fiscal year ended October 31, 1995, the fund's
dollar-weighted average maturity was ___ years.
INTERMEDIATE BOND FUND seeks to provide a high rate of income through
investment primarily in investment-grade fixed-income obligations.
The fund invests primarily in fixed-income obligations of all types. The
fund may invest in domestic and foreign investment grade securities. When
consistent with its primary objective, the fund may also seek capital
appreciation.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of between three and ten years
under normal conditions. In determining a security's maturity for purposes
of calculating the fund's average maturity, an estimate of the average time
for its principal to be paid may be used. This can be substantially
shorter than its stated final maturity. As of the fiscal year ended
November 30, 1995, the fund's dollar-weighted average maturity was ___
years.
SHORT FIXED-INCOME FUND seeks to obtain a high level of current income,
consistent with the preservation of capital, by investing primarily in a
broad range of investment-grade fixed-income securities. Where appropriate
the fund will take advantage of opportunities to realize capital
appreciation.
The fund, under normal conditions, will invest at least 65% of its total
assets in fixed-income securities of all types which may include
convertible and zero coupon securities. The fund may invest a portion of
its assets in securities issued by foreign companies and foreign
governments.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of three years or less under
normal conditions. In determining a security's maturity for purposes of
calculating the fund's average maturity, an estimate of the average time
for its principal to be paid may be used. This can be substantially shorter
than its stated final maturity. As of the fiscal year ended October 31,
1995, the fund's dollar-weighted average maturity was ___ years.
HIGH INCOME MUNICIPAL FUND seeks to provide a high current yield by
investing in a diversified portfolio of municipal obligations whose
interest is not included in gross income for purposes of calculating
federal income tax.
The fund normally invests so that at least 80% of its net assets is
invested in municipal obligations whose interest is free from federal
income tax. The fund may invest in medium- and lower-quality municipal
obligations. The fund may invest more than 25% of its total assets in
securities whose revenue sources are from similar types of projects (e.g.,
education, electric utilities, health care, housing, transportation, or
water, sewer and gas utilities) or whose issuers share the same geographic
location. The fund may invest up to 100% of its assets in municipal
obligations subject to the federal alternative minimum tax.
The fund may purchase long-term municipals with maturities of 20 years or
more, which generally produce higher yields than short-term municipals. The
fund also may purchase short-term municipal obligations in order to provide
for short-term capital needs. Although the fund can invest in securities
of any maturity, FMR seeks to manage the fund so that it generally reacts
to changes in interest rates similarly to municipal bonds of comparable
quality with maturities between 15 and 20 years. As of the fiscal year
ended October 31, 1995, the fund's dollar-weighted average maturity was ___
years.
INTERMEDIATE MUNICIPAL INCOME FUND seeks the highest level of income exempt
from federal taxes that can be obtained consistent with the preservation of
capital.
The fund normally will invest at least 80% of its net assets in securities
whose interest is free from federal income tax. The fund invests in
municipal obligations rated investment grade or higher. The fund may also
invest more than 25% of its total assets in securities whose revenue
sources are from similar types of projects (e.g., education, electric
utilities, health care, housing, transportation or water, sewer, and gas
utilities) or whose issuers share the same geographic location. The fund
may, under normal conditions, invest up to 100% of its assets in
municipal securities subject to the federal alternative minimum tax.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of between three and ten years
under normal conditions. FMR seeks to manage the fund so that it generally
reacts to changes in interest rates similarly to municipal bonds with
maturities between seven and ten years. As of the fiscal year ended
November 30, 1995, the fund's dollar-weighted average maturity was ___
years.
SHORT-INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a level of current
income, exempt from federal income tax, as is consistent with preservation
of capital.
The fund invests primarily in municipal securities. The fund normally will
invest at least 80% of its net assets in securities whose interest is free
from federal income tax. The fund may, under normal circumstances,
invest up to 100% of its assets in municipal securities subject to the
federal alternative minimum tax. The fund may invest any portion of its
assets in industrial revenue bonds (IRBs) backed by private issuers, and
may invest up to 25% of its total assets in IRBs related to a single
industry. The fund may also invest 25% or more of its total assets in
securities whose revenue sources are from similar types of projects (e.g.,
education, electric utilities, health care, housing, transportation, or
water, sewer and gas utilities) or whose issuers share the same geographic
location.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of between two and five years
under normal conditions. As of the fiscal year ended November 30, 1995,
the fund's dollar-weighted average maturity was ___ years.
CALIFORNIA MUNICIPAL INCOME FUND seeks a high level of current
income free from federal income tax and California state income tax by
investing primarily in municipal securities.
The fund normally invests at least 80% of its net assets in securities
whose interest is free from federal and California income taxes. The fund
invests in municipal securities of investment grade quality. The fund may,
under normal conditions, invest up to 100% of its assets in municipal
securities subject to the federal alternative minimum tax.
Although the fund can invest in securities of any maturity, FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to municipal bonds with maturities between eight and eighteen
years.
The performance of California Municipal Income is closely tied to the
economic and political conditions within the state of California, which has
been in a recession since 1990. In recent years California experienced
substantial financial difficulties related to the severe recession from
1990-93, which caused substantial, broad-based shortfalls. State cutbacks
of local assistance could adversely affect the financial condition of
cities, counties and education districts facing a fall in their own tax
collections. California's long-term credit rating has been reduced in the
past several years. California voters in the past have passed amendments
to the California Constitution and other measures that limit the taxing and
spending authority of California governmental entities, and future voter
initiatives could result in adverse consequences affecting California
municipal bonds.
On December 6, 1994, Orange County (the County) and its pooled investment
funds (the Pools) filed for protection under Chapter 9 of the Federal
Bankruptcy Law, as a result of investment losses in the Pools. The losses
have been estimated by the County at 22%, or approximately $1.7 billion.
Over 180 government agencies, most but not all located in the County, had
investments in the Pools. The County and some of the agencies
participating in the Pools have defaulted on certain of their obligations
because of the bankruptcy, and others may in the future. These factors
could reduce the credit standing of certain issuers of California municipal
bonds.
NEW YORK MUNICIPAL INCOME FUND seeks a high level of current income
free from federal income tax and New York State and City personal income
taxes by investing primarily in municipal securities.
The fund normally invests at least 80% of its net assets in securities
whose interest is free from federal and New York State and City personal
income taxes. The fund invests in municipal securities of investment grade
quality. The fund may, under normal conditions, invest up to 100% of its
assets in municipal securities subject to the federal alternative minimum
tax.
Although the fund can invest in securities of any maturity, FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to municipal bonds with maturities between eight and eighteen
years. As of the fiscal year ended October 31, 1995, the fund's
dollar-weighted average maturity was ___ years.
The performance of New York Municipal Income Fund is affected by the
economic and political conditions within the state of New York. Both New
York City and State have recently experienced significant financial
difficulty, and both the City's and the State's credit ratings are among
the lowest in the country.
TEMPORARY DEFENSIVE POLICIES. FMR normally invests each fund's assets
according to its investment strategy.
Each of the Equity Funds and High Yield reserves the right to invest
without limitation in preferred stocks and investment-grade debt
instruments for temporary, defensive purposes.
Each of Emerging Markets Income, Strategic Income, Government Investment,
Intermediate Bond, and Short Fixed-Income reserves the right
to invest without limitation in investment-grade money market or short-term
debt instruments for temporary, defensive purposes.
High Income Municipal, Intermediate Municipal Income , and
Short-Intermediate Municipal Income do not expect to invest in
federally taxable obligations. California Municipal Income and New York
Municipal Income do not expect to invest in federally or state taxable
obligations. Each of High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income,
and New York Municipal Income, however, reserves the right to invest
without limitation in short-term instruments, to hold a substantial amount
of uninvested cash, or to invest more than normally permitted in taxable
obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section. A complete listing of each fund's limitations and more
detailed information about each 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 a fund's investment
objective and policies and that doing so will help a fund achieve its
goal . Current holdings and recent investment strategies are described
in each fund's financial reports, which are sent to shareholders twice a
year. For a free SAI or financial report, call your investment
professional.
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.
RESTRICTIONS: With respect to 75% of its total assets, each of Overseas,
Mid Cap , Global Resources, Growth Opportunities, Large Cap ,
Equity Income, Income & Growth, High Yield, Government Investment,
Intermediate Bond , Short Fixed-Income, High Income Mu nicipal, and
Intermediate Municipal Income may not purchase more than 10% of the
outstanding voting securities of a single issuer.
With respect to 100% of its assets, each of Equity Growth, and
Strategic Opportunities may not purchase more than 10% of the outstanding
voting securities of a single issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable 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 purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
Taxable lower-quality debt securities (sometimes called "junk bonds"), and
tax-exempt lower-quality debt securities (sometimes called "municipal junk
bonds") often 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.
The table on the following page provides a summary of ratings assigned to
debt holdings (not including money market instruments) in the funds'
portfolios. These figures are dollar-weighted averages of month-end
portfolio holdings during the fiscal year ended 1995, and are presented as
a percentage of total security investments. These percentages are
historical and do not necessarily indicate a fund's current or future debt
holdings.
RESTRICTIONS: For all funds, except Short-Intermediate Municipal Income,
purchase of a debt security is consistent with a fund's debt quality policy
if it is rated at or above the stated level by Moody's or rated in the
equivalent categories by S&P, or is unrated but judged to be of equivalent
quality by FMR.
California Municipal Income and New York Municipal Income currently
intend to limit their investments in debt securities to those of
Baa-quality and above.
Intermediate Bond currently intends to limit its investments in debt
securities to those of Baa-quality and above, and currently intends to
limit its investments in debt securities rated Baa to 5% of its assets.
Short Fixed-Income currently intends to limit its investments in lower than
Baa-quality debt securities to less than 35% of its assets and currently
intends to limit its investments in debt securities to B-quality and above.
Global Resources currently intends to limit its investments in lower than
Baa-quality debt securities to less than 35% of its assets and currently
intends to limit its investments in debt securities to Caa-quality and
above.
FISCAL YEAR ENDED 1995 DEBT HOLDINGS, BY RATING
(AS A % OF INVESTMENTS IN EACH RATING CATEGORY) (AS A % OF INVESTMENTS IN
EACH RATING CATEGORY)
INVESTMENT GRADE* LOWER QUALITY*
STANDARD & POOR'S CORPORATION AAA , AA, A BBB BB B CCC CC,C
D NR
EQUITY FUNDS:
Overseas .
Equity Growth
Global Resources
Growth Opportunities
Strategic Opportunities
Equity Income .
Income & Growth
TAXABLE INCOME FUNDS:
Emerging Markets Income
High Yield
Strategic Income
Government Investment
Intermediate Bond
Short Fixed-Income
MUNICIPAL FUNDS:
High Income Municipal
Intermediate Municipal Income
Short Intermediate Municipal Income
MOODY'S INVESTORS SERVICE, INC. Aaa , Aa, A Baa Ba B Caa Ca
C
EQUITY FUNDS:
Overseas
Equity Growth
Global Resources
Growth Opportunities
Strategic Opportunities
Equity Income
Income & Growth
TAXABLE INCOME FUNDS:
Emerging Markets Income
High Yield
Strategic Income
Government Investment
Intermediate Bond
Short Fixed-Income
MUNICIPAL FUNDS:
High Income Municipal
Intermediate Municipal Income
Short Intermediate Municipal Income
(AS A % OF INVESTMENTS)
Emerging High Short-Inter
mediate
SECURITIES NOT RATED BY Strategic Equity Income Markets High Strategic
Short Income Municipal
MOODY'S OR S&P (dagger) Overseas Opportunities Income & Growth
Income Yield Income Fixed-Income Municipal Income
Investment Grade (double dagger)
Lower Quality(double dagger)
Total
* FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS
OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
(dagger) THE DOLLAR-WEIGHTED AVERAGE PERCENTAGES REFLECTED IN THIS TABLE
MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY
RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES.
(double dagger) AS DETERMINED BY FMR
Each of Overseas, Mid Cap , Equity Growth, Growth
Opportunities, Strategic Opportunities, Large Cap , Equity Income,
and Income & Growth currently intends to limit its investments in lower
than Baa-quality debt securities to less than 35% of its assets.
Government Investment currently intends to limit its investments in debt
securities to A-quality and above.
Intermediate Municipal Income currently intends to limit its
investments in debt securities to those of Baa-quality and above, and
currently intends to limit its investments in debt securities rated Baa to
25% of its assets.
Purchase of a debt security is consistent with Short-Intermediate
Municipal Income's debt quality policy if, with respect to 60% of its
assets, it is judged by FMR to be of equivalent quality to debt securities
rated A or better by Moody's or S&P. The fund currently intends to limit
its investments in debt securities rated below Baa by Moody's or BBB by
S&P, or unrated debt securities judged by FMR to be of equivalent quality,
to 5% of its assets. The fund currently intends to limit its investments in
debt securities to Ba-quality and above.
MONEY MARKET INSTRUMENTS are high-quality instruments that present minimal
credit risk. They may include U.S. Government obligations, commercial paper
and other short-term corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
U.S. GOVERNMENT SECURITIES are high-quality debt securities 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, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. They may be issued in
anticipation of future revenues, and may be backed by the full taxing power
of a municipality, the revenues from a specific project, or the credit of a
private organization. The value of some or all municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal securities or
the rights of municipal securities holders. A fund may own a municipal
security directly or through a participation interest.
CREDIT SUPPORT. Issuers may employ various forms of credit
enhancement, including letters of credit, guarantees, or insurance from a
bank, insurance company, or other entity. These arrangements expose the
fund to the credit risk of the entity. In the case of foreign entities,
extensive public information about the entity may not be available and the
entity may be subject to unfavorable political, economic, or governmental
developments which might affect its ability to honor its commitment.
STATE TAX-FREE SECURITIES include municipal obligations issued by
the states of California or New York or their counties, municipalities,
authorities, or other subdivisions. The ability of issuers to repay their
debt can be affected by many factors that impact the economic vitality of
either the state or a region within the state.
Other state tax-free securities include general obligations of U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will depend on
the strength of the U.S. dollar, interest rates, the price stability of oil
imports, and the continued existence of favorable tax incentives. Recent
legislation revised these incentives, but the government of Puerto Rico
anticipates only a slight reduction in the average real growth rates for
the economy.
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 securities may be unwilling to repay
principal and interest 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.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS (ADRS AND
EDRS) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
ASSET-BACKED SECURITIES include interests in pools of the following:
purchase contracts, financing leases, or sales agreements entered into by
municipalities; lower-rated debt securities; or consumer loans. The value
of these securities may be significantly affected by changes in interest
rates, the market's perception of issuers, and the creditworthiness of the
parties involved. Certain asset-backed securities rely on continued
payments by a municipality, and may also be subject to prepayment risk.
MORTGAGE SECURITIES are interests in pools of commercial or residential
mortgages, and include complex instruments such as collateralized mortgage
obligations and stripped mortgage-backed securities. Mortgage securities
may be issued by the U.S. Government or by private entities. For example,
Ginnie Maes are interests in pools of mortgage loans insured or guaranteed
by a U.S. Government agency. Because mortgage securities pay both interest
and principal as their underlying mortgages are paid off, they are subject
to prepayment risk. This is especially true for stripped securities. Also,
the value 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 value highly volatile.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt securities,
although they may be more volatile and the value of certain types of
stripped securities may move in the same direction as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, a 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.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S. repurchase
agreements, and may be denominated in foreign currencies. They also may
involve greater risk of loss if the counterparty defaults. Some
counterparties in these transactions may be less creditworthy than those in
U.S. markets.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
temporarily transfers possession of a portfolio instrument to another party
in return for cash. This could increase the risk of fluctuation in the
fund's yield or in the market value of its assets.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PUT FEATURES entitle the holder to put (sell back) an instrument to the
issuer or a financial intermediary. In exchange for this benefit, a fund
may pay periodic fees or accept a lower interest rate. Demand features and
standby commitments are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
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. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, 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 a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with a
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 a 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 a fund.
RESTRICTIONS. Each fund (except Overseas, Emerging Markets Income, High
Yield, and Strategic Income) may not purchase a security if, as a result,
more than 10% of its net assets would be invested in illiquid securities.
Each of Overseas, Emerging Markets Income, High Yield, and Strategic Income
may not purchase a security if, as a result, more than 15% of its net
assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying securities.
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 or type of
project. Economic, business, or political changes can affect all
securities of a similar type. A fund that is not diversified may be more
sensitive to changes in the market value of a single issuer or industry.
RESTRICTIONS: With respect to 100% of its total assets each of Equity
Growth and Strategic Opportunities may not purchase a security if, as a
result, more than 5% would be invested in the securities of any one issuer.
With respect to 75% of its total assets each of Overseas, Mid Cap ,
Global Resources, Growth Opportunities , Large Cap, Equity Income,
Income & Growth, High Yield, Government Investment, Intermediate
Bond , Short Fixed-Income, High Income Municipal, and Intermediate
Municipal Income may not purchase a security if, as a result, more than
5% would be invested in the securities of any one issuer.
Emerging Markets Income, Strategic Income, Short-Intermediate Municipal
Income, California Municipal Income, and New York Municipal Income are
considered non-diversified. Generally, to meet federal tax requirements at
the close of each quarter, each 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 one issuer
These limitations do not apply to U.S. Government securities.
BORROWING. Each fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each 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 a
fund's securities. A fund may also lend money to other funds advised by
FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a fund's
total assets; however, High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income,
and New York Municipal Income do not currently intend to make loans.
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.
OVERSEAS FUND seeks growth of capital primarily through investments in
foreign securities.
MID CAP FUND seeks long-term growth of capital.
EQUITY GROWTH FUND seeks to achieve capital appreciation by
investing primarily in common and preferred stock and securities
convertible into the common stock of companies with above-average growth
characteristics.
GLOBAL RESOURCES FUND seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in
securities of foreign and domestic companies that own or develop natural
resources, or supply goods and services to such companies, or in physical
commodities.
GROWTH OPPORTUNITIES FUND seeks to provide capital growth by investing
primarily in common stocks and securities convertible into common stocks.
STRATEGIC OPPORTUNITIES FUND seeks capital appreciation by investing
primarily in securities of companies believed by FMR to involve a "special
situation." Under normal conditions, the fund will invest at least 65% of
its total assets in companies involving a special situation. FMR intends to
invest primarily in common stocks and securities that are convertible into
common stocks; however, it also may invest in debt securities of all types
and quality if FMR believes that investing in these securities will result
in capital appreciation. The fund may invest up to 30% of its assets in
foreign investments.
LARGE CAP FUND seeks long-term growth of capital.
EQUITY INCOME FUND seeks a yield from dividend and interest income which
exceeds the composite dividend yield on securities comprising the S&P 500.
In addition, consistent with the primary objective of obtaining dividend
and interest income, the fund will consider the potential for achieving
capital appreciation.
INCOME & GROWTH FUND seeks both income and growth of capital by investing
in a diversified portfolio of equity and fixed-income securities with
income, growth of income and capital appreciation potential.
EMERGING MARKETS INCOME FUND seeks a high level of current income by
investing primarily in debt securities and other instruments of issuers in
emerging markets. As a secondary objective, the fund seeks capital
appreciation.
HIGH YIELD FUND seeks a combination of a high level of income and the
potential for capital gains by investing in a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon
securities, such as bonds, debentures and notes, convertible securities and
preferred stocks.
STRATEGIC INCOME FUND seeks a high level of current income by investing
primarily in debt securities. The fund may also seek capital appreciation.
GOVERNMENT INVESTMENT FUND seeks a high level of current income by
investing primarily in obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities.
INTERMEDIATE BOND FUND seeks to provide a high rate of income through
investment primarily in investment-grade fixed-income obligations.
SHORT FIXED-INCOME FUND seeks to obtain a high level of current income,
consistent with the preservation of capital, by investing primarily in a
broad range of investment-grade fixed-income securities. Where appropriate
the fund will take advantage of opportunities to realize capital
appreciation.
HIGH INCOME MUNICIPAL FUND seeks to provide a high current yield by
investing in a diversified portfolio of municipal obligations whose
interest is not included in gross income for purposes of calculating
federal income tax. The fund normally invests at least 80% of its net
assets in municipal obligations whose interest is free from federal income
tax.
INTERMEDIATE MUNICIPAL INCOME FUND seeks the highest level of income exempt
from federal income taxes that can be obtained consistent with the
preservation of capital. The fund normally invests at least 80% of its net
assets in securities whose interest is free from federal income tax.
SHORT-INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a level of current
income, exempt from federal income tax, as is consistent with preservation
of capital. The fund normally invests at least 80% of its net assets in
municipal obligations whose interest is free from federal income tax.
CALIFORNIA MUNICIPAL INCOME FUND seeks a high level of current
income free from federal income tax and California state income tax by
investing primarily in municipal securities. The fund normally invests at
least 80% of its net assets in securities whose interest is free from
federal and California income taxes.
NEW YORK MUNICIPAL INCOME FUND seeks a high level of current income
free from federal income tax and New York State and City personal income
taxes by investing primarily in municipal securities. The fund normally
invests at least 80% of its net assets in securities whose interest is free
from federal and New York State and City personal income taxes.
With respect to 75% of its total assets, each of Overseas, Mid Cap,
Global Resources, Growth Opportunities, Large Cap , Equity Income,
Income & Growth, High Yield, Government Investment, Intermediate
Bond, Short Fixed-Income, High Income Municipal and Intermediate
Municipal Income may not purchase a security if, as a result, more than
5% would be invested in the securities of a single issuer. With respect to
100% of its total assets, each of Equity Growth and Strategic
Opportunities may not purchase a security if, as a result, more than 5%
would be invested in the securities of a single issuer.
With respect to 75% of its total assets, each of Overseas, Mid Cap ,
Global Resources, Growth Opportunities, Large Cap , Equity Income,
Income & Growth, High Yield, Government Investment, Intermediate
Bond , Short Fixed-Income, High Income Municipal, and Intermediate
Municipal Income may not purchase more than 10% of the outstanding
voting securities of a single issuer. With respect to 100% of its total
assets, each of Equity Growth and Strategic Opportunities may not
purchase more than 10% of the outstanding voting securities of a single
issuer.
Each fund may borrow only for temporary or emergency purposes, but not in
an amount exceeding 33% of its total assets.
Loans, in the aggregate, may not exceed 33% of each fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of each class's assets are reflected in that
class's share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each 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 for certain of the funds. Each fund also
pays OTHER EXPENSES, which are explained on page 38.
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by a 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 a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. Equity Income
pays FMR a monthly management fee at an annual rate of 0.50% of its
average net assets. The fee for Equity Growth, Global Resources,
Income & Growth, Emerging Markets Income, High Yield, Strategic Income,
Government Investment, Intermediate Bond , Short Fixed-Income, High
Income Municipal, Intermediate Municipal Income, Short-Intermediate
Municipal Income, California Municipal Income, and New York Municipal
Income is calculated by adding a group fee rate to an individual fee
rate, and multiplying the result by each fund's average net assets. The fee
for Overseas, Mid Cap , Growth Opportunities, Strategic
Opportunities, and Large Cap is determined by taking a basic fee and
then applying a performance adjustment. The performance adjustment either
increases or decreases the management fee, depending on how well each fund
has performed relative to the Morgan Stanley Capital International Europe,
Australasia , Far East Index for Overseas, the S&P Mid Cap 400
Index for Mid Cap, or the S&P 500 for each of Growth Opportunities,
Strategic Opportunities, and Large Cap.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. For Overseas, Mid Cap , Equity Growth, Global
Resources, Growth Opportunities, Strategic Opportunities, Large Cap ,
and Income & Growth, this rate cannot rise above 0.52%, and it drops as
total assets under management increase. For Emerging Markets Income, High
Yield, Strategic Income, Government Investment, Intermediate Bond ,
Short Fixed-Income, High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income,
and New York Municipal Income , this rate cannot rise above 0.37%, and
it drops as total assets under management increase. The basic fee rate
(calculated monthly) is calculated by adding a group fee rate to an
individual fund fee rate, and multiplying the result by each fund's average
net assets.
The performance adjustment rate is calculated monthly by comparing each of
Overseas, Mid Cap , Growth Opportunities, Strategic Opportunities,
and Large Cap's performance to that of the respective indices over
the most recent 36-month period. For Mid Cap and Large Cap the
performance period will begin on or about March 1, 1996 and will eventually
span 36 months, but the performance adjustment will not take effect until
on or about February 1, 1997. The difference is translated into a
dollar amount that is added to or subtracted from the basic fee. The
maximum annualized performance adjustment rate is + 0. 20%.
Investment performance will be measured separately for each class of shares
offered by Overseas, Mid Cap , Growth Opportunities, Strategic
Opportunities and Large Cap and the least of the results obtained
will be used in calculating the performance adjustment.
The following table states the management fee for each fund for its most
recent fiscal year end.
Group Individual Total
Fee Rate Fund Fee Manageme
Rate nt Fee
Overseas [A]
0.45%
Mid Cap [B] 0.30%
Equity Growth
0.30%
Global Resources 0.45%
Growth Opportunities [A] 0.30%
Strategic Opportunities [A] 0.30%
Large Cap [B] 0.30%
Equity Income n/a n/a 0.50%
Income & Growth 0.20%
Emerging Markets Income 0.55%
High Yield 0.45%
Strategic Income 0.45%
Government Investment 0.30%
Intermediate Bond 0.30%
Short Fixed-Income 0.30%
High Income Municipal 0.25%
Intermediate Municipal Income 0.25%
Short-Intermediate Municipal Income 0.25%
California Municipal Income [B] 0.25%
New York Municipal Income [C] 0.25%
[A] The basic fee rate for the fiscal year ended 1995 was ___% for
Overseas, ___% for Growth Opportunities and __% for Strategic
Opportunities.
[B] Estimated
[C] Annualized
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 FIIAL
U.K. These sub-advisers are compensated for providing FMR with investment
research and advice on issuers based outside the United States. 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 a fee equal to 30%
of its management fee rate associated with investments for which the
sub-adviser provided investment advice.
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 a fund's investments that the
sub-adviser manages on a discretionary basis. FIIA pays FIIAL U.K. a fee
equal to 110% of the cost of providing these services.
For the fiscal year ended 1995, FMR, on behalf of each fund with
sub-advisory agreements paid FMR U.K., FMR Far East, FIJ, and FIIA fees
equal to ______ of each fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of each fund's annual
operating costs, the funds have other expenses as well.
State Street Bank & Trust Company (State Street) performs certain transfer
agency, dividend disbursing and shareholder services for Class A of the
Equity Funds , Emerging Markets Income, High Yield, Strategic Income,
Government Investment, Intermediate Bond , and Short Fixed-Income.
FIIOC performs certain transfer agency and dividend disbursing and
shareholder services for Class B of Overseas, Mid Cap , Global
Resources, Strategic Opportunities, Large Cap , Equity Income,
Emerging Markets Income, High Yield, Strategic Income, Government
Investment and Intermediate Bond Fund. FSC calculates the NAV and
dividends for each class of Overseas, Mid Cap, Equity Growth, Global
Resources, Growth Opportunities, Strategic Opportunities, Large Cap, Equity
Income, Income & Growth, Emerging Markets Income, High Yield, Strategic
Income, Government Investment, Intermediate Bond, and Short
Fixed-Income , maintains the general accounting records, and administers
the securities lending program for each fund . State Street's
address is P.O. Box 8302, Boston, Massachusetts 02266-8302.
In the fiscal year ended 1995, fees paid by each class (as a percentage of
average net assets) amounted to the following:
Class A Class B to Each Fund
to State FIIOC to FSC
Street
Overseas [A]
Equity Growth *
Global Resources [A]
Growth Opportunities *
Strategic Opportunities
Equity Income
Income & Growth *
Emerging Markets Income
High Yield
Strategic Income
Government Investment
Intermediate Bond
Short Fixed-Income *
* Fund does not offer Class B shares
[A] Annualized
State Street has entered into sub-arrangements pursuant to which FIIOC
performs certain transfer agency, dividend disbursing and shareholder
services for Class A shares. State Street pays FIIOC a portion of its fee
for Class A accounts for which FIIOC provides limited services, or its full
fee for Class A accounts that FIIOC maintains on its behalf.
UMB has entered into sub-arrangements pursuant to which FIIOC
performs transfer agency, dividend disbursing and shareholder services for
Class A shares of High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income and New
York Municipal Income . UMB has entered into sub-arrangements pursuant
to which FIIOC performs certain transfer agency, dividend disbursing and
shareholder services for Class B shares of High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income and New York Municipal Income . UMB has
entered into sub-arrangements pursuant to which FSC calculates the NAV and
dividends for each class of High Income Municipal, Intermediate
Municipal Income, Short-Intermediate Municipal Income, California Municipal
Income and New York Municipal Income, and maintains each fund's general
accounting records. All of the fees are paid to FIIOC and FSC by UMB, which
is reimbursed by the applicable class or the fund, as appropriate, for such
payments.
In the fiscal year ended 1995, fees paid by each class (as a percentage
of average net assets) amounted to the following:
UMB to UMB to UMB to
FIIOC on FIIOC on FSC on
behalf of behalf of behalf of
Class A Class B each fund
High Income Municipal
Intermediate Municipal Income
Short-Intermediate Municipal Income
New York Municipal Income[A]
[A] Annualized
Class A shares of each fund have adopted a DISTRIBUTION AND SERVICE
PLAN . Under the Plans, Class A of each fund is authorized to pay FDC a
monthly distribution fee as compensation for its services and expenses in
connection with the distribution of Class A shares and providing personal
service to and/or maintenance of Class A shareholder accounts. Class A of
Equity Growth and Equity Income may pay FDC a distribution fee at an annual
rate up to 0.75% of its average net assets, or such lesser amount as the
Trustees may determine from time to time. Class A of Overseas, Mid Cap,
Global Resources, Growth Opportunities, Strategic Opportunities, Large Cap
and Income & Growth may pay FDC a distribution fee at an annual rate up to
0.65% of its average net assets, or such lesser amount as the Trustees may
determine from time to time. Class A of Emerging Markets Income, High
Yield, Strategic Income, Government Investment, Intermediate Bond, High
Income Municipal, Intermediate Municipal Income, Short-Intermediate
Municipal Income, New York Municipal Income and California Municipal Income
may pay FDC a distribution fee at an annual rate up to 0.40% of its average
net assets, or such lesser amount as the Trustees may determine from time
to time.
Class A of each of the Equity Funds currently pays FDC monthly at an annual
rate of 0.50% of its average net assets throughout the month; Class A of
each of the Bond Funds and the Intermediate-Term Bond Funds currently pays
FDC monthly at an annual rate of 0.25% of its average net assets throughout
the month; and Class A of each of the Short-Term Bond Funds currently pays
FDC monthly at an annual rate of 0.15% of its average net assets throughout
the month. Class A distribution fee rates may be increased only when the
Trustees believe that it is in the best interests of Class A shareholders
to do so.
Up to the full amount of the Class A distribution fee may be reallowed
to Investment Professionals based upon the level of marketing and
distribution services provided.
Class B shares of each fund have also adopted a DISTRIBUTION AND
SERVICE PLAN . Under the Class B Plans, Class B of each fund is
authorized to pay FDC a monthly distribution fee as compensation for its
services and expenses in connection with the distribution of Class B
shares. Class B of each fund may pay FDC a distribution fee at an annual
rate of up to 0.75% of its average net assets throughout the month, or such
lesser amount as the Trustees may determine from time to time.
Class B of each of Overseas, Mid Cap, Global Resources, Strategic
Opportunities, Large Cap, and Equity Income currently pays FDC monthly at
an annual rate of 0.75% of its average net assets throughout the month.
Class B of each of the Bond Funds and the Intermediate-Term Bond Funds
currently pays FDC monthly at an annual rate of 0.65% of its average net
assets throughout the month. Class B distribution fee rates for each of
the Bond Funds and Intermediate-Term Bond Funds may be increased only when
the Trustees believe that it is in the best interests of the Class B
shareholders to do so.
In addition, pursuant to each Class B Plan, Investment Professionals are
compensated at an annual rate of 0.25% of average net assets of that fund's
Class B for providing personal service to and/or maintenance of Class B
shareholder accounts.
The Plans also specifically recognize that FMR may make payments from its
management fee revenue, past profits, or other resources to reimburse FDC
for payments made to Investment Professionals for their services to each
class's shareholders and costs associated with promoting the funds. The
Board of Trustees of each fund has authorized such payments.
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 portfolio turnover rates for Mid Cap and Large Cap are not expected to
exceed ___%, and ___% respectively, for the first fiscal period ending
November 30, 1996. The portfolio turnover rate for California Municipal
Income is not expected to exceed ___% for its first fiscal period ending
October 31, 1996.
The portfolio turnover rate for the fiscal year ended 1995 was __% for
Overseas, ___% for Equity Growth, ___% for Global Resources, __% for Growth
Opportunities, ___% for Strategic Opportunities, ___% for Equity Income,
___% for Income & Growth, ___% for Emerging Markets Income, ___% for High
Yield, ___% for Strategic Income,___% for Government Investment, __% for
Intermediate Bond, ___% for Short Fixed-Income, __% for High Income
Municipal, __% for Intermediate Municipal Income,___% for
Short-Intermediate Municipal Income, and __% for New York Municipal Income.
These rates vary 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
TYPES OF ACCOUNTS
Read your investment professional's program materials in conjunction with
this prospectus for additional service features or fees that may apply.
Certain features of the funds, such as minimum initial or subsequent
investment amounts, may be modified in these programs, and administrative
charges may be imposed for the services rendered. Your investment
professional (including broker-dealers) may charge you a transaction fee
with respect to the purchase and sale of fund shares.
The different ways to set up (register) your account with Fidelity are
listed at the right.
The account guidelines that follow may not apply to certain funds or to
certain retirement accounts. For instance, tax-free funds are not available
for purchase in retirement accounts. If your employer offers a fund through
a retirement program, contact your employer for more information. Otherwise
call your investment professional directly.
If you have selected Fidelity Advisor funds as an investment option through
an insurance company group pension program, please contact the provider
directly.
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 (THE FOLLOWING OPTIONS ARE AVAILABLE ONLY FOR TAXABLE FUNDS)
TO SHELTER YOUR RETIREMENT SAVINGS FROM TAXES
Retirement plans allow individuals to shelter investment income and
capital gains from current taxes. In addition, contributions to these
accounts may be tax deductible. Retirement accounts require special
applications and typically have lower minimums.
(solid bullet) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal
age under 701/2 with earned income to invest up to $2,000 per tax year.
Individuals can also invest in a spouse's IRA if the spouse has earned
income of less than $250.
(solid bullet) ROLLOVER IRAS retain special tax advantages for certain
distributions from employer-sponsored retirement plans.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide small
business owners or those with self-employed income (and their eligible
employees) with many of the same advantages as a Keogh, but with fewer
administrative requirements.
(solid bullet) 401(K) PLANS allow employees of corporations 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) MONEY PURCHASE/PROFIT SHARING PLANS (KEOGH PLANS) are
tax-deferred pension accounts designated for employees of unincorporated
businesses or for persons who are self-employed.
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). Contact your investment
professional.
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
Contact your investment professional.
HOW TO BUY SHARES
Once each business day, two share prices are calculated for Class A shares
of each fund: the offering price and the NAV. The offering price for Class
A shares includes the effect of a front-end sales charge, which you pay
when you buy Class A shares. If you qualify for a front-end sales charge
waiver as described on page 51, your share price will be Class A's NAV. If
you pay a front-end sales charge on your purchase of Class A shares, your
share price will be the offering price. Each fund's Class B NAV, is also
calculated every business day. Class B shares of each fund are sold without
a front-end sales charge and may be subject to a CDSC upon redemption. For
information on how the CDSC is calculated, see "Transaction Details," page
__.
Shares are purchased at the next offering price or NAV, as applicable,
calculated after your order is received and accepted by the transfer agent.
The offering price and NAV are normally calculated at 4:00 p.m. Eastern
time.
It is the responsibility of your investment professional to transmit your
order to buy shares to the appropriate transfer agent before 4:00 p.m.
Eastern time.
The transfer agent must receive payment within three business days after an
order for shares is placed; otherwise your purchase order may be canceled
and you could be held liable for resulting fees and/or losses.
Share certificates may be available for Class A shares upon request. Share
certificates are not available for Class B shares.
IF YOU ARE NEW TO THE FIDELITY ADVISOR FUNDS, complete and sign an account
application and mail it along with your check. If there is no account
application accompanying this prospectus, call your investment
professional.
If you are investing through a tax-sheltered retirement plan, such as an
IRA, for the first time, you will need a special application. Contact your
investment professional for more information and a retirement account
application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY ADVISOR FUND, you can:
(small solid bullet) Mail an account application with a check,
(small solid bullet) Place an order and wire money into your account,
(small solid bullet) Open your account by exchanging from the same class of
another Fidelity Advisor fund, or
(small solid bullet) Contact your investment professional.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500 *
For Fidelity Advisor retirement accounts $500
Through automatic investment plans $1,000 *
TO ADD TO AN ACCOUNT $250 *
For Fidelity Advisor retirement accounts $100
Through automatic investment plans $100 *
MINIMUM BALANCE $1,000 *
For Fidelity Advisor retirement accounts NONE
* ACCOUNT MINIMUMS ARE WAIVED FOR PURCHASES INTO NON-RETIREMENT ACCOUNTS
WITH DISTRIBUTIONS FROM A FIDELITY DEFINED TRUST ACCOUNT.
PURCHASE AMOUNTS OF MORE THAN $100,000 WILL NOT BE ACCEPTED FOR CLASS B
SHARES.
For further information on opening an account, please consult your
investment professional or refer to the account application.
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<TABLE>
<CAPTION>
<S> <C> <C>
PHONE (small solid bullet) Contact your
investment professional (small solid bullet) Contact your investment
YOUR INVESTMENT PROFESSIONAL or, if you are investing through a professional or, if you are investing
broker-dealer or insurance through a broker-dealer or
representative, call 1-800-522-7297. insurance representative, call
If you are investing through a bank 1-800-522-7297. If you are
representative, call 1-800-843-3001. investing through a bank
(small solid bullet) Exchange from
the same class of representative, call
another Fidelity Advisor fund account 1-800-843-3001.
with the same registration, including (small solid bullet) Exchange from the same class of
name, address, and taxpayer ID another Fidelity Advisor fund
number. account with the same registration,
including name, address, and
taxpayer ID number.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Mail (mail_graphic) (small solid bullet) Complete and sign the account (small solid bullet) Make your check payable to the
application. Make your check complete name of the fund of your
payable to the complete name of the choice and note the applicable
fund of your choice and note the class. Indicate your fund account
applicable class. Mail to the address number on your check and mail to
indicated on the application. the address printed on your account
statement.
(small solid bullet) Exchange by mail: call your
investment professional for
instructions.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
In Person (hand_graphic) (small solid bullet) Bring your account
application and (small solid bullet) Bring your check to your investment
check to your investment professional.
professional.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wire (wire_graphic) (small solid bullet) Not available (small solid bullet) If you are investing through a
broker-dealer or insurance
representative, wire to:
State Street Bank & Trust
Co.
Routing # 011000028
ATTN: Custody &
Shareholder Services Division
CREDIT: Fund Name
DDA# 99029084
FBO: (Account name)
(Account number)
If you are investing through a bank
representative, wire to:
Banker's Trust Co.
Routing # 021001033
Custody & Shareholder
Services Division
Fidelity Advisor DART
System
DDA#: (call 1-800-843-3001)
FBO: (Account name)
(Account number)
Specify the complete name of the
fund of your choice, note the
applicable class, and include your
account number and your name.
</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. Your shares will be sold at
the next NAV calculated after your order is received and accepted by the
transfer agent, less any applicable CDSC. NAV is normally calculated 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 pages.
TO SELL SHARES IN A FIDELITY ADVISOR RETIREMENT ACCOUNT, your request must
be made in writing, except for exchanges to shares of the same class of
another Fidelity Advisor fund or shares of other Fidelity funds, which can
be requested by phone or in writing.
TO SELL CERTIFICATED SHARES, call your investment professional for
instructions.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR ACCOUNT SHARES, leave at least
$1,000 worth of shares in the account to keep it open (account minimums do
not apply to retirement and Fidelity Defined Trust accounts.)
TO SELL SHARES BY BANK WIRE, you will need to sign up for this service in
advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and the fund 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,
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration, or
(small solid bullet) You wish to have redemption proceeds wired to a
non-predesignated bank account.
You should be able to obtain a signature guarantee from a bank, broker,
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) The applicable class name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
signed certificates (if applicable), and
(small solid bullet) Any other applicable requirements listed in the
following table.
Deliver your letter to your investment professional, or mail it to the
following address:
(small solid bullet) If you purchased your shares through a broker-dealer
or insurance representative:
Fidelity Advisor Funds
P.O. Box 8302
Boston, MA 02266-8302
(small solid bullet) If you purchased your shares through a bank
representative:
Fidelity Investments Institutional Operations Company
82 Devonshire Street ZR5
Boston, MA 02109
Unless otherwise instructed, the transfer agent will send a check to the
record address.
CHECKWRITING
If you have a checkbook for your account in Short Fixed-Income or
Short-Intermediate Municipal Income, you may write an unlimited number of
checks. The minimum amount for a check is $500. Do not, however, try to
close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PHONE All account types except retirement (small solid bullet) Maximum check request: $100,000.
YOUR INVESTMENT PROFESSIONAL
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(phone_graphic) All account types (small solid bullet) You may exchange to the same
class of other Fidelity Advisor funds
or 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
Sole Proprietorship, UGMA, UTMA signed by all persons required to
sign for transactions, exactly as
their names appear on the account
and sent to your investment
Retirement account professional.
(small solid bullet) The account owner should complete
a retirement distribution form.
Contact your investment
professional or, if you purchased
your shares through a broker-dealer
or insurance representative, call
1-800-522-7297. If you purchased
your shares through a bank
representative, call 1-800-843-3001.
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.
Executor, Administrator, (small solid bullet) For instructions, contact your
Conservator/Guardian investment professional or, if you
purchased your shares through a
broker-dealer or insurance
representative, call
1-800-522-7297. If you purchased
your shares through a bank
representative, call
1-800-843-3001.
Wire (wire_graphic) All account types except retirement (small solid bullet) You must sign up for the wire
feature before using it. To verify that
it is in place, contact your
investment professional or, if you
purchased your shares through a
broker-dealer or insurance
representative, call 1-800-522-7297.
If you purchased your shares
through a bank representative, call
1-800-843-3001. Minimum wire:
$500.
(small solid bullet) Your wire redemption request must
be received by the transfer agent
before 4:00 p.m. Eastern time for
money to be wired on the next
business day.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Check (check_graphic) For all non-retirement Short (small solid bullet) Minimum check: $500.
Fixed-Income and Short-Intermediate (small solid bullet) All account owners must sign a
Municipal Income accounts only. signature card to receive a
checkbook.
</TABLE>
Telephone redemptions cannot be processed for Fidelity Advisor fund
prototype retirement accounts where State Street Bank and Trust Company is
the custodian.
INVESTOR SERVICES
Fidelity Advisor funds provide a variety of services to help you manage
your account.
INFORMATION SERVICES
STATEMENTS AND REPORTS that the transfer agent sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction, 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 will be mailed,
even if you have more than one account in the fund. Call your investment
professional if you need additional copies of financial reports.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your shares and buy shares of the same
class of other Fidelity Advisor funds or shares of other Fidelity funds by
telephone or in writing. The Class A shares you exchange will carry credit
for any front-end sales charge you previously paid in connection with their
purchase.
Note that exchanges out of a 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 "Exchange
Restrictions," page __.
FIDELITY ADVISOR SYSTEMATIC WITHDRAWAL PROGRAM lets you set up periodic
redemptions from your account. Class A shares with an account value of
$10,000 or more are eligible for this program. Because of Class A's
front-end sales charge, you may not want to set up a systematic withdrawal
plan during a period when you are buying Class A shares on a regular basis.
One easy way to pursue your financial goals is to invest money regularly.
Fidelity Advisor funds offer 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 your investment professional for more information.
REGULAR INVESTMENT PLANS
FIDELITY ADVISOR SYSTEMATIC INVESTMENT PROGRAMS
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY ADVISOR FUND
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM MINIMUM FREQUENCY SETTING UP OR CHANGING
INITIAL ADDITIONAL Monthly, bimonthly, (small solid bullet) For a new account, complete the appropriate section on the
$1,000 $100[A] quarterly, application.
or semi-annually (small solid bullet) For existing accounts, call your investment professional for an
application.
(small solid bullet) To change the amount or frequency of your investment, contact
your Investment Professional directly or, if you purchased your
shares through a broker-dealer or insurance representative, call
1-800-522-7297. If you purchased your shares through a bank
representative, call 1-800-843-3001. Call at least 10 business
days prior to your next scheduled investment date (20 business
days if you purchased your shares through a bank).
</TABLE>
TO DIRECT DISTRIBUTIONS FROM A FIDELITY DEFINED TRUST TO A FIDELITY
ADVISOR FUND
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM MINIMUM
SETTING UP OR CHANGING
INITIAL ADDITIONAL (small solid bullet) For a new or existing account, ask your investment professional
Not Not
for the appropriate enrollment form.
Applicable Ap (small solid bullet) To change the fund to which your distributions are directed,
plicable contact your investment professional for instructions.
</TABLE>
FIDELITY ADVISOR SYSTEMATIC EXCHANGE PROGRAM
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND OR A FIDELITY ADVISOR FUND
TO ANOTHER FIDELITY ADVISOR FUND
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, quarterly, (small solid bullet) To establish, call your investment professional after both accounts
semi-annually, or are opened.
annually (small solid bullet) To change the amount or frequency of your investment, contact
your investment professional directly or, if you purchased your
shares through a broker-dealer or insurance representative, call
1-800-522-7297. If you purchased your shares through a bank
representative, call 1-800-843-3001.
(small solid bullet) The account from which the exchanges are to be processed must
have a minimum balance of $10,000. The account into
which the exchange is being processed must have a minimum
balance of $1,000.
(small solid bullet) Both accounts must have the same registration and taxpayer ID
numbers.
(small solid bullet) Call at least 2 business days prior to your next scheduled
exchange date.
</TABLE>
[A] BECAUSE THEIR SHARE PRICES FLUCTUATE, THE FUNDS MAY NOT BE APPROPRIATE
CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net income and capital gains
to shareholders each year. Each fund pays capital gains, if any, in
December and may pay additional capital gains after the close of its fiscal
year. Normally, dividends for Equity Income and Income & Growth are
distributed in March, June, September and December; dividends for Overseas,
Mid Cap , Equity Growth, Global Resources, Growth Opportunities,
Strategic Opportunities, and Large Cap are distributed in December;
dividends for Equity Growth and Equity Income may also be distributed in
January; dividends for Emerging Markets Income, Strategic Income, High
Yield, Intermediate Bond , Government Investment, Short Fixed-Income,
High Income Municipal, Intermediate Municipal Income, Short-Intermediate
Municipal Income, California Municipal Income, and New York Municipal
Income are declared daily and paid monthly.
DISTRIBUTION OPTIONS
When you open an account, specify on your account application how you want
to receive your distributions. The funds offer four options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the same class 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 in additional shares of the same class of the
fund, 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) PROGRAM. Your dividend and
capital gain distributions will be automatically invested in the same class
of shares of another identically registered Fidelity Advisor fund.
If you select distribution option 2 or 3 and the U.S. Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months,
those checks will be reinvested in your account at the current NAV and your
election may be converted to the Reinvestment Option. You may change your
distribution option at any time by notifying the transfer agent in writing.
For retirement accounts, all distributions are automatically reinvested.
When you are over 59 1/2 years old, you can receive distributions in cash.
Shares purchased through reinvestment of dividend and capital gain
distributions are not subject to a sales charge. If you direct Class A
distributions to a fund with a front-end sales charge, you will not pay a
sales charge on those purchases.
When each of Overseas, Mid Cap, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap, Equity Income, and
Income & Growth deducts a distribution from its NAV, the reinvestment price
is the applicable fund's NAV at the close of business that day. Dividends
from Emerging Markets Income, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income, and New York Municipal Income will be
reinvested at the applicable fund's NAV on the last day of the month.
Capital gain distributions from these funds will be reinvested at the NAV
as of the date the applicable fund deducts the distributions from its NAV.
Distribution checks will be mailed within seven days or longer for a
December ex-dividend date.
TAXES
As with any investment, you should consider how an investment in the funds
could affect you. Below are some of the funds' tax implications. If your
account is not a tax-deferred retirement account, be aware of these tax
implications.
TAXES ON DISTRIBUTIONS. Interest income that High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income, and New York Municipal Income earn is
distributed to shareholders as income dividends. Interest that is federally
tax-free remains tax-free when it is distributed. Distributions from each
fund (except High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income ), however, are subject to federal income tax.
Each fund ( except California Municipal Income and New York Municipal
Income) may also be subject to state or local taxes. If you live
outside the United States, your distributions from these funds could also
be taxed by the country in which you reside.
For federal tax purposes, income and short-term capital gain distributions
for each fund (except High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income,
and New York Municipal Income), are taxed as dividends; long-term
capital gain distributions are taxed as long-term capital gains.
However, for shareholders of High Income Municipal, Intermediate
Municipal Income, Short-Intermediate Municipal Income, California Municipal
Income, and New York Municipal Income , gain on the sale of tax-free
bonds results in taxable distributions. Short-term capital gains and a
portion of the gain on bonds purchased at a discount are taxed as
dividends; long-term capital gain distributions, if any, are taxed as
long-term capital gains.
Mutual fund dividends from U.S. Government securities are generally free
from state and local income taxes. However, particular states may limit
this benefit, and some types of securities, such as repurchase agreements
and some agency-backed securities, may not qualify for the benefit. In
addition, some states may impose intangible property taxes. You should
consult your own tax adviser for details and up-to-date information on the
tax laws in your state.
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.
Every January, the transfer agent will send you and the IRS a statement
showing the taxable distributions paid to you in the previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each of High Income Municipal, Intermediate
Municipal Income, Short-Intermediate Municipal Income, California Municipal
Income, and New York Municipal Income may invest up to 100% of its assets
in these securities. Individuals who are subject to the tax must report
this interest on their tax returns.
A portion of the dividends from High Income Municipal, Intermediate
Municipal Income, Short-Intermediate Municipal Income, California Municipal
Income, and New York Municipal Income may be free from state or local
taxes. Income from investments in your state are often tax-free to you.
Each year, the transfer agent will send you a breakdown of income from each
state to help you calculate your taxes.
To the extent that New York Municipal Income fund's income dividends are
derived from state tax-free investments, they will be free from New York
State and City personal income taxes.
To the extent that California Municipal Income fund's income dividends are
derived from interest on state tax-free investments, they will be free from
California state personal income tax. Distributions derived from
obligations that are not California state tax-free obligations, as well as
distributions from short or long-term capital gains, are subject to
California state personal income tax. Corporate taxpayers should note that
the fund's income dividends and other distributions are not exempt from
California state franchise or corporate income taxes.
During the fiscal year ended 1995, __% of the income dividends from High
Income Municipal, Intermediate Municipal Income, Short-Intermediate
Municipal Income, and New York Municipal Income were free from federal
income tax and __% of New York Municipal Income fund's income dividends
were free from New York taxes. And during the fiscal year ended 1995, ___%
of High Income Municipal's, __% of Intermediate Municipal Income's , __% of
Short-Intermediate Municipal Income's, and ___% of New York Municipal
Income's income dividends were subject to the federal alternative minimum
tax.
TAXES ON TRANSACTIONS. Your redemptions-including exchanges-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 a fund, the transfer agent will send you a
confirmation statement showing how many shares you sold and at what price.
You will also receive a consolidated transaction statement at least
quarterly. 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 just before a fund deducts a
distribution from its NAV, 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.
CURRENCY CONSIDERATIONS. For funds that can invest in foreign securities,
if a fund's dividends exceed its taxable income in any year, which is
sometimes the result of currency-related losses, all or a portion of the
fund's dividends may be treated as a return of capital to shareholders for
tax purposes. To minimize the risk of a return of capital, each of these
funds may adjust its dividends to take currency fluctuations into account,
which may cause the dividends to vary. Any return of capital will reduce
the cost basis of your shares, which will result in a higher reported
capital gain or a lower reported capital loss when you sell your shares.
The statement you receive in January will specify if any distributions
included a return of capital.
Undistributed net gains from currency transactions, if any, will generally
be distributed as a separate dividend in December.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on a fund and
its investments and these taxes generally will reduce the fund's
distributions. However, an offsetting tax credit or deduction may be
available to you. If so, your tax statement will show more taxable income
or capital gains than were actually distributed by the funds, 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, a fund may
have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Each class's offering price and NAV is normally calculated as of
the close of business of the NYSE, normally 4:00 p.m. Eastern time.
A CLASS'S NAV is the value of a single share. The NAV of each class is
computed by adding that class's pro rata share of the value of the
applicable fund's investments, cash, and other assets, subtracting that
class's pro rata share of the value of the applicable fund's liabilities,
subtracting the liabilities allocated to that class, and dividing the
result by the number of shares of that class that are outstanding.
Each fund's assets are valued primarily on the basis of market quotations,
if available. 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
quotations are not readily available, or if the values have been materially
affected by events occurring after the closing of a foreign market, assets
are valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE OFFERING PRICE (price to buy one share) is the applicable
class's NAV, plus a sales charge for Class A shares. Class A has a maximum
sales charge of 3.50% of the offering price for the Equity Funds; 3.50% of
the offering price for the Bond Funds; 2.75% of the offering price for the
Intermediate-Term Bond Funds; and 1.50% of the offering price for the
Short-Term Bond Funds. The REDEMPTION PRICE (price to sell one share) is
the applicable class's NAV, minus any applicable CDSC.
SALES CHARGES AND INVESTMENT PROFESSIONAL
CONCESSIONS - CLASS A
EQUITY FUNDS: Sales Charge as % of: Investment
Profession
al
Concession
as % of
Offering
Price
Offering Net
Price Amount
Invested
Up to $49,999 3.50% 3.63% 3.00%
$50,000 to $99,999 3.00% 3.09% 2.50%
$100,000 to $249,999 2.50% 2.56% 2.00%
$250,000 to $499,999 1.50% 1.52% 1.25%
$500,000 to $999,999 1.00% 1.01% 0.75%
$1,000,000 or more None None *
BOND FUNDS: Sales Charge as % of: Investment
Profession
al
Concession
as % of
Offering
Price
Offering Net
Price Amount
Invested
Up to $49,999 3.50% 3.63% 3.00%
$50,000 to $99,999 3.00% 3.09% 2.50%
$100,000 to $249,999 2.50% 2.56% 2.00%
$250,000 to $499,999 1.50% 1.52% 1.25%
$500,000 to $999,999 1.00% 1.01% 0.75%
$1,000,000 or more None None *
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERMEDIATE-TERM BOND FUNDS: Sales Charge as % of: Investment
Profession
al
Concession
as % of
Offering
Price
Offering Net
Price Amount
Invested
Up to $49,999 2.75% 2.83% 2.25%
$50,000 to $99,999 2.25% 2.30% 2.00%
$100,000 to $249,999 1.75% 1.78% 1.50%
$250,000 to $499,999 1.50% 1.52% 1.25%
$500,000 to $999,999 1.00% 1.01% 0.75%
$1,000,000 or more None None *
</TABLE>
SHORT-TERM BOND FUNDS: Sales Charge as % of: Investment
Profession
al
Concession
as % of
Offering
Price
Offering Net
Price Amount
Invested
Up to $499,999 1.50% 1.52% 1.25%
$500,000 to $999,999 1.00% 1.01% 0.75%
$1,000,000 or more None None *
* See Finders Fee below.
FINDERS FEE. On eligible purchases of Class A shares in amounts of $1
million or more, investment professionals will be compensated with a fee at
the rate of 0.25% of the amount purchased.
Any assets on which a finders fee h as been paid will bear a contingent
deferred sales charge (Class A CDSC) if they do not remain in Class A
shares of the Fidelity Advisor Funds, Initial Class shares of Daily Money
Fund: US Treasury Portfolio or Daily Money Fund: Money Market Portfolio,
or shares of Daily Tax-Exempt Money Fund, for a period of at least one
uninterrupted year. The Class A CDSC will be 0.25% of the lesser of the
cost of the shares at the initial date of purchase or the value of the
shares at redemption, not including any reinvested dividends or capital
gains. Class A CDSC shares representing reinvested dividends and capital
gains, if any, will be redeemed first, followed by other Class A CDSC
shares that have been held for the longest period of time.
The Class A CDSC does not apply to redemptions of shares from Advisor
Retirement Connection or similar FIIS-sponsored programs whose assets are
composed entirely of Fidelity Advisor funds or of Fidelity Advisor funds
and other non-mutual fund assets.
CONTINGENT DEFERRED SALES CHARGE. Class B shares may, upon
redemption, be assessed a CDSC based on the following schedules:
EQUITY FUNDS THAT OFFER CLASS B SHARES:
From Date of Purchase Contingent
Deferred
Sales Charge
Less than 1 year 4%
1 year to less than 2 years 3%
2 years to less than 3 years 3%
3 years to less than 4 years 2%
4 years to less than 5 years 1%
5 years to less than 6 years [A] 0%
BOND FUNDS:
From Date of Purchase Contingent
Deferred
Sales Charge
Less than 1 year 4%
1 year to less than 2 years 3%
2 years to less than 3 years 3%
3 years to less than 4 years 2%
4 years to less than 5 years 1%
5 years to less than 6 years [A] 0%
INTERMEDIATE-TERM BOND FUNDS:
From Date of Purchase Contingent
Deferred
Sales Charge
Less than 1 year 3%
1 year to less than 2 years 2%
2 years to less than 3 years 1%
3 years to less than 4 years [B] 0%
[A] AFTER A MAXIMUM HOLDING PERIOD OF SIX YEARS, CLASS B SHARES WILL
CONVERT AUTOMATICALLY TO CLASS A SHARES OF THE SAME FIDELITY ADVISOR FUND.
[B] AFTER A MAXIMUM HOLDING PERIOD OF FOUR YEARS, CLASS B SHARES WILL
CONVERT AUTOMATICALLY TO CLASS A SHARES OF THE SAME FIDELITY ADVISOR FUND.
When exchanging Class B shares of one fund for Class B shares of another
Fidelity Advisor fund or Class B shares of Daily Money Fund: U.S. Treasury
Portfolio, your Class B shares retain the CDSC schedule in effect when they
were originally purchased.
Investment Professionals with whom FDC has agreements receive as
compensation from FDC a concession equal to 3.00% (2.00% for the
Intermediate-Term Bond Funds) of your purchase of Class B shares.
The CDSC will be calculated based on the lesser of the cost of Class B
shares at the initial date of purchase or the value of Class B shares at
redemption, not including any reinvested dividends or capital gains. In
determining the applicability and rate of any CDSC at redemption, Class B
shares representing reinvested div idends and capital gains, if any,
will be redeemed first, followed by Class B shares that have been held for
the longest period of time. Class B shares acquired through distributions
(dividends or capital gains) will not be subject to a CDSC.
CONVERSION FEATURE. After a maximum holding period of six years from the
initial date of purchase ( four years for the Intermediate-Term Bond
Funds) , Class B shares and any capital appreciation associated with
those shares, convert automatically to Class A shares of the same Fidelity
Advisor fund. Conversion to Class A shares will be made at NAV. At the
time of conversion, a portion of the Class B shares purchased through the
reinvestment of dividends or capital gains (Dividend Shares) will also
convert to Class A shares. The portion of Dividend Shares that will
convert is determined by the ratio of your converting Class B non-Dividend
Shares to your total Class B non-Dividend Shares.
For more information about the CDSC, including the conversion feature and
the permitted circumstances for CDSC waivers, contact your investment
professional.
REINSTATEMENT PRIVILEGE. If you have sold all or part of your
Class A or Class B shares of a fund, you may reinvest an amount equal to
all or a portion of the redemption proceeds in the same class of any
Fidelity Advisor fund, at the NAV next determined after receipt of your
investment order, provided that such reinvestment is made within 30 days of
redemption. Under these circumstances, the dollar amount of the CDSC, if
any, you paid on Class A or Class B shares will be reimbursed to you by
reinvesting that amount in Class A or Class B shares, as applicable. You
must reinstate your shares into an account with the same registration.
This privilege may be exercised only once by a shareholder with respect to
a fund and certain restrictions may apply. For purposes of the CDSC
holding period schedule, the holding period of your Class A or Class B
shares will continue as if the shares had not been redeemed
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 a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity and the transfer
agent may only be liable for losses resulting from unauthorized
transactions if they do not follow reasonable procedures designed to verify
the identity of the caller. Fidelity and the transfer agent will request
personalized security codes or other information, and may also record
calls. You should verify the accuracy of the confirmation statements
immediately after receipt. If you do not want the ability to redeem and
exchange by telephone, call the transfer agent for instructions. Additional
documentation may be required from corporations, associations and certain
fiduciaries.
IF YOU ARE UNABLE TO REACH THE TRANSFER AGENT BY PHONE (for example, during
periods of unusual market activity), consider placing your order by mail.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also 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.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased at the
next NAV or offering price, as applicable, calculated after your order is
received and accepted by the transfer agent. 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) The funds do 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) Each 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 a fund or the
transfer agent has incurred.
(small solid bullet) Direct Purchases: You begin to earn dividends as of
the first business day following the day the fund receives payment.
(small solid bullet) Automated Purchase Orders: You begin to earn dividends
as of the business day your order is received and accepted.
AUTOMATED PURCHASE ORDERS. Shares of each fund can be purchased or sold
through investment professionals utilizing an automated order placement and
settlement system that guarantees payment for orders on a specified date.
TO AVOID THE COLLECTION PERIOD associated with check purchases, consider
buying shares by bank wire, U.S. Postal money order, U.S. Treasury check,
or Federal Reserve check.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV, minus any applicable CDSC, calculated after your order is
received and accepted by the transfer agent. 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 a fund, it may take up to seven days to pay you.
(small solid bullet) Shares of Emerging Markets Income, High Yield,
Strategic Income, Government Investment, Intermediate Bond , Short
Fixed-Income, High Income Municipal, Intermediate Municipal Income ,
Short-Intermediate Municipal Income, California Municipal Income, and
New York Municipal Income 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) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check 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.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
THE TRANSFER AGENTS RESERVE THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE
of $12.00 from accounts with a value of less than $2,500 with credit
given for maximum front-end sales charge in effect on the valuation date
based on the value of the account on that date, subject to an annual
maximum charge of $60.00 per shareholder. 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. The fee will not be deducted from
retirement accounts (except non-Fidelity prototype retirement accounts),
accounts using a systematic investment program, (Network Level I and III)
accounts which are maintained through National Securities Clearing
Corporation (NSCC), or if total assets in Fidelity mutual funds exceed
$50,000. Eligibility for the $50,000 waiver is determined by aggregating
Fidelity mutual fund accounts (excluding contractual plans) maintained (i)
by FIIOC (ii) by State Street, and (iii) through NSCC; provided those
accounts are registered under the same primary social security number.
IF YOUR NON-RETIREMENT ACCOUNT BALANCE FALLS BELOW $1,000, you will be
given 30 days' notice to reestablish the minimum balance. If you do not
increase your balance, the transfer agent reserves the right to close your
account and send the proceeds to you. Your shares will be redeemed at the
NAV, minus any applicable CDSC, on the day your account is closed.
THE TRANSFER AGENT MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC will, at its expense, provide promotional incentives such as sales
contests and luxury trips to investment professionals who support the sale
of shares of the funds. In some instances, these incentives will be offered
only to certain types of investment professionals, such as bank-affiliated
or non-bank affiliated broker-dealers, or to investment professionals 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 Class A or Class B
shares of a fund for the same class of shares of other Fidelity Advisor
funds at NAV ; Class A shares for Initial Class shares of Daily Money
Fund: U.S. Treasury Portfolio or Daily Money Fund: Money Market Portfolio,
or shares of Daily Tax-Exempt Money Fund; and Class B shares for Class B
shares of Daily Money Fund: U.S. Treasury Portfolio.
(small solid bullet) The fund you are exchanging into must be registered
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 have held Class A shares of Short
Fixed-Income or Short-Intermediate Municipal Income for less than six
months and you exchange into Class A of another Advisor fund, you pay the
difference between that fund's Class A front-end sales charge and any Class
A front-end sales charge you may have previously paid in connection with
the shares you are exchanging.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each 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) Each 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) Any exchanges of Class A or Class B shares are not
subject to a CDSC.
(small solid bullet) Your exchanges may be restricted or refused if a 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 a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
SALES CHARGE REDUCTIONS AND WAIVERS
The front-end sales charge will be reduced for purchases of Class A shares
according to the Sales Charge Schedule shown on page __ if your purchase
qualifies for one of the following reduction plans. Please refer to the
funds' SAI for more details about each plan or call your investment
professional.
If you purchased your shares through a broker-dealer or insurance
representative, call 1-800-522-7297. If you purchased your shares through a
bank representative, call 1-800-843-3001.
Your purchases and existing balances of Class B shares may be included in
the following programs for purposes of qualifying for a Class A front-end
sales charge reduction.
QUANTITY DISCOUNTS apply to purchases of Class A shares of a single
Fidelity Advisor fund or to combined purchases of Class A and Class B
shares of any Fidelity Advisor fund, and to purchases of Initial Class
shares and Class B shares of Daily Money Fund: U.S. Treasury Portfolio,
Initial Class shares of Daily Money Fund: Money Market Portfolio, and
shares of Daily Tax-Exempt Money Fund acquired by exchange from any
Fidelity Advisor fund. The minimum investment eligible for a quantity
discount is $50,000, except that the minimum for the Short-Term Bond
Funds is $500,000.
To qualify for a quantity discount, investing in a fund's Class A shares
for several accounts at the same time will be considered a single
transaction (Combined Purchase), as long as shares are purchased through
one Investment Professional and the total is at least $50,000 ( or at
least $500,000 for the Short-Term Bond Funds).
RIGHTS OF ACCUMULATION let you determine your front-end sales charge on
Class A shares by adding to your new purchase of Class A shares the value
of all of the Fidelity Advisor fund Class A and Class B shares held by you,
your spouse, and your children under age 21. You can also add the value of
Initial Class shares and Class B shares of Daily Money Fund: U.S. Treasury
Portfolio, Initial Class shares of Daily Money Fund: Money Market
Portfolio, and shares of Daily Tax-Exempt Money Fund acquired by exchange
from any Fidelity Advisor fund.
A LETTER OF INTENT (the Letter) lets you receive the same reduced
front-end sales charge on purchases of Class A shares made during a
13-month period as if the total amount invested during the period had been
invested in a single lump sum. (see Quantity Discounts above.) You must
file your non-binding Letter with the transfer agent within 90 days of the
start of your purchases. Your initial investment must be at least 5% of the
amount you plan to invest. Out of the initial investment, 5% of the dollar
amount specified in the Letter will be registered in your name and held in
escrow. You will earn income dividends and capital gain distributions on
escrowed Class A shares. Neither income dividends nor capital gain
distributions reinvested in additional Class A or Class B shares will apply
toward completion of the Letter. The escrow will be released when your
purchase of the total amount has been completed. You are not obligated to
complete the Letter, and in such a case, sufficient escrowed Class A shares
will be redeemed to pay any applicable front-end sales charges.
A FRONT-END SALES CHARGE WILL NOT APPLY TO THE FOLLOWING CLASS A SHARES:
1. Purchased by a bank trust officer, registered representative, or other
employee (or a member of one of their immediate families) of investment
professionals having agreements with FDC;
2. Purchased by a current or former trustee or officer of a Fidelity fund
or a current or retired officer, director or regular employee of FMR Corp.
or its direct or indirect subsidiaries (a Fidelity trustee or employee),
the spouse of a Fidelity trustee or employee, a Fidelity trustee or
employee acting as custodian for a minor child, or a person acting as
trustee of trust for the sole benefit of the minor child of a Fidelity
trustee or employee;
3. Purchased by a charitable organization (as defined in Section 501(c)(3)
of the Internal Revenue Code) investing $100,000 or more;
4. Purchased for a charitable remainder trust or life income pool
established for the benefit of a charitable organization (as defined in
Section 501(c)(3) of the Internal Revenue Code);
5. Purchased for a Fidelity or Fidelity Advisor IRA account with the
proceeds of a distribution (i) from an employee benefit plan that qualified
for waiver (11) or had a minimum of $3 million in plan assets invested in
Fidelity funds; or (ii) from an insurance company separate account
qualifying under (6) below, or used to fund annuity contracts purchased by
employee benefit plans having in the aggregate at least $3 million in plan
assets invested in Fidelity funds;
6. Purchased for an insurance company separate account used to fund annuity
contracts for employee benefit plans which, in the aggregate, have more
than 200 eligible employees or a minimum of $1 million in plan assets
invested in Fidelity Advisor funds;
7. Purchased for any state, county, or city, or any governmental
instrumentality, department, authority or agency;
8. Purchased with redemption proceeds from other mutual fund complexes on
which you have previously paid a front-end sales charge or CDSC;
9. Purchased by a trust institution or bank trust department (excluding
assets described in (11) and (12) below) that has executed a participation
agreement with FDC specifying certain asset minimums and qualifications,
and marketing restrictions. Assets managed by third parties do not qualify
for this waiver;
10. Purchased for use in a broker-dealer managed account program, provided
the broker-dealer has executed a participation agreement with FDC
specifying certain asset minimums and qualifications, and marketing,
program and trading restrictions. Employee benefit plans assets do not
qualify for this waiver;
11. Purchased as part of an employee benefit plan having more than (i) 200
eligible employees or a minimum of $1 million of plan assets invested in
Fidelity Advisor funds; or (ii) 25 eligible employees or $250,000 of plan
assets invested in Fidelity Advisor funds that subscribe to the Advisor
Retirement Connection or similar FIIS-sponsored program;
12. Purchased as part of an employee benefit plan through an intermediary
that has signed a participation agreement with FDC specifying certain asset
minimums and qualifications, and marketing, program and trading
restrictions; or
13. Purchased on a discretionary basis by a registered investment advisor
which is not part of an organization primarily engaged in the brokerage
business, that has executed a participation agreement with FDC specifying
certain asset minimums and qualifications, and marketing, program and
trading restrictions. Employee benefit plan assets do not qualify for this
waiver.
14. Purchased with the proceeds from Fidelity Defined Trusts.
In order to continue to qualify for waivers (9), (10) and (13), eligible
investors with existing Class A accounts will be required to sign and
comply with a participation agreement. Eligible investors that do not meet
revised asset requirements specified in the Participation Agreement will be
allowed to continue investing in Class A shares under the terms of their
current relationship until June 30, 1997, after which they will be
prevented from making new or subsequent purchases in Class A load waived,
except that employee benefit plans will be permitted to make additional
purchases of Class A shares load waived.
You must notify FDC in advance if you qualify for a front-end sales charge
waiver. Employee benefit plan investors must meet additional requirements
specified in the funds' SAI.
If you have authorized a broker-dealer or investment adviser to make
investment decisions for you, or if you are investing through a trust
department, you may qualify to purchase either Class A shares without a
sales charge (as described in (9), (10) and (13), above) or Institutional
Class shares. Because Institutional Class shares have no sales charge, and
do not pay a distribution fee or a shareholder service fee, Institutional
Class shares are expected to have a higher total return than Class A or
Class B shares. Contact your investment professional to discuss if you
qualify.
THE CDSC ON CLASS B SHARES MAY BE WAIVED:
1. In cases of disability or death, provided that Class B shares are
redeemed within one year following the death or the initial determination
of disability; or
2. In connection with a total or partial redemption related to certain
distributions from retirement plans or accounts.
Your investment professional should call Fidelity for more information.
APPENDIX A
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
AAA - Bonds which 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 which 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 in the Aaa securities.
A - Bonds which 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 which 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 which 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 which 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 which 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 which 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 which 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.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. 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 in the lower end of its
generic rating category. Those bonds in the Aa, A, Baa, Ba, and B groups
which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, and B1.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 highest-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 rate 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- 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 - The rating CC typically is applied to debt subordinated to senior debt
that 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 also will
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus and in the related SAI, in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC . This Prospectus and the related SAI do not
constitute an offer by the funds or by FDC to sell or to buy shares of the
funds to any person to whom it is unlawful to make such offer.
APPENDIX B
OVERSEAS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1990 1991 1992 1993 1994 1995
OVERSEAS - CLASS A
Lipper International Funds AverageA
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) OVERSEAS - CLASS A
E QUITY GROWTH - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
EQUITY GROWTH - CLASS A
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: 0.0
Row: 10, Col: 1, Value: 0.0
(LARGE SOLID BOX) EQUITY GROWTH - CLASS A
GLOBAL RESOURCES - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1988 1989 1990 1991 1992 1993 1994 1995
GLOBAL RESOURCES - CLASS A
Lipper Natural Resources Funds
AverageC
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: 0.0
Row: 10, Col: 1, Value: 0.0
(LARGE SOLID BOX) GLOBAL RESOURCES - CLASS A
GROWTH OPPORTUNITIES - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1988 1989 1990 1991 1992 1993 1994 1995
GROWTH OPPORTUNITIES - CLASS A
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) GROWTH OPPORTUNITIES - CLASS
A
STRATEGIC OPPORTUNITIES - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
STRATEGIC OPPORTUNITIES - CLASS A
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) STRATEGIC OPPORTUNITIES -
CLASS A
EQUITY INCOME - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
EQUITY INCOME - CLASS A
Lipper Equity Income Funds AverageD
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) EQUITY INCOME - CLASS A
INCOME & GROWTH - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
INCOME & GROWTH - CLASS A
Lipper Balanced Funds AverageE
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INCOME & GROWTH - CLASS A
EMERGING MARKETS INCOME - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
EMERGING MARKETS INCOME - CLASS
A
Lipper General World Income Funds AverageF
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) EMERGING MARKETS INCOME
CLASS A
HIGH YIELD - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
HIGH YIELD - CLASS A
Lipper High Current Yield Funds
AverageG
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) HIGH YIELD - CLASS A
STRATEGIC INCOME- CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
STRATEGIC INCOME - CLASS A
Lipper General Bond Funds AverageH
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) STRATEGIC INCOME - CLASS A
GOVERNMENT INVESTMENT - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
GOVERNMENT INVESTMENT - CLASS A
Lipper General U.S. Government
Bond Funds AverageI
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) GOVERNMENT INVESTMENT -
CLASS A
INTERMEDIATE BOND - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
INTERMEDIATE BOND - CLASS A
Lipper Intermediate Investment Grade
Bond Funds AverageJ
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INTERMEDIATE BOND - CLASS A
SHORT FIXED-INCOME - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
SHORT FIXED-INCOME - CLASS A
Lipper Short Investment Grade Bond
Funds AverageK
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) SHORT FIXED-INCOME - CLASS A
HIGH INCOME MUNICIPAL - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
HIGH INCOME MUNICIPAL - CLASS A
Lipper High Yield Municipal Bond
Funds
AverageL
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) HIGH INCOME MUNICIPAL -
CLASS A
INTERMEDIATE MUNICIPAL INCOME - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
INTERMEDIATE MUNICIPAL INCOME -
CLASS A
Lipper Intermediate Municipal Bond
Funds AverageM
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INTERMEDIATE MUNICIPAL
INCOME - CLASS A
SHORT-INTERMEDIATE MUNICIPAL INCOME - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
SHORT-INTERMEDIATE MUNICIPAL
INCOME - CLASS A
Lipper Short Municipal Debt Funds
AverageN
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) SHORT-INTERMEDIATE MUNICIPAL
INCOME - CLASS A
NEW YORK MUNICIPAL INCOME - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
NEW YORK MUNICIPAL INCOME - CLASS
A
Lipper New York Municipal Bond
Funds AverageO
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) NEW YORK MUNICIPAL INCOME -
CLASS A
OVERSEAS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1990 1991 1992 1993 1994 1995
OVERSEAS - CLASS B
Lipper International Funds AverageA
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) OVERSEAS - CLASS B
GLOBAL RESOURCES - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1988 1989 1990 1991 1992 1993 1994 1995
GLOBAL RESOURCES - CLASS B
Lipper Natural Resources Funds
AverageC
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: 0.0
Row: 10, Col: 1, Value: 0.0
(LARGE SOLID BOX) GLOBAL RESOURCES - CLASS B
STRATEGIC OPPORTUNITIES - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
STRATEGIC OPPORTUNITIES - CLASS B
Competitive Funds Average
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) STRATEGIC OPPORTUNITIES -
CLASS B
EQUITY INCOME - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
EQUITY INCOME - CLASS B
Lipper Equity Income Funds AverageD
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) EQUITY INCOME - CLASS B
EMERGING MARKETS INCOME - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
EMERGING MARKETS INCOME - CLASS
B
Lipper General World Income Funds AverageF
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) EMERGING MARKETS INCOME -
CLASS B
HIGH YIELD- CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
HIGH YIELD - CLASS B
Lipper High Current Yield Funds AverageG
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) HIGH YIELD - CLASS B
STRATEGIC INCOME- CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
STRATEGIC INCOME - CLASS B
Lipper General Bond Funds AverageH
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) STRATEGIC INCOME - CLASS B
GOVERNMENT INVESTMENT - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
GOVERNMENT INVESTMENT - CLASS B
Lipper General U.S. Government
Bond Funds AverageI
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) GOVERNMENT INVESTMENT -
CLASS B
INTERMEDIATE BOND - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
INTERMEDIATE BOND - CLASS B
Lipper Intermediate Investment Grade
Bond Funds AverageJ
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INTERMEDIATE BOND - CLASS B
HIGH INCOME MUNICIPAL - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
HIGH INCOME MUNICIPAL - CLASS B
Lipper High Yield Municipal Bond
Funds
AverageL
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) HIGH INCOME MUNICIPAL -
CLASS B
INTERMEDIATE MUNICIPAL INCOME - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1994 1995
INTERMEDIATE MUNICIPAL INCOME -
CLASS B
Lipper Intermediate Municipal Bond
Funds AverageM
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INTERMEDIATE MUNICIPAL
INCOME - CLASS B
NEW YORK MUNICIPAL INCOME - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1995
NEW YORK MUNICIPAL INCOME - CLASS
B
Lipper New York Municipal Bond
Funds AverageO
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) NEW YORK MUNICIPAL INCOME -
CLASS B
[A] THE LIPPER INTERNATIONAL FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[B] THE LIPPER GROWTH FUNDS AVERAGE CURRENTLY REFLECTS THE PERFORMANCE OF
OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[C] THE LIPPER NATURAL RESOURCES FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[D] THE LIPPER EQUITY INCOME FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[E] THE LIPPER BALANCED FUNDS AVERAGE CURRENTLY REFLECTS THE PERFORMANCE OF
OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[F] THE LIPPER GENERAL WORLD INCOME FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[G] THE LIPPER HIGH CURRENT YIELD FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[H] THE LIPPER GENERAL BOND FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[I] THE LIPPER GENERAL U.S. GOVERNMENT BOND FUNDS AVERAGE CURRENTLY
REFLECTS THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[J] THE LIPPER INTERMEDIATE INVESTMENT GRADE BOND FUNDS AVERAGE CURRENTLY
REFLECTS THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
KI] THE LIPPER SHORT INVESTMENT GRADE BOND FUNDS AVERAGE CURRENTLY REFLECTS
THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[L] THE LIPPER HIGH YIELD MUNICIPAL BOND FUNDS AVERAGE CURRENTLY REFLECTS
THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[M] THE LIPPER INTERMEDIATE MUNICIPAL BOND FUNDS AVERAGE CURRENTLY REFLECTS
THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[N] THE LIPPER SHORT MUNICIPAL DEBT FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[O] THE LIPPER NEW YORK MUNICIPAL BOND FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
FIDELITY ADVISOR INSTITUTIONAL CLASS PROSPECTUS
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. *
3 a .............................. **
b .............................. **
c .............................. Performance
d .............................. Cover Page
4 a i............................. Charter
ii........................... Investment Principles and Risks; Securities and
Investment Practices
b .............................. Securities and Investment Practices
c .............................. Who May Want to Invest; Investment Principles
and Risks; Securities and Investment Practices
5 a .............................. Charter
b i............................. Cover Page; Charter
ii........................... FMR and Its Affiliates; Charter; Breakdown of
Expenses
iii.......................... Expenses; Breakdown of Expenses
c .............................. FMR and Its Affiliates
d .............................. Charter; Breakdown of Expenses; Cover Page;
FMR and Its Affiliates
e .............................. FMR and its Affiliates; Breakdown of Expenses
f .............................. Expenses
g .............................. Expenses; FMR and Its Affiliates
5 A .............................. *
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares; Investor
Services; Transaction Details; Exchange
Restrictions
iii.......................... *
b ............................. FMR and Its Affiliates
c .............................. Charter
d .............................. Cover Page; Charter
e .............................. Cover Page; How to Buy Shares; How to Sell
Shares; Investor Services; Exchange Restrictions
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. How to Buy Shares; Transaction Details
c .............................. *
d .............................. How to Buy Shares
e .............................. Transaction Details; Breakdown of Expenses
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
** To be Filed by Subsequent Amendment
FIDELITY ADVISOR FUNDS
INSTITUTIONAL CLASS
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
the applicable fund's most recent financial report and portfolio listing or
a copy of the Statement of Additional Information (SAI) dated February 26,
1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, contact Fidelity
Distributors Corporation (FDC), 82 Devonshire Street, Boston, MA 02109, or
your investment professional.
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.
EMERGING MARKETS INCOME, HIGH YIELD, STRATEGIC INCOME, AND HIGH INCOME
MUNICIPAL MAY EACH INVEST WITHOUT LIMITATION IN LOWER-QUALITY DEBT
SECURITIES, SOMETIMES CALLED "JUNK BONDS." INVESTORS SHOULD CONSIDER THAT
THESE SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN
OTHER DEBT SECURITIES. REFER TO "INVESTMENT PRINCIPLES AND RISKS" ON PAGE
13 FOR FURTHER INFORMATION.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES
HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
ACOMI-pro-296
GROWTH FUNDS:
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund (formerly Advisor Equity Portfolio
Growth)
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth Opportunities Fund
Fidelity Advisor Strategic Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS:
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS:
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund (formerly Advisor Limited Term
Bond Fund)
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS:
Fidelity Advisor High Income Municipal Fund
Fidelity Advisor Intermediate Municipal Income Fund (formerly Advisor
Limited Term Tax-Exempt Fund)
Fidelity Advisor Short-Intermediate Municipal Income Fund (formerly Advisor
Short-Intermediate Tax-Exempt Fund)
STATE MUNICIPAL FUNDS:
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund (formerly Advisor New York
Tax-Free Fund)
PROSPECTUS
FEBRUARY 26, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
KEY FACTS WHO MAY WANT TO INVEST
EXPENSES Institutional Class's yearly operating
expenses.
FINANCIAL HIGHLIGHTS A summary of each fund's financial
data.
PERFORMANCE How each fund has done over time.
THE FUNDS IN DETAIL CHARTER How each fund is organized.
INVESTMENT PRINCIPLES AND RISKS Each fund's overall
approach to investing.
BREAKDOWN OF EXPENSES How operating costs are
calculated and what they include.
YOUR ACCOUNT TYPES OF ACCOUNTS Different ways to set up your
account, including tax-sheltered 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, AND TAXES
ACCOUNT POLICIES
TRANSACTION DETAILS Share price calculations and the
timing of purchases and redemptions.
EXCHANGE RESTRICTIONS
APPENDIX A
36 APPENDIX B
</TABLE>
KEY FACTS
WHO MAY WANT TO INVEST
Institutional Class shares are offered through this prospectus to (i)
accounts managed by a bank trust department and other trust institutions,
(ii) accounts managed on a discretionary basis by a broker-dealer and (iii)
accounts managed on a discretionary basis by a registered investment
advisor (RIA) (collectively, eligible investors). Shares are available only
to eligible investors that have signed a participation agreement with FDC.
The participation agreement specifies certain aggregate asset minimums and
asset qualifications, trading guidelines, marketing restrictions and
program requirements.
Eligible investors with existing Institutional Class accounts will be
required to sign and comply with a participation agreement in order to
purchase additional shares. Such eligible investors that do not meet
revised asset requirements specified in the participation agreement will be
allowed to continue investing in Institutional Class shares until June 30,
1997, after which they will be prevented from making new or subsequent
purchases in Institutional Class, except that employee benefit plans
established by the intermediary will be permitted to make ongoing
purchases. Shareholders who purchased shares prior to June 30, 1995 but do
not fall within (i), (ii) and (iii) above can continue to buy additional
shares of Institutional Class.
Overseas, Mid Cap, Equity Growth, Global Resources, Growth Opportunities,
Strategic Opportunities, Large Cap, Equity Income, Income & Growth, High
Yield, Government Investment, Intermediate Bond, Short Fixed-Income, High
Income Municipal, and Intermediate Municipal Income are diversified funds.
Emerging Markets Income, Strategic Income, Short-Intermediate Municipal
Income, California Municipal Income, and New York Municipal Income are
non-diversified funds. Non-diversified funds may invest a greater portion
of their assets in securities of individual issuers than diversified funds.
As a result, changes in the market value of a single issuer could cause
greater fluctuations in share value than would occur in a more diversified
fund.
Overseas, Mid Cap, Equity Growth, Global Resources, Growth Opportunities,
Strategic Opportunities, Large Cap, Equity Income and Income & Growth are
designed for investors who are willing to ride out stock market
fluctuations in pursuit of potentially high long-term returns. Overseas,
Mid Cap, Equity Growth, Global Resources, Growth Opportunities, Strategic
Opportunities and Large Cap are designed for investors who want to be
invested in the stock market for its long-term growth potential. These
funds invest for growth and do not pursue income. Equity Income and Income
& Growth are designed for those investors who seek a combination of growth
and income from equity and some bond investments.
Emerging Markets Income, High Yield, and Strategic Income are designed 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. These funds 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.
Government Investment, Intermediate Bond and Short Fixed-Income are
designed for investors who seek high current income from a portfolio of
investment-grade debt securities. These funds also invest consistent with
consideration of capital preservation.
High Income Municipal, Intermediate Municipal Income and Short-Intermediate
Municipal Income are designed for investors in higher tax brackets who seek
high current income that is free from federal income tax. Intermediate
Municipal Income and Short-Intermediate Municipal Income also invest
consistent with consideration of capital preservation. High Income
Municipal focuses on lower-quality debt securities and 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.
California Municipal Income is designed for investors in higher tax
brackets who seek high current income that is free from federal and
California income taxes. New York Municipal Income is designed for
investors in higher tax brackets who seek high current income that is free
from federal and New York State and City personal income taxes.
The value of each fund's investments and, as applicable, the income they
generate, will vary from day to day, and generally reflect changes in
market conditions, interest rates and other company, political, and
economic news. In the short term, stock prices can fluctuate dramatically
in response to these factors. The securities of small, less well-known
companies may be more volatile than those of larger companies. The value
of bonds fluctuates based on changes in interest rates and in the credit
quality of the issuer. Over time, however, stocks, although more volatile,
have shown greater growth potential than other types of securities.
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.
The investments of Strategic Income, Government Investment, Intermediate
Bond, and Short Fixed-Income are also subject to prepayments, which can
lower a fund's yield, particularly in periods of declining interest rates.
In addition, Overseas, Global Resources, Emerging Markets Income and
Strategic Income 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.
Each fund is not in itself a balanced investment plan. You should consider
your investment objective and tolerance for risk when making an investment
decision. When you sell your fund shares, they may be worth more or less
than what you paid for them.
Each fund is composed of multiple classes of shares. Each class of a fund
has a common investment objective and investment portfolio. Class A shares
have a front-end sales charge and pay a distribution fee. Class B shares do
not have a front-end sales charge, but do have a contingent deferred sales
charge (CDSC), and pay a distribution fee and a shareholder service fee.
Because Institutional Class shares have no sales charge, and do not pay a
distribution fee or a shareholder service fee, Institutional Class shares
are expected to have a higher total return than Class A or Class B shares.
You may obtain more information about Class A and Class B shares, which are
not offered through this prospectus, by calling 1-800-843-3001 or from your
investment professional.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell, or
hold Institutional Class shares of a fund.
Maximum sales charge on purchases and None
reinvested distributions
Maximum deferred sales None
charge
Redemption fee None
Exchange fee None
Annual account maintenance fee $12.0
(for accounts under $2,500) 0
ANNUAL OPERATING EXPENSES are paid out of each fund's assets. Each fund
pays a management fee to Fidelity Management & Research Company (FMR) that,
for Overseas, Mid Cap, Growth Opportunities, Strategic Opportunities, and
Large Cap, varies based on performance, and incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports.
Institutional Class's expenses are factored into its share price or
dividends and are not charged directly to shareholder accounts (see
"Breakdown of Expenses" on page ).
The following are projections based on estimated or historical expenses
adjusted for current fees of the Institutional Class of each fund, and are
calculated as a percentage of average net assets of the Institutional Class
of each fund. A portion of the brokerage commissions that certain of the
funds paid was used to reduce other expenses. Including this reduction, the
total operating expenses would have been __% for Overseas; __% for Equity
Growth; __% for Global Resources; __% for Growth Opportunities; __% for
Strategic Opportunities; __% for Equity Income; __% for Income & Growth;
and __% for High Yield.
EXPENSE TABLE EXAMPLE: You would pay the following expenses on a $1,000
investment in Institutional Class shares, assuming a 5% annual return and
full redemption at the end of each time period:
THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
EQUITY FUNDS
Operating Expenses Examples
OVERSEAS Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses
Total operating expenses
MID CAP Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses [A]
Total operating expenses
E QUITY GROWTH Management fee(after After 1
reimbursement) year
12b-1 fee (Distribution None After 3
fee) years
Other expenses After 5
years
Total operating expenses After 10
years
GLOBAL RESOURCES Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses
Total operating expenses
GROWTH OPPORTUNITIES Management fee After 1
year
12b-1 fee (Distribution After 3
fee) years
Other expenses
Total operating expenses
STRATEGIC OPPORTUNITIES Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses
Total operating expenses
LARGE CAP Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses [A]
Total operating expenses
EQUITY INCOME Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses After 5
years
Total operating expenses After 10
years
INCOME & GROWTH Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses
Total operating expenses
TAXABLE INCOME FUNDS
Operating Expenses Examples
EMERGING MARKETS INCOME Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after
reimbursement)
Total operating expenses
HIGH YIELD Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses
Total operating expenses
STRATEGIC INCOME Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after
reimbursement)
Total operating expenses
GOVERNMENT INVESTMENT Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after
reimbursement)
Total operating expenses
INTERMEDIATE BOND Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses After 5
years
Total operating expenses After 10
years
SHORT FIXED-INCOME Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after
reimbursement)
Total operating expenses
MUNICIPAL FUNDS
Operating Expenses Examples
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HIGH INCOME MUNICIPAL Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after
reimbursement)
Total operating expenses
I NTERMEDIATE MUNICIPAL INCOME Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after After 5
reimbursement) years
Total operating expenses After 10
years
SH ORT-INTERMEDIATE MUNICIPAL INCOME Management fee After 1
year
12b-1 fee (Distribution None After 3
fee) years
Other expenses (after
reimbursement)
Total operating expenses
</TABLE>
STATE MUNICIPAL FUNDS
Operating Expenses Examples
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
C ALIFORNIA MUNICIPAL INCOME Management fee After 1 $
year
12b-1 fee (Distribution None After 3 $
fee) years
Other expenses (after $
reimbursement)[A]
Total operating expenses $
N EW YORK MUNICIPAL INCOME Management fee After 1 $
year
12b-1 fee (Distribution None After 3 $
fee) years
Other expenses (after $
reimbursement) [A]
Total operating expenses $
</TABLE>
[A] PROJECTIONS ARE BASED ON ESTIMATED EXPENSES FOR FIRST YEAR.
FMR has voluntarily agreed to reimburse the Institutional Class of certain
funds to the extent that total operating expenses (excluding interest,
taxes, brokerage commissions, and extraordinary expenses) as a percentage
of its average net assets exceed the following: __% for Overseas; __% for
Global Resources; __% for Income & Growth; __% for High Yield; __% for
Strategic Income; __% for Government Investment; __% for Intermediate Bond;
__% for Short-Fixed Income; __% for High Income Municipal; __% for
Intermediate Municipal Income; __% for Short-Intermediate Municipal Income;
__% for California Muncipal Income; and __% for New York Muncipal Income.
If these agreements were not in effect, other expenses of the Institutional
Class would have been the following amounts, as a percentage of average net
assets, __% for Overseas; ___% for Global Resources; ___% for Income &
Growth; __% for High Yield; __% for Strategic Income; __% for Government
Investment; __% for Intermediate Bond; __% for Short-Fixed Income; __% for
High Income Municipal; __% for Intermediate Municipal Income; __% for
Short-Intermediate Municipal Income; __% for California Muncipal Income;
and __% for New York Muncipal Income.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow and each fund's financial
statements are included in each fund's Annual Report and have been audited
by ____________, or___________ , (Overseas). Their reports on the financial
statements and financial highlights are included in each Annual Report. The
financial statements, the financial highlights, and the reports are
incorporated by reference into the funds' SAI, which may be obtained free
of charge from FDC or your investment professional.
[THE FINANCIAL HIGHLIGHTS TABLES WILL BE FILED BY SUBSEQUENT AMENDMENT.]
PERFORMANCE
Mutual fund performance is commonly measured as TOTAL RETURN and/or YIELD.
For Overseas, Global Resources, Growth Opportunities, Income & Growth,
High Yield, Government Investment, Short Fixed-Income, High Income
Municipal, California Municipal Income and New York Municipal Income the
fiscal year runs from November 1 to October 31. For Mid Cap, Equity
Growth, Large Cap, Equity Income, Intermediate Bond, Intermediate Municipal
Income, and Short-Intermediate Municipal Income the fiscal year runs from
December 1 to November 30. For Strategic Income, Strategic Opportunities,
and Emerging Markets Income, the fiscal year runs from January 1 to
December 31. The tables below show the funds' performance history compared
to a measure of inflation. Mid Cap, Large Cap, and California Municipal
Income are expected to commence operations on or about February 26, 1996.
For additional perf ormance information, see Appendix B beginning on
page ___.
GROW TH FUNDS - INSTITUTIONAL CLASS
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years 10 Past 1 year Past 5 years Life of fund
Years/Life of
fund
O VERSEAS [A] % % % % % %
E QUITY GROWTH [B] % % % % % %
G LOBAL RESOURCES [A] % % % % % %
G ROWTH OPPORTUNITIES [A] % % % % % %
S TRATEGIC OPPORTUNITIES [C] % % % % % %
E QUITY INCOME [B] % % % % % %
I NCOME & GROWTH [A] % % % % % %
Consumer Price Index % % % % % %
</TABLE>
TAXABLE INCOME FUNDS - INSTITUTIONAL CLASS
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years Life of fund Past 1 year Past 5 years Life of fund
E MERGING MARKETS INCOME [C] % % % % % %
H IGH YIELD [A] % % % % % %
S TRATEGIC INCOME [C] % % % % % %
G OVERNMENT INVESTMENT [A] % % % % % %
I NTERMEDIATE BOND [B] % % % % % %
SH ORT FIXED-INCOME [A] % % % % % %
</TABLE>
MUNICIPAL FUNDS - INSTITUTIONAL CLASS
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years Life of fund Past 1 year Past 5 years Life of fund
HIGH INCOME MUNICIPAL [A] % % % % % %
INT ERMEDIATE MUNICIPAL INCOME [B] % % % % % %
S HORT-INTERMEDIATE MUNICIPAL
INCOME [B] % % % % % %
</TABLE>
A FISCAL YEAR ENDED OCTOBER 31, 1995
B FISCAL YEAR ENDED NOVEMBER 30, 1995
C FISCAL YEAR ENDED DECEMBER 31, 1995
STATE MUNICIPAL FUNDS - INSTITUTIONAL CLASS
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Past 1 year Past 5 years Life of fund Past 1 year Past 5 years Life of fund
N EW YORK MUNICIPAL INCOME [A] % % % % % %
Consumer Price Index % % % % % %
</TABLE>
A FISCAL YEAR ENDED OCTOBER 31, 1995
B FISCAL YEAR ENDED NOVEMBER 30, 1995
C FISCAL YEAR ENDED DECEMBER 31, 1995
If FMR had not reimbursed certain fund expenses during these
pe riods, yields and total returns would have been lower.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund 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 a 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 a funds whose investments are
denominated in foreign currencies.
In calculating yield, a 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 a fund's
yield.
A TAX-EQUIVALENT YIELD shows what an investor would have to earn before
taxes to equal a tax-free yield.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is each fund's applicable Lipper Funds
Average, which reflects the performance of mutual funds with similar
objectives. Each fund's applicable average assumes reinvestment of
distributions, and is published by Lipper Analytical Services, Inc.
Each class of each of the Equity Funds may quote its adjusted net asset
value including all distributions paid. This value may be averaged over
specified periods and may be used to calculate a class's moving average.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
For current performance or a free annual report, please contact your
investment professional, or call 1-800-843-3001.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
IND ICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
Each fund is a mutual fund: an investment that pools shareholders' money
and invests it toward a specified goal. Equity Growth, Mid Cap and Large
Cap are diversified funds of Fidelity Advisor Series I, a Massachusetts
business trust organized on June 24, 1983. Growth Opportunities, Income &
Growth, High Yield, Government Investment and Short Fixed-Income are
diversified funds of Fidelity Advisor Series II, a Massachusetts business
trust organized on April 24, 1986. Equity Income is a diversified fund of
Fidelity Advisor Series III, a Massachusetts business trust organized on
May 17, 1982. Intermediate Bond is a diversified fund of Fidelity Advisor
Series IV, a Massachusetts business trust organized on May 6, 1983. Global
Resources and High Income Municipal are diversified funds and California
Municipal Income and New York Municipal Income are non-diversified funds of
Fidelity Advisor Series V, a Massachusetts business trust organized on
April 24, 1986. Intermediate Municipal Income is a diversified fund and
Short-Intermediate Municipal Income is a non-diversified fund of Fidelity
Advisor Series VI, a Massachusetts business trust organized June 1, 1983.
Overseas is a diversified fund of Fidelity Advisor Series VII, a
Massachusetts business trust organized on March 21, 1980. Emerging Markets
Income and Strategic Income are non-diversified funds and Strategic
Opportunities is a diversified fund of Fidelity Advisor Series VIII, a
Massachusetts business trust organized on September 23, 1983. Each trust
is an open-end management investment company. There is a remote
possibility that one fund might become liable for a misstatement in the
prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review the funds' performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL 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.
The transfer agent will mail proxy materials in advance, including a voting
card and information about the proposals to be voted on. For shareholders
of Overseas, Mid Cap, Equity Growth, Strategic Opportunities, Large Cap,
Emerging Markets Income, and Strategic Income, you are entitled to one vote
for each share you own. For shareholders of Global Resources, Growth
Opportunities, Equity Income, Income & Growth, High Yield, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income and New York Municipal Income, the number of
votes you are entitled to is based upon the dollar value of your
investment.
Separate votes are taken by each class of shares, fund, or trust, if a
matter affects just that class of shares, fund, or trust, respectively.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts 02109. It includes a number
of different subsidiaries and divisions which provide a variety of
financial services and products. The funds employ various Fidelity
companies to perform activities required for their operation.
The funds are managed by FMR, which chooses each fund's investments and
handles its business affairs. FMR chooses the investments for each fund
with the assistance of foreign affiliates (except Government Investment,
High Income Municipal, Intermediate Municipal Income, Short-Intermediate
Municipal Income, New York Municipal Income, and California Municipal
Income).
As of ______, 19_, FMR advised funds having approximately __million
shareholder accounts with a total value of more than $__ billion.
Affiliates assist FMR with foreign securities: Fidelity Management &
Research (U.K.) Inc. (FMR U.K.), in London, England; Fidelity Management &
Research Far East Inc. (FMR Far East), in Tokyo, Japan; Fidelity
International Investment Advisors (FIIA), in Pembroke, Bermuda; Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.), in Kent,
England; and Fidelity Investment Japan Ltd. (FIJ), in Tokyo, Japan.
John H. Carlson is lead manager of Advisor Strategic Income, which he
has managed since August 1995, and is manager of the fund's emerging
markets investments. Mr. Carlson is also manager of Advisor Emerging
Markets Income, which he has managed since joining Fidelity in June 1995.
Mr. Carlson also manages New Markets Income. Previously, he was executive
director of emerging markets at Lehman Brothers. From 1990 to 1992, Mr.
Carlson was executive vice president of capital markets for Daiwa
Securities America.
Bettina E. Doulton is vice president and manager of Advisor Equity Income,
which she has managed since August 1993. Ms. Doulton is also manager of VIP
Equity-Income, which she has managed since July 1993 and Value Fund, which
she has managed since March 1995. Previously, she managed Select Automotive
Portfolio and assisted on Magellan(registered trademark). Ms. Doulton also
served as an analyst following the domestic and European automotive and
tire manufacturing industry as well as the gaming and lodging industry. Ms.
Doulton joined Fidelity in 1986.
Margaret L. Eagle is vice president and manager of Advisor High Yield,
which she has managed since it began in January 1987, and has been manager
of Advisor Strategic Income's high yield investments since January 1996.
Ms. Eagle also manages several pension fund accounts. Previously, she
managed Spartan High Income and High Income (now Capital & Income). She
also managed the bond portion of Puritan(registered trademark). Ms. Eagle
joined Fidelity in 1980.
Daniel R. Frank is vice president and manager of Advisor Strategic
Opportunities, which he has managed since its inception in December 1983.
Previously he was an assistant to Peter Lynch on Magellan(registered
trademark). Mr. Frank joined Fidelity in 1979.
Kevin Grant is vice president and manager of Advisor Intermediate Bond,
which he has managed since October 1995, and has been manager of Advisor
Strategic Income's domestic investment grade and U.S. Government
investments since January 1996. Mr. Grant also manages Spartan Ginnie Mae,
Ginnie Mae, and Mortgage Securities. Previously, he was vice president and
chief strategist for mortgage-backed securities at Morgan Stanley and an
investment director at Aetna Bond Investors. Mr. Gra nt joined Fidelity
in 1993.
Robert E. Haber is vice president and manager of Advisor Income & Growth,
which he has managed since January 1987. Mr. Haber also manages Balanced
and co-manages Global Balanced. Previously, he managed Convertible
Securities. Mr. Haber joined Fidelity in 1985.
John R. Hickling is vice president and manager of Advisor Overseas, which
he has managed since February 1993. Mr. Hickling also manages Overseas and
VIP: Overseas. Previously, he managed Emerging Markets, Europe, Pacific
Basin, Japan, and International Growth & Income. Mr. Hickling joined
Fidelity in 1982.
Robert Ives is manager of Advisor Government Investment, which he has
managed since February 1995. Mr. Ives also manages Spartan Government
Income and Government Securities. Previously, he managed Ginnie Mae,
Spartan Ginnie Mae and Mortgage Securities. Mr. Ives joined Fidelity in
1991, after receiving an M.B.A. from the University of Chicago.
Jonathan Kelly is manager of Advisor Strategic Income's foreign bond
investments in developed markets, which he has managed since January 1996.
Mr. Kelly also manages Global Bond. Previously, he managed Advisor Emerging
Markets Income, and New Markets Income. Mr. Kelly joined Fidelity in 1991,
after receiving his M.B.A. from the Wharton School at the University of
Pennsylvania. Mr. Kelly worked in the money management field prior to
business school.
Norman Lind is vice president and manager of Advisor Short-Intermediate
Municipal Income, which he has managed since October 1995, and Advisor New
York Municipal Income, which he has managed since August 1995. Mr. Lind
also manages New York Tax-Free Insured, New York Tax-Free High Yield,
Spartan New York Municipal High Yield, Spartan Intermediate Municipal,
Spartan Short-Intermediate Municipal, and Spartan New York Intermediate
Municipal. Previously, he served as the leader of the municipal bo nd
research group. Mr. Lind joined Fidelity in 1986.
Malcolm W. MacNaught is vice president and manager of Advisor Global
Resources, which he has managed since December 1987. Mr. MacNaught also
manages Select Precious Metals and Minerals and Select American Gold. Mr.
MacNaught joined Fidelity in 1968.
John McDowell is manager of Advisor Large Cap, which he has managed
since February 1996. Mr. McDowell also has been a senior vice president for
Fidelity Management Trust Company and lead portfolio manager for Fidelity
Earnings Growth discipline accounts s ince 1990. Mr. McDowell joined
Fidelity in 1985.
Charles Morrison is manager of Advisor Short Fixed-Income, which he has
managed since February 1995. Mr. Morrison also manages Spartan Short-Term
Income and Short-Term Bond. Mr. Morrison is vice president of Fidelity
Management Trust Company. Mr. Morrison joined Fidelity in 1987.
David Murphy is manager of Advisor Intermediate Municipal Income, which
he has managed since March 1995. Mr. Murphy also manages High Yield
Tax-Free, Spartan Municipal Income, and Limited Term Municipals.
Previously, he managed Advisor Short-Intermediate Municipal Income, Spartan
Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan New
Jersey Municipal High-Yield, and Spartan New York Intermediate Municipal.
Mr. Murphy joined Fidelity in 1989.
Tanya M. Roy is manager of Advisor High Income Municipal, which she has
managed since August 1995. Ms. Roy also manages Agressive Tax-Free and
Spartan Aggressive Municipal. Previously, she managed Municipal Bond and
was a municipal bond analyst. Ms. Roy joined Fidelity in 1989.
Jonathan Short is manager of Advisor California Municipal Income, which he
has managed since February 1996. Mr. Short also manages Minnesota
Tax-Free, Spartan Arizona Municipal Income, California Tax-Free High Yield,
California Tax-Free Insured, Spartan California Municipal High Yield, and
Spartan California Intermediate Municipal. Previously, he was a municipal
bond analyst. Mr. Short joined Fidelity in 1990, after receiving his M.B.A.
from the Massachusetts I nstitute of Technology.
Robert E. Stansky is vice president and manager of Advisor Equity Growth,
which he has managed since April 1987. Mr. Stansky also manages Growth
Company. Previously, he managed Emerging Growth and Select Defense and
Aerospace. Mr. Stansky joined Fidelity in 1983.
Jennifer F. Uhrig is manager of Advisor Mid Cap, which she has managed
since February 1996. Ms. Uhrig also manages Mid Cap Stock. Previously, she
managed Select Retail, Select Developing Communication, and Select
Telecommunications. Ms. Uhrig joined Fidelity in 1987.
George A. Vanderheiden is vice president and manager of Advisor Growth
Opportunities, which he has managed since November 1987. Mr. Vanderheiden
also manages Destiny I and Destiny II. He is a managing director of FMR
Corp. and leader of the growth group. Mr. Vanderheiden joined Fidelity in
1971.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
FDC distributes and markets Fidelity's funds and services. Fidelity
Investments Institutional Operations Company (FIIOC) performs transfer
agent servicing functions for the Institutional Class shares of each fund.
FMR Corp. is the ultimate parent company of FMR, 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 A ct
to form a controlling group with respect to FMR Corp.
Fidelity International Limited (FIL), is the parent company of FIIA, FIJ,
and FIIAL U.K. The Johnson family group also owns, directly or indirectly,
more than 25% of the voting common stock of FIL.
UMB Bank, n.a. (UMB) is transfer agent for High Income Munici pal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income and New York Municipal Income, although it
employs FIIOC to perform these functions for the Institutional Class of
each fund. UMB is located at 1010 Grand Avenue, Kansas City, Missouri.
A broker-dealer may use a portion of the commissions paid by Overseas,
Equity Growth, Global Resources, Growth Opportunities, Strategic
Opportunities, Equity Income, Income & Growth, and High Yield to reduce
custodian or transfer agent fees for those funds. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to carry out
a fund's transactions, provided that the fund receives brokerage services
and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The value of each fund's domestic and foreign investments varies in
response to many factors. Stock values fluctuate in response to the
activities of individual companies and general market and economic
conditions.
The value of bonds fluctuates based on changes in interest rates, market
conditions, other economic and political news, and on their quality and
maturity. In general, bond prices rise when interest rates fall, and vice
versa. This effect is usually more pronounced for longer-term securities.
Lower-quality securities offer higher yields, but also carry more risk.
The total return from a bond is a combination of income and price gains
or losses. While income is the most important component of bond returns
over time, a fund's emphasis on income does not mean that the fund invests
only in the highest-yielding bonds available, or that it can avoid risks to
principal. In selecting investments for each fund, FMR considers a bond's
income potential together with its potential for price gains or losses.
FMR focuses on assembling a portfolio of income-producing securities that
it believes will provide the best tradeoff between risk and return within
the range of securities that are eligible investments for a fund.
International funds have increased economic and political risks as they
a re exposed to events and factors in the various world markets. This
is especially true for funds that invest in emerging markets. Also, because
many of the funds' investments are denominated in foreign currencies,
changes in the value of foreign currencies can significantly affect a
fund's share price. FMR may use a variety of investment techniques to
either increase or decrease a fund's investment exposure to any currency.
FMR may use various investment techniques to hedge a portion of the funds'
risks, but there is no guarantee that these strategies will work as FMR
intends. When you sell your shares, they may be worth more or less than
what you paid for them.
If you are subject to the federal alternative minimum tax, you should
note that each of High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income may invest up to 100% its assets in municipal
securities issued to finance private activities. T he interest from
these investments is a tax-preference item for purposes of the tax.
OVERSEAS FUND seeks growth of capital primarily through investments in
foreign securities.
The fund defines foreign securities as securities of issuers whose
principal activities are outside of the United States. The fund currently
intends to invest at least 65% of its total assets in securities of issuers
from at least three different countries outside of North America (the
United States, Canada, Mexico and Central America). There is no limit on
investments in any one region, country, or currency, although the fund
normally invests in at least three different countries. The fund expects to
invest most of its assets in securities of issuers located in developed
countries in these general geographic areas: the Americas (other than the
United States), the Far East and Pacific Basin, and Western Europe.
The fund may invest in many types of issuers, including companies and other
business organizations as well as governments and their agencies. The fund
expects that equity securities (including shares of closed-end investment
companies and depositary receipts) will account for the majority of its
investments. Although the majority of the fund's investments are expected
to be in equity securities, the fund may also purchase debt securities,
including lower-quality, higher yielding securities. FMR will not emphasize
income in choosing investments unless FMR believes the income will
contribute to the securities' growth potential. FMR may also invest a
portion of the fund's assets in high-quality, short-term debt securities,
bank deposits and money market instruments (including repurchase
agreements) denominated in U.S. dollars or foreign currencies.
FMR determines where an issuer is located by looking at such factors as its
country of organization, the primary trading market for its securities, and
the location of its assets, personnel, sales, and earnings. When allocating
the fund's investments among countries and regions, FMR considers such
factors as the potential for economic growth, expected levels of inflation,
governmental policies and the outlook for currency relationships. Although
the fund may invest significantly in the United States, the fund currently
intends to be as fully invested in non-U.S. issuers as is practicable in
light of the fund's cash flow and cash needs.
MID CAP FUND seeks long-term growth of capital.
The fund seeks long-term growth of capital by investing primarily in equity
securities of companies with medium market capitalizations. FMR normally
invests at least 65% of the fund's total assets in these securities. The
fund has the flexibility, however, to invest the balance in other market
capitalizations and security types.
Medium market capitalization companies are those whose market
capitalization falls within the capitalization range of the S&P MidCap 400
at the time of the fund's investment. The S&P MidCap 400 Index is an
unmanaged index of medium-capitalization stocks. Companies whose
capitalization falls outside this range after purchase continue to be
considered medium-capitalized for purposes of the 65% policy. As of August
31, 1995, the S&P MidCap 400 included companies with capitalizations of
between $72 million and 6.5 billion.
Investing in medium capitalization stocks may involve greater risk than
investing in large capitalization stocks, since they can be subject to more
abrupt or erratic movements. However, they tend to involve less risk than
stocks of small capitalization companies.
EQ UITY GROWTH seeks to achieve capital appreciation by investing
primarily in common and preferred stock and securities convertible into the
common stock of companies with above-average growth characteristics.
The fund, under normal conditions, will invest at least 65% of its total
assets in common and preferred stock. The fund looks for domestic and
foreign companies with above-average growth characteristics compared to the
average of the companies included in the Standard & Poor's Composite Index
of 500 Shares (S&P 500). The S&P 500 is a registered trademark of Standard
& Poor's Corporation. Growth may be measured by factors such as earnings
or gross sales. Companies with strong growth potential often have new
products, technologies, distribution channels, or other opportunities. As a
general rule, these companies may include smaller, less well-known
companies, and companies whose stocks have higher than average
price/earnings (P/E) ratios. The market prices of these stocks may be
particularly sensitive to economic, market, or company news. FMR may also
pursue growth in larger or revitalized companies or companies that hold a
strong position in the market. These growth characteristics may be found in
mature or declining industries.
GLOBAL RESOURCES FUND seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in
securities of foreign and domestic companies that own or develop natural
resources, or supply goods and services to such companies, or in physical
commodities.
The fund, under normal conditions, will invest at least 65% of its total
assets in securities of foreign and domestic companies that own or develop
natural resources, or supply goods and services to such companies, or in
physical commodities. FMR will seek securities whose prices directly
reflect positive changes in the value of an underlying natural resource or
whose issuers will benefit from particular phases in the overall economic
cycle. Accordingly, the fund may shift its emphasis from one natural
resource industry to another depending upon prevailing trends or
developments. The fund may also invest in securities of companies in other
industries, and in corporate and governmental debt securities of all types.
The fund expects to invest a majority of its assets in the securities of
companies that have their principal business activities in at least three
different countries (including the United States).
A company will be deemed to have substantial ownership of, or activities in
natural resources if, at the time those company's securities are acquired,
at least 50% of the company's assets are involved, either directly or
through subsidiaries, in exploring, mining, refining, processing,
transporting, fabricating, dealing in, or owning natural resources. Natural
resources include precious metals (e.g., gold, platinum and silver),
ferrous and nonferrous metals (e.g., iron, aluminum and copper), strategic
metals (e.g., uranium and titanium), hydrocarbons (e.g., coal, oil and
natural gases), chemicals, forest products, real estate, food products and
other basic commodities.
Although the fund is authorized to invest up to 50% of its assets in
physical commodities, it currently intends to invest no more than 25% of
its total assets in them, and intends to limit its physical commodity
investments to readily marketable precious metals. Precious metals, at
times, have been subject to substantial price fluctuations over short
periods of time and may be affected by unpredictable international monetary
and political policies such as currency devaluations or revaluations,
economic and social conditions within a country, trade imbalances, or trade
or currency restrictions between countries.
GROWTH OPPORTUNITIES FUND seeks to provide capital growth by investing
primarily in common stocks and securities convertible into common stocks.
The fund, under normal conditions, will invest at least 65% of its total
assets in securities of companies that FMR believes have long-term growth
potential. Although the fund invests primarily in common stock and
securities convertible into common stock, it has the ability to purchase
other securities, such as preferred stock and bonds, that may produce
capital growth. The fund may invest in foreign securities without
limitation.
STRATEGIC OPPORTUNITIES FUND seeks capital appreciation by investing
primarily in securities of companies believed by FMR to involve a "special
situation."
The fund, under normal conditions, will invest at least 65% of its total
assets in companies involving a special situation. The term "special
situation" refers to FMR's identification of an unusual, and possibly
non-repetitive, development taking place in a company or a group of
companies in an industry.
A special situation may involve one or more of the following
characteristics:
(small solid bullet) A technological advance or discovery, the offering of
a new or unique product or service, or changes in consumer demand or
consumption forecasts.
(small solid bullet) Changes in the competitive outlook or growth potential
of an industry or a company within an industry, including changes in the
scope or nature of foreign competition or the development of an emerging
industry.
(small solid bullet) New or changed management, or material changes in
management policies or corporate structure.
(small solid bullet) Significant economic or political occurrences abroad,
including changes in foreign or domestic import and tax laws or other
regulations.
(small solid bullet) Other events, including natural disasters, favorable
litigation settlements, or a major change in demographic patterns.
"Special situations" often involve breaks with past experience. They can be
relatively aggressive investments. In seeking capital appreciation, the
fund also may invest in securities of companies not involving a special
situation, but which are companies with valuable fixed assets and whose
securities are believed by FMR to be undervalued in relation to the
companies' assets, earnings, or growth potential. FMR intends to invest
primarily in common stocks and securities that are convertible into common
stocks; however, it also may invest in debt securities of all types and
quality if FMR believes that investing in these securities will result in
capital appreciation. The fund may invest up to 30% of its assets in
foreign investments.
LARGE CAP FUND seeks long term growth of capital.
The fund seeks long-term growth of capital by investing primarily in equity
securities of companies with large market capitalizations. FMR normally
invests at least 65% of the fund's total assets in these securities. The
fund has the flexibility, however, to invest the balance in other market
capitalizations and security types.
FMR defines large market capitalization companies as those with market
capitalizations of $1 billion or more at the time of the fund's investment.
Companies whose capitalization falls below this level after purchase
continue to be considered large-capitalized for purposes of the 65% policy.
Companies with large market capitalizations typically have a large number
of publicly held shares and a high trading volume, resulting in a high
degree of liquidity. These tend to be quality companies with strong
management organizations. However, large capitalization companies may have
less growth potential than smaller companies and may be able to react less
quickly to changes in the marketplace.
EQUITY INCOME FUND seeks a yield from dividend and interest income which
exceeds the composite dividend yield on securities comprising the S&P 500.
In addition, consistent with the primary objective of obtaining dividend
and interest income, the fund will consider the potential for achieving
capital appreciation.
The fund, under normal conditions, will invest at least 65% of its total
assets in income-producing equity securities. For purposes of this policy,
equity securities are defined as common and preferred stocks. The balance
of the fund's assets will tend to be invested in debt securities, a high
percentage of which are expected to be convertible into common stocks. The
fund does not intend to invest in securities of issuers without proven
earnings and/or credit histories. Because the fund invests for income, as
well as capital appreciation, investors should not expect capital
appreciation comparable with funds which seek only capital appreciation.
The yield on the fund's assets generally will increase or decrease from
year to year in accordance with market conditions and in relation to the
changes in yields of the stocks included in the S&P 500.
INCOME & GROWTH FUND seeks both income and growth of capital by investing
in a diversified portfolio of equity and fixed-income securities with
income, growth of income, and capital appreciation potential.
The fund invests in equity securities, convertible securities, common and
preferred stocks, and fixed-income securities that provide income or
opportunities for capital growth. The fund may buy securities that are not
currently paying income but offer prospects for future income. The fund may
invest in securities of foreign issuers. In selecting investments for the
fund, FMR will consider such factors as the issuer's financial strength,
its outlook for increased dividend or interest payments, and the potential
for capital gains.
EMERGING MARKETS INCOME FUND seeks a high level of current income by
investing primarily in debt securities and other instruments of issuers in
emerging markets. As a secondary objective, the fund seeks capital
appreciation.
The fund, under normal conditions, will invest at least 65% of its total
assets in debt securities and other instruments of issuers in emerging
markets. Countries with emerging markets include countries (i) that have an
emerging stock market, as defined by the International Finance Corporation,
(ii) with low-to middle-income economies, according to the World Bank, or
(iii) that are listed in World Bank publications as "developing."
The fund emphasizes countries with relatively low gross national product
per capita compared to the world's major economies, and with the potential
for rapid economic growth. FMR expects that emerging market opportunities
will be found mainly in Latin America, Asia, Africa, and emerging European
nations. FMR determines where an issuer is located by looking at such
factors as its country of organization, the primary trading market for its
securities, and the location of its assets, personnel, sales, and earnings.
There is no limit on investments in any one region, country, or currency,
although the fund normally invests in at least three different countries.
The fund may also invest a portion of its assets in common and preferred
stocks of emerging markets issuers, debt securities of non-emerging market
foreign issuers, and lower-quality debt securities of U.S. issuers. FMR
does not currently anticipate that these investments will exceed
approximately 20% of the fund's total assets. The fund may invest in
securities of any maturity. In addition, for cash management purposes, the
fund will ordinarily invest a portion of its assets in high-quality,
short-term debt securities and money market instruments, including
repurchase agreements and bank deposits denominated in U.S. or foreign
currencies.
HIGH YIELD FUND seeks a combination of a high level of income and the
potential for capital gains by investing in a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon
securities, such as bonds, debentures and notes, convertible securities and
preferred stocks.
The fund, under normal conditions, will invest at least 65% of its total
assets in income producing debt securities and preferred stocks, including
convertible and zero coupon securities. The fund may also invest in
securities issued or guaranteed by the U.S. Government, any state or any of
their respective subdivisions, agencies or instrumentalities, and
securities of foreign issuers, including securities of foreign governments.
The fund may invest up to 35% of its total assets in equity securities,
including common stocks, warrants and rights.
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, investment grade
securities, emerging market securities, and international 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%
investment-grade, 15% emerging market and 15% international.
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 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 INTERNATIONAL 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.
GOVERNMENT INVESTMENT FUND seeks a high level of current income by
investing primarily in obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities.
The fund, under normal circumstances, will invest at least 65% of its total
assets in government securities. The fund considers "government securities"
to include those which are subject to repurchase agreements. The fund
invests primarily in obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, including U.S.
Treasury bonds, notes and bills, Government National Mortgage Association
mortgage-backed pass-through certificates (Ginnie Maes) and mortgage-backed
securities issued by the Federal National Mortgage Association (Fannie
Maes) or the Federal Home Loan Mortgage Corporation (Freddie Macs). These
securities may or may not be fully backed by the U.S. Government. In
seeking current income, the fund also may consider the potential for
capital gain.
Although the fund can invest in securities of any maturity, FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to government bonds with maturities between five and twelve
years. As of the fiscal year ended October 31, 1995, the fund's
dollar-weighted average maturity was ___ years.
INTERMEDIATE BOND FUND seeks to provide a high rate of income through
investment primarily in investment-grade fixed-income obligations.
The fund invests primarily in fixed-income obligations of all types. The
fund may invest in domestic and foreign investment grade securities. When
consistent with its primary objective, the fund may also seek capital
appreciation.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of between three and ten years
under normal conditions. In determining a security's maturity for purposes
of calculating the fund's average maturity, an estimate of the average time
for its principal to be paid may be used. This can be substantially shorter
than its stated final maturity. As of the fiscal year ended November 30,
1995, the fund's dollar- weighted average maturity was ___ years.
SHORT FIXED-INCOME FUND seeks to obtain a high level of current income,
consistent with the preservation of capital, by investing primarily in a
broad range of investment-grade fixed-income securities. Where appropriate
the fund will take advantage of opportunities to realize capital
appreciation.
The fund, under normal conditions, will invest at least 65% of its total
assets in fixed-income securities of all types which may include
convertible and zero coupon securities. The fund may invest a portion of
its assets in securities issued by foreign companies and foreign
governments.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of three years or less under
normal conditions. In determining a security's maturity for purposes of
calculating the fund's average maturity, an estimate of the average time
for its principal to be paid may be used. This can be substantially
shorter than its stated final maturity. As of the fiscal year ended
October 31, 1995, the fund's dollar-weighted averag e maturity was ___
years.
HIGH INCOME MUNICIPAL FUND seeks to provide a high current yield by
investing in a diversified portfolio of municipal obligations whose
interest is not included in gross income for purposes of calculating
federal income tax.
The fund normally invests so that at least 80% of its net assets is
invested in municipal obligations whose interest is free from federal
income tax. The fund may invest in medium- and lower-quality municipal
obligations. The fund may invest more than 25% of its total assets in
securities whose revenue sources are from similar types of projects (e.g.,
education, electric utilities, health care, housing, transportation, or
water, sewer and gas utilities) or whose issuers share the same geographic
location. The fund may invest up to 100% of its assets in municipal
obligations subject to the federal alternative minimum tax.
The fund may purchase long-term municipals with maturities of 20 years or
more, which generally produce higher yields than short-term municipals. The
fund also may purchase short-term municipal obligations in order to provide
for short-term capital needs. Although the fund can invest in securities
of any maturity, FMR seeks to manage the fund so that it generally reacts
to changes in interest rates similarly to municipal bonds of comparable
quality with maturities between 15 and 20 years. As of the fiscal year
ended October 31, 1995, the fund's dollar-weighted average maturity was
___ years.
I NTERMEDIATE MUNICIPAL INCOME FUND seeks the highest level of income
exempt from federal taxes that can be obtained consistent with the
preservation of capital.
The fund normally will invest at least 80% of its net assets in securities
whose interest is free from federal income tax. The fund invests in
municipal obligations rated investment grade or higher. The fund may also
invest more than 25% of its total assets in securities whose revenue
sources are from similar types of projects (e.g., education, electric
utilities, health care, housing, transportation or water, sewer, and gas
utilities) or whose issuers share the same geographic loca tion. The fund
may, under normal conditions, invest up to 100% of its assets in municipal
securities subject to the federal alternative minimum t ax.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of between three and ten years
under normal conditions. FMR seeks to manage the fund so that it generally
reacts to changes in interest rates similarly to municipal bonds with
maturities between seven and ten years. As of the fiscal year ended
November 30, 1995, the fund's dollar-weighted a verage maturity was ___
years.
SHORT-INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a l evel of
current income, exempt from federal income tax, as is consistent with
preservation of capital.
The fund invests primarily in municipal securities. The fund normally will
invest at least 80% of its net assets in securities whose interest is free
from federal income tax. The fund may, under normal conditions, invest
up to 100% of its assets in municipal securities subject to the federal
alternative minimum tax. The fund may invest any portion of its assets
in industrial revenue bonds (IRBs) backed by private issuers, and may
invest up to 25% of its total assets in IRBs related to a single industry.
The fund may also invest 25% or more of its total assets in securities
whose revenue sources are from similar types of projects (e.g., education,
electric utilities, health care, housing, transportation, or water, sewer
and gas utilities) or whose issuers share the same geographic location.
Although the fund can invest in securities of any maturity, the fund
maintains a dollar-weighted average maturity of between two and five years
under normal conditions. As of the fiscal year ended November 30, 1995,
the fund's dollar-weighted average maturity was ___ years.
CALIFORNIA MUNICIPAL INCOME FUND seeks a high level of current
income free from federal income tax and California state income tax by
investing primarily in municipal securities.
The fund normally invests at least 80% of its net assets in securities
whose interest is free from federal and California income taxes. The fund
invests in municipal securities of investment grade quality. The fund may,
under normal conditions, invest up to 100% of its assets in municipal
securities subject to the federal alternative minimum tax.
Although the fund can invest in securities of any maturity, FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to municipal bonds with maturities between eight and eighteen
years.
The performance of California Municipal Income is affected by the economic
and political conditions within the state of California, which has been in
a recession since 1990. In recent years California experienced substantial
financial difficulties related to the severe recession from 1990-93, which
caused substantial, broad-based revenue shortfalls. State cutbacks of
local assistance could adversely affect the financial condition of cities,
counties and education districts facing a fall in their own tax
collections. California's long-term credit rating has been reduced in the
past several years. California voters in the past have passed amendments
to the California Constitution and other measures that limit the taxing and
spending authority of California governmental entities, and future voter
initiatives could result in adverse consequences affecting California
municipal bonds.
On December 6, 1994, Orange County (the County) and its pooled investment
funds (the Pools) filed for protection under Chapter 9 of the Federal
Bankruptcy Law, as a result of investment losses in the Pools. The losses
have been estimated by the County at 22%, or approximately $1.7 billion.
Over 180 government agencies, most but not all located in the County, had
investments in the Pools. The County and some of the agencies
participating in the Pools have defaulted on certain of their obligations
because of the bankruptcy, and others may int he future. These factors
could reduce the credit standing of certain issuers of California municipal
bonds.
NEW YORK MUNICIPAL INCOME FUND seeks a high level of current income
free from federal income tax and New York State and City personal income
taxes by investing primarily in municipal securities.
The fund normally invests at least 80% of its net assets in securities
whose interest is free from federal and New York State and City personal
income taxes. The fund invests in municipal securities of investment grade
quality. The fund may, under normal conditions, invest up to 100% of its
assets in municipal securities subject to the federal alternative minimum
tax.
Although the fund can invest in securities of any maturity, FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to municipal bonds with maturities between eight and eighteen
years. As of the fiscal year ended October 31, 1995, the fund's
dollar-weighted average maturity was ___ years.
The performance of New York Municipal Income is affected by the economic
and political conditions within the state of New York. Both New York City
and State have recently experienced significant financial difficulty, and
both the City's and the State's credit ratings are among the lowest in
the country.
TEMPORARY DEFENSIVE POLICIES. FMR normally invests each fund's assets
according to its investment strategy.
Each of Overseas, Mid Cap, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap, Equity Income, Income &
Growth, and High Yield reserves the right to invest without limitation in
preferred stocks and investment-grade debt instruments for temporary,
defensive purposes.
Each of Emerging Markets Income, Strategic Income, Government Investment,
Intermediate Bond, and Short-Fixed Income reserves the right to invest
without limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.
High Income Municipal, Intermediate Municipal Income, and
Short-Intermediate Municipal Income do not expect to invest in federally
taxable obligations. California Municipal Income and New York Municipal
Income do not expect to invest in federally or state taxable
obligations. Each of High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income and New
York Municipal Income however, reserves the right to invest without
limitation in short-term instruments, to hold a substantial amount of
uninvested cash, or to invest more than normally permitted in federally
taxable obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about each 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 a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Current holdings and recent investment strategies are described in each
fund's financial reports, which are sent to shareholders twice a year. For
a free SAI or financial report, call your investment professional.
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.
RESTRICTIONS: With respect to 75% of its total assets, each of Overseas,
Mid Cap, Global Resources, Growth Opportunities, Large Cap, Equity Income,
Income & Growth, High Yield, Government Investment, Intermediate Bond,
Short Fixed-Income, High Income Municipal and Intermediate Municipal Income
may not purchase more than 10% of the outstanding voting securities of a
single issuer.
With respect to 100% of its assets, each of Equity Growth and Strategic
Opportunities may not purchase more than 10% of the outstanding voting
securities of a single issuer.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable 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 purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
Taxable lower-quality debt securities (sometimes called "junk bonds"), and
tax-exempt lower-quality debt securities (sometimes called "municipal junk
bonds") often 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.
The table on the following page provides a summary of ratings assigned to
debt holdings (not including money market instruments) in the funds'
portfolios. These figures are dollar-weighted averages of month-end
portfolio holdings during the fiscal year ended 1995, and are presented as
a percentage of total security investments. These percentages are
historical and do not necessarily indicate a fund's current or future debt
holdings.
FISCAL YEAR ENDED 1995 DEBT HOLDINGS, BY RATING
(AS A % OF INVESTMENTS IN EACH RATING CATEGORY) (AS A % OF INVESTMENTS IN
EACH RATING CATEGORY)
INVESTMENT GRADE* LOWER QUALITY*
STANDARD & POOR'S CORPORATION AAA , AA, A BBB BB B CCC CC,C
D NR
EQUITY FUNDS:
Overseas .
Equity Growth
Global Resources
Growth Opportunities
Strategic Opportunities
Equity Income .
Income & Growth
TAXABLE INCOME FUNDS:
Emerging Markets Income
High Yield
Strategic Income
Government Investment
Intermediate Bond
Short Fixed-Income
MUNICIPAL FUNDS:
High Income Municipal
Intermediate Municipal Income
Short Intermediate Municipal Income
MOODY'S INVESTORS SERVICE, INC. Aaa , Aa, A Baa Ba B Caa Ca
C
EQUITY FUNDS:
Overseas
Equity Growth
Global Resources
Growth Opportunities
Strategic Opportunities
Equity Income
Income & Growth
TAXABLE INCOME FUNDS:
Emerging Markets Income
High Yield
Strategic Income
Government Investment
Intermediate Bond
Short Fixed-Income
MUNICIPAL FUNDS:
High Income Municipal
Intermediate Municipal Income
Short Intermediate Municipal Income
(AS A % OF INVESTMENTS)
Emerging High Short-Inter
mediate
SECURITIES NOT RATED BY Strategic Equity Income Markets High Strategic
Short Income Municipal
MOODY'S OR S&P (dagger) Overseas Opportunities Income & Growth
Income Yield Income Fixed-Income Municipal Income
Investment Grade (double dagger)
Lower Quality(double dagger)
Total
* FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS
OF THE SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT.
(dagger) THE DOLLAR-WEIGHTED AVERAGE PERCENTAGES REFLECTED IN THIS TABLE
MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY
RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES.
(double dagger) AS DETERMINED BY FMR
RESTRICTIONS: For all funds, except Short-Intermediate Municipal Income,
purchase of a debt security is consistent with a fund's debt quality policy
if it is rated at or above the stated level by Moody's or rated in the
equivalent categories by S&P, or is unrated but judged to be of equivalent
quality by FMR.
California Municipal Income and New York Municipal Income currently
intend to limit their investments in debt securities to t hose of
Baa-quality and above.
In termediate Bond currently intends to limit its investments in debt
securities to those of Baa-quality and above, and currently intends to
limit its investments in debt securities rated Baa to 5% of its assets.
Short Fixed-Income currently intends to limit its investments in lower
than Baa-quality debt securities to less than 35% of its ass ets and
currently intends to limit its investments in debt securities to B-quality
and above.
Global Resources currently intends to limit its investments in low er
than Baa-quality debt securities to less than 35% of its assets and
currently intends to limit its investments in debt securities to
Caa-quality and above.
Each of Overseas, Mid Cap, Equity Growth, Growth Opportunities, Strategic
Opportunities, Large Cap, Equity Income and Income & Growth currently
intends to limit its investments in lower than Baa -quality debt
securities to less than 35% of its assets.
Government Investment currently intends to limit its investments in debt
securities to A-quality and above.
Intermediate Municipal Income currently intends to limit its
in vestments in debt securities to those of Baa-quality and above, and
currently intends to limit its investments in debt securities rated Baa to
25% of its assets.
Purchase of a debt security is consistent with Short-Intermediate Municipal
Income's debt quality policy if, with respect to 60% of its assets, it is
judged by FMR to be of equivalent quality to debt securities rated A or
better by Moody's or S&P. The fund currently intends to limit its
investments in debt securities rated below Baa by Moody's or BBB by S&P, or
unrated debt securities judged by FMR to be of equivalent quality, to 5% of
its assets. The fund currently intends to limit its investments in debt
securities to Ba-quality and above.
MONEY MARKET INSTRUMENTS are high-quality instruments that present minimal
credit risk. They may include U.S. Government obligations, commercial paper
and other short-term corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
U.S. GOVERNMENT SECURITIES are high-quality debt securities 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, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. T hey may be issued
in anticipation of future revenues, and may be bac ked by the full
taxing power of a municipality, the revenues f rom a specific
project, or the credit of a private organization. The value of some or all
municipal securities may be affected by uncertainties in the municipal
market related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders. A fund
may own a municipal security directly or through a participation interest.
CREDIT SUPPORT. Issuers may employ various forms of credit
enhancement, including letters of credit, guarantees, or insurance from a
bank, insurance company, or other entity. These arrangements expose the
fund to the credit risk of the entity. In the case of foreign entities,
extensive public information about the entity may not be available and the
entity may be subject to unfavorable political, economic, or governmental
developments which might affect its ability to honor its commitment.
STATE TAX-FREE SECURITIES include municipal obligations issued by
the states of California and New York or their counties, municipalities,
authorities, or other subdivisions. The ability of issuers to repay their
debt can be affected by many factors that impact the economic vitality of
either the state or a region within the state.
Other state tax-free securities include general obligations of U.S.
territories and possessions such as Guam, the Virgin Islands, and Puerto
Rico, and their political subdivisions and public corporations. The economy
of Puerto Rico is closely linked to the U.S. economy, and will depend on
the strength of the U.S. dollar, interest rates, the price stability of oil
imports, and the continued existence of favorable tax incentives. Recent
legislation revised these incentives, but the government of Puerto Rico
anticipates only a s light reduction in the average real growth rates
for the economy.
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 securities may be unwilling to repay
principal and interest 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.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS (ADRS AND
EDRS) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
A S SET-BACKED SECURITIES include interests in pools of the following:
purchase contracts, financing leases, or sales agreements entered into by
municipalities; lower-rated debt securities; or consumer loans. The value
of these securities may be significantly affected by changes in interest
rates, the market's perception of issuers, and the creditworthiness of the
parties involved. Certain asset-backed securities rely on continued
payments by a municipality, and may also be subject to prepayment risk.
MORTGAGE SECURITIES are interests in pools of commercial or residential
mortgages, and include complex instruments such as collateralized mortgage
obligations and stripped mortgage-backed securities. Mortgage securities
may be issued by the U.S. Government or by private entities. For example,
Ginnie Maes are interests in pools of mortgage loans insured or guaranteed
by a U.S. Government agency. Because mortgage securities pay both interest
and principal as their underlying mortgages are paid off, they are subject
to prepayment risk. This is especially true for stripped securities. Also,
the value 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 value highly volatile.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt securities,
although they may be more volatile and the value of certain types of
stripped securities may move in the same direction as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, a 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.
FOREIGN REPURCHASE AGREEMENTS may be less well secured than U.S. repurchase
agreements, and may be denominated in foreign currencies. They also may
involve greater risk of loss if the counterparty defaults. Some
counterparties in these transactions may be less creditworthy than those in
U.S. markets.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
temporarily transfers possession of a portfolio instrument to another party
in return for cash. This could increase the risk of fluctuation in the
fund's yield or in the market value of its assets.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PUT FEATURES entitle the holder to put (sell back) an instrument to the
issuer or a financial intermediary. In exchange for this benefit, a fund
may pay periodic fees or accept a lower interest rate. Demand features and
standby commitments are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
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. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, 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 a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with a
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 a 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 a fund.
RESTRICTIONS: Each fund (except Overseas, Emerging Markets Income, High
Yield, and Strategic Income) may not purchase a security if, as a result,
more than 10% of its net assets would be invested in illiquid securities.
Each of Overseas, Emerging Markets Income, High Yield, and Strategic Income
may not purchase a security if, as a result, more than 15% of its net
assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield.
WARRANTS are instruments which entitle the holder to buy underlying equity
securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition,
changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying securities.
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 or type of
project. Economic, business, or political changes can affect all
securities of a similar type. A fund that is not diversified may be more
sensitive to changes in the market value of a single issuer or industry.
RESTRICTIONS: W it h respect to 100% of its total assets, each of
Equity Growth and Strategic Opportunities may not purchase a security if,
as a result, more than 5% would be invested in the securities of any one
issuer.
With respect to 75% of its total assets, each of Overseas, Mid Cap, Global
Resources, Growth Opportunities, Large Cap, Equity Income, Income & Growth,
High Yield, Government Investment, Intermediate Bond, Short Fixed-Income,
High Income Municipal and Intermediate Municipal Income may not purchase a
security if, as a result, more than 5% would be invested in the securities
of any one issuer.
Emerging Markets Income, Strategic Income, Short-Intermediate Municipal
Income, California Municipal Income and New York Muni cipal Income are
considered non-diversified. Generally, to meet federal tax requirements at
the close of each quarter, each fund does not invest more than 25% of its
total assets in any one issuer and, with respect to 50% of total assets,
does not invest more than 5% of its total assets in any one issuer.
These limitations do not apply to U.S. Government securities.
BORROWING. Each fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each 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 a
fund's securities. A fund may also lend money to other funds advised by
FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a fund's
total assets; however High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income
and New York Municipal Income do not currently intend to make loans.
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.
OVERSEAS FUND seeks growth of capital primarily through investments in
foreign securities.
MID CAP FUND seeks long-term growth of capital.
E Q UITY GROWTH FUND seeks to achieve capital appreciation by
investing primarily in common and preferred stock and securities
convertible into the common stock of companies with above-average growth
characteristics.
GLOBAL RESOURCES FUND seeks long-term growth of capital and protection of
the purchasing power of shareholders' capital by investing primarily in
securities of foreign and domestic companies that own or develop natural
resources, or supply goods and services to such companies, or in physical
commodities.
GROWTH OPPORTUNITIES FUND seeks to provide capital growth by investing
primarily in common stocks and securities convertible into common stocks.
STRATEGIC OPPORTUNITIES FUND seeks capital appreciation by investing
primarily in securities of companies believed by FMR to involve a "special
situation." Under normal conditions, the fund will invest at least 65% of
its total assets in companies involving a special situation. FMR intends to
invest primarily in common stocks and securities that are convertible into
common stocks; however, it also may invest in debt securities of all types
and quality if FMR believes that investing in these securities will result
in capital appreciation. The fund may invest up to 30% of its assets in
foreign investments.
L A RGE CAP FUND seeks long-term growth of capital.
EQUITY INCOME FUND seeks a yield from dividend and interest income which
exceeds the composite dividend yield on securities comprising the S&P 500.
In addition, consistent with the primary objective of obtaining dividend
and interest income, the fund will consider the potential for achieving
capital appreciation.
INCOME & GROWTH FUND seeks both income and growth of capital by investing
in a diversified portfolio of equity and fixed-income securities with
income, growth of income and capital appreciation potential.
EMERGING MARKETS INCOME FUND seeks a high level of current income by
investing primarily in debt securities and other instruments of issuers in
emerging markets. As a secondary objective, the fund seeks capital
appreciation.
HIGH YIELD FUND seeks a combination of a high level of income and the
potential for capital gains by investing in a diversified portfolio
consisting primarily of high-yielding, fixed-income and zero coupon
securities, such as bonds, debentures and notes, convertible securities and
preferred stocks.
STRATEGIC INCOME FUND seeks a high level of current income by investing
primarily in debt securities. The fund may also seek capital appreciation.
GOVERNMENT INVESTMENT FUND seeks a high level of current income by
investing primarily in obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities.
I NT ERMEDIATE BOND FUND seeks to provide a high rate of income
through investment primarily in investment-grade fixed-income obligations.
SHORT FIXED-INCOME FUND seeks to obtain a high level of current income,
consistent with the preservation of capital, by investing primarily in a
broad range of investment-grade fixed-income securities. Where appropriate
the fund will take advantage of opportunities to realize capital
appreciation.
HIGH INCOME MUNICIPAL FUND seeks to provide a high current yield by
investing in a diversified portfolio of municipal obligations whose
interest is not included in gross income for purposes of calculating
federal income tax. The fund normally invests at least 80% of its net
assets in municipal obligations whose interest is free from federal income
tax.
INT ERMEDIATE MUNICIPAL INCOME FUND seeks the highest level of
income exempt from federal income taxes that can be obtained consistent
with the preservation of capital. The fund normally invests at least 80% of
its net assets in securities whose interest is free from federal income
tax.
SHO RT-INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a level of
current income, exempt from federal income tax, as is consistent with
preservation of capital. The fund normally invests at least 80% of its net
assets in municipal obligations whose interest is free from federal income
tax.
CALIFORNIA MUNICIPAL INCOME FUND seeks a high level of current income
free from federal income tax and California state income tax by investing
primarily in municipal securities. The fund normally invests at least 80%
of its net assets in securities whose interest is free from federal and
California income taxes.
NEW YORK MUNICIPAL INCOME FUND seeks a high level of current income
free from federal income tax and New York State and City personal income
taxes by investing primarily in municipal securities. The fund normally
invests at least 80% of its net assets in securities whose interest is free
from federal and New York State and City personal income taxes.
With respect to 75% of its total assets, each of Overseas, Mid Cap, Global
Resources, Growth Opportunities, Large Cap, Equity Income, Income & Growth,
High Yield, Government Investment, Intermediate Bond, Short-Fixed Income,
High Income Municipal and Intermediate Municipal Income may not purchase a
security if, as a result, more than 5% would be invested in the securities
of a single issuer. With respect to 100% of its total assets, each of
Equity Growth and Strategic Opportunities may not purchase a security if,
as a result, more than 5% would be invested in the securities of a single
issuer.
With respect to 75% of its total assets, each of Overseas, Mid Cap, Global
Resources, Growth Opportunities, Large Cap, Equity Income, Income & Growth,
High Yield, Government Investment, Intermediate Bond, Short Fixed-Income,
High Income Municipal, and Intermediate Municipal Income may not purchase
more than 10% of the outstanding voting securities of a single issuer.
With respect to 100% of its total assets, each of Equity Growth and
Strategic Opportunities may not purchase more than 10% of the outstanding
voting securities of a single issuer.
Each 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 each fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of each class's assets are reflected in that
class's share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each 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 for certain of the funds. Each fund also
pays OTHER EXPENSES, which are explained on page __.
FMR may, from time to time, agree to reimburse a fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by a 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 a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. Equity Income
pays FMR a monthly management fee at an annual rate of 0.50% of its average
net assets. The fee for Equity Growth, Global Resources, Income & Growth,
Emerging Markets Income, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income, and New York Municipal Income is calculated by
adding a group fee rate to an individual fee rate, and multiplying the
result by each fund's average net assets. The fee for Overseas, Mid Cap,
Growth Opportunities, Strategic Opportunities, and Large Cap is determined
by taking a basic fee and then applying a performance adjustment. The
performance adjustment either increases or decreases the management fee,
depending on how well each fund has performed relative to the Morgan
Stanley Capital International Europe, Australasia, and Far East Index for
Overseas, the S&P Mid Cap 400 Index for Mid Cap or the S&P 500 for each of
Growth Opportunities, Strategic Opportunities and Large Cap.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. For Overseas, Mid Cap, Equity Growth, Global
Resources, Growth Opportunities, Strategic Opportunities, Large Cap and
Income & Growth this rate cannot rise above 0.52%, and it drops as total
assets under management increase. For Emerging Markets Income, High Yield,
Strategic Income, Government Investment, Intermediate Bond, Short
Fixed-Income, High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income, this rate cannot rise above 0.37%, and it drops as
total assets under management increase. The basic fee rate (calculated
monthly) is calculated by adding a group fee rate to an individual fund fee
rate, and multiplying the result by each fund's average net assets.
The performance adjustment rate is calculated monthly by comparing each
of Overseas, Mid Cap, Growth Opportunities, Strategic Opportunities and
Large Cap's performance to that of the respective indices over the most
recent 36-month period. For Mid Cap and Large Cap the performance period
will begin on or about March 1, 1996 and will eventually span 36 months,
but the performance adjustment will not take effect until on or about
February 1, 1997. The difference is translated into a dollar amount that is
adde d to or subtracted from the basic fee. The maximum annualized
performance adjustment rate is + 0.20%.
Investment performance will be measured separately for each class of shares
offered by Overseas, Mid Cap, Growth Opportunities, Strategic Opportunities
and Large Cap and the least of the results obtained will be used in
calculating the performance adjustment.
The following table states the management fee for each fund for its most
recent fiscal year end.
Group Individual Total
Fee Rate Fund Fee Manageme
Rate nt Fee
Overseas [A] 0.45%
Mid Cap [B] 0.30%
Equity Growth 0.30%
Global Resources 0.45%
Growth Opportunities [A] 0.30%
Strategic Opportunities [A] 0.30%
Large Cap [B] 0.30%
Equity Income N/A N/A 0.50%
Income & Growth 0.20%
Emerging Markets Income 0.55%
High Yield 0.45%
Strategic Income 0.45%
Government Investment 0.30%
Intermediate Bond 0.30%
Short Fixed-Income 0.30%
High Income Municipal 0.25%
Intermediate Municipal Income 0.25%
Short-Intermediate Municipal Income 0.25%
California Municipal Income [B] 0.25%
New York Municipal Income [B] 0.25%
[A] The basic fee rate for the fiscal year ended 1995 was ____% for
Overseas, ____% for Growth Opportunities, and ___% for Strategic
Opportunities.
[B] Annualized
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 FIIAL
U.K. These sub-advisers are compensated for providing FMR with investment
research and advice on issuers based outside the United States. 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 a fee equal to 30%
of its management fee rate associated with investments for which the
sub-adviser provided investment advice.
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 a fund's investments that the
sub-adviser manages on a discretionary basis. FIIA pays FIIAL U.K. a fee
equal to 110% of the cost of providing these services.
For the fiscal year ended 1995, FMR, on behalf of each fund with a
sub-advisory agreement paid FMR U.K., FMR Far East, FIJ and FIIA fees equal
to __%, of each fund's average net assets.
OTHER EXPENSES
While the management fee is a significant component of each fund's annual
operating costs, the funds have other expenses as well.
FIIOC performs transfer agency, dividend disbursing and shareholder
servicing functions for the Institutional Class of Overseas, Equity Growth,
Global Resources, Growth Opportunities, Strategic Opportunities, Equity
Income, Income & Growth, Emerging Markets Income, High Yield, Strategic
Income, Government Investment, Intermediate Bond, and Short Fixed-Income
(the Taxable Funds). Fidelity Service Co. (FSC) calculates the NAV and
dividends for the Institutional Class of the Taxable Funds, maintains the
general accounting records and administers the securities lending program
of the Taxable Funds.
In the fiscal year ended 1995, fees paid by the Institutional Class of each
fund (as a percentage of average net assets) amounted to the following:
Institutio Each
nal Fund
Class to to FSC
FIIOC
Overseas [A]
Equity Growth
Global Resources [A]
Growth Opportunities [A]
Strategic Opportunities [A]
Equity Income
Income & Growth [A]
Emerging Markets Income [A]
High Yield [A]
Strategic Income [A]
Government Investment [A]
Intermediate Bond
Short Fixed-Income [A]
[A] Annualized
UMB has entered into sub-arrangements pursuant to which FIIOC performs
transfer agency, dividend disbursing and shareholder services for
Institutional Class of High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income,
and New York Municipal Income (the Tax-Exempt Funds). UMB has entered into
sub-arrangements pursuant to which FSC calculates the NAV and dividends for
the Institutional Class of the Tax-Exempt Funds, and maintains the general
accounting records for each of the Tax-Exempt Funds. All of the fees are
paid to FIIOC and FSC by UMB, which is reimbursed by the Institutional
Class or the fund, as appropriate, for such payments.
In the fiscal year ended 1995, fees paid by the Institutional Class of each
fund (as a percentage of average net assets) amounted to the following:
UMB to UMB to
FIIOC FSC on
on behalf of
behalf of each
Institutio fund
nal
Class
High Income Municipal [A]
Intermediate Municipal Income
Short-Intermediate Municipal Income [A]
New Y ork Municipal Income [A]
[A] Annualized
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. on behalf of
Institutional Class. Each Plan recognizes that FMR may use its resources,
including management fees, to pay expenses associated with the sale of
Institutional Class shares. This may include payments to third parties,
such as banks or broker-dealers, that provide shareholder support services
or engage in the sale of the funds' Institutional Class shares. The Board
of Trustees of each fund has authorized such payments.
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 certain funds to reduce the fund's
custodian or transfer agent fees.
The portfolio turnover rate for Mid Cap and Large Cap is not expected to
exceed __% for their first fiscal period ending November 30, 1996. The
portfolio turnover rate for California Municipal Income is not expected to
exceed __% for its first fiscal period endin g October 31, 1996.
The portfolio turnover rate for the fiscal year ended 1995 was __% for
Overseas, __% for Equity Growth, ___% for Global Resources, __% for Growth
Opportunities, ___% for Strategic Opportunities, ___% for Equity Income,
___% for Income & Growth, ___% for Emerging Markets Income, ___% for High
Yield, ___% for Strategic Income, ___% for Government Investment, ___% for
Intermediate Bond, ___% for Short Fixed-Income, ___% High Income Municipal,
___% for Intermediate Municipal Income, ___% for Short-Inter me diate
Municipal Income, and ___% for New York Municipal Income. These rates vary
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
TYPES OF ACCOUNTS
If you invest through an investment professional, read your investment
professional's program materials in conjunction with this prospectus for
additional service features or fees that may apply. Certain features of the
funds, such as minimum initial or subsequent investment amounts, may be
modified in these programs, and administrative charges may be imposed for
the services rendered. Your investment professional (including
broker-dealers) may charge you a transaction fee with respect to the
purchase and sale of fund shares.
The different ways to set up (register) your account with Fidelity are
listed below.
The account guidelines that follow may not apply to certain funds or to
certain retirement accounts. For instance, tax-free funds are not available
for purchase in retirement accounts. If your employer offers a fund through
a retirement program, contact your employer for more information. Otherwise
call your investment professional directly.
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 (THE FOLLOWING OPTIONS ARE AVAILABLE ONLY FOR TAXABLE FUNDS)
TO SHELTER YOUR RETIREMENT SAVINGS FROM TAXES
Retirement plans allow individuals to shelter investment income and
capital gains from current taxes. In addition, contributions to these
accounts may be tax deductible. Retirement accounts require special
applications and typically have lower minimums.
(solid bullet) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal
age under 701/2 with earned income to invest up to $2,000 per tax year.
Individuals can also invest in a spouse's IRA if the spouse has earned
income of less than $250.
(solid bullet) ROLLOVER IRAS retain special tax advantages for certain
distributions from employer-sponsored retirement plans.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide small
business owners or those with self-employed income (and their eligible
employees) with many of the same advantages as a Keogh, but with fewer
administrative requirements.
(solid bullet) 401(K) PLANS allow employees of corporations 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) MONEY PURCHASE/PROFIT SHARING PLANS (KEOGH PLANS) are
tax-deferred pension accounts designated for employees of unincorporated
businesses or for persons who are self-employed.
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). Contact your investment
professional.
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
Contact your investment professional.
HOW TO BUY SHARES
INSTITUTIONAL CLASS'S SHARE PRICE, called NAV, is calculated every business
day. Institutional Class shares are sold without a sales charge.
Shares are purchased at the next NAV calculated after your order is
received and accepted by the transfer agent. NAV is normally calculated at
4:00 p.m. Eastern time.
It is the responsibility of your investment professional to transmit your
order to buy shares to the appropriate transfer agent before 4:00 p.m.
Eastern time.
The transfer agent must receive payment within three business days after an
order for shares is placed; otherwise your purchase order may be canceled
and you could be held liable for resulting fees and/or losses.
Share certificates are not available for Institutional Class shares.
IF YOU ARE NEW TO THE FIDELITY ADVISOR FUNDS, complete and sign an account
application and mail it along with your check. You may also open your
account by wire as described on page __. If there is no account application
accompanying this prospectus, call your investment professional or
1-800-843-3001.
If you are investing through a tax-sheltered retirement plan, such as an
IRA, for the first time, you will need a special application. Contact your
investment professional for more information and a retirement account
application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY ADVISOR FUND, you can:
(small solid bullet) Mail an account application with a check,
(small solid bullet) Place an order and wire money into your account,
(small solid bullet) Open your account by exchanging from the same class of
another Fidelity Advisor fund or from another Fidelity fund, or
(small solid bullet) Contact your investment professional.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $ 2,500
For Fidelity Advisor retirement accounts $ 500
Throu gh automatic investment plans $ 1,000
TO ADD TO AN ACCOUNT $ 250
For Fidelity Advisor retirement accounts $ 100
Thro ugh automatic investment plans $ 100
MINIMUM BALANCE $1,000
Fo r Fidelity Advisor retirement accounts NONE
For further information on opening an account, please consult your
investment professional or refer to the account application.
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<TABLE>
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PHONE (small solid bullet) Exchange from
the same class of another (small solid bullet) Exchange from the same class of another
1-800-843-3001 OR YOUR
INVESTMENT Fidelity Advisor fund or from
another Fidelity Advisor fund or from another
PROFESSIONAL Fidelity fund account with the
same Fidelity fund account with the same
registration, including name,
address, and registration, including name, address, and
taxpayer ID number. taxpayer ID number.
Mail (mail_graphic) (small solid bullet) Complete and
sign the account application. (small solid bullet) Make your check payable to the complete
Make your check payable to the
complete name of the fund of your choice and note
name of the fund of your choice and
note the applicable class. Indicate your fund
the applicable class. Mail to the
address account number on your check and mail to
indicated on the application. the address printed on your account
statement.
(small solid bullet) Exchange by mail: call 1-800-843-3001 or
your investment professional for instructions.
In Person (hand_graphic) (small solid bullet) Bring your
account application and check to (small solid bullet) Bring your check to your investment
your investment professional. professional.
Wire (wire_graphic) (small solid bullet) Call 1-800-843-
3001 to set up your account (small solid bullet) Not available for retirement accounts.
and to arrange a wire transaction.
Not (small solid bullet) Wire to:
available for retirement accounts. Banker's Trust Co.
(small solid bullet) Wire to: Routing # 021001033
Banker's Trust Co. Custody & Shareholder Services
Routing # 021001033 Fidelity Advisor DART System
Custody & Shareholder Services DDA#: (call 1-800-843-3001)
Fidelity Advisor DART System FBO: (account name)
DDA#: (call 1-800-843-3001) (account number)
FBO: (account name)
(account number) Specify the complete name of the fund of
your choice, note the applicable class and
Specify the complete name of the
fund of include your account number and your
your choice, note the applicable
class and name.
include your new account number and
your
name.
</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. Your shares will be sold at
the next NAV calculated after your order is received and accepted by the
transfer agent, NAV is normally calculated 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 ADVISOR RETIREMENT ACCOUNT, your request must
be made in writing, except for exchanges to shares of the same class of
another Fidelity Advisor fund or shares of other Fidelity funds, which can
be requested by phone or in writing.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR ACCOUNT SHARES, leave at least
$1,000 worth of shares in the account to keep it open (a ccount
minimums do not apply to retirement accounts).
TO SELL SHARES BY BANK WIRE, you will need to sign up for this service in
advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and the fund 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, or
(small solid bullet) You wish to have redemption proceeds wired to a
non-predesignated bank account.
You should be able to obtain a signature guarantee from a bank, broker,
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) The applicable class name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
signed certificates (if applicable), and
(small solid bullet) Any other applicable requirements listed in the
following table.
Deliver your letter to your investment professional, or mail it to the
following address:
Fidelity Investments Institutional Operations Company
P.O. Box 1182
Boston, MA 02103-1182
Unless otherwise instructed, the transfer agent will send a check to the
record address.
ACCOUNT TYPE SPECIAL REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PHONE All account types except retirement (small solid bullet) Maximum check request: $100,000.
1-800-843-3001 OR YOUR
INVESTMENT PROFESSIONAL
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(phone_graphic) All account types (small solid bullet) You may exchange to the same
class of other Fidelity Advisor funds
or 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
Sole Proprietorship, UGMA, UTMA signed by all persons required to
sign for transactions, exactly as
their names appear on the account.
(small solid bullet) The account owner should complete
Retirement account a retirement dis tribution form. Call
1-800-843-3001 or your investment
professional 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.
Executor, Administrator, (small solid bullet) Call 1-800-843-3001 or your
Conservator/Guardian investment professional for
instructions.
Wire (wire_graphic) All account types except retirement (small solid bullet) You must sign up for the wire
feature before using it. To verify that
it is in place, call 1-800-843-3001.
Minimum wire: $1,000.
(small solid bullet) Your wire redemption request must
be received by the transfer agent
before 4:00 p.m. Eastern time for
money to be wired on the next
business day.
</TABLE>
INVESTOR SERVICES
Fidelity Advisor funds provide a variety of services to help you manage
your account.
INFORMATION SERVICES
STATEMENTS AND REPORTS that the transfer agent sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction 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 will be mailed,
even if you have more than one account in the fund. Call your investment
professional if you need additional copies of financial reports.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your Institutional Class shares and buy
Institutional Class shares of other Fidelity Advisor funds or shares of
other Fidelity funds by telephone or in writing.
Note that exchanges out of a 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
"Exchange Restrictions," page __.
FIDELITY ADVISOR SYSTEMATIC WITHDRAWAL PROGRAM lets you set up
periodic redemptions from your account. Institutional Class shares with an
account value of $10,000 or more are eligible for this program.
One easy way to pursue your financial goals is to invest money regularly.
Fidelity Advisor funds offer 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 your investment prof essional for more information.
REG ULAR INVESTMENT PLANS
F IDELITY ADVISOR SYSTEMATIC INVESTMENT PROGRAM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY ADVISOR FUND
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M INIMUM MINIMUM FREQUENCY SETTING UP OR CHANGING
INITIAL ADDITIONAL Monthly,
bimonthly, (small solid bullet) For a new account, complete the appropriate section on the
$1,000 $100[A] quarterly, application.
or semi-annually (small solid bullet) For existing accounts, call your investment professional for an
application.
(small solid bullet) To change the amount or frequency of your investment, contact
your investment professional directly or, ca ll 1-800-843-3001. Call
at least 10 business days prior to your next scheduled investment
date.
</TABLE>
FIDELITY ADVISOR SYSTEMATIC EXCHANGE PROGRAM
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND OR A FIDELITY ADVISOR FUND
TO ANOTHER FIDELITY ADVISOR FUND
<TABLE>
<CAPTION>
<S> <C> <C>
M INIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, quarterly, (small solid bullet) To establish, call your investment professional after
both accounts
se mi-annually, or are opened.
annually (small solid bullet) To change the amount or frequency of your
investment, contact
your investment professional directly.
(small solid bullet) The account from which the exchanges are to be
processed must
have a minimum balance of $10,000. The account into which the
exchange is being processed must have a minimum of $1,000.
(small solid bullet) Both accounts must have the same registrations
and taxpayer ID
numbers.
(small solid bullet) Call at least 2 business days prior to your
next scheduled
exchange date.
</TABLE>
[A] BECAUSE THEIR SHARE PRICES FLUCTUATE, THESE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net income and capital gains
to shareholders each year. Each fund pays capital gains, if any, in
December and may pay additional capital gains after the close of its fiscal
year. Normally, dividends for Equity Income and Income & Growth are
distributed in March, June, September and December; dividends for Overseas,
Mid Cap, Equity Growth, Global Resources, Growth Opportunities, Strategic
Opportunities, and Large Cap are distributed in December; dividends for
Equity Growth and Equity Income may also be distributed in January;
dividends for Emerging Markets Income, Strategic Income, High Yield,
Intermediate Bond, Government Investment, Short Fixed-Income, High Income
Municipal, Intermediate Municipal Income, Short-Intermediate Municipal
Income, California Municipal Income, and New York Municipal Income are
declared daily and paid monthly.
DISTRIBUTION OPTIONS
When you open an account, specify on your account application how you want
to receive your distributions. The funds offer four options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the same class 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 in additional shares of the same class of the
fund, 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 PROGRAM. Your dividend and capital gain
distributions will be automatically invested in the same class of
shar es of another identically registered Fidelity Advisor Fund.
If you select distribution option 2 or 3 and the U.S. Postal Service cannot
deliver your checks, or if your checks remain uncashed for six months,
those checks will be reinvested in your account at the current NAV and your
election may be converted to the Reinvestment Option. You may change your
distribution option at any time by notifying the transfer agent in writing.
For retirement accounts, all distributions are automatically reinvested.
When you are over 59 1/2 years old, you can receive distributions in cash.
When each of Overseas, Mid Cap, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap, Equity Income and Income
& Growth deducts a distribution from its NAV, the reinvestment price is the
applicable fund's NAV at the close of business that day. Dividends from
Emerging Markets Income, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income and New York Municipal Income will be
reinvested at the applicable fund's NAV on the last day of the month.
Capital gain distributions from these funds will be reinvested at the NAV
as of the date the applicable fund deducts the distributions from its NAV.
Distribution checks will be mailed within seven days or longer for a
December ex-dividend date.
TAXES
As with any investment, you should consider how an investment in the funds
could affect you. Below are some of the funds' tax implications. If your
account is not a tax-deferred retirement account, be aware of these tax
implications.
TAXES ON DISTRIBUTIONS. Interest income that High Income Municipal,
Intermediate Municipal Income, Short-Intermediate Municipal Income,
California Municipal Income, and New York Municipal Income earn is
distributed to shareholders as income dividends. Interest that is federally
tax-free remains tax-free when it is distributed. Distributions from each
fund (except High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income), however, are subject to federal income tax. Each
fund (except California Municipal Income and New York Municipal Income) may
also be subject to state or local taxes. If you live outside the United
States, your distributions from these funds could also be taxed by the
country in which you reside.
For federal tax purposes, income and short-term capital gain distributions
for each fund (except High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income) are taxed as dividends; long-term capital gain
distributions are taxed as long-term capital gains.
However, for shareholders of High Income Municipal, Intermediate Municipal
Income, Short-Intermediate Municipal Income, California Municipal Income,
and New York Municipal Income, gain on the sale of tax-free bonds results
in taxable distributions. Short-term capital gains and a portion of the
gain on bonds purchased at a discount are taxed as dividends; long-term
capital gain distributions, if any, are taxed as long-term capital gains.
Mutual fund dividends from U.S. Government securities are generally free
from state and local income taxes. However, particular states may limit
this benefit, and some types of securities, such as repurchase agreements
and some agency-backed securities, may not qualify for the benefit. In
addition, some states may impose intangible property taxes. You should
consult your own tax adviser for details and up-to-date information on the
tax laws in your state.
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.
Every January, the transfer agent will send you and the IRS a statement
showing the taxable distributions paid to you in the previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each of High Income Municipal, Inter mediate
Municipal Income, Short-Intermediate Municipal Income, California Municipal
Income and New York Municipal Income may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report
this interest on their tax returns.
A portion of the dividends from High Income Municipal, Intermediate
Municipal Income, Short-Intermediate Municipal Income, California Municipal
Income, and New York Municipal Income may be free from state or local
taxes. Income from investments in your state are often tax-free to you.
Each year, the transfer agent will send you a breakdown of income from each
state to help you calculate your taxes
To the extent that New York Municipal Income fund's income dividends are
derived from state-tax free investments, they will be free from New York
State and City personal income taxes.
To the extent that California Municipal Income fund's income dividends are
derived from interest on state tax-free investments, they will be free from
California state personal income tax. Distributions derived from
obligations that are not California state tax-free obligations, as well as
distributions from short or long-term capital gains, are subject to
California state personal income tax. Corporate taxpayers should note that
the fund's income dividends and other distributions are not exempt from
California state franchise or co rporate income taxes.
During the fiscal year ended 1995, __% of the income dividends from High
Income Municipal, Intermediate Municipal Income, Short-Intermediate
Municipal Income and New York Municipal Income were free from federal
income tax and ___% of New York Mu nicipal Income fund's income
dividends were free from New York taxes. And during the fiscal year ended
1995, ___% of High Income Municipal's, ___% of Intermediate Municipal
Income's, ___% of Short-Intermediate Municipal Income's, and ___% of New
Y o rk Municipal Income's income dividends were subject to the federal
alternative minimum tax.
TAXES ON TRANSACTIONS. Your redemptions-including exchanges-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 a fund, the transfer agent will send you a
confirmation statement showing how many shares you sold and at what price.
You will also receive a consolidated transaction statement at least
quarterly. 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 just before a fund deducts a
distribution from its NAV, 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.
CURRENCY CONSIDERATIONS. For funds that can invest in foreign securities,
if a fund's dividends exceed its taxable income in any year, which is
sometimes the result of currency-related losses, all or a portion of the
fund's dividends may be treated as a return of capital to shareholders for
tax purposes. To minimize the risk of a return of capital, each of these
funds may adjust its dividends to take currency fluctuations into account,
which may cause the dividends to vary. Any return of capital will reduce
the cost basis of your shares, which will result in a higher reported
capital gain or a lower reported capital loss when you sell your shares.
The statement you receive in January will specify if any distributions
included a return of capital.
Undistributed net gains from currency transactions, if any, will generally
be distributed as a separate dividend in December.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on a fund and
its investments and these taxes generally will reduce the fund's
distributions. However, an offsetting tax credit or deduction may be
available to you. If so, your tax statement will show more taxable income
or capital gains than were actually distributed by the funds, 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, a fund may
have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Each class's NAV is normally calculated as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time.
A CLASS'S NAV is the value of a single share. The NAV of each class is
computed by adding that class's pro rata share of the value of the
applicable fund's investments, cash, and other assets, subtracting that
class's pro rata share of the value of the applicable fund's liabilities,
subtracting the liabilities allocated to that class, and dividing the
result by the number of shares of that class that are outstanding.
Each fund's assets are valued primarily on the basis of market quotations,
if available. 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
quotations are not readily available, or if the values have been materially
affected by events occurring after the closing of a foreign market, assets
are valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to
sell one share) of Institutional Class shares are its NAV.
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 a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity and the transfer
agent may only be liable for losses resulting from unauthorized
transactions if they do not follow reasonable procedures designed to verify
the identity of the caller. Fidelity and the transfer agent will request
personalized security codes or other information, and may also record
calls. You should verify the accuracy of the confirmation statements
immediately after receipt. If you do not want the ability to redeem and
exchange by telephone, call the transfer agent for instructions. Additional
documentation may be required from corporations, associations and certain
fiduciaries.
IF YOU ARE UNABLE TO REACH THE TRANSFER AGENT BY PHONE (for example, during
periods of unusual market activity), consider placing your order by mail.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also 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.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased at the
next NAV calculated after your order is received and accepted by the
transfer agent. 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) The funds do 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) Each 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 a fund or the
transfer agent has incurred.
(small solid bullet) Direct Purchases: You begin to earn dividends as of
the first business day following the day the fund receives payment.
(small solid bullet) Confirmed Purchases: You begin to earn dividends as of
the business day the fund receives payment.
(small solid bullet) Automated Purchase Orders: You begin to earn dividends
as of the business day your order is received and accepted.
CONFIRMED PURCHASES. Certain financial institutions that meet FDC's
creditworthiness criteria may enter confirmed purchase orders on behalf of
customers by phone, with payment to follow no later than close of business
on the next business day. If payment is not received by the next business
day, the order will be canceled and the financial institution will be
liable for any losses.
AUTOMATED PURCHASE ORDERS. Institutional Class shares of each fund can be
purchased or sold through investment professionals utilizing an automated
order placement and settlement system that guarantees payment for orders on
a specified date.
TO AVOID THE COLLECTION PERIOD associated with check purchases, consider
buying shares by bank wire, U.S. Postal money order, U.S. Treasury check,
or Federal Reserve check.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your order is received and accepted by the
transfer agent. 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 a fund, it may take up to seven days to pay you.
(small solid bullet) Shares of Emerging Markets Income, High Yield,
Strategic Income, Government Investment, Intermediate Bond, Short
Fixed-Income, High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income 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) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check 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.
THE TRANSFER AGENT 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 $60.00 per shareholder. 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. The fee will not be
deducted from retirement accounts (except non-Fidelity prototype retirement
accounts), accounts using a systematic investment pro gram, certain
(Network Level I and III) accounts which are maintained through National
Securities Clearing Corporation (NSCC), or if total assets in Fidelity
mutual funds exceed $50,000. Eligibility for the $50,000 waiver is
determined by aggregating Fidelity mutual fund accounts (excluding
contractual plans) maintained by (i) FIIOC (ii) by State Street Bank &
Trust Company, and (iii) through NSCC; provided those accounts are
registered under the same primary social security number.
I F Y OUR NON-RETIREMENT ACCOUNT BALANCE FALLS BELOW $1,000, you will
be given 30 days' notice to reestablish the minimum balance. If you do not
increase your balance, the transfer agent 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.
THE TRANSFER AGENT MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC will, at its expense, provide promotional incentives such as sales
contests and luxury trips to investment professionals who support the sale
of shares of the funds. In some instances, these incentives will be offered
only to certain types of investment professionals, such as bank-affiliated
or non-bank affiliated broker-dealers, or to investment professionals 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 your Institutional
Class shares for Institutional Class shares of other Fidelity Advisor funds
or for shares of other Fidelity funds. However, you should note the
following:
(small solid bullet) The fund you are exchanging into must be registered
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 difference between that fund's sales charge and any sales charge
you may 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, each 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) Each 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 a 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 a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
APPENDIX A
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS:
AAA - Bonds which 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 which 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 in the Aaa securities.
A - Bonds which 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 which 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 which 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 which 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 which 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 which 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 which 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.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. 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 in the lower end of its
generic rating category. Those bonds in the Aa, A, Baa, Ba, and B groups
which Moody's believes possess the strongest investment attributes are
designated by the symbols Aa1, A1, Baa1, and B1.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 highest-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 rate 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- 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 - The rating CC typically is applied to debt subordinated to senior debt
that 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 also will
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
APPENDIX B
OVERSEAS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1990 1991 1992 1993 1994 1995
OVERSEAS
Lipper International Funds AverageA
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) OVERSEAS - INSTITUTIONAL CLASS
EQUITY GROWTH - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
EQUITY GROWTH
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: 0.0
Row: 10, Col: 1, Value: 0.0
(LARGE SOLID BOX) EQUITY GROWTH - INSTITUTIONAL
CLASS
GLOBAL RESOURCES - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1988 1989 1990 1991 1992 1993 1994 1995
GLOBAL RESOURCES
Lipper Natural Resources Funds
AverageC
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: 0.0
Row: 10, Col: 1, Value: 0.0
(LARGE SOLID BOX) GLOBAL RESOURCES -
INSTITUTIONAL CLASS
GROWTH OPPORTUNITIES - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1988 1989 1990 1991 1992 1993 1994 1995
GROWTH OPPORTUNITIES
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) GROWTH OPPORTUNITIES -
INSTITUTIONAL CLASS
STRATEGIC OPPORTUNITIES - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
STRATEGIC OPPORTUNITIES
Lipper Growth Funds AverageB
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) STRATEGIC OPPORTUNITIES -
INSTITUTIONAL CLASS
EQUITY INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
EQUITY INCOME
Lipper Equity Income Funds AverageD
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) EQUITY INCOME - INSTITUTIONAL
CLASS
INCOME & GROWTH - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
INCOME & GROWTH
Lipper Balanced Funds AverageE
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INCOME & GROWTH -
INSTITUTIONAL CLASS
EMERGING MARKETS INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
EMERGING MARKETS INCOME
Lipper General World Income Funds AverageF
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) EMERGING MARKETS INCOME
INSTITIONAL CLASS
HIGH YIELD- INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
HIGH YIELD
Lipper High Current Yield Funds
AverageG
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) HIGH YIELD - INSTITUTIONAL
CLASS
STRATEGIC INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
STRATEGIC INCOME
Lipper General Bond Funds AverageH
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) STRATEGIC INCOME -
INSTITUTIONAL CLASS
GOVERNMENT INVESTMENT - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
GOVERNMENT INVESTMENT CLASS A
Lipper General U.S. Government
Bond Funds AverageI
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) GOVERNMENT INVESTMENT -
INSTITUTIONAL CLASS
INTERMEDIATE BOND - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
INTERMEDIATE BOND
Lipper Intermediate Investment Grade
Bond Funds AverageJ
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INTERMEDIATE BOND -
INSTITUTIONAL CLASS
SHORT FIXED-INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
SHORT FIXED-INCOME
Lipper Short Investment Grade Bond
Funds AverageK
Index
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) SHORT FIXED-INCOME -
INSTITUTIONAL CLASS
HIGH INCOME MUNICIPAL - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
HIGH INCOME MUNICIPAL
Lipper High Yield Municipal Bond
Funds
AverageL
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) HIGH INCOME MUNICIPAL -
INSTITUTIONAL CLASS
INTERMEDIATE MUNICIPAL INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
INTERMEDIATE MUNICIPAL INCOME
Lipper Intermediate Municipal Bond
Funds AverageM
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) INTERMEDIATE MUNICIPAL
INCOME - INSTITUTIONAL CLASS
SHORT-INTERMEDIATE MUNICIPAL INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1994 1995
SHORT-INTERMEDIATE MUNICIPAL
INCOME
Lipper Short Municipal Debt Funds
AverageN
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) SHORT-INTERMEDIATE MUNICIPAL
INCOME - INSTITUTIONAL CLASS
NEW YORK MUNICIPAL INCOME - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar year total returns 1995
NEW YORK MUNICIPAL INCOME
Lipper New York Municipal Bond
Funds AverageO
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: nil
Row: 10, Col: 1, Value: nil
(LARGE SOLID BOX) NEW YORK MUNICIPAL INCOME -
INSTITUTIONAL CLASS
[A] THE LIPPER INTERNATIONAL FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[B] THE LIPPER GROWTH FUNDS AVERAGE CURRENTLY REFLECTS THE PERFORMANCE OF
OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[C] THE LIPPER NATURAL RESOURCES FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[D] THE LIPPER EQUITY INCOME FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[E] THE LIPPER BALANCED FUNDS AVERAGE CURRENTLY REFLECTS THE PERFORMANCE OF
OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[F] THE LIPPER GENERAL WORLD INCOME FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[G] THE LIPPER HIGH CURRENT YIELD FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[H] THE LIPPER GENERAL BOND FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[I] THE LIPPER GENERAL U.S. GOVERNMENT BOND FUNDS AVERAGE CURRENTLY
REFLECTS THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[J] THE LIPPER INTERMEDIATE INVESTMENT GRADE BOND FUNDS AVERAGE CURRENTLY
REFLECTS THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
KI] THE LIPPER SHORT INVESTMENT GRADE BOND FUNDS AVERAGE CURRENTLY REFLECTS
THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[L] THE LIPPER HIGH YIELD MUNICIPAL BOND FUNDS AVERAGE CURRENTLY REFLECTS
THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[M] THE LIPPER INTERMEDIATE MUNICIPAL BOND FUNDS AVERAGE CURRENTLY REFLECTS
THE PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[N] THE LIPPER SHORT MUNICIPAL DEBT FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
[O] THE LIPPER NEW YORK MUNICIPAL BOND FUNDS AVERAGE CURRENTLY REFLECTS THE
PERFORMANCE OF OVER __ MUTUAL FUNDS WITH SIMILAR OBJECTIVES
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus and in the related SAI, in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This Prospectus and the related SAI do not
constitute an offer by the funds or by FDC to sell or to buy shares of the
funds to any person to whom it is unlawful to make such offer.
<PAGE>
Fidelity Advisor Funds: Class A and Class B
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Statement of Additional
Item Number Information Section
----------- ----------------------
<S> <C>
10, 11 . . . . . . . . . . . . . . . . . . . Cover Page; Table of Contents
12 . . . . . . . . . . . . . . . . . . . . . Description of the Trusts
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
ii . . . . . . . . . . . . . Trustees and Officers
iii . . . . . . . . . . . . Management Contracts; Contracts with FMR Affiliates
b - d . . . . . . . . . . . . . . . Management Contracts; Contracts with FMR Affiliates
e . . . . . . . . . . . . . . . . . Management Contracts
f . . . . . . . . . . . . . . . . . Distribution and Service Plans
g . . . . . . . . . . . . . . . . . *
h . . . . . . . . . . . . . . . . . Description of the Trusts
i . . . . . . . . . . . . . . . . . Contracts with FMR Affiliates
17 a . . . . . . . . . . . . . . . . . Portfolio Transactions
b . . . . . . . . . . . . . . . . . Portfolio Transactions
c . . . . . . . . . . . . . . . . . Portfolio Transactions
d . . . . . . . . . . . Portfolio Transactions
e . . . . . . . . . . . *
<PAGE>
Form N-1A Statement of Additional
Item Number Information Section
----------- ----------------------
18 a . . . . . . . . . . . . . . . . . Description of the Trusts
b . . . . . . . . . . . . . . . . . *
19 a . . . . . . . . . . . . . . . . . Additional Purchase, Exchange and Redemption Information
b . . . . . . . . . . . . . . . . . Valuation; Additional Purchase, Exchange and Redemption
Information
c . . . . . . . . . . . . . . . . . *
20 Distributions and Taxes
21 a, b . . . . . . . . . . . . . . . . Distribution and Service Plans; Contracts with FMR
Affiliates
c . . . . . . . . . . . . . . . . . *
22 . . . . . . . . . . . . . . . . . . . . . Performance; Appendix
23 . . . . . . . . . . . . . . . . . . . . . Financial Statements
* Not Applicable
</TABLE>
<PAGE>
FIDELITY ADVISOR FUNDS
CLASS A and CLASS B
STATEMENT OF ADDITIONAL INFORMATION
February 26, 1996
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus (dated
February 26, 1996) for Class A and Class B shares. Please retain this
document for future reference. Each fund's financial statements and
financial highlights, included in their respective Annual Reports, for the
most recent fiscal period are incorporated herein by reference. To obtain
an additional copy of this SAI, the Prospectus or any Annual Report,
please call Fidelity Distributors Corporation, 82 Devonshire Street,
Boston, Massachusetts 02109 or your Investment Professional.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Canada
Special Considerations Affecting Latin America
Special Considerations Affecting Japan, the Pacific Basin, and
Southeast Asia
Special Considerations Affecting Europe
Special Considerations Affecting Africa
Special Considerations Affecting New York
Special Considerations Affecting California
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
Performance
Additional Purchase, Exchange, and Redemption Information
Distributions and Taxes
<PAGE>
FMR
Trustees and Officers
Management Contracts
Contracts with FMR Affiliates
Distribution and Service Plans
Description of the Trusts
Financial Statements
Appendix
- 3 -
<PAGE>
ACOM-ptb-296
Growth Funds
------------
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth Opportunities Fund
Fidelity Advisor Strategic Opportunities Fund
Fidelity Advisor Large Cap Fund
Growth and Income Funds
-----------------------
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
Taxable Income Funds
--------------------
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
- 4 -
<PAGE>
Fidelity Advisor Short Fixed-Income Fund
Municipal Funds
---------------
Fidelity Advisor High Income Municipal Fund
Fidelity Advisor Intermediate Municipal Income
Fund
Fidelity Advisor Short-Intermediate
Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
Fidelity Advisor California Municipal Income Fund
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 (FIIAL U.K.)
Fidelity Investments Japan Limited (FIJ)
Distributor
-----------
Fidelity Distributors Corporation (FDC)
- 5 -
<PAGE>
Transfer Agent
--------------
State Street Bank and Trust Company (State Street)
(Class A - Taxable Funds)
Fidelity Investments Institutional Operations
Company (FIIOC) (Class B - Taxable Funds)
UMB Bank, n.a. (UMB) (Class A and Class B -
Municipal Funds)
- 6 -
<PAGE>
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 a 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 a fund's investment
policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the
fund. However, except for the fundamental investment limitations listed
below and the policies restated in the "Fundamental Policies" paragraph on
page __, the investment policies and limitations described in this SAI are
not fundamental and may be changed without shareholder approval.
OVERSEAS FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by
the government of the United States, its agencies or instrumentalities)
if, as a result thereof: (i) more than 5% of the fund's total assets would
be invested in the securities of such issuer or (ii) the fund would hold
more than 10% of the outstanding voting securities of such issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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 the value of its total assets (including
the amount borrowed), less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the fund's total assets by
reason of a decline in net assets will be reduced within three days
(exclusive of Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite any issue of securities, except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
1
<PAGE>
(5) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, its agencies
or instrumentalities) if, as a result thereof, more than 25% of the fund's
total assets (taken at current value) would be invested in the securities
of issuers having their principal business activities in the same
industry;
(6) 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);
(7) 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
(8) 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.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) 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
2
<PAGE>
legal or contractual restrictions on resale or because they cannot be sold
or disposed of in the ordinary course of business at approximately the
price at which they are valued.
(v) The fund does not currently intend to invest in interests in
real estate investment trusts that are not readily marketable or invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under limitation (iv) would
exceed 15% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 10% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the fund in units or attached
to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
3
<PAGE>
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
MID CAP FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
4
<PAGE>
(7) 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
(8) 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.
(9) 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
5
<PAGE>
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
6
<PAGE>
(xi) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
EQUITY GROWTH FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer (other than obligations
issued or guaranteed by the Government of the United States, its agencies
or instrumentalities) if, as a result (a) more than 5% of the fund's total
assets (taken at current value) would be invested in the securities of
such issuer, or (b) the fund would hold more than 10% of the voting
securities of such issuer;
(2) make short sales of securities (unless it owns or by virtue
of its ownership of other securities has the right to obtain, securities
equivalent in kind and amount to the securities sold), provided, however,
that the fund may purchase or sell futures contracts;
(3) purchase any securities on margin, except for such short-term
credits as are necessary for the clearance of transactions, provided,
however, that the fund may make initial and variation margin payments in
connection with purchases or sales of futures contracts or of options on
futures contracts;
(4) 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 the value of the fund's total assets
(including the amount borrowed) less liabilities (not including
borrowings). Any borrowings that come to exceed 33 1/3% of the value of
the fund's total assets by reason of a decline in net assets will be
reduced within 3 days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
7
<PAGE>
(5) underwrite any issue of securities (to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(6) purchase the securities of any issuer (other than obligations
issued or guaranteed by the Government of the United States, its agencies
or instrumentalities) if, as a result, more than 25% of the fund's total
assets (taken at current value) would be invested in the securities of
issuers having their principal business activities in the same industry;
(7) purchase or sell real estate (but this shall not prevent the
fund from investing in marketable securities issued by companies such as
real estate investment trusts which deal in real estate or interests
therein and participation interests in pools of real estate mortgage
loans);
(8) 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);
(9) lend any security or make any other loan if, as a result,
more than 33 1/3% of the fund's total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies and
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities;
(10) purchase securities of other investment companies (except in
the open market where no commission other than the ordinary broker's
commission is paid, or as a part of a merger or consolidation, and in no
event may investments in such securities exceed 10% of the total assets of
the fund);
(11) purchase the securities of any issuer if, as a result, more
than 5% of the fund's total assets (taken at current value) would be
invested in the securities of companies which, including predecessors,
have a record of less than three years of continuous operation; or
(12) invest in oil, gas, or other mineral exploration or
development programs.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
8
<PAGE>
(ii) 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 (4)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iii) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(iv) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable, or
interests in real estate limited partnerships that are not listed on an
exchange or traded on the NASDAQ National Market System if, as a result,
the sum of such interests and other investments considered illiquid under
limitation (iii) would exceed 10% of the fund's net assets.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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.)
(vi) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(vii) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
9
<PAGE>
(viii) The fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
For purposes of limitations (11) and (ix), pass-through entities and
other special purpose vehicles or pools of financial assets, such as
issuers of asset-backed securities or investment companies, are not
considered "business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
GLOBAL RESOURCES FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by
the government of the United States, or any of its agencies or
instrumentalities) if, as a result thereof, (a) more than 5% of the fund's
total assets would be invested in the securities of such issuer, or (b)
the fund would hold more than 10% of the outstanding voting securities of
such issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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 the value 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;
(4) underwrite securities issued by others, except to the extent
that the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
10
<PAGE>
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;
(6) 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); 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 with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or fund 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 (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they cannot be sold or
11
<PAGE>
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to invest in physical
commodities other than precious metals (i.e., gold, palladium, platinum
and silver) and it intends to limit such investments to not more than 25%
of the fund's total assets. The fund may receive no more than 10% of its
yearly income from gains resulting from selling metals or any other
physical commodity.
(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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.)
(viii) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(x) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 10% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the fund in units or attached
to securities are not subject to these restrictions.
12
<PAGE>
(xi) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(xii) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(xiii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures contracts and options, see the
section entitled "Futures and Options" on page __.
GROWTH OPPORTUNITIES FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
13
<PAGE>
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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 with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
14
<PAGE>
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 limit does not apply to purchases of debt securities or
to repurchase agreements.)
(vii) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, may
be warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
15
<PAGE>
(xi) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" on page __.
STRATEGIC OPPORTUNITIES FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities) if, as a result thereof, more than 5% of the fund's
total assets (taken at current value) would be invested in the securities
of such issuer;
(2) purchase the securities of any issuer, if such purchase, at
the time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held in the fund's portfolio;
(3) issue senior securities (except to the extent that issuance
of one or more classes of shares of the fund in accordance with an order
issued by the Securities and Exchange Commission may be deemed to
constitute issuance of a senior security);
(4) make short sales of securities, (unless it owns, or by virtue
of its ownership of other securities has the right to obtain, at no
additional cost, securities equivalent in kind and amount to the
securities sold); provided, however, that the fund may enter into forward
foreign currency exchange transactions; and further provided that the fund
may purchase or sell futures contracts;
(5) purchase any securities or other property on margin, (except
for such short-term credits as are necessary for the clearance of
transactions); provided, however, that the fund may make initial and
16
<PAGE>
variation margin payments in connection with purchases or sales of futures
contracts or options on futures contracts;
(6) 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 the value of the fund's total assets
(including the amount borrowed) less liabilities (not including
borrowings). Any borrowings that come to exceed 33 1/3% of the fund's
total assets by reason of a decline in net assets, will be reduced within
three days (exclusive of Sundays and holidays) to the extent necessary to
comply with the 33 1/3% limitation. The fund will not purchase securities
for investment while borrowings equaling 5% or more of its total assets
are outstanding;
(7) underwrite any issue of securities (except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of "restricted securities");
(8) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities) if, as a result thereof, more than 25% of the fund's
total assets would be invested in the securities of one or more issuers
having their principal business activities in the same industry;
(9) purchase or sell real estate (but this shall not prevent the
fund from investing in marketable securities issued by companies such as
real estate investment trusts which deal in real estate or interests
therein and participation interests in pools of real estate mortgage
loans);
(10) 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);
(11) lend any security or make any other loan if as a result, more
than 33 1/3% of the fund's total assets would be lent to other parties
except (i) through the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies, and
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities;
(12) purchase securities of other investment companies (except in
the open market where no commission other than the ordinary broker's
commission is paid, or as part of a merger or consolidation, and in no
event may investments in such securities exceed 10% of the value of total
assets of the fund). The fund may not purchase or retain securities issued
by other open-end investment companies;
(13) invest more than 5% of the fund's total assets (taken at
market value) in the securities of companies which, including
17
<PAGE>
predecessors, have a record of less than three years' continuous
operation; or
(14) invest in oil, gas, or other mineral exploration or
development programs.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) 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 (6)). 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.
(ii) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(iii) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(ii) would exceed 10% of the fund's net assets.
(iv) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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.)
(v) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(vi) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
18
<PAGE>
(vii) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(viii) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" on page __.
LARGE CAP FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
19
<PAGE>
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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) 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.
20
<PAGE>
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or
interests in real estate limited partnerships that are not listed on an
exchange or traded on the NASDAQ National Market System if, as a result,
the sum of such interests and other investments considered illiquid under
limitation (iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
21
<PAGE>
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(xi) 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 limitations (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
EQUITY INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
22
<PAGE>
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) lend any security or make any other loan if, as a result,
more than 33 1/3% of total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
23
<PAGE>
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(v) The fund does not currently intend to invest in interests in
real estate investment trusts that are not readily marketable or invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under limitation (iv) would
exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets
other than securities to other parties, except (a) by 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation or merger.
(viii) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
24
<PAGE>
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(xi) The fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
INCOME & GROWTH FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
25
<PAGE>
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;
(6) 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);
(7) 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
(8) 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.
(9) 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 with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
26
<PAGE>
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to purchase interests
in real estate investment trusts that are not readily marketable or
interests in real estate limited partnerships that are not listed on an
exchange or traded on the NASDAQ National Market System if, as a result,
the sum of such interests and other investments considered illiquid under
limitation (iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other
than securities to other parties, except by (a) lending money (up to 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 (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of its net assets.
Included in that amount, but not to exceed 2% of the fund's net assets,
may be warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas,
other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
27
<PAGE>
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (viii), pass-through entities
and other special purpose vehicles or pools of financial assets, such as
issuers of asset-backed securities or investment companies, are not
considered "business enterprises."
For the fund's limitations on futures and options
transactions, see the section entitled "Futures and Options" beginning on
page __.
EMERGING MARKETS INCOME FUND
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
28
<PAGE>
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 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 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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
29
<PAGE>
(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 invest in interests
in real estate investment trusts that are not readily marketable, or to
invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(vii) The fund does not currently intend to lend assets other
than securities to other parties, except (a) by 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.)
(viii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation or merger.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 10% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the fund in units or attached
to securities are not subject to these restrictions.
(xii) With respect to 75% of its total assets, the fund does
not currently intend to 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, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
30
<PAGE>
(xiii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xiv) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
HIGH YIELD FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the value of the fund's total assets would
be invested in the securities of that issuer, or (b) it would hold more
than 10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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
31
<PAGE>
fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) 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);
(7) 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
(8) 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.
(9) 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 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
32
<PAGE>
(iv) 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.
(v) The fund does not currently intend to invest in interests
in real estate investment trusts that are not readily marketable or invest
in interests in real estate limited partnerships that are not listed on
the New York Stock Exchange or the American Stock Exchange or traded on
the NASDAQ National Market System if, as a result, the sum of such
interests and other investments considered illiquid under limitation (iv)
would exceed 15% of the fund's net assets.
(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 purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(viii) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(ix) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(x) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
33
<PAGE>
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (vii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
STRATEGIC INCOME FUND
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
34
<PAGE>
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 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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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
35
<PAGE>
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 and loan participations or other forms of direct debt
instruments and, in connection therewith, assuming any associated unfunded
loan 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 (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas,
or other mineral explorations or development programs or leases.
(xi) With respect to 75% of its total assets, the fund does
not currently intend to 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, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
36
<PAGE>
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
GOVERNMENT INVESTMENT FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940.
(3) 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;
(4) 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;
(5) 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 issuers having
their principal business activities in the same industry;
(6) purchase or sell real estate unless acquired as a result
of ownership of securities or other investments (but this shall not
prevent the fund from investing in securities or other instruments backed
by real estate or securities of companies in the real estate business);
(7) 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
37
<PAGE>
(8) 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
repurchase agreements.
(9) 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 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% of its net assets would be
invested in securities that are deemed 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.
(v) The fund does not currently intend to invest in interests
in real estate investment trusts that are not readily marketable or to
invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
38
<PAGE>
(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 (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to enter into any
futures contract or option on a futures contract if, as a result, the sum
of initial margin deposits on futures contracts and related options and
premiums paid for options on futures contracts the fund has purchased,
after taking into account unrealized profits and losses on such contracts
would exceed 5% of the fund's total assets.
(xiii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
39
<PAGE>
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
INTERMEDIATE BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) 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
40
<PAGE>
contracts or from investing in securities or other instruments backed by
physical commodities); or
(8) lend any security or make any other loan if, as a result,
more than 33 1/3% of the fund's total assets would be lent to other
parties (but this limitation does not apply to purchases of debt
securities or to repurchase agreements).
(9) 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 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) 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.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or fund 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 (3). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) 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 fund for
which FMR or an affiliate serves as investment adviser or (b) acquiring
loans, loan participations, or other forms of direct debt instruments,
41
<PAGE>
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.)
(vi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(vii) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(viii) The fund does not currently intend to invest in
interests in real estate investment trusts that are not readily marketable
or to invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(ix) The fund currently does not intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to (a) purchase
securities of other investment companies except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(xi) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
SHORT FIXED-INCOME FUND
42
<PAGE>
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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 with
43
<PAGE>
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to lend assets other
than securities to other parties, except by (i) 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 (ii)
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.)
(vi) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation, or merger.
44
<PAGE>
(vii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(viii) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(ix) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(x) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xi) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (vii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" on page __.
45
<PAGE>
HIGH INCOME MUNICIPAL FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) underwrite securities issued by others (except to the
extent that the fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in the disposition of restricted
securities);
(5) purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
securities of companies whose principal business activities are in the
same industry;
(6) 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);
(7) 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
(8) 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
46
<PAGE>
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(9) 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 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to invest in interests
of real estate investment trusts that are not readily marketable, or to
invest in interests of real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(vi) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
47
<PAGE>
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(vii) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(viii) The fund does not currently intend to invest more than
25% of its total assets in industrial revenue bonds related to a single
industry.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
INTERMEDIATE MUNICIPAL INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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
48
<PAGE>
a result, (a) more than 5% of its total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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.
49
<PAGE>
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to invest in interests
in real estate investment trusts that are not readily marketable, or to
invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(vi) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger. Any securities issued by other investment
50
<PAGE>
companies would also have to meet the fund's credit and maturity
standards. In some cases, other investment companies may incur expenses
that are comparable to expenses paid by the fund, which would be taken
into account in considering investments in such securities.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to invest in oil, gas,
other mineral exploration or development programs or leases.
(x) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and Trustees of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xi) 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 (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures contracts and options, see
the section entitled "Futures and Options" beginning on page __.
SHORT-INTERMEDIATE MUNICIPAL INCOME FUND
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
51
<PAGE>
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, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
52
<PAGE>
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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 10% 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 engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
53
<PAGE>
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years continuous operation.
(x) The fund may not 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.)
(xi) The fund does not currently intend to invest in interests
of real estate investment trusts that are not readily marketable, or to
invest in interests of real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(xii) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(xiii) With respect to 75% of its total assets, the fund does
not currently intend to 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, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
(xiv) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
NEW YORK MUNICIPAL INCOME FUND
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;
54
<PAGE>
(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, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
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.
55
<PAGE>
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY
BE CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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 10% 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.
56
<PAGE>
(vi) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years continuous operation.
(x) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(xi) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
CALIFORNIA MUNICIPAL INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
57
<PAGE>
(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, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
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
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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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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 10% 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.
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(vi) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(xi) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For purposes of certain fundamental investment limitations, FMR
identifies the issuer of a security depending on its terms and conditions.
In identifying the issuer, FMR will consider the entity or entities
responsible for payment of interest and repayment of principal and the
source of such payments; the way in which assets and revenues of an
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issuing political subdivision are separated from those of other political
entities; and whether a governmental body is guaranteeing the security.
EACH FUND'S INVESTMENTS MUST BE CONSISTENT WITH ITS INVESTMENT
OBJECTIVE AND POLICIES. ACCORDINGLY, NOT ALL OF THE SECURITY TYPES AND
INVESTMENT TECHNIQUES DISCUSSED BELOW ARE ELIGIBLE INVESTMENTS FOR EACH OF
THE FUNDS.
Affiliated Bank Transactions. A 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
(1940 Act). 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 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. A 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.
Delayed-Delivery Transactions. A fund may buy and sell securities
on a delayed-delivery or when-issued basis. These transactions involve a
commitment by a 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. A fund
may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Because a 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 a 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, a fund will set
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aside appropriate liquid assets in a segregated custodial account to cover
its purchase obligations. When a 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, a
fund could miss a favorable price or yield opportunity, or could suffer a
loss.
A 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,
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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 Depository Receipts (ADRs), as well as other "hybrid"
forms of ADRs, including European Depository Receipts (EDRs) and Global
Depository 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
alternatives 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.
Federally Taxable Obligations. Under normal conditions, the
municipal funds do not intend to invest in securities whose interest is
federally taxable. However, from time to time on a temporary basis, each
municipal fund may invest a portion of its assets in fixed-income
obligations whose interest is subject to federal income tax.
Should a municipal fund invest in federally taxable obligations,
it would purchase securities that, in FMR's judgment, are of high quality.
These obligations would include those issued or guaranteed by the U.S.
government or its agencies or instrumentalities; obligations of domestic
banks; and repurchase agreements. The funds' standards for high-quality,
taxable obligations are essentially the same as those described by Moody's
Investor Services (Moody's) in rating corporate obligations within its two
highest ratings of Prime-1 and Prime-2, and those described by Standard &
Poor's Corporation (S&P) in rating corporate obligations within its two
highest ratings of A-1 and A-2.
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Proposals to restrict or eliminate the federal income tax
exemption for interest on municipal obligations are introduced before
Congress from time to time. Proposals also may be introduced before state
legislatures that would affect the state tax treatment of the municipal
funds' distributions. If such proposals were enacted, the availability of
municipal obligations and the value of the municipal funds' holdings would
be affected and the Trustees would reevaluate the municipal funds'
investment objectives and policies.
Foreign Currency Transactions. A fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. A fund will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion,
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 to a fund at one rate, while offering a
lesser rate of exchange should the fund desire to resell that currency to
the dealer. Forward contracts are generally traded in an interbank market
conducted 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. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by a fund. A fund may also use swap
agreements, indexed securities, and options and futures contracts relating
to foreign currencies for the same purposes.
When a fund agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale,
for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, a fund will be able to
protect itself against an adverse change in foreign currency values
between the date the security is purchased or sold and the date on which
payment is made or received. This technique is sometimes referred to as a
"settlement hedge" or "transaction hedge." A fund may also enter into
forward contracts to purchase or sell a foreign currency in anticipation
of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by
FMR.
A fund may also use forward contracts to hedge against a decline
in the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
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U.S. dollars to hedge against possible declines in the pound's value. Such
a hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. A fund could also
hedge the position by selling another currency expected to perform
similarly to the pound sterling - for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple
hedge into U.S. dollars. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. For example, if a fund held
investments denominated in Deutschemarks, a fund could enter into forward
contracts to sell Deutschemarks and purchase Swiss Francs. This type of
strategy, sometimes known as a "cross-hedge," will tend to reduce or
eliminate exposure to the currency that is sold, and increase exposure to
the currency that is purchased much as if a fund had sold a security
denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from
a decline in the hedged currency, but will cause a fund to assume the risk
of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to
set aside appropriate liquid assets in a segregated custodial account to
cover currency forward contracts. As required by SEC guidelines, the funds
will segregate assets to cover currency forward contracts, if any, whose
purpose is essentially speculative. A fund will not segregate assets to
cover forward contracts entered into for hedging purposes, including
settlement hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on
FMR's skill in analyzing and predicting 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 be unable to
participate in the currency's appreciation. If FMR hedges currency
exposure through proxy hedges, a fund could realize currency losses from
the hedge and the security position at the same time 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 the funds or that it will hedge at an
appropriate time.
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Foreign Repurchase Agreements. Foreign repurchase agreements may
include agreements to purchase and sell foreign securities in exchange for
fixed U.S. dollar amounts, or in exchange for specified amounts of foreign
currency. Unlike typical U.S. repurchase agreements, foreign repurchase
agreements may not be fully collateralized at all times. The value of the
security purchased by the fund may be more or less than the price at which
the counterparty has agreed to repurchase the security. In the event of a
default by the counterparty, the fund may suffer a loss if the value of
the security purchased is less than the agreed-upon repurchase price, or
if the fund is unable to successfully assert a claim to the collateral
under foreign laws. As a result, foreign repurchase agreements may involve
higher credit risks than repurchase agreements in U.S. markets, as well as
risks associated with currency fluctuations. In addition, as with other
emerging market investments, repurchase agreements with counterparties
located in emerging markets or relating to emerging market securities may
involve issuers or counterparties with lower credit ratings than typical
U.S. repurchase agreements.
Funds' Rights as Shareholders. The funds do not intend to direct
or administer the day-to-day operations of any company. A 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 a 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 a 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 a 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 paragraphs 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. Each fund will
comply with guidelines established by the SEC with respect to coverage of
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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 a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
Combined Positions. A 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, a 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 a fund's current
or anticipated investments exactly. A 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 a fund's other investments.
Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match a
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. A 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 a 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
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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 a fund enters into the
contract. Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on
indices of securities prices, such as the Standard & Poor's Composite
Index of 500 Stocks (S&P 500) or the Bond Buyer Municipal Bond Index.
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 a fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it
had purchased the underlying instrument directly. When a 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 a fund's
investment limitations. In the event of the bankruptcy of an FCM that
holds margin on behalf of a 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. Each fund has
filed 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. Each 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, each 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
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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 each fund's investments in futures
contracts and options, and each 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 a 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 a fund
to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, a 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.
A fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. A 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
a fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect a
fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a fund's foreign-denominated
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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 options
(OTC) (options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this type
of arrangement allows a 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, a
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.
A 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. A 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 a 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, a fund will be required to make margin payments to an FCM as
described above for futures contracts. A 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
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market is not liquid for a put option a 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 a 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 a fund's investments and, through reports
from FMR, the Board monitors investments in illiquid instruments. In
determining the liquidity of a 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 a 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, municipal lease obligations,
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 a 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.
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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, a fund were in a position where more than 10% or 15%
of its net assets (see each fund's non-fundamental investment limitations)
was invested in illiquid securities, it would seek to take appropriate
steps to protect liquidity.
Indexed Securities. A 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 Program. Pursuant to an exemptive order issued
by the SEC, each fund has received permission to lend money to, and borrow
money from, other funds advised by FMR or its affiliates. High Income
Municipal, Intermediate Municipal Income, Short-Intermediate Municipal
Income, California Municipal Income, and New York Municipal Income each
will participate in the interfund borrowing program only as a borrower.
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.
Each fund (except High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income) will lend through the program only when the returns
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are higher than those available from other short-term instruments (such as
repurchase agreements). A fund will borrow through the program only when
the costs are equal to or lower than the cost of bank loans. A 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.
Inverse Floaters have variable interest rates that typically move
in the opposite direction from prevailing short-term interest rate
levels - rising when prevailing short-term interest rates fall and vice
versa. This interest rate feature can make the prices of inverse floaters
considerably more volatile than those of bonds with comparable maturities.
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 each 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 a 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 a 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 a 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 a fund in the event of fraud
or misrepresentation. In the absence of definitive regulatory guidance,
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each 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, a 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 a 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 a 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. A fund will set aside appropriate liquid assets in a
segregated custodial account to cover its potential obligations under
standby financing commitments.
Each fund limits the amount of total assets that it will invest in
any one issuer or in issuers within the same industry (see each fund's
investment limitations). For purposes of these limitations, a 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 a 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 a 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.
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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 a 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 a fund. In considering
investments for a 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.
Each 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.
Lower-Quality Municipal Securities. While the market for
municipals is considered to be substantial, adverse publicity and changing
investor perceptions may affect the ability of outside pricing services
used by a fund to value its portfolio securities, and a fund's ability to
dispose of lower-quality bonds. The outside pricing services are monitored
by FMR and reported to the Board to determine whether the services are
furnishing prices that accurately reflect fair value. The impact of
changing investor perceptions may be especially pronounced in markets
where municipal securities are thinly traded.
Each fund may choose, at its expense or in conjunction with
others, to pursue litigation or otherwise 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.
Municipal Market Disruption Risk. The value of municipal
securities may be affected by uncertainties in the municipal market
related to legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event of a
bankruptcy. Municipal bankruptcies are relatively rare, and certain
provisions of the U.S. Bankruptcy Code governing such bankruptcies are
unclear and remain untested. Further, the application of state law to
municipal issuers could produce varying results among the states or among
municipal securities issuers within a state. These legal uncertainties
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could affect the municipal securities market generally, certain specific
segments of the market, or the relative credit quality of particular
securities. Any of these effects could have a significant impact on the
prices of some or all of the municipal securities held by a fund.
Mortgage-Backed Securities. A 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 is 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
(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 a 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.
Municipal Leases and participation interests therein may take the
form of a lease, an installment purchase, or a conditional sale contract,
and are issued by state and local governments and authorities to acquire
land or a wide variety of equipment and facilities. Generally, a fund will
not hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those
associated with general obligation or revenue bonds. State constitutions
and statutes set forth requirements that states or municipalities must
meet to incur debt. These may include voter referenda, interest rate
limits, or public sale requirements. Leases, installment purchases, or
conditional sale contracts (which normally provide for title to the leased
asset to pass to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting
their constitutional and statutory requirements for the issuance of debt.
Many leases and contracts include "non-appropriation clauses" providing
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that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purposes
by the appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations.
MUNICIPAL SECTORS:
Education. In general, there are two types of education-related
bonds; those issued to finance projects for public and private colleges
and universities, and those representing pooled interests in student
loans. Bonds issued to supply educational institutions with funds are
subject to the risk of unanticipated revenue decline, primarily the result
of decreasing student enrollment or decreasing state and Federal funding.
Among the factors that may lead to declining or insufficient revenues are
restrictions on students' ability to pay tuition, availability of state
and federal funding, and general economic conditions. Student loan revenue
bonds are generally offered by state (or substate) authorities or
commissions and are backed by pools of student loans. Underlying student
loans may be guaranteed by state guarantee agencies and may be subject to
reimbursement by the United States Department of Education through its
guaranteed student loan program. Others may be private, uninsured loans
made to parents or students which are supported by reserves or other forms
of credit enhancement. Recoveries of principal due to loan defaults may be
applied to redemption of bonds or may be used to re-lend, depending on
program latitude and demand for loans. Cash flows supporting student loan
revenue bonds are impacted by numerous factors, including the rate of
student loan defaults, seasoning of the loan portfolio, and student
repayment deferral during periods of forbearance. Other risks associated
with student loan revenue bonds include potential changes in federal
legislation regarding student loan revenue bonds, state guarantee agency
reimbursement and continued federal interest and other program subsidies
currently in effect.
Electric Utilities Industry. The electric utilities industry has
been experiencing, and will continue to experience, increased competitive
pressures. Federal legislation in the last two years will open
transmission access to any electricity supplier, although it is not
presently known to what extent competition will evolve. Other risks
include: (a) the availability and cost of fuel, (b) the availability and
cost of capital, (c) the effects of conservation on energy demand, (d) the
effects of rapidly changing environmental, safety, and licensing
requirements, and other federal, state, and local regulations, (e) timely
and sufficient rate increases, and (f) opposition to nuclear power.
Health Care Industry. The health care industry is subject to
regulatory action by a number of private and governmental agencies,
including federal, state, and local governmental agencies. A major source
of revenues for the health care industry is payments from the Medicare and
Medicaid programs. As a result, the industry is sensitive to legislative
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changes and reductions in governmental spending for such programs.
Numerous other factors may affect the industry, such as general and local
economic conditions; demand for services; expenses (including malpractice
insurance premiums); and competition among health care providers. In the
future, the following elements may adversely affect health care facility
operations: adoption of legislation proposing a national health insurance
program; other state or local health care reform measures; medical and
technological advances which dramatically alter the need for health
services or the way in which such services are delivered; changes in
medical coverage which alter the traditional fee-for-service revenue
stream; and efforts by employers, insurers, and governmental agencies to
reduce the costs of health insurance and health care services.
Housing. Housing revenue bonds are generally issued by a state,
county, city, local housing authority, or other public agency. They are
generally secured by the revenues derived from mortgages purchased with
the proceeds of the bond issue. It is extremely difficult to predict the
supply of available mortgages to be purchased with the proceeds of an
issue or the future cash flow from the underlying mortgages. Consequently,
there are risks that proceeds will exceed supply, resulting in early
retirement of bonds, or that homeowner repayments will create an irregular
cash flow. Many factors may affect the financing of multi-family housing
projects, including acceptable completion of construction, proper
management, occupancy and rent levels, economic conditions, and changes to
current laws and regulations.
Transportation. Transportation debt may be issued to finance the
construction of airports, toll roads, highways or other transit
facilities. Airport bonds are dependent on the general stability of the
airline industry and on the stability of a specific carrier that uses the
airport as a hub. Air traffic generally tracks broader economic trends and
is also affected by the price and availability of fuel. Toll road bonds
are also affected by the cost and availability of fuel as well as toll
levels, the presence of competing roads, and the general economic health
of the area. Fuel costs and availability also affect other
transportation-related securities, as does the presence of alternate forms
of transportation, such as public transportation.
Water and Sewer. Water and sewer revenue bonds are often
considered to have relatively secure credit as a result of their issuer's
importance, monopoly status, and generally unimpeded ability to raise
rates. Despite this, lack of water supply due to insufficient rain,
run-off, or snow pack is a concern that has led to past defaults. Further,
public resistance to rate increases, costly environmental litigation, and
Federal environmental mandates are challenges faced by issuers of water
and sewer bonds.
Physical Commodities. As a practical matter, investments in
physical commodities can present concerns such as delivery, storage and
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maintenance, possible illiquidity and the unavailability of accurate
market valuations. FMR, in addressing these concerns, currently intends to
purchase only readily marketable precious metals and to deliver and store
them with a qualified U.S. bank. Investments in bullion earn no investment
income and may involve higher custody and transaction costs than
investments in securities. Global Resources may receive no more than 10%
of its yearly income from gains resulting from selling metals or any other
physical commodity. Therefore, the fund may be required either to hold its
metals or to sell them at a loss, or to sell its portfolio securities at a
gain,when it would not otherwise do so for investment reasons.
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.
Refunding Contracts. A fund may purchase securities on a
when-issued basis in connection with the refinancing of an issuer's
outstanding indebtedness. Refunding contracts require the issuer to sell
and a fund to buy refunded municipal obligations at a stated price and
yield on a settlement date that may be several months or several years in
the future. A fund generally will not be obligated to pay the full
purchase price if it fails to perform under a refunding contract. Instead,
refunding contracts generally provide for payment of liquidated damages to
the issuer (currently 15-20% of the purchase price). A fund may secure its
obligations under a refunding contract by depositing collateral or a
letter of credit equal to the liquidated damages provisions of the
refunding contract. When required by SEC guidelines, a fund will place
liquid assets in a segregated custodial account equal in amount to its
obligations under refunding contracts.
Repurchase Agreements. In a repurchase agreement, a 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 a
fund from the 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 a fund
in connection with bankruptcy proceedings), it is each fund's (except
Equity Growth's) current policy to engage in repurchase agreement
transactions with parties whose creditworthiness has been reviewed and
found satisfactory by FMR. Equity Growth will engage in repurchase
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agreement transactions only with banks of the Federal Reserve System and
primary dealers in U.S. Government securities.
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, a 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, a 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,
a 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, a fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
A 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 a fund's
assets and may be viewed as a form of leverage.
Securities Lending. A 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
(NYSE) and a subsidiary of FMR Corp.
Securities lending allows a 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
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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 a 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. A 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 a 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. A 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 a fund enters into a short sale, it will be required to set
aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities) and
will be required to hold them aside while the short sale is outstanding. A
fund will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
Sovereign Debt Obligations. A 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.
Standby Commitments are puts that entitle holders to same-day
settlement at an exercise price equal to the amortized cost of the
underlying security plus accrued interest, if any, at the time of
exercise. A fund may acquire standby commitments to enhance the liquidity
of portfolio securities.
Ordinarily a fund will not transfer a standby commitment to a
third party, although it could sell the underlying municipal security to a
third party at any time. A fund may purchase standby commitments separate
from or in conjunction with the purchase of securities subject to such
commitments. In the latter case, a fund would pay a higher price for the
securities acquired, thus reducing their yield to maturity.
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Issuers or financial intermediaries may obtain letters of credit
or other guarantees to support their ability to buy securities on demand.
FMR may rely upon its evaluation of a bank's credit in determining whether
to purchase an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be
subject to unfavorable political or economic developments, currency
controls, or other governmental restrictions that might affect the bank's
ability to honor its credit commitment.
Standby commitments are subject to certain risks, including the
ability of issuers of standby commitments to pay for securities at the
time the commitments are exercised; the fact that standby commitments are
not marketable by a fund; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
Stripped Government Securities. Stripped securities are created
by separating the income and principal components of a debt instrument and
selling them separately. U.S. Treasury STRIPS (Separate Trading of
Registered Interest and Principal of Securities) are created when the
coupon payments and the principal payment are stripped from an outstanding
Treasury bond by the Federal Reserve Bank. Bonds issued by government
agencies also may be stripped in this fashion.
Privately stripped government securities are created when a dealer
deposits a Treasury security or federal agency security with a custodian
for safekeeping and then sells the coupon payments and principal payment
that will be generated by this security. Proprietary receipts, such as
Certificates of Accrual on Treasury Securities (CATS), Treasury Investment
Growth Receipts (TIGRS), and generic Treasury Receipts (TRs), are stripped
U.S. Treasury securities that are separated into their component parts
through trusts created by their broker sponsors. Bonds issued by
government agencies also may be stripped in this fashion.
Because of the SEC's views on privately stripped government
securities, a fund must evaluate them as it would non-government
securities pursuant to regulatory guidelines applicable to all money
market funds. A fund currently intends to purchase only those privately
stripped government securities that have either received the highest
ranking from two nationally recognized rating services (or one, if only
one has rated the security) or, if unrated, have been judged to be of
equivalent quality by FMR pursuant to procedures adopted by the Board of
Trustees.
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
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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 investments or market
factors. Depending on their structure, swap agreements may increase or
decrease a 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. A fund is not limited to any particular form
of swap agreement if FMR determines it is consistent with a 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 rights 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 a fund's investment exposure
from one type of investment to another. For example, if a fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease a 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 a 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 a fund. If a swap
agreement calls for payments by a 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. A 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.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
If a fund enters into a swap agreement on a net basis, it will segregate
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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 a 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.
Tender Option Bonds are created by coupling an intermediate- or
long-term, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for a fund, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
Variable or Floating Rate Obligations, including certain
participation interests in municipal instruments, have interest rate
adjustment formulas that help stabilize their market values. Many variable
and floating rate instruments also carry demand features that permit a
fund to sell them at par value plus accrued interest on short notice.
In many instances bonds and participation interests have tender
options or demand features that permit a fund to tender (or put) the bonds
to an institution at periodic intervals and to receive the principal
amount thereof. The funds consider variable rate instruments structured in
this way (Participating VRDOs) to be essentially equivalent to other VRDOs
they purchase. The IRS has not ruled whether the interest on Participating
VRDOs is tax-exempt, and, accordingly, the funds intend to purchase these
instruments based on opinions of bond counsel. The funds may also invest
in fixed-rate bonds that are subject to third party puts and in
participation interests in such bonds held by a bank in trust or
otherwise.
Warrants are securities that give a fund the right to purchase
equity securities from the issuer at a specific price (the strike price)
for a limited period of time. The strike price of warrants typically is
much lower than the current market price of the underlying securities, yet
they are subject to similar price fluctuations. As a result, warrants may
be more volatile investments than the underlying securities and may offer
greater potential for capital appreciation as well as capital loss.
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Warrants do not entitle a holder to dividends or voting rights
with respect to the underlying securities and do not represent any rights
in the assets of the issuing company. Also, the value of the warrant does
not necessarily change with the value of the underlying securities, and a
warrant ceases to have value if it is not exercised prior to expiration
date. These factors can make warrants more speculative than other types of
investments.
Zero Coupon Bonds do not make regular 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, a fund takes into account as income a portion
of the difference between a zero coupon bond's purchase price and its face
value.
The following paragraph restates fundamental policies previously
disclosed in the above descriptions of security types and investment
practices.
Fundamental Policies: It is the policy of Equity Growth to engage
in repurchase agreement transactions only with banks of the Federal
Reserve System and primary dealers in U.S. Government securities.
SPECIAL CONSIDERATIONS AFFECTING CANADA
----------------------------------------
Canada occupies the northern part of North America and is the
second largest country in the world (3.97 million square miles in area)
extending from the Atlantic Ocean to the Pacific Ocean. The companies in
which a fund may invest include those involved in the energy industry,
industrial materials (chemicals, base metals, timber and paper) and
agricultural materials (grain cereals). The securities of companies in the
energy industry are subject to changes in value and dividend yield which
depend, to a large extent, on the price and supply of energy fuels. Rapid
price and supply fluctuations may be caused by events relating to
international politics, energy conservation and the success of exploration
products. Canada is one the world's leading industrial countries and is
rich in natural resources such as zinc, uranium, nickel, gold, silver,
aluminum, iron and copper. Forest covers over 44% of land area, making
Canada a leading world producer of newsprint. Canada is also a major
exporter of agricultural products. The economy of Canada is strongly
influenced by the activities of companies and industries involved in the
production and processing of natural resources. Canada is a major producer
of hydroelectricity, oil and gas. The business activities of companies in
the energy field may include the production, generation, transmission,
marketing, control or measurement of energy or energy fuels. Economic
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prospects are changing due to recent government attempts to reduce
restrictions against foreign investments.
Securities of Canadian companies are not considered by FMR to have
the same level of risk as those of other non-U.S. companies. Canadian and
U.S. companies are generally subject to similar auditing and accounting
procedures, and similar government supervision and regulation. Canadian
markets are more liquid than many other foreign markets and share similar
characteristics with U.S. markets. A fund may elect to participate in new
equity issues or initial public offerings of Canadian companies.
Many factors affect and could have an adverse impact on the
financial condition of Canada, including social, environmental and
economic conditions, factors which are not within the control of Canada.
Although the Canadian political system is generally more stable than that
of many other foreign countries, continued tension with respect to greater
independence for, or possible separation of, Quebec causes political
uncertainty. Moreover, while the Canadian dollar is generally less
volatile relative to the U.S. dollar than other foreign currencies, the
value of the Canadian dollar has decreased significantly in recent years.
Continued efforts to reduce the structural Canadian budget deficit will be
required. FMR is unable to predict what effect, if any, such factors would
have on instruments held in the fund's portfolio.
The United States-Canada Free Trade Agreement, which became
effective in January 1989, will be phased in over a period of ten years.
This agreement will remove tariffs on U.S. technology and Canadian
agricultural products in addition to removing trade barriers affecting
other important sectors of each country's economy. Canada, the United
States, and Mexico have implemented the North American Free Trade
Agreement (NAFTA), which was entered into in 1994. This cooperation is
expected to lead to increased trade and reduced trade barriers.
The majority of new equity issues or initial public offerings in
Canada are through underwritten offerings. Certain funds may elect to
participate in these issues.
SPECIAL CONSIDERATIONS AFFECTING LATIN AMERICA
-----------------------------------------------
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock, and
agriculture. The region has a large population (roughly 300 million)
representing a large number of markets. The region has been in transition
over the last five years from the stagnant 1980s, which were characterized
by poor economic policies, higher international interest rates, and
limited access to new foreign capital. Economic growth was strong in the
1960s and 1970s, but slowed dramatically in the 1980s as a result of poor
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economic policies, higher international interest rates and the denial of
access to new foreign capital.
High inflation and low economic growth have given way to stable,
manageable inflation rates and higher economic growth, although political
turmoil (including assassinations) continues in some countries. Changes in
political leadership and the implementation of market-oriented economic
policies, such as privatization, trade reform, and fiscal and monetary
reform are among the recent steps taken to modernize the Latin American
economies and regenerate growth in the region. Various trade agreements
have also been formed within the region, including the Andean Pact,
Mercosur, and NAFTA. NAFTA, which was implemented on January 1, 1994, is
the largest of these agreements.
Latin American equity markets can be extremely volatile and in the
past have shown little correlation with the U.S. market. Currencies have
typically been weak, given high inflation rates, but have stabilized more
recently. Most currencies are not free floating, but wide fluctuations in
value over relatively short periods of time can still occur due to changes
in the market.
Mexico's economy has been transformed significantly over the last
six to seven years. In the past few years, the government has sold the
telephone company, the major steel companies, the banks, and many other
industries. The remaining major state ownership is in the oil and
electricity sectors. The United States is Mexico's major trading partner,
accounting for two-thirds of its exports and imports. The Mexican
government, in consultation with international economic agencies, is
implementing programs to stabilize the economy and foster growth. For
example, Mexico, the United States, and Canada implemented NAFTA. This
cooperation is expected to lead to increased trade and reduced trade
barriers.
In the early 1980s, Mexico experienced a foreign debt crisis. By
1987, foreign debt had reached prohibitive levels, accounting for 90% to
95% of Gross Domestic Product (GDP), thus draining Mexico of its
resources. In December 1994, Mexico reversed a long-held currency policy
by devaluing the Mexican peso and allowing it to float freely. The value
of the peso against the U.S. dollar and other currencies declined sharply.
As a result, Mexican stocks plunged while interest rates soared, and other
Latin America securities markets were also adversely affected. Extension
and continuance of financial aid to Mexico from the U.S., including loan
guarantees, is uncertain at this time. In addition, continued political
unrest, particularly in southern Mexico, and uncertainty as to the
effectiveness of reforms have recently had an adverse impact on economic
development.
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Brazil entered the 1990s with declining real growth, runaway
inflation, an unserviceable foreign debt of $122 billion, and a lack of
policy direction. Over the last two years, Brazil has stabilized its
domestic economy through a relentless process of balancing the government
budget, the privatization of state enterprises, deregulation and reduction
of red tape, and the introduction of greater competition into the domestic
business environment. Inflation has been reduced from 50% per month to
about 3% per month since mid 1994. A major long-run strength is Brazil's
natural resources. Iron ore, bauxite, tin, gold, and forestry products
make up some of Brazil's natural resource base, which includes some of the
largest mineral reserves in the world. In terms of population, Brazil is
the sixth largest country in the world with about 155 million people, and
represents a huge domestic market.
Chile, like Brazil, is endowed with considerable mineral
resources, particularly copper, which accounts for 40% of total exports.
Economic reform has been ongoing in Chile for at least 15 years, but
political democracy has only recently returned. Privatization of the
public sector beginning in the early 1980s has bolstered the equity
market. A well-organized pension system has created a long-term domestic
investor base.
Argentina is strong in wheat production and other foodstuffs and
in livestock ranching. A well-educated and skilled population boasts one
of the highest literacy rates in the region. The country has been ravaged
by decades of extremely high inflation and political instability. Thanks
to structural reforms, the revitalized Argentine economy has been among
the top three fastest growing economies in the world over the last three
years. The newly created Argentine economic institutions have integrated
the country with the rest of the world, leaving the state to concentrate
on its essential functions. Privatization is ongoing and should reduce
the amount of external debt outstanding. The markets for labor, capital,
and goods and services have been deregulated. Nearly all non-tariff
barriers and export taxes have been eliminated, the tariff structure has
been simplified, and tariffs have been sharply reduced.
Venezuela has substantial oil reserves. External debt is being
renegotiated, and the government is implementing economic reform in order
to reduce the size of the public sector. Internal gasoline prices, which
are one-third those of international prices, are being increased in order
to reduce subsidies. The failure of major banks adversely affected the
Venezuelan economy in 1994 and could continue to have a negative impact.
Plans for privatization and exchange and interest rate liberalization are
examples of recently introduced reforms.
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Emerging Markets: Latin America
Market Capitalization in U.S. Dollars
June 1995
-------------------------------------
Millions
--------
Argentina 33,498
Brazil 149,110
Chile 83,453
Colombia 18,176
Mexico 93,638
Peru 9,997
Venezuela 4,936
Source: IFC (International Finance Corporation, Second Quarter 1995)
Real GDP Annual Rate of Growth (annual % change)
------------------------------------------------
1994
----
Argentina 7.1%
Brazil 5.7%
Chile 4.2%
Mexico 3.5%
Venezuela 3.3%
Source: World Economic Outlook, May 1995
(International Monetary Fund. Figures are quoted based on each country's
domestic currency.)
For national stock market index performance, please see the section of
"Performance" beginning on page __.
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SPECIAL CONSIDERATIONS AFFECTING JAPAN, THE PACIFIC
BASIN, AND SOUTHEAST ASIA
----------------------------------------------------
Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States
and Western European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and
economic decision-making; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v)
ethnic, religious, and racial disaffection.
The economies of most of the Asian countries are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners,
principally, the United States, Japan, China and the European Community.
The enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the
local economies and general declines in the international securities
markets could have a significant adverse effect upon the securities
markets of the Asian countries.
The success of market reforms and a surge in infrastructure
spending have fueled rapid growth in many developing countries in Asia.
Rapidly rising household incomes have fostered large middle classes and
new waves of consumer spending. The increases in infrastructure and
consumer spending have made domestic demand the growth engine for these
countries. Thus, their growth now depends less upon exports to
Organization for Economic Cooperation and Development (OECD) countries.
While exports may no longer be the sole source of growth for developing
economies, improved competitiveness in export markets has contributed to
growth in many of these nations. The increased productivity in many Asian
countries has enabled them to achieve, or maintain, their status as top
exporters while improving their national living standards.
Thailand has one of the fastest growing stock markets in the
world. The manufacturing sector is becoming increasingly sophisticated and
is benefiting from export-oriented investing. The manufacturing and
service sectors continue to account for the bulk of Thailand's economic
growth. The agricultural sector continues to become less important. The
government has followed fairly sound fiscal and monetary policies, aided
by increased tax receipts from a fast moving economy. The government also
continues to move ahead with new projects - especially telecommunications,
roads and port facilities - needed to refurbish the country's overtaxed
infrastructure. The country enjoys an able bureaucracy that has maintained
economic policy during the country's many coups. In recent years, the risk
of a coup has diminished, but corruption remains widespread.
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Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth, which was vigorous
in the 1980s. Although China has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after
regaining control of Hong Kong, the continuation of the current form of
the economic system in Hong Kong after the reversion will depend on the
actions of the government of China. Business confidence in Hong Kong,
therefore, can be significantly affected by developments, which in turn
can affect markets and business performance. In preparation for 1997, Hong
Kong has continued to develop trade with China, where it is the largest
foreign investor, while also maintaining its long-standing export
relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government while
the private sector continues to diversify abroad based on its position as
an established international trade center in the Far East.
In terms of GDP, industrial standards and level of education,
South Korea is second only to Japan in Asia. It enjoys the benefits of a
diversified economy with well developed sectors in electronics,
automobiles, textiles and shoe manufacture, steel and shipbuilding among
others. The driving force behind the economy's dynamic growth has been the
planned development of an export-oriented economy in a vigorously
entrepreneurial society. Real GDP grew about 8.3% in 1994. Both South
Korea and North Korea joined the United Nations separately in late 1991,
creating another forum for negotiation and joint cooperation. The
reunification of North and South Korea could have a detrimental effect on
the economy of South Korea.
Indonesia is a mixed economy with many socialist institutions and
central planning but with a recent emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet
with a large and rapidly increasingly population, it remains a poor
country. Dependent on oil prices during the 1980s, its manufactured
products now predominate, contributing 21% of GDP. Indonesia's development
is progressing smoothly, and it has become the world's twelfth largest
economy.
Malaysia has one of the fastest growing economies in the
Asian-Pacific region. Malaysia has become the world's third-largest
producer of semiconductor devices (after the United States and Japan) and
the world's largest exporter of semiconductor devices. More remarkable is
the country's ability to achieve rapid economic growth with relative price
stability as the government followed prudent fiscal and monetary policies.
Malaysia's high export dependence level leaves it vulnerable to recession
in the OECD countries or to a fall in world commodity prices.
India is one of the world's top fifteen industrial nations and has
considerable natural resources. The government exercises significant
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influence over many aspects of the economy. Accordingly, future government
actions could have a significant effect on private sector companies,
market conditions, and prices and yields of securities of Indian issuers
held by a fund. Policymakers in India actively encourage foreign direct
investment, particularly in labor intensive industries. In addition,
Indian stock exchanges rely entirely on delivery of physical share
certificates and have experienced operational difficulties. These problems
have included the existence of fraudulent shares in the market, failed
trades, and delays in the settlement and registration of securities
transactions. Indian stock exchanges have in the past been forced to close
for political reasons; for example, a brokers' strike closed the exchange
for ten days in December 1993, and there is no assurance that the
exchanges will not be forced to close again.
Singapore has an open entrepreneurial economy with strong service
and manufacturing sectors and excellent international trading links
derived from its history. During the 1970s and the early 1980s, the
economy expanded rapidly, achieving an average annual growth rate of 9%.
Per capita GDP is among the highest in Asia. Singapore holds a position as
a major oil refining and services center.
Japan currently has the second largest GDP in the world. The
Japanese economy has grown substantially over the last three decades. Its
growth rate averaged over 5% in the 1970s and 1980s. However, in 1994, the
growth rate in Japan slowed to 0.6% and its budget showed a deficit of
7.8% of GDP. Despite small rallies and market gains, Japan has been
plagued with economic sluggishness. Economic conditions have weakened
considerably in Japan since October 1992. The boom in Japan's equity and
property markets during the expansion of the late 1980s supported high
rates of investment and consumer spending on durable goods, but both of
these components of demand have now retreated sharply following the
decline in asset prices. Japan is suffering its worst recession in two
decades. Profits have fallen sharply, unemployment has reached an
historical high of 3.2%, and consumer confidence is low. The banking
sector has experienced a sharp rise in non-performing loans, and strains
in the financial system may continue. Nine discount rate cuts since their
peak of 6% in 1991, a succession of fiscal stimulus packages, support
plans for the debt-burdened financial system, and spending for
reconstruction following the Kobe earthquake should help to contain
recessionary forces, but substantial uncertainties remain. The general
government position has deteriorated as a result of weakening economic
growth, as well as stimulative measures taken recently to support economic
activity and to restore financial stability.
In addition to a cyclical downturn, Japan is suffering through
structural adjustments. Like the Europeans, the Japanese have seen a
deterioration in their competitiveness due to high wages, a strong
currency, and structural rigidities. Japan has also become a mature
industrial economy and, as a result, will see its long-term growth rate
slow down over the next ten years. Finally, Japan is reforming its
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political process and deregulating its economy. These activities have
resulted in turmoil, uncertainty, and a crisis of confidence.
Japan is heavily dependent upon international trade and,
accordingly, has been and may continue to be adversely affected by trade
barriers, and other protectionist or retaliatory measures of, as well as
economic conditions in, the United States and other countries with which
it trades. Industry, the most important sector of the economy, is heavily
dependent on imported raw materials and fuels. Japan's major industries
are in the engineering, electrical, textile, chemical, automobile,
fishing, and telecommunication fields. Japan imports iron ore, copper, and
many forest products. Only 19% of its land is suitable for cultivation.
Japan's agricultural economy is subsidized and protected. It is about 50%
self-sufficient in food production. Even though Japan produces a minute
rice surplus, it is dependent upon large imports of wheat, sorghum, and
soybeans from other countries. Japan's high volume of exports such as
automobiles, machine tools, and semiconductors have caused trade tensions
with other countries, particularly the United States. Some trade
agreements between the countries have reduced the friction caused by the
current trade imbalance. A record high value for the Yen in the first half
of 1995 threatened to derail Japan's recovery from a long economic
downturn, mainly because it made Japanese products more expensive overseas
and eroded the value of foreign earnings when repatriated to Japan.
However, the recent easing of the Yen's value has created expectations
that Japanese earnings will improve for the fiscal year ending March 1996.
Australia has a prosperous Western-style capitalist economy, with
a per capita GDP comparable to levels in industrialized West European
countries. It is rich in natural resources and is the world's largest
exporter of beef and wool, second-largest exporter of mutton, and among
the top wheat exporters. Australia is also a major exporter of minerals,
metals and fossil fuels. Due to the nature of its exports, a downturn in
world commodity prices could have a significant negative impact on its
economy.
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Emerging Markets: Asia
Market Capitalization in U.S. Dollars
June 1995
-------------------------------------
Millions
--------
India 147,210
Indonesia 52,243
Korea 178,670
Malaysia 224,176
Pakistan 9,469
Philippines 55,038
Sri Lanka 2,259
Taiwan 186,822
Thailand 150,584
Source: IFC (International Finance Corporation, Second Quarter 1995)
Real GDP Annual Rate of Growth (annual % change)
1994
------------------------------------------------
China 12.0%
Hong Kong 5.7%
India 4.9%
Indonesia 7.0%
Japan n/a
Korea 8.3%
Malaysia 8.5%
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Philippines 4.5%
Singapore 7.0%
Taiwan 6.2%
Thailand 8.5%
Source: World Economic Outlook, May 1995
(International Monetary Fund. Figures are quoted based on each country's
domestic currency.)
For national stock market index performance, please see the section of
"Performance" beginning on page __.
SPECIAL CONSIDERATIONS AFFECTING EUROPE
---------------------------------------
New developments surrounding the creation of a unified common
market in Europe have helped to reduce physical and economic barriers
promoting the free flow of goods and services throughout Western Europe.
These new developments could make this new unified market one of the
largest in the world. However, in 1993, Europe's economies began to slow
and subsequently slid into recession as tight monetary conditions and lack
of progress toward inflation convergence and budgetary consolidation in
many countries weakened consumer and business confidence. More generally,
the turbulence in the foreign exchange markets since the middle of 1992
and escalating tensions over trade contributed to increased uncertainty in
many countries. The U.S. dollar continued on its downward track with
respect to both the German Mark and many other of Europe's currencies such
as the Italian Lira, the Spanish Peseta, and the Swedish Krona, the value
of which have been affected by political uncertainties and fiscal
problems.
Europe's economies began to improve in 1995 as continued growth in
the United States and the countries of Southeast Asia provided the
foundation for an export-led recovery. Thus recovery was aided by a sharp
rebound of the U.S. dollar after it had reached postwar lows in the spring
of 1995.
The Eastern European countries, after several years of declining
output, have generally shown dramatic growth in 1994 and 1995. Despite
formidable obstacles and major differences among countries and regions,
many nations are making substantial progress in their efforts to become
market-oriented economies. However, these economies are becoming
increasingly disparate and the experience of countries in the region
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varies markedly. Those nations making the most successful transition
include Poland, the Czech Republic, and Hungary, while some of the former
Soviet republics continue to suffer from the consequences of the break up
of the Soviet Union and have made little progress in implementing
effective market-oriented reforms. Key aspects of the reform and
stabilization efforts have not yet been fully implemented, and risks of
policy slippage remain. In the Russian Federation and most other countries
of the former Soviet Union, economic conditions are of particular concern
because of economic instability due to political unrest and armed
conflicts in many regions.
Notwithstanding the economic difficulties in many countries,
recent positive developments offer hope for a cooperative growth strategy
in the near term, which could also permit a strengthening of global
economic performance over the medium term. Many developing countries are
reaping the fruits of sustained reform and stabilization efforts. Efforts
to enhance assistance to countries affected by the transition to a market-
based trading system that is occurring in central Europe and the former
Soviet Union, and to low-income countries to support strengthened
stabilization and restructuring efforts, are moving forward. In Europe,
exchange market tensions have eased, interest rates have been falling, and
may continue to do so as evidence of the waning inflationary pressures
accumulates.
The European Community (EC) consists of Belgium, Denmark, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, and the United Kingdom (the member states). In 1986, the member
states of the EC signed the "Single European Act," an agreement committing
these countries to the establishment of a market among themselves,
unimpeded by internal barriers or hindrances to the free movement of
goods, persons, services, or capital. To meet this goal, a series of
directives have been issued to the member states. Compliance with these
directives is designed to eliminate three principal categories of
barriers: 1) physical frontiers, such as customs posts and border
controls; 2) technical barriers (which include restrictions operating
within national territories) such as regulations and norms for goods and
services (product standards); discrimination against foreign bids (bids by
other EC members) on public purchases; or restrictions on foreign requests
to establish subsidiaries; and 3) fiscal frontiers, notably the need to
levy value-added taxes, tariffs, or excise taxes on goods or services
imported from other EC states.
The ultimate goal of this project is to achieve a large unified
domestic European market in which available resources would be more
efficiently allocated through the elimination of the above-mentioned
barriers and the added costs associated with those barriers. Elimination
of these barriers would simplify product distribution networks, allow
economies of scale to be more readily achieved, and free the flow of
capital and other resources. The Maastricht Treaty on economic and
monetary union (EMU) attempts to provide its members with a stable
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monetary framework consistent with the EC's broad economic goals. But
until the EMU takes effect, which is intended to occur between 1997 and
1999, the community will face the need to reinforce monetary cooperation
in order to reduce the risk of a recurrence of tensions between domestic
and external policy objectives.
The total European market, as represented by both EC and non-EC
countries, consists of over 328 million consumers, making it larger
currently than either the U.S. or Japanese markets. European businesses
compete nationally and internationally in a wide range of industries
including: telecommunications and information services, roads and
transportation, building materials, food and beverages, broadcast and
media, financial services, electronics, and textiles. Actual and
anticipated actions on the part of member states to conform to the unified
Europe directives has prompted interest and activity not only by European
firms, but also by foreign entities anxious to establish a presence in
Europe that will result from these changes. Indications of the effect of
this response to a unified Europe can be seen in the areas of mergers and
acquisitions, corporate expansion and development, GDP growth, and
national stock market activity.
The early experience of the former centrally planned economies has
already demonstrated the crucially important link between structural
reforms, macroeconomic stabilization, and successful economic
transformation. Among the central European countries, the Czech Republic,
Hungary, and Poland have made the greatest progress in structural reform;
inflationary pressures in those countries have abated following price
liberalization, and output has begun to recover. These achievements will
be difficult to sustain, however, in the absence of strong efforts to
contain the large fiscal deficits that have accompanied the considerable
losses of output and tax revenue since the start of the reform process.
In the Baltic countries there are encouraging signs that reforms
are taking hold and are being supported by strong stabilization efforts.
In most other countries of the former Soviet Union, in contrast,
inadequate stabilization efforts now threaten to lead to hyper-inflation,
which could derail the reform process. Inflation, which had abated
following the immediate impact of price liberalization in early 1992,
surged to extremely high levels in late 1992 and early 1993. The main
reason for this development has been excessive credit expansion to the
government and to state enterprises. The transformation process is being
seriously hampered by the widespread subsidization of inefficient
enterprises and the resulting misallocation of resources. The lack of
effective economic and monetary cooperation among the countries of the
former Soviet Union exacerbates other problems by severely constraining
trade flows and impeding inflation control. Partly as a result of these
difficulties, some countries have decided that the introduction of
separate currencies offers the best hope for avoiding hyper-inflation and
for improving economic conditions. This development can facilitate the
implementation of stronger stabilization programs. Economic conditions in
the former Soviet Union have continued to deteriorate. Real GDP in Russia
fell 11.9 percent in 1993, after an 18 percent decline in 1992. In many
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other countries of the region, output losses have been even larger. These
declines reflect the adjustment difficulties during the early stages of
the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal
situation. A reversal of these adverse factors is not anticipated in the
near term, and output is expected to decline further in most of these
countries.
Economic conditions appear to have improved for some of the
transition economies of central Europe during the past year. Following
three successive years of output declines, there has been a turnaround in
the Czech Republic and the Slovak Republic, Hungary and Poland; growth in
private sector activity and strong exports, especially to Western Europe,
now appear to have contained the fall in output. Most central European
countries in transition have achieved positive real growth in 1994 and
1995 as market reforms deepen. The strength of the projected output gains
will depend crucially on the ability of the reforming countries to contain
fiscal deficits and inflation and on their continued access to, and
success in, export markets. A number of their governments, including those
of Hungary and Poland, are currently implementing or considering reforms
directed at political and economic liberalization, including efforts to
foster multi-party political systems, decentralize economic planning, and
move toward free market economies. At present, no Eastern European country
has a developed stock market, but Poland, Hungary and the Czech Republic
have small securities markets in operation. Ethnic and civil conflicts
currently continue throughout the former Yugoslavia. Although there has
been recent progress toward a peaceful settlement of these conflicts, the
outcome remains uncertain.
Both the EC and Japan, among others, have made overtures to
establish trading arrangements and assist in the economic development of
the Eastern European nations. In the rest of Europe, monetary policy and
financial market developments have been dominated by the currency turmoil
that began in September 1992. At the same time, conditions are improving
for significant reductions of official interest rates in Europe, which
should help to contain recessionary forces and provide support to the
overall economic recovery in the regions by early 1996. With the passage
of the General Agreement on Trade and Tariffs earlier this year, Europe
has taken a step forward in resisting protectionist pressures. Interest
rates continue to decline, but some countries' tight monetary conditions
remain an obstacle to stronger growth and a threat to exchange market
stability. However, in the long term, economic unification could prove to
be an engine for domestic and international growth.
The conditions that have given rise to these developments are
changeable, and there is no assurance that reforms will continue or that
their goals will be achieved.
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Portugal is a genuinely emerging market which has experienced
rapid growth since the mid-1980s, except for a brief period of stagnation
over 1990-91. Portugal's government remains committed to privatization of
the financial system away from one dependent upon the banking system to a
more balanced structure appropriate for the requirements of a modern
economy.
Economic reforms launched in the 1980s continue to benefit Turkey
in the 1990s. Turkey's economy has grown since the 1980s. Agriculture
remains the most important economic sector, employing over half of the
labor force, and accounting for significant portions of GDP and exports.
Inflation and interest rates remain high, and a large budget deficit will
continue to cause difficulties in Turkey's continuing transformation from
a centrally controlled to a free market economy.
Like many other Western economies, Greece suffered severely from
the global oil price hikes of the 1970s, with annual GDP growth plunging
from 8% to 2% in the 1980s, and inflation, unemployment, and budget
deficits rising sharply. The fall of the socialist government in 1989 and
the inability of the conservative opposition to obtain a clear majority
led to business uncertainty and the prospect for continued flat economic
performance. Once Greece has sorted out its political situation, it will
have to face the challenges posed by the steadily increasing integration
of the EU, including the progressive lowering of trade and investment
barriers. Tourism continues as a major industry, providing a vital offset
to a sizable commodity trade deficit.
Real GDP Annual Rate of Growth (annual % change)
1994
------------------------------------------------
Denmark 4.6%
France 2.5%
Germany 2.9%
Italy 2.5%
Netherlands 2.4%
Spain 1.9%
Switzerland 2.0%
United Kingdom 3.8%
Source: World Economic Outlook, May 1995
(International Monetary Fund. Figures are quoted based on each country's
domestic currency.)
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For national stock market index performance, please see the section of
"performance" beginning on page __.
SPECIAL CONSIDERATIONS AFFECTING AFRICA
---------------------------------------
Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the
percentage of people who are over 15 years of age and who can read and
write) are relatively low, ranging from 20% to 60%. The primary industries
include crude oil, natural gas, manganese ore, phosphate, bauxite, copper,
iron, diamonds, cotton, coffee, cocoa, timber, tobacco, sugar, tourism,
and cattle.
Many African countries are fraught with political instability.
However, there has been a trend over the past several years toward
democratization. Many countries are moving from a military style, Marxist,
or single party government to a multi-party system. Still, there remain
many countries that do not have a stable political process. Many countries
have been enmeshed in civil, ethnic or border wars. Ethnic, religious,
cultural and linguistic differences divide the African peoples.
Economically, the Northern Rim countries (which include Morocco,
Egypt, and Algeria), Nigeria, Zimbabwe and South Africa are the wealthier
countries on the continent due to their strong ties with the European
nations. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local
companies start to list on the exchanges. However, religious strife has
been a significant source of instability in the Northern Rim countries.
Although racial discord in South Africa appears to have been reduced by
constitutional and political changes that are in progress, as well as
increased foreign investments, the long-term future of South Africa
remains uncertain.
On the other end of the economic spectrum are countries, such as
Burkina-Faso, Madagascar, and Malawi, that are considered to be among the
poorest or least developed in the world. These countries are generally
landlocked or have poor natural resources. The economies of many African
countries are heavily dependent on international oil prices. Of all the
African industries, oil has been the most lucrative, accounting for 40% to
60% of many countries' GDP. However, the general decline in oil prices has
had an adverse impact on many economies.
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SPECIAL FACTORS AFFECTING NEW YORK
----------------------------------
The financial condition of New York State (the State), its public
authorities and public benefit corporations (the Authorities) and its
local governments, particularly The City of New York (the City), could
affect the market values and marketability of, and therefore the net asset
value per share and the interest income of New York Municipal Income Fund
or result in the default of existing obligations, including obligations
which may be held by the fund. The following section provides only a brief
summary of the complex factors affecting the financial situation in New
York and is based on information obtained from the State, certain of its
Authorities, the City and certain other localities, as publicly available
on the date of this Statement of Additional Information. The information
contained in such publicly available documents has not been independently
verified. It should be noted that the creditworthiness of obligations
issued by local issuers may be unrelated to the creditworthiness of the
State, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default in the absence
of a specific guarantee or pledge provided by the State.
The State and the City have each experienced recent serious
financial difficulties and declines in their credit standings. S&P and
Moody's have each assigned ratings for the State's general obligation
bonds that are among the three lowest of those states with rated general
obligation bonds. The ratings of certain related debt of other issuers for
which the State has an outstanding moral obligation, lease purchase,
guarantee or other contractual obligation are generally linked directly to
the State's rating. S&P and Moody's have each assigned ratings for the
City's general obligations that are among the four lowest of those cities
with rated general obligation bonds. Should the financial condition of the
State, its Authorities, or its local governments deteriorate, their
respective credit ratings could be further reduced, and the market value
and marketability of their outstanding notes and bonds could be adversely
affected, and their respective access to the public credit markets
jeopardized.
Economic Factors. New York is the third most populous state in the
nation, and has a relatively high level of personal wealth. However, the
State economy has grown more slowly than that of the nation as a whole,
resulting in the gradual erosion of its relative economic affluence (due
to factors such as relative costs for taxes, labor, and energy). The
State's economy is diverse, with a comparatively large share of the
nation's financial, insurance, transportation, communications, and
services employment, and a very small share of the nations' farming and
mining activity. New York has a declining proportion of its workforce
engaged in manufacturing and increasing proportion engaged in service
industries. The State, therefore is likely to be less affected than the
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nation as a whole during an economic recession concentrated in
construction and manufacturing sectors of the economy, but is likely to be
more affected during a recession concentrated in the service-producing
sector. The State's manufacturing and maritime base have been seriously
eroded, as illustrated by the decline of the steel industry in the Buffalo
area and of the apparel and textile industries in the City. In addition,
the City experienced substantial socio-economic changes, as a large
segment of its population and a significant share of corporate
headquarters and other businesses relocated (many out-of-state).
Both the State and the City experienced substantial revenue
increases in the mid-1980s attributable directly and indirectly to growth
in new jobs, rising profits, and capital appreciation derived from the
finance sector of the City's economy. The finance sector's growth was a
catalyst for the New York City metropolitan region's related business and
professional services, retail trade and residential and commercial real
estate markets. The then rising real estate market contributed to City
revenues, as higher property values and new construction added to
collections from property taxes, mortgage recording, and transfer taxes
and sales taxes on building materials. The boom on Wall Street more than
compensated for the continued erosion of the State's (and the City's)
manufacturing and maritime base, since average wages in finance and
related business and professional services were substantially higher
(thereby providing a net increase of higher incomes, taxed at even higher
marginal rates).
During the calendar years 1984 through 1991, the State's rate of
economic expansion was somewhat slower than that of the nation as a whole.
In the 1990-91 national recession, the economy of the Northeast region in
general and the State in particular was more heavily damaged than that of
the rest of the nation and has been slower to recover. Although the
national economy began to expand in 1991, the State economy remained in
recession until 1993, when employment growth resumed. Employment growth
has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility and defense industries.
Personal income increased substantially in 1992 and 1993. The State
economy entered the third year of a slow recovery in 1995. Most of the
growth occurred in the trade, construction and service industries, with
business, social services and health sectors accounting for most of the
service industry growth. The State's economy is expected to continue to
expand modestly during 1995 and 1996, according to assumptions contained
in the State financial plan for fiscal year 1995-1996. Employment is
expected to grow slightly during 1995, although the rate of increase is
expected to be below the rate experienced in 1994 due to cutbacks in
federal spending and employment, as well as continued corporate
downsizing.
Notwithstanding the State budget for fiscal year 1995-96 which
enacts significant tax and program reductions, the State can expect to
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confront structural deficits in future years. The 1995-96 State financial
plan includes actions that will have an effect on the budget outlook for
fiscal year 1996-97 and beyond. In part, the 1995-96 State financial plan
reflects actions which provide nonrecurring measures (sometimes referred
to as "one-shots") variously estimated to provide $900 million to $1.0
billion of savings. Additionally, the three-year plan to reduce State
personal income taxes, as discussed below briefly, will decrease State tax
receipts by an estimated $1.7 billion in fiscal year 1996-97. Similarly,
other actions taken to reduce disbursements in the State's 1995-96 fiscal
year, such as reductions in the State workforce and Medicaid and welfare
expenditures, are expected to provide greater reductions in future fiscal
years. The net impact of these and other factors is expected to produce a
potential imbalance in receipts and disbursements for State fiscal year
1996-97 and future fiscal years.
Further, there can be no assurance that the State economy will not
experience worse-than-predicted results in the 1995-96 fiscal year with
corresponding material and adverse effects on the State's projections of
receipts and disbursements. The State financial plan is based upon
forecasts of national and State economic activity. Many uncertainties
exist in such forecasts, including federal financial and monetary
policies, the availability of credit and the condition of the world
economy. In addition, the economic and financial condition of the State
may be affected by various financial, social, economic and political
factors. These factors can be complex, may vary from year to year and are
frequently the results of actions taken not only by the State and its
agencies and instrumentalities, but also by other entities, such as the
federal government, that are not under the control of the State.
The fiscal health of the State may also be impacted by the fiscal
health of the City. Although the City has had a balanced budget since
1981, estimates of the City's future revenues and expenditures are subject
to various uncertainties. For example, the effects of the October 1987
stock market crash and the 1990-92 national recession have had a
disproportionately adverse impact on the New York City metropolitan
region, as private sector job losses since 1989 have offset all the prior
employment gains of the 1980s. Declines in both employment and earnings in
the finance sector contributed to declines in retail sales and real estate
values. In addition, a number of widely publicized bankruptcies among
highly leveraged retailing, brokerage and real estate development
companies occurred. The effects of the recession have extended to banking,
insurance, business services (such as law, accounting and advertising),
publishing and communications. Factors which may inhibit the City's
economic recovery include (i) credit restraints imposed by the weak
financial condition of several major money center banks located in the
City; (ii) increases in combined State and local tax burdens, if
uncompetitive tax rates are imposed; (iii) perceived declines in the
quality of life attributable to service reductions and the deterioration
of the City's infrastructure; (iv) additional employment losses in the
City's banking sector or corporate headquarters complex due to further
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corporate relocations or restructurings; or (v) increased expenditures for
public health assistance and care. The City's future economic condition
will also likely be affected by its competitive position as a world
financial center (compared to London, Tokyo, Frankfurt, and competing
regional U.S. centers). Investors should note that the budget for the
City's 1996 fiscal year addresses a projected $2.7 billion budget gap.
Most of the budget-gap closing initiatives may be implemented only with
the cooperation of certain City officials, the City's municipal unions, or
the State or Federal governments. No assurance can be given that such
initiatives will be taken.
While the State's economy is broader-based than that of the City,
particular industries are concentrated in and have a disproportionate
impact on certain areas, such as heavy industry in Buffalo, photographic
and optical equipment in Rochester, machinery and transportation equipment
in Syracuse and Utica-Rome, computers in Binghamton and in the Mid-Hudson
Valley, and electrical equipment in the Albany-Troy-Schenectady area.
Constraints on economic growth, taxpayer resistance to proposed
substantial increases in local tax rates, and reductions in State aid in
regions apart from the City have contributed to financial difficulties for
several county and other local governments.
The State. As noted above, the financial condition of the State is
affected by several factors, including the strength of the State and its
regional economies, actions of the federal government, and State actions
affecting the level of receipts and disbursements. Owing to these and
other factors, the State may, in future years, face substantial potential
budget gaps resulting from a significant disparity between tax revenues
projected from a lower recurring receipts base and the future costs of
maintaining State programs at current levels.
The State has been experiencing and continues to experience
substantial financial difficulties, with General Fund (the principal
operating account) deficits incurred during the fiscal years 1989-1990
through 1991-1992. The State's accumulated General Fund deficit (on a GAAP
basis) grew 91% from FY1986-87 to FY1990-91, and reached a then-record
$6.265 billion (audited) by March 31, 1991. An accumulated General Fund
deficit at March 31, 1993 was restated to be $2.551 billion. The State
ended its 1993-94 fiscal year with a negative fund balance of $1.637
billion. This represented an improvement over prior years, primarily due
to an improving national and State economy resulting in
higher-than-expected receipts from personal income tax and various
business taxes and the relative success of the New York Local Government
Assistance Corporation ("LGAC"). The General Fund showed an operating
surplus of $914 million (on a GAAP basis). The State's 1994-95 fiscal year
budget was adopted on June 8, 1994, more than two months after the
beginning of the State's fiscal year and has made all of the required
quarterly revisions as of the date hereof. The State ended its 1994-95
fiscal year with the General Fund in balance. Actual receipts reported
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fell short of original projections by approximately $1.2 billion,
primarily in the categories of personal income and business taxes. These
shortfalls were offset by better than expected performance in the
remaining taxes, principally the user taxes and fees, which exceeded
projections by $210 million. Disbursements were also reduced from original
projections by approximately $848 million.
On June 7, 1995, the New York State legislature passed the final
legislation regarding the State's 1995-96 budget. The 1995-96 State
financial plan was formulated on June 20, 1995. Both the enacted budget
bills and the State financial plan for 1995-96 include reductions in the
actual level of spending from that which occurred in the 1994-95 fiscal
year and project reductions in Medicaid and State Authority operating
costs. The 1995-96 budget also projects an approximate increase of 3% in
all governmental funds over the amounts received in fiscal year 1994-95
and includes the phase-in of a three-year reduction in the State's
personal income tax. There are risks and uncertainties concerning whether
or not certain spending and tax cuts will be upheld if challenged in the
courts. For example, the State Comptroller is challenging in court the
proposed use of certain pension reserves. If such suit is successful,
approximately $110 million would become unavailable as a source of
contribution to the balanced State budget. Finding an additional $110
million in reductions or from other sources may prove difficult.
Additionally, even if all spending and tax cuts contained in the State
budget are successfully implemented, resulting in a balanced budget for
fiscal year 1995-96, there can be no assurance that the State will not
face budget gaps in future years, resulting from a disparity between tax
revenues projected from a lower recurring-receipts base and the spending
required to maintain State programs at current levels. Furthermore, the
State is a party to numerous lawsuits in which an adverse decision could
require extraordinary expenditures. Certain major budgetary considerations
affecting the State are outlined below.
Revenue Base. The State's principal revenue sources are
economically sensitive, and include the personal income tax (53% of fiscal
year 1994-95 General Fund receipts and estimated to be approximately 52%
of fiscal year 1995-96 General Fund receipts), user taxes and fees (20% of
both fiscal year 1994-95 and estimated 1995-96 General Fund receipts), and
business taxes (15% and 14% respectively of fiscal year 1994-95 and
estimated 1995-96 General Fund receipts). Uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax law
also can have an adverse impact on State tax receipts. One-fourth of the
4% State sales tax has been dedicated to pay debt service of LGAC, and has
correspondingly reduced General Fund receipts. To the extent those moneys
are not necessary for payment to LGAC, they are transferred from the LGAC
Tax fund to the General Fund and reported as a transfer from other funds
rather than as sales and use tax receipts. During fiscal years 1991-92,
1992-93, 1993-94, and 1994-95 moneys were so transferred. Capital gains
are a significant component of income tax collections. Auto sales and
building materials are significant components of retail sales tax
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collections. Tax rates are relatively high and may impose political and
economic constraints on the ability of the State to further increase its
taxes. In 1995, the State enacted a tax-reduction program designed to
reduce, by 20 percent over three years, receipts from the personal income
tax. The tax had remained unchanged since 1989 as a result of annual
deferrals of tax reductions originally enacted in 1987. The tax-reduction
program is estimated to reduce receipts by $515 million in the 1995-96
fiscal year, $1.7 billion in the 1996-97 fiscal year and produce further
significant reductions in fiscal year 1997-98. In addition to such
reductions in overall tax rates, the tax-reduction program also includes
other modifications to the tax laws which will have the effect of lowering
the amount of tax revenues to be received by the State. In the absence of
countervailing economic growth or expenditure cuts, the tax cuts could
make the achievement of a balanced State budget more difficult in future
years.
State Debt. The State has the heaviest debt burden of any state
(with nearly $5.2 billion of long-term general obligations, $4.7 billion
of LGAC debt and $18 billion of lease-purchase or other contractual debt
outstanding as of March 31, 1995), and debt service costs absorb a large
share of the State's budget. As of March 31, 1995 the State is also
obligated with respect to nearly $7.0 billion for statutory moral
obligations for nine of its Authorities and for guarantees of $358 million
of other Authority debt. Historically, the State has had one of the
largest seasonal financing requirements of any municipal issuer, and was
required each spring to borrow substantial sums from public credit markets
to finance its accumulated General Fund deficit and its scheduled payments
of aid to local governments and school districts. To help reduce such
seasonal financing needs, the State created LGAC as a financing vehicle to
finance the State's local assistance payments by issuing long-term debt,
payable over 30 years from a portion of the State sales tax, as discussed
above. The State budget and State financial plan for fiscal year 1995-96
each proposes to utilize the remainder of authorized but yet unissued LGAC
bonds. As of June 1995, LGAC had issued bonds and notes to provide net
proceeds of $4.7 billion, thus completing the LGAC program. The impact of
LGAC's borrowing is that the State is able to meet its cash flow needs in
the first quarter of the 1995-96 fiscal year without relying on short-term
seasonal borrowings. Neither the 1995-96 State financial plan nor the
1994-95 State financial plan included a spring borrowing, the first time
in 35 years that there was no short-term borrowing. Investors should note
that the enabling legislation for LGAC contains a covenant restricting the
amount of any future State spring borrowing, which may reduce the State's
fiscal flexibility in future years.
Budgetary Flexibility. A significant portion of the State's
General Fund budget is accounted for by contractually required expenses
(such as pension and debt service costs) and by federally mandated
programs (such as AFDC and Medicaid). In addition, State aid for school
districts comprises a major share of the budget, and total appropriations
and distribution of such aid is especially contentious politically.
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Furthermore, the State's ability to respond to unanticipated developments
in the future may have been impaired since the State has utilized a
substantial range of actions of a non-recurring nature in recent years to
finance its General fund operations, including tapping excess monies in
special funds, refinancing outstanding debt to reduce reserve fund
requirements and current (but not long-term) debt service costs,
recalculating pension fund contributions, selling State assets,
reimbursing past General Fund expenditures by the issuance of authority
debt and deferring payment for expenditures to future fiscal years. The
1995-96 State financial plan contains actions of a non-recurring nature
including mergers of certain authorities payments from the sale of certain
State assets, and payments associated with the resolution of certain court
cases, totalling approximately $335 million.
Labor Costs. The State government workforce is mostly unionized,
subject to the Taylor Law which authorizes collective bargaining and
prohibits (but has not historically prevented) strikes and work slowdowns.
Costs for employee health benefits have increased substantially, and can
be expected to further increase. The State has a substantial unfunded
liability for future pension benefits, and has utilized changes in its
pension fund investment return assumptions to reduce current contribution
requirements. If such investment earnings assumptions are not sustained by
actual results, additional State contributions will be required in future
years to meet the State's contractual obligations. The State's change in
actuarial method from the aggregate cost method to a modified projected
unit credit in the 1990-91 fiscal year created a substantial surplus that
was amortized and applied to offset the State's contribution through the
1993-94 fiscal year. This change in actuarial method was ruled
unconstitutional by the State's highest court and the State returned to
the aggregate cost method in fiscal year 1994-95 using a four-year
phase-in. Employer contributions, including the State's, are expected to
increase over the next five to ten years.
Public Assistance. The State has the second largest number of
persons receiving public assistance (AFDC and Home Relief) of any state.
AFDC costs are shared among the federal government, the State and its
counties (including the City) by statutory formula. Caseloads tend to rise
significantly during economic downturns, but have fallen only in the later
stages of past economic recoveries.
Medicaid. The State participates in the federal Medicaid program
under a state plan approved by the Health Care Financing Administration.
The federal government provides a substantial portion of eligible program
costs, with the remainder shared by the State and its counties (including
the City). Basic program eligibility and benefits are determined by
federal guidelines, but the State provides a number of optional benefits
and expanded eligibility. Program costs have increased substantially in
recent years, and account for a rising share of the State budget. Federal
law requires the State adopt reimbursement rates for hospitals and nursing
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homes that are reasonable and adequate to meet the costs that must be
incurred by efficiently and economically operated facilities in providing
patient care, a standard that has led to past litigation by hospitals and
nursing homes seeking higher reimbursement from the State. The budget for
fiscal year 1995-96 includes a medicaid cost containment program estimated
to reduce General Fund costs by $1.1 billion; such cutbacks in State
spending for Medicaid may adversely affect the financial condition of
hospitals and health care institutions that are the obligors of bonds that
may be held by the fund.
The State Authorities. The State's Authorities are not subject to
the constitutional restrictions on the incurrence of debt which apply to
the State itself, and may issue bonds and notes within the amounts of, and
as otherwise restricted by, their legislative authorization. The New York
State Public Authorities Control Board approves the issuance of debt and
major contracts by ten of the Authorities. As of September 30, 1994, there
were 18 Authorities that had outstanding debt of $100 million or more, the
aggregate debt of which (including refunding bonds and moral obligation,
lease-purchase, contractual obligation, or State-guaranteed debt) then
totaled approximately $70.2 billion. As of March 31, 1994 (the date of the
latest data available), aggregate public authority debt outstanding as
State-supported was approximately $28 billion and State-related debt was
approximately $36 billion. In recent years the State has provided
financial assistance through appropriations, in some cases of a recurring
nature, to certain Authorities for operating and other expenses and, (from
1976 to 1987) in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. The State budgeted operating
assistance of approximately $1.3 billion for the Metropolitan
Transportation Authority (MTA) for fiscal year 1994-1995 and estimates
total State assistance in fiscal year 1995-96 to be approximately $1.1
billion. This assistance is expected to continue to be required (and may
increase) in future years. Failure by the State to appropriate necessary
amounts or to take other action to permit the Authorities to meet their
obligations could adversely affect the ability of the State and the
Authorities to obtain financing in the public credit markets and the
market price of the State's outstanding bonds and notes.
The MTA, whose credit standing was recently reduced, oversees the
operation of the City's subway and bus lines by its affiliates, the New
York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively, the TA). MTA subsidiaries operate
certain commuter rail and bus lines in the New York metropolitan area. An
affiliated agency, the Triborough Bridge and Tunnel Authority (TBTA),
operates certain intrastate toll bridges and tunnels. To maintain its
facilities and equipment, which deteriorated significantly in the late
1970s due to deferred maintenance, the MTA prepared a five-year capital
program subject to approval by the MTA Capital Program Review Board. In
April 1993, the State legislature authorized the funding of a portion of a
five-year $9.56 billion capital plan for the MTA for 1992 through 1996.
MTA's five-year capital program for 1992-96 was approved by the State
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capital program review board in December 1993. There can be no assurance
that all governmental actions for the 1992-96 capital program will be
taken, that funding sources currently identified will not be decreased or
eliminated, or that the capital program will not be delayed or reduced. If
the capital program is delayed or reduced, ridership and fare revenues may
decline, which could impair the MTA's ability to meet its operating
expenses without additional State assistance. In addition, because fares
are not sufficient to finance its mass transit operations, the MTA has
depended and will continue to depend for operating support upon a system
of State, local government and TBTA support, and to the extent available,
Federal assistance (including loans, grants and operating subsidies).
There can be no assurance that any such assistance will continue at any
particular level or in any fixed relationship to the operating costs and
capital needs of the MTA.
The City. The City has required, and continues to require,
significant financial assistance from the State. The City depends on State
assistance both to enable the City to balance its budget and to meet its
cash requirements. In the early 1970s, the City incurred substantial
operating deficits, and its financial controls, accounting practices, and
disclosure policies were widely criticized. In 1975, the City encountered
severe financial difficulties and lost access to the public credit
markets. The State Legislature responded in 1975 by creating the Municipal
Assistance Corporation For The City of New York (MAC) to provide financing
assistance for the City and the Financial Control Board to exercise
certain oversight and review functions with respect to the City's
finances. The Financial Control Board's powers over the City were
suspended in June 1986, but would be reinstated (under current law) if the
City experiences certain adverse financial circumstances. At the time of
the fiscal crisis, the State provided substantial financial assistance to
the City, the federal government provided the City with direct seasonal
loans and guarantees on the City's long-term debt, and the City's labor
unions accepted deferrals of wage increases and approved purchases of City
bonds by the pension funds. No assurance can be given that similar
assistance would again be made available if needed, particularly given the
current budgetary constraints faced by both the Federal and State
governments.
The City provides services usually undertaken by counties, school
districts or special districts in other large urban areas including the
provision of social services such as day care, foster care, health care,
family planning, services for the elderly and special employment services
for needy individuals and families who qualify for such assistance. State
law requires the City to allocate a large portion of its total budget to
Board of Education operations, and mandates the City to assume the local
share of public assistance and Medicaid costs. While the City has had GAAP
operating surpluses, in recent fiscal years the City has experienced and
continues to experience ongoing financial difficulties, primarily related
to the impact of the recent recession on the local economy (reducing
revenues from most major taxes and increasing public assistance and
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Medicaid caseloads), rising health care costs for City employees and for
Medicaid, and rising inflation and interest rates. In response, the City
implemented gap-closing programs in recent fiscal years, which initially
relied primarily on actions of a non-recurring nature, but included
substantial property tax rate increases and a personal income tax
surcharge imposed in fiscal year 1991 and selected service cutbacks.
Reductions in State aid, larger than budgeted labor settlements and
increased police expenditures added to the adverse budgetary impact of the
local recession, confronting the City with a potential $3.3 billion
imbalance during fiscal year 1992 budget negotiations. This initial budget
gap was closed by adoption of a budget providing for various tax increases
and significant service reductions. Aid to nonprofit cultural institutions
in the City was significantly reduced (as was State aid to such
institutions), including certain institutions that are obligors of bonds
that may be held by the fund. The City's budget for fiscal year 1994
identified measures to close a $300 million budget gap, which was the
result of shortfalls in Federal and State aid from previously projected
levels. The City achieved balanced operating results as reported in
accordance with GAAP for the 1994 fiscal year. For fiscal year 1995, the
City adopted a budget which halted the trend in recent years of
substantial increases in City-funded spending from one year to the next.
The City budget adopted for fiscal year 1996 reduces City-funded spending
for the second consecutive year.
Pursuant to State law, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and
includes the City's capital, revenue and expense projections and outlines
proposed budget gap-closing programs for those years with projected budget
gaps.
The mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1996
through 1999 fiscal years (the "1996-1999 Financial Plan"). The City's
projections set forth in the 1996-1999 Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the
timing and pace of a regional and local economic recovery, increases in
interest rates, the impact on real estate tax revenues of the real estate
market, wage increases for city employees consistent with those assumed in
the 1996-99 Financial Plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives
which may require in certain cases the cooperation of the City's municipal
unions, the ability of the New York City Health and Hospitals Corporation
and the Board of Education to take actions to offset reduced revenues, the
ability to complete revenue generating transactions, provision of State
and Federal aid and mandate relief, and the impact on City revenues of
proposals for Federal and State Welfare reform. No assurance can be given
that the assumptions used by the City in the 1996-99 Financial Plan will
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be realized. Furthermore, actions taken in recent fiscal years to avert
deficits may have reduced the City's flexibility in responding to future
budgetary imbalances, and have deferred certain expenditures to later
fiscal years.
The City's original budget for fiscal year 1995 reflected proposed
actions to eliminate a $2.3 billion budget gap. The City submitted on July
21, 1995 a fourth quarter modification to the City's financial plan for
the 1995 fiscal year which projects a balanced budget in accordance with
GAAP for the City's 1995 fiscal year. On July 11, 1995, the City submitted
the 1996-99 Financial Plan, which is based on the City's expense and
capital budgets of the City's 1996 fiscal year adopted on June 14, 1995
(the "1996 City Budget"). The 1996 City Budget sets forth proposed actions
by the City for the 1996 fiscal year to close a substantial projected
budget gap (approximately $3.1 billion) resulting from lower than
projected tax receipts and other revenues and greater than projected
expenditures. Proposed actions in the 1996-99 Financial Plan for the
City's 1996 fiscal year include a reduction of approximately $400 million
primarily affecting public assistance and Medicaid payments by the City,
expenditure reductions in agencies totalling approximately $1.2 billion
and transitional labor savings of approximately $600 million. These and
other proposed actions were contained in the 1996-99 Financial Plan as
well as the 1996 City Budget. The City Budget is subject to the ability of
the City to implement the proposed reductions in expenditures, personal
services and personnel, which are substantial and may be difficult to
implement. For example, the City Comptroller has announced his intention
to block one of the key items contained in the 1996 City Budget, the sale
of the City's water system for approximately $2.3 billion. Among other
things, he cited his concern that such sale proceeds would be used
primarily as a "one-shot" measure to close potential budget gaps by
financing operating expenses in fiscal year 1996 rather than be used to
undertake long-term capital projects. In addition, certain proposals may
be offset by various State and Federal legislation which could mandate
levels of City funding inconsistent with the 1996 City Budget and the
1996-99 Financial Plan. In addition, the 1996-99 Financial Plan
anticipates the receipt of substantial amounts of Federal aid. Certain
proposed State and Federal actions are subject to approvals from the
Legislature, the Governor and the President, as applicable. Both Federal
and State actions are uncertain; certain legislative proposals contemplate
significant reductions in Federal spending, including proposed Federal
welfare reform which could result in caps on, or block grants of, Federal
programs. Further, no assurance can be given that either such actions will
in fact be taken or that the projected savings will result even if such
actions are taken.
The City derives its revenues from a variety of local taxes, user
charges, miscellaneous revenues and federal and State unrestricted and
categorical grants. The City projects that local revenues will provide
approximately 68.0% of total revenues in fiscal year 1996 while federal
aid, including categorical grants, will provide 11.7% in fiscal year 1996
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and State aid, including unrestricted aid and categorical grants, will
provide 20.3% in fiscal year 1996. As a proportion of total revenues,
State aid has remained relatively constant over the period from 1980 to
1990, while federal aid was sharply reduced (having provided nearly 20% of
total fiscal year 1980 revenues). The largest source of the City's
revenues is the real estate tax (approximately 22% of total revenues
projected for fiscal year 1996), at rates levied by the City council
(subject to certain State constitutional limits). State legislation
requires that increases in assessments of certain classes of real property
be phased-in over a five-year period; thus, property owners may receive
higher assessments when property values are declining. However, in the
event of a reduction in total assessments, higher tax rates would be
required to maintain the same amount of tax revenue. The City derives the
remainder of its tax revenues from a variety of other economically
sensitive local taxes (subject to authorization by the legislature),
including: a local sales and compensating use tax (primarily dedicated to
MAC debt service) imposed in addition to the State's retail sales tax; the
personal income tax on City residents and the earnings tax on
non-residents; a general corporation tax; and a financial corporation tax.
High tax burdens in the city impose political and economic constraints on
the ability of the City to increase local tax rates. The City's four-year
financial plans have been the subject of extensive public comment and
criticism, principally questioning the reasonableness of assumptions that
the City will have the capacity to generate sufficient revenues in the
future to provide the level of services contained in such City financial
plans. On July 10, 1995, Standard & Poor's lowered the City's credit
rating from A- to BBB+, among the lowest ratings of any major city in the
country. The rating agency cited specifically the City Budget's reliance
on "one-shot" measures to balance the budget for fiscal year 1995-96
without rectifying the underlying structural problems, its continued
optimistic projections of State and Federal aid, and continued high debt
levels. Standard & Poor's also mentioned the feeble local economy and the
City Budget's over-reliance on the financial services sector which
historically has been volatile.
The City is the largest municipal debt issuer in the nation, and
has more than doubled its debt load since the end of fiscal year 1988, in
large measure to rehabilitate its extensive, aging physical plant. The
City's seasonal borrowing needs increased significantly during fiscal
years 1990 and 1991, largely due to delayed State aid payments, and
totalled $2.25 billion in fiscal year 1992, $1.4 billion in fiscal year
1993, $1.75 billion in fiscal year 1994 and $2.2 billion in fiscal year
1995. Current projections forecast a need of $2.4 billion of seasonal
financing for fiscal year 1996. The City's current capital financing
program reflects major reductions (approximately $2.13 billion) in the
size of the capital program to be implemented cumulatively through fiscal
year 1999 which is intended to reduce future debt service requirements.
Such reductions may adversely affect the condition of the City's aging and
deteriorating infrastructure and physical assets, such as sewers, streets,
bridges and tunnels, and mass transit facilities. Further, the City's
capital financing program currently contemplates receipt of proceeds of
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approximately $1 billion resulting from the sale of the City's water and
sewer system to the Water Board, and proposes to utilize a substantial
portion of such proceeds for capital project improvements. It is not
certain that such proceeds will become available for capital improvements,
because, as discussed above, the City Comptroller has stated his
opposition to such proposed transfer of the water and sewer system.
In November 1993, the voters approved a proposed charter whereby
Staten Island would secede from the City. Staten Island is one of five
counties/boroughs, comprising 4% of the City's population and 19% of its
land area. State law provides a complex mechanism for such secession. The
State Legislature is also considering establishment of a similar secession
mechanism for Queens.
Other Localities. Certain localities in addition to the City could
have financial problems which, if significant, could lead to requests for
additional State assistance during the State's fiscal year and thereafter.
Fiscal difficulties experienced by the City of Yonkers, for example, could
result in State actions to allocate State resources in amounts that cannot
yet be determined. In the recent past, the State provided substantial
financial assistance to its political subdivisions, totalling
approximately 68% of General Fund disbursements in the State's fiscal year
1992-93, 69% for fiscal year 1993-94, 70% for fiscal year 1994-95 and
estimated to account for 69% of General Fund disbursements in the State's
1995-96 fiscal year, primarily for aid to elementary, secondary and higher
education, Medicaid income maintenance, and local transportation programs.
The legislature enacted substantial reductions from previously budgeted
levels of State aid since December 1990. To the extent the State is
constrained by its financial condition, State assistance to localities may
be further reduced, compounding the serious fiscal constraints already
experienced by many local governments. Localities also face anticipated
and potential problems resulting from pending litigation (including
challenges to local property tax assessments), judicial decisions and
socio-economic trends. The Legislature enacted substantial reductions from
previously budgeted levels of State aid since December 1990. To the extent
the State is constrained by its financial condition, State assistance to
localities may be further reduced, compounding the serious fiscal
constraints already experienced by many local governments. Localities also
face anticipated and potential problems resulting from pending litigation
(including challenges to local property tax assessments), judicial
decisions and socio-economic trends.
The total indebtedness of all localities in the State, other than
the City, was approximately $17.7 billion, as of the localities fiscal
years ending in 1993 (the date of the latest data available.) A small
portion (approximately $105 million) of this indebtedness represented
borrowing to finance budgetary deficits issued pursuant to enabling State
legislation (requiring budgetary review by the State Comptroller).
Subsequently, certain counties and other local governments have
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encountered significant financial difficulties, including the counties of
Suffolk, Nassau, Monroe, and Westchester, and the City of Buffalo. The
State imposed financial control on the City from 1977 to 1986 and on the
City of Yonkers since 1984 under an appointed control board in response to
fiscal crises encountered by such municipalities. The Legislature imposed
certain limited fiscal restraints on Nassau and Suffolk Counties, and
authorized their issuance of deficit bonds to finance over several years
their respective 1992 operating deficits.
SPECIAL FACTORS AFFECTING CALIFORNIA
------------------------------------
Certain California constitutional amendments, legislative
measures, executive orders, administrative regulations, and voter
initiatives, as discussed below, could adversely affect the market values
and marketability of, or result in default of, existing obligations,
including obligations that may be held by California Municipal Income
Fund. Obligations of the state or local governments may also be affected
by budgetary pressures affecting the State of California (the State) and
economic conditions in the State. Interest income to the fund could also
be adversely affected. The following discussion highlights only some of
the more significant financial trends and problems, and is based on
information drawn from official statements and prospectuses relating to
securities offerings of the State, its agencies, or instrumentalities, as
available as of the date of this SAI. FMR has not independently verified
any of the information contained in such official statements and other
publicly available documents, but is not aware of any fact which would
render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
------------------------------------------------------
Limitation on Taxes. Certain obligations held by the fund may be
obligations of issuers that rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The
taxing powers of local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, Proposition 13 limits to 1%
of full cash value the rate of ad valorem property taxes on real property
and generally restricts the increase in taxes upon reassessment of
property to 2% per year, except upon new construction or change of
ownership (subject to a number of exemptions). Taxing entities may,
however, raise ad valorem taxes above the 1% limit to pay debt service on
voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of
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acquisition (or as of March 1, 1975 if acquired earlier), subject to
certain adjustments. This system has resulted in widely varying amounts of
tax on similarly situated properties. Several lawsuits were filed
challenging the acquisition-based assessment system of Proposition 13, but
on June 18, 1992, the U.S. Supreme Court announced a decision upholding
Proposition 13.
Article XIIIA prohibits local governments from raising revenues
through ad valorem property taxes above the 1% limit; it also requires
voters of any government unit to give 2/3 approval to levy any "special
tax." However, court decisions allowed non-voter-approved levies of
"general taxes" which were not dedicated to a specific use. In response to
these decisions, the voters of the State in 1986 adopted an initiative
statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority
local voter approval. Significant elements of this initiative,
"Proposition 62," have been overturned in recent court cases, but efforts
may continue to further restrict the ability of local government agencies
to levy or raise taxes.
Appropriations Limits. The State and its local governments are
subject to an annual "appropriations limit" imposed by Article XIIIB of
the California Constitution, enacted by the voters in 1979 and
significantly amended by Propositions 98 and 111 in 1988 and 1990,
respectively. Article XIIIB prohibits the State or any covered local
government from spending "appropriations subject to limitation" in excess
of the appropriations limit imposed. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes," which consist
of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges, or other fees to the extent that such
proceeds exceed the cost of providing the product or service; but
"proceeds of taxes" for local governments exclude most State subventions.
No limit is imposed on appropriations of funds which are not "proceeds of
taxes," such as reasonable user charges or fees and certain other non-tax
funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB
appropriations limit are: (1) the debt service cost of bonds issued or
authorized prior to January 1, 1979, or subsequently authorized by the
voters; (2) appropriations arising from certain emergencies declared by
the Governor; (3) appropriations for certain capital outlay projects; and
(4) appropriations by the State of post-1989 increases in gasoline taxes
and vehicle weight fees.
The appropriations limit for each year is adjusted annually to
reflect changes in cost of living and population, and any transfers of
service responsibilities between government units. The definitions for
such adjustments were liberalized by Proposition 111 to follow more
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closely growth in the State's economy. For the 1990-91 fiscal year, each
unit of government has recalculated its appropriations limit by taking the
actual 1986-87 limit and applying the Proposition 111 annual adjustments
forward to 1990-91. This was expected to raise the limit in most cases.
Under Proposition 111, "excess" revenues are measured over a
two-year cycle. With respect to local governments, excess revenues must be
returned by a revision of tax rates or fee schedules within the two
subsequent fiscal years. The appropriations limit for a local government
may be overridden by referendum under certain conditions for up to four
years at a time. With respect to the State, 50% of any excess revenues is
to be distributed to K-12 school and community college districts
(collectively, K-14 districts) and the other 50% is to be refunded to
taxpayers.
In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit. In the
mid-to-late 1980's, many entities were at or approaching their limit, and
several successfully obtained voter approval for four-year waivers of the
limit. Since Proposition 111, the appropriations limit has again ceased to
be a practical limit on California governments, but this condition may
change in the future. During FY 1986-87, State receipts from proceeds of
taxes exceeded its appropriations limit by $1.138 billion, which was
returned to taxpayers. Since that time, appropriations subject to
limitation were under the State limit. The 1995-96 Governor's Budget
proposal estimates State appropriations will be more than $6.0 billion
under the limit for FY 1994-95 and over $7.2 billion under the limit for
FY 1995-96.
OBLIGATIONS OF THE STATE OF CALIFORNIA
--------------------------------------
As of February 1995, the State had approximately $18.6 billion of
general obligation bonds outstanding, and $4.1 billion remained authorized
but unissued. In addition, at June 30, 1994, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $5.1
billion. Of the State's outstanding general obligation debt, approximately
21% is presently self-liquidating (for which program revenues are
anticipated to be sufficient to reimburse the General Fund for debt
service payments). In FY 1993-94, debt service on general obligation bonds
and lease-purchase debt was approximately 5.2% of General Fund revenues.
The State has paid the principal of and interest on its general obligation
bonds, lease-purchase debt, and short-term obligations when due.
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ECONOMY
-------
The State's economy is the largest among the 50 states and one of
the largest in the world. The State's population grew by 27% in the 1980s
and, at over 31 million, it now represents 12.3% of the total U.S.
population. Total personal income in the State, at an estimated $683
billion in 1993, accounts for almost 13% of all personal income in the
nation. Total employment in 1994 was over 14 million, the majority of
which is in the service, trade, and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with
the worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), and financial
services, among others, were all severely affected, particularly in
Southern California. Job losses were the worst of any post-war recession.
Employment levels stabilized by late 1993 and steady growth occurred in
1994 and is expected in 1995, but pre-recession job levels are not
expected to be reached for several more years. Unemployment, while higher
than the national average, came down about 3% in 1994. Economic
indicators show a steady recovery underway in California since the start
of 1994.
RECENT STATE FINANCIAL RESULTS
------------------------------
The principal sources of State General Fund revenues in 1993-94
were the California personal income tax (44% of total revenues), the sales
tax (35%), bank and corporation taxes (12%), and the gross premium tax on
insurance (3%). The State maintains a Special fund for Economic
Uncertainties (the SFEU), derived from General Fund revenues, as a reserve
to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. Year-end
balances in the SFEU are included for financial reporting purposes in the
General Fund balance. In recent years (but not in the past three years, as
the recession has cut revenues), the State has budgeted to maintain the
SFEU at around 3% of General Fund expenditures.
Throughout the 1980s, State spending increased rapidly as the
State population and economy also grew rapidly, including many assistance
programs to local governments, which were constrained by Proposition 13
and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a 2/3 vote of the Legislature and the
Governor) guarantees local school districts and community college
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districts a minimum share of State General Fund revenues (currently about
35%).
Since the start of FY1990-91, the State faced adverse economic,
fiscal, and budget conditions. The economic recession seriously affected
State tax revenues. It also caused increased expenditures for health and
welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates significantly higher
than the growth rates for the principal revenue sources of the General
Fund. As a result, the State entered a period of budget imbalance, with
expenditures exceeding revenues for four of the five completed fiscal
years through 1991-92.
As the State fell into a deep recession in the summer of 1990, the
State budget fell sharply out of balance in FY 1990-91 and FY 1991-92,
despite significant expenditure cuts and tax increases. The State had
accumulated a $2.8 billion budget deficit by June 30, 1992. This deficit
also severely reduced the State's cash resources, so that it had to rely
on external borrowing in the short-term markets to meet its cash needs.
Cash Flow Requirements. Because of the accumulated budget deficit
over the past several years, the payment of certain unbudgeted
expenditures to schools to maintain constant per-pupil aid levels, and a
reduction of the level of available internal borrowing, the State's cash
resources have been significantly depleted. This has required the State
to rely on a series of external borrowings for the past several years to
pay its normal expenses, including repayment of previous cash flow
borrowings. Since June 1992, some of these borrowings have gone past the
end of the fiscal year. In February, 1994, the State borrowed $3.2
billion, maturing by December, 1994. In July, 1994, the State borrowed a
total of $7.0 billion to meet its cash flow requirements for FY 1994-95,
and to fund a part of its deficit into the FY 1995-96. A total of $4.0
billion of this borrowing matures in April, 1996. The State will continue
to have to rely on external borrowing to meet its cash needs for the
foreseeable future.
Recent Budgets. The State failed to enact its 1992-93 budget by
July 1, 1992. Although the State had no legal authority to pay many of
its vendors, certain obligations (such as debt service, school
apportionments, welfare payments, and employee salaries) were payable
because of continuing or special appropriations, or court orders.
However, the State Controller did not have enough cash to pay all of these
ongoing obligations,or valid obligations incurred in the prior fiscal year
as they came due.
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Starting on July 1, 1992, the Controller was required to issue
"registered warrants" in lieu of normal warrants backed by cash to pay
many State obligations. Available cash was used to pay constitutionally
mandated and priority obligations. Between July 1 and September 3, 1992,
the Controller issued an aggregate of approximately $3.8 billion of
registered warrants all of which were called for redemption by September
4, 1992 following enactment of the 1992-93 Budget Act and issuance by the
State of short-term notes.
The 1992-93 Budget Act, when finally adopted, was projected to
eliminate the State's accumulated deficit, with additional expenditure
cuts and a $1.3 billion transfer of State education funding costs to local
governments by shifting local property taxes to school districts.
However, as the recession continued longer and deeper than expected,
revenues once again were far below projections, and only reached a level
just equal to the amount of expenditures. Thus, the State continued to
carry its $2.8 billion budget deficit at June 30, 1993.
The 1993-94 Budget Act represented a third consecutive year of
difficult budget choices. As in the prior year, the budget contained no
general state tax increases, and relied principally on expenditure cuts,
particularly for health and welfare and higher education, a two-year
suspension of the renters' tax credit some one-time and accounting
adjustments, and --the largest component -- an additional $2.6 billion
transfer of property taxes from local governments, particularly counties,
to school districts to reduce State education funding requirements. A
temporary state sales tax scheduled to expire on June 30, 1993 was
extended for six months, and dedicated to support local government public
safety costs.
A major feature of the budget was a two-year plan to eliminate the
accumulated deficit by borrowing into FY1994-95. With the recession still
continuing longer than expected, the General Fund had $800 million less
revenue and $800 million higher expenditures than budgeted. As a result
revenues only exceed expenditures by about $500 million. However, this
was the first operating surplus in four years and reduced the accumulated
deficit to $2.0 billion at June 30, 1994 (after taking account of certain
other accounting reserves).
Current Budget. The 1994-95 Budget Act was passed on July 8,
1994, and provides for an estimated $41.9 billion of General Fund
revenues, and $40.9 billion of expenditures. The budget assumed receipt
of about $750 million of new federal assistance for the costs of
incarceration, education, health and welfare related to undocumented
immigrants. Other major components of the budget included further
reductions in health and welfare costs and miscellaneous government costs,
some additional transfers of funds from local government, and a plan to
defer retirement of $1 billion of the accumulated budget deficit to FY
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1995-96. The federal government has apparently budgeted only $33 million
of the expected immigration aid. However, this shortfall is expected to
be almost fully offset by higher-than-projected revenues, and
lower-than-projected caseload growth, as the economy improves.
As noted above under "Cash Flow Requirements," the State issued
$7.0 billion of short-term debt in July, 1994 to meet its cash flow needs
and to finance the deferral of part of the accumulated budget deficit to
FY 1995-96. In order to assure repayment of the $4 billion, 22-month part
of this borrowing, the State enacted legislation (the "Trigger Law") which
can lead to automatic, across-the-board costs in General Fund expenditures
in either the FY 1994-95 or FY 1995-96 if cash flow projections made at
certain times during those years show deterioration from the projections
made in July 1994 when the borrowings were made. On November 15, 1994,
the State Controller, as part of the Trigger Law, reported that the cash
position of the General Fund on June 30,1995 would be about $580 million
better than was earlier projected, so no automatic budget adjustments were
required in 1994-95. The Controller's report showed that loss of federal
funds was offset by higher revenues, lower expenditures, and certain other
increases in cash resources.
The proposed Governor's Budget for FY 1995-96 projects General
Fund revenues of $42.5 billion and expenditures of $41.7 billion. The
Governor's Budget projects that all the accumulated budget deficits will
be repaid by June 30, 1996, with a small balance ($92 million) in the
SFEU, the budget reserve. The proposed budget assumes receipt of about
$830 million of new federal aid for undocumented aliens' costs, and also
assumes success in certain ongoing litigation concerning previous budget
actions. The Governor has proposed a 15% cut in personal income and
corporate taxes, to be phased in over three years starting in 1996.
The State's severe financial difficulties for the past, current
and upcoming budget years will result in continued pressure upon almost
all local governments, especially those which depend on State aid, such as
school districts and counties. While recent budgets included both
permanent tax increases and actions to reduce costs of state government
over the longer term, the Governor and other analysts have noted that
structural imbalances still exist, and there can be no assurance that the
state will not face budget gaps in the future.
State general obligation bonds are currently rated "A1" by
Moody's, "A" by Fitch Investors Service, Inc., and "A" by S&P. There can
be no assurance that such ratings will be maintained in the future. All
three of these ratings were reduced from "AAA" levels since late 1991.
Orange County. On December 6, 1994, Orange County, California
(the County), together with its pooled investment funds (the Pools) filed
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for protection under Chapter 9 of the federal Bankruptcy Code, after
reports that the Pools had suffered significant market losses in their
investments, causing a liquidity crisis for the Pools and the County.
More than 180 other public entities, most but not all located in the
County, were also depositors in the Pools. As of mid-January 1995, the
County estimated the Pools' losses at approximately $1.7 billion, or 22%
of its initial deposits of approximately $7.5 billion. Many of the
entities which kept moneys in the Pools, including the County, are facing
cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of
these entities have defaulted, and others may in the future default, on
payment of their obligations. Moody's and S & P have suspended, reduced
to below investment grade levels, or placed on "Credit Watch" various
securities of the County and the entities participating in the Pools.
The State has no obligation with respect to any obligations or
securities of the County or any of the other participating entities.
However, the State may be obligated to intervene to ensure that school
districts have sufficient funds to operate, or to maintain certain
County-administered State programs.
OBLIGATIONS OF OTHER CALIFORNIA ISSUERS
--------------------------------------
State Assistance. Property tax revenues received by local
governments declined more than 50% following passage of Proposition 13.
Subsequently, the State's Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies; the
reallocation of certain State revenues to local agencies; and the
assumption of certain governmental functions by the State to assist
municipal issuers to raise revenues. Total local assistance from the
State's General Fund totaled approximately $29.1 billion in FY 1993-94
(about 70% of General Fund expenditures) and has been budgeted at $30.5
billion for FY 1994-95, including the effect of implementing reductions in
certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 and 1993-94 Budget Acts caused local governments to
transfer $3.8 billion of property tax revenues to school districts,
representing reversal of the post-Proposition 13 "bailout" aid.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or
other considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such
reductions in State aid could compound the serious fiscal constraints
already experienced by many local governments, particularly counties. At
least one rural county (Butte) publicly announced that it might enter
bankruptcy proceedings in August 1990, although such plans were put off
after the Governor approved legislation to provide additional funds for
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the county. Other counties have also indicated that their budgetary
condition is extremely grave. A school district (Richmond Unified) filed
for protection under bankruptcy laws several years ago, but the petition
was later dismissed; other school districts have indicated financial
stress, although none has threatened bankruptcy.
Assessment Bonds. Municipal obligations which are assessment bonds
or Mello-Roos bonds may be adversely affected by a general decline in real
estate values or a slowdown in real estate sales activity. In many cases,
such bonds are secured by land which is undeveloped at the time of
issuance but anticipated to be developed within a few years after
issuance. In the event of such reduction or slowdown, such development may
not occur or may be delayed, thereby increasing the risk of a default on
the bonds. Because the special assessments or taxes securing these bonds
are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most
cases the issuer of these bonds is not required to make payments on the
bonds in the event of delinquency in the payment of assessments or taxes,
except from amounts, if any, in a reserve fund established for the bonds.
California Long-Term Lease Obligations. Certain State long-term
lease obligations, though typically payable from the General Fund of the
municipality, are subject to "abatement" in the event the facility being
leased is unavailable for beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not a default, and there may be
no remedies available to the holders of the certificates evidencing the
lease obligation in the event abatement occurs. The most common causes of
abatement are failure to complete construction of the facility before the
end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In
the event abatement occurs with respect to a lease obligation, lease
payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District
("District") entered into a lease transaction in which certain existing
properties of the District were sold and leased back in order to obtain
funds to cover operating deficits. Following a fiscal crisis in which the
District's finances were taken over by a State receiver (including a brief
period under bankruptcy court protection), the District failed to make
rental payments on this lease, resulting in a lawsuit by the Trustee for
the Certificate of Participation holders. One of the defenses raised in
answer to this lawsuit was the invalidity of the original lease
transaction. The trial court upheld the validity of the District's lease,
and the case has been settled. However, any future judgment in a similar
case against the position taken by the Trustee may have implications for
lease transactions of a similar nature by other State entities.
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Other Considerations. The repayment of Industrial Development
Securities secured by real property may be affected by State laws limiting
foreclosure rights of creditors. Health Care and Hospital Securities may
be affected by changes in State regulations governing cost reimbursements
to health care providers under Medi-Cal (the State's Medicaid program),
including risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly affect
"tax allocation" bonds issued by State redevelopment agencies. Such bonds
are secured solely by the increase in assessed valuation of a
redevelopment project area after the start of redevelopment activity. In
the event that assessed values in the redevelopment project decline (for
example, because of a major natural disaster such as an earthquake), the
tax increment revenue may be insufficient to make principal and interest
payments on these bonds. Both Moody's and S&P suspended ratings on State
tax allocation bonds after the enactment of Articles XIIIA and XIIIB, and
only resumed such ratings on a selective basis.
Proposition 87, approved by State voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing
entity which increased such tax rate to repay that entity's general
obligation indebtedness. As a result, redevelopment agencies (which,
typically, are the issuers of Tax Allocation Securities) no longer receive
an increase in tax increment when taxes on property in the project area
are increased to repay voter-approved bonded indebtedness.
Substantially all of the State is within an active geologic region
subject to major seismic activity. Any California municipal obligation
held by the fund could be affected by an interruption of revenues because
of damaged facilities or, consequently, income tax deductions for casualty
losses or property tax assessment reductions. Compensatory financial
assistance could be constrained by the inability of (i) an issuer to have
obtained earthquake insurance coverage at reasonable rates; (ii) an
insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.
On January 17, 1994 , a major earthquake with an estimated
magnitude of 6.8 on the Richter scale struck the Los Angeles area, causing
significant property damage to public and private facilities, presently
estimated at $15-20 billion. While over $9.5 billion of federal aid, and a
projected $1.9 billion of state aid, plus insurance proceeds, will
reimburse much of that loss, there will be some ultimate loss of wealth
and income in the region, in addition to costs of the disruption caused by
the event. These uninsured losses are estimated to have only a small
effect on the overall State economy, with a drop of up to 0.5 percent in
personal income growth. Short-term economic projections are generally
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neutral, as the infusion of aid will restore billions of dollars to the
local economy within a few months. Although the earthquake will hinder
recovery from the recession in Southern California, already hard-hit, its
long-term impact is not expected to be material in the context of the
overall wealth of the region. Almost five years after the event, there are
few remaining effects of the 1989 Loma Prieta earthquake in Northern
California (which, however, caused less severe damage than the Northridge
earthquake).
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution (described briefly above), the ambiguities and
possible inconsistencies in their terms, and the impossibility of
predicting future appropriations or changes in population and the cost of
living, and the probability of continuing legal challenges, it is not
currently possible to determine fully the impact of Article XIIIA or
Article XIIIB, or the outcome of any pending litigation with respect to
those provisions on State obligations held by the fund or on the ability
of the State or local governments to pay debt service on such obligations.
Legislation has been or may be introduced (either in the State Legislature
or by initiative) which would modify existing taxes or other
revenue-raising measures or which either would further limit or,
alternatively, would increase the abilities of State and local governments
to impose new taxes or increase existing taxes. It is not presently
possible to predict the extent to which any such legislation will be
enacted, or if enacted, how it would affect California municipal
obligations. It is also not presently possible to predict the extent of
future allocations of State revenues to local governments or the abilities
of State or local governments to pay the interest on, or repay the
principal of, such California municipal obligations in light of future
fiscal circumstances.
SPECIAL FACTORS AFFECTING PUERTO RICO
-------------------------------------
The following only highlights some of the more significant
financial trends and problems affecting the Commonwealth of Puerto Rico
(the Commonwealth or Puerto Rico), and is based on information drawn form
official statements and prospectuses relating to the securities offerings
of Puerto Rico and its agencies and instrumentalities, as available on the
date of this Statement of Additional Information. FMR has not
independently verified any of the information contained in such official
statements, prospectuses, and other publicly available documents, but is
not aware of any fact which would render such information materially
inaccurate.
The economy of Puerto Rico is closely linked with that of the
United States, and in fiscal 1993 trade with the United States accounted
for approximately 86% of Puerto Rico's exports and approximately 69% of
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its imports. In this regard, in fiscal 1993 Puerto Rico experienced a $2.5
billion positive adjusted merchandise trade balance. Since fiscal 1987,
personal income, both aggregate and per capita, has increased consistently
each year. In fiscal 1993 aggregate personal income was $24.1 billion and
personal per capita income was $6,760. Gross domestic product in fiscal
1991, 1992, and 1993 was $22.8 billion, $23.5 billion, and $25 billion,
respectively. For fiscal 1994, an increase in gross domestic product of
2.9% over fiscal 1993 is forecast. However, actual growth in the Puerto
Rican economy will depend on several factors, including the condition of
the U.S. economy, the exchange rate for the U.S. dollar and the price
stability of oil imports and interest rates. Due to these factors, there
is no assurance that the economy of Puerto Rico will continue to grow.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1989 through fiscal 1993. While trends in the Puerto
Rican economy generally follow those of the United States, Puerto Rico did
not experience a recession primarily because of its strong manufacturing
base, which has a large component of non-cyclical industries. Other
factors behind the continued expansion included Commonwealth-sponsored
economic development programs, stable prices of oil imports, low exchange
rates for the U.S. dollar, and the relatively low cost of borrowing funds
during the period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the U.S. average and has been increasing
in recent years. Despite long-term improvements the unemployment rate rose
from 16.5% to 17.5% from fiscal 1992 to fiscal 1993. However, by the end
of January 1994, the unemployment rate had dropped to 16.3%.
The economy of Puerto Rico has undergone a transformation in the
latter half of this century from one centered around agriculture to one
dominated by the manufacturing and service industries. Manufacturing is
the cornerstone of Puerto Rico's economy, accounting for $14.1 billion or
39.4% of gross domestic product in fiscal 1993. However, manufacturing has
experienced a basic change over the years as a result of the influx of
higher wages, high technology industries such as the pharmaceutical
industry, electronics, computers, micro processors, scientific
instruments, and high technology machinery. The service sector, which
employs the largest number of people, includes wholesale and retail trade,
finance, and real estate, and ranks second in its contribution to gross
domestic product. In fiscal 1993, the service sector generated $14.0
billion in gross domestic product or 39.1% of the total and employed over
467,000 workers providing 46.7% of total employment. The government sector
of the Commonwealth plays an important role in Puerto Rico's economy. In
fiscal year 1993, the government accounted for $3.9 billion of Puerto
Rico's gross domestic product and provided 21.7% of the total employment.
Tourism also contributes significantly to the island economy, accounting
for $1.6 billion of gross domestic product in fiscal 1993.
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The present administration, which took office in January 1993,
envisions major economic reforms and has developed a new economic
development program to be implemented in the next few years. This program
is based on the premise that the private sector will be the primary
vehicle for economic development and growth. The program promotes changing
the role of the Government from one of being a provider of most basic
services to one of being a facilitator for private sector initiatives and
will encourage private sector investment by reducing regulatory
restraints. The program contemplates the development of initiatives that
will foster private investment, both external and internal, in areas that
are served more efficiently and effectively by the private sector. The
program also contemplates a general revision of the tax system to expand
the tax base, reduce top personal and corporate tax rates, and simplify a
highly complex system. Other important goals for the new program are to
reduce the size of the Government's direct contribution to gross domestic
product and, to facilitate private sector development and growth which
would be realized through a reduction in Government consumption and an
increase in Government investment in order to improve and expand Puerto
Rico's infrastructure.
Much of the development of the manufacturing sector of the economy
of Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
(Section 936) and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application, a credit against their U.S. corporate income
tax on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico (active income), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
sources investment income (passive income). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
Pursuant to recently enacted amendments to the Internal Revenue
Code (the Code), and for taxable years commencing after 1993, two
alternative limitations will apply to the Section 936 credit against
active business income and sale of assets as previously described. The
first option will limit the credit against such income to 40% of the
credit allowed under current law, with a five-year phase-in period
starting at 60% of the current credit. The second option will limit the
allowable credit to the sum of (i) 60% of qualified compensation paid to
employees (as defined in the Code); (ii) a specified percentage of
depreciation deductions; and (iii) a portion of the Puerto Rico income
taxes paid by the Section 936 corporation, up to a 9% effective tax rate.
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At present, it is difficult to forecast what the short- and
long-term effects of the new limitations to the Section 936 credit will be
on the economy of Puerto Rico. However, preliminary econometric studies by
the Government of Puerto Rico and private sector economists (assuming no
enhancements to the existing Industrial Incentives Program) project only a
slight reduction in average real growth rates for the economy of Puerto
Rico. These studies also show that particular industry groups will be
affected differently. For example, manufacturers of pharmaceuticals and
beverages may suffer a larger reduction in tax benefits due to their
relatively higher profit margins. In addition, the above limitations are
not expected to reduce the tax credit currently enjoyed by
labor-intensive, lower profit margin industries, which represent
approximately 40% of the total employment by Section 936 corporations in
Puerto Rico.
PORTFOLIO TRANSACTIONS
----------------------
All orders for the purchase or sale of portfolio securities are
placed on behalf of each 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 Contracts), 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; the
reasonableness of any commissions; and, for equity funds, arrangements for
payment of fund expenses. Generally, 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 funds may execute portfolio transactions with broker-dealers
who provide research and execution services to the funds 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; and 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), for
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equity funds, in accordance with a ranking of broker-dealers determined
periodically by FMR's investment staff (for equity funds), based upon the
quality of research and execution services provided.
The receipt of research from broker-dealers that execute
transactions on behalf of the funds may be useful to FMR in rendering
investment management services to the funds 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 funds. 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 a
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 funds or shares of other
Fidelity funds to the extent permitted by law. FMR may use research
services provided by and place agency transactions with Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services (FBS), 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, Inc. (FBSL). As of
January 1995, FBSL was converted into an unlimited liability company and
assumed the name FBS. Prior to September 4, 1992, FBSL operated under the
name Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary
of Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman
of FIL. Mr. 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.
FMR may allocate brokerage transactions to broker-dealers who have
entered into arrangements with FMR under which the broker-dealer allocates
a portion of the commissions paid by Overseas, Equity Growth, Global
Resources, Growth Opportunities, Strategic Opportunities, Equity Income,
Mid Cap, Large Cap, and Income & Growth toward payment of that fund's
expenses, such as transfer agent fees or custodian fees. The transaction
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quality must, however, be comparable to those of other qualified
broker-dealers.
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 FBSI to execute portfolio transactions on
national securities exchanges in accordance with approved procedures and
applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended 1994 and 1995, respectively, each
fund's portfolio turnover rates are shown in the chart below. 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. An increased turnover rate is due to
a greater volume of shareholder purchase orders, short-term interest rate
volatility and other special market conditions.
<TABLE>
<CAPTION>
Fund Fiscal Period Ended 1994 1995
---- ------------------- ---- ----
<S> <C>` <C> <C>
Overseas October 31 34% %
Large Cap November 30 n/a %**
Equity Growth November 30 137% %
Global Resources October 31 125% %
Growth Opportunities October 31 43% %
Strategic Opportunities December 31 159%+ %
Mid Cap November 30 n/a %**
Equity Income November 30 140% %
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<PAGE>
Fund Fiscal Period Ended 1994 1995
---- ------------------- ---- ----
Income & Growth October 31 202% %
Emerging Markets Income December 31 354%* %
High Yield October 31 118% %
Strategic Income December 31 104%* %
Government Investment October 31 313% %
Intermediate Bond November 30 68% %
Short Fixed-Income October 31 108% %
High Income Municipal October 31 38% %
Intermediate Municipal Income November 30 53% %
Short-Intermediate Municipal November 30 111%* %
Income
California Municipal Income October 31 n/a %*
New York Municipal Income October 31 n/a %**
</TABLE>
*Annualized. Portfolio turnover rates shown are from commencement of
operations to the end of the fiscal period, as indicated.
** Estimated.
+As of November 9, 1994, the fiscal year end for Strategic Opportunities
changed from September 30 to December 31.
The following tables show the brokerage commissions paid by
Overseas, Equity Growth, Global Resources, Growth Opportunities, Strategic
Opportunities, Equity Income, and Income & Growth. The first table shows
the total amount of brokerage commissions paid by each fund and the
commissions paid to FBSI and FBS (formerly FBSL) for the past three fiscal
years. The second table shows the percentage of aggregate brokerage
commissions paid to, and the percentage of the aggregate dollar amount of
transactions for which the fund paid brokerage commissions effected
through, FBSI and FBS for the fiscal year ended 1995. The third table
shows amount of brokerage commissions paid to firms providing research and
the approximate dollar amount of the transactions on which brokerage
commissions were paid for the fiscal year ended 1995. Each of these funds
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pays both commissions and spreads in connection with the placement of
portfolio transactions; FBSI and FBS are paid on a commission basis. The
difference between the percentage of brokerage commissions paid and the
percentage of the dollar amount of transactions effected through FBSI and
FBS is a result of the low commission rates charged by FBSI and FBS. The
other funds paid no brokerage commissions for the fiscal years ended 1993
through 1995.
<TABLE>
<CAPTION>
Fiscal Period Total
Ended Amount Paid To FBSI To FBS
------------ ----------- ------- ------
<S> <C> <C> <C> <C>
Overseas October 31
1995 $ $ $
1994 1,601,660 685 0
1993 500,186 800 0
Equity Growth November 30
1995
1994 2,086,370 729,903 0
1993 915,767 362,158 0
Global Resources October 31
1995
1994 630,725 195,272 0
1993 147,017 41,286 0
Growth Opportunities October 31
1995
1994 3,589,080 1,368,574 0
1993 2,538,165 899,767 0
Strategic Opportunities December 31
1995
10/1/94-12/31/94 403,617 70,465 0
10/1/93-9/30/94 1,166,854 151,233 96
1993 1,068,788 103,206 0
Equity Income November 30
1995
1994 827,499 290,182 0
1993 557,493 126,832 0
Income & Growth October 31
1995
1994 7,338,038 1,104,577 0
1993 2,998,137 796,821 0
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<PAGE>
% of % of % of Transactions
Commissions Transactions % of Commissions Effected through
Fiscal Period Paid to FBSI Effected through Paid to FBS FBS
Ended for 1995 FBSI for 1995 for 1995 for 1995
------------ ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Overseas October 31
Equity Growth November 30
Global Resources October 31
Growth Opportunities October 31
Strategic Opportunities December 31
Equity Income November 30
Income & Growth October 31
Fiscal Period Amount Paid to Total Amount of
Ended Firms Providing Transactions
1995 Research* Involved
-------------- -------------- --------------
<S> <C> <C> <C>
Overseas October 31
Equity Growth November 30
Global Resources October 31
Growth Opportunities October 31
Strategic Opportunities December 31
Equity Income November 30
Income & Growth October 31
</TABLE>
* The provision of research services was not necessarily a factor in
the placement of all this business with such firms.
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From time to time the Trustees will review whether the recapture
for the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each 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 each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially
the same as those of other funds managed by FMR, investment decisions for
each 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 or accounts 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 and account. In some cases this system could have
a detrimental effect on the price or value of the security as far as each
fund is concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that the
desirability of retaining FMR as investment adviser to each fund outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
VALUATION
---------
Fidelity Service Company (FSC) normally determines each class'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 each class's NAV and, where applicable, offering price.
133
<PAGE>
GROWTH AND GROWTH & INCOME FUNDS
Portfolio securities are valued by various methods depending on
the primary market or exchange on which they trade. 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.
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.
Fixed-income securities and convertible securities may also 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 Trustees, on the basis of an evaluation of these
services, may use various pricing services or discontinue the use of any
pricing service.
Short-term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value.
Futures contracts and options are valued on the basis of market
quotations, if available.
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.
Securities and other assets for which there is no readily
available market value are 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 a fund if, in the
opinion of a committee appointed by the Board of Trustees, some other
134
<PAGE>
method would more accurately reflect the fair market value of such
securities.
TAXABLE NON-GOVERNMENT AND INTERNATIONAL BOND FUNDS
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.
Fixed-income securities may also 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
Trustees, on the basis of an evaluation of these services, may use various
pricing services or discontinue the use of any pricing service.
Short-term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value.
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.
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
135
<PAGE>
security will be valued as determined in good faith by a committee
appointed by the Board of Trustees.
Securities and other assets for which there is no readily
available market value are 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 a 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.
TAXABLE GOVERNMENT BOND FUNDS
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.
Fixed-income securities may also 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
Trustees, on the basis of an evaluation of these services, may use various
pricing services or discontinue the use of any pricing service.
Short-term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value.
Futures contracts and options are valued on the basis of market
quotations, if available.
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
136
<PAGE>
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.
Securities and other assets for which there is no readily
available market value are 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 a 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.
TAX-FREE BOND FUNDS
Portfolio securities are valued by various methods depending on
the primary market or exchange on which they trade. Fixed-income
securities may also 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 Trustees, on the basis of an
evaluation of these services, may use various pricing services or
discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily
available market value are 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 a 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.
137
<PAGE>
PERFORMANCE
-----------
Each class of shares may quote performance in various ways. All
performance information supplied by the funds in advertising is historical
and is not intended to indicate future returns. Share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of shares when redeemed may be more or less than their
original cost.
Yield Calculations. Yields for a class are computed by dividing
the class's pro rata share of the applicable interest and dividend income,
if any, for a given 30-day or one-month period, net of expenses, by the
average number of shares of that class entitled to receive distributions
during the period, dividing this figure by the class's net asset value
(NAV) or offering price, as appropriate, 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 a 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 a class'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, a class'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 a class'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 a class's yield.
Yield information may be useful in reviewing a class's performance
and in providing a basis for comparison with other investment
alternatives. However, each class'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.
138
<PAGE>
Investors should recognize that in periods of declining interest
rates, a class's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates, the class's yield
will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a 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 class's current
yield. In periods of rising interest rates, the opposite can be expected
to occur.
Tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment to equal a class's tax-free yield.
Tax-equivalent yields are calculated by dividing a class's yield by the
result of one minus a stated federal or combined federal and, if
applicable, state tax rate. If only a portion of a class's yield is
tax-exempt, only that portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status
on effective yield under federal and, where applicable, state income tax
laws for 1996. It shows the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent
to those of hypothetical tax-exempt obligations yielding from 2.00% to
8.00%. Of course, no assurance can be given that a class will achieve any
specific tax-exempt yield. While the municipal funds invest principally in
obligations whose interest is exempt from federal or from federal and
state income tax, other income received by the funds may be taxable.
<TABLE>
<CAPTION>
Expected 1996 Tax Rates and Tax-Equivalent Yields
-------------------------------------------------
If individual tax-exempt yield is:
2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
Federal
Income
Tax
Single Return* Joint Return* Bracket** Then taxable equivalent yield is:
------------- ------------ --------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $24,000 $0 -$40,000 15.0% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
$24,001 - $58,160 $40,401 - $96,900 28.0% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
$58,161 - $123,300 $96,901 - $147,700 31.0% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
$123,301 - $263,750 $147,701 - $263,750 36.0% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
$236,751 - $+ $263,751 - $+ 39.6%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
139
<PAGE>
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions,
and adjustments which may increase a taxpayer's marginal tax rate.
An increase in a shareholder's marginal tax rate would increase
that shareholder's tax-equivalent yield.
A federally tax-exempt fund may invest a portion of its assets in
obligations that are subject to federal income tax. When the fund invests
in these obligations, its tax-equivalent yields will be lower. In the
table above, tax-equivalent yields are calculated assuming investments are
100% federally tax-free.
NEW YORK MUNICIPAL INCOME ONLY
Use the first table to find your approximate effective tax bracket
on investment income as a New York State resident with triple taxes
(federal, state, and New York City) or double taxes (federal and state)
for 1995.
<TABLE>
<CAPTION>
1996 TAX RATES
Taxable Income Marginal Tax Rate
Combined New Combined New
Marginal York State and York State,
Federal New York Federal City and
Income New York State and Effective Federal
Single Return* Joint Return* Tax Bracket State City Tax Bracket** Tax Bracket**
-------------- ------------ ----------- -------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions,
140
<PAGE>
and adjustments which may increase a taxpayer's marginal tax rate.
An increase in a shareholder's marginal tax rate would increase
that shareholder's tax-equivalent yield.
Having determined your effective tax bracket, use the appropriate table
below to determine the tax-equivalent yield for a given tax-free yield.
NEW YORK CITY RESIDENTS - TRIPLE TAXES - 1996
If your effective combined federal, state, and New York City personal
income tax rate in 1996 is:
<TABLE>
<CAPTION>
_____% _____% _____% _____% 43.71% 46.88%
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
---------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3% % % % % % %
4% % % % % % %
5% % % % % % %
6% % % % % % %
7% % % % % % %
8% % % % % % %
</TABLE>
NEW YORK STATE RESIDENTS (OUTSIDE NYC) - DOUBLE TAXES - 1996
If your effective combined federal and state personal income tax
rate in 1996 is:
141
<PAGE>
<TABLE>
<CAPTION>
_____% _____% _____% _____%
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
--------------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
3% % % % %
4% % % % %
5% % % % %
6% % % % %
7% % % % %
8% % % % %
</TABLE>
The fund may invest a portion of its assets in obligations that
are subject to city, state or federal income taxes. When the fund invests
in these obligations, its tax-equivalent yield will be lower. In the table
above, the tax-equivalent yields are calculated assuming investments are
100% federally and state tax-free.
CALIFORNIA MUNICIPAL INCOME ONLY
Use the first table to find your approximate effective tax bracket
taking into account federal and state taxes for 1996.
<TABLE>
<CAPTION
1996 TAX RATES AND TAX-EQUIVALENT YIELDS
State Combined California
Taxable Income* Federal Income Marginal and Federal Effective
Single Return Joint Return Tax Bracket Rate Tax Bracket**
------------------------------------- ------------ -------- -------------------
<S> <C> <C> <C> <C>
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
142
<PAGE>
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions, and
adjustments which may increase a taxpayer's marginal tax rate. An increase
in a shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following
table to determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in
1996 is:
<TABLE>
<CAPTION>
To match
these
Tax-Free
Yields
-------- ------ ------- -------- ------- -------- ------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2% % % % % % % % % % %
3% % % % % % % % % % %
4% % % % % % % % % % %
5% % % % % % % % % % %
6% % % % % % % % % % %
7% % % % % % % % % % %
8% % % % % % % % % % %
</TABLE>
The California income tax rates are those in effect for 1995,
which will be the same in 1996 except that California law requires that
the brackets be adjusted annually for inflation using 100% of the
California Consumer Price Index through June of the tax year. As of the
date of this SAI, the California Franchise Tax Board had not published the
1996 inflation-adjusted tax brackets.
143
<PAGE>
The fund may invest a portion of its assets in obligations that
are subject to state or federal income taxes. When the fund invests in
these obligations, its tax-equivalent yields will be lower. In the table
above, tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
Total Return Calculations. Total returns quoted in advertising
reflect all aspects of a class's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in a
class'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 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 class'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
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.
In addition to average annual total returns, a class 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 and may be quoted with or
without taking a class's maximum sales charge into account. Excluding a
sales charge from a total return calculation produces a higher total
return figure. 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 NAVs, adjusted NAVs, and
benchmark indices may be used to exhibit performance. An adjusted NAV
includes any distributions paid and reflects all elements of its return.
Unless otherwise indicated, adjusted NAVs are not adjusted for sales
charges, if any.
Moving Averages. A growth or growth and income fund may
illustrate performance using moving averages. A long-term moving average
is the average of each week's adjusted closing NAV for a specified period.
A short-term moving average is the average of each day's adjusted closing
144
<PAGE>
NAV for a specified period. Moving Average Activity Indicators combine
adjusted closing NAVs from the last business day of each week with moving
averages for a specified period to produce indicators showing when a NAV
has crossed, stayed above, or stayed below its moving average.
The 13-week and 39-week long-term moving averages are shown
below:*
<TABLE>
<CAPTION>
Fund As of 13-Week 39-Week
---- ----- ------- -------
<S> <C> <C> <C>
Overseas - Class A
Overseas - Class B
Overseas - Institutional
Equity Growth - Class A
Equity Growth - Institutional
Global Resources - Class A
Global Resources - Class B
Global Resources - Institutional
Growth Opportunities - Class A
Growth Opportunities - Institutional
Strategic Opportunities - Class A
Strategic Opportunities - Class B
Strategic Opportunities - Institutional
Equity Income - Class A
Equity Income - Class B
Equity Income - Institutional
Income & Growth - Class A
145
<PAGE>
Fund As of 13-Week 39-Week
---- ----- ------- -------
<S> <C> <C> <C>
Income & Growth - Institutional
</TABLE>
* Moving averages are shown for those classes that had commenced
operations prior to February 26, 1996 (the date of this SAI).
The following tables and charts show performance for each class
of shares of each fund, and reflect the following information. All
historical load-adjusted performance figures do not reflect the applicable
sales load and 12b-1 fee reductions for certain classes of shares and
would have been higher if these reductions had been reflected in these
performance figures. Class A shares have a maximum front-end sales charge
of 3.50% for Overseas, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Mid Cap, Large Cap, Equity Income,
and Income & Growth (the Equity Funds); 3.50% for Emerging Markets Income,
High Yield, Strategic Income, Government Investment, New York Municipal
Income, California Municipal Income, and High Income Municipal (the Bond
Funds); 2.75% for Intermediate Bond and Intermediate Municipal Income (the
Intermediate-Term Bond Funds); and 1.50% for Short Fixed-Income and Short-
Intermediate Municipal Income (the Short-Term Bond Funds). Class B shares
have contingent deferred sales charges (CDSC) upon redemption: maximum
CDSC is 4.00% for all funds except the Intermediate-Term Bond Funds, which
have a maximum CDSC of 3.00%.
Institutional Class Charts. Institutional Class shares are sold
to eligible investors without a sales charge or a 12b-1 fee. The initial
offering of Institutional Class shares for all funds except Equity Growth,
Equity Income, Intermediate Bond and Intermediate Municipal Income was
July 3, 1995. The initial offering of Institutional Class shares for New
York Municipal Income was August 21, 1995, and for California Municipal
Income, Mid Cap, and Large Cap was February 26, 1996.
Class A Charts. Class A shares are sold to eligible investors
with a maximum front-end sales charge of 3.50% (the Equity Funds and the
Bond Funds), 2.75% (the Intermediate-Term Bond Funds) or 1.50% (the Short-
Term Bond Funds). The applicable sales charge is reflected in the figures
set forth in the charts below. Class A shares are also subject to a 12b-1
fee of 0.50% (the Equity Funds), 0.25% (the Bond Funds and the
Intermediate-Term Bond Funds), or 0.15% (the Short-Term Bond Funds). The
initial offering of Class A shares for Equity Growth, Equity Income,
Intermediate Municipal Income, and Intermediate Bond was September 10,
1992. The initial offering of Class A shares for New York Municipal
146
<PAGE>
Income was August 21, 1995, and for Mid Cap, Large Cap, and California
Municipal Income was February 26, 1996.
Class B Charts. Class B shares are sold to eligible investors
with a 12b-1 fee of 0.75% (the Equity Funds) or 0.65% (the Bond Funds and
the Intermediate-Term Bond Funds), and may be subject to a CDSC upon
redemption. The maximum CDSC is 4.00% for the Equity Funds and the Bond
Funds, and 3.00% for the Intermediate-Term Bond Funds. Class B shares are
also subject to a 0.25% shareholder services fee. For all funds except
Overseas, Global Resources, New York Municipal Income, California
Municipal Income, Mid Cap, and Large Cap the initial offering date of
Class B shares was June 30, 1994. The initial offering of Class B shares
for Overseas and Global Resources was July 3, 1995; for New York
Municipal Income was August 21, 1995; and for California Municipal Income,
Mid Cap, and Large Cap was February 26, 1996.
Historical Bond Fund Results. The following tables show yields,
tax-equivalent yields (for municipal funds), and total returns for each
class of each bond fund for the fiscal year ended 1995 for those bond
funds that had commenced operations as of February 26, 1996, the date of
this SAI. The tax-equivalent yield is based on a 31% federal income tax
rate. Note that each municipal fund may invest in securities whose income
is subject to the federal alternative minimum tax.
<TABLE>
<CAPTION>
Fiscal Period Ended Average Annual Total Returns1 Cumulative Total Returns2
------------------- ----------------------------- -------------------------
Tax- Ten Years/ Ten Years/
10/31 - * Equivalent One Five Life of One Five Life of
11/30 - ** Yield3 Yield Year Years Fund+ Year Years Fund+
12/31 - *** ------ ---------- ---- ----- -------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets Income-Class A*** N/A N/A N/A N/A N/A N/A %
Emerging Markets Income-Class B*** N/A N/A N/A N/A N/A N/A
Emerging Markets Income- Institutional N/A N/A N/A N/A N/A N/A
Class***
High Yield-Class A* N/A
High Yield-Class B* N/A
High Yield-Institutional Class* N/A
Strategic Income-Class A N/A N/A N/A N/A N/A N/A
Strategic Income-Class B N/A N/A N/A N/A N/A N/A
Strategic Income-Institutional Class N/A N/A N/A N/A N/A N/A
Government Investment-Class A* N/A
Government Investment-Class B* N/A
Government Investment Institutional N/A
Class*
147
<PAGE>
Fiscal Period Ended Average Annual Total Returns1 Cumulative Total Returns2
------------------- ----------------------------- -------------------------
Tax- Ten Years/ Ten Years/
10/31 - * Equivalent One Five Life of One Five Life of
11/30 - ** Yield3 Yield Year Years Fund+ Year Years Fund+
12/31 - *** ------ ---------- ---- ----- -------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate Bond-Class A** N/A
Intermediate Bond-Class B** N/A
Intermediate Bond-Institutional N/A
Class**
Short Fixed Income-Class A* N/A
Short Fixed Income-Institutional N/A
Class*
High Income Municipal-Class A*
High Income Municipal-Class B*
High Income Municipal-Institutional N/A
Class*
Intermediate Municipal Income-Class
A**
Intermediate Municipal Income-Class
B**
Intermediate Municipal Income-
Institutional Class**
Short Intermediate Municipal N/A N/A N/A N/A N/A
Income-Class A**
Short Intermediate Municipal N/A N/A N/A N/A N/A N/A
Income-Institutional Class**
New York Municipal Income-Class A
New York Municipal Income-Class B
New York Municipal Income-
Institutional
</TABLE>
+Life of fund figures are from commencement of operations (March 10, 1994
for Emerging Markets Income; January 5, 1987 for High Yield; October 31,
1994 for Strategic Income; January 7, 1987 for Government Investment;
September 16, 1987 for Short Fixed-Income and High Income Municipal; March
16, 1994 for Short-Intermediate Municipal Income; and August 21, 1995 for
New York Municipal Income) through the 1995 fiscal year end.
1
2
148
<PAGE>
3
Note: If FMR had not reimbursed certain fund expenses during
certain of these periods, the yields and total returns for those periods
for Emerging Markets Income, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
Intermediate Municipal Income, and Short-Intermediate Municipal Income
would have been lower. The table below shows what the funds' yields and
tax-equivalent yields (if applicable) would have been if the funds had not
been in reimbursement.
<TABLE>
<CAPTION
Class A Class B Institutional Class
Tax- Tax- Tax-
Equivalent Equivalent Equivalent
Fund Yield Yield Yield Yield Yield Yield
---- ---- -------- ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets n/a
Income n/a n/a n/a
Strategic Income n/a n/a n/a n/a
Intermediate Bond n/a
n/a n/a n/a
Government n/a
Investment n/a n/a n/a
Intermediate
Municipal Income
Short-
Intermediate
Municipal Income
</TABLE>
149
<PAGE>
Historical Equity Fund Results. The following table shows the
total returns for 1995 fiscal periods ended as indicated, for those
classes that had commenced operations as of February 26, 1996, the date of
this SAI.
<TABLE>
<CAPTION>
Average Annual Total Return 1/ Cumulative Total Returns2/
---------------------------- --------------------------
Ten
Fiscal Years/ Ten Years/
Period One Five Life of One Five Life of
Ended Year Years Fund+ Year Years Fund+
-------- ---- ----- ------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Overseas - Class A 10/31
Overseas - Class B
Overseas - Institutional Class
Equity Growth - Class A 11/30
Equity Growth -
Institutional Class
Global Resources - Class A 10/31
Global Resources - Class B
Global Resources -
Institutional Class
Growth Opportunities - Class A 10/31
Global Opportunities -
Institutional Class
Strategic Opportunities - Class A 12/31
Strategic Opportunities - Class B
Strategic Opportunities -
Institutional Class
Equity Income - Class A 11/30
Equity Income - Class B
Equity Income -
Institutional Class
Income & Growth - Class A 10/31
Income & Growth -
Institutional Class
</TABLE>
+ Life of fund figures are from commencement of operations (April
23, 1990 for Overseas; December 29, 1987 for Global Resources; November
18, 1987 for Growth Opportunities; and January 6, 1987 for Income &
Growth) through the 1995 fiscal year end.
1
150
<PAGE>
2
Note: If FMR had not reimbursed certain fund expenses during certain of
these periods, the total returns for those periods for Overseas, Global
Resources, Equity Income, and Growth Opportunities would have been lower.
The following charts show the growth of a hypothetical $10,000
investment in each class, assuming all distributions were reinvested. This
was a period of fluctuating interest rates, bond prices, and stock prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the class today. Tax consequences of different investments
have not been factored into the figures.
Institutional Charts. The figures for Institutional Class shares
of each fund except Equity Growth, Equity Income, and Intermediate
Municipal Income reflect the performance of Class A shares from the fund's
commencement of operations, including the applicable Class A 12b-1 fee but
not the front-end sales charge. The figures would have been higher if the
Class A 12b-1 fee were not included.
Class A Charts. The figures for Class A shares after September
10, 1992 reflect Class A's maximum front-end sales charge of 3.50% (the
Equity Funds and the Bond Funds), 2.75% (the Intermediate-Term Bond Funds)
or 1.50% (the Short-Term Bond Funds) and the applicable Class A 12b-1 fee.
Prior to September 10, 1992, the figures for Equity Growth, Equity Income,
Intermediate Municipal Income, and Intermediate Bond reflect Institutional
Class performance (i.e., no sales charge or 12b-1 fee), and the figures
for Strategic Opportunities reflect Initial Class performance (i.e., a
3.50% front-end sales charge and no 12b-1 fee).
Class B Charts. The figures for Class B shares of all funds
except Overseas and Global Resources prior to June 30, 1994, and for
Overseas and Global Resources prior to June 30, 1995, reflect the
performance of Class A shares of each fund, including the applicable Class
A 12b-1 fee but not the Class A front-end charge. The figures would have
been lower if Class B's higher 12b-1 fees had been included.
Domestic Fund Returns. The following tables show the income and
capital elements of the cumulative total return for each class of each
fund. The table compares each class's return to the record of the S&P 500,
the Dow Jones Industrial Average (DJIA), and the cost of living (measured
151
<PAGE>
by the Consumer Price Index, or CPI) over the same period. The CPI
information is as of the month-end closest to the initial investment date
for each fund. The S&P 500 and DJIA comparisons are provided to show how
each class's total return compared to the record of a broad average of
common stocks and a narrower set of stocks of major industrial companies,
respectively, over the same period. Of course, since bond funds invest in
fixed-income securities, common stocks represent a different type of
investment from those funds. Common stocks generally offer greater growth
potential than bonds, 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
bond funds. Each fund has the ability to invest in securities not included
in either index, and its investment portfolio may or may not be similar in
composition to the indices. Figures for the S&P 500 and DJIA are based on
the prices of unmanaged groups of stocks and, unlike the classes' returns,
do not include the effect of paying brokerage commissions or other costs
of investing.
<TABLE>
<CAPTION>
EQUITY GROWTH - CLASS A INDICES
---------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
152
<PAGE>
EQUITY GROWTH - INDICES
INSTITUTIONAL CLASS -------
-------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
GLOBAL RESOURCES - CLASS A INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- -------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From December 29, 1987 (commencement of operations).
**From month-end closest to initial investment date.
153
<PAGE>
GLOBAL RESOURCES - CLASS B INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C>` <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From December 29, 1987 (commencement of operations).
**From month-end closest to initial investment date.
GLOBAL RESOURCES - INSTITUTIONAL CLASS INDICES
--------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From December 29, 1987 (commencement of operations).
**From month-end closest to initial investment date.
154
<PAGE>
GROWTH OPPORTUNITIES - CLASS A INDICES
------------------------------ -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From November 18, 1987 (commencement of operations).
**From month-end closest to initial investment date.
GROWTH OPPORTUNITIES - INSTITUTIONAL CLASS INDICES
------------------------------------------ -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From November 18, 1987 (commencement of operations).
**From month-end closest to initial investment date.
155
<PAGE>
STRATEGIC OPPORTUNITIES - CLASS A INDICES
--------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
STRATEGIC OPPORTUNITIES - CLASS B INDICES
--------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living*
-------------- ---------- ------------- ------------- ------ --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
156
<PAGE>
STRATEGIC OPPORTUNITIES - INSTITUTIONAL CLASS INDICES
---------------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
EQUITY INCOME - CLASS A INDICES
----------------------- --------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
157
<PAGE>
EQUITY INCOME - CLASS B INDICES
----------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
* From month-end closest to initial investment date.
EQUITY INCOME - INSTITUTIONAL CLASS INDICES
----------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
* From month-end closest to initial investment date.
158
<PAGE>
INCOME & GROWTH - CLASS A INDICES
------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 6, 1987 (commencement of operations).
**From month-end closest to initial investment date.
INCOME & GROWTH - INSTITUTIONAL CLASS INDICES
-------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 6, 1987 (commencement of operations).
**From month-end closest to initial investment date.
159
<PAGE>
HIGH YIELD - CLASS A INDICES
--------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 5, 1987 (commencement of operations).
**From month-closest to initial investment date.
HIGH YIELD - CLASS B INDICES
--------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 5, 1987 (commencement of operations).
**From month-end closest to initial investment date.
160
<PAGE>
HIGH YIELD - INSTITUTIONAL CLASS INDICES
-------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
-------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 5, 1987 (commencement of operations).
**From month-end closest to initial investment date.
STRATEGIC INCOME - CLASS A INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
*From October 31, 1994 (commencement of operations).
**From month-closest to initial investment date.
STRATEGIC INCOME - CLASS B INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
161
<PAGE>
*From October 31, 1994 (commencement of operations).
**From month-end closest to initial investment date.
STRATEGIC INCOME - INSTITUTIONAL CLASS INDICES
-------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
*From October 31, 1994 (commencement of operations).
**From month-end closest to initial investment date.
GOVERNMENT INVESTMENT - CLASS A INDICES
------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 7, 1987 (commencement of operations).
**From month-end closest to initial investment date.
162
<PAGE>
GOVERNMENT INVESTMENT - CLASS B INDICES
------------------------------- --------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 7, 1987 (commencement of operations).
**From month-end closest to initial investment date.
GOVERNMENT INVESTMENT - INSTITUTIONAL CLASS INDICES
------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 7, 1987 (commencement of operations).
**From month-end closest to initial investment date.
163
<PAGE>
INTERMEDIATE BOND - CLASS A INDICES
--------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
INTERMEDIATE BOND - CLASS B INDICES
--------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
164
<PAGE>
INTERMEDIATE BOND - INSTITUTIONAL CLASS INDICES
--------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
* From month-end closest to initial investment date.
SHORT FIXED-INCOME - CLASS A INDICES
---------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
165
<PAGE>
SHORT FIXED-INCOME - INSTITUTIONAL CLASS INDICES
---------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
HIGH INCOME MUNICIPAL - CLASS A INDICES
------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------ ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
166
<PAGE>
HIGH INCOME MUNICIPAL - CLASS B INDICES
------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From September 16, 1987 (commencement of operations).
**From month-end closest to initial investment date.
HIGH INCOME MUNICIPAL - INSTITUTIONAL CLASS INDICES
------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
167
<PAGE>
INTERMEDIATE MUNICIPAL INCOME - CLASS A INDICES
--------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
INTERMEDIATE MUNICIPAL INCOME - CLASS B INDICES
--------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
168
<PAGE>
INTERMEDIATE MUNICIPAL INCOME-INSTITUTIONAL CLASS INDICES
-------------------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
SHORT-INTERMEDIATE MUNICIPAL INCOME - CLASS A INDICES
--------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 16, 1994 (commencement of operations).
** From month-end closest to initial investment date.
169
<PAGE>
SHORT-INTERMEDIATE MUNICIPAL INCOME -
INSTITUTIONAL CLASS INDICES
------------------------------------- --------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 16, 1994 (commencement of operations).
** From month-end closest to initial investment date.
NEW YORK MUNICIPAL INCOME - CLASS A INDICES
----------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995*
* From August 21, 1995 (commencement of operations).
** From month-end closest to initial investment date.
NEW YORK MUNICIPAL INCOME - CLASS B INDICES
----------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- -------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995*
* From August 21, 1995 (commencement of operations).
** From month-end closest to initial investment date.
170
<PAGE>
NEW YORK MUNICIPAL INCOME - INSTITUTIONAL CLASS INDICES
----------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995*
* From August 21, 1995 (commencement of operations).
** From month-end closest to initial investment date.
</TABLE>
The yield for the S&P 500 for the year ended December 31, 1995
was ____%, calculated by dividing the dollar value of dividends paid by
the S&P 500 stocks during the period by the average value of the S&P 500
on December 31, 1995. The S&P 500 yield is calculated differently from
each class's yield. For example, a class's yield calculation treats
dividends as accrued in anticipation of payment, rather than recording
them when paid.
International Fund Returns. The following tables show the income
and capital elements of the total return for each class of Overseas and
Emerging Markets Income from the date each fund commenced operations
through the fiscal year ended 1995. The classes may compare their total
returns to the record of the following Morgan Stanley Capital
International indices: the World Index; EAFE Index; the Europe Index; the
Pacific Index, the Combined Far East ex-Japan Free Index; and the Latin
America Free Index. The EAFE Index combines the Europe and Pacific
indices. The addition of Canada, the United States, and South African Gold
Mines to the EAFE index compiles the World Index which includes over 1400
companies. The Europe Index and Pacific Index are subsets of the Morgan
Stanley Capital International World Index, which is also published by
Morgan Stanley Capital International, S.A. The Europe and Pacific Indices
are weighted by the market value of each country's stock exchange(s). The
companies included in the indices change only in the event of mergers,
takeovers, failures and the like, and minor adjustments may be made when
Morgan Stanley Capital International, S.A. reviews the companies covered
as to suitability every three or four years.
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<PAGE>
<TABLE>
<CAPTION>
Fund Comparative Index Description of Index
---- ----------------- --------------------
<S> <C> <C>
Overseas Morgan Stanley Capital International An unmanaged index of 900 foreign common stocks
Europe, Australia, Far East Index
(EAFE)
Emerging Markets J.P. Morgan Emerging An unmanaged index of fixed income securities
Income Market Bond Index from developing nations
</TABLE>
Each table below compares the returns for each class of Overseas
and Emerging Markets Income to the record of the S&P 500, the DJIA, a
foreign stock market index as described above, and the cost of living
(measured by the CPI) over the same period. The CPI information is as of
the month-end closest to the initial investment date for each fund. The
S&P 500 and DJIA comparisons are provided to show how each class's total
return compared to the record of a broad range of U.S. common stocks and a
narrower set of stocks of major U.S. industrial companies, respectively,
over the same period. The funds have the ability to invest in securities
not included in the indices, and their investment portfolios may or may
not be similar in composition to the indices. The EAFE Index, Emerging
Market Bond Index, S&P 500, and DJIA are based on the prices of unmanaged
groups of stocks and, unlike each class's returns, their returns do not
include the effect of paying brokerage commissions and other costs of
investing.
The following charts show the growth of a hypothetical $10,000
investment in each class, assuming all distributions were reinvested. This
was a period of fluctuating interest rates, bond prices, and stock prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in a class today. Tax consequences of different investments
have not been factored into the figures.
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<PAGE>
<TABLE>
<CAPTION>
OVERSEAS-CLASS A INDICES
---------------- -------
Value of Value of Reinvested
Period Initial Reinvested Capital Cost
Ended $10,000 Dividend Gain Total EAFE S&P of
Oct. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
-------- ---------- ------------- ------------- ----- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990*
1991
1992
1993
1994
1995
* From April 23, 1990 (commencement of operations).
** From month-end closest to initial investment date.
OVERSEAS-CLASS B INDICES
---------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period Ended $10,000 Dividend Capital Gain Total EAFE S&P of
Oct. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------------ ---------- ------------- ------------- ----- ------ --- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990*
1991
1992
1993
1994
1995
* From April 23, 1990 (commencement of operations).
** From month-end closest to initial investment date.
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<PAGE>
OVERSEAS-INSTITUTIONAL CLASS INDICES
---------------------------- -------
Value of Value of Reinvested
Initial Reinvested Capital Cost
Period Ended $10,000 Dividend Gain Total EAFE S&P of
Oct. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------------ ---------- ------------- ------------- ----- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990*
1991
1992
1993
1994
1995
* From April 23, 1990 (commencement of operations).
** From month-end closest to initial investment date.
EMERGING MARKETS INCOME-CLASS A INDICES
------------------------------- -------
J.P.
Value of Value of Reinvested Morgan
Initial Reinvested Capital Emerging Cost
Period Ended $10,000 Dividend Gain Total Market Bond S&P of
Dec. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------------ ---------- ------------- ------------- ----- ------------ --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 10, 1994 (commencement of operations).
** From month-end closest to initial investment date.
EMERGING MARKETS INCOME-CLASS B INDICES
------------------------------- -------
Value of Value of Reinvested
Period Initial Reinvested Capital J.P. Morgan Cost
Ended $10,000 Dividend Gain Total Emerging Market S&P of
Dec. 31 Investment Distributions Distributions Value Bond Index 500 DJIA Living**
------- ---------- ------------- ------------- ----- --------------- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994* $9,068 $457 $235
1995 _____ _____ _____
* From March 10, 1994 (commencement of operations).
** From month-end closest to initial investment date.
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<PAGE>
EMERGING MARKETS
INCOME-INSTITUTIONAL CLASS INDICES
-------------------------- -------
Value of Value of Reinvested J.P.
Period Initial Reinvested Capital Morgan Emerging
Ended $10,000 Dividend Gain Total Market Bond S&P Cost of
Dec. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------- ---------- ------------- ------------- ----- --------------- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 10, 1994 (commencement of operations).
** From month-end closest to initial investment date.
</TABLE>
The following table reflects the cost of the initial $10,000
investment in each of the classes, together with the aggregate cost of
reinvested dividends and capital gain distributions, if any, for life of
the fund or the last ten years ended 1995 (their cash value at the time
they were reinvested). If distributions had not been reinvested, the
amount of distributions earned from the applicable class over time would
have been smaller, and cash payments from these classes for the periods
noted would have amounted to the amounts shown in column (A) for capital
gain distributions, and the amounts shown in column (B) for income
dividends. Tax consequences of different investments (with the exception
of foreign tax withholdings) have not been factored into the figures
below.
<TABLE>
<CAPTION>
(A) (B)
Capital Gain Income
Fund Cost Distributions Dividends
---- ---- ------------- ---------
<S> <C> <C> <C>
Overseas-A $ $ $
Equity Growth-A
Equity Growth-Institutional
Global Resources-A
Growth Opportunities-A
Strategic Opportunities-A
Strategic Opportunities-B
Equity Income-A
Equity Income-B
Equity Income-Institutional
Income & Growth-A
Emerging Markets Income-A
175
<PAGE>
(A) (B)
Capital Gain Income
Fund Cost Distributions Dividends
---- ---- ------------- ---------
<S> <C> <C> <C>
Emerging Markets Income-B
High Yield-A
High Yield-B
Strategic Income-A
Strategic Income-B
Government Investment-A
Government Investment-B
Intermediate Bond-A
Intermediate Bond-B
Intermediate Bond-Institutional
Short Fixed-Income-A
High Income Municipal-A
High Income Municipal-B
Intermediate Municipal Income-A
Intermediate Municipal Income-B
Intermediate Municipal
Income-Institutional
Short-Intermediate Municipal Income-
Institutional
Short-Intermediate Municipal Income-A
New York Municipal Income - A
New York Municipal Income - B
New York Municipal Income - Institutional
</TABLE>
International Indices, Market Capitalization, and National Stock
Market Return. The following tables show the indexed market capitalization
of certain countries included in the Morgan Stanley Capital International
Indices (MSCI) database as of December 31, 1995 and the performance of
national stock markets as measured in U.S. dollars and in local currency
by the MSCI stock market indices for the twelve months ended October 31,
1995. Of course, these results are not indicative of future stock market
performance or the classes' 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 United States now
make up nearly two-thirds of the world's stock market capitalization.
According to MSCI, the size of the markets as measured in U.S. dollars
grew from $2,011 billion in 1982 to $_____ billion in 1995. The following
table measures the indexed market capitalization of certain countries
according to the MSCI database. The value of the markets is measured in
billions of U.S. dollars as of December 31, 1995.
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<PAGE>
MSCI INDEX 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
certain Latin American countries according to the MSCI Index database. The
value of the markets is measured in billions of U.S. dollars as of
December 31, 1995.
MSCI Index 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, 1995. 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.
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<PAGE>
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 as
of October 31, 1995.
Stock Market Performance Measured in U.S. Dollars
Five Years Ended Ten Years Ended
--------------- ---------------
Germany
Hong Kong
Japan
Spain
United Kingdom
United States
Performance Comparisons. 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. Lipper generally ranks funds on
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<PAGE>
the basis of total return, assuming reinvestment of distributions, but
does not take sales charges or redemption fees into consideration, and is
prepared without regard to tax consequences. Lipper may also rank bond
funds based on yield. In addition to mutual fund rankings, 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, performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a class 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.
A class 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, a fund may offer greater liquidity or higher
potential returns than CDs, a 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.
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<PAGE>
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 classes. Performance comparisons may also be made to other
compilations or indices that may be developed and made available in the
future.
Each class of a fixed-income fund may compare its performance or
the performance of securities in which that fixed-income fund may invest
to averages published by IBC USA (Publications), Inc. of Ashland,
Massachusetts. These averages assume reinvestment of distributions. The
Bond Fund Report AveragesTM/All Taxable (Emerging Markets Income,
Strategic Income, Government Investment, Intermediate Bond, High Yield,
Short-Fixed Income) covers over ___ taxable bond funds, The Bond Fund
Report AveragesTM/Municipal (Intermediate Municipal Income, High Income
Municipal, California Municipal Income, New York Municipal Income,
California Municipal Income, and Short-Intermediate Municipal Income)
covers over ___ tax-exempt bond funds. The averages are reported in the
BOND FUND REPORT . Each class of a fixed-income fund may also compare its
performance or the performance of securities in which it may invest to the
IBC/Donohgue's Money Fund Averages, reported in the MONEY FUND REPORT ,
which covers over _____ money market funds. When evaluating comparisons to
money market funds, investors should consider the relevant differences in
investment objectives and policies. Specifically, money market funds
invest in short-term, high-quality instruments and seek to maintain a
stable $1.00 share price. A bond fund, however, invests in longer-term
instruments and its share price changes daily in response to a variety of
factors.
A municipal fund may compare and contrast in advertising the
relative advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal mutual funds, individual municipal bonds
offer a stated rate of interest and, if held to maturity, repayment of
principal. Although some individual municipal bonds might offer a higher
return, they do not offer the reduced risk of a mutual fund that invests
in many different securities. The initial investment requirements and
sales charges of many municipal mutual funds are lower than the purchase
cost of individual municipal bonds, which are generally issued in $5,000
denominations and are subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include: other Fidelity funds; retirement
investing; model portfolios or allocations; and saving for college or
other goals. In addition, Fidelity may quote or reprint financial or
business publications or periodicals as they relate to current economic
and political conditions, fund management, portfolio composition,
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<PAGE>
investment philosophy, investment techniques, the desirability of owning a
particular mutual fund, and Fidelity services and products.
Each fund may be advertised as part of certain asset allocation
programs involving other Fidelity or non-Fidelity mutual funds. These
asset allocation programs may advertise a model portfolio and its
performance results.
Each fund may be advertised as part of a no transaction fee (NTF)
program in which Fidelity and non-Fidelity mutual funds are offered. An
NTF program may advertise performance results.
Each fund may present its fund number, Quotron number and CUSIP
number, and discuss or quote its current portfolio manager.
Volatility. Various measures of volatility and benchmark
correlation may be quoted in advertising. In addition, a fund may compare
these measures to those of other funds. Measures of volatility seek to
compare a class' 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, a fund
may also discuss or illustrate examples of interest rate sensitivity.
Momentum Indicators indicate a class's price movements over
specific periods of time. Each point on the momentum indicator represents
the class's percentage change in price movements over that period.
Examples of the effects of periodic investment plans, including
the principle of dollar cost averaging may be advertised. In such a
program, an investor invests a fixed dollar amount in a class 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 willingness to continue purchasing shares during periods of low
price levels.
A 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 December 31, 1995, FMR advised over $__ billion in tax-free
fund assets, $__ billion in money market fund assets, $___ billion in
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<PAGE>
equity fund assets, $__ billion in international fund assets, and $__
billion in Spartan fund assets . The funds 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, each class of each bond fund
may compare its total expense ratio to the average total expense ratio of
similar funds tracked by Lipper. A class's total expense ratio is a
significant factor in comparing bond and money market investments because
of its effect on yield.
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION
---------------------------------------------------------
Class A Shares Only
Pursuant to Rule 22d-1 under the 1940 Act, FDC exercises its
right to waive Class A's maximum 3.50% (the Equity Funds and the Bond
Funds); 2.75% (the Intermediate-Term Bond Funds); or 1.50% (the Short-Term
Bond Funds) front-end sales charge in connection with the fund's merger
with or acquisition of any investment company or trust. In addition, FDC
has chosen to waive Class A's front-end sales charge in certain instances
because of efficiencies involved in those sales of shares. The sales
charge will not apply:
1. to shares purchased by a bank trust officer, registered
representative, or other employee (and their immediate families) of
investment professionals under special arrangements in connection with
FDC's sales activities;
2. to shares purchased by a current or former Trustee or
officer of a Fidelity fund or a current or retired officer, director, or
regular employee of FMR Corp. or its direct or indirect subsidiaries (a
Fidelity Trustee or employee), the spouse of a Fidelity Trustee or
employee, a Fidelity Trustee or employee acting as custodian for a minor
child, or a person acting as trustee of a trust for the sole benefit of
the minor child of a Fidelity Trustee or employee;
3. to shares purchased by a charitable organization (as
defined in Section 501(c)(3) of the Internal Revenue Code) investing
$100,000 or more;
4. to shares purchased for a charitable remainder trust or
life income pool established for the benefit of a charitable organization
(as defined by Section 501(c)(3) of the Internal Revenue Code);
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<PAGE>
5. to shares in a Fidelity IRA or Fidelity Advisor IRA
account purchased (including purchases by exchange) with the proceeds of a
distribution from an employee benefit plan having more than 200 eligible
employees or a minimum of $3,000,000 in plan assets invested in Fidelity
mutual funds or $1,000,000 invested in Fidelity Advisor mutual funds;
6. to shares purchased by an insurance company separate
account used to fund annuity contracts purchased by employee benefit plans
(including 403(b) programs, but otherwise as defined in ERISA)), which, in
the aggregate, have either more than 200 eligible employees or a minimum
of $1,000,000 in assets invested in Fidelity funds;
7. to shares purchased by any state, county, city, or
Government instrumentality, department or authority or agency;
8. to shares purchased with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end or
contingent deferred sales charge;
9. to shares purchased by a trust institution or bank trust
department, excluding assets described in (11) and (12) below, that has
executed a Participation Agreement with FDC specifying certain asset
minimums and qualifications, and marketing program restrictions. Assets
managed by third parties do not qualify for this waiver.
10. to shares purchased for use in a broker-dealer managed
account program, provided the broker-dealer has executed a participation
agreement with FDC specifying certain asset minimums and qualifications,
and marketing, program and trading restrictions. Employee benefit plan
assets do not qualify for this waiver.
11. to shares purchased as part of an employee benefit plan
having more than (i) 200 eligible employees or a minimum of $1 million in
plan assets invested in the Advisor funds, or (ii) 25 eligible employees
or $250,000 in plan assets invested in Fidelity Advisor Funds that
subscribes to Fidelity Advisor Retirement Connection or similar program
sponsored by Fidelity Investments Institutional Services Company, Inc.
12. to shares purchased as part of an employee benefit plan
through an intermediary that has signed a participation agreement with FDC
specifying certain asset minimums and qualifications, and marketing,
program and trading restrictions.
13. to shares purchased on a discretionary basis by a
registered investment adviser which is not part of an organization
primarily engaged in the brokerage business, that has executed a
participation agreement with FDC specifying certain asset minimums and
qualifications, and marketing, program and trading restrictions. Employee
benefit plan assets do not qualify for this waiver.
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<PAGE>
In order to qualify for waivers (9), (10) and (13), eligible
investors with existing Class A accounts will be required to sign and
comply with a participation agreement. Eligible investors that do not meet
revised asset requirements specified in the participation agreement will
be allowed to continue investing in Class A shares under the terms of
their current relationship until June 30, 1997, after which they will be
prevented from making new or subsequent purchases in Class A load waived,
except that employee benefit plans will be permitted to make additional
purchases of Class A shares load waived.
A sales load waiver form must accompany these transactions.
CLASS B SHARES ONLY
The contingent deferred sales charge (CDSC) on Class B shares may
be waived in the case of (1) disability or death, provided that the
redemption is made within one year following the death or initial
determination of disability; or (2) in connection with a total or partial
redemption made in connection with distributions from retirement plan
accounts at age 70-1/2, which are permitted without penalty pursuant to
the Internal Revenue Code.
A sales load waiver form must accompany these transactions.
CLASS A AND CLASS B SHARES ONLY
Quantity Discounts. To obtain a reduction of the front-end sales
charge on Class A shares, you or your investment professional must notify
the transfer agent at the time of purchase whenever a quantity discount is
applicable to your purchase. Upon such notification, you will receive the
lowest applicable front-end sales charge.
For purposes of qualifying for a reduction in front-end sales
charges under the Combined Purchase, Rights of Accumulation or Letter of
Intent programs, the following may qualify as an individual or a "company"
as defined in Section 2(a)(8) of the 1940 Act: an individual, spouse, and
their children under age 21 purchasing for his, her, or their own account;
a trustee, administrator or other fiduciary purchasing for a single trust
estate or a single fiduciary account or for a single or a
parent-subsidiary group of "employee benefits plans" (as defined in
Section 3(3) of ERISA); and tax-exempt organizations as defined under
Section 501(c)(3) of the Internal Revenue Code.
Rights of Accumulation permit reduced front-end sales charges on
any future purchases of Class A shares after you have reached a new
breakpoint in a fund's sales charge schedule. The value of currently held
Fidelity Advisor Fund Class A and Class B shares, Initial Class shares and
Class B shares of Daily Money Fund: U.S. Treasury Portfolio, and shares of
Daily Money Fund: Money Market Portfolio and Daily Tax-Exempt Money Fund
acquired by exchange from any Fidelity Advisor fund, is determined at the
current day's NAV at the close of business, and is added to the amount of
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<PAGE>
your new purchase valued at the current offering price to determine your
reduced front-end sales charge.
Letter of Intent. You may obtain Class A shares at the same
reduced front-end sales charge by filing a non-binding Letter of Intent
(the Letter) within 90 days of the start of Class A purchases. Each Class
A investment you make after signing the Letter will be entitled to the
front-end sales charge applicable to the total investment indicated in the
Letter. For example, a $2,500 purchase of Class A shares toward a $50,000
Letter would receive the same reduced sales charge as if the $50,000
($500,000 for the Short-Term Bond Funds) had been invested at one time. To
ensure that the reduced front-end sales charge will be received on future
purchases, you or your investment professional must inform the transfer
agent that the Letter is in effect each time Class A shares are purchased.
Neither income nor capital gain distributions taken in additional Class A
or Class B shares will apply toward the completion of the Letter.
Your initial investment must be at least 5% of the total amount
you plan to invest. Out of the initial purchase, 5% of the dollar amount
specified in the Letter will be registered in your name and held in
escrow. The Class A shares held in escrow cannot be redeemed or exchanged
until the Letter is satisfied or the additional sales charges have been
paid. You will earn income dividends and capital gain distributions on
escrowed Class A shares. The escrow will be released when your purchase of
the total amount has been completed. You are not obligated to complete the
Letter.
If you purchase more than the amount specified in the Letter and
qualify for a future front-end sales charge reduction, the front-end sales
charge will be adjusted to reflect your total purchase at the end of 13
months. Surplus funds will be applied to the purchase of additional Class
A shares at the then-current offering price applicable to the total
purchase.
If you do not complete your purchase under the Letter within the
13-month period, 30 days' written notice will be provided for you to pay
the increased front-end sales charges due. Otherwise, sufficient escrowed
Class A shares will be redeemed to pay such charges.
Fidelity Advisor Systematic Investment Program. You can make
regular investments in Class A or Class B shares of the funds with the
Systematic Investment Program by completing the appropriate section of the
account application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is
jointly owned, be sure that all owners sign.
Your account will be drafted on or about the first business day
of every month. You may cancel your participation in the Systematic
Investment Program at any time without payment of a cancellation fee. You
will receive a confirmation from the transfer agent for every transaction,
and a debit entry will appear on your bank statement.
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<PAGE>
Fidelity Advisor Systematic Withdrawal Program. If you own Class
A shares worth $10,000 or more, you can have monthly, quarterly or
semiannual checks sent from your account to you, to a person named by you,
or to your bank checking account. Your Systematic Withdrawal Program
payments are drawn from Class A share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends earned on your shares,
your account eventually may be exhausted.
Finders Fee. (Class A shares only) Eligible purchases are the
following purchases made through broker-dealers and banks (excluding trust
departments): an individual trade of $1 million or more; a trade which
brings the value of the accumulated account(s) of an investor (including
an employee benefit plan) past $1 million; a trade for an investor with an
accumulated account value of $1 million or more; and an incremental trade
toward an investor's $1 million "Letter of Intent." Shares held by an
insurance company separate account will be aggregated at the client (e.g.
the contract holder or plan sponsor) level, not at the separate account
level. Upon request, any investment professional claiming eligibility for
the 0.25% fee with respect to shares held by an insurance company separate
account must provide FDC access to records detailing purchases at the
client level.
CLASS A, CLASS B, AND INSTITUTIONAL CLASS SHARES
Each fund is open for business and the NAV and, where applicable,
the offering price, for each class is calculated each day the New York
Stock Exchange (NYSE) is open for trading. The NYSE has designated the
following holiday closings for 1996: New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, 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.
FSC normally determines each class'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 SEC.
To the extent that portfolio securities are traded in other markets on
days when the NYSE is closed, a class'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 a 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 a fund's NAV. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes,
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and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each 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, each 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. A portion of each fund's income may qualify for the
dividends-received deduction available to corporate shareholders to the
extent that each fund's income is derived from qualifying dividends. For
any fund that invests significantly in foreign securities, corporate
shareholders should not expect fund dividends to qualify for the
dividends-received deduction. For those funds that may also earn other
types of income, such as interest, income from securities loans,
non-qualifying dividends and short-term capital gains, the percentage of
dividends from the funds that qualify for the deduction will generally be
less than 100%. Each fund will notify corporate shareholders annually of
the percentage of fund dividends which qualifies for the
dividends-received deduction. A portion of each 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 a fund's income distributions to reflect the effect of currency
fluctuations. However, if foreign currency losses exceed a 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
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<PAGE>
cost basis in his or her fund. Short-term capital gains are distributed as
dividend income.
For those funds whose income is primarily derived from interest,
dividends will not qualify for the dividends-received deduction available
to corporate shareholders. Mortgage security paydown gains (losses) are
generally taxable as ordinary income and, therefore, increase (decrease)
taxable dividend distributions. Gains (losses) attributable to foreign
currency fluctuations are generally taxable as ordinary income and
therefore will increase (decrease) dividend distributions.
To the extent that a fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income.
Each fund will send each of its shareholders a notice in January
describing the tax status of dividends and capital gain distributions, if
any, for the prior year.
Shareholders are required to report tax-exempt income on their
federal tax returns. Shareholders who earn other income, such as Social
Security benefits, may be subject to federal income tax on up to 85% of
such benefits to the extent that their income, including tax-exempt
income, exceeds certain base amounts.
Each municipal fund purchases securities that are free of federal
income tax based on opinions of bond counsel regarding their tax status.
These opinions will generally be based on covenants by the issuers or
other parties regarding continuing compliance with federal tax
requirements. If at any time the covenants are not complied with,
distribution to shareholders of interest on a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, opinions of bond counsel may also
be based on the effect of the structure on the federal and state tax
treatment of the income.
As a result of The Tax Reform Act of 1986, interest on certain
"private activity" securities (referred to as "qualified bonds" in the
Internal Revenue Code) is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of Intermediate Municipal Income's,
Short-Intermediate Municipal Income's, and High Income Municipal's
policies of investing so that 80% of each fund's net assets are invested
in securities whose interest is free from federal income tax and New York
Municipal Income's and California Municipal Income's policies of investing
so that 80% of each fund's net assets are invested in securities whose
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<PAGE>
interest is free from federal and state income tax. Interest from private
activity securities is a tax preference item for the purpose of
determining whether a taxpayer is subject to the AMT and the amount of AMT
tax to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount
after April 30, 1993 and short-term capital gains distributed by a fund
are federally taxable to shareholders as dividends, not as capital gains.
Dividend distributions resulting from a recharacterization of gain from
the sale of bonds purchased at a discount after April 30, 1993 are not
considered income for the purposes of Intermediate Municipal Income's,
Short-Intermediate Municipal Income's, and High Income Municipal's
policies of investing so that 80% of each fund's net assets are invested
in securities whose interest is free from federal income tax and New York
Municipal Income's and California Municipal Income's policies of investing
so that 80% of each fund's net assets are invested in securities whose
interest is free from federal and state income tax.
Corporate investors should note that a tax preference item for
purposes of the corporate AMT is 75% of the amount by which adjusted
current earnings (which include tax-exempt interest) exceed the
alternative minimum taxable income of the corporation. If a shareholder
receives an exempt interest dividend and sells shares at a loss after
holding them for a period of six months or less, the loss will be
disallowed to the extent of the amount of the exempt-interest dividend.
New York Tax Matters. [To be updated.] It is not expected that
New York Municipal Income will incur New York income or franchise tax
liability. In addition, New York personal income tax law also provides
that exempt-interest dividends paid by a regulated investment company, or
series thereof, from interest on obligations which are exempt from tax
under New York law are excludable from gross income.
California Tax Matters. [To be updated.] As long as California
Municipal Income continues to qualify as a regulated investment company
under the federal Internal Revenue Code, it will incur no California
income or franchise tax liability on income and capital gains distributed
to shareholders. California personal income tax law provides that
exempt-interest dividends paid by a regulated investment company, or
series thereof, from interest on obligations that are exempt from
California personal income tax are excludable from gross income. For a
fund to qualify to pay exempt-interest dividends under California law, at
least 50% of the value of its assets must consist of such obligations at
the close of each quarter of its fiscal year. For purposes of California
personal income taxation, distributions to individual shareholders derived
from interest on other types of obligations and short-term capital gains
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<PAGE>
will be taxed as dividends, and long-term capital gain distributions will
be taxed as long-term capital gains. California has an alternative minimum
tax similar to the federal AMT described above. However, the California
AMT does not include interest from private activity municipal obligations
as an item of tax preference. Interest on indebtedness incurred or
continued by a shareholder in connection with the purchase of shares of a
fund will not be deductible for California personal income tax purposes.
Capital Gain Distributions. Long-term capital gains earned by
each 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
long-term capital gain distribution on shares of a 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 long-term capital gain distribution will
be considered a long-term loss for tax purposes. Short-term capital gains
distributed by each fund are taxable to shareholders as dividends, not as
capital gains.
As of December 31, 1995, Strategic Opportunities had a capital
loss carryforward aggregating approximately $_______. This loss
carryforward, of which $_______ will expire on December 31, ____, is
available to offset future capital gains.
As of October 31, 1995, Income & Growth had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $________ will expire on October 31, ____, is available to offset
future capital gains.
As of October 31, 1995, High Yield had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $________ will expire on October 31, ____, is available to offset
future capital gains.
As of October 31, 1995, Government Investment had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $_______ will expire on October 31, ____, is available to offset
future capital gains.
As of November 30, 1995, Intermediate Bond had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $_____, $_____, and $_____ will expire on November 30, ____,
____, and ____, respectively, is available to offset future capital gains.
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<PAGE>
As of October 31, 1995, Short Fixed-Income had a capital loss
carryforward aggregating approximately $________ $________. This loss
carryforward, of which $_____, $_____, $_____, $_____, $_____, $_____,
$_____, and $_____ will expire between October 31, ____ to October 31,
____, is available to offset future capital gains.
As of October 31, 1995, High Income Municipal had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $_______ will expire on October 31, ____, is available to offset
future capital gains.
As of November 30, 1995, Intermediate Municipal Income had a
capital loss carryforward aggregating approximately $_____. This loss
carryforward, of which $_____ will expire on November 30, ____, is
available to offset future capital gains.
As of November 30, 1995, Short-Intermediate Municipal Income had
a capital loss carryforward aggregating approximately $_____. This loss
carryforward, of which $_____ will expire on November 30, ____, is
available to offset future capital gains.
State and Local Taxes. For mutual funds organized as business
trusts, state law provides for a pass-through of the state and local
income tax exemption afforded to direct owners of U.S. government
securities. Some states limit this to mutual funds that invest a certain
amount in U.S. government securities, and some types of securities, such
as repurchase agreements and some agency-backed securities, may not
qualify for this benefit. The tax treatment of your dividend distributions
from a fund will be the same as if you directly owned your proportionate
share of the U.S. government securities in the fund's portfolio. Because
the income earned on most U.S. government securities in which each fund
invests is exempt from state and local income taxes, the portion of your
dividends from each fund attributable to these securities will also be
free from income taxes. The exemption from state and local income taxation
does not preclude states from assessing other taxes on the ownership of
U.S. government securities. In a number of states, corporate franchise
(income) tax laws do not exempt interest earned on U.S. government
securities, whether such securities are held directly or through a fund.
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 a 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.
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<PAGE>
Tax Status of the Funds. Each 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,
each fund intends to distribute substantially all of its net investment
income and realized capital gains within each calendar year as well as on
a fiscal year basis. Each fund also intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held for less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some forward currency contracts, futures contracts, and options
are included in this 30% calculation, which may limit a fund's investments
in such instruments.
If a 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, a 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.
Each fund is treated as a separate entity from the other funds,
if any, in its trust for tax purposes.
Other Tax Information. The information above is only a summary of
some of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal income taxes, shareholders of a fund
may be subject to state and local taxes on fund distributions, and shares
may also be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether a fund is suitable
for their particular tax situation.
FMR
---
All of the stock of FMR is owned by FMR Corp., its parent company
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 1940 Act,
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<PAGE>
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 three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; FIIOC, which performs shareholder servicing functions for
institutional customers and funds sold through intermediaries; and
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 account 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 and executive officers of the trusts 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 also serve in similar capacities for other funds advised
by FMR. The business address of each Trustee 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 a trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, (65), 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 FMR Texas Inc., Fidelity Management & Research (U.K.) Inc.,
and Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD, (54), Trustee and Senior Vice President, is
President of FMR; and President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
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<PAGE>
RALPH F. COX, (63), Trustee (1991), is a consultant to Western
Mining Corporation (1994). Prior to February 1994, he was President of
Greenhill Petroleum Corporation (petroleum exploration and production,
1990). Until March 1990, Mr. Cox was President and Chief Operating Officer
of Union Pacific Resources Company (exploration and production). He is a
Director of Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill
Companies (engineering). In addition, he served on the Board of Directors
of the Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS, (64), 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, 1990),
and she 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.
RICHARD J. FLYNN, (71), Trustee, is a financial consultant. Prior
to September 1986, Mr. Flynn was Vice Chairman and a Director of the
Norton Company (manufacturer of industrial devices). He is currently a
Trustee of College of the Holy Cross and Old Sturbridge Village, Inc. and
he previously served as Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES, (68), Trustee (1990). 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), Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation,
Birmingham Steel Corporation, and RPM, Inc. (manufacturer of chemical
products, 1990), and he previously served as a Director of NACCO
Industries, Inc. (mining and marketing, 1985-1995) and Hyster-Yale
Materials Handling, Inc. (1985-1995). In addition, he serves as a Trustee
of First Union Real Estate Investments, a Trustee and member of the
Executive Committee of the Cleveland Clinic Foundation, a Trustee and
member of the Executive Committee of University School (Cleveland), and a
Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, (63), 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
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<PAGE>
as Director of Valuation Research Corp. (appraisals and valuations, 1993).
In addition, he serves as Chairman of the Board of Directors of the
National Arts Stabilization Fund, Vice Chairman of the Board of Trustees
of the Greenwich Hospital Association, and as a Member of the Public
Oversight Board of the American Institute of Certified Public Accountants'
SEC Practice Section (1995).
*PETER S. LYNCH, (52), Trustee (1990) is Vice Chairman 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). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield and Society for the
Preservation of New England Antiquities, and as an Overseer of the Museum
of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, (66), Trustee, is Chairman of G.M.
Management Group (strategic advisory services). Prior to his retirement in
July 1988, he was Chairman and Chief Executive Officer of Leaseway
Transportation Corp. (physical distribution services). Mr. McDonough is a
Director of ACME-Cleveland Corp. (metal working, telecommunications and
electronic products), Brush-Wellman Inc. (metal refining), York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (water treatment equipment, 1992), and Associated Estates
Realty Corporation (a real estate investment trust, 1993).
EDWARD H. MALONE, (71), Trustee. Prior to his retirement in 1985,
Mr. Malone was Chairman, General Electric Investment Corporation and a
Vice President of General Electric Company. He is a Director of Allegheny
Power Systems, Inc. (electric utility), General Re Corporation
(reinsurance) and Mattel Inc. (toy manufacturer). In addition, he serves
as a Trustee of Corporate Property Investors, the EPS Foundation at
Trinity College, the Naples Philharmonic Center for the Arts, and
Rensselaer Polytechnic Institute, and he is a member of the Advisory
Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership
Funds.
MARVIN L. MANN, (62), 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) and
Infomart (marketing services, 1991), a Trammell Crow Co. In addition, he
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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 (1990).
THOMAS R. WILLIAMS, (67), 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
BellSouth Corporation (telecommunications), ConAgra, Inc. (agricultural
products), Fisher Business Systems, Inc. (computer software), Georgia
Power Company (electric utility), Gerber Alley & Associates, Inc.
(computer software), National Life Insurance Company of Vermont, American
Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
WILLIAM J. HAYES (61), Vice President (1994), is Vice President
of Fidelity's equity funds; Senior Vice President of FMR; and Managing
Director of FMR Corp.
ROBERT H. MORRISON (55), Manager of Security Transactions of
Fidelity's equity funds, is Vice President of FMR.
FRED L. HENNING ( ), Vice President, is Vice President of
Fidelity's money market (1994) and fixed-income (1995) funds and senior
Vice President of FMR Texas Inc.
ROBERT A. LAWRENCE (42), Vice President (1994), is Vice President
of Fidelity's high income funds and Senior Vice President of FMR (1993).
Prior to joining FMR, Mr. Lawrence was Managing Director of the High Yield
Department for Citicorp (1984-1991).
MARGARET L. EAGLE (45), is Vice President of High Yield and an
employee of FMR.
DANIEL R. FRANK (38), is Vice President of Strategic
Opportunities and an employee of FMR.
KEVIN GRANT (__), is Vice President of Intermediate Bond (1995)
and an employee of FMR.
ROBERT E. HABER (37), is Vice President of Income & Growth (1989)
and an employee of FMR.
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NORMAN LIND ( ) is Vice President of Short-Intermediate
Municipal Income (1995) and an employee of FMR.
MALCOLM W. MacNAUGHT II (58), is Vice President of Global
Resources (1991) and an employee of FMR.
ROBERT STANSKY (39), is Vice President of Equity Growth (1991)
and of other funds advised by FMR, and an employee of FMR.
GEORGE A. VANDERHEIDEN (49), is Vice President of Growth
Opportunities (1990) and an employee of FMR.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993)
and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the
Fidelity funds and is an employee of FMR (1995). Before joining FMR, Mr.
Rathgeber was a Vice President of Goldman Sachs & Co. (1978-1995), where
he served in various positions, including Vice President of Proprietary
Accounting (1988-1992), Global Co-Controller (1992-1994), and Chief
Operations Officer of Goldman Sachs (Asia) LLC (1994-1995).
JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (49), 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);
Chief Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993);
and Vice President, Assistant Controller, and Director of the Accounting
Department - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current Trustee of each fund for his or her services as trustee for
the fiscal year ended 1995. Figures are estimated for funds that have
less than one year in operation.
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<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Aggregate Compensation
----------------------
Fiscal Period
Ended:
10/31 - * Phyllis Edward Edward Marvin Thomas
11/30 - ** J. Gary Ralph F. Burke Richard J. C. Johnson E. Bradley Donald Peter S. Gerald C. H. L. R.
12/31 - *** Burkhead# Cox Davis Flynn 3rd# Jones J. Kirk Lynch# McDonough Malone Mann Williams
----------- ----------------- ------ --------- ---------- ----------------- -------- --------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas* $0 $ $ $ $0 $ $ $0 $ $ $ $
Equity Growth** 0 0 0
Global Resources* 0 0 0
Growth
Opportunities* 0 0 0
Strategic
Opportunities*** 0 0 0
Equity Income** 0 0 0
Income & Growth* 0 0 0
Emerging Markets
Income*** 0 0 0
High Yield* 0 0 0
Strategic
Income*** 0 0 0
Government
Investment* 0 0 0
Intermediate
Bond** 0 0 0
Short
Fixed-Income* 0 0 0
High Income
Municipal* 0 0 0
Intermediate
Municipal
Income** 0 0 0
Short-
Intermediate
Municipal
Income** 0 0 0
New York
Municipal
Income*+ 0 0 0
California
Municipal
Income*+ 0 0 0
198
<PAGE>
Compensation Table
Aggregate Compensation
----------------------
Fiscal Period
Ended:
10/31 - * Phyllis Edward Edward Marvin Thomas
11/30 - ** J. Gary Ralph F. Burke Richard J. C. Johnson E. Bradley Donald Peter S. Gerald C. H. L. R.
12/31 - *** Burkhead# Cox Davis Flynn 3rd# Jones J. Kirk Lynch# McDonough Malone Mann Williams
----------- ----------------- ------ --------- ---------- ----------------- -------- --------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Stock**+ 0 0 0
Large Cap**+ 0 0 0
+ Estimated
# Interested Trustees of each fund are compensated by FMR.
Pension or
Retirement Benefits Estimated Annual Total
Accrued as part of Benefits Upon Re- Compensation
Fund Expenses from tirement from the from the Fund
the Fund Complex* Fund Complex* Complex*
---------------- ----------------- -------------
<S> <C> <C> <C>
J. Gary Burkhead# $0 $0 $ 0
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d# 0 0 0
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch# 0 0 0
Gerald C. McDonough
Edward H. Malone
Marvin L. Mann
Thomas R. Williams
</TABLE>
*Information is as of December 31, 1995 for 206 funds in the complex.
#Interested Trustees of each fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or
a percentage of their annual fees in accordance with the terms of a
Deferred Compensation Plan (the Plan). Under the Plan, compensation
deferred by a Trustee is periodically adjusted as though an equivalent
199
<PAGE>
amount had been invested and reinvested in shares of one or more funds in
the complex designated by such Trustee (designated securities). The
amount paid to the Trustee under the Plan will be determined based upon
the performance of such investments. Deferral of Trustees' 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 the fund to
retain the services of any Trustee or to pay any particular level of
compensation to the Trustee. Each fund may invest in such designated
securities under the Plan without shareholder approval.
Under a retirement program that was adopted in July 1988, the
non-interested Trustees, upon reaching age 72, become eligible to
participate in a retirement program under which they receive payments
during their lifetime from a fund based on their basic trustee fees and
length of service. The obligation of a fund to make such payments is not
secured or funded. Trustees become eligible if, at the time of retirement,
they have served on the Board for at least five years. Currently, Messrs.
Ralph S. Saul, William R. Spaulding, Bertram H. Witham, and David L.
Yunich, all former non-interested Trustees, receive retirement benefits
under the program.
As of ___________, 1995 the Trustees and officers of each fund
owned in the aggregate ___ 1% of each fund's outstanding shares.
As of _________, 1995, the following owned of record or
beneficially 5% or more of the outstanding shares of the classes of the
following Fidelity Advisor funds:
[To be supplied by subsequent amendment]
MANAGEMENT CONTRACTS
--------------------
Each fund employs FMR to furnish investment advisory and other
services. Under its management contract with each fund, FMR acts as
investment adviser and, subject to the supervision of the Board of
Trustees, directs the investments of each fund in accordance with its
investment objective, policies and limitations. FMR also provides each
fund with all necessary office facilities and personnel for servicing each
fund's investments, compensates all officers of each fund and all Trustees
who are "interested persons" of the trust or of FMR, and all personnel of
each 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
200
<PAGE>
necessary for the operation of each fund. These services include providing
facilities for maintaining each fund's organization; supervising relations
with custodians, transfer and pricing agents, accountants, underwriters
and other persons dealing with each fund; preparing all general
shareholder communications and conducting shareholder relations;
maintaining each fund's records and the registration of each fund's shares
under federal and state laws; developing management and shareholder
services for each fund; and furnishing reports, evaluations, and analyses
on a variety of subjects to the Trustees.
In addition to the management fee payable to FMR and the fees
payable to the transfer agent and the pricing and bookkeeping agent, each
fund pays all of its expenses, without limitation, that are not assumed by
those parties. Each 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. Although each fund's
current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices and reports to shareholders, each trust, on behalf of
each of fund, has entered into a revised transfer agent agreement,
pursuant to which the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by each fund
include interest, taxes, brokerage commissions, each fund's proportionate
share of insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal and state securities laws. Each
fund is also liable for such non-recurring expenses as may arise,
including costs of any litigation to which each fund may be a party, and
any obligation it may have to indemnify its officers and Trustees with
respect to litigation.
FMR is each fund's manager pursuant to management contracts dated
and approved by shareholders on the dates shown in the table below.
<TABLE>
<CAPTION>
Fund Date of Management Contract Date of Shareholder Approval
---- --------------------------- ----------------------------
<S> <C> <C>
Overseas 1/1/93 12/1/92
Equity Growth 12/1/90 11/14/90
Global Resources 12/1/94 11/16/94
Growth Opportunities 1/1/95 12/14/94
Strategic Opportunities 11/29/90 9/19/90
Equity Income 8/1/86 7/23/86
Income & Growth 1/1/95 12/14/94
Emerging Markets Income 1/20/94 2/10/94
High Yield 1/1/95 12/14/94
Strategic Income 9/16/94 10/14/94
Government Investment 1/1/95 12/14/94
Intermediate Bond 1/1/95 12/14/94
Short Fixed-Income 1/195 12/14/94
201
<PAGE>
Fund Date of Management Contract Date of Shareholder Approval
---- --------------------------- ----------------------------
High Income Municipal 12/1/94 11/16/94
Intermediate Municipal 7/1/95 6/14/95
Income
Short-Intermediate 1/1/95 6/14/95
Municipal Income
New York Municipal Income
11/17/94 12/8/94
California Municipal
Income ____ ____
Mid Cap ____ ____
Large Cap ____ ____
</TABLE>
For the services of FMR under its contract, Equity Income pays
FMR a monthly management fee at the annual rate of .50% of its average net
assets throughout the month. For the fiscal years ended November 30, 1995,
1994, and 1993, FMR received $__________, $1,392,206, and $933,830,
respectively.
For the services of FMR under each contract, Equity Growth,
Global Resources, Income & Growth, Emerging Markets Income, High Yield,
Strategic Income, Government Investment, Intermediate Bond, Short
Fixed-Income, High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, New York Municipal Income, and
California Municipal Income, each pays FMR a monthly management fee
composed of the sum of two elements: a group fee rate and an individual
fund fee rate.
For the services of FMR under each contract, Overseas, Growth
Opportunities, Strategic Opportunities, Mid Cap, and Large Cap pay FMR a
monthly management fee composed of the sum of two elements: a basic fee
rate and a performance adjustment based on a comparison of Growth
Opportunities', Strategic Opportunities' and Large Cap's performance to
that of the S&P 500, Overseas' performance to that of EAFE, and Mid Cap's
to that of the S&P Mid Cap 400.
Computing the Basic Fee. The basic fee rate for each fund (except
Equity Income) is composed of two elements: 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 and is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown below on the left. The schedule below on
the right shows the effective annual group fee rate at various asset
202
<PAGE>
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 _______ 1995 - was 0.____%
for equity funds and 0.____% for fixed-income funds, which is the weighted
average of the respective fee rates for each level of group net assets up
$___ billion.
FIXED-INCOME FUNDS
-----------------
The following fee schedule is the current fee schedule for all
fixed-income funds, except Emerging Markets Income.
<TABLE>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
------------- ---------- --------- ----------------
<C> <C> <C> <C>
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
228 - 264 .1300
264 - 300 .1275
300 - 336 .1250
336 - 372 .1225
Over 372 .1200
This fee schedule has been approved by the shareholders of all the fixed-income funds except Emerging Markets Income.
Emerging Markets Income. The following fee schedule is the current fee schedule for Emerging Markets Income.
203
<PAGE>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
------------- ---------- --------- ---------------
<C> <C> <C> <C>
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 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 366 .1350
Over 366 .1325
</TABLE>
On August 1, 1994, FMR voluntarily revised the group fee rate
schedule and added new breakpoints. The revised group fee rate schedule
provides for lower management fee rates as FMR's assets under management
increase. The revised group fee rate schedule is identical to the above
schedule for average group assets under $156 billion. For average group
assets in excess of $156 billion, the group fee rate schedule voluntarily
adopted by FMR is as follows:
<TABLE>
<CAPTION>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
----------- ---------- -------- --------------
<C> <C> <C> <C>
120 - 156 billion .1450% $150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
204
<PAGE>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
----------- ---------- -------- --------------
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
Over 372 .1200 325 .1514
350 .1494
375 .1476
400 .1459
</TABLE>
EQUITY FUNDS
The following fee schedule is the current fee schedule for all equity
funds (except Equity Income).
<TABLE>
<CAPTION>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual Fee
Assets Rate Assets Rate
------------ ------------ --------- -------------------
<S> <C> <C> <C>
0 - $3 billion .5200% $ 0.5 billion .5200%
3 - 6 .4900 25 .4238
6 - 9 .4600 50 .3823
9 - 12 .4300 75 .3626
12 - 15 .4000 100 .3512
15 - 18 .3850 125 .3430
18 - 21 .3700 150 .3371
21 - 24 .3600 175 .3325
24 - 30 .3500 200 .3284
30 - 36 .3450 225 .3249
36 - 42 .3400 250 .3219
42 - 48 .3350 275 .3190
48 - 66 .3250 300 .3163
66 - 84 .3200 325 .3137
84 - 102 .3150 350 .3113
102 - 138 .3100 375 .3090
138 - 174 .3050 400 .3067
174 - 210 .3000
210 - 246 .2950
246 - 282 .2900
282 - 318 .2850
318 - 354 .2800
354 - 390 .2750
Over 390 .2700
205
<PAGE>
</TABLE>
This fee schedule was approved by shareholders of all equity funds
except Overseas, Equity Growth, Strategic Opportunities, and Equity Income
(see chart indicating date of management contract and date of shareholder
approval.)
Under the current management contracts for Overseas and Strategic
Opportunities, the group fee rate is based on a schedule with breakpoints
ending at .3000% for average group net assets in excess of $174 billion.
Under the current management contract for Equity Growth, the group fee
rate is based on a schedule with breakpoints ending at .3100% for average
group net assets in excess of $102 billion.
The following fee schedule is the fee schedule which was in effect
through August 1, 1994, and was either approved by shareholders or
voluntarily adopted by FMR.
Group fee rate breakpoints shown for average group net assets in
excess of $138 billion and under $228 billion were voluntarily adopted by
FMR, and went into effect on January 1, 1992. Additional breakpoints for
average group net assets in excess of $228 billion were voluntarily
adopted by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints.
Each revised group fee rate schedule provides for lower management fee
rates as FMR's assets under management increase.
<TABLE>
<CAPTION>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
---------------------- --------------------------
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
------------------- --------------- ---------------- ------------------------
<S> <C> <C> <C>
0 - $ 3 billion .5200% $ 0.5 billion .5200%
3 - 6 .4900 25 .4238
6 - 9 .4600 50 .3823
9 - 12 .4300 75 .3626
12 - 15 .4000 100 .3512
15 - 18 .3850 125 .3430
18 - 21 .3700 150 .3371
21 - 24 .3600 175 .3325
24 - 30 .3500 200 .3284
30 - 36 .3450 225 .3253
36 - 42 .3400 250 .3223
42 - 48 .3350 275 .3198
48 - 66 .3250 300 .3175
66 - 84 .3200 325 .3153
84 - 102 .3150 350 .3133
206
<PAGE>
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
------------------- --------------- ---------------- ------------------------
<S> <C> <C> <C>
102 - 138 .3100
138 - 174 .3050
174 - 228 .3000
228 - 282 .2950
282 - 336 .2900
Over 336 .2850
</TABLE>
The individual fund fee rates for each fund (except Equity Income) are
set forth in the following chart. Based on the average group net assets of
the funds advised by FMR for ________ 1995, the annual basic fee rate
would be calculated as follows:
<TABLE>
<CAPTION>
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate
-------------- ------------------------ --------------
<S> <C> <C> <C> <C> <C>
Overseas .____% + 0.45% = .____%
Equity Growth .____% + 0.30%* = .____%
Global Resources .____% + 0.45% = .____%
Growth Opportunities .____% + 0.30% = .____%
Strategic Opportunities .____% + 0.30% = .____%
Income & Growth .____% + 0.20% = .____%
Emerging Markets Income .____% + 0.55% = .____%
High Yield .____% + 0.45% = .____%
Strategic Income .____% + 0.45% = .____%
Government Investment .____% + 0.30% = .____%
Intermediate Bond .____% + 0.30%** = .____%
Short Fixed-Income .____% + 0.30% = .____%
High Income Municipal .____% + 0.25% = .____%
Intermediate Municipal Income .____% + 0.25% = .____%
Short-Intermediate Municipal .____% + 0.25% = .____%
Income
New York Municipal Income .____% + 0.25% = .____%
California Municipal Income .____% + 0.25% = .____%
Mid Cap .____% + 0.30% = .____%
Large Cap .____% + 0.30% = .____%
</TABLE>
* Effective August 1, 1994, FMR voluntarily agreed to reduce the
individual fund fee rate from 0.33% to 0.30%. If this reduction were not
in effect during fiscal 1994, the total management fee would have been
0.65%.
207
<PAGE>
** On December 14, 1994, shareholders of the fund approved an increase
for the individual fund fee rate from 0.25% to 0.30% effective January 1,
1995.
One-twelfth (1/12) of this annual basic fee or management fee, as
applicable, rate is applied to each fund's net assets averaged for the
most recent month, giving a dollar amount, which is the fee for that
month.
Computing the Performance Adjustment. The basic fee for Strategic
Opportunities, Overseas, Growth Opportunities, Large Cap, and Mid Cap is
subject to upward or downward adjustment, depending upon whether, and to
what extent, the investment performance of each applicable fund for the
performance period exceeds, or is exceeded by, the record of the S&P 500
(Strategic Opportunities, Growth Opportunities, and Large Cap), EAFE
(Overseas), and S&P MidCap 400 (Mid Cap), respectively (the Indices), over
the same period. Mid Cap's and Large Cap's performance period commenced on
___________ and ___________, respectively. Starting with the twelfth
month, the performance adjustment takes effect. Each month subsequent to
the twelfth month, a new month is added to the performance period until
the performance period equals 36 months. Thereafter, the performance
period consists of the most recent month plus the previous 35 months. Each
percentage point of difference, calculated to the nearest 1.0% (up to a
maximum difference of plus or minus 10.00) is multiplied by a performance
adjustment rate of .02%. Thus, the maximum annualized adjustment rate is
plus or minus .20%. For each fund, investment performance will be measured
separately for each class and the least of the results obtained will be
used in calculating the performance adjustment to the management fee paid
by the fund. This performance comparison is made at the end of each month.
One twelfth (1/12) of this rate is then applied to each fund's average net
assets for the entire performance period, giving a dollar amount which
will be added to (or subtracted from) the basic fee.
Each class's performance is calculated based on change in NAV. For
purposes of calculating the performance adjustment, any dividends or
capital gain distributions paid by each class are treated as if reinvested
in that class's shares at the NAV as of the record date for payment. The
record of each Index is based on change in value and is adjusted for any
cash distributions from the companies whose securities compose the Index.
Because the adjustment to the basic fee is based on each class's
performance compared to the investment record of the applicable Index, the
controlling factor is not whether each class's performance is up or down
per se, but whether it is up or down more or less than the record of the
Index. Moreover, the comparative performance of each class is based solely
on the relevant performance period without regard to the cumulative
performance over a longer or shorter period of time.
208
<PAGE>
The table below shows the management fees paid to FMR (including the
amount of the performance adjustment); the dollar amount of negative or
positive performance adjustments, if applicable; and the net management
fee as a percentage of each fund's average net assets for the three most
recent fiscal years.
<TABLE>
<CAPTION>
Management Fee As a
Fiscal Year Management Performance Percentage of
Ended Fee + Adjustment Average Net Assets
------------ ---------- --------- ------------------
<S> <C> <C> <C>
Overseas 10/31
1995
1994 $3,435,695 $133,032 (upward) .80%
1993 503,110 3,885 (downward) .77
Equity Growth 11/30
1995
1994 6,567,305 N/A .64
1993 2,646,631 N/A .66
Global Resources 10/31
1995
1994 890,892 N/A .77
1993 111,465 N/A .77
Growth Opportunities 10/31
1995
1994 22,087,985 2,130,192 (upward) .69
1993 8,250,306 709,376 (upward) .68
Strategic Opportunities +++ 12/31
1995
10/1/94 - 12/31/94 682,856 37,843 (upward) .67 (annualized)
10/1/93 - 9/30/94 2,582,584 359,674 (upward) .72
1993 1,291,906 81,040 (upward) .54
Equity Income 11/30
1995
1994 1,392,206 N/A .50
1993 933,830 N/A .50
Income & Growth 10/31
1995
1994 13,325,884 N/A .52
1993 4,578,813 N/A .53
Emerging Markets Income 12/31
1995
1994 ++ 122,088 N/A .70
High Yield 11/30
1995
1994 3,737,959 N/A .60
1993 1,539,682 N/A .51
Strategic Income 12/31
209
<PAGE>
Management Fee As a
Fiscal Year Management Performance Percentage of
Ended Fee + Adjustment Average Net Assets
------------ ---------- --------- ------------------
<S> <C> <C> <C>
1995
1994 ++ 10,348 N/A .60
Government Investment 11/30
1995
1994 22,255 N/A .46
1993 186,973 N/A .46
Intermediate Bond 11/30
1995
1994 1,180,785 N/A .41
1993 818,426 N/A .42
Short Fixed-Income 10/31
1995
1994 $3,713,144 N/A .46%
1993 1,674,841 N/A .47
High Income Municipal 11/30
1995
1994 2,257,113 N/A .41
1993 1,314,060 N/A .42
Intermediate Municipal
Income 11/30
1995
1994 286,027 N/A .41
1993 156,087 N/A .42
Short-Intermediate Municipal
Income 11/30
1995
1994++ 31,109 N/A .41
</TABLE>
+Management fee includes performance adjustments for Overseas, Growth
Opportunities, and Strategic Opportunities.
++Emerging Markets Income, Strategic Income, and Short-Intermediate
Municipal Income commenced operations on March 10,1994, October 31, 1994,
and March 16, 1994, respectively. Management fee percentages for these
funds are annualized.
+++Strategic Opportunities' fiscal year end changed from September 30 to
December 31 as of November 9, 1994.
FMR may, from time to time, voluntarily reimburse all or a portion of
a class' 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 reimbursement
by FMR will increase each class' total returns and yield and repayment of
the reimbursement by each class will lower its total returns and yield.
210
<PAGE>
To comply with the California Code of Regulations, FMR will reimburse
each fund if and to the extent that the fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The
applicable percentages are 2 1/2% of the first $30 million, 2% of the next
$70 million, and 1 1/2% of average net assets in excess of $100 million.
When calculating each fund's expenses for purposes of this regulation,
each fund may exclude interest, taxes, brokerage commissions, and
extraordinary expenses, as well as a portion of its distribution plan
expenses and custodian fees attributable to investments in foreign
securities.
Sub-Advisers. On behalf of Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Equity Income, Income & Growth,
High Yield, Intermediate Bond, Mid Cap, Large Cap, and Short Fixed-Income,
FMR has entered into sub-advisory agreements with FMR U.K. and FMR Far
East. On behalf of Overseas, FMR has entered into sub-advisory agreements
with FMR U.K., FMR Far East, and FIIA. FIIA, in turn, has entered into a
sub-advisory agreement with FIIAL U.K. On behalf of Emerging Markets
Income and 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 FIIAL U.K. 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 Overseas, Global Resources, Growth Opportunities, Mid
Cap, Large Cap, Strategic Income, Income & Growth, High Yield,
Intermediate Bond, Emerging Markets Income, and Short Fixed-Income, FMR
may also grant FMR U.K. and FMR Far East investment management authority
as well as the authority to buy and sell securities if FMR believes it
would be beneficial to the funds.
Currently, FMR U.K., FMR Far East, FIJ, FIIA, and FIIAL U.K. each
focuses 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. FIIAL
U.K. was organized in the United Kingdom in 1984, and is a wholly owned
subsidiary of Fidelity International Management Holdings Limited, an
indirect wholly owned subsidiary of FIL.
211
<PAGE>
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 FIIAL U.K. For
providing non-discretionary investment advice and research services the
sub-advisers are compensated as follows:
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.
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.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing investment advice and research
services.
On behalf of Overseas, Global Resources, Growth Opportunities, Income
& Growth, Emerging Markets Income, High Yield, Short Fixed-Income, and
Intermediate Bond, for providing discretionary investment management and
executing portfolio transactions, the sub-advisers are compensated as
follows:
FMR pays FMR U.K., FMR Far East, FIJ, and FIIA a fee equal to 50% of
its monthly management fee (including any performance adjustment, if
applicable) with respect to the fund's average net assets managed by the
sub-adviser on a discretionary basis.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing discretionary investment management
services.
The table below shows the fees paid by FMR to FMR U.K., FMR Far East,
FIIA, and FIJ, and by FIIA to FIIAL U.K. for providing investment advice
and research services with respect to certain of the funds for the fiscal
periods ended 1995, 1994, and 1993.
The other funds paid no investment sub-advisory fees for the fiscal
periods ended 1993-1995.
212
<PAGE>
<TABLE>
<CAPTION>
FEES PAID TO FOREIGN SUB-ADVISERS
Fund Fees Paid by FMR to FMR U.K. Fees Paid by FMR to FMR Far East
---- ---------------------------- --------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Overseas $ $153,288 $14,363 $ $174,129 $22,357
Equity Growth 13,191 3,144 15,192 5,021
Global Resources 2,598 N/A 2,932 N/A
Growth Opportunities 67,818 N/A 82,741 N/A
Strategic Opportunities
(10/1/93 - 9/30/94) 7,794 N/A 7,712 N/A
Strategic Opportunities
(10/1/94 - 12/31/94) 7,352 4,560 7,701 11,267
Equity Income 12,197 4,669 13,970 7,199
Income & Growth 248,936 N/A 299,094 N/A
TOTAL 513,174 $26,736 603,471 45,844
</TABLE>
The following fees were paid to FIJ, FIIA, and FIIAL U.K. for the fiscal
year ended 1995. No fees were paid to FIJ, FIIA, and FIIAL U.K. for 1993-
1994.
[Table to be added]
CONTRACTS WITH FMR AFFILIATES
-----------------------------
State Street is transfer, dividend disbursing, and shareholder
servicing agent for Class A shares of the taxable funds. FIIOC, an
affiliate of FMR, is transfer, dividend disbursing, and shareholder
servicing agent for Class B and Institutional Class shares of the taxable
funds. UMB is the transfer, dividend disbursing, and shareholder servicing
agent for Class A, Class B and Institutional Class shares of the municipal
funds. UMB has entered into sub-contracts with State Street pursuant to
which State Street performs transfer, dividend disbursing, and shareholder
services. State Street has entered into sub-contracts with FIIOC pursuant
to which FIIOC performs certain transfer, dividend disbursing, and
shareholder services for Class A shares of the municipal funds. UMB has
entered into sub-contracts with FIIOC pursuant to which FIIOC performs
transfer, dividend disbursing, and shareholder services for Class B and
Institutional Class shares of the municipal funds. Under these
arrangements FIIOC receives an annual account fee and an asset-based fee
based on account size. With respect to certain institutional retirement
213
<PAGE>
accounts, FIIOC receives asset-based fees only. With respect to certain
other institutional retirement accounts, FIIOC receives annual account
fees and asset-based fees based on fund type. The asset-based fees of the
growth and growth and income funds are subject to adjustment if the
year-to-date total return of the Standard & Poor's Composite Index of 500
Stocks is greater than positive or negative 15%. FIIOC also collects
small account fees from certain accounts with balances of less than
$2,500.
For accounts that FIIOC maintains on behalf of UMB or State Street,
FIIOC receives all such fees. For accounts for which FIIOC provides
limited services, FIIOC receives a portion of related account fees and
asset-based fees, less applicable charges and expenses of State Street for
account maintenance and transactions.
FIIOC bears the expense of typesetting, printing, and mailing
prospectuses, statements of additional information, and all other reports,
notices, and statements to shareholders, with the exception of proxy
statements. Also, State Street and FIIOC, as applicable, pay
out-of-pocket expenses associated with providing transfer agent services.
FSC, an affiliate of FMR, performs the calculations necessary to
determine NAV and dividends for Class A, Class B, and Institutional Class
of each taxable fund, maintains each taxable fund's accounting records and
administers each taxable fund's securities lending program. UMB has an
additional sub-contract with FSC pursuant to which FSC performs the
calculations necessary to determine the NAV and dividends for the Class A,
Class B, and Institutional Class of each municipal fund, and maintains the
accounting records for each municipal fund. The annual fee rates for these
pricing and bookkeeping services are based on each fund's average net
assets, specifically, 0.06% (equity funds) or 0.04% (bond funds) for the
first $500 million of average net assets and 0.03% (equity funds) or 0.02%
(bond funds) for average net assets in excess of $500 million. The fee is
limited to a minimum of $45,000 and a maximum of $750,000 per year.
Pricing and bookkeeping fees, including related out-of-pocket expenses,
paid by the funds for the past three fiscal years were as follows:
214
<PAGE>
<TABLE>
<CAPTION>
Fund 1995 1994 1993
---- ----
<S> <C> <C> <C>
Overseas $ $ 251,241 $ 57,711
Equity Growth $ 461,039 $ 234,813
Global Resources $ 73,164 $ 45,425
Growth Opportunities $ 758,343 $ 513,950
Strategic Opportunities (10/1/94 - 12/31/94) $ 61,356 $ 145,494
Strategic Opportunities (10/1/93 - 9/30/94) $ 215,648 N/A
Equity Income $ 168,364 $ 113,026
Income & Growth $ 750,743 $ 410,561
Emerging Markets Income $ 36,412* N/A
High Yield $ 223,567 $ 121,204
Strategic Income $ 7,500* N/A
Government Investment $ 46,218 $ 46,457
Intermediate Bond $ 118,125 $ 81,106
Short Fixed-Income $ 264,455 $ 143,813
High Income Municipal $ 220,222 $ 157,559
Intermediate Municipal Income $ 48,062 $ 45,724
New York Municipal Income
Short-Intermediate Municipal Income $ 31,953* N/A
</TABLE>
* Emerging Markets Income, Strategic Income, and Short-Intermediate
Municipal Income commenced operations on March 10, 1994, October 31, 1994,
and March 16, 1994, respectively. New York Municipal Income commenced
operations on August 21, 1995.
FSC also receives fees for administering each taxable fund's
securities lending program. Securities lending fees are based on the
number and duration of individual securities loans. For the fiscal years
ended 1995, 1994, and 1993, [Names of Taxable Funds] incurred securities
lending fees of $__, $__, and $__, respectively.
For the municipal funds, the transfer agent fees and charges, and
pricing and bookkeeping fees described above are paid to FIIOC and FSC,
respectively, by UMB, which is entitled to reimbursement from the class or
the fund, as applicable, for these expenses.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements call
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
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<PAGE>
offered. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FDC. The table below shows the sales
charge revenue paid to FDC, and retained by FDC, for the following fiscal
periods.
<TABLE>
<CAPTION>
SALES CHARGE REVENUE CDSC REVENUE
Amount Paid Amount Retained Amount Paid Amount
Fiscal Year Ended to FDC by FDC to FDC Retained by FDC
----------------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Overseas Oct. 31, 1995 $ $ $ $
1994 9,596,831 1,436,765 N/A N/A
1993 3,895,423 567,987 N/A N/A
Equity Growth Nov. 30, 1995
1994 9,353,000 1,397,000 N/A N/A
1993 10,102,208 1,523,036 N/A N/A
Global Resources Oct. 31, 1995
1994 3,854,624 567,671 N/A N/A
1993 890,154 130,927 N/A N/A
Growth Opportunities Oct. 31, 1995
1994 47,564,000 7,108,000 N/A N/A
1993 27,663,060 4,141,156 N/A N/A
Strategic Opportunities Dec. 31, 1995
553,970* 231,911 12,307 12,307
Dec. 31, 1994 2,986,131** 447,011 409 409
Sep. 30, 1993 1,299,291 196,365 N/A N/A
Income & Growth Oct. 31, 1995 N/A
1994 37,018,000 6,291,000 N/A N/A
1993 28,877,882 4,215,606 N/A N/A
Emerging Markets Income Dec. 31, 1995
1994 406,046 59,134 2,877 2,877
1993 N/A N/A N/A N/A
High Yield Oct. 31, 1995
1994 8,980,127 1,342,482 15,765 15,765
1993 10,465,950 1,524,348 N/A N/A
Strategic Income Dec. 31, 1995
1994 197,904 0 9,542 9,542
1993 N/A N/A N/A N/A
Government Investment Oct. 31, 1995
1994 996,242 168,939 978 978
1993 993,386 145,628 N/A N/A
Short Fixed-Income Oct. 31, 1995
1994 4,396,909 877,639 N/A N/A
216
<PAGE>
SALES CHARGE REVENUE CDSC REVENUE
Amount Paid Amount Retained Amount Paid Amount
Fiscal Year Ended to FDC by FDC to FDC Retained by FDC
----------------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Overseas Oct. 31, 1995 $ $ $ $
1993 5,308,796 968,759 N/A N/A
High Income Municipal Oct. 31, 1995
1994 6,327,614 1,038,989 0 0
1993 9,918,856 1,417,733 N/A N/A
Short Intermediate Municipal Income Nov. 30, 1995
1994 122,128 13,369 N/A N/A
1993 N/A N/A N/A N/A
Equity Income Nov. 30, 1995
1994 2,450,544 352,678 30,093 30,093
1993 792,962 117,757 N/A N/A
Intermediate Bond Nov. 30, 1995
1994 1,598,883 237,647 1,279 1,279
1993 1,436,859 210,713 N/A N/A
Intermediate Municipal Income Nov. 30, 1995
1994 635,031 96,813 0 0
1993 669,395 97,441 N/A N/A
</TABLE>
* For the fiscal period October 1, 1994 through December 31, 1994.
** For the fiscal period October 1, 1993 through September 30, 1994.
Distribution and Service Plans
------------------------------
The Trustees have approved Distribution and Service Plans on behalf of
each class of shares of the funds (the Plans) 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 a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow Class A, Class B, and
Institutional Class shares of each fund and FMR to incur certain expenses
that might be considered to constitute direct or indirect payment by the
funds of distribution expenses.
Pursuant to the Class A Plans, FDC is paid a distribution fee as a
percentage of Class A's average net assets at an annual rate of up to
0.75% for Equity Growth and Equity Income; up to 0.65% for each of
Overseas, Growth Opportunities, Global Resources, Strategic Opportunities,
and Income & Growth; up to 0.40% for each of Emerging Markets Income, High
Yield, Strategic Income, Intermediate Bond, Government Investment, High
217
<PAGE>
Income Municipal, Short-Intermediate Municipal Income, Intermediate
Municipal Income, New York Municipal Income, and California Municipal
Income; and up to 0.15% for Short Fixed-Income. Pursuant to the Class B
Plans, FDC is paid a distribution fee as a percentage of Class B's average
net assets at an annual rate of up to 0.75% for each fund with Class B
shares. For the purpose of calculating the distribution fees, average net
assets are determined as of the close of business on each day throughout
the month, but excluding assets attributable to Class A shares of Equity
Growth, Equity Income, Emerging Markets Income, Strategic Opportunities,
and Overseas purchased more than 144 months prior to such day. Currently,
the Trustees have approved a distribution fee for Class A at an annual
rate of 0.50% for the Equity Funds; 0.25% for the Bond Funds and the
Intermediate-Term Bond Funds; and 0.15% for the Short-Term Bond Funds.
Currently, the Trustees have approved a distribution fee for Class B at an
annual rate of 0.75% for Overseas, Global Resources, Strategic
Opportunities and Equity Income and 0.65% for the Bond Funds and the
Intermediate-Term Bond Funds. These fees may be increased only when, in
the opinion of the Trustees, it is in the best interests of the
shareholders of the applicable class to do so. Class B of each fund also
pays Investment Professionals a service fee at an annual rate of 0.25% of
its average daily net assets determined at the close of business on each
day throughout the month for personal service and/or the maintenance of
shareholder accounts.
The tables below show the distribution fees paid for Class A shares
for the fiscal years ended 1995, 1994, and 1993, and for Class B shares
for the fiscal periods ended 1995 and 1994. (Class B shares were not
offered prior to June 30, 1994.)
<TABLE>
<CAPTION>
CLASS A DISTRIBUTION FEES
-------------------------
1993 1994 1995
---- ---- ----
Paid to Paid to Paid to
Investment Retained TotalInvestment Retained Investment Retained by
Fund Professional by FDC FeesProfessionals by FDC Total Fees Professionals FDC Total Fees
---- ----------- ------- ---- ------------ --------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Overseas $ 325,181 $ 97,554$ 422,735 $2,139,864 $ 641,958 $2,781,822
Equity Growth 258,713 883,1411,141,854 3,312,525 999,987 4,312,512
Global Resources 69,457 23,643 93,100 577,607 173,281 750,888
Growth Opportunities 5,996,770 1,799,0307,795,800 16,056,714 4,817,016 20,873,730
Strategic 1,092,965 330,4911,423,456 470,225 141,067 611,292
Opportunities
Equity Income 94,623 28,435 123,058 441,208 132,362 573,570
Income & Growth 4,330,092 1,299,0265,629,118 13,406,000 3,203,000 16,609,000
218
<PAGE>
Paid to Paid to Paid to
Investment Retained TotalInvestment Retained Investment Retained by
Fund Professional by FDC FeesProfessionals by FDC Total Fees Professionals FDC Total Fees
---- ----------- ------- ---- ------------ --------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets N/A N/A N/A 31,604 8,331 39,935
Income
High Yield 745,985 0 745,985 1,526,214 0 1,526,214
Strategic Income N/A N/A N/A 1,626 488 2,144
Government 101,981 0 101,981 227,532 0 227,532
Investment
Intermediate Bond 56,220 0 56,220 264,949 0 264,949
Short Fixed-Income 538,933 0 538,933 1,212,008 0 1,212,008
High Income 101,981 0 101,981 1,374,438 0 1,374,438
Municipal
Intermediate
Municipal Income 38,552 0 38,552 138,512 0 138,512
Short-Intermediate
Municipal Income N/A N/A N/A 11,446 0 11,446
New York Municipal Income
CLASS B DISTRIBUTION FEES
1994 1995
--- ----
Shareholder
Service Retained Shareholder Retained Total
Fund Fees by FDC Total Fees Service Fees by FDC Fees
---- ----------- --------- ---------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Strategic Opportunities $7,964 $23,892 $31,856
Equity Income 16,215 54,580 70,795
Emerging Markets Income 3,215 9,771 12,986
High Yield 7,052 21,157 28,209
Strategic Income 2,155 6,465 8,620
Government Investment 817 2,449 3,266
Intermediate Bond 1,689 5,070 6,759
High Income Municipal 3,238 9,713 12,951
Intermediate Municipal 965 2,893 3,858
Income
New York Municipal Income
Overseas
Global Resources
</TABLE>
Under each Plan, if the payment of management fees by the funds to FMR
is deemed to be indirect financing by the funds of the distribution of
their shares, such payment is authorized by the Plans. Each Plan
specifically recognizes that FMR may use its management fee revenue, as
well as its past profits or its other resources to reimburse FDC for
expenses incurred in connection with the distribution of the applicable
219
<PAGE>
class, including payments made to third parties that assist in selling
shares of the applicable class of each fund or to third parties, including
banks, that render shareholder support services. The Trustees have
authorized such payments for all classes of the funds.
No third party payments were made by FMR in the fiscal years ended
1995, 1994, and 1993 under the Institutional Class Plan on behalf of the
funds.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of each Plan, and have
determined that there is a reasonable likelihood that the Plan will
benefit the applicable class of each fund and its shareholders. In
particular, the Trustees noted that the Institutional Class Plans do not
authorize payments by the Institutional Class of each fund other than
those made to FMR under its management contract with the fund. To the
extent that each Plan gives FMR and FDC greater flexibility in connection
with the distribution of shares of the applicable class of each fund,
additional sales of fund shares may result. Furthermore, certain
shareholder support services may be provided more effectively under the
Plans by local entities with whom shareholders have other relationships.
The Class A and Class B Plans do not provide for specific payments by
the applicable class of any of the expenses of FDC, or obligate FDC or FMR
to perform any specific type or level of distribution activities or incur
any specific level of expense in connection with distribution activities.
After payments by FDC for advertising, marketing and distribution, and
payments to third parties, the amounts remaining, if any, may be used as
FDC may elect.
The Plans were approved by the shareholders of each class on the dates
shown in the table below:
220
<PAGE>
<TABLE>
<CAPTION>
Date of Shareholder Approval
-------------------------
Fund Class A Class B Institutional
---- ------- ------- -------------
<S> <C> <C> <C>
Overseas 10/90 06/26/94 06/26/95
Equity Growth 09/25/86 N/A 09/25/86
Global Resources 12/01/94 06/26/95 06/26/95
Growth Opportunities 01/01/95 N/A 06/26/95
Strategic Opportunities 08/25/87 06/26/94 06/26/95
Equity Income 07/23/86 06/26/94 07/23/86
Income & Growth 01/01/95 N/A 06/26/95
Emerging Markets Income 02/10/94 05/26/95 06/26/95
High Yield 01/01/95 01/01/95 06/26/95
Strategic Income 10/14/94 10/14/94 06/26/95
Government Investment 01/01/95 01/01/95 12/23/87
Intermediate Bond 01/01/95 01/01/95 12/23/87
Short Fixed-Income 01/01/95 N/A 06/26/95
High Income Municipal 12/01/94 12/01/94 06/26/95
Intermediate Municipal Income 07/01/95 06/26/94 10/21/87
Short-Intermediate Municipal Income 07/01/95 N/A 06/26/95
New York Municipal Income
California Municipal Income
Mid Cap
Large Cap
</TABLE>
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 funds 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.
221
<PAGE>
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments under
the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
DESCRIPTION OF THE TRUSTS
-------------------------
Trust Organization. Equity Growth, Mid Cap, and Large Cap are funds of
Fidelity Advisor Series I, an open-end management investment company
organized as a Massachusetts business trust by a Declaration of Trust
dated June 24, 1983, as amended and restated July 18, 1991, and as
supplemented April 15, 1993. On July 18, 1991, the name was changed from
Equity Growth to Fidelity Broad Street Trust. On April 15, 1993, its name
was changed by an amendment to the Declaration of Trust from Fidelity
Broad Street Trust to Fidelity Advisor Series I.
Short Fixed-Income Fund, Government Investment Fund, High Yield Fund,
Growth Opportunities Fund, and Income & Growth Fund are funds of Fidelity
Advisor Series II, an open-end management investment company organized as
a Massachusetts business trust by a Declaration of Trust dated April 24,
1986. On April 7, 1993, the Board of Trustees voted to change the name of
the trust from Fidelity Diversified Trust to Fidelity Advisor Series II.
Equity Income Fund is a fund of Fidelity Advisor Series III, an
open-end management investment company organized as a Massachusetts
business trust by a Declaration of Trust dated May 17, 1982. On January
29, 1986, the name was changed from Equity Portfolio: Income to Fidelity
Franklin Street Trust. On April 15, 1993 the trust's name was again
changed to Fidelity Advisor Series III.
Intermediate Bond Fund is a fund of Fidelity Advisor Series IV, an
open-end management investment company organized as a Massachusetts
business trust by a Declaration of Trust dated May 6, 1983. On January 29,
1992 the name of the trust was changed from Income Portfolios to Fidelity
Income Trust, and on April 15, 1993, the Board of Trustees voted to change
the trust's name to Fidelity Advisor Series IV. An amended and restated
Declaration of Trust, dated March 16, 1995, was filed on April 12, 1995.
Global Resources Fund, High Income Municipal Fund, California
Municipal Income, and New York Municipal Income are funds of Fidelity
Advisor Series V, an open-end management investment company organized as a
Massachusetts business trust by a Declaration of Trust dated April 23,
1986, as amended and restated July 18, 1991, and as supplemented April 15,
1993. On July 18, 1991, the Board of Trustees voted to change the name of
the trust from Plymouth Investment Series to Fidelity Investment Series,
and on April 15, 1993, the Board voted to change the trust's name to
Fidelity Advisor Series V. An amended and restated Declaration of Trust
dated March 16, 1995 was filed on April 12, 1995.
222
<PAGE>
Short-Intermediate Municipal Income Fund and Intermediate Municipal
Income Fund are funds of Fidelity Advisor Series VI, an open-end
management investment company organized as a Massachusetts business trust
by a Declaration of Trust dated June 1, 1983, as amended and restated May
5, 1993. On January 29, 1992, the name of the trust was changed from
Tax-Exempt Funds to Fidelity Oliver Street Trust and on April 15, 1993 the
Board of Trustees voted to change the name of the trust to Fidelity
Advisor Series VI.
Overseas Fund is a fund of Fidelity Advisor Series VII, an open-end
management investment company organized as a Massachusetts business trust
by a Declaration of Trust dated March 21, 1980 as amended and restated
July 18, 1991 and as supplemented April 15, 1993. On July 18, 1991, the
Board of Trustees voted to change the name of the trust from Plymouth
Securities Trust to Fidelity Securities Trust, and on April 15, 1993 the
Board of Trustees voted to change the name of the trust to Advisor Series
VII.
Strategic Opportunities Fund, Strategic Income Fund, and Emerging
Markets Income Fund are funds of Fidelity Advisor Series VIII, an open-end
management investment company organized as a Massachusetts business trust
by a Declaration of Trust dated September 23, 1983, as amended and
restated October 1, 1986 and as supplemented November 29, 1990. On April
15, 1993 the name of the trust was changed from Fidelity Special
Situations Fund to Fidelity Advisor Series VIII.
Each Declaration of Trust permits the Trustees to create additional
funds.
In the event that FMR ceases to be the investment adviser to a fund,
the right of the trust or fund to use the identifying name "Fidelity" may
be withdrawn.
The assets of each 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 liabilities of their respective trusts. Expenses with respect to
each trust are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of each 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 of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
223
<PAGE>
Shareholder and Trustee Liability. Each trust is an entity of the type
commonly known as "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. Each 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 its Trustees shall include a provision limiting
the obligations created thereby to the trust and its assets. Each
Declaration of Trust provides for indemnification out of each fund's
property of any shareholder held personally liable for the obligations of
the fund. Each Declaration of Trust also provides that its funds 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 the 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.
Each 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. Claims asserted
against one class of shares may subject the holders of another class of
shares to certain liabilities.
Voting Rights. Each fund's capital consists of shares of beneficial
interest. The shares have no preemptive rights, and Class A and
Institutional Class shares have no conversion rights; the voting and
dividend rights, the conversion rights of Class B shares, the right of
redemption, and the privilege of exchange are described in the Prospectus.
Shareholders of Global Resources, Growth Opportunities, Equity Income,
Income & Growth, High Yield, High Income Municipal, Government Investment,
Intermediate Bond, Intermediate Municipal Income, California Municipal
Income, New York Municipal Income, Short Fixed-Income, and
Short-Intermediate Municipal Income receive one vote for each dollar of
net asset value owned. Shares are fully paid and nonassessable, except as
set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of a trust, a fund, or class of a
fund may, as set forth in the Declaration of Trust, call meetings of the
trust, fund or class, as applicable, for any purpose related to the trust,
fund, or class, as the case may be, including, in the case of meeting of
an entire trust, the purpose of voting on removal of one or more Trustees.
Each trust or 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 outstanding shares of the funds of Advisor Series I, VI,
VII, and VIII, or, as determined by the current value of each
224
<PAGE>
shareholder's investment in the funds of Advisor Series II, III, IV, and
V. If not so terminated, each trust and funds will continue indefinitely.
Global Resources, Growth Opportunities, Income & Growth, Emerging Markets
Income, Strategic Opportunities, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
California Municipal Income, New York Municipal Income, Mid Cap, Large
Cap, and Intermediate Municipal Income may invest all of their assets in
another investment company.
Custodians. Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, is custodian of the assets of Global Resources, Growth
Opportunities, and Strategic Opportunities. The Chase Manhattan Bank,
N.A., 1211 Avenue of the Americas, New York, New York, is custodian of the
assets of Overseas, Equity Growth, Equity Income, Income & Growth, and
Emerging Markets Income. The Bank of New York, 110 Washington Street, New
York, New York, is custodian of the assets of High Yield, Strategic
Income, Government Investment, Intermediate Bond, and Short Fixed-Income.
UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is custodian of
the assets of High Income Municipal, Intermediate Municipal Income,
California Municipal Income, New York Municipal Income, and
Short-Intermediate Municipal Income. The custodian is responsible for the
safekeeping of the fund's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the
investment policies of the fund or in deciding which securities are
purchased or sold by a fund. Chemical Bank, headquartered in New York,
may also serve as a special purpose custodian of certain assets in
connection with pooled 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 of the
funds advised by FMR. The Boston branch of the custodian bank of Global
Resources, Growth Opportunities, and Strategic Opportunities 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 independent
accountant for Mid Cap, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap, Equity Income, Income &
Growth, Emerging Markets Income, High Yield, New York Municipal Income,
California Municipal Income, Strategic Income, Government Investment,
Intermediate Bond, Short Fixed-Income, High Income Municipal, Intermediate
Municipal Income, and Short-Intermediate Municipal Income.
_____________________, serves as the independent accountant for Overseas.
225
<PAGE>
The auditor examines financial statements for each fund and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal period ended October 31, November 30, or December 31, 1995, as
appropriate, are included in the Annual Reports, which are separate
reports supplied with this SAI. Each fund's financial statements and
financial highlights are incorporated herein by reference.
Appendix
Dollar-weighted average maturity is derived by multiplying the value
of each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call, refunding,
or redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and
is pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds. Also, the maturities of mortgage-backed
securities and some asset-backed securities, such as collateralized
mortgage obligations, are determined on a weighted average life basis,
which is the average time for principal to be repaid. For a mortgage
security, this average time is calculated by estimating the timing of
principal payments, including unscheduled prepayments, during the life of
the mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
226
<PAGE>
<PAGE>
Fidelity Advisor Funds: Institutional Class
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Statement of Additional
Item Number Information Section
----------- ---------------------
<S> <C>
10, 11 . . . . . . . . . . . . . . . . . . . Cover Page; Table of Contents
12 . . . . . . . . . . . . . . . . . . . . . Description of the Trusts
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
ii . . . . . . . . . . . . . . . Trustees and Officers
iii . . . . . . . . . . . . . . . Management Contracts; Contracts with FMR Affiliates
b - d . . . . . . . . . . . . . . . . Management Contracts; Contracts with FMR Affiliates
e . . . . . . . . . . . . . . . . . . Management Contracts
f . . . . . . . . . . . . . . . . . . Distribution and Service Plans
g . . . . . . . . . . . . . . . . . . *
h . . . . . . . . . . . . . . . . . . Description of the Trusts
i . . . . . . . . . . . . . . . . . . Contracts with FMR Affiliates
17 a . . . . . . . . . . . . . . . . . . Portfolio Transactions
b . . . . . . . . . . . . . . . . . . Portfolio Transactions
c . . . . . . . . . . . . . . . . . . Portfolio Transactions
d . . . . . . . . . . . Portfolio Transactions
<PAGE>
Form N-1A Statement of Additional
Item Number Information Section
----------- ---------------------
e . . . . . . . . . . . *
18 a . . . . . . . . . . . . . . . . . . Description of the Trusts
b . . . . . . . . . . . . . . . . . . *
19 a . . . . . . . . . . . . . . . . . . Additional Purchase, Exchange and Redemption Information
b . . . . . . . . . . . . . . . . . . Valuation; Additional Purchase, Exchange and Redemption
Information
c . . . . . . . . . . . . . . . . . . *
20 Distributions and Taxes
21 a, b . . . . . . . . . . . . . . . . . Distribution and Service Plans; Contracts with FMR
Affiliates
c . . . . . . . . . . . . . . . . . . *
22 . . . . . . . . . . . . . . . . . . . . . Performance; Appendix
23 . . . . . . . . . . . . . . . . . . . . . Financial Statements
* Not Applicable
</TABLE>
- 2 -
<PAGE>
FIDELITY ADVISOR FUNDS
INSTITUTIONAL CLASS
STATEMENT OF ADDITIONAL INFORMATION
February 26, 1996
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus (dated
February 26, 1996) for Institutional Class shares. Please retain this
document for future reference. Each fund's financial statements and
financial highlights, included in the respective Annual Reports, for the
most recent fiscal period are incorporated herein by reference. To obtain
an additional copy of this SAI, the Prospectus or any Annual Report,
please call Fidelity Distributors Corporation, 82 Devonshire Street,
Boston, Massachusetts 02109 or your Investment Professional.
TABLE OF CONTENTS
PAGE
Investment Policies and Limitations
Special Considerations Affecting Canada
Special Considerations Affecting Latin America
Special Considerations Affecting Japan, the Pacific Basin, and
Southeast Asia
Special Considerations Affecting Europe
Special Considerations Affecting Africa
Special Considerations Affecting New York
Special Considerations Affecting California
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
Performance
Additional Purchase, Exchange, and Redemption Information
Distributions and Taxes
<PAGE>
FMR
Trustees and Officers
Management Contracts
Contracts with FMR Affiliates
Distribution and Service Plans
Description of the Trusts
Financial Statements
Appendix
- 2 -
<PAGE>
ACOM-ptb-296
Growth Funds
------------
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth Opportunities Fund
Fidelity Advisor Strategic Opportunities Fund
Fidelity Advisor Large Cap Fund
Growth and Income Funds
-----------------------
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
Taxable Income Funds
--------------------
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
- 3 -
<PAGE>
Municipal Funds
---------------
Fidelity Advisor High Income Municipal Fund
Fidelity Advisor Intermediate Municipal Income
Fund
Fidelity Advisor Short-Intermediate
Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
Fidelity Advisor California Municipal Income Fund
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 (FIIAL U.K.)
Fidelity Investments Japan Limited (FIJ)
Distributor
-----------
Fidelity Distributors Corporation (FDC)
- 4 -
<PAGE>
Transfer Agent
--------------
Fidelity Investments Institutional Operations
Company (FIIOC) (Taxable Funds)
UMB Bank, n.a. (UMB) (Municipal Funds)
- 5 -
<PAGE>
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 a 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 a fund's investment
policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the
fund. However, except for the fundamental investment limitations listed
below and the policies restated in the "Fundamental Policies" paragraph on
page __, the investment policies and limitations described in this SAI are
not fundamental and may be changed without shareholder approval.
OVERSEAS FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by
the government of the United States, its agencies or instrumentalities)
if, as a result thereof: (i) more than 5% of the fund's total assets would
be invested in the securities of such issuer or (ii) the fund would hold
more than 10% of the outstanding voting securities of such issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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 the value of its total assets (including
the amount borrowed), less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the fund's total assets by
reason of a decline in net assets will be reduced within three days
(exclusive of Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite any issue of securities, except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
1
<PAGE>
(5) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, its agencies
or instrumentalities) if, as a result thereof, more than 25% of the fund's
total assets (taken at current value) would be invested in the securities
of issuers having their principal business activities in the same
industry;
(6) 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);
(7) 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
(8) 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.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) 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
2
<PAGE>
legal or contractual restrictions on resale or because they cannot be sold
or disposed of in the ordinary course of business at approximately the
price at which they are valued.
(v) The fund does not currently intend to invest in interests in
real estate investment trusts that are not readily marketable or invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under limitation (iv) would
exceed 15% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 10% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the fund in units or attached
to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
3
<PAGE>
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
MID CAP FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
4
<PAGE>
(7) 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
(8) 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.
(9) 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
5
<PAGE>
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
6
<PAGE>
(xi) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
EQUITY GROWTH FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer (other than obligations
issued or guaranteed by the Government of the United States, its agencies
or instrumentalities) if, as a result (a) more than 5% of the fund's total
assets (taken at current value) would be invested in the securities of
such issuer, or (b) the fund would hold more than 10% of the voting
securities of such issuer;
(2) make short sales of securities (unless it owns or by virtue
of its ownership of other securities has the right to obtain, securities
equivalent in kind and amount to the securities sold), provided, however,
that the fund may purchase or sell futures contracts;
(3) purchase any securities on margin, except for such short-term
credits as are necessary for the clearance of transactions, provided,
however, that the fund may make initial and variation margin payments in
connection with purchases or sales of futures contracts or of options on
futures contracts;
(4) 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 the value of the fund's total assets
(including the amount borrowed) less liabilities (not including
borrowings). Any borrowings that come to exceed 33 1/3% of the value of
the fund's total assets by reason of a decline in net assets will be
reduced within 3 days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
7
<PAGE>
(5) underwrite any issue of securities (to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(6) purchase the securities of any issuer (other than obligations
issued or guaranteed by the Government of the United States, its agencies
or instrumentalities) if, as a result, more than 25% of the fund's total
assets (taken at current value) would be invested in the securities of
issuers having their principal business activities in the same industry;
(7) purchase or sell real estate (but this shall not prevent the
fund from investing in marketable securities issued by companies such as
real estate investment trusts which deal in real estate or interests
therein and participation interests in pools of real estate mortgage
loans);
(8) 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);
(9) lend any security or make any other loan if, as a result,
more than 33 1/3% of the fund's total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies and
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities;
(10) purchase securities of other investment companies (except in
the open market where no commission other than the ordinary broker's
commission is paid, or as a part of a merger or consolidation, and in no
event may investments in such securities exceed 10% of the total assets of
the fund);
(11) purchase the securities of any issuer if, as a result, more
than 5% of the fund's total assets (taken at current value) would be
invested in the securities of companies which, including predecessors,
have a record of less than three years of continuous operation; or
(12) invest in oil, gas, or other mineral exploration or
development programs.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
8
<PAGE>
(ii) 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 (4)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iii) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(iv) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable, or
interests in real estate limited partnerships that are not listed on an
exchange or traded on the NASDAQ National Market System if, as a result,
the sum of such interests and other investments considered illiquid under
limitation (iii) would exceed 10% of the fund's net assets.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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.)
(vi) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(vii) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
9
<PAGE>
(viii) The fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
For purposes of limitations (11) and (ix), pass-through entities and
other special purpose vehicles or pools of financial assets, such as
issuers of asset-backed securities or investment companies, are not
considered "business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
GLOBAL RESOURCES FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by
the government of the United States, or any of its agencies or
instrumentalities) if, as a result thereof, (a) more than 5% of the fund's
total assets would be invested in the securities of such issuer, or (b)
the fund would hold more than 10% of the outstanding voting securities of
such issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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 the value 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;
(4) underwrite securities issued by others, except to the extent
that the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
10
<PAGE>
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;
(6) 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); 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 with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or fund 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 (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they cannot be sold or
11
<PAGE>
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to invest in physical
commodities other than precious metals (i.e., gold, palladium, platinum
and silver) and it intends to limit such investments to not more than 25%
of the fund's total assets. The fund may receive no more than 10% of its
yearly income from gains resulting from selling metals or any other
physical commodity.
(vii) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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.)
(viii) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(x) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 10% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the fund in units or attached
to securities are not subject to these restrictions.
12
<PAGE>
(xi) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(xii) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(xiii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures contracts and options, see the
section entitled "Futures and Options" on page __.
GROWTH OPPORTUNITIES FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
13
<PAGE>
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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 with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
14
<PAGE>
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 limit does not apply to purchases of debt securities or
to repurchase agreements.)
(vii) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, may
be warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
15
<PAGE>
(xi) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" on page __.
STRATEGIC OPPORTUNITIES FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities) if, as a result thereof, more than 5% of the fund's
total assets (taken at current value) would be invested in the securities
of such issuer;
(2) purchase the securities of any issuer, if such purchase, at
the time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held in the fund's portfolio;
(3) issue senior securities (except to the extent that issuance
of one or more classes of shares of the fund in accordance with an order
issued by the Securities and Exchange Commission may be deemed to
constitute issuance of a senior security);
(4) make short sales of securities, (unless it owns, or by virtue
of its ownership of other securities has the right to obtain, at no
additional cost, securities equivalent in kind and amount to the
securities sold); provided, however, that the fund may enter into forward
foreign currency exchange transactions; and further provided that the fund
may purchase or sell futures contracts;
(5) purchase any securities or other property on margin, (except
for such short-term credits as are necessary for the clearance of
transactions); provided, however, that the fund may make initial and
16
<PAGE>
variation margin payments in connection with purchases or sales of futures
contracts or options on futures contracts;
(6) 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 the value of the fund's total assets
(including the amount borrowed) less liabilities (not including
borrowings). Any borrowings that come to exceed 33 1/3% of the fund's
total assets by reason of a decline in net assets, will be reduced within
three days (exclusive of Sundays and holidays) to the extent necessary to
comply with the 33 1/3% limitation. The fund will not purchase securities
for investment while borrowings equaling 5% or more of its total assets
are outstanding;
(7) underwrite any issue of securities (except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of "restricted securities");
(8) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities) if, as a result thereof, more than 25% of the fund's
total assets would be invested in the securities of one or more issuers
having their principal business activities in the same industry;
(9) purchase or sell real estate (but this shall not prevent the
fund from investing in marketable securities issued by companies such as
real estate investment trusts which deal in real estate or interests
therein and participation interests in pools of real estate mortgage
loans);
(10) 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);
(11) lend any security or make any other loan if as a result, more
than 33 1/3% of the fund's total assets would be lent to other parties
except (i) through the purchase of a portion of an issue of debt
securities in accordance with its investment objective, policies, and
limitations, or (ii) by engaging in repurchase agreements with respect to
portfolio securities;
(12) purchase securities of other investment companies (except in
the open market where no commission other than the ordinary broker's
commission is paid, or as part of a merger or consolidation, and in no
event may investments in such securities exceed 10% of the value of total
assets of the fund). The fund may not purchase or retain securities issued
by other open-end investment companies;
(13) invest more than 5% of the fund's total assets (taken at
market value) in the securities of companies which, including
17
<PAGE>
predecessors, have a record of less than three years' continuous
operation; or
(14) invest in oil, gas, or other mineral exploration or
development programs.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) 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 (6)). 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.
(ii) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(iii) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or interests
in real estate limited partnerships that are not listed on an exchange or
traded on the NASDAQ National Market System if, as a result, the sum of
such interests and other investments considered illiquid under limitation
(ii) would exceed 10% of the fund's net assets.
(iv) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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.)
(v) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(vi) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
18
<PAGE>
(vii) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(viii) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" on page __.
LARGE CAP FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
19
<PAGE>
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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) 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.
20
<PAGE>
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(v) The fund does not currently intend to purchase interests in
real estate investment trusts that are not readily marketable or
interests in real estate limited partnerships that are not listed on an
exchange or traded on the NASDAQ National Market System if, as a result,
the sum of such interests and other investments considered illiquid under
limitation (iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
21
<PAGE>
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(xi) 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 limitations (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
EQUITY INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
22
<PAGE>
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) lend any security or make any other loan if, as a result,
more than 33 1/3% of total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
23
<PAGE>
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any security
if, as a result, more than 10% 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.
(v) The fund does not currently intend to invest in interests in
real estate investment trusts that are not readily marketable or invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System if, as a result, the sum of such interests
and other investments considered illiquid under limitation (iv) would
exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets
other than securities to other parties, except (a) by 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 (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation or merger.
(viii) The fund does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
24
<PAGE>
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
(xi) The fund does not currently intend to invest in oil, gas or
other mineral exploration or development programs or leases.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see
the section entitled "Futures and Options" beginning on page __.
INCOME & GROWTH FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
25
<PAGE>
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;
(6) 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);
(7) 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
(8) 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.
(9) 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 with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
26
<PAGE>
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to purchase interests
in real estate investment trusts that are not readily marketable or
interests in real estate limited partnerships that are not listed on an
exchange or traded on the NASDAQ National Market System if, as a result,
the sum of such interests and other investments considered illiquid under
limitation (iv) would exceed 10% of the fund's net assets.
(vi) The fund does not currently intend to lend assets other
than securities to other parties, except by (a) lending money (up to 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 (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of its net assets.
Included in that amount, but not to exceed 2% of the fund's net assets,
may be warrants that are not listed on the New York Stock Exchange or the
American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas,
other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
27
<PAGE>
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (viii), pass-through entities
and other special purpose vehicles or pools of financial assets, such as
issuers of asset-backed securities or investment companies, are not
considered "business enterprises."
For the fund's limitations on futures and options
transactions, see the section entitled "Futures and Options" beginning on
page __.
EMERGING MARKETS INCOME FUND
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
28
<PAGE>
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 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 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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
29
<PAGE>
(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 invest in interests
in real estate investment trusts that are not readily marketable, or to
invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(vii) The fund does not currently intend to lend assets other
than securities to other parties, except (a) by 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.)
(viii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation or merger.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 10% of the fund's net
assets. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the fund in units or attached
to securities are not subject to these restrictions.
(xii) With respect to 75% of its total assets, the fund does
not currently intend to 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, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
30
<PAGE>
(xiii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xiv) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
HIGH YIELD FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the value of the fund's total assets would
be invested in the securities of that issuer, or (b) it would hold more
than 10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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
31
<PAGE>
fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) 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);
(7) 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
(8) 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.
(9) 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 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
32
<PAGE>
(iv) 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.
(v) The fund does not currently intend to invest in interests
in real estate investment trusts that are not readily marketable or invest
in interests in real estate limited partnerships that are not listed on
the New York Stock Exchange or the American Stock Exchange or traded on
the NASDAQ National Market System if, as a result, the sum of such
interests and other investments considered illiquid under limitation (iv)
would exceed 15% of the fund's net assets.
(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 purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(viii) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(ix) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(x) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
33
<PAGE>
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (vii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
STRATEGIC INCOME FUND
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
34
<PAGE>
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 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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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
35
<PAGE>
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 and loan participations or other forms of direct debt
instruments and, in connection therewith, assuming any associated unfunded
loan 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 (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas,
or other mineral explorations or development programs or leases.
(xi) With respect to 75% of its total assets, the fund does
not currently intend to 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, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
36
<PAGE>
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
GOVERNMENT INVESTMENT FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940.
(3) 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;
(4) 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;
(5) 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 issuers having
their principal business activities in the same industry;
(6) purchase or sell real estate unless acquired as a result
of ownership of securities or other investments (but this shall not
prevent the fund from investing in securities or other instruments backed
by real estate or securities of companies in the real estate business);
(7) 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
37
<PAGE>
(8) 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
repurchase agreements.
(9) 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 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% of its net assets would be
invested in securities that are deemed 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.
(v) The fund does not currently intend to invest in interests
in real estate investment trusts that are not readily marketable or to
invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
38
<PAGE>
(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 (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(x) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to enter into any
futures contract or option on a futures contract if, as a result, the sum
of initial margin deposits on futures contracts and related options and
premiums paid for options on futures contracts the fund has purchased,
after taking into account unrealized profits and losses on such contracts
would exceed 5% of the fund's total assets.
(xiii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
39
<PAGE>
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
INTERMEDIATE BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) 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
40
<PAGE>
contracts or from investing in securities or other instruments backed by
physical commodities); or
(8) lend any security or make any other loan if, as a result,
more than 33 1/3% of the fund's total assets would be lent to other
parties (but this limitation does not apply to purchases of debt
securities or to repurchase agreements).
(9) 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 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) 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.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or fund 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 (3). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) 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 fund for
which FMR or an affiliate serves as investment adviser or (b) acquiring
loans, loan participations, or other forms of direct debt instruments,
41
<PAGE>
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.)
(vi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(vii) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(viii) The fund does not currently intend to invest in
interests in real estate investment trusts that are not readily marketable
or to invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(ix) The fund currently does not intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to (a) purchase
securities of other investment companies except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(xi) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
SHORT FIXED-INCOME FUND
42
<PAGE>
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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 with
43
<PAGE>
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to lend assets other
than securities to other parties, except by (i) 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 (ii)
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.)
(vi) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation, or merger.
44
<PAGE>
(vii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(viii) The fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of the fund's net
assets. Included in that amount, but not to exceed 2% of the fund's net
assets, may be warrants that are not listed on the New York Stock Exchange
or the American Stock Exchange. Warrants acquired by the fund in units or
attached to securities are not subject to these restrictions.
(ix) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(x) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xi) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (vii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" on page __.
45
<PAGE>
HIGH INCOME MUNICIPAL FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) underwrite securities issued by others (except to the
extent that the fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in the disposition of restricted
securities);
(5) purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
securities of companies whose principal business activities are in the
same industry;
(6) 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);
(7) 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
(8) 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
46
<PAGE>
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(9) 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 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) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to invest in interests
of real estate investment trusts that are not readily marketable, or to
invest in interests of real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(vi) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
47
<PAGE>
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(vii) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(viii) The fund does not currently intend to invest more than
25% of its total assets in industrial revenue bonds related to a single
industry.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas
or other mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xii) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment
company with substantially the same fundamental investment objective,
policies, and limitations as the fund.
For purposes of limitation (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
INTERMEDIATE MUNICIPAL INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, 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
48
<PAGE>
a result, (a) more than 5% of its total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) 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;
(6) 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);
(7) 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
(8) 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.
(9) 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.
49
<PAGE>
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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.
(ii) 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.
(iii) 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 (3)). The
fund will not purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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.
(iv) The fund does not currently intend to purchase any
security if, as a result, more than 10% 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.
(v) The fund does not currently intend to invest in interests
in real estate investment trusts that are not readily marketable, or to
invest in interests in real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(vi) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger. Any securities issued by other investment
50
<PAGE>
companies would also have to meet the fund's credit and maturity
standards. In some cases, other investment companies may incur expenses
that are comparable to expenses paid by the fund, which would be taken
into account in considering investments in such securities.
(viii) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(ix) The fund does not currently intend to invest in oil, gas,
other mineral exploration or development programs or leases.
(x) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and Trustees of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(xi) 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 (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures contracts and options, see
the section entitled "Futures and Options" beginning on page __.
SHORT-INTERMEDIATE MUNICIPAL INCOME FUND
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
51
<PAGE>
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, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
52
<PAGE>
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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 10% 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 engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
53
<PAGE>
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years continuous operation.
(x) The fund may not 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.)
(xi) The fund does not currently intend to invest in interests
of real estate investment trusts that are not readily marketable, or to
invest in interests of real estate limited partnerships that are not
listed on the New York Stock Exchange or the American Stock Exchange or
traded on the NASDAQ National Market System.
(xii) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(xiii) With respect to 75% of its total assets, the fund does
not currently intend to 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, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
(xiv) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions,
see the section entitled "Futures and Options" beginning on page __.
NEW YORK MUNICIPAL INCOME FUND
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;
54
<PAGE>
(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, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
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.
55
<PAGE>
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY
BE CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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 10% 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.
56
<PAGE>
(vi) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years continuous operation.
(x) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(xi) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
CALIFORNIA MUNICIPAL INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
57
<PAGE>
(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, or tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local
government, or a political subdivision of any of the foregoing) if, as a
result, more than 25% of the fund's total assets would be invested in
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
58
<PAGE>
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) To meet federal tax requirements for qualification as a
"regulated investment company," the fund limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at least
50% of total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets
are invested in the securities of a single issuer. Limitations (a) and (b)
do not apply to "government securities" as defined for federal tax
purposes.
(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 purchase any security while borrowings representing more
than 5% of its total assets are outstanding. 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 10% 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.
59
<PAGE>
(vi) The fund does not currently intend to engage in
repurchase agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or (b)
purchase or retain securities issued by other open-end investment
companies. Limitations (a) and (b) do not apply to securities received as
dividends, through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(viii) The fund does not currently intend to purchase the
securities of any issuer if those officers and Trustees of the trust and
those officers and directors of FMR who individually own more than 1/2 of
1% of the securities of such issuer together own more than 5% of such
issuer's securities.
(ix) The fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by
domestic or foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(xi) 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 (ix), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For purposes of certain fundamental investment limitations, FMR
identifies the issuer of a security depending on its terms and conditions.
In identifying the issuer, FMR will consider the entity or entities
responsible for payment of interest and repayment of principal and the
source of such payments; the way in which assets and revenues of an
60
<PAGE>
issuing political subdivision are separated from those of other political
entities; and whether a governmental body is guaranteeing the security.
EACH FUND'S INVESTMENTS MUST BE CONSISTENT WITH ITS INVESTMENT
OBJECTIVE AND POLICIES. ACCORDINGLY, NOT ALL OF THE SECURITY TYPES AND
INVESTMENT TECHNIQUES DISCUSSED BELOW ARE ELIGIBLE INVESTMENTS FOR EACH OF
THE FUNDS.
Affiliated Bank Transactions. A 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
(1940 Act). 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 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. A 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.
Delayed-Delivery Transactions. A fund may buy and sell securities
on a delayed-delivery or when-issued basis. These transactions involve a
commitment by a 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. A fund
may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, a fund
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Because a 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 a 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, a fund will set
61
<PAGE>
aside appropriate liquid assets in a segregated custodial account to cover
its purchase obligations. When a 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, a
fund could miss a favorable price or yield opportunity, or could suffer a
loss.
A 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,
62
<PAGE>
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 Depository Receipts (ADRs), as well as other "hybrid"
forms of ADRs, including European Depository Receipts (EDRs) and Global
Depository 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
alternatives 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.
Federally Taxable Obligations. Under normal conditions, the
municipal funds do not intend to invest in securities whose interest is
federally taxable. However, from time to time on a temporary basis, each
municipal fund may invest a portion of its assets in fixed-income
obligations whose interest is subject to federal income tax.
Should a municipal fund invest in federally taxable obligations,
it would purchase securities that, in FMR's judgment, are of high quality.
These obligations would include those issued or guaranteed by the U.S.
government or its agencies or instrumentalities; obligations of domestic
banks; and repurchase agreements. The funds' standards for high-quality,
taxable obligations are essentially the same as those described by Moody's
Investor Services (Moody's) in rating corporate obligations within its two
highest ratings of Prime-1 and Prime-2, and those described by Standard &
Poor's Corporation (S&P) in rating corporate obligations within its two
highest ratings of A-1 and A-2.
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Proposals to restrict or eliminate the federal income tax
exemption for interest on municipal obligations are introduced before
Congress from time to time. Proposals also may be introduced before state
legislatures that would affect the state tax treatment of the municipal
funds' distributions. If such proposals were enacted, the availability of
municipal obligations and the value of the municipal funds' holdings would
be affected and the Trustees would reevaluate the municipal funds'
investment objectives and policies.
Foreign Currency Transactions. A fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. A fund will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion,
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 to a fund at one rate, while offering a
lesser rate of exchange should the fund desire to resell that currency to
the dealer. Forward contracts are generally traded in an interbank market
conducted 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. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by a fund. A fund may also use swap
agreements, indexed securities, and options and futures contracts relating
to foreign currencies for the same purposes.
When a fund agrees to buy or sell a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale,
for a fixed amount of U.S. dollars, of the amount of foreign currency
involved in the underlying security transaction, a fund will be able to
protect itself against an adverse change in foreign currency values
between the date the security is purchased or sold and the date on which
payment is made or received. This technique is sometimes referred to as a
"settlement hedge" or "transaction hedge." A fund may also enter into
forward contracts to purchase or sell a foreign currency in anticipation
of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by
FMR.
A fund may also use forward contracts to hedge against a decline
in the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
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U.S. dollars to hedge against possible declines in the pound's value. Such
a hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. A fund could also
hedge the position by selling another currency expected to perform
similarly to the pound sterling - for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield, or efficiency, but
generally would not hedge currency exposure as effectively as a simple
hedge into U.S. dollars. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. For example, if a fund held
investments denominated in Deutschemarks, a fund could enter into forward
contracts to sell Deutschemarks and purchase Swiss Francs. This type of
strategy, sometimes known as a "cross-hedge," will tend to reduce or
eliminate exposure to the currency that is sold, and increase exposure to
the currency that is purchased much as if a fund had sold a security
denominated in one currency and purchased an equivalent security
denominated in another. Cross-hedges protect against losses resulting from
a decline in the hedged currency, but will cause a fund to assume the risk
of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to
set aside appropriate liquid assets in a segregated custodial account to
cover currency forward contracts. As required by SEC guidelines, the funds
will segregate assets to cover currency forward contracts, if any, whose
purpose is essentially speculative. A fund will not segregate assets to
cover forward contracts entered into for hedging purposes, including
settlement hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on
FMR's skill in analyzing and predicting 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 be unable to
participate in the currency's appreciation. If FMR hedges currency
exposure through proxy hedges, a fund could realize currency losses from
the hedge and the security position at the same time 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 the funds or that it will hedge at an
appropriate time.
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Foreign Repurchase Agreements. Foreign repurchase agreements may
include agreements to purchase and sell foreign securities in exchange for
fixed U.S. dollar amounts, or in exchange for specified amounts of foreign
currency. Unlike typical U.S. repurchase agreements, foreign repurchase
agreements may not be fully collateralized at all times. The value of the
security purchased by the fund may be more or less than the price at which
the counterparty has agreed to repurchase the security. In the event of a
default by the counterparty, the fund may suffer a loss if the value of
the security purchased is less than the agreed-upon repurchase price, or
if the fund is unable to successfully assert a claim to the collateral
under foreign laws. As a result, foreign repurchase agreements may involve
higher credit risks than repurchase agreements in U.S. markets, as well as
risks associated with currency fluctuations. In addition, as with other
emerging market investments, repurchase agreements with counterparties
located in emerging markets or relating to emerging market securities may
involve issuers or counterparties with lower credit ratings than typical
U.S. repurchase agreements.
Funds' Rights as Shareholders. The funds do not intend to direct
or administer the day-to-day operations of any company. A 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 a 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 a 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 a 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 paragraphs 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. Each fund will
comply with guidelines established by the SEC with respect to coverage of
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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 a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
Combined Positions. A 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, a 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 a fund's current
or anticipated investments exactly. A 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 a fund's other investments.
Options and futures prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match a
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. A 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 a 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
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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 a fund enters into the
contract. Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on
indices of securities prices, such as the Standard & Poor's Composite
Index of 500 Stocks (S&P 500) or the Bond Buyer Municipal Bond Index.
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 a fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it
had purchased the underlying instrument directly. When a 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 a fund's
investment limitations. In the event of the bankruptcy of an FCM that
holds margin on behalf of a 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. Each fund has
filed 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. Each 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, each 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
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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 each fund's investments in futures
contracts and options, and each 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 a 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 a fund
to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, a 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.
A fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. A 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
a fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect a
fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a fund's foreign-denominated
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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 options
(OTC) (options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this type
of arrangement allows a 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, a
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.
A 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. A 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 a 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, a fund will be required to make margin payments to an FCM as
described above for futures contracts. A 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
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market is not liquid for a put option a 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 a 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 a fund's investments and, through reports
from FMR, the Board monitors investments in illiquid instruments. In
determining the liquidity of a 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 a 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, municipal lease obligations,
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 a 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.
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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, a fund were in a position where more than 10% or 15%
of its net assets (see each fund's non-fundamental investment limitations)
was invested in illiquid securities, it would seek to take appropriate
steps to protect liquidity.
Indexed Securities. A 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 Program. Pursuant to an exemptive order issued
by the SEC, each fund has received permission to lend money to, and borrow
money from, other funds advised by FMR or its affiliates. High Income
Municipal, Intermediate Municipal Income, Short-Intermediate Municipal
Income, California Municipal Income, and New York Municipal Income each
will participate in the interfund borrowing program only as a borrower.
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.
Each fund (except High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, California Municipal Income, and New
York Municipal Income) will lend through the program only when the returns
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are higher than those available from other short-term instruments (such as
repurchase agreements). A fund will borrow through the program only when
the costs are equal to or lower than the cost of bank loans. A 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.
Inverse Floaters have variable interest rates that typically move
in the opposite direction from prevailing short-term interest rate
levels - rising when prevailing short-term interest rates fall and vice
versa. This interest rate feature can make the prices of inverse floaters
considerably more volatile than those of bonds with comparable maturities.
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 each 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 a 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 a 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 a 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 a fund in the event of fraud
or misrepresentation. In the absence of definitive regulatory guidance,
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each 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, a 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 a 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 a 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. A fund will set aside appropriate liquid assets in a
segregated custodial account to cover its potential obligations under
standby financing commitments.
Each fund limits the amount of total assets that it will invest in
any one issuer or in issuers within the same industry (see each fund's
investment limitations). For purposes of these limitations, a 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 a 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 a 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.
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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 a 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 a fund. In considering
investments for a 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.
Each 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.
Lower-Quality Municipal Securities. While the market for
municipals is considered to be substantial, adverse publicity and changing
investor perceptions may affect the ability of outside pricing services
used by a fund to value its portfolio securities, and a fund's ability to
dispose of lower-quality bonds. The outside pricing services are monitored
by FMR and reported to the Board to determine whether the services are
furnishing prices that accurately reflect fair value. The impact of
changing investor perceptions may be especially pronounced in markets
where municipal securities are thinly traded.
Each fund may choose, at its expense or in conjunction with
others, to pursue litigation or otherwise 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.
Municipal Market Disruption Risk. The value of municipal
securities may be affected by uncertainties in the municipal market
related to legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event of a
bankruptcy. Municipal bankruptcies are relatively rare, and certain
provisions of the U.S. Bankruptcy Code governing such bankruptcies are
unclear and remain untested. Further, the application of state law to
municipal issuers could produce varying results among the states or among
municipal securities issuers within a state. These legal uncertainties
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could affect the municipal securities market generally, certain specific
segments of the market, or the relative credit quality of particular
securities. Any of these effects could have a significant impact on the
prices of some or all of the municipal securities held by a fund.
Mortgage-Backed Securities. A 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 is 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
(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 a 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.
Municipal Leases and participation interests therein may take the
form of a lease, an installment purchase, or a conditional sale contract,
and are issued by state and local governments and authorities to acquire
land or a wide variety of equipment and facilities. Generally, a fund will
not hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those
associated with general obligation or revenue bonds. State constitutions
and statutes set forth requirements that states or municipalities must
meet to incur debt. These may include voter referenda, interest rate
limits, or public sale requirements. Leases, installment purchases, or
conditional sale contracts (which normally provide for title to the leased
asset to pass to the governmental issuer) have evolved as a means for
governmental issuers to acquire property and equipment without meeting
their constitutional and statutory requirements for the issuance of debt.
Many leases and contracts include "non-appropriation clauses" providing
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that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purposes
by the appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations.
MUNICIPAL SECTORS:
Education. In general, there are two types of education-related
bonds; those issued to finance projects for public and private colleges
and universities, and those representing pooled interests in student
loans. Bonds issued to supply educational institutions with funds are
subject to the risk of unanticipated revenue decline, primarily the result
of decreasing student enrollment or decreasing state and Federal funding.
Among the factors that may lead to declining or insufficient revenues are
restrictions on students' ability to pay tuition, availability of state
and federal funding, and general economic conditions. Student loan revenue
bonds are generally offered by state (or substate) authorities or
commissions and are backed by pools of student loans. Underlying student
loans may be guaranteed by state guarantee agencies and may be subject to
reimbursement by the United States Department of Education through its
guaranteed student loan program. Others may be private, uninsured loans
made to parents or students which are supported by reserves or other forms
of credit enhancement. Recoveries of principal due to loan defaults may be
applied to redemption of bonds or may be used to re-lend, depending on
program latitude and demand for loans. Cash flows supporting student loan
revenue bonds are impacted by numerous factors, including the rate of
student loan defaults, seasoning of the loan portfolio, and student
repayment deferral during periods of forbearance. Other risks associated
with student loan revenue bonds include potential changes in federal
legislation regarding student loan revenue bonds, state guarantee agency
reimbursement and continued federal interest and other program subsidies
currently in effect.
Electric Utilities Industry. The electric utilities industry has
been experiencing, and will continue to experience, increased competitive
pressures. Federal legislation in the last two years will open
transmission access to any electricity supplier, although it is not
presently known to what extent competition will evolve. Other risks
include: (a) the availability and cost of fuel, (b) the availability and
cost of capital, (c) the effects of conservation on energy demand, (d) the
effects of rapidly changing environmental, safety, and licensing
requirements, and other federal, state, and local regulations, (e) timely
and sufficient rate increases, and (f) opposition to nuclear power.
Health Care Industry. The health care industry is subject to
regulatory action by a number of private and governmental agencies,
including federal, state, and local governmental agencies. A major source
of revenues for the health care industry is payments from the Medicare and
Medicaid programs. As a result, the industry is sensitive to legislative
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changes and reductions in governmental spending for such programs.
Numerous other factors may affect the industry, such as general and local
economic conditions; demand for services; expenses (including malpractice
insurance premiums); and competition among health care providers. In the
future, the following elements may adversely affect health care facility
operations: adoption of legislation proposing a national health insurance
program; other state or local health care reform measures; medical and
technological advances which dramatically alter the need for health
services or the way in which such services are delivered; changes in
medical coverage which alter the traditional fee-for-service revenue
stream; and efforts by employers, insurers, and governmental agencies to
reduce the costs of health insurance and health care services.
Housing. Housing revenue bonds are generally issued by a state,
county, city, local housing authority, or other public agency. They are
generally secured by the revenues derived from mortgages purchased with
the proceeds of the bond issue. It is extremely difficult to predict the
supply of available mortgages to be purchased with the proceeds of an
issue or the future cash flow from the underlying mortgages. Consequently,
there are risks that proceeds will exceed supply, resulting in early
retirement of bonds, or that homeowner repayments will create an irregular
cash flow. Many factors may affect the financing of multi-family housing
projects, including acceptable completion of construction, proper
management, occupancy and rent levels, economic conditions, and changes to
current laws and regulations.
Transportation. Transportation debt may be issued to finance the
construction of airports, toll roads, highways or other transit
facilities. Airport bonds are dependent on the general stability of the
airline industry and on the stability of a specific carrier that uses the
airport as a hub. Air traffic generally tracks broader economic trends and
is also affected by the price and availability of fuel. Toll road bonds
are also affected by the cost and availability of fuel as well as toll
levels, the presence of competing roads, and the general economic health
of the area. Fuel costs and availability also affect other
transportation-related securities, as does the presence of alternate forms
of transportation, such as public transportation.
Water and Sewer. Water and sewer revenue bonds are often
considered to have relatively secure credit as a result of their issuer's
importance, monopoly status, and generally unimpeded ability to raise
rates. Despite this, lack of water supply due to insufficient rain,
run-off, or snow pack is a concern that has led to past defaults. Further,
public resistance to rate increases, costly environmental litigation, and
Federal environmental mandates are challenges faced by issuers of water
and sewer bonds.
Physical Commodities. As a practical matter, investments in
physical commodities can present concerns such as delivery, storage and
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maintenance, possible illiquidity and the unavailability of accurate
market valuations. FMR, in addressing these concerns, currently intends to
purchase only readily marketable precious metals and to deliver and store
them with a qualified U.S. bank. Investments in bullion earn no investment
income and may involve higher custody and transaction costs than
investments in securities. Global Resources may receive no more than 10%
of its yearly income from gains resulting from selling metals or any other
physical commodity. Therefore, the fund may be required either to hold its
metals or to sell them at a loss, or to sell its portfolio securities at a
gain,when it would not otherwise do so for investment reasons.
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.
Refunding Contracts. A fund may purchase securities on a
when-issued basis in connection with the refinancing of an issuer's
outstanding indebtedness. Refunding contracts require the issuer to sell
and a fund to buy refunded municipal obligations at a stated price and
yield on a settlement date that may be several months or several years in
the future. A fund generally will not be obligated to pay the full
purchase price if it fails to perform under a refunding contract. Instead,
refunding contracts generally provide for payment of liquidated damages to
the issuer (currently 15-20% of the purchase price). A fund may secure its
obligations under a refunding contract by depositing collateral or a
letter of credit equal to the liquidated damages provisions of the
refunding contract. When required by SEC guidelines, a fund will place
liquid assets in a segregated custodial account equal in amount to its
obligations under refunding contracts.
Repurchase Agreements. In a repurchase agreement, a 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 a
fund from the 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 a fund
in connection with bankruptcy proceedings), it is each fund's (except
Equity Growth's) current policy to engage in repurchase agreement
transactions with parties whose creditworthiness has been reviewed and
found satisfactory by FMR. Equity Growth will engage in repurchase
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agreement transactions only with banks of the Federal Reserve System and
primary dealers in U.S. Government securities.
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, a 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, a 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,
a 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, a fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
A 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 a fund's
assets and may be viewed as a form of leverage.
Securities Lending. A 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
(NYSE) and a subsidiary of FMR Corp.
Securities lending allows a 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
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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 a 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. A 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 a 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. A 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 a fund enters into a short sale, it will be required to set
aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities) and
will be required to hold them aside while the short sale is outstanding. A
fund will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.
Sovereign Debt Obligations. A 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.
Standby Commitments are puts that entitle holders to same-day
settlement at an exercise price equal to the amortized cost of the
underlying security plus accrued interest, if any, at the time of
exercise. A fund may acquire standby commitments to enhance the liquidity
of portfolio securities.
Ordinarily a fund will not transfer a standby commitment to a
third party, although it could sell the underlying municipal security to a
third party at any time. A fund may purchase standby commitments separate
from or in conjunction with the purchase of securities subject to such
commitments. In the latter case, a fund would pay a higher price for the
securities acquired, thus reducing their yield to maturity.
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Issuers or financial intermediaries may obtain letters of credit
or other guarantees to support their ability to buy securities on demand.
FMR may rely upon its evaluation of a bank's credit in determining whether
to purchase an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be
subject to unfavorable political or economic developments, currency
controls, or other governmental restrictions that might affect the bank's
ability to honor its credit commitment.
Standby commitments are subject to certain risks, including the
ability of issuers of standby commitments to pay for securities at the
time the commitments are exercised; the fact that standby commitments are
not marketable by a fund; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
Stripped Government Securities. Stripped securities are created
by separating the income and principal components of a debt instrument and
selling them separately. U.S. Treasury STRIPS (Separate Trading of
Registered Interest and Principal of Securities) are created when the
coupon payments and the principal payment are stripped from an outstanding
Treasury bond by the Federal Reserve Bank. Bonds issued by government
agencies also may be stripped in this fashion.
Privately stripped government securities are created when a dealer
deposits a Treasury security or federal agency security with a custodian
for safekeeping and then sells the coupon payments and principal payment
that will be generated by this security. Proprietary receipts, such as
Certificates of Accrual on Treasury Securities (CATS), Treasury Investment
Growth Receipts (TIGRS), and generic Treasury Receipts (TRs), are stripped
U.S. Treasury securities that are separated into their component parts
through trusts created by their broker sponsors. Bonds issued by
government agencies also may be stripped in this fashion.
Because of the SEC's views on privately stripped government
securities, a fund must evaluate them as it would non-government
securities pursuant to regulatory guidelines applicable to all money
market funds. A fund currently intends to purchase only those privately
stripped government securities that have either received the highest
ranking from two nationally recognized rating services (or one, if only
one has rated the security) or, if unrated, have been judged to be of
equivalent quality by FMR pursuant to procedures adopted by the Board of
Trustees.
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
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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 investments or market
factors. Depending on their structure, swap agreements may increase or
decrease a 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. A fund is not limited to any particular form
of swap agreement if FMR determines it is consistent with a 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 rights 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 a fund's investment exposure
from one type of investment to another. For example, if a fund agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease a 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 a 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 a fund. If a swap
agreement calls for payments by a 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. A 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.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap agreements.
If a fund enters into a swap agreement on a net basis, it will segregate
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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 a 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.
Tender Option Bonds are created by coupling an intermediate- or
long-term, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for a fund, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
Variable or Floating Rate Obligations, including certain
participation interests in municipal instruments, have interest rate
adjustment formulas that help stabilize their market values. Many variable
and floating rate instruments also carry demand features that permit a
fund to sell them at par value plus accrued interest on short notice.
In many instances bonds and participation interests have tender
options or demand features that permit a fund to tender (or put) the bonds
to an institution at periodic intervals and to receive the principal
amount thereof. The funds consider variable rate instruments structured in
this way (Participating VRDOs) to be essentially equivalent to other VRDOs
they purchase. The IRS has not ruled whether the interest on Participating
VRDOs is tax-exempt, and, accordingly, the funds intend to purchase these
instruments based on opinions of bond counsel. The funds may also invest
in fixed-rate bonds that are subject to third party puts and in
participation interests in such bonds held by a bank in trust or
otherwise.
Warrants are securities that give a fund the right to purchase
equity securities from the issuer at a specific price (the strike price)
for a limited period of time. The strike price of warrants typically is
much lower than the current market price of the underlying securities, yet
they are subject to similar price fluctuations. As a result, warrants may
be more volatile investments than the underlying securities and may offer
greater potential for capital appreciation as well as capital loss.
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Warrants do not entitle a holder to dividends or voting rights
with respect to the underlying securities and do not represent any rights
in the assets of the issuing company. Also, the value of the warrant does
not necessarily change with the value of the underlying securities, and a
warrant ceases to have value if it is not exercised prior to expiration
date. These factors can make warrants more speculative than other types of
investments.
Zero Coupon Bonds do not make regular 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, a fund takes into account as income a portion
of the difference between a zero coupon bond's purchase price and its face
value.
The following paragraph restates fundamental policies previously
disclosed in the above descriptions of security types and investment
practices.
Fundamental Policies: It is the policy of Equity Growth to engage
in repurchase agreement transactions only with banks of the Federal
Reserve System and primary dealers in U.S. Government securities.
SPECIAL CONSIDERATIONS AFFECTING CANADA
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Canada occupies the northern part of North America and is the
second largest country in the world (3.97 million square miles in area)
extending from the Atlantic Ocean to the Pacific Ocean. The companies in
which a fund may invest include those involved in the energy industry,
industrial materials (chemicals, base metals, timber and paper) and
agricultural materials (grain cereals). The securities of companies in the
energy industry are subject to changes in value and dividend yield which
depend, to a large extent, on the price and supply of energy fuels. Rapid
price and supply fluctuations may be caused by events relating to
international politics, energy conservation and the success of exploration
products. Canada is one the world's leading industrial countries and is
rich in natural resources such as zinc, uranium, nickel, gold, silver,
aluminum, iron and copper. Forest covers over 44% of land area, making
Canada a leading world producer of newsprint. Canada is also a major
exporter of agricultural products. The economy of Canada is strongly
influenced by the activities of companies and industries involved in the
production and processing of natural resources. Canada is a major producer
of hydroelectricity, oil and gas. The business activities of companies in
the energy field may include the production, generation, transmission,
marketing, control or measurement of energy or energy fuels. Economic
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prospects are changing due to recent government attempts to reduce
restrictions against foreign investments.
Securities of Canadian companies are not considered by FMR to have
the same level of risk as those of other non-U.S. companies. Canadian and
U.S. companies are generally subject to similar auditing and accounting
procedures, and similar government supervision and regulation. Canadian
markets are more liquid than many other foreign markets and share similar
characteristics with U.S. markets. A fund may elect to participate in new
equity issues or initial public offerings of Canadian companies.
Many factors affect and could have an adverse impact on the
financial condition of Canada, including social, environmental and
economic conditions, factors which are not within the control of Canada.
Although the Canadian political system is generally more stable than that
of many other foreign countries, continued tension with respect to greater
independence for, or possible separation of, Quebec causes political
uncertainty. Moreover, while the Canadian dollar is generally less
volatile relative to the U.S. dollar than other foreign currencies, the
value of the Canadian dollar has decreased significantly in recent years.
Continued efforts to reduce the structural Canadian budget deficit will be
required. FMR is unable to predict what effect, if any, such factors would
have on instruments held in the fund's portfolio.
The United States-Canada Free Trade Agreement, which became
effective in January 1989, will be phased in over a period of ten years.
This agreement will remove tariffs on U.S. technology and Canadian
agricultural products in addition to removing trade barriers affecting
other important sectors of each country's economy. Canada, the United
States, and Mexico have implemented the North American Free Trade
Agreement (NAFTA), which was entered into in 1994. This cooperation is
expected to lead to increased trade and reduced trade barriers.
The majority of new equity issues or initial public offerings in
Canada are through underwritten offerings. Certain funds may elect to
participate in these issues.
SPECIAL CONSIDERATIONS AFFECTING LATIN AMERICA
-----------------------------------------------
Latin America is a region rich in natural resources such as oil,
copper, tin, silver, iron ore, forestry, fishing, livestock, and
agriculture. The region has a large population (roughly 300 million)
representing a large number of markets. The region has been in transition
over the last five years from the stagnant 1980s, which were characterized
by poor economic policies, higher international interest rates, and
limited access to new foreign capital. Economic growth was strong in the
1960s and 1970s, but slowed dramatically in the 1980s as a result of poor
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economic policies, higher international interest rates and the denial of
access to new foreign capital.
High inflation and low economic growth have given way to stable,
manageable inflation rates and higher economic growth, although political
turmoil (including assassinations) continues in some countries. Changes in
political leadership and the implementation of market-oriented economic
policies, such as privatization, trade reform, and fiscal and monetary
reform are among the recent steps taken to modernize the Latin American
economies and regenerate growth in the region. Various trade agreements
have also been formed within the region, including the Andean Pact,
Mercosur, and NAFTA. NAFTA, which was implemented on January 1, 1994, is
the largest of these agreements.
Latin American equity markets can be extremely volatile and in the
past have shown little correlation with the U.S. market. Currencies have
typically been weak, given high inflation rates, but have stabilized more
recently. Most currencies are not free floating, but wide fluctuations in
value over relatively short periods of time can still occur due to changes
in the market.
Mexico's economy has been transformed significantly over the last
six to seven years. In the past few years, the government has sold the
telephone company, the major steel companies, the banks, and many other
industries. The remaining major state ownership is in the oil and
electricity sectors. The United States is Mexico's major trading partner,
accounting for two-thirds of its exports and imports. The Mexican
government, in consultation with international economic agencies, is
implementing programs to stabilize the economy and foster growth. For
example, Mexico, the United States, and Canada implemented NAFTA. This
cooperation is expected to lead to increased trade and reduced trade
barriers.
In the early 1980s, Mexico experienced a foreign debt crisis. By
1987, foreign debt had reached prohibitive levels, accounting for 90% to
95% of Gross Domestic Product (GDP), thus draining Mexico of its
resources. In December 1994, Mexico reversed a long-held currency policy
by devaluing the Mexican peso and allowing it to float freely. The value
of the peso against the U.S. dollar and other currencies declined sharply.
As a result, Mexican stocks plunged while interest rates soared, and other
Latin America securities markets were also adversely affected. Extension
and continuance of financial aid to Mexico from the U.S., including loan
guarantees, is uncertain at this time. In addition, continued political
unrest, particularly in southern Mexico, and uncertainty as to the
effectiveness of reforms have recently had an adverse impact on economic
development.
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Brazil entered the 1990s with declining real growth, runaway
inflation, an unserviceable foreign debt of $122 billion, and a lack of
policy direction. Over the last two years, Brazil has stabilized its
domestic economy through a relentless process of balancing the government
budget, the privatization of state enterprises, deregulation and reduction
of red tape, and the introduction of greater competition into the domestic
business environment. Inflation has been reduced from 50% per month to
about 3% per month since mid 1994. A major long-run strength is Brazil's
natural resources. Iron ore, bauxite, tin, gold, and forestry products
make up some of Brazil's natural resource base, which includes some of the
largest mineral reserves in the world. In terms of population, Brazil is
the sixth largest country in the world with about 155 million people, and
represents a huge domestic market.
Chile, like Brazil, is endowed with considerable mineral
resources, particularly copper, which accounts for 40% of total exports.
Economic reform has been ongoing in Chile for at least 15 years, but
political democracy has only recently returned. Privatization of the
public sector beginning in the early 1980s has bolstered the equity
market. A well-organized pension system has created a long-term domestic
investor base.
Argentina is strong in wheat production and other foodstuffs and
in livestock ranching. A well-educated and skilled population boasts one
of the highest literacy rates in the region. The country has been ravaged
by decades of extremely high inflation and political instability. Thanks
to structural reforms, the revitalized Argentine economy has been among
the top three fastest growing economies in the world over the last three
years. The newly created Argentine economic institutions have integrated
the country with the rest of the world, leaving the state to concentrate
on its essential functions. Privatization is ongoing and should reduce
the amount of external debt outstanding. The markets for labor, capital,
and goods and services have been deregulated. Nearly all non-tariff
barriers and export taxes have been eliminated, the tariff structure has
been simplified, and tariffs have been sharply reduced.
Venezuela has substantial oil reserves. External debt is being
renegotiated, and the government is implementing economic reform in order
to reduce the size of the public sector. Internal gasoline prices, which
are one-third those of international prices, are being increased in order
to reduce subsidies. The failure of major banks adversely affected the
Venezuelan economy in 1994 and could continue to have a negative impact.
Plans for privatization and exchange and interest rate liberalization are
examples of recently introduced reforms.
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Emerging Markets: Latin America
Market Capitalization in U.S. Dollars
June 1995
-------------------------------------
Millions
--------
Argentina 33,498
Brazil 149,110
Chile 83,453
Colombia 18,176
Mexico 93,638
Peru 9,997
Venezuela 4,936
Source: IFC (International Finance Corporation, Second Quarter 1995)
Real GDP Annual Rate of Growth (annual % change)
------------------------------------------------
1994
----
Argentina 7.1%
Brazil 5.7%
Chile 4.2%
Mexico 3.5%
Venezuela 3.3%
Source: World Economic Outlook, May 1995
(International Monetary Fund. Figures are quoted based on each country's
domestic currency.)
For national stock market index performance, please see the section of
"Performance" beginning on page __.
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SPECIAL CONSIDERATIONS AFFECTING JAPAN, THE PACIFIC
BASIN, AND SOUTHEAST ASIA
----------------------------------------------------
Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States
and Western European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and
economic decision-making; (ii) popular unrest associated with demands for
improved political, economic and social conditions; (iii) internal
insurgencies; (iv) hostile relations with neighboring countries; and (v)
ethnic, religious, and racial disaffection.
The economies of most of the Asian countries are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners,
principally, the United States, Japan, China and the European Community.
The enactment by the United States or other principal trading partners of
protectionist trade legislation, reduction of foreign investment in the
local economies and general declines in the international securities
markets could have a significant adverse effect upon the securities
markets of the Asian countries.
The success of market reforms and a surge in infrastructure
spending have fueled rapid growth in many developing countries in Asia.
Rapidly rising household incomes have fostered large middle classes and
new waves of consumer spending. The increases in infrastructure and
consumer spending have made domestic demand the growth engine for these
countries. Thus, their growth now depends less upon exports to
Organization for Economic Cooperation and Development (OECD) countries.
While exports may no longer be the sole source of growth for developing
economies, improved competitiveness in export markets has contributed to
growth in many of these nations. The increased productivity in many Asian
countries has enabled them to achieve, or maintain, their status as top
exporters while improving their national living standards.
Thailand has one of the fastest growing stock markets in the
world. The manufacturing sector is becoming increasingly sophisticated and
is benefiting from export-oriented investing. The manufacturing and
service sectors continue to account for the bulk of Thailand's economic
growth. The agricultural sector continues to become less important. The
government has followed fairly sound fiscal and monetary policies, aided
by increased tax receipts from a fast moving economy. The government also
continues to move ahead with new projects - especially telecommunications,
roads and port facilities - needed to refurbish the country's overtaxed
infrastructure. The country enjoys an able bureaucracy that has maintained
economic policy during the country's many coups. In recent years, the risk
of a coup has diminished, but corruption remains widespread.
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Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth, which was vigorous
in the 1980s. Although China has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after
regaining control of Hong Kong, the continuation of the current form of
the economic system in Hong Kong after the reversion will depend on the
actions of the government of China. Business confidence in Hong Kong,
therefore, can be significantly affected by developments, which in turn
can affect markets and business performance. In preparation for 1997, Hong
Kong has continued to develop trade with China, where it is the largest
foreign investor, while also maintaining its long-standing export
relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government while
the private sector continues to diversify abroad based on its position as
an established international trade center in the Far East.
In terms of GDP, industrial standards and level of education,
South Korea is second only to Japan in Asia. It enjoys the benefits of a
diversified economy with well developed sectors in electronics,
automobiles, textiles and shoe manufacture, steel and shipbuilding among
others. The driving force behind the economy's dynamic growth has been the
planned development of an export-oriented economy in a vigorously
entrepreneurial society. Real GDP grew about 8.3% in 1994. Both South
Korea and North Korea joined the United Nations separately in late 1991,
creating another forum for negotiation and joint cooperation. The
reunification of North and South Korea could have a detrimental effect on
the economy of South Korea.
Indonesia is a mixed economy with many socialist institutions and
central planning but with a recent emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet
with a large and rapidly increasingly population, it remains a poor
country. Dependent on oil prices during the 1980s, its manufactured
products now predominate, contributing 21% of GDP. Indonesia's development
is progressing smoothly, and it has become the world's twelfth largest
economy.
Malaysia has one of the fastest growing economies in the
Asian-Pacific region. Malaysia has become the world's third-largest
producer of semiconductor devices (after the United States and Japan) and
the world's largest exporter of semiconductor devices. More remarkable is
the country's ability to achieve rapid economic growth with relative price
stability as the government followed prudent fiscal and monetary policies.
Malaysia's high export dependence level leaves it vulnerable to recession
in the OECD countries or to a fall in world commodity prices.
India is one of the world's top fifteen industrial nations and has
considerable natural resources. The government exercises significant
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influence over many aspects of the economy. Accordingly, future government
actions could have a significant effect on private sector companies,
market conditions, and prices and yields of securities of Indian issuers
held by a fund. Policymakers in India actively encourage foreign direct
investment, particularly in labor intensive industries. In addition,
Indian stock exchanges rely entirely on delivery of physical share
certificates and have experienced operational difficulties. These problems
have included the existence of fraudulent shares in the market, failed
trades, and delays in the settlement and registration of securities
transactions. Indian stock exchanges have in the past been forced to close
for political reasons; for example, a brokers' strike closed the exchange
for ten days in December 1993, and there is no assurance that the
exchanges will not be forced to close again.
Singapore has an open entrepreneurial economy with strong service
and manufacturing sectors and excellent international trading links
derived from its history. During the 1970s and the early 1980s, the
economy expanded rapidly, achieving an average annual growth rate of 9%.
Per capita GDP is among the highest in Asia. Singapore holds a position as
a major oil refining and services center.
Japan currently has the second largest GDP in the world. The
Japanese economy has grown substantially over the last three decades. Its
growth rate averaged over 5% in the 1970s and 1980s. However, in 1994, the
growth rate in Japan slowed to 0.6% and its budget showed a deficit of
7.8% of GDP. Despite small rallies and market gains, Japan has been
plagued with economic sluggishness. Economic conditions have weakened
considerably in Japan since October 1992. The boom in Japan's equity and
property markets during the expansion of the late 1980s supported high
rates of investment and consumer spending on durable goods, but both of
these components of demand have now retreated sharply following the
decline in asset prices. Japan is suffering its worst recession in two
decades. Profits have fallen sharply, unemployment has reached an
historical high of 3.2%, and consumer confidence is low. The banking
sector has experienced a sharp rise in non-performing loans, and strains
in the financial system may continue. Nine discount rate cuts since their
peak of 6% in 1991, a succession of fiscal stimulus packages, support
plans for the debt-burdened financial system, and spending for
reconstruction following the Kobe earthquake should help to contain
recessionary forces, but substantial uncertainties remain. The general
government position has deteriorated as a result of weakening economic
growth, as well as stimulative measures taken recently to support economic
activity and to restore financial stability.
In addition to a cyclical downturn, Japan is suffering through
structural adjustments. Like the Europeans, the Japanese have seen a
deterioration in their competitiveness due to high wages, a strong
currency, and structural rigidities. Japan has also become a mature
industrial economy and, as a result, will see its long-term growth rate
slow down over the next ten years. Finally, Japan is reforming its
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political process and deregulating its economy. These activities have
resulted in turmoil, uncertainty, and a crisis of confidence.
Japan is heavily dependent upon international trade and,
accordingly, has been and may continue to be adversely affected by trade
barriers, and other protectionist or retaliatory measures of, as well as
economic conditions in, the United States and other countries with which
it trades. Industry, the most important sector of the economy, is heavily
dependent on imported raw materials and fuels. Japan's major industries
are in the engineering, electrical, textile, chemical, automobile,
fishing, and telecommunication fields. Japan imports iron ore, copper, and
many forest products. Only 19% of its land is suitable for cultivation.
Japan's agricultural economy is subsidized and protected. It is about 50%
self-sufficient in food production. Even though Japan produces a minute
rice surplus, it is dependent upon large imports of wheat, sorghum, and
soybeans from other countries. Japan's high volume of exports such as
automobiles, machine tools, and semiconductors have caused trade tensions
with other countries, particularly the United States. Some trade
agreements between the countries have reduced the friction caused by the
current trade imbalance. A record high value for the Yen in the first half
of 1995 threatened to derail Japan's recovery from a long economic
downturn, mainly because it made Japanese products more expensive overseas
and eroded the value of foreign earnings when repatriated to Japan.
However, the recent easing of the Yen's value has created expectations
that Japanese earnings will improve for the fiscal year ending March 1996.
Australia has a prosperous Western-style capitalist economy, with
a per capita GDP comparable to levels in industrialized West European
countries. It is rich in natural resources and is the world's largest
exporter of beef and wool, second-largest exporter of mutton, and among
the top wheat exporters. Australia is also a major exporter of minerals,
metals and fossil fuels. Due to the nature of its exports, a downturn in
world commodity prices could have a significant negative impact on its
economy.
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Emerging Markets: Asia
Market Capitalization in U.S. Dollars
June 1995
-------------------------------------
Millions
--------
India 147,210
Indonesia 52,243
Korea 178,670
Malaysia 224,176
Pakistan 9,469
Philippines 55,038
Sri Lanka 2,259
Taiwan 186,822
Thailand 150,584
Source: IFC (International Finance Corporation, Second Quarter 1995)
Real GDP Annual Rate of Growth (annual % change)
1994
------------------------------------------------
China 12.0%
Hong Kong 5.7%
India 4.9%
Indonesia 7.0%
Japan n/a
Korea 8.3%
Malaysia 8.5%
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Philippines 4.5%
Singapore 7.0%
Taiwan 6.2%
Thailand 8.5%
Source: World Economic Outlook, May 1995
(International Monetary Fund. Figures are quoted based on each country's
domestic currency.)
For national stock market index performance, please see the section of
"Performance" beginning on page __.
SPECIAL CONSIDERATIONS AFFECTING EUROPE
---------------------------------------
New developments surrounding the creation of a unified common
market in Europe have helped to reduce physical and economic barriers
promoting the free flow of goods and services throughout Western Europe.
These new developments could make this new unified market one of the
largest in the world. However, in 1993, Europe's economies began to slow
and subsequently slid into recession as tight monetary conditions and lack
of progress toward inflation convergence and budgetary consolidation in
many countries weakened consumer and business confidence. More generally,
the turbulence in the foreign exchange markets since the middle of 1992
and escalating tensions over trade contributed to increased uncertainty in
many countries. The U.S. dollar continued on its downward track with
respect to both the German Mark and many other of Europe's currencies such
as the Italian Lira, the Spanish Peseta, and the Swedish Krona, the value
of which have been affected by political uncertainties and fiscal
problems.
Europe's economies began to improve in 1995 as continued growth in
the United States and the countries of Southeast Asia provided the
foundation for an export-led recovery. Thus recovery was aided by a sharp
rebound of the U.S. dollar after it had reached postwar lows in the spring
of 1995.
The Eastern European countries, after several years of declining
output, have generally shown dramatic growth in 1994 and 1995. Despite
formidable obstacles and major differences among countries and regions,
many nations are making substantial progress in their efforts to become
market-oriented economies. However, these economies are becoming
increasingly disparate and the experience of countries in the region
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varies markedly. Those nations making the most successful transition
include Poland, the Czech Republic, and Hungary, while some of the former
Soviet republics continue to suffer from the consequences of the break up
of the Soviet Union and have made little progress in implementing
effective market-oriented reforms. Key aspects of the reform and
stabilization efforts have not yet been fully implemented, and risks of
policy slippage remain. In the Russian Federation and most other countries
of the former Soviet Union, economic conditions are of particular concern
because of economic instability due to political unrest and armed
conflicts in many regions.
Notwithstanding the economic difficulties in many countries,
recent positive developments offer hope for a cooperative growth strategy
in the near term, which could also permit a strengthening of global
economic performance over the medium term. Many developing countries are
reaping the fruits of sustained reform and stabilization efforts. Efforts
to enhance assistance to countries affected by the transition to a market-
based trading system that is occurring in central Europe and the former
Soviet Union, and to low-income countries to support strengthened
stabilization and restructuring efforts, are moving forward. In Europe,
exchange market tensions have eased, interest rates have been falling, and
may continue to do so as evidence of the waning inflationary pressures
accumulates.
The European Community (EC) consists of Belgium, Denmark, France,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, and the United Kingdom (the member states). In 1986, the member
states of the EC signed the "Single European Act," an agreement committing
these countries to the establishment of a market among themselves,
unimpeded by internal barriers or hindrances to the free movement of
goods, persons, services, or capital. To meet this goal, a series of
directives have been issued to the member states. Compliance with these
directives is designed to eliminate three principal categories of
barriers: 1) physical frontiers, such as customs posts and border
controls; 2) technical barriers (which include restrictions operating
within national territories) such as regulations and norms for goods and
services (product standards); discrimination against foreign bids (bids by
other EC members) on public purchases; or restrictions on foreign requests
to establish subsidiaries; and 3) fiscal frontiers, notably the need to
levy value-added taxes, tariffs, or excise taxes on goods or services
imported from other EC states.
The ultimate goal of this project is to achieve a large unified
domestic European market in which available resources would be more
efficiently allocated through the elimination of the above-mentioned
barriers and the added costs associated with those barriers. Elimination
of these barriers would simplify product distribution networks, allow
economies of scale to be more readily achieved, and free the flow of
capital and other resources. The Maastricht Treaty on economic and
monetary union (EMU) attempts to provide its members with a stable
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monetary framework consistent with the EC's broad economic goals. But
until the EMU takes effect, which is intended to occur between 1997 and
1999, the community will face the need to reinforce monetary cooperation
in order to reduce the risk of a recurrence of tensions between domestic
and external policy objectives.
The total European market, as represented by both EC and non-EC
countries, consists of over 328 million consumers, making it larger
currently than either the U.S. or Japanese markets. European businesses
compete nationally and internationally in a wide range of industries
including: telecommunications and information services, roads and
transportation, building materials, food and beverages, broadcast and
media, financial services, electronics, and textiles. Actual and
anticipated actions on the part of member states to conform to the unified
Europe directives has prompted interest and activity not only by European
firms, but also by foreign entities anxious to establish a presence in
Europe that will result from these changes. Indications of the effect of
this response to a unified Europe can be seen in the areas of mergers and
acquisitions, corporate expansion and development, GDP growth, and
national stock market activity.
The early experience of the former centrally planned economies has
already demonstrated the crucially important link between structural
reforms, macroeconomic stabilization, and successful economic
transformation. Among the central European countries, the Czech Republic,
Hungary, and Poland have made the greatest progress in structural reform;
inflationary pressures in those countries have abated following price
liberalization, and output has begun to recover. These achievements will
be difficult to sustain, however, in the absence of strong efforts to
contain the large fiscal deficits that have accompanied the considerable
losses of output and tax revenue since the start of the reform process.
In the Baltic countries there are encouraging signs that reforms
are taking hold and are being supported by strong stabilization efforts.
In most other countries of the former Soviet Union, in contrast,
inadequate stabilization efforts now threaten to lead to hyper-inflation,
which could derail the reform process. Inflation, which had abated
following the immediate impact of price liberalization in early 1992,
surged to extremely high levels in late 1992 and early 1993. The main
reason for this development has been excessive credit expansion to the
government and to state enterprises. The transformation process is being
seriously hampered by the widespread subsidization of inefficient
enterprises and the resulting misallocation of resources. The lack of
effective economic and monetary cooperation among the countries of the
former Soviet Union exacerbates other problems by severely constraining
trade flows and impeding inflation control. Partly as a result of these
difficulties, some countries have decided that the introduction of
separate currencies offers the best hope for avoiding hyper-inflation and
for improving economic conditions. This development can facilitate the
implementation of stronger stabilization programs. Economic conditions in
the former Soviet Union have continued to deteriorate. Real GDP in Russia
fell 11.9 percent in 1993, after an 18 percent decline in 1992. In many
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other countries of the region, output losses have been even larger. These
declines reflect the adjustment difficulties during the early stages of
the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal
situation. A reversal of these adverse factors is not anticipated in the
near term, and output is expected to decline further in most of these
countries.
Economic conditions appear to have improved for some of the
transition economies of central Europe during the past year. Following
three successive years of output declines, there has been a turnaround in
the Czech Republic and the Slovak Republic, Hungary and Poland; growth in
private sector activity and strong exports, especially to Western Europe,
now appear to have contained the fall in output. Most central European
countries in transition have achieved positive real growth in 1994 and
1995 as market reforms deepen. The strength of the projected output gains
will depend crucially on the ability of the reforming countries to contain
fiscal deficits and inflation and on their continued access to, and
success in, export markets. A number of their governments, including those
of Hungary and Poland, are currently implementing or considering reforms
directed at political and economic liberalization, including efforts to
foster multi-party political systems, decentralize economic planning, and
move toward free market economies. At present, no Eastern European country
has a developed stock market, but Poland, Hungary and the Czech Republic
have small securities markets in operation. Ethnic and civil conflicts
currently continue throughout the former Yugoslavia. Although there has
been recent progress toward a peaceful settlement of these conflicts, the
outcome remains uncertain.
Both the EC and Japan, among others, have made overtures to
establish trading arrangements and assist in the economic development of
the Eastern European nations. In the rest of Europe, monetary policy and
financial market developments have been dominated by the currency turmoil
that began in September 1992. At the same time, conditions are improving
for significant reductions of official interest rates in Europe, which
should help to contain recessionary forces and provide support to the
overall economic recovery in the regions by early 1996. With the passage
of the General Agreement on Trade and Tariffs earlier this year, Europe
has taken a step forward in resisting protectionist pressures. Interest
rates continue to decline, but some countries' tight monetary conditions
remain an obstacle to stronger growth and a threat to exchange market
stability. However, in the long term, economic unification could prove to
be an engine for domestic and international growth.
The conditions that have given rise to these developments are
changeable, and there is no assurance that reforms will continue or that
their goals will be achieved.
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Portugal is a genuinely emerging market which has experienced
rapid growth since the mid-1980s, except for a brief period of stagnation
over 1990-91. Portugal's government remains committed to privatization of
the financial system away from one dependent upon the banking system to a
more balanced structure appropriate for the requirements of a modern
economy.
Economic reforms launched in the 1980s continue to benefit Turkey
in the 1990s. Turkey's economy has grown since the 1980s. Agriculture
remains the most important economic sector, employing over half of the
labor force, and accounting for significant portions of GDP and exports.
Inflation and interest rates remain high, and a large budget deficit will
continue to cause difficulties in Turkey's continuing transformation from
a centrally controlled to a free market economy.
Like many other Western economies, Greece suffered severely from
the global oil price hikes of the 1970s, with annual GDP growth plunging
from 8% to 2% in the 1980s, and inflation, unemployment, and budget
deficits rising sharply. The fall of the socialist government in 1989 and
the inability of the conservative opposition to obtain a clear majority
led to business uncertainty and the prospect for continued flat economic
performance. Once Greece has sorted out its political situation, it will
have to face the challenges posed by the steadily increasing integration
of the EU, including the progressive lowering of trade and investment
barriers. Tourism continues as a major industry, providing a vital offset
to a sizable commodity trade deficit.
Real GDP Annual Rate of Growth (annual % change)
1994
------------------------------------------------
Denmark 4.6%
France 2.5%
Germany 2.9%
Italy 2.5%
Netherlands 2.4%
Spain 1.9%
Switzerland 2.0%
United Kingdom 3.8%
Source: World Economic Outlook, May 1995
(International Monetary Fund. Figures are quoted based on each country's
domestic currency.)
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For national stock market index performance, please see the section of
"performance" beginning on page __.
SPECIAL CONSIDERATIONS AFFECTING AFRICA
---------------------------------------
Africa is a continent of roughly 50 countries with a total
population of approximately 840 million people. Literacy rates (the
percentage of people who are over 15 years of age and who can read and
write) are relatively low, ranging from 20% to 60%. The primary industries
include crude oil, natural gas, manganese ore, phosphate, bauxite, copper,
iron, diamonds, cotton, coffee, cocoa, timber, tobacco, sugar, tourism,
and cattle.
Many African countries are fraught with political instability.
However, there has been a trend over the past several years toward
democratization. Many countries are moving from a military style, Marxist,
or single party government to a multi-party system. Still, there remain
many countries that do not have a stable political process. Many countries
have been enmeshed in civil, ethnic or border wars. Ethnic, religious,
cultural and linguistic differences divide the African peoples.
Economically, the Northern Rim countries (which include Morocco,
Egypt, and Algeria), Nigeria, Zimbabwe and South Africa are the wealthier
countries on the continent due to their strong ties with the European
nations. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local
companies start to list on the exchanges. However, religious strife has
been a significant source of instability in the Northern Rim countries.
Although racial discord in South Africa appears to have been reduced by
constitutional and political changes that are in progress, as well as
increased foreign investments, the long-term future of South Africa
remains uncertain.
On the other end of the economic spectrum are countries, such as
Burkina-Faso, Madagascar, and Malawi, that are considered to be among the
poorest or least developed in the world. These countries are generally
landlocked or have poor natural resources. The economies of many African
countries are heavily dependent on international oil prices. Of all the
African industries, oil has been the most lucrative, accounting for 40% to
60% of many countries' GDP. However, the general decline in oil prices has
had an adverse impact on many economies.
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SPECIAL FACTORS AFFECTING NEW YORK
----------------------------------
The financial condition of New York State (the State), its public
authorities and public benefit corporations (the Authorities) and its
local governments, particularly The City of New York (the City), could
affect the market values and marketability of, and therefore the net asset
value per share and the interest income of New York Municipal Income Fund
or result in the default of existing obligations, including obligations
which may be held by the fund. The following section provides only a brief
summary of the complex factors affecting the financial situation in New
York and is based on information obtained from the State, certain of its
Authorities, the City and certain other localities, as publicly available
on the date of this Statement of Additional Information. The information
contained in such publicly available documents has not been independently
verified. It should be noted that the creditworthiness of obligations
issued by local issuers may be unrelated to the creditworthiness of the
State, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default in the absence
of a specific guarantee or pledge provided by the State.
The State and the City have each experienced recent serious
financial difficulties and declines in their credit standings. S&P and
Moody's have each assigned ratings for the State's general obligation
bonds that are among the three lowest of those states with rated general
obligation bonds. The ratings of certain related debt of other issuers for
which the State has an outstanding moral obligation, lease purchase,
guarantee or other contractual obligation are generally linked directly to
the State's rating. S&P and Moody's have each assigned ratings for the
City's general obligations that are among the four lowest of those cities
with rated general obligation bonds. Should the financial condition of the
State, its Authorities, or its local governments deteriorate, their
respective credit ratings could be further reduced, and the market value
and marketability of their outstanding notes and bonds could be adversely
affected, and their respective access to the public credit markets
jeopardized.
Economic Factors. New York is the third most populous state in the
nation, and has a relatively high level of personal wealth. However, the
State economy has grown more slowly than that of the nation as a whole,
resulting in the gradual erosion of its relative economic affluence (due
to factors such as relative costs for taxes, labor, and energy). The
State's economy is diverse, with a comparatively large share of the
nation's financial, insurance, transportation, communications, and
services employment, and a very small share of the nations' farming and
mining activity. New York has a declining proportion of its workforce
engaged in manufacturing and increasing proportion engaged in service
industries. The State, therefore is likely to be less affected than the
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nation as a whole during an economic recession concentrated in
construction and manufacturing sectors of the economy, but is likely to be
more affected during a recession concentrated in the service-producing
sector. The State's manufacturing and maritime base have been seriously
eroded, as illustrated by the decline of the steel industry in the Buffalo
area and of the apparel and textile industries in the City. In addition,
the City experienced substantial socio-economic changes, as a large
segment of its population and a significant share of corporate
headquarters and other businesses relocated (many out-of-state).
Both the State and the City experienced substantial revenue
increases in the mid-1980s attributable directly and indirectly to growth
in new jobs, rising profits, and capital appreciation derived from the
finance sector of the City's economy. The finance sector's growth was a
catalyst for the New York City metropolitan region's related business and
professional services, retail trade and residential and commercial real
estate markets. The then rising real estate market contributed to City
revenues, as higher property values and new construction added to
collections from property taxes, mortgage recording, and transfer taxes
and sales taxes on building materials. The boom on Wall Street more than
compensated for the continued erosion of the State's (and the City's)
manufacturing and maritime base, since average wages in finance and
related business and professional services were substantially higher
(thereby providing a net increase of higher incomes, taxed at even higher
marginal rates).
During the calendar years 1984 through 1991, the State's rate of
economic expansion was somewhat slower than that of the nation as a whole.
In the 1990-91 national recession, the economy of the Northeast region in
general and the State in particular was more heavily damaged than that of
the rest of the nation and has been slower to recover. Although the
national economy began to expand in 1991, the State economy remained in
recession until 1993, when employment growth resumed. Employment growth
has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility and defense industries.
Personal income increased substantially in 1992 and 1993. The State
economy entered the third year of a slow recovery in 1995. Most of the
growth occurred in the trade, construction and service industries, with
business, social services and health sectors accounting for most of the
service industry growth. The State's economy is expected to continue to
expand modestly during 1995 and 1996, according to assumptions contained
in the State financial plan for fiscal year 1995-1996. Employment is
expected to grow slightly during 1995, although the rate of increase is
expected to be below the rate experienced in 1994 due to cutbacks in
federal spending and employment, as well as continued corporate
downsizing.
Notwithstanding the State budget for fiscal year 1995-96 which
enacts significant tax and program reductions, the State can expect to
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confront structural deficits in future years. The 1995-96 State financial
plan includes actions that will have an effect on the budget outlook for
fiscal year 1996-97 and beyond. In part, the 1995-96 State financial plan
reflects actions which provide nonrecurring measures (sometimes referred
to as "one-shots") variously estimated to provide $900 million to $1.0
billion of savings. Additionally, the three-year plan to reduce State
personal income taxes, as discussed below briefly, will decrease State tax
receipts by an estimated $1.7 billion in fiscal year 1996-97. Similarly,
other actions taken to reduce disbursements in the State's 1995-96 fiscal
year, such as reductions in the State workforce and Medicaid and welfare
expenditures, are expected to provide greater reductions in future fiscal
years. The net impact of these and other factors is expected to produce a
potential imbalance in receipts and disbursements for State fiscal year
1996-97 and future fiscal years.
Further, there can be no assurance that the State economy will not
experience worse-than-predicted results in the 1995-96 fiscal year with
corresponding material and adverse effects on the State's projections of
receipts and disbursements. The State financial plan is based upon
forecasts of national and State economic activity. Many uncertainties
exist in such forecasts, including federal financial and monetary
policies, the availability of credit and the condition of the world
economy. In addition, the economic and financial condition of the State
may be affected by various financial, social, economic and political
factors. These factors can be complex, may vary from year to year and are
frequently the results of actions taken not only by the State and its
agencies and instrumentalities, but also by other entities, such as the
federal government, that are not under the control of the State.
The fiscal health of the State may also be impacted by the fiscal
health of the City. Although the City has had a balanced budget since
1981, estimates of the City's future revenues and expenditures are subject
to various uncertainties. For example, the effects of the October 1987
stock market crash and the 1990-92 national recession have had a
disproportionately adverse impact on the New York City metropolitan
region, as private sector job losses since 1989 have offset all the prior
employment gains of the 1980s. Declines in both employment and earnings in
the finance sector contributed to declines in retail sales and real estate
values. In addition, a number of widely publicized bankruptcies among
highly leveraged retailing, brokerage and real estate development
companies occurred. The effects of the recession have extended to banking,
insurance, business services (such as law, accounting and advertising),
publishing and communications. Factors which may inhibit the City's
economic recovery include (i) credit restraints imposed by the weak
financial condition of several major money center banks located in the
City; (ii) increases in combined State and local tax burdens, if
uncompetitive tax rates are imposed; (iii) perceived declines in the
quality of life attributable to service reductions and the deterioration
of the City's infrastructure; (iv) additional employment losses in the
City's banking sector or corporate headquarters complex due to further
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corporate relocations or restructurings; or (v) increased expenditures for
public health assistance and care. The City's future economic condition
will also likely be affected by its competitive position as a world
financial center (compared to London, Tokyo, Frankfurt, and competing
regional U.S. centers). Investors should note that the budget for the
City's 1996 fiscal year addresses a projected $2.7 billion budget gap.
Most of the budget-gap closing initiatives may be implemented only with
the cooperation of certain City officials, the City's municipal unions, or
the State or Federal governments. No assurance can be given that such
initiatives will be taken.
While the State's economy is broader-based than that of the City,
particular industries are concentrated in and have a disproportionate
impact on certain areas, such as heavy industry in Buffalo, photographic
and optical equipment in Rochester, machinery and transportation equipment
in Syracuse and Utica-Rome, computers in Binghamton and in the Mid-Hudson
Valley, and electrical equipment in the Albany-Troy-Schenectady area.
Constraints on economic growth, taxpayer resistance to proposed
substantial increases in local tax rates, and reductions in State aid in
regions apart from the City have contributed to financial difficulties for
several county and other local governments.
The State. As noted above, the financial condition of the State is
affected by several factors, including the strength of the State and its
regional economies, actions of the federal government, and State actions
affecting the level of receipts and disbursements. Owing to these and
other factors, the State may, in future years, face substantial potential
budget gaps resulting from a significant disparity between tax revenues
projected from a lower recurring receipts base and the future costs of
maintaining State programs at current levels.
The State has been experiencing and continues to experience
substantial financial difficulties, with General Fund (the principal
operating account) deficits incurred during the fiscal years 1989-1990
through 1991-1992. The State's accumulated General Fund deficit (on a GAAP
basis) grew 91% from FY1986-87 to FY1990-91, and reached a then-record
$6.265 billion (audited) by March 31, 1991. An accumulated General Fund
deficit at March 31, 1993 was restated to be $2.551 billion. The State
ended its 1993-94 fiscal year with a negative fund balance of $1.637
billion. This represented an improvement over prior years, primarily due
to an improving national and State economy resulting in
higher-than-expected receipts from personal income tax and various
business taxes and the relative success of the New York Local Government
Assistance Corporation ("LGAC"). The General Fund showed an operating
surplus of $914 million (on a GAAP basis). The State's 1994-95 fiscal year
budget was adopted on June 8, 1994, more than two months after the
beginning of the State's fiscal year and has made all of the required
quarterly revisions as of the date hereof. The State ended its 1994-95
fiscal year with the General Fund in balance. Actual receipts reported
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fell short of original projections by approximately $1.2 billion,
primarily in the categories of personal income and business taxes. These
shortfalls were offset by better than expected performance in the
remaining taxes, principally the user taxes and fees, which exceeded
projections by $210 million. Disbursements were also reduced from original
projections by approximately $848 million.
On June 7, 1995, the New York State legislature passed the final
legislation regarding the State's 1995-96 budget. The 1995-96 State
financial plan was formulated on June 20, 1995. Both the enacted budget
bills and the State financial plan for 1995-96 include reductions in the
actual level of spending from that which occurred in the 1994-95 fiscal
year and project reductions in Medicaid and State Authority operating
costs. The 1995-96 budget also projects an approximate increase of 3% in
all governmental funds over the amounts received in fiscal year 1994-95
and includes the phase-in of a three-year reduction in the State's
personal income tax. There are risks and uncertainties concerning whether
or not certain spending and tax cuts will be upheld if challenged in the
courts. For example, the State Comptroller is challenging in court the
proposed use of certain pension reserves. If such suit is successful,
approximately $110 million would become unavailable as a source of
contribution to the balanced State budget. Finding an additional $110
million in reductions or from other sources may prove difficult.
Additionally, even if all spending and tax cuts contained in the State
budget are successfully implemented, resulting in a balanced budget for
fiscal year 1995-96, there can be no assurance that the State will not
face budget gaps in future years, resulting from a disparity between tax
revenues projected from a lower recurring-receipts base and the spending
required to maintain State programs at current levels. Furthermore, the
State is a party to numerous lawsuits in which an adverse decision could
require extraordinary expenditures. Certain major budgetary considerations
affecting the State are outlined below.
Revenue Base. The State's principal revenue sources are
economically sensitive, and include the personal income tax (53% of fiscal
year 1994-95 General Fund receipts and estimated to be approximately 52%
of fiscal year 1995-96 General Fund receipts), user taxes and fees (20% of
both fiscal year 1994-95 and estimated 1995-96 General Fund receipts), and
business taxes (15% and 14% respectively of fiscal year 1994-95 and
estimated 1995-96 General Fund receipts). Uncertainties in taxpayer
behavior as a result of actual and proposed changes in Federal tax law
also can have an adverse impact on State tax receipts. One-fourth of the
4% State sales tax has been dedicated to pay debt service of LGAC, and has
correspondingly reduced General Fund receipts. To the extent those moneys
are not necessary for payment to LGAC, they are transferred from the LGAC
Tax fund to the General Fund and reported as a transfer from other funds
rather than as sales and use tax receipts. During fiscal years 1991-92,
1992-93, 1993-94, and 1994-95 moneys were so transferred. Capital gains
are a significant component of income tax collections. Auto sales and
building materials are significant components of retail sales tax
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collections. Tax rates are relatively high and may impose political and
economic constraints on the ability of the State to further increase its
taxes. In 1995, the State enacted a tax-reduction program designed to
reduce, by 20 percent over three years, receipts from the personal income
tax. The tax had remained unchanged since 1989 as a result of annual
deferrals of tax reductions originally enacted in 1987. The tax-reduction
program is estimated to reduce receipts by $515 million in the 1995-96
fiscal year, $1.7 billion in the 1996-97 fiscal year and produce further
significant reductions in fiscal year 1997-98. In addition to such
reductions in overall tax rates, the tax-reduction program also includes
other modifications to the tax laws which will have the effect of lowering
the amount of tax revenues to be received by the State. In the absence of
countervailing economic growth or expenditure cuts, the tax cuts could
make the achievement of a balanced State budget more difficult in future
years.
State Debt. The State has the heaviest debt burden of any state
(with nearly $5.2 billion of long-term general obligations, $4.7 billion
of LGAC debt and $18 billion of lease-purchase or other contractual debt
outstanding as of March 31, 1995), and debt service costs absorb a large
share of the State's budget. As of March 31, 1995 the State is also
obligated with respect to nearly $7.0 billion for statutory moral
obligations for nine of its Authorities and for guarantees of $358 million
of other Authority debt. Historically, the State has had one of the
largest seasonal financing requirements of any municipal issuer, and was
required each spring to borrow substantial sums from public credit markets
to finance its accumulated General Fund deficit and its scheduled payments
of aid to local governments and school districts. To help reduce such
seasonal financing needs, the State created LGAC as a financing vehicle to
finance the State's local assistance payments by issuing long-term debt,
payable over 30 years from a portion of the State sales tax, as discussed
above. The State budget and State financial plan for fiscal year 1995-96
each proposes to utilize the remainder of authorized but yet unissued LGAC
bonds. As of June 1995, LGAC had issued bonds and notes to provide net
proceeds of $4.7 billion, thus completing the LGAC program. The impact of
LGAC's borrowing is that the State is able to meet its cash flow needs in
the first quarter of the 1995-96 fiscal year without relying on short-term
seasonal borrowings. Neither the 1995-96 State financial plan nor the
1994-95 State financial plan included a spring borrowing, the first time
in 35 years that there was no short-term borrowing. Investors should note
that the enabling legislation for LGAC contains a covenant restricting the
amount of any future State spring borrowing, which may reduce the State's
fiscal flexibility in future years.
Budgetary Flexibility. A significant portion of the State's
General Fund budget is accounted for by contractually required expenses
(such as pension and debt service costs) and by federally mandated
programs (such as AFDC and Medicaid). In addition, State aid for school
districts comprises a major share of the budget, and total appropriations
and distribution of such aid is especially contentious politically.
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Furthermore, the State's ability to respond to unanticipated developments
in the future may have been impaired since the State has utilized a
substantial range of actions of a non-recurring nature in recent years to
finance its General fund operations, including tapping excess monies in
special funds, refinancing outstanding debt to reduce reserve fund
requirements and current (but not long-term) debt service costs,
recalculating pension fund contributions, selling State assets,
reimbursing past General Fund expenditures by the issuance of authority
debt and deferring payment for expenditures to future fiscal years. The
1995-96 State financial plan contains actions of a non-recurring nature
including mergers of certain authorities payments from the sale of certain
State assets, and payments associated with the resolution of certain court
cases, totalling approximately $335 million.
Labor Costs. The State government workforce is mostly unionized,
subject to the Taylor Law which authorizes collective bargaining and
prohibits (but has not historically prevented) strikes and work slowdowns.
Costs for employee health benefits have increased substantially, and can
be expected to further increase. The State has a substantial unfunded
liability for future pension benefits, and has utilized changes in its
pension fund investment return assumptions to reduce current contribution
requirements. If such investment earnings assumptions are not sustained by
actual results, additional State contributions will be required in future
years to meet the State's contractual obligations. The State's change in
actuarial method from the aggregate cost method to a modified projected
unit credit in the 1990-91 fiscal year created a substantial surplus that
was amortized and applied to offset the State's contribution through the
1993-94 fiscal year. This change in actuarial method was ruled
unconstitutional by the State's highest court and the State returned to
the aggregate cost method in fiscal year 1994-95 using a four-year
phase-in. Employer contributions, including the State's, are expected to
increase over the next five to ten years.
Public Assistance. The State has the second largest number of
persons receiving public assistance (AFDC and Home Relief) of any state.
AFDC costs are shared among the federal government, the State and its
counties (including the City) by statutory formula. Caseloads tend to rise
significantly during economic downturns, but have fallen only in the later
stages of past economic recoveries.
Medicaid. The State participates in the federal Medicaid program
under a state plan approved by the Health Care Financing Administration.
The federal government provides a substantial portion of eligible program
costs, with the remainder shared by the State and its counties (including
the City). Basic program eligibility and benefits are determined by
federal guidelines, but the State provides a number of optional benefits
and expanded eligibility. Program costs have increased substantially in
recent years, and account for a rising share of the State budget. Federal
law requires the State adopt reimbursement rates for hospitals and nursing
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homes that are reasonable and adequate to meet the costs that must be
incurred by efficiently and economically operated facilities in providing
patient care, a standard that has led to past litigation by hospitals and
nursing homes seeking higher reimbursement from the State. The budget for
fiscal year 1995-96 includes a medicaid cost containment program estimated
to reduce General Fund costs by $1.1 billion; such cutbacks in State
spending for Medicaid may adversely affect the financial condition of
hospitals and health care institutions that are the obligors of bonds that
may be held by the fund.
The State Authorities. The State's Authorities are not subject to
the constitutional restrictions on the incurrence of debt which apply to
the State itself, and may issue bonds and notes within the amounts of, and
as otherwise restricted by, their legislative authorization. The New York
State Public Authorities Control Board approves the issuance of debt and
major contracts by ten of the Authorities. As of September 30, 1994, there
were 18 Authorities that had outstanding debt of $100 million or more, the
aggregate debt of which (including refunding bonds and moral obligation,
lease-purchase, contractual obligation, or State-guaranteed debt) then
totaled approximately $70.2 billion. As of March 31, 1994 (the date of the
latest data available), aggregate public authority debt outstanding as
State-supported was approximately $28 billion and State-related debt was
approximately $36 billion. In recent years the State has provided
financial assistance through appropriations, in some cases of a recurring
nature, to certain Authorities for operating and other expenses and, (from
1976 to 1987) in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. The State budgeted operating
assistance of approximately $1.3 billion for the Metropolitan
Transportation Authority (MTA) for fiscal year 1994-1995 and estimates
total State assistance in fiscal year 1995-96 to be approximately $1.1
billion. This assistance is expected to continue to be required (and may
increase) in future years. Failure by the State to appropriate necessary
amounts or to take other action to permit the Authorities to meet their
obligations could adversely affect the ability of the State and the
Authorities to obtain financing in the public credit markets and the
market price of the State's outstanding bonds and notes.
The MTA, whose credit standing was recently reduced, oversees the
operation of the City's subway and bus lines by its affiliates, the New
York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively, the TA). MTA subsidiaries operate
certain commuter rail and bus lines in the New York metropolitan area. An
affiliated agency, the Triborough Bridge and Tunnel Authority (TBTA),
operates certain intrastate toll bridges and tunnels. To maintain its
facilities and equipment, which deteriorated significantly in the late
1970s due to deferred maintenance, the MTA prepared a five-year capital
program subject to approval by the MTA Capital Program Review Board. In
April 1993, the State legislature authorized the funding of a portion of a
five-year $9.56 billion capital plan for the MTA for 1992 through 1996.
MTA's five-year capital program for 1992-96 was approved by the State
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capital program review board in December 1993. There can be no assurance
that all governmental actions for the 1992-96 capital program will be
taken, that funding sources currently identified will not be decreased or
eliminated, or that the capital program will not be delayed or reduced. If
the capital program is delayed or reduced, ridership and fare revenues may
decline, which could impair the MTA's ability to meet its operating
expenses without additional State assistance. In addition, because fares
are not sufficient to finance its mass transit operations, the MTA has
depended and will continue to depend for operating support upon a system
of State, local government and TBTA support, and to the extent available,
Federal assistance (including loans, grants and operating subsidies).
There can be no assurance that any such assistance will continue at any
particular level or in any fixed relationship to the operating costs and
capital needs of the MTA.
The City. The City has required, and continues to require,
significant financial assistance from the State. The City depends on State
assistance both to enable the City to balance its budget and to meet its
cash requirements. In the early 1970s, the City incurred substantial
operating deficits, and its financial controls, accounting practices, and
disclosure policies were widely criticized. In 1975, the City encountered
severe financial difficulties and lost access to the public credit
markets. The State Legislature responded in 1975 by creating the Municipal
Assistance Corporation For The City of New York (MAC) to provide financing
assistance for the City and the Financial Control Board to exercise
certain oversight and review functions with respect to the City's
finances. The Financial Control Board's powers over the City were
suspended in June 1986, but would be reinstated (under current law) if the
City experiences certain adverse financial circumstances. At the time of
the fiscal crisis, the State provided substantial financial assistance to
the City, the federal government provided the City with direct seasonal
loans and guarantees on the City's long-term debt, and the City's labor
unions accepted deferrals of wage increases and approved purchases of City
bonds by the pension funds. No assurance can be given that similar
assistance would again be made available if needed, particularly given the
current budgetary constraints faced by both the Federal and State
governments.
The City provides services usually undertaken by counties, school
districts or special districts in other large urban areas including the
provision of social services such as day care, foster care, health care,
family planning, services for the elderly and special employment services
for needy individuals and families who qualify for such assistance. State
law requires the City to allocate a large portion of its total budget to
Board of Education operations, and mandates the City to assume the local
share of public assistance and Medicaid costs. While the City has had GAAP
operating surpluses, in recent fiscal years the City has experienced and
continues to experience ongoing financial difficulties, primarily related
to the impact of the recent recession on the local economy (reducing
revenues from most major taxes and increasing public assistance and
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Medicaid caseloads), rising health care costs for City employees and for
Medicaid, and rising inflation and interest rates. In response, the City
implemented gap-closing programs in recent fiscal years, which initially
relied primarily on actions of a non-recurring nature, but included
substantial property tax rate increases and a personal income tax
surcharge imposed in fiscal year 1991 and selected service cutbacks.
Reductions in State aid, larger than budgeted labor settlements and
increased police expenditures added to the adverse budgetary impact of the
local recession, confronting the City with a potential $3.3 billion
imbalance during fiscal year 1992 budget negotiations. This initial budget
gap was closed by adoption of a budget providing for various tax increases
and significant service reductions. Aid to nonprofit cultural institutions
in the City was significantly reduced (as was State aid to such
institutions), including certain institutions that are obligors of bonds
that may be held by the fund. The City's budget for fiscal year 1994
identified measures to close a $300 million budget gap, which was the
result of shortfalls in Federal and State aid from previously projected
levels. The City achieved balanced operating results as reported in
accordance with GAAP for the 1994 fiscal year. For fiscal year 1995, the
City adopted a budget which halted the trend in recent years of
substantial increases in City-funded spending from one year to the next.
The City budget adopted for fiscal year 1996 reduces City-funded spending
for the second consecutive year.
Pursuant to State law, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and
includes the City's capital, revenue and expense projections and outlines
proposed budget gap-closing programs for those years with projected budget
gaps.
The mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1996
through 1999 fiscal years (the "1996-1999 Financial Plan"). The City's
projections set forth in the 1996-1999 Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the
timing and pace of a regional and local economic recovery, increases in
interest rates, the impact on real estate tax revenues of the real estate
market, wage increases for city employees consistent with those assumed in
the 1996-99 Financial Plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives
which may require in certain cases the cooperation of the City's municipal
unions, the ability of the New York City Health and Hospitals Corporation
and the Board of Education to take actions to offset reduced revenues, the
ability to complete revenue generating transactions, provision of State
and Federal aid and mandate relief, and the impact on City revenues of
proposals for Federal and State Welfare reform. No assurance can be given
that the assumptions used by the City in the 1996-99 Financial Plan will
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be realized. Furthermore, actions taken in recent fiscal years to avert
deficits may have reduced the City's flexibility in responding to future
budgetary imbalances, and have deferred certain expenditures to later
fiscal years.
The City's original budget for fiscal year 1995 reflected proposed
actions to eliminate a $2.3 billion budget gap. The City submitted on July
21, 1995 a fourth quarter modification to the City's financial plan for
the 1995 fiscal year which projects a balanced budget in accordance with
GAAP for the City's 1995 fiscal year. On July 11, 1995, the City submitted
the 1996-99 Financial Plan, which is based on the City's expense and
capital budgets of the City's 1996 fiscal year adopted on June 14, 1995
(the "1996 City Budget"). The 1996 City Budget sets forth proposed actions
by the City for the 1996 fiscal year to close a substantial projected
budget gap (approximately $3.1 billion) resulting from lower than
projected tax receipts and other revenues and greater than projected
expenditures. Proposed actions in the 1996-99 Financial Plan for the
City's 1996 fiscal year include a reduction of approximately $400 million
primarily affecting public assistance and Medicaid payments by the City,
expenditure reductions in agencies totalling approximately $1.2 billion
and transitional labor savings of approximately $600 million. These and
other proposed actions were contained in the 1996-99 Financial Plan as
well as the 1996 City Budget. The City Budget is subject to the ability of
the City to implement the proposed reductions in expenditures, personal
services and personnel, which are substantial and may be difficult to
implement. For example, the City Comptroller has announced his intention
to block one of the key items contained in the 1996 City Budget, the sale
of the City's water system for approximately $2.3 billion. Among other
things, he cited his concern that such sale proceeds would be used
primarily as a "one-shot" measure to close potential budget gaps by
financing operating expenses in fiscal year 1996 rather than be used to
undertake long-term capital projects. In addition, certain proposals may
be offset by various State and Federal legislation which could mandate
levels of City funding inconsistent with the 1996 City Budget and the
1996-99 Financial Plan. In addition, the 1996-99 Financial Plan
anticipates the receipt of substantial amounts of Federal aid. Certain
proposed State and Federal actions are subject to approvals from the
Legislature, the Governor and the President, as applicable. Both Federal
and State actions are uncertain; certain legislative proposals contemplate
significant reductions in Federal spending, including proposed Federal
welfare reform which could result in caps on, or block grants of, Federal
programs. Further, no assurance can be given that either such actions will
in fact be taken or that the projected savings will result even if such
actions are taken.
The City derives its revenues from a variety of local taxes, user
charges, miscellaneous revenues and federal and State unrestricted and
categorical grants. The City projects that local revenues will provide
approximately 68.0% of total revenues in fiscal year 1996 while federal
aid, including categorical grants, will provide 11.7% in fiscal year 1996
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and State aid, including unrestricted aid and categorical grants, will
provide 20.3% in fiscal year 1996. As a proportion of total revenues,
State aid has remained relatively constant over the period from 1980 to
1990, while federal aid was sharply reduced (having provided nearly 20% of
total fiscal year 1980 revenues). The largest source of the City's
revenues is the real estate tax (approximately 22% of total revenues
projected for fiscal year 1996), at rates levied by the City council
(subject to certain State constitutional limits). State legislation
requires that increases in assessments of certain classes of real property
be phased-in over a five-year period; thus, property owners may receive
higher assessments when property values are declining. However, in the
event of a reduction in total assessments, higher tax rates would be
required to maintain the same amount of tax revenue. The City derives the
remainder of its tax revenues from a variety of other economically
sensitive local taxes (subject to authorization by the legislature),
including: a local sales and compensating use tax (primarily dedicated to
MAC debt service) imposed in addition to the State's retail sales tax; the
personal income tax on City residents and the earnings tax on
non-residents; a general corporation tax; and a financial corporation tax.
High tax burdens in the city impose political and economic constraints on
the ability of the City to increase local tax rates. The City's four-year
financial plans have been the subject of extensive public comment and
criticism, principally questioning the reasonableness of assumptions that
the City will have the capacity to generate sufficient revenues in the
future to provide the level of services contained in such City financial
plans. On July 10, 1995, Standard & Poor's lowered the City's credit
rating from A- to BBB+, among the lowest ratings of any major city in the
country. The rating agency cited specifically the City Budget's reliance
on "one-shot" measures to balance the budget for fiscal year 1995-96
without rectifying the underlying structural problems, its continued
optimistic projections of State and Federal aid, and continued high debt
levels. Standard & Poor's also mentioned the feeble local economy and the
City Budget's over-reliance on the financial services sector which
historically has been volatile.
The City is the largest municipal debt issuer in the nation, and
has more than doubled its debt load since the end of fiscal year 1988, in
large measure to rehabilitate its extensive, aging physical plant. The
City's seasonal borrowing needs increased significantly during fiscal
years 1990 and 1991, largely due to delayed State aid payments, and
totalled $2.25 billion in fiscal year 1992, $1.4 billion in fiscal year
1993, $1.75 billion in fiscal year 1994 and $2.2 billion in fiscal year
1995. Current projections forecast a need of $2.4 billion of seasonal
financing for fiscal year 1996. The City's current capital financing
program reflects major reductions (approximately $2.13 billion) in the
size of the capital program to be implemented cumulatively through fiscal
year 1999 which is intended to reduce future debt service requirements.
Such reductions may adversely affect the condition of the City's aging and
deteriorating infrastructure and physical assets, such as sewers, streets,
bridges and tunnels, and mass transit facilities. Further, the City's
capital financing program currently contemplates receipt of proceeds of
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approximately $1 billion resulting from the sale of the City's water and
sewer system to the Water Board, and proposes to utilize a substantial
portion of such proceeds for capital project improvements. It is not
certain that such proceeds will become available for capital improvements,
because, as discussed above, the City Comptroller has stated his
opposition to such proposed transfer of the water and sewer system.
In November 1993, the voters approved a proposed charter whereby
Staten Island would secede from the City. Staten Island is one of five
counties/boroughs, comprising 4% of the City's population and 19% of its
land area. State law provides a complex mechanism for such secession. The
State Legislature is also considering establishment of a similar secession
mechanism for Queens.
Other Localities. Certain localities in addition to the City could
have financial problems which, if significant, could lead to requests for
additional State assistance during the State's fiscal year and thereafter.
Fiscal difficulties experienced by the City of Yonkers, for example, could
result in State actions to allocate State resources in amounts that cannot
yet be determined. In the recent past, the State provided substantial
financial assistance to its political subdivisions, totalling
approximately 68% of General Fund disbursements in the State's fiscal year
1992-93, 69% for fiscal year 1993-94, 70% for fiscal year 1994-95 and
estimated to account for 69% of General Fund disbursements in the State's
1995-96 fiscal year, primarily for aid to elementary, secondary and higher
education, Medicaid income maintenance, and local transportation programs.
The legislature enacted substantial reductions from previously budgeted
levels of State aid since December 1990. To the extent the State is
constrained by its financial condition, State assistance to localities may
be further reduced, compounding the serious fiscal constraints already
experienced by many local governments. Localities also face anticipated
and potential problems resulting from pending litigation (including
challenges to local property tax assessments), judicial decisions and
socio-economic trends. The Legislature enacted substantial reductions from
previously budgeted levels of State aid since December 1990. To the extent
the State is constrained by its financial condition, State assistance to
localities may be further reduced, compounding the serious fiscal
constraints already experienced by many local governments. Localities also
face anticipated and potential problems resulting from pending litigation
(including challenges to local property tax assessments), judicial
decisions and socio-economic trends.
The total indebtedness of all localities in the State, other than
the City, was approximately $17.7 billion, as of the localities fiscal
years ending in 1993 (the date of the latest data available.) A small
portion (approximately $105 million) of this indebtedness represented
borrowing to finance budgetary deficits issued pursuant to enabling State
legislation (requiring budgetary review by the State Comptroller).
Subsequently, certain counties and other local governments have
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encountered significant financial difficulties, including the counties of
Suffolk, Nassau, Monroe, and Westchester, and the City of Buffalo. The
State imposed financial control on the City from 1977 to 1986 and on the
City of Yonkers since 1984 under an appointed control board in response to
fiscal crises encountered by such municipalities. The Legislature imposed
certain limited fiscal restraints on Nassau and Suffolk Counties, and
authorized their issuance of deficit bonds to finance over several years
their respective 1992 operating deficits.
SPECIAL FACTORS AFFECTING CALIFORNIA
------------------------------------
Certain California constitutional amendments, legislative
measures, executive orders, administrative regulations, and voter
initiatives, as discussed below, could adversely affect the market values
and marketability of, or result in default of, existing obligations,
including obligations that may be held by California Municipal Income
Fund. Obligations of the state or local governments may also be affected
by budgetary pressures affecting the State of California (the State) and
economic conditions in the State. Interest income to the fund could also
be adversely affected. The following discussion highlights only some of
the more significant financial trends and problems, and is based on
information drawn from official statements and prospectuses relating to
securities offerings of the State, its agencies, or instrumentalities, as
available as of the date of this SAI. FMR has not independently verified
any of the information contained in such official statements and other
publicly available documents, but is not aware of any fact which would
render such information inaccurate.
CONSTITUTIONAL LIMITATIONS ON TAXES AND APPROPRIATIONS
------------------------------------------------------
Limitation on Taxes. Certain obligations held by the fund may be
obligations of issuers that rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The
taxing powers of local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, Proposition 13 limits to 1%
of full cash value the rate of ad valorem property taxes on real property
and generally restricts the increase in taxes upon reassessment of
property to 2% per year, except upon new construction or change of
ownership (subject to a number of exemptions). Taxing entities may,
however, raise ad valorem taxes above the 1% limit to pay debt service on
voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of
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acquisition (or as of March 1, 1975 if acquired earlier), subject to
certain adjustments. This system has resulted in widely varying amounts of
tax on similarly situated properties. Several lawsuits were filed
challenging the acquisition-based assessment system of Proposition 13, but
on June 18, 1992, the U.S. Supreme Court announced a decision upholding
Proposition 13.
Article XIIIA prohibits local governments from raising revenues
through ad valorem property taxes above the 1% limit; it also requires
voters of any government unit to give 2/3 approval to levy any "special
tax." However, court decisions allowed non-voter-approved levies of
"general taxes" which were not dedicated to a specific use. In response to
these decisions, the voters of the State in 1986 adopted an initiative
statute which imposed significant new limits on the ability of local
entities to raise or levy general taxes, except by receiving majority
local voter approval. Significant elements of this initiative,
"Proposition 62," have been overturned in recent court cases, but efforts
may continue to further restrict the ability of local government agencies
to levy or raise taxes.
Appropriations Limits. The State and its local governments are
subject to an annual "appropriations limit" imposed by Article XIIIB of
the California Constitution, enacted by the voters in 1979 and
significantly amended by Propositions 98 and 111 in 1988 and 1990,
respectively. Article XIIIB prohibits the State or any covered local
government from spending "appropriations subject to limitation" in excess
of the appropriations limit imposed. "Appropriations subject to
limitation" are authorizations to spend "proceeds of taxes," which consist
of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges, or other fees to the extent that such
proceeds exceed the cost of providing the product or service; but
"proceeds of taxes" for local governments exclude most State subventions.
No limit is imposed on appropriations of funds which are not "proceeds of
taxes," such as reasonable user charges or fees and certain other non-tax
funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB
appropriations limit are: (1) the debt service cost of bonds issued or
authorized prior to January 1, 1979, or subsequently authorized by the
voters; (2) appropriations arising from certain emergencies declared by
the Governor; (3) appropriations for certain capital outlay projects; and
(4) appropriations by the State of post-1989 increases in gasoline taxes
and vehicle weight fees.
The appropriations limit for each year is adjusted annually to
reflect changes in cost of living and population, and any transfers of
service responsibilities between government units. The definitions for
such adjustments were liberalized by Proposition 111 to follow more
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closely growth in the State's economy. For the 1990-91 fiscal year, each
unit of government has recalculated its appropriations limit by taking the
actual 1986-87 limit and applying the Proposition 111 annual adjustments
forward to 1990-91. This was expected to raise the limit in most cases.
Under Proposition 111, "excess" revenues are measured over a
two-year cycle. With respect to local governments, excess revenues must be
returned by a revision of tax rates or fee schedules within the two
subsequent fiscal years. The appropriations limit for a local government
may be overridden by referendum under certain conditions for up to four
years at a time. With respect to the State, 50% of any excess revenues is
to be distributed to K-12 school and community college districts
(collectively, K-14 districts) and the other 50% is to be refunded to
taxpayers.
In the years immediately following enactment, very few California
governmental entities operated near their appropriations limit. In the
mid-to-late 1980's, many entities were at or approaching their limit, and
several successfully obtained voter approval for four-year waivers of the
limit. Since Proposition 111, the appropriations limit has again ceased to
be a practical limit on California governments, but this condition may
change in the future. During FY 1986-87, State receipts from proceeds of
taxes exceeded its appropriations limit by $1.138 billion, which was
returned to taxpayers. Since that time, appropriations subject to
limitation were under the State limit. The 1995-96 Governor's Budget
proposal estimates State appropriations will be more than $6.0 billion
under the limit for FY 1994-95 and over $7.2 billion under the limit for
FY 1995-96.
OBLIGATIONS OF THE STATE OF CALIFORNIA
--------------------------------------
As of February 1995, the State had approximately $18.6 billion of
general obligation bonds outstanding, and $4.1 billion remained authorized
but unissued. In addition, at June 30, 1994, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $5.1
billion. Of the State's outstanding general obligation debt, approximately
21% is presently self-liquidating (for which program revenues are
anticipated to be sufficient to reimburse the General Fund for debt
service payments). In FY 1993-94, debt service on general obligation bonds
and lease-purchase debt was approximately 5.2% of General Fund revenues.
The State has paid the principal of and interest on its general obligation
bonds, lease-purchase debt, and short-term obligations when due.
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ECONOMY
-------
The State's economy is the largest among the 50 states and one of
the largest in the world. The State's population grew by 27% in the 1980s
and, at over 31 million, it now represents 12.3% of the total U.S.
population. Total personal income in the State, at an estimated $683
billion in 1993, accounts for almost 13% of all personal income in the
nation. Total employment in 1994 was over 14 million, the majority of
which is in the service, trade, and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with
the worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), and financial
services, among others, were all severely affected, particularly in
Southern California. Job losses were the worst of any post-war recession.
Employment levels stabilized by late 1993 and steady growth occurred in
1994 and is expected in 1995, but pre-recession job levels are not
expected to be reached for several more years. Unemployment, while higher
than the national average, came down about 3% in 1994. Economic
indicators show a steady recovery underway in California since the start
of 1994.
RECENT STATE FINANCIAL RESULTS
------------------------------
The principal sources of State General Fund revenues in 1993-94
were the California personal income tax (44% of total revenues), the sales
tax (35%), bank and corporation taxes (12%), and the gross premium tax on
insurance (3%). The State maintains a Special fund for Economic
Uncertainties (the SFEU), derived from General Fund revenues, as a reserve
to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. Year-end
balances in the SFEU are included for financial reporting purposes in the
General Fund balance. In recent years (but not in the past three years, as
the recession has cut revenues), the State has budgeted to maintain the
SFEU at around 3% of General Fund expenditures.
Throughout the 1980s, State spending increased rapidly as the
State population and economy also grew rapidly, including many assistance
programs to local governments, which were constrained by Proposition 13
and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a 2/3 vote of the Legislature and the
Governor) guarantees local school districts and community college
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districts a minimum share of State General Fund revenues (currently about
35%).
Since the start of FY1990-91, the State faced adverse economic,
fiscal, and budget conditions. The economic recession seriously affected
State tax revenues. It also caused increased expenditures for health and
welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates significantly higher
than the growth rates for the principal revenue sources of the General
Fund. As a result, the State entered a period of budget imbalance, with
expenditures exceeding revenues for four of the five completed fiscal
years through 1991-92.
As the State fell into a deep recession in the summer of 1990, the
State budget fell sharply out of balance in FY 1990-91 and FY 1991-92,
despite significant expenditure cuts and tax increases. The State had
accumulated a $2.8 billion budget deficit by June 30, 1992. This deficit
also severely reduced the State's cash resources, so that it had to rely
on external borrowing in the short-term markets to meet its cash needs.
Cash Flow Requirements. Because of the accumulated budget deficit
over the past several years, the payment of certain unbudgeted
expenditures to schools to maintain constant per-pupil aid levels, and a
reduction of the level of available internal borrowing, the State's cash
resources have been significantly depleted. This has required the State
to rely on a series of external borrowings for the past several years to
pay its normal expenses, including repayment of previous cash flow
borrowings. Since June 1992, some of these borrowings have gone past the
end of the fiscal year. In February, 1994, the State borrowed $3.2
billion, maturing by December, 1994. In July, 1994, the State borrowed a
total of $7.0 billion to meet its cash flow requirements for FY 1994-95,
and to fund a part of its deficit into the FY 1995-96. A total of $4.0
billion of this borrowing matures in April, 1996. The State will continue
to have to rely on external borrowing to meet its cash needs for the
foreseeable future.
Recent Budgets. The State failed to enact its 1992-93 budget by
July 1, 1992. Although the State had no legal authority to pay many of
its vendors, certain obligations (such as debt service, school
apportionments, welfare payments, and employee salaries) were payable
because of continuing or special appropriations, or court orders.
However, the State Controller did not have enough cash to pay all of these
ongoing obligations,or valid obligations incurred in the prior fiscal year
as they came due.
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Starting on July 1, 1992, the Controller was required to issue
"registered warrants" in lieu of normal warrants backed by cash to pay
many State obligations. Available cash was used to pay constitutionally
mandated and priority obligations. Between July 1 and September 3, 1992,
the Controller issued an aggregate of approximately $3.8 billion of
registered warrants all of which were called for redemption by September
4, 1992 following enactment of the 1992-93 Budget Act and issuance by the
State of short-term notes.
The 1992-93 Budget Act, when finally adopted, was projected to
eliminate the State's accumulated deficit, with additional expenditure
cuts and a $1.3 billion transfer of State education funding costs to local
governments by shifting local property taxes to school districts.
However, as the recession continued longer and deeper than expected,
revenues once again were far below projections, and only reached a level
just equal to the amount of expenditures. Thus, the State continued to
carry its $2.8 billion budget deficit at June 30, 1993.
The 1993-94 Budget Act represented a third consecutive year of
difficult budget choices. As in the prior year, the budget contained no
general state tax increases, and relied principally on expenditure cuts,
particularly for health and welfare and higher education, a two-year
suspension of the renters' tax credit some one-time and accounting
adjustments, and --the largest component -- an additional $2.6 billion
transfer of property taxes from local governments, particularly counties,
to school districts to reduce State education funding requirements. A
temporary state sales tax scheduled to expire on June 30, 1993 was
extended for six months, and dedicated to support local government public
safety costs.
A major feature of the budget was a two-year plan to eliminate the
accumulated deficit by borrowing into FY1994-95. With the recession still
continuing longer than expected, the General Fund had $800 million less
revenue and $800 million higher expenditures than budgeted. As a result
revenues only exceed expenditures by about $500 million. However, this
was the first operating surplus in four years and reduced the accumulated
deficit to $2.0 billion at June 30, 1994 (after taking account of certain
other accounting reserves).
Current Budget. The 1994-95 Budget Act was passed on July 8,
1994, and provides for an estimated $41.9 billion of General Fund
revenues, and $40.9 billion of expenditures. The budget assumed receipt
of about $750 million of new federal assistance for the costs of
incarceration, education, health and welfare related to undocumented
immigrants. Other major components of the budget included further
reductions in health and welfare costs and miscellaneous government costs,
some additional transfers of funds from local government, and a plan to
defer retirement of $1 billion of the accumulated budget deficit to FY
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1995-96. The federal government has apparently budgeted only $33 million
of the expected immigration aid. However, this shortfall is expected to
be almost fully offset by higher-than-projected revenues, and
lower-than-projected caseload growth, as the economy improves.
As noted above under "Cash Flow Requirements," the State issued
$7.0 billion of short-term debt in July, 1994 to meet its cash flow needs
and to finance the deferral of part of the accumulated budget deficit to
FY 1995-96. In order to assure repayment of the $4 billion, 22-month part
of this borrowing, the State enacted legislation (the "Trigger Law") which
can lead to automatic, across-the-board costs in General Fund expenditures
in either the FY 1994-95 or FY 1995-96 if cash flow projections made at
certain times during those years show deterioration from the projections
made in July 1994 when the borrowings were made. On November 15, 1994,
the State Controller, as part of the Trigger Law, reported that the cash
position of the General Fund on June 30,1995 would be about $580 million
better than was earlier projected, so no automatic budget adjustments were
required in 1994-95. The Controller's report showed that loss of federal
funds was offset by higher revenues, lower expenditures, and certain other
increases in cash resources.
The proposed Governor's Budget for FY 1995-96 projects General
Fund revenues of $42.5 billion and expenditures of $41.7 billion. The
Governor's Budget projects that all the accumulated budget deficits will
be repaid by June 30, 1996, with a small balance ($92 million) in the
SFEU, the budget reserve. The proposed budget assumes receipt of about
$830 million of new federal aid for undocumented aliens' costs, and also
assumes success in certain ongoing litigation concerning previous budget
actions. The Governor has proposed a 15% cut in personal income and
corporate taxes, to be phased in over three years starting in 1996.
The State's severe financial difficulties for the past, current
and upcoming budget years will result in continued pressure upon almost
all local governments, especially those which depend on State aid, such as
school districts and counties. While recent budgets included both
permanent tax increases and actions to reduce costs of state government
over the longer term, the Governor and other analysts have noted that
structural imbalances still exist, and there can be no assurance that the
state will not face budget gaps in the future.
State general obligation bonds are currently rated "A1" by
Moody's, "A" by Fitch Investors Service, Inc., and "A" by S&P. There can
be no assurance that such ratings will be maintained in the future. All
three of these ratings were reduced from "AAA" levels since late 1991.
Orange County. On December 6, 1994, Orange County, California
(the County), together with its pooled investment funds (the Pools) filed
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for protection under Chapter 9 of the federal Bankruptcy Code, after
reports that the Pools had suffered significant market losses in their
investments, causing a liquidity crisis for the Pools and the County.
More than 180 other public entities, most but not all located in the
County, were also depositors in the Pools. As of mid-January 1995, the
County estimated the Pools' losses at approximately $1.7 billion, or 22%
of its initial deposits of approximately $7.5 billion. Many of the
entities which kept moneys in the Pools, including the County, are facing
cash flow difficulties because of the bankruptcy filing and may be
required to reduce programs or capital projects. The County and some of
these entities have defaulted, and others may in the future default, on
payment of their obligations. Moody's and S & P have suspended, reduced
to below investment grade levels, or placed on "Credit Watch" various
securities of the County and the entities participating in the Pools.
The State has no obligation with respect to any obligations or
securities of the County or any of the other participating entities.
However, the State may be obligated to intervene to ensure that school
districts have sufficient funds to operate, or to maintain certain
County-administered State programs.
OBLIGATIONS OF OTHER CALIFORNIA ISSUERS
--------------------------------------
State Assistance. Property tax revenues received by local
governments declined more than 50% following passage of Proposition 13.
Subsequently, the State's Legislature enacted measures to provide for the
redistribution of the State's General Fund surplus to local agencies; the
reallocation of certain State revenues to local agencies; and the
assumption of certain governmental functions by the State to assist
municipal issuers to raise revenues. Total local assistance from the
State's General Fund totaled approximately $29.1 billion in FY 1993-94
(about 70% of General Fund expenditures) and has been budgeted at $30.5
billion for FY 1994-95, including the effect of implementing reductions in
certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 and 1993-94 Budget Acts caused local governments to
transfer $3.8 billion of property tax revenues to school districts,
representing reversal of the post-Proposition 13 "bailout" aid.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or
other considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such
reductions in State aid could compound the serious fiscal constraints
already experienced by many local governments, particularly counties. At
least one rural county (Butte) publicly announced that it might enter
bankruptcy proceedings in August 1990, although such plans were put off
after the Governor approved legislation to provide additional funds for
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the county. Other counties have also indicated that their budgetary
condition is extremely grave. A school district (Richmond Unified) filed
for protection under bankruptcy laws several years ago, but the petition
was later dismissed; other school districts have indicated financial
stress, although none has threatened bankruptcy.
Assessment Bonds. Municipal obligations which are assessment bonds
or Mello-Roos bonds may be adversely affected by a general decline in real
estate values or a slowdown in real estate sales activity. In many cases,
such bonds are secured by land which is undeveloped at the time of
issuance but anticipated to be developed within a few years after
issuance. In the event of such reduction or slowdown, such development may
not occur or may be delayed, thereby increasing the risk of a default on
the bonds. Because the special assessments or taxes securing these bonds
are not the personal liability of the owners of the property assessed, the
lien on the property is the only security for the bonds. Moreover, in most
cases the issuer of these bonds is not required to make payments on the
bonds in the event of delinquency in the payment of assessments or taxes,
except from amounts, if any, in a reserve fund established for the bonds.
California Long-Term Lease Obligations. Certain State long-term
lease obligations, though typically payable from the General Fund of the
municipality, are subject to "abatement" in the event the facility being
leased is unavailable for beneficial use and occupancy by the municipality
during the term of the lease. Abatement is not a default, and there may be
no remedies available to the holders of the certificates evidencing the
lease obligation in the event abatement occurs. The most common causes of
abatement are failure to complete construction of the facility before the
end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In
the event abatement occurs with respect to a lease obligation, lease
payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District
("District") entered into a lease transaction in which certain existing
properties of the District were sold and leased back in order to obtain
funds to cover operating deficits. Following a fiscal crisis in which the
District's finances were taken over by a State receiver (including a brief
period under bankruptcy court protection), the District failed to make
rental payments on this lease, resulting in a lawsuit by the Trustee for
the Certificate of Participation holders. One of the defenses raised in
answer to this lawsuit was the invalidity of the original lease
transaction. The trial court upheld the validity of the District's lease,
and the case has been settled. However, any future judgment in a similar
case against the position taken by the Trustee may have implications for
lease transactions of a similar nature by other State entities.
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Other Considerations. The repayment of Industrial Development
Securities secured by real property may be affected by State laws limiting
foreclosure rights of creditors. Health Care and Hospital Securities may
be affected by changes in State regulations governing cost reimbursements
to health care providers under Medi-Cal (the State's Medicaid program),
including risks related to the policy of awarding exclusive contracts to
certain hospitals.
Limitations on ad valorem property taxes may particularly affect
"tax allocation" bonds issued by State redevelopment agencies. Such bonds
are secured solely by the increase in assessed valuation of a
redevelopment project area after the start of redevelopment activity. In
the event that assessed values in the redevelopment project decline (for
example, because of a major natural disaster such as an earthquake), the
tax increment revenue may be insufficient to make principal and interest
payments on these bonds. Both Moody's and S&P suspended ratings on State
tax allocation bonds after the enactment of Articles XIIIA and XIIIB, and
only resumed such ratings on a selective basis.
Proposition 87, approved by State voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing
entity which increased such tax rate to repay that entity's general
obligation indebtedness. As a result, redevelopment agencies (which,
typically, are the issuers of Tax Allocation Securities) no longer receive
an increase in tax increment when taxes on property in the project area
are increased to repay voter-approved bonded indebtedness.
Substantially all of the State is within an active geologic region
subject to major seismic activity. Any California municipal obligation
held by the fund could be affected by an interruption of revenues because
of damaged facilities or, consequently, income tax deductions for casualty
losses or property tax assessment reductions. Compensatory financial
assistance could be constrained by the inability of (i) an issuer to have
obtained earthquake insurance coverage at reasonable rates; (ii) an
insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.
On January 17, 1994 , a major earthquake with an estimated
magnitude of 6.8 on the Richter scale struck the Los Angeles area, causing
significant property damage to public and private facilities, presently
estimated at $15-20 billion. While over $9.5 billion of federal aid, and a
projected $1.9 billion of state aid, plus insurance proceeds, will
reimburse much of that loss, there will be some ultimate loss of wealth
and income in the region, in addition to costs of the disruption caused by
the event. These uninsured losses are estimated to have only a small
effect on the overall State economy, with a drop of up to 0.5 percent in
personal income growth. Short-term economic projections are generally
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neutral, as the infusion of aid will restore billions of dollars to the
local economy within a few months. Although the earthquake will hinder
recovery from the recession in Southern California, already hard-hit, its
long-term impact is not expected to be material in the context of the
overall wealth of the region. Almost five years after the event, there are
few remaining effects of the 1989 Loma Prieta earthquake in Northern
California (which, however, caused less severe damage than the Northridge
earthquake).
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution (described briefly above), the ambiguities and
possible inconsistencies in their terms, and the impossibility of
predicting future appropriations or changes in population and the cost of
living, and the probability of continuing legal challenges, it is not
currently possible to determine fully the impact of Article XIIIA or
Article XIIIB, or the outcome of any pending litigation with respect to
those provisions on State obligations held by the fund or on the ability
of the State or local governments to pay debt service on such obligations.
Legislation has been or may be introduced (either in the State Legislature
or by initiative) which would modify existing taxes or other
revenue-raising measures or which either would further limit or,
alternatively, would increase the abilities of State and local governments
to impose new taxes or increase existing taxes. It is not presently
possible to predict the extent to which any such legislation will be
enacted, or if enacted, how it would affect California municipal
obligations. It is also not presently possible to predict the extent of
future allocations of State revenues to local governments or the abilities
of State or local governments to pay the interest on, or repay the
principal of, such California municipal obligations in light of future
fiscal circumstances.
SPECIAL FACTORS AFFECTING PUERTO RICO
-------------------------------------
The following only highlights some of the more significant
financial trends and problems affecting the Commonwealth of Puerto Rico
(the Commonwealth or Puerto Rico), and is based on information drawn form
official statements and prospectuses relating to the securities offerings
of Puerto Rico and its agencies and instrumentalities, as available on the
date of this Statement of Additional Information. FMR has not
independently verified any of the information contained in such official
statements, prospectuses, and other publicly available documents, but is
not aware of any fact which would render such information materially
inaccurate.
The economy of Puerto Rico is closely linked with that of the
United States, and in fiscal 1993 trade with the United States accounted
for approximately 86% of Puerto Rico's exports and approximately 69% of
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its imports. In this regard, in fiscal 1993 Puerto Rico experienced a $2.5
billion positive adjusted merchandise trade balance. Since fiscal 1987,
personal income, both aggregate and per capita, has increased consistently
each year. In fiscal 1993 aggregate personal income was $24.1 billion and
personal per capita income was $6,760. Gross domestic product in fiscal
1991, 1992, and 1993 was $22.8 billion, $23.5 billion, and $25 billion,
respectively. For fiscal 1994, an increase in gross domestic product of
2.9% over fiscal 1993 is forecast. However, actual growth in the Puerto
Rican economy will depend on several factors, including the condition of
the U.S. economy, the exchange rate for the U.S. dollar and the price
stability of oil imports and interest rates. Due to these factors, there
is no assurance that the economy of Puerto Rico will continue to grow.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1989 through fiscal 1993. While trends in the Puerto
Rican economy generally follow those of the United States, Puerto Rico did
not experience a recession primarily because of its strong manufacturing
base, which has a large component of non-cyclical industries. Other
factors behind the continued expansion included Commonwealth-sponsored
economic development programs, stable prices of oil imports, low exchange
rates for the U.S. dollar, and the relatively low cost of borrowing funds
during the period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the U.S. average and has been increasing
in recent years. Despite long-term improvements the unemployment rate rose
from 16.5% to 17.5% from fiscal 1992 to fiscal 1993. However, by the end
of January 1994, the unemployment rate had dropped to 16.3%.
The economy of Puerto Rico has undergone a transformation in the
latter half of this century from one centered around agriculture to one
dominated by the manufacturing and service industries. Manufacturing is
the cornerstone of Puerto Rico's economy, accounting for $14.1 billion or
39.4% of gross domestic product in fiscal 1993. However, manufacturing has
experienced a basic change over the years as a result of the influx of
higher wages, high technology industries such as the pharmaceutical
industry, electronics, computers, micro processors, scientific
instruments, and high technology machinery. The service sector, which
employs the largest number of people, includes wholesale and retail trade,
finance, and real estate, and ranks second in its contribution to gross
domestic product. In fiscal 1993, the service sector generated $14.0
billion in gross domestic product or 39.1% of the total and employed over
467,000 workers providing 46.7% of total employment. The government sector
of the Commonwealth plays an important role in Puerto Rico's economy. In
fiscal year 1993, the government accounted for $3.9 billion of Puerto
Rico's gross domestic product and provided 21.7% of the total employment.
Tourism also contributes significantly to the island economy, accounting
for $1.6 billion of gross domestic product in fiscal 1993.
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The present administration, which took office in January 1993,
envisions major economic reforms and has developed a new economic
development program to be implemented in the next few years. This program
is based on the premise that the private sector will be the primary
vehicle for economic development and growth. The program promotes changing
the role of the Government from one of being a provider of most basic
services to one of being a facilitator for private sector initiatives and
will encourage private sector investment by reducing regulatory
restraints. The program contemplates the development of initiatives that
will foster private investment, both external and internal, in areas that
are served more efficiently and effectively by the private sector. The
program also contemplates a general revision of the tax system to expand
the tax base, reduce top personal and corporate tax rates, and simplify a
highly complex system. Other important goals for the new program are to
reduce the size of the Government's direct contribution to gross domestic
product and, to facilitate private sector development and growth which
would be realized through a reduction in Government consumption and an
increase in Government investment in order to improve and expand Puerto
Rico's infrastructure.
Much of the development of the manufacturing sector of the economy
of Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
(Section 936) and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application, a credit against their U.S. corporate income
tax on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico (active income), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
sources investment income (passive income). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
Pursuant to recently enacted amendments to the Internal Revenue
Code (the Code), and for taxable years commencing after 1993, two
alternative limitations will apply to the Section 936 credit against
active business income and sale of assets as previously described. The
first option will limit the credit against such income to 40% of the
credit allowed under current law, with a five-year phase-in period
starting at 60% of the current credit. The second option will limit the
allowable credit to the sum of (i) 60% of qualified compensation paid to
employees (as defined in the Code); (ii) a specified percentage of
depreciation deductions; and (iii) a portion of the Puerto Rico income
taxes paid by the Section 936 corporation, up to a 9% effective tax rate.
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At present, it is difficult to forecast what the short- and
long-term effects of the new limitations to the Section 936 credit will be
on the economy of Puerto Rico. However, preliminary econometric studies by
the Government of Puerto Rico and private sector economists (assuming no
enhancements to the existing Industrial Incentives Program) project only a
slight reduction in average real growth rates for the economy of Puerto
Rico. These studies also show that particular industry groups will be
affected differently. For example, manufacturers of pharmaceuticals and
beverages may suffer a larger reduction in tax benefits due to their
relatively higher profit margins. In addition, the above limitations are
not expected to reduce the tax credit currently enjoyed by
labor-intensive, lower profit margin industries, which represent
approximately 40% of the total employment by Section 936 corporations in
Puerto Rico.
PORTFOLIO TRANSACTIONS
----------------------
All orders for the purchase or sale of portfolio securities are
placed on behalf of each 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 Contracts), 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; the
reasonableness of any commissions; and, for equity funds, arrangements for
payment of fund expenses. Generally, 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 funds may execute portfolio transactions with broker-dealers
who provide research and execution services to the funds 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; and 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), for
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<PAGE>
equity funds, in accordance with a ranking of broker-dealers determined
periodically by FMR's investment staff (for equity funds), based upon the
quality of research and execution services provided.
The receipt of research from broker-dealers that execute
transactions on behalf of the funds may be useful to FMR in rendering
investment management services to the funds 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 funds. 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 a
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 funds or shares of other
Fidelity funds to the extent permitted by law. FMR may use research
services provided by and place agency transactions with Fidelity Brokerage
Services, Inc. (FBSI) and Fidelity Brokerage Services (FBS), 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, Inc. (FBSL). As of
January 1995, FBSL was converted into an unlimited liability company and
assumed the name FBS. Prior to September 4, 1992, FBSL operated under the
name Fidelity Portfolio Services, Ltd. (FPSL) as a wholly owned subsidiary
of Fidelity International Limited (FIL). Edward C. Johnson 3d is Chairman
of FIL. Mr. 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.
FMR may allocate brokerage transactions to broker-dealers who have
entered into arrangements with FMR under which the broker-dealer allocates
a portion of the commissions paid by Overseas, Equity Growth, Global
Resources, Growth Opportunities, Strategic Opportunities, Equity Income,
Mid Cap, Large Cap, and Income & Growth toward payment of that fund's
expenses, such as transfer agent fees or custodian fees. The transaction
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quality must, however, be comparable to those of other qualified
broker-dealers.
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 FBSI to execute portfolio transactions on
national securities exchanges in accordance with approved procedures and
applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended 1994 and 1995, respectively, each
fund's portfolio turnover rates are shown in the chart below. 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. An increased turnover rate is due to
a greater volume of shareholder purchase orders, short-term interest rate
volatility and other special market conditions.
<TABLE>
<CAPTION>
Fund Fiscal Period Ended 1994 1995
---- ------------------- ---- ----
<S> <C>` <C> <C>
Overseas October 31 34% %
Large Cap November 30 n/a %**
Equity Growth November 30 137% %
Global Resources October 31 125% %
Growth Opportunities October 31 43% %
Strategic Opportunities December 31 159%+ %
Mid Cap November 30 n/a %**
Equity Income November 30 140% %
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Fund Fiscal Period Ended 1994 1995
---- ------------------- ---- ----
Income & Growth October 31 202% %
Emerging Markets Income December 31 354%* %
High Yield October 31 118% %
Strategic Income December 31 104%* %
Government Investment October 31 313% %
Intermediate Bond November 30 68% %
Short Fixed-Income October 31 108% %
High Income Municipal October 31 38% %
Intermediate Municipal Income November 30 53% %
Short-Intermediate Municipal November 30 111%* %
Income
California Municipal Income October 31 n/a %*
New York Municipal Income October 31 n/a %**
</TABLE>
*Annualized. Portfolio turnover rates shown are from commencement of
operations to the end of the fiscal period, as indicated.
** Estimated.
+As of November 9, 1994, the fiscal year end for Strategic Opportunities
changed from September 30 to December 31.
The following tables show the brokerage commissions paid by
Overseas, Equity Growth, Global Resources, Growth Opportunities, Strategic
Opportunities, Equity Income, and Income & Growth. The first table shows
the total amount of brokerage commissions paid by each fund and the
commissions paid to FBSI and FBS (formerly FBSL) for the past three fiscal
years. The second table shows the percentage of aggregate brokerage
commissions paid to, and the percentage of the aggregate dollar amount of
transactions for which the fund paid brokerage commissions effected
through, FBSI and FBS for the fiscal year ended 1995. The third table
shows amount of brokerage commissions paid to firms providing research and
the approximate dollar amount of the transactions on which brokerage
commissions were paid for the fiscal year ended 1995. Each of these funds
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pays both commissions and spreads in connection with the placement of
portfolio transactions; FBSI and FBS are paid on a commission basis. The
difference between the percentage of brokerage commissions paid and the
percentage of the dollar amount of transactions effected through FBSI and
FBS is a result of the low commission rates charged by FBSI and FBS. The
other funds paid no brokerage commissions for the fiscal years ended 1993
through 1995.
<TABLE>
<CAPTION>
Fiscal Period Total
Ended Amount Paid To FBSI To FBS
------------ ----------- ------- ------
<S> <C> <C> <C> <C>
Overseas October 31
1995 $ $ $
1994 1,601,660 685 0
1993 500,186 800 0
Equity Growth November 30
1995
1994 2,086,370 729,903 0
1993 915,767 362,158 0
Global Resources October 31
1995
1994 630,725 195,272 0
1993 147,017 41,286 0
Growth Opportunities October 31
1995
1994 3,589,080 1,368,574 0
1993 2,538,165 899,767 0
Strategic Opportunities December 31
1995
10/1/94-12/31/94 403,617 70,465 0
10/1/93-9/30/94 1,166,854 151,233 96
1993 1,068,788 103,206 0
Equity Income November 30
1995
1994 827,499 290,182 0
1993 557,493 126,832 0
Income & Growth October 31
1995
1994 7,338,038 1,104,577 0
1993 2,998,137 796,821 0
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<PAGE>
% of % of % of Transactions
Commissions Transactions % of Commissions Effected through
Fiscal Period Paid to FBSI Effected through Paid to FBS FBS
Ended for 1995 FBSI for 1995 for 1995 for 1995
------------ ------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Overseas October 31
Equity Growth November 30
Global Resources October 31
Growth Opportunities October 31
Strategic Opportunities December 31
Equity Income November 30
Income & Growth October 31
Fiscal Period Amount Paid to Total Amount of
Ended Firms Providing Transactions
1995 Research* Involved
-------------- -------------- --------------
<S> <C> <C> <C>
Overseas October 31
Equity Growth November 30
Global Resources October 31
Growth Opportunities October 31
Strategic Opportunities December 31
Equity Income November 30
Income & Growth October 31
</TABLE>
* The provision of research services was not necessarily a factor in
the placement of all this business with such firms.
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From time to time the Trustees will review whether the recapture
for the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each 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 each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially
the same as those of other funds managed by FMR, investment decisions for
each 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 or accounts 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 and account. In some cases this system could have
a detrimental effect on the price or value of the security as far as each
fund is concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that the
desirability of retaining FMR as investment adviser to each fund outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
VALUATION
---------
Fidelity Service Company (FSC) normally determines each class'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 each class's NAV and, where applicable, offering price.
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<PAGE>
GROWTH AND GROWTH & INCOME FUNDS
Portfolio securities are valued by various methods depending on
the primary market or exchange on which they trade. 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.
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.
Fixed-income securities and convertible securities may also 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 Trustees, on the basis of an evaluation of these
services, may use various pricing services or discontinue the use of any
pricing service.
Short-term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value.
Futures contracts and options are valued on the basis of market
quotations, if available.
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.
Securities and other assets for which there is no readily
available market value are 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 a fund if, in the
opinion of a committee appointed by the Board of Trustees, some other
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method would more accurately reflect the fair market value of such
securities.
TAXABLE NON-GOVERNMENT AND INTERNATIONAL BOND FUNDS
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.
Fixed-income securities may also 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
Trustees, on the basis of an evaluation of these services, may use various
pricing services or discontinue the use of any pricing service.
Short-term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value.
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.
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
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<PAGE>
security will be valued as determined in good faith by a committee
appointed by the Board of Trustees.
Securities and other assets for which there is no readily
available market value are 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 a 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.
TAXABLE GOVERNMENT BOND FUNDS
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.
Fixed-income securities may also 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
Trustees, on the basis of an evaluation of these services, may use various
pricing services or discontinue the use of any pricing service.
Short-term securities are valued either at amortized cost or at
original cost plus accrued interest, both of which approximate current
value.
Futures contracts and options are valued on the basis of market
quotations, if available.
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
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<PAGE>
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.
Securities and other assets for which there is no readily
available market value are 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 a 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.
TAX-FREE BOND FUNDS
Portfolio securities are valued by various methods depending on
the primary market or exchange on which they trade. Fixed-income
securities may also 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 Trustees, on the basis of an
evaluation of these services, may use various pricing services or
discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily
available market value are 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 a 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.
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<PAGE>
PERFORMANCE
-----------
Each class of shares may quote performance in various ways. All
performance information supplied by the funds in advertising is historical
and is not intended to indicate future returns. Share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of shares when redeemed may be more or less than their
original cost.
Yield Calculations. Yields for a class are computed by dividing
the class's pro rata share of the applicable interest and dividend income,
if any, for a given 30-day or one-month period, net of expenses, by the
average number of shares of that class entitled to receive distributions
during the period, dividing this figure by the class's net asset value
(NAV) or offering price, as appropriate, 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 a 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 a class'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, a class'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 a class'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 a class's yield.
Yield information may be useful in reviewing a class's performance
and in providing a basis for comparison with other investment
alternatives. However, each class'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.
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Investors should recognize that in periods of declining interest
rates, a class's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates, the class's yield
will tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a 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 class's current
yield. In periods of rising interest rates, the opposite can be expected
to occur.
Tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment to equal a class's tax-free yield.
Tax-equivalent yields are calculated by dividing a class's yield by the
result of one minus a stated federal or combined federal and, if
applicable, state tax rate. If only a portion of a class's yield is
tax-exempt, only that portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status
on effective yield under federal and, where applicable, state income tax
laws for 1996. It shows the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent
to those of hypothetical tax-exempt obligations yielding from 2.00% to
8.00%. Of course, no assurance can be given that a class will achieve any
specific tax-exempt yield. While the municipal funds invest principally in
obligations whose interest is exempt from federal or from federal and
state income tax, other income received by the funds may be taxable.
<TABLE>
<CAPTION>
Expected 1996 Tax Rates and Tax-Equivalent Yields
-------------------------------------------------
If individual tax-exempt yield is:
2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00%
Federal
Income
Tax
Single Return* Joint Return* Bracket** Then taxable equivalent yield is:
------------- ------------ --------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - $24,000 $0 -$40,000 15.0% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
$24,001 - $58,160 $40,401 - $96,900 28.0% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
$58,161 - $123,300 $96,901 - $147,700 31.0% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
$123,301 - $263,750 $147,701 - $263,750 36.0% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
$236,751 - $+ $263,751 - $+ 39.6%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
139
<PAGE>
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions,
and adjustments which may increase a taxpayer's marginal tax rate.
An increase in a shareholder's marginal tax rate would increase
that shareholder's tax-equivalent yield.
A federally tax-exempt fund may invest a portion of its assets in
obligations that are subject to federal income tax. When the fund invests
in these obligations, its tax-equivalent yields will be lower. In the
table above, tax-equivalent yields are calculated assuming investments are
100% federally tax-free.
NEW YORK MUNICIPAL INCOME ONLY
Use the first table to find your approximate effective tax bracket
on investment income as a New York State resident with triple taxes
(federal, state, and New York City) or double taxes (federal and state)
for 1995.
<TABLE>
<CAPTION>
1996 TAX RATES
Taxable Income Marginal Tax Rate
Combined New Combined New
Marginal York State and York State,
Federal New York Federal City and
Income New York State and Effective Federal
Single Return* Joint Return* Tax Bracket State City Tax Bracket** Tax Bracket**
-------------- ------------ ----------- -------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
$ $ % % % % %
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions,
140
<PAGE>
and adjustments which may increase a taxpayer's marginal tax rate.
An increase in a shareholder's marginal tax rate would increase
that shareholder's tax-equivalent yield.
Having determined your effective tax bracket, use the appropriate table
below to determine the tax-equivalent yield for a given tax-free yield.
NEW YORK CITY RESIDENTS - TRIPLE TAXES - 1996
If your effective combined federal, state, and New York City personal
income tax rate in 1996 is:
<TABLE>
<CAPTION>
_____% _____% _____% _____% 43.71% 46.88%
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
---------------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3% % % % % % %
4% % % % % % %
5% % % % % % %
6% % % % % % %
7% % % % % % %
8% % % % % % %
</TABLE>
NEW YORK STATE RESIDENTS (OUTSIDE NYC) - DOUBLE TAXES - 1996
If your effective combined federal and state personal income tax
rate in 1996 is:
141
<PAGE>
<TABLE>
<CAPTION>
_____% _____% _____% _____%
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
--------------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
3% % % % %
4% % % % %
5% % % % %
6% % % % %
7% % % % %
8% % % % %
</TABLE>
The fund may invest a portion of its assets in obligations that
are subject to city, state or federal income taxes. When the fund invests
in these obligations, its tax-equivalent yield will be lower. In the table
above, the tax-equivalent yields are calculated assuming investments are
100% federally and state tax-free.
CALIFORNIA MUNICIPAL INCOME ONLY
Use the first table to find your approximate effective tax bracket
taking into account federal and state taxes for 1996.
<TABLE>
<CAPTION
1996 TAX RATES AND TAX-EQUIVALENT YIELDS
State Combined California
Taxable Income* Federal Income Marginal and Federal Effective
Single Return Joint Return Tax Bracket Rate Tax Bracket**
------------------------------------- ------------ -------- -------------------
<S> <C> <C> <C> <C>
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
$ $ % %
142
<PAGE>
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions, and
adjustments which may increase a taxpayer's marginal tax rate. An increase
in a shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following
table to determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in
1996 is:
<TABLE>
<CAPTION>
To match
these
Tax-Free
Yields
-------- ------ ------- -------- ------- -------- ------- ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2% % % % % % % % % % %
3% % % % % % % % % % %
4% % % % % % % % % % %
5% % % % % % % % % % %
6% % % % % % % % % % %
7% % % % % % % % % % %
8% % % % % % % % % % %
</TABLE>
The California income tax rates are those in effect for 1995,
which will be the same in 1996 except that California law requires that
the brackets be adjusted annually for inflation using 100% of the
California Consumer Price Index through June of the tax year. As of the
date of this SAI, the California Franchise Tax Board had not published the
1996 inflation-adjusted tax brackets.
143
<PAGE>
The fund may invest a portion of its assets in obligations that
are subject to state or federal income taxes. When the fund invests in
these obligations, its tax-equivalent yields will be lower. In the table
above, tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
Total Return Calculations. Total returns quoted in advertising
reflect all aspects of a class's return, including the effect of
reinvesting dividends and capital gain distributions, and any change in a
class'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 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 class'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
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.
In addition to average annual total returns, a class 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 and may be quoted with or
without taking a class's maximum sales charge into account. Excluding a
sales charge from a total return calculation produces a higher total
return figure. 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 NAVs, adjusted NAVs, and
benchmark indices may be used to exhibit performance. An adjusted NAV
includes any distributions paid and reflects all elements of its return.
Unless otherwise indicated, adjusted NAVs are not adjusted for sales
charges, if any.
Moving Averages. A growth or growth and income fund may
illustrate performance using moving averages. A long-term moving average
is the average of each week's adjusted closing NAV for a specified period.
A short-term moving average is the average of each day's adjusted closing
144
<PAGE>
NAV for a specified period. Moving Average Activity Indicators combine
adjusted closing NAVs from the last business day of each week with moving
averages for a specified period to produce indicators showing when a NAV
has crossed, stayed above, or stayed below its moving average.
The 13-week and 39-week long-term moving averages are shown
below:*
<TABLE>
<CAPTION>
Fund As of 13-Week 39-Week
---- ----- ------- -------
<S> <C> <C> <C>
Overseas - Class A
Overseas - Class B
Overseas - Institutional
Equity Growth - Class A
Equity Growth - Institutional
Global Resources - Class A
Global Resources - Class B
Global Resources - Institutional
Growth Opportunities - Class A
Growth Opportunities - Institutional
Strategic Opportunities - Class A
Strategic Opportunities - Class B
Strategic Opportunities - Institutional
Equity Income - Class A
Equity Income - Class B
Equity Income - Institutional
Income & Growth - Class A
145
<PAGE>
Fund As of 13-Week 39-Week
---- ----- ------- -------
<S> <C> <C> <C>
Income & Growth - Institutional
</TABLE>
* Moving averages are shown for those classes that had commenced
operations prior to February 26, 1996 (the date of this SAI).
The following tables and charts show performance for each class
of shares of each fund, and reflect the following information. All
historical load-adjusted performance figures do not reflect the applicable
sales load and 12b-1 fee reductions for certain classes of shares and
would have been higher if these reductions had been reflected in these
performance figures. Class A shares have a maximum front-end sales charge
of 3.50% for Overseas, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Mid Cap, Large Cap, Equity Income,
and Income & Growth (the Equity Funds); 3.50% for Emerging Markets Income,
High Yield, Strategic Income, Government Investment, New York Municipal
Income, California Municipal Income, and High Income Municipal (the Bond
Funds); 2.75% for Intermediate Bond and Intermediate Municipal Income (the
Intermediate-Term Bond Funds); and 1.50% for Short Fixed-Income and Short-
Intermediate Municipal Income (the Short-Term Bond Funds). Class B shares
have contingent deferred sales charges (CDSC) upon redemption: maximum
CDSC is 4.00% for all funds except the Intermediate-Term Bond Funds, which
have a maximum CDSC of 3.00%.
Institutional Class Charts. Institutional Class shares are sold
to eligible investors without a sales charge or a 12b-1 fee. The initial
offering of Institutional Class shares for all funds except Equity Growth,
Equity Income, Intermediate Bond and Intermediate Municipal Income was
July 3, 1995. The initial offering of Institutional Class shares for New
York Municipal Income was August 21, 1995, and for California Municipal
Income, Mid Cap, and Large Cap was February 26, 1996.
Class A Charts. Class A shares are sold to eligible investors
with a maximum front-end sales charge of 3.50% (the Equity Funds and the
Bond Funds), 2.75% (the Intermediate-Term Bond Funds) or 1.50% (the Short-
Term Bond Funds). The applicable sales charge is reflected in the figures
set forth in the charts below. Class A shares are also subject to a 12b-1
fee of 0.50% (the Equity Funds), 0.25% (the Bond Funds and the
Intermediate-Term Bond Funds), or 0.15% (the Short-Term Bond Funds). The
initial offering of Class A shares for Equity Growth, Equity Income,
Intermediate Municipal Income, and Intermediate Bond was September 10,
1992. The initial offering of Class A shares for New York Municipal
146
<PAGE>
Income was August 21, 1995, and for Mid Cap, Large Cap, and California
Municipal Income was February 26, 1996.
Class B Charts. Class B shares are sold to eligible investors
with a 12b-1 fee of 0.75% (the Equity Funds) or 0.65% (the Bond Funds and
the Intermediate-Term Bond Funds), and may be subject to a CDSC upon
redemption. The maximum CDSC is 4.00% for the Equity Funds and the Bond
Funds, and 3.00% for the Intermediate-Term Bond Funds. Class B shares are
also subject to a 0.25% shareholder services fee. For all funds except
Overseas, Global Resources, New York Municipal Income, California
Municipal Income, Mid Cap, and Large Cap the initial offering date of
Class B shares was June 30, 1994. The initial offering of Class B shares
for Overseas and Global Resources was July 3, 1995; for New York
Municipal Income was August 21, 1995; and for California Municipal Income,
Mid Cap, and Large Cap was February 26, 1996.
Historical Bond Fund Results. The following tables show yields,
tax-equivalent yields (for municipal funds), and total returns for each
class of each bond fund for the fiscal year ended 1995 for those bond
funds that had commenced operations as of February 26, 1996, the date of
this SAI. The tax-equivalent yield is based on a 31% federal income tax
rate. Note that each municipal fund may invest in securities whose income
is subject to the federal alternative minimum tax.
<TABLE>
<CAPTION>
Fiscal Period Ended Average Annual Total Returns1 Cumulative Total Returns2
------------------- ----------------------------- -------------------------
Tax- Ten Years/ Ten Years/
10/31 - * Equivalent One Five Life of One Five Life of
11/30 - ** Yield3 Yield Year Years Fund+ Year Years Fund+
12/31 - *** ------ ---------- ---- ----- -------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets Income-Class A*** N/A N/A N/A N/A N/A N/A %
Emerging Markets Income-Class B*** N/A N/A N/A N/A N/A N/A
Emerging Markets Income- Institutional N/A N/A N/A N/A N/A N/A
Class***
High Yield-Class A* N/A
High Yield-Class B* N/A
High Yield-Institutional Class* N/A
Strategic Income-Class A N/A N/A N/A N/A N/A N/A
Strategic Income-Class B N/A N/A N/A N/A N/A N/A
Strategic Income-Institutional Class N/A N/A N/A N/A N/A N/A
Government Investment-Class A* N/A
Government Investment-Class B* N/A
Government Investment Institutional N/A
Class*
147
<PAGE>
Fiscal Period Ended Average Annual Total Returns1 Cumulative Total Returns2
------------------- ----------------------------- -------------------------
Tax- Ten Years/ Ten Years/
10/31 - * Equivalent One Five Life of One Five Life of
11/30 - ** Yield3 Yield Year Years Fund+ Year Years Fund+
12/31 - *** ------ ---------- ---- ----- -------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate Bond-Class A** N/A
Intermediate Bond-Class B** N/A
Intermediate Bond-Institutional N/A
Class**
Short Fixed Income-Class A* N/A
Short Fixed Income-Institutional N/A
Class*
High Income Municipal-Class A*
High Income Municipal-Class B*
High Income Municipal-Institutional N/A
Class*
Intermediate Municipal Income-Class
A**
Intermediate Municipal Income-Class
B**
Intermediate Municipal Income-
Institutional Class**
Short Intermediate Municipal N/A N/A N/A N/A N/A
Income-Class A**
Short Intermediate Municipal N/A N/A N/A N/A N/A N/A
Income-Institutional Class**
New York Municipal Income-Class A
New York Municipal Income-Class B
New York Municipal Income-
Institutional
</TABLE>
+Life of fund figures are from commencement of operations (March 10, 1994
for Emerging Markets Income; January 5, 1987 for High Yield; October 31,
1994 for Strategic Income; January 7, 1987 for Government Investment;
September 16, 1987 for Short Fixed-Income and High Income Municipal; March
16, 1994 for Short-Intermediate Municipal Income; and August 21, 1995 for
New York Municipal Income) through the 1995 fiscal year end.
1
2
148
<PAGE>
3
Note: If FMR had not reimbursed certain fund expenses during
certain of these periods, the yields and total returns for those periods
for Emerging Markets Income, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
Intermediate Municipal Income, and Short-Intermediate Municipal Income
would have been lower. The table below shows what the funds' yields and
tax-equivalent yields (if applicable) would have been if the funds had not
been in reimbursement.
<TABLE>
<CAPTION
Class A Class B Institutional Class
Tax- Tax- Tax-
Equivalent Equivalent Equivalent
Fund Yield Yield Yield Yield Yield Yield
---- ---- -------- ----- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets n/a
Income n/a n/a n/a
Strategic Income n/a n/a n/a n/a
Intermediate Bond n/a
n/a n/a n/a
Government n/a
Investment n/a n/a n/a
Intermediate
Municipal Income
Short-
Intermediate
Municipal Income
</TABLE>
149
<PAGE>
Historical Equity Fund Results. The following table shows the
total returns for 1995 fiscal periods ended as indicated, for those
classes that had commenced operations as of February 26, 1996, the date of
this SAI.
<TABLE>
<CAPTION>
Average Annual Total Return 1/ Cumulative Total Returns2/
---------------------------- --------------------------
Ten
Fiscal Years/ Ten Years/
Period One Five Life of One Five Life of
Ended Year Years Fund+ Year Years Fund+
-------- ---- ----- ------- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Overseas - Class A 10/31
Overseas - Class B
Overseas - Institutional Class
Equity Growth - Class A 11/30
Equity Growth -
Institutional Class
Global Resources - Class A 10/31
Global Resources - Class B
Global Resources -
Institutional Class
Growth Opportunities - Class A 10/31
Global Opportunities -
Institutional Class
Strategic Opportunities - Class A 12/31
Strategic Opportunities - Class B
Strategic Opportunities -
Institutional Class
Equity Income - Class A 11/30
Equity Income - Class B
Equity Income -
Institutional Class
Income & Growth - Class A 10/31
Income & Growth -
Institutional Class
</TABLE>
+ Life of fund figures are from commencement of operations (April
23, 1990 for Overseas; December 29, 1987 for Global Resources; November
18, 1987 for Growth Opportunities; and January 6, 1987 for Income &
Growth) through the 1995 fiscal year end.
1
150
<PAGE>
2
Note: If FMR had not reimbursed certain fund expenses during certain of
these periods, the total returns for those periods for Overseas, Global
Resources, Equity Income, and Growth Opportunities would have been lower.
The following charts show the growth of a hypothetical $10,000
investment in each class, assuming all distributions were reinvested. This
was a period of fluctuating interest rates, bond prices, and stock prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the class today. Tax consequences of different investments
have not been factored into the figures.
Institutional Charts. The figures for Institutional Class shares
of each fund except Equity Growth, Equity Income, and Intermediate
Municipal Income reflect the performance of Class A shares from the fund's
commencement of operations, including the applicable Class A 12b-1 fee but
not the front-end sales charge. The figures would have been higher if the
Class A 12b-1 fee were not included.
Class A Charts. The figures for Class A shares after September
10, 1992 reflect Class A's maximum front-end sales charge of 3.50% (the
Equity Funds and the Bond Funds), 2.75% (the Intermediate-Term Bond Funds)
or 1.50% (the Short-Term Bond Funds) and the applicable Class A 12b-1 fee.
Prior to September 10, 1992, the figures for Equity Growth, Equity Income,
Intermediate Municipal Income, and Intermediate Bond reflect Institutional
Class performance (i.e., no sales charge or 12b-1 fee), and the figures
for Strategic Opportunities reflect Initial Class performance (i.e., a
3.50% front-end sales charge and no 12b-1 fee).
Class B Charts. The figures for Class B shares of all funds
except Overseas and Global Resources prior to June 30, 1994, and for
Overseas and Global Resources prior to June 30, 1995, reflect the
performance of Class A shares of each fund, including the applicable Class
A 12b-1 fee but not the Class A front-end charge. The figures would have
been lower if Class B's higher 12b-1 fees had been included.
Domestic Fund Returns. The following tables show the income and
capital elements of the cumulative total return for each class of each
fund. The table compares each class's return to the record of the S&P 500,
the Dow Jones Industrial Average (DJIA), and the cost of living (measured
151
<PAGE>
by the Consumer Price Index, or CPI) over the same period. The CPI
information is as of the month-end closest to the initial investment date
for each fund. The S&P 500 and DJIA comparisons are provided to show how
each class's total return compared to the record of a broad average of
common stocks and a narrower set of stocks of major industrial companies,
respectively, over the same period. Of course, since bond funds invest in
fixed-income securities, common stocks represent a different type of
investment from those funds. Common stocks generally offer greater growth
potential than bonds, 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
bond funds. Each fund has the ability to invest in securities not included
in either index, and its investment portfolio may or may not be similar in
composition to the indices. Figures for the S&P 500 and DJIA are based on
the prices of unmanaged groups of stocks and, unlike the classes' returns,
do not include the effect of paying brokerage commissions or other costs
of investing.
<TABLE>
<CAPTION>
EQUITY GROWTH - CLASS A INDICES
---------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
152
<PAGE>
EQUITY GROWTH - INDICES
INSTITUTIONAL CLASS -------
-------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
GLOBAL RESOURCES - CLASS A INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- -------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From December 29, 1987 (commencement of operations).
**From month-end closest to initial investment date.
153
<PAGE>
GLOBAL RESOURCES - CLASS B INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C>` <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From December 29, 1987 (commencement of operations).
**From month-end closest to initial investment date.
GLOBAL RESOURCES - INSTITUTIONAL CLASS INDICES
--------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From December 29, 1987 (commencement of operations).
**From month-end closest to initial investment date.
154
<PAGE>
GROWTH OPPORTUNITIES - CLASS A INDICES
------------------------------ -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From November 18, 1987 (commencement of operations).
**From month-end closest to initial investment date.
GROWTH OPPORTUNITIES - INSTITUTIONAL CLASS INDICES
------------------------------------------ -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1988*
1989
1990
1991
1992
1993
1994
1995
*From November 18, 1987 (commencement of operations).
**From month-end closest to initial investment date.
155
<PAGE>
STRATEGIC OPPORTUNITIES - CLASS A INDICES
--------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
STRATEGIC OPPORTUNITIES - CLASS B INDICES
--------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living*
-------------- ---------- ------------- ------------- ------ --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
156
<PAGE>
STRATEGIC OPPORTUNITIES - INSTITUTIONAL CLASS INDICES
---------------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
EQUITY INCOME - CLASS A INDICES
----------------------- --------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
157
<PAGE>
EQUITY INCOME - CLASS B INDICES
----------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
* From month-end closest to initial investment date.
EQUITY INCOME - INSTITUTIONAL CLASS INDICES
----------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
* From month-end closest to initial investment date.
158
<PAGE>
INCOME & GROWTH - CLASS A INDICES
------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 6, 1987 (commencement of operations).
**From month-end closest to initial investment date.
INCOME & GROWTH - INSTITUTIONAL CLASS INDICES
-------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 6, 1987 (commencement of operations).
**From month-end closest to initial investment date.
159
<PAGE>
HIGH YIELD - CLASS A INDICES
--------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 5, 1987 (commencement of operations).
**From month-closest to initial investment date.
HIGH YIELD - CLASS B INDICES
--------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 5, 1987 (commencement of operations).
**From month-end closest to initial investment date.
160
<PAGE>
HIGH YIELD - INSTITUTIONAL CLASS INDICES
-------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
-------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 5, 1987 (commencement of operations).
**From month-end closest to initial investment date.
STRATEGIC INCOME - CLASS A INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
*From October 31, 1994 (commencement of operations).
**From month-closest to initial investment date.
STRATEGIC INCOME - CLASS B INDICES
-------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
161
<PAGE>
*From October 31, 1994 (commencement of operations).
**From month-end closest to initial investment date.
STRATEGIC INCOME - INSTITUTIONAL CLASS INDICES
-------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Dec. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
*From October 31, 1994 (commencement of operations).
**From month-end closest to initial investment date.
GOVERNMENT INVESTMENT - CLASS A INDICES
------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 7, 1987 (commencement of operations).
**From month-end closest to initial investment date.
162
<PAGE>
GOVERNMENT INVESTMENT - CLASS B INDICES
------------------------------- --------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 7, 1987 (commencement of operations).
**From month-end closest to initial investment date.
GOVERNMENT INVESTMENT - INSTITUTIONAL CLASS INDICES
------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From January 7, 1987 (commencement of operations).
**From month-end closest to initial investment date.
163
<PAGE>
INTERMEDIATE BOND - CLASS A INDICES
--------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
INTERMEDIATE BOND - CLASS B INDICES
--------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
164
<PAGE>
INTERMEDIATE BOND - INSTITUTIONAL CLASS INDICES
--------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
* From month-end closest to initial investment date.
SHORT FIXED-INCOME - CLASS A INDICES
---------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
165
<PAGE>
SHORT FIXED-INCOME - INSTITUTIONAL CLASS INDICES
---------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
HIGH INCOME MUNICIPAL - CLASS A INDICES
------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------ ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
166
<PAGE>
HIGH INCOME MUNICIPAL - CLASS B INDICES
------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
*From September 16, 1987 (commencement of operations).
**From month-end closest to initial investment date.
HIGH INCOME MUNICIPAL - INSTITUTIONAL CLASS INDICES
------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1987*
1988
1989
1990
1991
1992
1993
1994
1995
* From September 16, 1987 (commencement of operations).
** From month-end closest to initial investment date.
167
<PAGE>
INTERMEDIATE MUNICIPAL INCOME - CLASS A INDICES
--------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
INTERMEDIATE MUNICIPAL INCOME - CLASS B INDICES
--------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
168
<PAGE>
INTERMEDIATE MUNICIPAL INCOME-INSTITUTIONAL CLASS INDICES
-------------------------------------------------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living*
------------- ---------- ------------- ------------- ----- --- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
*From month-end closest to initial investment date.
SHORT-INTERMEDIATE MUNICIPAL INCOME - CLASS A INDICES
--------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 16, 1994 (commencement of operations).
** From month-end closest to initial investment date.
169
<PAGE>
SHORT-INTERMEDIATE MUNICIPAL INCOME -
INSTITUTIONAL CLASS INDICES
------------------------------------- --------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Nov. 30 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 16, 1994 (commencement of operations).
** From month-end closest to initial investment date.
NEW YORK MUNICIPAL INCOME - CLASS A INDICES
----------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995*
* From August 21, 1995 (commencement of operations).
** From month-end closest to initial investment date.
NEW YORK MUNICIPAL INCOME - CLASS B INDICES
----------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- -------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995*
* From August 21, 1995 (commencement of operations).
** From month-end closest to initial investment date.
170
<PAGE>
NEW YORK MUNICIPAL INCOME - INSTITUTIONAL CLASS INDICES
----------------------------------------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period $10,000 Dividend Capital Gain Total S&P of
Ended Oct. 31 Investment Distributions Distributions Value 500 DJIA Living**
------------- ---------- ------------- ------------- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995*
* From August 21, 1995 (commencement of operations).
** From month-end closest to initial investment date.
</TABLE>
The yield for the S&P 500 for the year ended December 31, 1995
was ____%, calculated by dividing the dollar value of dividends paid by
the S&P 500 stocks during the period by the average value of the S&P 500
on December 31, 1995. The S&P 500 yield is calculated differently from
each class's yield. For example, a class's yield calculation treats
dividends as accrued in anticipation of payment, rather than recording
them when paid.
International Fund Returns. The following tables show the income
and capital elements of the total return for each class of Overseas and
Emerging Markets Income from the date each fund commenced operations
through the fiscal year ended 1995. The classes may compare their total
returns to the record of the following Morgan Stanley Capital
International indices: the World Index; EAFE Index; the Europe Index; the
Pacific Index, the Combined Far East ex-Japan Free Index; and the Latin
America Free Index. The EAFE Index combines the Europe and Pacific
indices. The addition of Canada, the United States, and South African Gold
Mines to the EAFE index compiles the World Index which includes over 1400
companies. The Europe Index and Pacific Index are subsets of the Morgan
Stanley Capital International World Index, which is also published by
Morgan Stanley Capital International, S.A. The Europe and Pacific Indices
are weighted by the market value of each country's stock exchange(s). The
companies included in the indices change only in the event of mergers,
takeovers, failures and the like, and minor adjustments may be made when
Morgan Stanley Capital International, S.A. reviews the companies covered
as to suitability every three or four years.
171
<PAGE>
<TABLE>
<CAPTION>
Fund Comparative Index Description of Index
---- ----------------- --------------------
<S> <C> <C>
Overseas Morgan Stanley Capital International An unmanaged index of 900 foreign common stocks
Europe, Australia, Far East Index
(EAFE)
Emerging Markets J.P. Morgan Emerging An unmanaged index of fixed income securities
Income Market Bond Index from developing nations
</TABLE>
Each table below compares the returns for each class of Overseas
and Emerging Markets Income to the record of the S&P 500, the DJIA, a
foreign stock market index as described above, and the cost of living
(measured by the CPI) over the same period. The CPI information is as of
the month-end closest to the initial investment date for each fund. The
S&P 500 and DJIA comparisons are provided to show how each class's total
return compared to the record of a broad range of U.S. common stocks and a
narrower set of stocks of major U.S. industrial companies, respectively,
over the same period. The funds have the ability to invest in securities
not included in the indices, and their investment portfolios may or may
not be similar in composition to the indices. The EAFE Index, Emerging
Market Bond Index, S&P 500, and DJIA are based on the prices of unmanaged
groups of stocks and, unlike each class's returns, their returns do not
include the effect of paying brokerage commissions and other costs of
investing.
The following charts show the growth of a hypothetical $10,000
investment in each class, assuming all distributions were reinvested. This
was a period of fluctuating interest rates, bond prices, and stock prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in a class today. Tax consequences of different investments
have not been factored into the figures.
172
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS-CLASS A INDICES
---------------- -------
Value of Value of Reinvested
Period Initial Reinvested Capital Cost
Ended $10,000 Dividend Gain Total EAFE S&P of
Oct. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
-------- ---------- ------------- ------------- ----- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990*
1991
1992
1993
1994
1995
* From April 23, 1990 (commencement of operations).
** From month-end closest to initial investment date.
OVERSEAS-CLASS B INDICES
---------------- -------
Value of Value of
Initial Reinvested Reinvested Cost
Period Ended $10,000 Dividend Capital Gain Total EAFE S&P of
Oct. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------------ ---------- ------------- ------------- ----- ------ --- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990*
1991
1992
1993
1994
1995
* From April 23, 1990 (commencement of operations).
** From month-end closest to initial investment date.
173
<PAGE>
OVERSEAS-INSTITUTIONAL CLASS INDICES
---------------------------- -------
Value of Value of Reinvested
Initial Reinvested Capital Cost
Period Ended $10,000 Dividend Gain Total EAFE S&P of
Oct. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------------ ---------- ------------- ------------- ----- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990*
1991
1992
1993
1994
1995
* From April 23, 1990 (commencement of operations).
** From month-end closest to initial investment date.
EMERGING MARKETS INCOME-CLASS A INDICES
------------------------------- -------
J.P.
Value of Value of Reinvested Morgan
Initial Reinvested Capital Emerging Cost
Period Ended $10,000 Dividend Gain Total Market Bond S&P of
Dec. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------------ ---------- ------------- ------------- ----- ------------ --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 10, 1994 (commencement of operations).
** From month-end closest to initial investment date.
EMERGING MARKETS INCOME-CLASS B INDICES
------------------------------- -------
Value of Value of Reinvested
Period Initial Reinvested Capital J.P. Morgan Cost
Ended $10,000 Dividend Gain Total Emerging Market S&P of
Dec. 31 Investment Distributions Distributions Value Bond Index 500 DJIA Living**
------- ---------- ------------- ------------- ----- --------------- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994* $9,068 $457 $235
1995 _____ _____ _____
* From March 10, 1994 (commencement of operations).
** From month-end closest to initial investment date.
174
<PAGE>
EMERGING MARKETS
INCOME-INSTITUTIONAL CLASS INDICES
-------------------------- -------
Value of Value of Reinvested J.P.
Period Initial Reinvested Capital Morgan Emerging
Ended $10,000 Dividend Gain Total Market Bond S&P Cost of
Dec. 31 Investment Distributions Distributions Value Index 500 DJIA Living**
------- ---------- ------------- ------------- ----- --------------- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994*
1995
* From March 10, 1994 (commencement of operations).
** From month-end closest to initial investment date.
</TABLE>
The following table reflects the cost of the initial $10,000
investment in each of the classes, together with the aggregate cost of
reinvested dividends and capital gain distributions, if any, for life of
the fund or the last ten years ended 1995 (their cash value at the time
they were reinvested). If distributions had not been reinvested, the
amount of distributions earned from the applicable class over time would
have been smaller, and cash payments from these classes for the periods
noted would have amounted to the amounts shown in column (A) for capital
gain distributions, and the amounts shown in column (B) for income
dividends. Tax consequences of different investments (with the exception
of foreign tax withholdings) have not been factored into the figures
below.
<TABLE>
<CAPTION>
(A) (B)
Capital Gain Income
Fund Cost Distributions Dividends
---- ---- ------------- ---------
<S> <C> <C> <C>
Overseas-A $ $ $
Equity Growth-A
Equity Growth-Institutional
Global Resources-A
Growth Opportunities-A
Strategic Opportunities-A
Strategic Opportunities-B
Equity Income-A
Equity Income-B
Equity Income-Institutional
Income & Growth-A
Emerging Markets Income-A
175
<PAGE>
(A) (B)
Capital Gain Income
Fund Cost Distributions Dividends
---- ---- ------------- ---------
<S> <C> <C> <C>
Emerging Markets Income-B
High Yield-A
High Yield-B
Strategic Income-A
Strategic Income-B
Government Investment-A
Government Investment-B
Intermediate Bond-A
Intermediate Bond-B
Intermediate Bond-Institutional
Short Fixed-Income-A
High Income Municipal-A
High Income Municipal-B
Intermediate Municipal Income-A
Intermediate Municipal Income-B
Intermediate Municipal
Income-Institutional
Short-Intermediate Municipal Income-
Institutional
Short-Intermediate Municipal Income-A
New York Municipal Income - A
New York Municipal Income - B
New York Municipal Income - Institutional
</TABLE>
International Indices, Market Capitalization, and National Stock
Market Return. The following tables show the indexed market capitalization
of certain countries included in the Morgan Stanley Capital International
Indices (MSCI) database as of December 31, 1995 and the performance of
national stock markets as measured in U.S. dollars and in local currency
by the MSCI stock market indices for the twelve months ended October 31,
1995. Of course, these results are not indicative of future stock market
performance or the classes' 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 United States now
make up nearly two-thirds of the world's stock market capitalization.
According to MSCI, the size of the markets as measured in U.S. dollars
grew from $2,011 billion in 1982 to $_____ billion in 1995. The following
table measures the indexed market capitalization of certain countries
according to the MSCI database. The value of the markets is measured in
billions of U.S. dollars as of December 31, 1995.
176
<PAGE>
MSCI INDEX 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
certain Latin American countries according to the MSCI Index database. The
value of the markets is measured in billions of U.S. dollars as of
December 31, 1995.
MSCI Index 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, 1995. 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.
177
<PAGE>
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 as
of October 31, 1995.
Stock Market Performance Measured in U.S. Dollars
Five Years Ended Ten Years Ended
--------------- ---------------
Germany
Hong Kong
Japan
Spain
United Kingdom
United States
Performance Comparisons. 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. Lipper generally ranks funds on
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the basis of total return, assuming reinvestment of distributions, but
does not take sales charges or redemption fees into consideration, and is
prepared without regard to tax consequences. Lipper may also rank bond
funds based on yield. In addition to mutual fund rankings, 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, performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a class 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.
A class 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, a fund may offer greater liquidity or higher
potential returns than CDs, a 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.
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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 classes. Performance comparisons may also be made to other
compilations or indices that may be developed and made available in the
future.
Each class of a fixed-income fund may compare its performance or
the performance of securities in which that fixed-income fund may invest
to averages published by IBC USA (Publications), Inc. of Ashland,
Massachusetts. These averages assume reinvestment of distributions. The
Bond Fund Report AveragesTM/All Taxable (Emerging Markets Income,
Strategic Income, Government Investment, Intermediate Bond, High Yield,
Short-Fixed Income) covers over ___ taxable bond funds, The Bond Fund
Report AveragesTM/Municipal (Intermediate Municipal Income, High Income
Municipal, California Municipal Income, New York Municipal Income,
California Municipal Income, and Short-Intermediate Municipal Income)
covers over ___ tax-exempt bond funds. The averages are reported in the
BOND FUND REPORT . Each class of a fixed-income fund may also compare its
performance or the performance of securities in which it may invest to the
IBC/Donohgue's Money Fund Averages, reported in the MONEY FUND REPORT ,
which covers over _____ money market funds. When evaluating comparisons to
money market funds, investors should consider the relevant differences in
investment objectives and policies. Specifically, money market funds
invest in short-term, high-quality instruments and seek to maintain a
stable $1.00 share price. A bond fund, however, invests in longer-term
instruments and its share price changes daily in response to a variety of
factors.
A municipal fund may compare and contrast in advertising the
relative advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal mutual funds, individual municipal bonds
offer a stated rate of interest and, if held to maturity, repayment of
principal. Although some individual municipal bonds might offer a higher
return, they do not offer the reduced risk of a mutual fund that invests
in many different securities. The initial investment requirements and
sales charges of many municipal mutual funds are lower than the purchase
cost of individual municipal bonds, which are generally issued in $5,000
denominations and are subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include: other Fidelity funds; retirement
investing; model portfolios or allocations; and saving for college or
other goals. In addition, Fidelity may quote or reprint financial or
business publications or periodicals as they relate to current economic
and political conditions, fund management, portfolio composition,
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investment philosophy, investment techniques, the desirability of owning a
particular mutual fund, and Fidelity services and products.
Each fund may be advertised as part of certain asset allocation
programs involving other Fidelity or non-Fidelity mutual funds. These
asset allocation programs may advertise a model portfolio and its
performance results.
Each fund may be advertised as part of a no transaction fee (NTF)
program in which Fidelity and non-Fidelity mutual funds are offered. An
NTF program may advertise performance results.
Each fund may present its fund number, Quotron number and CUSIP
number, and discuss or quote its current portfolio manager.
Volatility. Various measures of volatility and benchmark
correlation may be quoted in advertising. In addition, a fund may compare
these measures to those of other funds. Measures of volatility seek to
compare a class' 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, a fund
may also discuss or illustrate examples of interest rate sensitivity.
Momentum Indicators indicate a class's price movements over
specific periods of time. Each point on the momentum indicator represents
the class's percentage change in price movements over that period.
Examples of the effects of periodic investment plans, including
the principle of dollar cost averaging may be advertised. In such a
program, an investor invests a fixed dollar amount in a class 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 willingness to continue purchasing shares during periods of low
price levels.
A 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 December 31, 1995, FMR advised over $__ billion in tax-free
fund assets, $__ billion in money market fund assets, $___ billion in
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equity fund assets, $__ billion in international fund assets, and $__
billion in Spartan fund assets . The funds 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, each class of each bond fund
may compare its total expense ratio to the average total expense ratio of
similar funds tracked by Lipper. A class's total expense ratio is a
significant factor in comparing bond and money market investments because
of its effect on yield.
ADDITIONAL PURCHASE, EXCHANGE, AND REDEMPTION INFORMATION
---------------------------------------------------------
Class A Shares Only
Pursuant to Rule 22d-1 under the 1940 Act, FDC exercises its
right to waive Class A's maximum 3.50% (the Equity Funds and the Bond
Funds); 2.75% (the Intermediate-Term Bond Funds); or 1.50% (the Short-Term
Bond Funds) front-end sales charge in connection with the fund's merger
with or acquisition of any investment company or trust. In addition, FDC
has chosen to waive Class A's front-end sales charge in certain instances
because of efficiencies involved in those sales of shares. The sales
charge will not apply:
1. to shares purchased by a bank trust officer, registered
representative, or other employee (and their immediate families) of
investment professionals under special arrangements in connection with
FDC's sales activities;
2. to shares purchased by a current or former Trustee or
officer of a Fidelity fund or a current or retired officer, director, or
regular employee of FMR Corp. or its direct or indirect subsidiaries (a
Fidelity Trustee or employee), the spouse of a Fidelity Trustee or
employee, a Fidelity Trustee or employee acting as custodian for a minor
child, or a person acting as trustee of a trust for the sole benefit of
the minor child of a Fidelity Trustee or employee;
3. to shares purchased by a charitable organization (as
defined in Section 501(c)(3) of the Internal Revenue Code) investing
$100,000 or more;
4. to shares purchased for a charitable remainder trust or
life income pool established for the benefit of a charitable organization
(as defined by Section 501(c)(3) of the Internal Revenue Code);
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5. to shares in a Fidelity IRA or Fidelity Advisor IRA
account purchased (including purchases by exchange) with the proceeds of a
distribution from an employee benefit plan having more than 200 eligible
employees or a minimum of $3,000,000 in plan assets invested in Fidelity
mutual funds or $1,000,000 invested in Fidelity Advisor mutual funds;
6. to shares purchased by an insurance company separate
account used to fund annuity contracts purchased by employee benefit plans
(including 403(b) programs, but otherwise as defined in ERISA)), which, in
the aggregate, have either more than 200 eligible employees or a minimum
of $1,000,000 in assets invested in Fidelity funds;
7. to shares purchased by any state, county, city, or
Government instrumentality, department or authority or agency;
8. to shares purchased with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end or
contingent deferred sales charge;
9. to shares purchased by a trust institution or bank trust
department, excluding assets described in (11) and (12) below, that has
executed a Participation Agreement with FDC specifying certain asset
minimums and qualifications, and marketing program restrictions. Assets
managed by third parties do not qualify for this waiver.
10. to shares purchased for use in a broker-dealer managed
account program, provided the broker-dealer has executed a participation
agreement with FDC specifying certain asset minimums and qualifications,
and marketing, program and trading restrictions. Employee benefit plan
assets do not qualify for this waiver.
11. to shares purchased as part of an employee benefit plan
having more than (i) 200 eligible employees or a minimum of $1 million in
plan assets invested in the Advisor funds, or (ii) 25 eligible employees
or $250,000 in plan assets invested in Fidelity Advisor Funds that
subscribes to Fidelity Advisor Retirement Connection or similar program
sponsored by Fidelity Investments Institutional Services Company, Inc.
12. to shares purchased as part of an employee benefit plan
through an intermediary that has signed a participation agreement with FDC
specifying certain asset minimums and qualifications, and marketing,
program and trading restrictions.
13. to shares purchased on a discretionary basis by a
registered investment adviser which is not part of an organization
primarily engaged in the brokerage business, that has executed a
participation agreement with FDC specifying certain asset minimums and
qualifications, and marketing, program and trading restrictions. Employee
benefit plan assets do not qualify for this waiver.
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In order to qualify for waivers (9), (10) and (13), eligible
investors with existing Class A accounts will be required to sign and
comply with a participation agreement. Eligible investors that do not meet
revised asset requirements specified in the participation agreement will
be allowed to continue investing in Class A shares under the terms of
their current relationship until June 30, 1997, after which they will be
prevented from making new or subsequent purchases in Class A load waived,
except that employee benefit plans will be permitted to make additional
purchases of Class A shares load waived.
A sales load waiver form must accompany these transactions.
CLASS B SHARES ONLY
The contingent deferred sales charge (CDSC) on Class B shares may
be waived in the case of (1) disability or death, provided that the
redemption is made within one year following the death or initial
determination of disability; or (2) in connection with a total or partial
redemption made in connection with distributions from retirement plan
accounts at age 70-1/2, which are permitted without penalty pursuant to
the Internal Revenue Code.
A sales load waiver form must accompany these transactions.
CLASS A AND CLASS B SHARES ONLY
Quantity Discounts. To obtain a reduction of the front-end sales
charge on Class A shares, you or your investment professional must notify
the transfer agent at the time of purchase whenever a quantity discount is
applicable to your purchase. Upon such notification, you will receive the
lowest applicable front-end sales charge.
For purposes of qualifying for a reduction in front-end sales
charges under the Combined Purchase, Rights of Accumulation or Letter of
Intent programs, the following may qualify as an individual or a "company"
as defined in Section 2(a)(8) of the 1940 Act: an individual, spouse, and
their children under age 21 purchasing for his, her, or their own account;
a trustee, administrator or other fiduciary purchasing for a single trust
estate or a single fiduciary account or for a single or a
parent-subsidiary group of "employee benefits plans" (as defined in
Section 3(3) of ERISA); and tax-exempt organizations as defined under
Section 501(c)(3) of the Internal Revenue Code.
Rights of Accumulation permit reduced front-end sales charges on
any future purchases of Class A shares after you have reached a new
breakpoint in a fund's sales charge schedule. The value of currently held
Fidelity Advisor Fund Class A and Class B shares, Initial Class shares and
Class B shares of Daily Money Fund: U.S. Treasury Portfolio, and shares of
Daily Money Fund: Money Market Portfolio and Daily Tax-Exempt Money Fund
acquired by exchange from any Fidelity Advisor fund, is determined at the
current day's NAV at the close of business, and is added to the amount of
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your new purchase valued at the current offering price to determine your
reduced front-end sales charge.
Letter of Intent. You may obtain Class A shares at the same
reduced front-end sales charge by filing a non-binding Letter of Intent
(the Letter) within 90 days of the start of Class A purchases. Each Class
A investment you make after signing the Letter will be entitled to the
front-end sales charge applicable to the total investment indicated in the
Letter. For example, a $2,500 purchase of Class A shares toward a $50,000
Letter would receive the same reduced sales charge as if the $50,000
($500,000 for the Short-Term Bond Funds) had been invested at one time. To
ensure that the reduced front-end sales charge will be received on future
purchases, you or your investment professional must inform the transfer
agent that the Letter is in effect each time Class A shares are purchased.
Neither income nor capital gain distributions taken in additional Class A
or Class B shares will apply toward the completion of the Letter.
Your initial investment must be at least 5% of the total amount
you plan to invest. Out of the initial purchase, 5% of the dollar amount
specified in the Letter will be registered in your name and held in
escrow. The Class A shares held in escrow cannot be redeemed or exchanged
until the Letter is satisfied or the additional sales charges have been
paid. You will earn income dividends and capital gain distributions on
escrowed Class A shares. The escrow will be released when your purchase of
the total amount has been completed. You are not obligated to complete the
Letter.
If you purchase more than the amount specified in the Letter and
qualify for a future front-end sales charge reduction, the front-end sales
charge will be adjusted to reflect your total purchase at the end of 13
months. Surplus funds will be applied to the purchase of additional Class
A shares at the then-current offering price applicable to the total
purchase.
If you do not complete your purchase under the Letter within the
13-month period, 30 days' written notice will be provided for you to pay
the increased front-end sales charges due. Otherwise, sufficient escrowed
Class A shares will be redeemed to pay such charges.
Fidelity Advisor Systematic Investment Program. You can make
regular investments in Class A or Class B shares of the funds with the
Systematic Investment Program by completing the appropriate section of the
account application and attaching a voided personal check with your bank's
magnetic ink coding number across the front. If your bank account is
jointly owned, be sure that all owners sign.
Your account will be drafted on or about the first business day
of every month. You may cancel your participation in the Systematic
Investment Program at any time without payment of a cancellation fee. You
will receive a confirmation from the transfer agent for every transaction,
and a debit entry will appear on your bank statement.
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Fidelity Advisor Systematic Withdrawal Program. If you own Class
A shares worth $10,000 or more, you can have monthly, quarterly or
semiannual checks sent from your account to you, to a person named by you,
or to your bank checking account. Your Systematic Withdrawal Program
payments are drawn from Class A share redemptions. If Systematic
Withdrawal Plan redemptions exceed income dividends earned on your shares,
your account eventually may be exhausted.
Finders Fee. (Class A shares only) Eligible purchases are the
following purchases made through broker-dealers and banks (excluding trust
departments): an individual trade of $1 million or more; a trade which
brings the value of the accumulated account(s) of an investor (including
an employee benefit plan) past $1 million; a trade for an investor with an
accumulated account value of $1 million or more; and an incremental trade
toward an investor's $1 million "Letter of Intent." Shares held by an
insurance company separate account will be aggregated at the client (e.g.
the contract holder or plan sponsor) level, not at the separate account
level. Upon request, any investment professional claiming eligibility for
the 0.25% fee with respect to shares held by an insurance company separate
account must provide FDC access to records detailing purchases at the
client level.
CLASS A, CLASS B, AND INSTITUTIONAL CLASS SHARES
Each fund is open for business and the NAV and, where applicable,
the offering price, for each class is calculated each day the New York
Stock Exchange (NYSE) is open for trading. The NYSE has designated the
following holiday closings for 1996: New Year's Day, Washington's
Birthday, Good Friday, Memorial Day, Independence Day, 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.
FSC normally determines each class'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 SEC.
To the extent that portfolio securities are traded in other markets on
days when the NYSE is closed, a class'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 a 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 a fund's NAV. Shareholders receiving securities or
other property on redemption may realize a gain or loss for tax purposes,
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and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each 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, each 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. A portion of each fund's income may qualify for the
dividends-received deduction available to corporate shareholders to the
extent that each fund's income is derived from qualifying dividends. For
any fund that invests significantly in foreign securities, corporate
shareholders should not expect fund dividends to qualify for the
dividends-received deduction. For those funds that may also earn other
types of income, such as interest, income from securities loans,
non-qualifying dividends and short-term capital gains, the percentage of
dividends from the funds that qualify for the deduction will generally be
less than 100%. Each fund will notify corporate shareholders annually of
the percentage of fund dividends which qualifies for the
dividends-received deduction. A portion of each 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 a fund's income distributions to reflect the effect of currency
fluctuations. However, if foreign currency losses exceed a 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
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cost basis in his or her fund. Short-term capital gains are distributed as
dividend income.
For those funds whose income is primarily derived from interest,
dividends will not qualify for the dividends-received deduction available
to corporate shareholders. Mortgage security paydown gains (losses) are
generally taxable as ordinary income and, therefore, increase (decrease)
taxable dividend distributions. Gains (losses) attributable to foreign
currency fluctuations are generally taxable as ordinary income and
therefore will increase (decrease) dividend distributions.
To the extent that a fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income.
Each fund will send each of its shareholders a notice in January
describing the tax status of dividends and capital gain distributions, if
any, for the prior year.
Shareholders are required to report tax-exempt income on their
federal tax returns. Shareholders who earn other income, such as Social
Security benefits, may be subject to federal income tax on up to 85% of
such benefits to the extent that their income, including tax-exempt
income, exceeds certain base amounts.
Each municipal fund purchases securities that are free of federal
income tax based on opinions of bond counsel regarding their tax status.
These opinions will generally be based on covenants by the issuers or
other parties regarding continuing compliance with federal tax
requirements. If at any time the covenants are not complied with,
distribution to shareholders of interest on a security could become
federally taxable retroactive to the date the security was issued. For
certain types of structured securities, opinions of bond counsel may also
be based on the effect of the structure on the federal and state tax
treatment of the income.
As a result of The Tax Reform Act of 1986, interest on certain
"private activity" securities (referred to as "qualified bonds" in the
Internal Revenue Code) is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of Intermediate Municipal Income's,
Short-Intermediate Municipal Income's, and High Income Municipal's
policies of investing so that 80% of each fund's net assets are invested
in securities whose interest is free from federal income tax and New York
Municipal Income's and California Municipal Income's policies of investing
so that 80% of each fund's net assets are invested in securities whose
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interest is free from federal and state income tax. Interest from private
activity securities is a tax preference item for the purpose of
determining whether a taxpayer is subject to the AMT and the amount of AMT
tax to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount
after April 30, 1993 and short-term capital gains distributed by a fund
are federally taxable to shareholders as dividends, not as capital gains.
Dividend distributions resulting from a recharacterization of gain from
the sale of bonds purchased at a discount after April 30, 1993 are not
considered income for the purposes of Intermediate Municipal Income's,
Short-Intermediate Municipal Income's, and High Income Municipal's
policies of investing so that 80% of each fund's net assets are invested
in securities whose interest is free from federal income tax and New York
Municipal Income's and California Municipal Income's policies of investing
so that 80% of each fund's net assets are invested in securities whose
interest is free from federal and state income tax.
Corporate investors should note that a tax preference item for
purposes of the corporate AMT is 75% of the amount by which adjusted
current earnings (which include tax-exempt interest) exceed the
alternative minimum taxable income of the corporation. If a shareholder
receives an exempt interest dividend and sells shares at a loss after
holding them for a period of six months or less, the loss will be
disallowed to the extent of the amount of the exempt-interest dividend.
New York Tax Matters. [To be updated.] It is not expected that
New York Municipal Income will incur New York income or franchise tax
liability. In addition, New York personal income tax law also provides
that exempt-interest dividends paid by a regulated investment company, or
series thereof, from interest on obligations which are exempt from tax
under New York law are excludable from gross income.
California Tax Matters. [To be updated.] As long as California
Municipal Income continues to qualify as a regulated investment company
under the federal Internal Revenue Code, it will incur no California
income or franchise tax liability on income and capital gains distributed
to shareholders. California personal income tax law provides that
exempt-interest dividends paid by a regulated investment company, or
series thereof, from interest on obligations that are exempt from
California personal income tax are excludable from gross income. For a
fund to qualify to pay exempt-interest dividends under California law, at
least 50% of the value of its assets must consist of such obligations at
the close of each quarter of its fiscal year. For purposes of California
personal income taxation, distributions to individual shareholders derived
from interest on other types of obligations and short-term capital gains
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will be taxed as dividends, and long-term capital gain distributions will
be taxed as long-term capital gains. California has an alternative minimum
tax similar to the federal AMT described above. However, the California
AMT does not include interest from private activity municipal obligations
as an item of tax preference. Interest on indebtedness incurred or
continued by a shareholder in connection with the purchase of shares of a
fund will not be deductible for California personal income tax purposes.
Capital Gain Distributions. Long-term capital gains earned by
each 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
long-term capital gain distribution on shares of a 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 long-term capital gain distribution will
be considered a long-term loss for tax purposes. Short-term capital gains
distributed by each fund are taxable to shareholders as dividends, not as
capital gains.
As of December 31, 1995, Strategic Opportunities had a capital
loss carryforward aggregating approximately $_______. This loss
carryforward, of which $_______ will expire on December 31, ____, is
available to offset future capital gains.
As of October 31, 1995, Income & Growth had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $________ will expire on October 31, ____, is available to offset
future capital gains.
As of October 31, 1995, High Yield had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $________ will expire on October 31, ____, is available to offset
future capital gains.
As of October 31, 1995, Government Investment had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $_______ will expire on October 31, ____, is available to offset
future capital gains.
As of November 30, 1995, Intermediate Bond had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $_____, $_____, and $_____ will expire on November 30, ____,
____, and ____, respectively, is available to offset future capital gains.
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As of October 31, 1995, Short Fixed-Income had a capital loss
carryforward aggregating approximately $________ $________. This loss
carryforward, of which $_____, $_____, $_____, $_____, $_____, $_____,
$_____, and $_____ will expire between October 31, ____ to October 31,
____, is available to offset future capital gains.
As of October 31, 1995, High Income Municipal had a capital loss
carryforward aggregating approximately $_______. This loss carryforward,
of which $_______ will expire on October 31, ____, is available to offset
future capital gains.
As of November 30, 1995, Intermediate Municipal Income had a
capital loss carryforward aggregating approximately $_____. This loss
carryforward, of which $_____ will expire on November 30, ____, is
available to offset future capital gains.
As of November 30, 1995, Short-Intermediate Municipal Income had
a capital loss carryforward aggregating approximately $_____. This loss
carryforward, of which $_____ will expire on November 30, ____, is
available to offset future capital gains.
State and Local Taxes. For mutual funds organized as business
trusts, state law provides for a pass-through of the state and local
income tax exemption afforded to direct owners of U.S. government
securities. Some states limit this to mutual funds that invest a certain
amount in U.S. government securities, and some types of securities, such
as repurchase agreements and some agency-backed securities, may not
qualify for this benefit. The tax treatment of your dividend distributions
from a fund will be the same as if you directly owned your proportionate
share of the U.S. government securities in the fund's portfolio. Because
the income earned on most U.S. government securities in which each fund
invests is exempt from state and local income taxes, the portion of your
dividends from each fund attributable to these securities will also be
free from income taxes. The exemption from state and local income taxation
does not preclude states from assessing other taxes on the ownership of
U.S. government securities. In a number of states, corporate franchise
(income) tax laws do not exempt interest earned on U.S. government
securities, whether such securities are held directly or through a fund.
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 a 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.
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<PAGE>
Tax Status of the Funds. Each 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,
each fund intends to distribute substantially all of its net investment
income and realized capital gains within each calendar year as well as on
a fiscal year basis. Each fund also intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held for less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some forward currency contracts, futures contracts, and options
are included in this 30% calculation, which may limit a fund's investments
in such instruments.
If a 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, a 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.
Each fund is treated as a separate entity from the other funds,
if any, in its trust for tax purposes.
Other Tax Information. The information above is only a summary of
some of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal income taxes, shareholders of a fund
may be subject to state and local taxes on fund distributions, and shares
may also be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether a fund is suitable
for their particular tax situation.
FMR
---
All of the stock of FMR is owned by FMR Corp., its parent company
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 1940 Act,
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<PAGE>
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 three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; FIIOC, which performs shareholder servicing functions for
institutional customers and funds sold through intermediaries; and
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 account 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 and executive officers of the trusts 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 also serve in similar capacities for other funds advised
by FMR. The business address of each Trustee 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 a trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, (65), 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 FMR Texas Inc., Fidelity Management & Research (U.K.) Inc.,
and Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD, (54), Trustee and Senior Vice President, is
President of FMR; and President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
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<PAGE>
RALPH F. COX, (63), Trustee (1991), is a consultant to Western
Mining Corporation (1994). Prior to February 1994, he was President of
Greenhill Petroleum Corporation (petroleum exploration and production,
1990). Until March 1990, Mr. Cox was President and Chief Operating Officer
of Union Pacific Resources Company (exploration and production). He is a
Director of Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill
Companies (engineering). In addition, he served on the Board of Directors
of the Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS, (64), 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, 1990),
and she 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.
RICHARD J. FLYNN, (71), Trustee, is a financial consultant. Prior
to September 1986, Mr. Flynn was Vice Chairman and a Director of the
Norton Company (manufacturer of industrial devices). He is currently a
Trustee of College of the Holy Cross and Old Sturbridge Village, Inc. and
he previously served as Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES, (68), Trustee (1990). 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), Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation,
Birmingham Steel Corporation, and RPM, Inc. (manufacturer of chemical
products, 1990), and he previously served as a Director of NACCO
Industries, Inc. (mining and marketing, 1985-1995) and Hyster-Yale
Materials Handling, Inc. (1985-1995). In addition, he serves as a Trustee
of First Union Real Estate Investments, a Trustee and member of the
Executive Committee of the Cleveland Clinic Foundation, a Trustee and
member of the Executive Committee of University School (Cleveland), and a
Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, (63), 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
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<PAGE>
as Director of Valuation Research Corp. (appraisals and valuations, 1993).
In addition, he serves as Chairman of the Board of Directors of the
National Arts Stabilization Fund, Vice Chairman of the Board of Trustees
of the Greenwich Hospital Association, and as a Member of the Public
Oversight Board of the American Institute of Certified Public Accountants'
SEC Practice Section (1995).
*PETER S. LYNCH, (52), Trustee (1990) is Vice Chairman 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). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield and Society for the
Preservation of New England Antiquities, and as an Overseer of the Museum
of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, (66), Trustee, is Chairman of G.M.
Management Group (strategic advisory services). Prior to his retirement in
July 1988, he was Chairman and Chief Executive Officer of Leaseway
Transportation Corp. (physical distribution services). Mr. McDonough is a
Director of ACME-Cleveland Corp. (metal working, telecommunications and
electronic products), Brush-Wellman Inc. (metal refining), York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (water treatment equipment, 1992), and Associated Estates
Realty Corporation (a real estate investment trust, 1993).
EDWARD H. MALONE, (71), Trustee. Prior to his retirement in 1985,
Mr. Malone was Chairman, General Electric Investment Corporation and a
Vice President of General Electric Company. He is a Director of Allegheny
Power Systems, Inc. (electric utility), General Re Corporation
(reinsurance) and Mattel Inc. (toy manufacturer). In addition, he serves
as a Trustee of Corporate Property Investors, the EPS Foundation at
Trinity College, the Naples Philharmonic Center for the Arts, and
Rensselaer Polytechnic Institute, and he is a member of the Advisory
Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership
Funds.
MARVIN L. MANN, (62), 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) and
Infomart (marketing services, 1991), a Trammell Crow Co. In addition, he
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<PAGE>
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 (1990).
THOMAS R. WILLIAMS, (67), 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
BellSouth Corporation (telecommunications), ConAgra, Inc. (agricultural
products), Fisher Business Systems, Inc. (computer software), Georgia
Power Company (electric utility), Gerber Alley & Associates, Inc.
(computer software), National Life Insurance Company of Vermont, American
Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
WILLIAM J. HAYES (61), Vice President (1994), is Vice President
of Fidelity's equity funds; Senior Vice President of FMR; and Managing
Director of FMR Corp.
ROBERT H. MORRISON (55), Manager of Security Transactions of
Fidelity's equity funds, is Vice President of FMR.
FRED L. HENNING ( ), Vice President, is Vice President of
Fidelity's money market (1994) and fixed-income (1995) funds and senior
Vice President of FMR Texas Inc.
ROBERT A. LAWRENCE (42), Vice President (1994), is Vice President
of Fidelity's high income funds and Senior Vice President of FMR (1993).
Prior to joining FMR, Mr. Lawrence was Managing Director of the High Yield
Department for Citicorp (1984-1991).
MARGARET L. EAGLE (45), is Vice President of High Yield and an
employee of FMR.
DANIEL R. FRANK (38), is Vice President of Strategic
Opportunities and an employee of FMR.
KEVIN GRANT (__), is Vice President of Intermediate Bond (1995)
and an employee of FMR.
ROBERT E. HABER (37), is Vice President of Income & Growth (1989)
and an employee of FMR.
196
<PAGE>
NORMAN LIND ( ) is Vice President of Short-Intermediate
Municipal Income (1995) and an employee of FMR.
MALCOLM W. MacNAUGHT II (58), is Vice President of Global
Resources (1991) and an employee of FMR.
ROBERT STANSKY (39), is Vice President of Equity Growth (1991)
and of other funds advised by FMR, and an employee of FMR.
GEORGE A. VANDERHEIDEN (49), is Vice President of Growth
Opportunities (1990) and an employee of FMR.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993)
and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the
Fidelity funds and is an employee of FMR (1995). Before joining FMR, Mr.
Rathgeber was a Vice President of Goldman Sachs & Co. (1978-1995), where
he served in various positions, including Vice President of Proprietary
Accounting (1988-1992), Global Co-Controller (1992-1994), and Chief
Operations Officer of Goldman Sachs (Asia) LLC (1994-1995).
JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (49), 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);
Chief Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993);
and Vice President, Assistant Controller, and Director of the Accounting
Department - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current Trustee of each fund for his or her services as trustee for
the fiscal year ended 1995. Figures are estimated for funds that have
less than one year in operation.
197
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Aggregate Compensation
----------------------
Fiscal Period
Ended:
10/31 - * Phyllis Edward Edward Marvin Thomas
11/30 - ** J. Gary Ralph F. Burke Richard J. C. Johnson E. Bradley Donald Peter S. Gerald C. H. L. R.
12/31 - *** Burkhead# Cox Davis Flynn 3rd# Jones J. Kirk Lynch# McDonough Malone Mann Williams
----------- ----------------- ------ --------- ---------- ----------------- -------- --------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Overseas* $0 $ $ $ $0 $ $ $0 $ $ $ $
Equity Growth** 0 0 0
Global Resources* 0 0 0
Growth
Opportunities* 0 0 0
Strategic
Opportunities*** 0 0 0
Equity Income** 0 0 0
Income & Growth* 0 0 0
Emerging Markets
Income*** 0 0 0
High Yield* 0 0 0
Strategic
Income*** 0 0 0
Government
Investment* 0 0 0
Intermediate
Bond** 0 0 0
Short
Fixed-Income* 0 0 0
High Income
Municipal* 0 0 0
Intermediate
Municipal
Income** 0 0 0
Short-
Intermediate
Municipal
Income** 0 0 0
New York
Municipal
Income*+ 0 0 0
California
Municipal
Income*+ 0 0 0
198
<PAGE>
Compensation Table
Aggregate Compensation
----------------------
Fiscal Period
Ended:
10/31 - * Phyllis Edward Edward Marvin Thomas
11/30 - ** J. Gary Ralph F. Burke Richard J. C. Johnson E. Bradley Donald Peter S. Gerald C. H. L. R.
12/31 - *** Burkhead# Cox Davis Flynn 3rd# Jones J. Kirk Lynch# McDonough Malone Mann Williams
----------- ----------------- ------ --------- ---------- ----------------- -------- --------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Stock**+ 0 0 0
Large Cap**+ 0 0 0
+ Estimated
# Interested Trustees of each fund are compensated by FMR.
Pension or
Retirement Benefits Estimated Annual Total
Accrued as part of Benefits Upon Re- Compensation
Fund Expenses from tirement from the from the Fund
the Fund Complex* Fund Complex* Complex*
---------------- ----------------- -------------
<S> <C> <C> <C>
J. Gary Burkhead# $0 $0 $ 0
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d# 0 0 0
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch# 0 0 0
Gerald C. McDonough
Edward H. Malone
Marvin L. Mann
Thomas R. Williams
</TABLE>
*Information is as of December 31, 1995 for 206 funds in the complex.
#Interested Trustees of each fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or
a percentage of their annual fees in accordance with the terms of a
Deferred Compensation Plan (the Plan). Under the Plan, compensation
deferred by a Trustee is periodically adjusted as though an equivalent
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<PAGE>
amount had been invested and reinvested in shares of one or more funds in
the complex designated by such Trustee (designated securities). The
amount paid to the Trustee under the Plan will be determined based upon
the performance of such investments. Deferral of Trustees' 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 the fund to
retain the services of any Trustee or to pay any particular level of
compensation to the Trustee. Each fund may invest in such designated
securities under the Plan without shareholder approval.
Under a retirement program that was adopted in July 1988, the
non-interested Trustees, upon reaching age 72, become eligible to
participate in a retirement program under which they receive payments
during their lifetime from a fund based on their basic trustee fees and
length of service. The obligation of a fund to make such payments is not
secured or funded. Trustees become eligible if, at the time of retirement,
they have served on the Board for at least five years. Currently, Messrs.
Ralph S. Saul, William R. Spaulding, Bertram H. Witham, and David L.
Yunich, all former non-interested Trustees, receive retirement benefits
under the program.
As of ___________, 1995 the Trustees and officers of each fund
owned in the aggregate ___ 1% of each fund's outstanding shares.
As of _________, 1995, the following owned of record or
beneficially 5% or more of the outstanding shares of the classes of the
following Fidelity Advisor funds:
[To be supplied by subsequent amendment]
MANAGEMENT CONTRACTS
--------------------
Each fund employs FMR to furnish investment advisory and other
services. Under its management contract with each fund, FMR acts as
investment adviser and, subject to the supervision of the Board of
Trustees, directs the investments of each fund in accordance with its
investment objective, policies and limitations. FMR also provides each
fund with all necessary office facilities and personnel for servicing each
fund's investments, compensates all officers of each fund and all Trustees
who are "interested persons" of the trust or of FMR, and all personnel of
each 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
200
<PAGE>
necessary for the operation of each fund. These services include providing
facilities for maintaining each fund's organization; supervising relations
with custodians, transfer and pricing agents, accountants, underwriters
and other persons dealing with each fund; preparing all general
shareholder communications and conducting shareholder relations;
maintaining each fund's records and the registration of each fund's shares
under federal and state laws; developing management and shareholder
services for each fund; and furnishing reports, evaluations, and analyses
on a variety of subjects to the Trustees.
In addition to the management fee payable to FMR and the fees
payable to the transfer agent and the pricing and bookkeeping agent, each
fund pays all of its expenses, without limitation, that are not assumed by
those parties. Each 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. Although each fund's
current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices and reports to shareholders, each trust, on behalf of
each of fund, has entered into a revised transfer agent agreement,
pursuant to which the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by each fund
include interest, taxes, brokerage commissions, each fund's proportionate
share of insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal and state securities laws. Each
fund is also liable for such non-recurring expenses as may arise,
including costs of any litigation to which each fund may be a party, and
any obligation it may have to indemnify its officers and Trustees with
respect to litigation.
FMR is each fund's manager pursuant to management contracts dated
and approved by shareholders on the dates shown in the table below.
<TABLE>
<CAPTION>
Fund Date of Management Contract Date of Shareholder Approval
---- --------------------------- ----------------------------
<S> <C> <C>
Overseas 1/1/93 12/1/92
Equity Growth 12/1/90 11/14/90
Global Resources 12/1/94 11/16/94
Growth Opportunities 1/1/95 12/14/94
Strategic Opportunities 11/29/90 9/19/90
Equity Income 8/1/86 7/23/86
Income & Growth 1/1/95 12/14/94
Emerging Markets Income 1/20/94 2/10/94
High Yield 1/1/95 12/14/94
Strategic Income 9/16/94 10/14/94
Government Investment 1/1/95 12/14/94
Intermediate Bond 1/1/95 12/14/94
Short Fixed-Income 1/195 12/14/94
201
<PAGE>
Fund Date of Management Contract Date of Shareholder Approval
---- --------------------------- ----------------------------
High Income Municipal 12/1/94 11/16/94
Intermediate Municipal 7/1/95 6/14/95
Income
Short-Intermediate 1/1/95 6/14/95
Municipal Income
New York Municipal Income
11/17/94 12/8/94
California Municipal
Income ____ ____
Mid Cap ____ ____
Large Cap ____ ____
</TABLE>
For the services of FMR under its contract, Equity Income pays
FMR a monthly management fee at the annual rate of .50% of its average net
assets throughout the month. For the fiscal years ended November 30, 1995,
1994, and 1993, FMR received $__________, $1,392,206, and $933,830,
respectively.
For the services of FMR under each contract, Equity Growth,
Global Resources, Income & Growth, Emerging Markets Income, High Yield,
Strategic Income, Government Investment, Intermediate Bond, Short
Fixed-Income, High Income Municipal, Intermediate Municipal Income,
Short-Intermediate Municipal Income, New York Municipal Income, and
California Municipal Income, each pays FMR a monthly management fee
composed of the sum of two elements: a group fee rate and an individual
fund fee rate.
For the services of FMR under each contract, Overseas, Growth
Opportunities, Strategic Opportunities, Mid Cap, and Large Cap pay FMR a
monthly management fee composed of the sum of two elements: a basic fee
rate and a performance adjustment based on a comparison of Growth
Opportunities', Strategic Opportunities' and Large Cap's performance to
that of the S&P 500, Overseas' performance to that of EAFE, and Mid Cap's
to that of the S&P Mid Cap 400.
Computing the Basic Fee. The basic fee rate for each fund (except
Equity Income) is composed of two elements: 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 and is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown below on the left. The schedule below on
the right shows the effective annual group fee rate at various asset
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<PAGE>
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 _______ 1995 - was 0.____%
for equity funds and 0.____% for fixed-income funds, which is the weighted
average of the respective fee rates for each level of group net assets up
$___ billion.
FIXED-INCOME FUNDS
-----------------
The following fee schedule is the current fee schedule for all
fixed-income funds, except Emerging Markets Income.
<TABLE>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
------------- ---------- --------- ----------------
<C> <C> <C> <C>
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
228 - 264 .1300
264 - 300 .1275
300 - 336 .1250
336 - 372 .1225
Over 372 .1200
This fee schedule has been approved by the shareholders of all the fixed-income funds except Emerging Markets Income.
Emerging Markets Income. The following fee schedule is the current fee schedule for Emerging Markets Income.
203
<PAGE>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
------------- ---------- --------- ---------------
<C> <C> <C> <C>
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 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 366 .1350
Over 366 .1325
</TABLE>
On August 1, 1994, FMR voluntarily revised the group fee rate
schedule and added new breakpoints. The revised group fee rate schedule
provides for lower management fee rates as FMR's assets under management
increase. The revised group fee rate schedule is identical to the above
schedule for average group assets under $156 billion. For average group
assets in excess of $156 billion, the group fee rate schedule voluntarily
adopted by FMR is as follows:
<TABLE>
<CAPTION>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
----------- ---------- -------- --------------
<C> <C> <C> <C>
120 - 156 billion .1450% $150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
204
<PAGE>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
----------- ---------- -------- --------------
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
Over 372 .1200 325 .1514
350 .1494
375 .1476
400 .1459
</TABLE>
EQUITY FUNDS
The following fee schedule is the current fee schedule for all equity
funds (except Equity Income).
<TABLE>
<CAPTION>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual Fee
Assets Rate Assets Rate
------------ ------------ --------- -------------------
<S> <C> <C> <C>
0 - $3 billion .5200% $ 0.5 billion .5200%
3 - 6 .4900 25 .4238
6 - 9 .4600 50 .3823
9 - 12 .4300 75 .3626
12 - 15 .4000 100 .3512
15 - 18 .3850 125 .3430
18 - 21 .3700 150 .3371
21 - 24 .3600 175 .3325
24 - 30 .3500 200 .3284
30 - 36 .3450 225 .3249
36 - 42 .3400 250 .3219
42 - 48 .3350 275 .3190
48 - 66 .3250 300 .3163
66 - 84 .3200 325 .3137
84 - 102 .3150 350 .3113
102 - 138 .3100 375 .3090
138 - 174 .3050 400 .3067
174 - 210 .3000
210 - 246 .2950
246 - 282 .2900
282 - 318 .2850
318 - 354 .2800
354 - 390 .2750
Over 390 .2700
205
<PAGE>
</TABLE>
This fee schedule was approved by shareholders of all equity funds
except Overseas, Equity Growth, Strategic Opportunities, and Equity Income
(see chart indicating date of management contract and date of shareholder
approval.)
Under the current management contracts for Overseas and Strategic
Opportunities, the group fee rate is based on a schedule with breakpoints
ending at .3000% for average group net assets in excess of $174 billion.
Under the current management contract for Equity Growth, the group fee
rate is based on a schedule with breakpoints ending at .3100% for average
group net assets in excess of $102 billion.
The following fee schedule is the fee schedule which was in effect
through August 1, 1994, and was either approved by shareholders or
voluntarily adopted by FMR.
Group fee rate breakpoints shown for average group net assets in
excess of $138 billion and under $228 billion were voluntarily adopted by
FMR, and went into effect on January 1, 1992. Additional breakpoints for
average group net assets in excess of $228 billion were voluntarily
adopted by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints.
Each revised group fee rate schedule provides for lower management fee
rates as FMR's assets under management increase.
<TABLE>
<CAPTION>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
---------------------- --------------------------
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
------------------- --------------- ---------------- ------------------------
<S> <C> <C> <C>
0 - $ 3 billion .5200% $ 0.5 billion .5200%
3 - 6 .4900 25 .4238
6 - 9 .4600 50 .3823
9 - 12 .4300 75 .3626
12 - 15 .4000 100 .3512
15 - 18 .3850 125 .3430
18 - 21 .3700 150 .3371
21 - 24 .3600 175 .3325
24 - 30 .3500 200 .3284
30 - 36 .3450 225 .3253
36 - 42 .3400 250 .3223
42 - 48 .3350 275 .3198
48 - 66 .3250 300 .3175
66 - 84 .3200 325 .3153
84 - 102 .3150 350 .3133
206
<PAGE>
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
------------------- --------------- ---------------- ------------------------
<S> <C> <C> <C>
102 - 138 .3100
138 - 174 .3050
174 - 228 .3000
228 - 282 .2950
282 - 336 .2900
Over 336 .2850
</TABLE>
The individual fund fee rates for each fund (except Equity Income) are
set forth in the following chart. Based on the average group net assets of
the funds advised by FMR for ________ 1995, the annual basic fee rate
would be calculated as follows:
<TABLE>
<CAPTION>
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate
-------------- ------------------------ --------------
<S> <C> <C> <C> <C> <C>
Overseas .____% + 0.45% = .____%
Equity Growth .____% + 0.30%* = .____%
Global Resources .____% + 0.45% = .____%
Growth Opportunities .____% + 0.30% = .____%
Strategic Opportunities .____% + 0.30% = .____%
Income & Growth .____% + 0.20% = .____%
Emerging Markets Income .____% + 0.55% = .____%
High Yield .____% + 0.45% = .____%
Strategic Income .____% + 0.45% = .____%
Government Investment .____% + 0.30% = .____%
Intermediate Bond .____% + 0.30%** = .____%
Short Fixed-Income .____% + 0.30% = .____%
High Income Municipal .____% + 0.25% = .____%
Intermediate Municipal Income .____% + 0.25% = .____%
Short-Intermediate Municipal .____% + 0.25% = .____%
Income
New York Municipal Income .____% + 0.25% = .____%
California Municipal Income .____% + 0.25% = .____%
Mid Cap .____% + 0.30% = .____%
Large Cap .____% + 0.30% = .____%
</TABLE>
* Effective August 1, 1994, FMR voluntarily agreed to reduce the
individual fund fee rate from 0.33% to 0.30%. If this reduction were not
in effect during fiscal 1994, the total management fee would have been
0.65%.
207
<PAGE>
** On December 14, 1994, shareholders of the fund approved an increase
for the individual fund fee rate from 0.25% to 0.30% effective January 1,
1995.
One-twelfth (1/12) of this annual basic fee or management fee, as
applicable, rate is applied to each fund's net assets averaged for the
most recent month, giving a dollar amount, which is the fee for that
month.
Computing the Performance Adjustment. The basic fee for Strategic
Opportunities, Overseas, Growth Opportunities, Large Cap, and Mid Cap is
subject to upward or downward adjustment, depending upon whether, and to
what extent, the investment performance of each applicable fund for the
performance period exceeds, or is exceeded by, the record of the S&P 500
(Strategic Opportunities, Growth Opportunities, and Large Cap), EAFE
(Overseas), and S&P MidCap 400 (Mid Cap), respectively (the Indices), over
the same period. Mid Cap's and Large Cap's performance period commenced on
___________ and ___________, respectively. Starting with the twelfth
month, the performance adjustment takes effect. Each month subsequent to
the twelfth month, a new month is added to the performance period until
the performance period equals 36 months. Thereafter, the performance
period consists of the most recent month plus the previous 35 months. Each
percentage point of difference, calculated to the nearest 1.0% (up to a
maximum difference of plus or minus 10.00) is multiplied by a performance
adjustment rate of .02%. Thus, the maximum annualized adjustment rate is
plus or minus .20%. For each fund, investment performance will be measured
separately for each class and the least of the results obtained will be
used in calculating the performance adjustment to the management fee paid
by the fund. This performance comparison is made at the end of each month.
One twelfth (1/12) of this rate is then applied to each fund's average net
assets for the entire performance period, giving a dollar amount which
will be added to (or subtracted from) the basic fee.
Each class's performance is calculated based on change in NAV. For
purposes of calculating the performance adjustment, any dividends or
capital gain distributions paid by each class are treated as if reinvested
in that class's shares at the NAV as of the record date for payment. The
record of each Index is based on change in value and is adjusted for any
cash distributions from the companies whose securities compose the Index.
Because the adjustment to the basic fee is based on each class's
performance compared to the investment record of the applicable Index, the
controlling factor is not whether each class's performance is up or down
per se, but whether it is up or down more or less than the record of the
Index. Moreover, the comparative performance of each class is based solely
on the relevant performance period without regard to the cumulative
performance over a longer or shorter period of time.
208
<PAGE>
The table below shows the management fees paid to FMR (including the
amount of the performance adjustment); the dollar amount of negative or
positive performance adjustments, if applicable; and the net management
fee as a percentage of each fund's average net assets for the three most
recent fiscal years.
<TABLE>
<CAPTION>
Management Fee As a
Fiscal Year Management Performance Percentage of
Ended Fee + Adjustment Average Net Assets
------------ ---------- --------- ------------------
<S> <C> <C> <C>
Overseas 10/31
1995
1994 $3,435,695 $133,032 (upward) .80%
1993 503,110 3,885 (downward) .77
Equity Growth 11/30
1995
1994 6,567,305 N/A .64
1993 2,646,631 N/A .66
Global Resources 10/31
1995
1994 890,892 N/A .77
1993 111,465 N/A .77
Growth Opportunities 10/31
1995
1994 22,087,985 2,130,192 (upward) .69
1993 8,250,306 709,376 (upward) .68
Strategic Opportunities +++ 12/31
1995
10/1/94 - 12/31/94 682,856 37,843 (upward) .67 (annualized)
10/1/93 - 9/30/94 2,582,584 359,674 (upward) .72
1993 1,291,906 81,040 (upward) .54
Equity Income 11/30
1995
1994 1,392,206 N/A .50
1993 933,830 N/A .50
Income & Growth 10/31
1995
1994 13,325,884 N/A .52
1993 4,578,813 N/A .53
Emerging Markets Income 12/31
1995
1994 ++ 122,088 N/A .70
High Yield 11/30
1995
1994 3,737,959 N/A .60
1993 1,539,682 N/A .51
Strategic Income 12/31
209
<PAGE>
Management Fee As a
Fiscal Year Management Performance Percentage of
Ended Fee + Adjustment Average Net Assets
------------ ---------- --------- ------------------
<S> <C> <C> <C>
1995
1994 ++ 10,348 N/A .60
Government Investment 11/30
1995
1994 22,255 N/A .46
1993 186,973 N/A .46
Intermediate Bond 11/30
1995
1994 1,180,785 N/A .41
1993 818,426 N/A .42
Short Fixed-Income 10/31
1995
1994 $3,713,144 N/A .46%
1993 1,674,841 N/A .47
High Income Municipal 11/30
1995
1994 2,257,113 N/A .41
1993 1,314,060 N/A .42
Intermediate Municipal
Income 11/30
1995
1994 286,027 N/A .41
1993 156,087 N/A .42
Short-Intermediate Municipal
Income 11/30
1995
1994++ 31,109 N/A .41
</TABLE>
+Management fee includes performance adjustments for Overseas, Growth
Opportunities, and Strategic Opportunities.
++Emerging Markets Income, Strategic Income, and Short-Intermediate
Municipal Income commenced operations on March 10,1994, October 31, 1994,
and March 16, 1994, respectively. Management fee percentages for these
funds are annualized.
+++Strategic Opportunities' fiscal year end changed from September 30 to
December 31 as of November 9, 1994.
FMR may, from time to time, voluntarily reimburse all or a portion of
a class' 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 reimbursement
by FMR will increase each class' total returns and yield and repayment of
the reimbursement by each class will lower its total returns and yield.
210
<PAGE>
To comply with the California Code of Regulations, FMR will reimburse
each fund if and to the extent that the fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The
applicable percentages are 2 1/2% of the first $30 million, 2% of the next
$70 million, and 1 1/2% of average net assets in excess of $100 million.
When calculating each fund's expenses for purposes of this regulation,
each fund may exclude interest, taxes, brokerage commissions, and
extraordinary expenses, as well as a portion of its distribution plan
expenses and custodian fees attributable to investments in foreign
securities.
Sub-Advisers. On behalf of Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Equity Income, Income & Growth,
High Yield, Intermediate Bond, Mid Cap, Large Cap, and Short Fixed-Income,
FMR has entered into sub-advisory agreements with FMR U.K. and FMR Far
East. On behalf of Overseas, FMR has entered into sub-advisory agreements
with FMR U.K., FMR Far East, and FIIA. FIIA, in turn, has entered into a
sub-advisory agreement with FIIAL U.K. On behalf of Emerging Markets
Income and 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 FIIAL U.K. 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 Overseas, Global Resources, Growth Opportunities, Mid
Cap, Large Cap, Strategic Income, Income & Growth, High Yield,
Intermediate Bond, Emerging Markets Income, and Short Fixed-Income, FMR
may also grant FMR U.K. and FMR Far East investment management authority
as well as the authority to buy and sell securities if FMR believes it
would be beneficial to the funds.
Currently, FMR U.K., FMR Far East, FIJ, FIIA, and FIIAL U.K. each
focuses 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. FIIAL
U.K. was organized in the United Kingdom in 1984, and is a wholly owned
subsidiary of Fidelity International Management Holdings Limited, an
indirect wholly owned subsidiary of FIL.
211
<PAGE>
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 FIIAL U.K. For
providing non-discretionary investment advice and research services the
sub-advisers are compensated as follows:
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.
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.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing investment advice and research
services.
On behalf of Overseas, Global Resources, Growth Opportunities, Income
& Growth, Emerging Markets Income, High Yield, Short Fixed-Income, and
Intermediate Bond, for providing discretionary investment management and
executing portfolio transactions, the sub-advisers are compensated as
follows:
FMR pays FMR U.K., FMR Far East, FIJ, and FIIA a fee equal to 50% of
its monthly management fee (including any performance adjustment, if
applicable) with respect to the fund's average net assets managed by the
sub-adviser on a discretionary basis.
FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing discretionary investment management
services.
The table below shows the fees paid by FMR to FMR U.K., FMR Far East,
FIIA, and FIJ, and by FIIA to FIIAL U.K. for providing investment advice
and research services with respect to certain of the funds for the fiscal
periods ended 1995, 1994, and 1993.
The other funds paid no investment sub-advisory fees for the fiscal
periods ended 1993-1995.
212
<PAGE>
<TABLE>
<CAPTION>
FEES PAID TO FOREIGN SUB-ADVISERS
Fund Fees Paid by FMR to FMR U.K. Fees Paid by FMR to FMR Far East
---- ---------------------------- --------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Overseas $ $153,288 $14,363 $ $174,129 $22,357
Equity Growth 13,191 3,144 15,192 5,021
Global Resources 2,598 N/A 2,932 N/A
Growth Opportunities 67,818 N/A 82,741 N/A
Strategic Opportunities
(10/1/93 - 9/30/94) 7,794 N/A 7,712 N/A
Strategic Opportunities
(10/1/94 - 12/31/94) 7,352 4,560 7,701 11,267
Equity Income 12,197 4,669 13,970 7,199
Income & Growth 248,936 N/A 299,094 N/A
TOTAL 513,174 $26,736 603,471 45,844
</TABLE>
The following fees were paid to FIJ, FIIA, and FIIAL U.K. for the fiscal
year ended 1995. No fees were paid to FIJ, FIIA, and FIIAL U.K. for 1993-
1994.
[Table to be added]
CONTRACTS WITH FMR AFFILIATES
-----------------------------
State Street is transfer, dividend disbursing, and shareholder
servicing agent for Class A shares of the taxable funds. FIIOC, an
affiliate of FMR, is transfer, dividend disbursing, and shareholder
servicing agent for Class B and Institutional Class shares of the taxable
funds. UMB is the transfer, dividend disbursing, and shareholder servicing
agent for Class A, Class B and Institutional Class shares of the municipal
funds. UMB has entered into sub-contracts with State Street pursuant to
which State Street performs transfer, dividend disbursing, and shareholder
services. State Street has entered into sub-contracts with FIIOC pursuant
to which FIIOC performs certain transfer, dividend disbursing, and
shareholder services for Class A shares of the municipal funds. UMB has
entered into sub-contracts with FIIOC pursuant to which FIIOC performs
transfer, dividend disbursing, and shareholder services for Class B and
Institutional Class shares of the municipal funds. Under these
arrangements FIIOC receives an annual account fee and an asset-based fee
based on account size. With respect to certain institutional retirement
213
<PAGE>
accounts, FIIOC receives asset-based fees only. With respect to certain
other institutional retirement accounts, FIIOC receives annual account
fees and asset-based fees based on fund type. The asset-based fees of the
growth and growth and income funds are subject to adjustment if the
year-to-date total return of the Standard & Poor's Composite Index of 500
Stocks is greater than positive or negative 15%. FIIOC also collects
small account fees from certain accounts with balances of less than
$2,500.
For accounts that FIIOC maintains on behalf of UMB or State Street,
FIIOC receives all such fees. For accounts for which FIIOC provides
limited services, FIIOC receives a portion of related account fees and
asset-based fees, less applicable charges and expenses of State Street for
account maintenance and transactions.
FIIOC bears the expense of typesetting, printing, and mailing
prospectuses, statements of additional information, and all other reports,
notices, and statements to shareholders, with the exception of proxy
statements. Also, State Street and FIIOC, as applicable, pay
out-of-pocket expenses associated with providing transfer agent services.
FSC, an affiliate of FMR, performs the calculations necessary to
determine NAV and dividends for Class A, Class B, and Institutional Class
of each taxable fund, maintains each taxable fund's accounting records and
administers each taxable fund's securities lending program. UMB has an
additional sub-contract with FSC pursuant to which FSC performs the
calculations necessary to determine the NAV and dividends for the Class A,
Class B, and Institutional Class of each municipal fund, and maintains the
accounting records for each municipal fund. The annual fee rates for these
pricing and bookkeeping services are based on each fund's average net
assets, specifically, 0.06% (equity funds) or 0.04% (bond funds) for the
first $500 million of average net assets and 0.03% (equity funds) or 0.02%
(bond funds) for average net assets in excess of $500 million. The fee is
limited to a minimum of $45,000 and a maximum of $750,000 per year.
Pricing and bookkeeping fees, including related out-of-pocket expenses,
paid by the funds for the past three fiscal years were as follows:
214
<PAGE>
<TABLE>
<CAPTION>
Fund 1995 1994 1993
---- ----
<S> <C> <C> <C>
Overseas $ $ 251,241 $ 57,711
Equity Growth $ 461,039 $ 234,813
Global Resources $ 73,164 $ 45,425
Growth Opportunities $ 758,343 $ 513,950
Strategic Opportunities (10/1/94 - 12/31/94) $ 61,356 $ 145,494
Strategic Opportunities (10/1/93 - 9/30/94) $ 215,648 N/A
Equity Income $ 168,364 $ 113,026
Income & Growth $ 750,743 $ 410,561
Emerging Markets Income $ 36,412* N/A
High Yield $ 223,567 $ 121,204
Strategic Income $ 7,500* N/A
Government Investment $ 46,218 $ 46,457
Intermediate Bond $ 118,125 $ 81,106
Short Fixed-Income $ 264,455 $ 143,813
High Income Municipal $ 220,222 $ 157,559
Intermediate Municipal Income $ 48,062 $ 45,724
New York Municipal Income
Short-Intermediate Municipal Income $ 31,953* N/A
</TABLE>
* Emerging Markets Income, Strategic Income, and Short-Intermediate
Municipal Income commenced operations on March 10, 1994, October 31, 1994,
and March 16, 1994, respectively. New York Municipal Income commenced
operations on August 21, 1995.
FSC also receives fees for administering each taxable fund's
securities lending program. Securities lending fees are based on the
number and duration of individual securities loans. For the fiscal years
ended 1995, 1994, and 1993, [Names of Taxable Funds] incurred securities
lending fees of $__, $__, and $__, respectively.
For the municipal funds, the transfer agent fees and charges, and
pricing and bookkeeping fees described above are paid to FIIOC and FSC,
respectively, by UMB, which is entitled to reimbursement from the class or
the fund, as applicable, for these expenses.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements call
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
215
<PAGE>
offered. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FDC. The table below shows the sales
charge revenue paid to FDC, and retained by FDC, for the following fiscal
periods.
<TABLE>
<CAPTION>
SALES CHARGE REVENUE CDSC REVENUE
Amount Paid Amount Retained Amount Paid Amount
Fiscal Year Ended to FDC by FDC to FDC Retained by FDC
----------------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Overseas Oct. 31, 1995 $ $ $ $
1994 9,596,831 1,436,765 N/A N/A
1993 3,895,423 567,987 N/A N/A
Equity Growth Nov. 30, 1995
1994 9,353,000 1,397,000 N/A N/A
1993 10,102,208 1,523,036 N/A N/A
Global Resources Oct. 31, 1995
1994 3,854,624 567,671 N/A N/A
1993 890,154 130,927 N/A N/A
Growth Opportunities Oct. 31, 1995
1994 47,564,000 7,108,000 N/A N/A
1993 27,663,060 4,141,156 N/A N/A
Strategic Opportunities Dec. 31, 1995
553,970* 231,911 12,307 12,307
Dec. 31, 1994 2,986,131** 447,011 409 409
Sep. 30, 1993 1,299,291 196,365 N/A N/A
Income & Growth Oct. 31, 1995 N/A
1994 37,018,000 6,291,000 N/A N/A
1993 28,877,882 4,215,606 N/A N/A
Emerging Markets Income Dec. 31, 1995
1994 406,046 59,134 2,877 2,877
1993 N/A N/A N/A N/A
High Yield Oct. 31, 1995
1994 8,980,127 1,342,482 15,765 15,765
1993 10,465,950 1,524,348 N/A N/A
Strategic Income Dec. 31, 1995
1994 197,904 0 9,542 9,542
1993 N/A N/A N/A N/A
Government Investment Oct. 31, 1995
1994 996,242 168,939 978 978
1993 993,386 145,628 N/A N/A
Short Fixed-Income Oct. 31, 1995
1994 4,396,909 877,639 N/A N/A
216
<PAGE>
SALES CHARGE REVENUE CDSC REVENUE
Amount Paid Amount Retained Amount Paid Amount
Fiscal Year Ended to FDC by FDC to FDC Retained by FDC
----------------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Overseas Oct. 31, 1995 $ $ $ $
1993 5,308,796 968,759 N/A N/A
High Income Municipal Oct. 31, 1995
1994 6,327,614 1,038,989 0 0
1993 9,918,856 1,417,733 N/A N/A
Short Intermediate Municipal Income Nov. 30, 1995
1994 122,128 13,369 N/A N/A
1993 N/A N/A N/A N/A
Equity Income Nov. 30, 1995
1994 2,450,544 352,678 30,093 30,093
1993 792,962 117,757 N/A N/A
Intermediate Bond Nov. 30, 1995
1994 1,598,883 237,647 1,279 1,279
1993 1,436,859 210,713 N/A N/A
Intermediate Municipal Income Nov. 30, 1995
1994 635,031 96,813 0 0
1993 669,395 97,441 N/A N/A
</TABLE>
* For the fiscal period October 1, 1994 through December 31, 1994.
** For the fiscal period October 1, 1993 through September 30, 1994.
Distribution and Service Plans
------------------------------
The Trustees have approved Distribution and Service Plans on behalf of
each class of shares of the funds (the Plans) 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 a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow Class A, Class B, and
Institutional Class shares of each fund and FMR to incur certain expenses
that might be considered to constitute direct or indirect payment by the
funds of distribution expenses.
Pursuant to the Class A Plans, FDC is paid a distribution fee as a
percentage of Class A's average net assets at an annual rate of up to
0.75% for Equity Growth and Equity Income; up to 0.65% for each of
Overseas, Growth Opportunities, Global Resources, Strategic Opportunities,
and Income & Growth; up to 0.40% for each of Emerging Markets Income, High
Yield, Strategic Income, Intermediate Bond, Government Investment, High
217
<PAGE>
Income Municipal, Short-Intermediate Municipal Income, Intermediate
Municipal Income, New York Municipal Income, and California Municipal
Income; and up to 0.15% for Short Fixed-Income. Pursuant to the Class B
Plans, FDC is paid a distribution fee as a percentage of Class B's average
net assets at an annual rate of up to 0.75% for each fund with Class B
shares. For the purpose of calculating the distribution fees, average net
assets are determined as of the close of business on each day throughout
the month, but excluding assets attributable to Class A shares of Equity
Growth, Equity Income, Emerging Markets Income, Strategic Opportunities,
and Overseas purchased more than 144 months prior to such day. Currently,
the Trustees have approved a distribution fee for Class A at an annual
rate of 0.50% for the Equity Funds; 0.25% for the Bond Funds and the
Intermediate-Term Bond Funds; and 0.15% for the Short-Term Bond Funds.
Currently, the Trustees have approved a distribution fee for Class B at an
annual rate of 0.75% for Overseas, Global Resources, Strategic
Opportunities and Equity Income and 0.65% for the Bond Funds and the
Intermediate-Term Bond Funds. These fees may be increased only when, in
the opinion of the Trustees, it is in the best interests of the
shareholders of the applicable class to do so. Class B of each fund also
pays Investment Professionals a service fee at an annual rate of 0.25% of
its average daily net assets determined at the close of business on each
day throughout the month for personal service and/or the maintenance of
shareholder accounts.
The tables below show the distribution fees paid for Class A shares
for the fiscal years ended 1995, 1994, and 1993, and for Class B shares
for the fiscal periods ended 1995 and 1994. (Class B shares were not
offered prior to June 30, 1994.)
<TABLE>
<CAPTION>
CLASS A DISTRIBUTION FEES
-------------------------
1993 1994 1995
---- ---- ----
Paid to Paid to Paid to
Investment Retained TotalInvestment Retained Investment Retained by
Fund Professional by FDC FeesProfessionals by FDC Total Fees Professionals FDC Total Fees
---- ----------- ------- ---- ------------ --------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Overseas $ 325,181 $ 97,554$ 422,735 $2,139,864 $ 641,958 $2,781,822
Equity Growth 258,713 883,1411,141,854 3,312,525 999,987 4,312,512
Global Resources 69,457 23,643 93,100 577,607 173,281 750,888
Growth Opportunities 5,996,770 1,799,0307,795,800 16,056,714 4,817,016 20,873,730
Strategic 1,092,965 330,4911,423,456 470,225 141,067 611,292
Opportunities
Equity Income 94,623 28,435 123,058 441,208 132,362 573,570
Income & Growth 4,330,092 1,299,0265,629,118 13,406,000 3,203,000 16,609,000
218
<PAGE>
Paid to Paid to Paid to
Investment Retained TotalInvestment Retained Investment Retained by
Fund Professional by FDC FeesProfessionals by FDC Total Fees Professionals FDC Total Fees
---- ----------- ------- ---- ------------ --------- ---------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets N/A N/A N/A 31,604 8,331 39,935
Income
High Yield 745,985 0 745,985 1,526,214 0 1,526,214
Strategic Income N/A N/A N/A 1,626 488 2,144
Government 101,981 0 101,981 227,532 0 227,532
Investment
Intermediate Bond 56,220 0 56,220 264,949 0 264,949
Short Fixed-Income 538,933 0 538,933 1,212,008 0 1,212,008
High Income 101,981 0 101,981 1,374,438 0 1,374,438
Municipal
Intermediate
Municipal Income 38,552 0 38,552 138,512 0 138,512
Short-Intermediate
Municipal Income N/A N/A N/A 11,446 0 11,446
New York Municipal Income
CLASS B DISTRIBUTION FEES
1994 1995
--- ----
Shareholder
Service Retained Shareholder Retained Total
Fund Fees by FDC Total Fees Service Fees by FDC Fees
---- ----------- --------- ---------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
Strategic Opportunities $7,964 $23,892 $31,856
Equity Income 16,215 54,580 70,795
Emerging Markets Income 3,215 9,771 12,986
High Yield 7,052 21,157 28,209
Strategic Income 2,155 6,465 8,620
Government Investment 817 2,449 3,266
Intermediate Bond 1,689 5,070 6,759
High Income Municipal 3,238 9,713 12,951
Intermediate Municipal 965 2,893 3,858
Income
New York Municipal Income
Overseas
Global Resources
</TABLE>
Under each Plan, if the payment of management fees by the funds to FMR
is deemed to be indirect financing by the funds of the distribution of
their shares, such payment is authorized by the Plans. Each Plan
specifically recognizes that FMR may use its management fee revenue, as
well as its past profits or its other resources to reimburse FDC for
expenses incurred in connection with the distribution of the applicable
219
<PAGE>
class, including payments made to third parties that assist in selling
shares of the applicable class of each fund or to third parties, including
banks, that render shareholder support services. The Trustees have
authorized such payments for all classes of the funds.
No third party payments were made by FMR in the fiscal years ended
1995, 1994, and 1993 under the Institutional Class Plan on behalf of the
funds.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of each Plan, and have
determined that there is a reasonable likelihood that the Plan will
benefit the applicable class of each fund and its shareholders. In
particular, the Trustees noted that the Institutional Class Plans do not
authorize payments by the Institutional Class of each fund other than
those made to FMR under its management contract with the fund. To the
extent that each Plan gives FMR and FDC greater flexibility in connection
with the distribution of shares of the applicable class of each fund,
additional sales of fund shares may result. Furthermore, certain
shareholder support services may be provided more effectively under the
Plans by local entities with whom shareholders have other relationships.
The Class A and Class B Plans do not provide for specific payments by
the applicable class of any of the expenses of FDC, or obligate FDC or FMR
to perform any specific type or level of distribution activities or incur
any specific level of expense in connection with distribution activities.
After payments by FDC for advertising, marketing and distribution, and
payments to third parties, the amounts remaining, if any, may be used as
FDC may elect.
The Plans were approved by the shareholders of each class on the dates
shown in the table below:
220
<PAGE>
<TABLE>
<CAPTION>
Date of Shareholder Approval
-------------------------
Fund Class A Class B Institutional
---- ------- ------- -------------
<S> <C> <C> <C>
Overseas 10/90 06/26/94 06/26/95
Equity Growth 09/25/86 N/A 09/25/86
Global Resources 12/01/94 06/26/95 06/26/95
Growth Opportunities 01/01/95 N/A 06/26/95
Strategic Opportunities 08/25/87 06/26/94 06/26/95
Equity Income 07/23/86 06/26/94 07/23/86
Income & Growth 01/01/95 N/A 06/26/95
Emerging Markets Income 02/10/94 05/26/95 06/26/95
High Yield 01/01/95 01/01/95 06/26/95
Strategic Income 10/14/94 10/14/94 06/26/95
Government Investment 01/01/95 01/01/95 12/23/87
Intermediate Bond 01/01/95 01/01/95 12/23/87
Short Fixed-Income 01/01/95 N/A 06/26/95
High Income Municipal 12/01/94 12/01/94 06/26/95
Intermediate Municipal Income 07/01/95 06/26/94 10/21/87
Short-Intermediate Municipal Income 07/01/95 N/A 06/26/95
New York Municipal Income
California Municipal Income
Mid Cap
Large Cap
</TABLE>
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 funds 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.
221
<PAGE>
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments under
the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
DESCRIPTION OF THE TRUSTS
-------------------------
Trust Organization. Equity Growth, Mid Cap, and Large Cap are funds of
Fidelity Advisor Series I, an open-end management investment company
organized as a Massachusetts business trust by a Declaration of Trust
dated June 24, 1983, as amended and restated July 18, 1991, and as
supplemented April 15, 1993. On July 18, 1991, the name was changed from
Equity Growth to Fidelity Broad Street Trust. On April 15, 1993, its name
was changed by an amendment to the Declaration of Trust from Fidelity
Broad Street Trust to Fidelity Advisor Series I.
Short Fixed-Income Fund, Government Investment Fund, High Yield Fund,
Growth Opportunities Fund, and Income & Growth Fund are funds of Fidelity
Advisor Series II, an open-end management investment company organized as
a Massachusetts business trust by a Declaration of Trust dated April 24,
1986. On April 7, 1993, the Board of Trustees voted to change the name of
the trust from Fidelity Diversified Trust to Fidelity Advisor Series II.
Equity Income Fund is a fund of Fidelity Advisor Series III, an
open-end management investment company organized as a Massachusetts
business trust by a Declaration of Trust dated May 17, 1982. On January
29, 1986, the name was changed from Equity Portfolio: Income to Fidelity
Franklin Street Trust. On April 15, 1993 the trust's name was again
changed to Fidelity Advisor Series III.
Intermediate Bond Fund is a fund of Fidelity Advisor Series IV, an
open-end management investment company organized as a Massachusetts
business trust by a Declaration of Trust dated May 6, 1983. On January 29,
1992 the name of the trust was changed from Income Portfolios to Fidelity
Income Trust, and on April 15, 1993, the Board of Trustees voted to change
the trust's name to Fidelity Advisor Series IV. An amended and restated
Declaration of Trust, dated March 16, 1995, was filed on April 12, 1995.
Global Resources Fund, High Income Municipal Fund, California
Municipal Income, and New York Municipal Income are funds of Fidelity
Advisor Series V, an open-end management investment company organized as a
Massachusetts business trust by a Declaration of Trust dated April 23,
1986, as amended and restated July 18, 1991, and as supplemented April 15,
1993. On July 18, 1991, the Board of Trustees voted to change the name of
the trust from Plymouth Investment Series to Fidelity Investment Series,
and on April 15, 1993, the Board voted to change the trust's name to
Fidelity Advisor Series V. An amended and restated Declaration of Trust
dated March 16, 1995 was filed on April 12, 1995.
222
<PAGE>
Short-Intermediate Municipal Income Fund and Intermediate Municipal
Income Fund are funds of Fidelity Advisor Series VI, an open-end
management investment company organized as a Massachusetts business trust
by a Declaration of Trust dated June 1, 1983, as amended and restated May
5, 1993. On January 29, 1992, the name of the trust was changed from
Tax-Exempt Funds to Fidelity Oliver Street Trust and on April 15, 1993 the
Board of Trustees voted to change the name of the trust to Fidelity
Advisor Series VI.
Overseas Fund is a fund of Fidelity Advisor Series VII, an open-end
management investment company organized as a Massachusetts business trust
by a Declaration of Trust dated March 21, 1980 as amended and restated
July 18, 1991 and as supplemented April 15, 1993. On July 18, 1991, the
Board of Trustees voted to change the name of the trust from Plymouth
Securities Trust to Fidelity Securities Trust, and on April 15, 1993 the
Board of Trustees voted to change the name of the trust to Advisor Series
VII.
Strategic Opportunities Fund, Strategic Income Fund, and Emerging
Markets Income Fund are funds of Fidelity Advisor Series VIII, an open-end
management investment company organized as a Massachusetts business trust
by a Declaration of Trust dated September 23, 1983, as amended and
restated October 1, 1986 and as supplemented November 29, 1990. On April
15, 1993 the name of the trust was changed from Fidelity Special
Situations Fund to Fidelity Advisor Series VIII.
Each Declaration of Trust permits the Trustees to create additional
funds.
In the event that FMR ceases to be the investment adviser to a fund,
the right of the trust or fund to use the identifying name "Fidelity" may
be withdrawn.
The assets of each 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 liabilities of their respective trusts. Expenses with respect to
each trust are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of each 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 of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
223
<PAGE>
Shareholder and Trustee Liability. Each trust is an entity of the type
commonly known as "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. Each 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 its Trustees shall include a provision limiting
the obligations created thereby to the trust and its assets. Each
Declaration of Trust provides for indemnification out of each fund's
property of any shareholder held personally liable for the obligations of
the fund. Each Declaration of Trust also provides that its funds 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 the 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.
Each 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. Claims asserted
against one class of shares may subject the holders of another class of
shares to certain liabilities.
Voting Rights. Each fund's capital consists of shares of beneficial
interest. The shares have no preemptive rights, and Class A and
Institutional Class shares have no conversion rights; the voting and
dividend rights, the conversion rights of Class B shares, the right of
redemption, and the privilege of exchange are described in the Prospectus.
Shareholders of Global Resources, Growth Opportunities, Equity Income,
Income & Growth, High Yield, High Income Municipal, Government Investment,
Intermediate Bond, Intermediate Municipal Income, California Municipal
Income, New York Municipal Income, Short Fixed-Income, and
Short-Intermediate Municipal Income receive one vote for each dollar of
net asset value owned. Shares are fully paid and nonassessable, except as
set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of a trust, a fund, or class of a
fund may, as set forth in the Declaration of Trust, call meetings of the
trust, fund or class, as applicable, for any purpose related to the trust,
fund, or class, as the case may be, including, in the case of meeting of
an entire trust, the purpose of voting on removal of one or more Trustees.
Each trust or 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 outstanding shares of the funds of Advisor Series I, VI,
VII, and VIII, or, as determined by the current value of each
224
<PAGE>
shareholder's investment in the funds of Advisor Series II, III, IV, and
V. If not so terminated, each trust and funds will continue indefinitely.
Global Resources, Growth Opportunities, Income & Growth, Emerging Markets
Income, Strategic Opportunities, High Yield, Strategic Income, Government
Investment, Intermediate Bond, Short Fixed-Income, High Income Municipal,
California Municipal Income, New York Municipal Income, Mid Cap, Large
Cap, and Intermediate Municipal Income may invest all of their assets in
another investment company.
Custodians. Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, is custodian of the assets of Global Resources, Growth
Opportunities, and Strategic Opportunities. The Chase Manhattan Bank,
N.A., 1211 Avenue of the Americas, New York, New York, is custodian of the
assets of Overseas, Equity Growth, Equity Income, Income & Growth, and
Emerging Markets Income. The Bank of New York, 110 Washington Street, New
York, New York, is custodian of the assets of High Yield, Strategic
Income, Government Investment, Intermediate Bond, and Short Fixed-Income.
UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri, is custodian of
the assets of High Income Municipal, Intermediate Municipal Income,
California Municipal Income, New York Municipal Income, and
Short-Intermediate Municipal Income. The custodian is responsible for the
safekeeping of the fund's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the
investment policies of the fund or in deciding which securities are
purchased or sold by a fund. Chemical Bank, headquartered in New York,
may also serve as a special purpose custodian of certain assets in
connection with pooled 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 of the
funds advised by FMR. The Boston branch of the custodian bank of Global
Resources, Growth Opportunities, and Strategic Opportunities 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 independent
accountant for Mid Cap, Equity Growth, Global Resources, Growth
Opportunities, Strategic Opportunities, Large Cap, Equity Income, Income &
Growth, Emerging Markets Income, High Yield, New York Municipal Income,
California Municipal Income, Strategic Income, Government Investment,
Intermediate Bond, Short Fixed-Income, High Income Municipal, Intermediate
Municipal Income, and Short-Intermediate Municipal Income.
_____________________, serves as the independent accountant for Overseas.
225
<PAGE>
The auditor examines financial statements for each fund and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal period ended October 31, November 30, or December 31, 1995, as
appropriate, are included in the Annual Reports, which are separate
reports supplied with this SAI. Each fund's financial statements and
financial highlights are incorporated herein by reference.
Appendix
Dollar-weighted average maturity is derived by multiplying the value
of each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call, refunding,
or redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and
is pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds. Also, the maturities of mortgage-backed
securities and some asset-backed securities, such as collateralized
mortgage obligations, are determined on a weighted average life basis,
which is the average time for principal to be repaid. For a mortgage
security, this average time is calculated by estimating the timing of
principal payments, including unscheduled prepayments, during the life of
the mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
226
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Audited Financial Statements and Financial Highlights included in the
Annual Report for Fidelity Advisor Series VII on behalf of Fidelity Advisor
Overseas Fund for the fiscal year ended October 31, 1995, will be filed by
subsequent amendment.
(b) Exhibits:
(1) (a) Amended and Restated Declaration of Trust dated October 12, 1987 is
incorporated herein by reference to Exhibit 1(c) to Post-Effective
Amendment No. 8.
(b) Amendment to the Fund's Declaration of Trust is incorporated
herein by reference to Exhibit 1(d) to Post-Effective Amendment No. 21.
(2) Bylaws of the Trust are incorporated herein by reference to Exhibit 1
of the Fund's Registration Statement filed March 21, 1980.
(3) None.
(4) Form of Share Certificate was electronically filed and is incorporated
herein by reference to Exhibit 4 to Post-Effective Amendment No. 29.
(5) (a) Management Contract between Fidelity Advisor Overseas Fund and
Fidelity Management & Research Co., dated January 1, 1993, was
electronically filed and is incorporated herein by reference to Exhibit
5(a) to Post-Effective Amendment No. 28.
(b) Sub-Advisory Agreement for Fidelity Advisor Overseas Fund between
Fidelity Management & Research Co. and Fidelity Management & Research
(U.K.) Inc., dated January 1, 1993, was electronically filed and is
incorporated herein by reference to Exhibit 5(b) to Post-Effective
Amendment No. 28.
(c) Sub-Advisory Agreement for Fidelity Advisor Overseas Fund between
Fidelity Management and Research Co. and Fidelity Management & Research
(Far East) Inc., dated January 1, 1993, was electronically filed and is
incorporated herein by reference to Exhibit 5(c) to Post-Effective
Amendment No. 28.
(d) Sub-Advisory Agreement for Fidelity Advisor Overseas Fund between
Fidelity International Investment Advisors (U.K.) Limited and Fidelity
International Investment Advisors, dated January 1, 1993, was
electronically filed and is incorporated herein by reference to Exhibit
5(d) to Post-Effective Amendment No. 28.
(e) Sub-Advisory Agreement for Fidelity Advisor Overseas Fund between
Fidelity International Investment Advisors and Fidelity Management &
Research Co., dated January 1, 1993, was electronically filed and is
incorporated herein by reference to Exhibit 5(e) to Post-Effective
Amendment No. 28.
(6)(a) General Distribution Agreement between Plymouth Europe Portfolio and
Fidelity Distributors Corporation was electronically filed and is
incorporated herein by reference to Exhibit 6(a) to Post-Effective
Amendment No. 29.
(b) Form of Bank Agency Agreement (most recently revised May 1994) was
electronically filed and is incorporated herein by reference to Exhibit
6(b) to Post-Effective Amendment No. 28.
(c) Form of Selling Dealer Agreement (most recently revised May 1994) was
electronically filed and is incorporated herein by reference to Exhibit
6(c) to Post-Effective Amendment No. 28.
(d) Form of Selling Dealer Agreement for Bank Related Transactions (most
recently revised June 1994) was electronically filed and is incorporated
herein by reference to Exhibit 6(d) to Post-Effective Amendment No. 28.
(e) Amendments to the General Distribution Agreement were electronically
filed and are incorporated herein by reference to Exhibit 6(e) to
Post-Effective Amendment No. 29.
(7) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, effective November 1, 1989, was electronically filed and
is incorporated herein by reference to Exhibit 7 to Union Street Trust's
Post-Effective Amendment No. 87
(8)(a) Custodian Agreement, Appendix A, and Appendix C, dated August 1,
1994, between The Chase Manhattan Bank, N.A. and the Registrant is
incorporated herein by reference to Exhibit 8(a) to Fidelity Investment
Trust's Post-Effective Amendment No. 59 (File No. 2-90649).
(b) Appendix B, dated April 20, 1995, to the Custodian Agreement, dated
August 1, 1994, between The Chase Manhattan Bank, N.A. and the Registrant
is incorporated herein by reference to Exhibit 8(b) to Fidelity Investment
Trust's Post-Effective Amendment No. 59 (File No. 2-90649).
(9) Not applicable.
(10) Not applicable.
(11) Not applicable.
(12) None.
(13) Not applicable.
(14)(a) Retirement Plan for Fidelity Individual Retirement Accounts, as
currently in effect, was electronically filed and is incorporated herein by
reference to Exhibit 14(a) to Union Street Trust's Post-Effective Amendment
No. 87.
(b) Retirement Plan for Portfolio Advisory Services Individual Retirement
Account, was electronically filed and is incorporated herein by reference
to Exhibit 14(i) to Union Street Trust's Post-Effective Amendment No. 87.
(c) Retirement Plan for NFSC Individual Retirement Account, as currently in
effect, was electronically filed and is incorporated herein by reference to
Exhibit 14(h) to Union Street Trust's Post-Effective Amendment No. 87.
(d) NFSC Defined Contribution Plan, as currently in effect, was
electronically filed and is incorporated herein by reference to Exhibit
14(k) to Union Street Trust's Post-Effective Amendment No. 87.
(e) Fidelity Institutional Individual Retirement Account Custodian
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(d) to Union Street Trust's Post-Effective
Amendment No. 87.
(f) Fidelity 403(b)(7) Individual Custodial Agreement, as currently in
effect, was electronically filed and is incorporated herein by reference to
Exhibit 14(j) to Union Street Trust's Post-Effective Amendment No. 87.
(g) Fidelity 403(b) Custodial Agreement, as currently in effect, was
electronically filed and is incorporated herein by reference to Exhibit
14(e) to Union Street Trust's Post-Effective Amendment No. 87.
(h) The CORPORATEPlan for Retirement Profit Sharing/401k Plan, as currently
in effect, was electronically filed and is incorporated herein by reference
to Exhibit 14(l) to Union Street Trust's Post-Effective Amendment No. 87.
(i) The CORPORATEplan for Retirement Money Purchase Pension Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(m)
to Union Street Trust's Post-Effective Amendment No. 87.
(j) Form for Fidelity Advisor Funds Individual Retirement Account
Custodial Agreement Disclosure Statement in effect as of January 1, 1994
was filed electronically and is incorporated herein by reference to Exhibit
14(a) to Post-Effective Amendment No. 23.
(k) Plymouth Investments Defined Contribution Retirement Plan and Trust
Agreement as currently in effect is incorporated herein by reference to
Exhibit 14(b) to Post-Effective Amendment No. 15.
(l) Plymouth Investments Fidelity Master Plan for Savings and Investments:
Plan and Trust Document as currently in effect is incorporated herein by
reference to Exhibit 14(c) to Post-Effective Amendment No. 15.
(m) Plymouth Investments Fidelity Master Plan for Savings and Investments:
Summary of Plan Description as currently in effect is incorporated herein
by reference to Exhibit 14(d) to Post-Effective Amendment No. 15.
(n) (n) Plymouth Investments Fidelity Master Plan for Savings and
Investments: Adoption Agreement as currently in effect is incorporated
herein by reference to Exhibit 14(e) to Post-Effective Amendment No. 15.
(o) 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) to Fidelity Commonwealth Trust's(File
No. 2-52322) Post-Effective Amendment No. 57.
(p) Plymouth Investments Defined Contribution Retirement Plan and Trust
Agreement, as currently in effect, is incorporated herein by reference to
Exhibit 14(o) to Fidelity Commonwealth Trust's(File No. 2-52322)
Post-Effective Amendment No. 57.
(15)(a) 12b-1 Plan for Plymouth Europe Portfolio is incorporated herein by
reference to Exhibit 15(a) to Post Effective Amendment to No. 23.
(b) 12b-1 Distribution and Service Plan, dated June 16, 1995, between
Fidelity Distributors Corporation and Fidelity Advisor Overseas Fund -
Class B, was electronically filed and is incorporated herein by reference
to Exhibit 15(b) to Post-Effective Amendment No. 29.
(c) 12b-1 Distribution and Service Plan, dated June 16, 1995, between
Fidelity Distributors Corporation and Fidelity Advisor Overseas Fund -
Institutional Class, was electronically filed and is incorporated herein by
reference to Exhibit 15(c) to Post-Effective Amendment No. 29.
(16)(a) Schedule for computation of performance quotations was
electronically filed and is incorporated herein by reference to Exhibit
16(a) to Post-Effective Amendment No. 29.
(b) Schedule of computation of the moving average calculation is
incorporated by reference to Exhibit 16(b) to Post-Effective Amendment No.
29.
(17) A Financial Data Schedule for the fund will be filed by subsequent
amendment.
(18) Rule 18f-3 Plan was electronically filed and is incorporated herein by
reference to Exhibit 18 to Post-Effective Amendment No. 29.
Item 25. Persons Controlled by or Under Common Control with Registrant
The Board of Trustees of the Registrant is the same as the boards of other
funds in the Fidelity family of funds, 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
December 11, 1995
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity Advisor Overseas Fund: Class A 15,503
Fidelity Advisor Overseas Fund: Class B 330
Fidelity Advisor Overseas Fund: Institutional Class 79
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.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
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 Executive Committee of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman of
the Board and a Director of FMR, FMR Corp., FMR Texas
Inc., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.; President
and Trustee of funds advised by FMR.
J. Gary Burkhead President of FMR; Managing Director of FMR Corp.;
President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.; Senior Vice
President and Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman and Director of FMR.
Robert Beckwitt Vice President of FMR and of funds advised by FMR.
David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.
Stephan Campbell Vice President of FMR (1993).
Dwight Churchill Vice President of FMR (1993).
William Danoff Vice President of FMR (1993) and of a fund advised by
FMR.
Scott DeSano Vice President of FMR (1993).
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Larry Domash Vice President of FMR (1993).
George Domolky Vice President of FMR (1993) and of a fund advised by
FMR.
Robert K. Duby Vice President of FMR.
Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.
Kathryn L. Eklund Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Daniel R. Frank Vice President of FMR and of funds advised by FMR.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Lawrence Greenberg Vice President of FMR (1993).
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Equity Division Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Richard Habermann Senior Vice President of FMR (1993).
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curtis Hollingsworth Vice President of FMR (1993).
Stephen P. Jonas Treasurer and Vice President of FMR (1993)); Treasurer of
FMR Texas Inc. (1993), Fidelity Management & Research
(U.K.) Inc. (1993), and Fidelity Management & Research
(Far East) Inc. (1993).
David B. Jones Vice President of FMR (1993).
Steven Kaye Vice President of FMR (1993) and of a fund advised by
FMR.
Frank Knox Vice President of FMR (1993).
Robert A. Lawrence Senior Vice President of FMR (1993); High Income
Division Leader.
Alan Leifer Vice President of FMR and of a fund advised by FMR.
Harris Leviton Vice President of FMR (1993) and of a fund advised by
FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Malcolm W. MacNaught III Vice President of FMR (1993).
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Andrew Offit Vice President of FMR (1993).
Judy Pagliuca Vice President of FMR (1993).
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Lee Sandwen Vice President of FMR (1993).
Patricia A. Satterthwaite Vice President of FMR (1993) and of a fund advised by
FMR.
Thomas T. Soviero Vice President of FMR (1993).
Richard Spillane Vice President of FMR; Senior Vice President and Director
of Operations and Compliance of FMR U.K. (1993).
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised
by FMR.
Gary L. Swayze Vice President of FMR and of funds advised by FMR;
Tax-Free Fixed-Income Group Leader.
Thomas Sweeney Vice President of FMR (1993).
Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised
by FMR.
Joel Tillinghast Vice President of FMR (1993) and of a fund advised by
FMR.
Robert Tucket Vice President of FMR (1993).
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR; Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Arthur S. Loring Senior Vice President (1993), Clerk, and General Counsel
of FMR; Vice President, Legal of FMR Corp.; Secretary of
funds advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
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.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR U.K.; Chairman of the
Executive Committee of FMR; Chief Executive Officer of FMR
Corp.; Chairman of the Board and a Director of FMR, FMR
Corp., FMR Texas Inc., and Fidelity Management & Research
(Far East) Inc.; President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR U.K.; President of FMR;
Managing Director of FMR Corp.; President and a Director of
FMR Texas Inc. and Fidelity Management & Research (Far
East) Inc.; Senior Vice President and Trustee of funds advised
by FMR.
Richard C. Habermann Senior Vice President of FMR U.K.; Senior Vice President of
Fidelity Management & Research (Far East) Inc.; Director of
Worldwide Research of FMR.
Richard Spillane Senior Vice President and Director of Operations and
Compliance of FMR U.K. (1993).
Stephen P. Jonas Treasurer of FMR U.K. (1993), Fidelity Management &
Research (Far East) Inc. (1993), and FMR Texas Inc. (1993);
Treasurer and Vice President of FMR (1993).
David Weinstein Clerk of FMR U.K.; Clerk of Fidelity Management & Research
(Far East) Inc.; Secretary of FMR Texas Inc.
</TABLE>
(3) FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC. (FMR Far East)
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.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Far East; Chairman of the
Executive Committee of FMR; Chief Executive Officer of
FMR Corp.; Chairman of the Board and a Director of
FMR, FMR Corp., FMR Texas Inc. and Fidelity
Management & Research (U.K.) Inc.; President and
Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Far East; President of
FMR; Managing Director of FMR Corp.; President and a
Director of FMR Texas Inc. and Fidelity Management &
Research (U.K.) Inc.; Senior Vice President and Trustee
of funds advised by FMR.
Richard C. Habermann Senior Vice President of FMR Far East; Senior Vice
President of Fidelity Management & Research (U.K.)
Inc.; Director of Worldwide Research of FMR.
William R. Ebsworth Vice President of FMR Far East.
Bill Wilder Vice President of FMR Far East (1993).
Stephen P. Jonas Treasurer of FMR Far East (1993), Fidelity Management
& Research (U.K.) Inc. (1993), and FMR Texas Inc.
(1993); Treasurer and Vice President of FMR (1993).
David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity Management &
Research (U.K.) Inc.; Secretary of FMR Texas Inc.
</TABLE>
(5) FIDELITY INTERNATIONAL INVESTMENT ADVISORS
Pembroke Hall, 42 Crow Lane, Pembroke, 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.
<TABLE>
<CAPTION>
<S> <C>
Anthony J. Bolton Director of FIIA and FIIAL (U.K.); Director of Fidelity
International Management Holdings Limited.
Martin P. Cambridge Director of FIIA and FIIAL (U.K.); Chief Financial
Officer of Fidelity International Ltd. and Fidelity
Investment Services Ltd.
Charles T. Collis Director of FIIA; Partner in Conyers, Dill & Pearman,
Hamilton, Bermuda; Secretary to many companies in the
Fidelity international group of companies.
William R. Ebsworth Director of FIIA.
Brett P. Goodin Director, Vice President, and Secretary of FIIA (1994).
Terrence V. Richards Assistant Secretary of FIIA (1994).
David J. Saul Director and President of FIIA; Director of Fidelity
International Limited.
</TABLE>
(6) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
27-28 Lovat Lane, London, England
The directors and officers of Fidelity International Investment Advisors
(U.K.) Limited (FIIAL (U.K.)) have held, during the past two fiscal years,
the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Anthony J. Bolton Director of FIIAL (U.K.) and FIIA; Director of Fidelity
International Management Holdings Limited.
Martin P. Cambridge Director and Secretary of FIIAL (U.K.) and FIIA; Chief
Financial Officer of Fidelity Investments Japan Limited,
Fidelity International Ltd., and Fidelity Investment
Services Ltd.
C. Bruce Johnstone Director of FIIAL (U.K.).
</TABLE>e
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
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer None
Thomas W. Littauer Senior Vice President None
Arthur S. Loring Vice President and Clerk Secretary
* 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
Co., 82 Devonshire Street, Boston, MA 02109, or the fund's custodian: The
Chase Manhattan Bank, 1211 Avenue of the Americas, New York, N.Y.
Item 31. Management Services
Not applicable
Item 32. Undertakings
The Registrant, on behalf of Fidelity Advisor Overseas Fund, undertakes to
deliver to each person who has received the prospectus or annual or
semiannual financial report for a fund in an electronic format, upon his or
her request and without charge, a paper copy of the prospectus or annual or
semiannual report for the fund.
The Registrant on behalf of Fidelity Advisor Overseas Fund, provided the
information required by Item 5A is contained in the annual report,
undertakes to furnish 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. 30 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, and the Commonwealth of Massachusetts, on the 15th day of December,
1995.
Advisor Series VII
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 December 15, 1995
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Kenneth A. Rathgeber Treasurer December 15, 1995
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee December 15, 1995
J. Gary Burkhead
/s/Ralph F. Cox * Trustee December 15, 1995
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee December 15, 1995
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee December 15, 1995
Richard J. Flynn
/s/E. Bradley Jones * Trustee December 15, 1995
E. Bradley Jones
/s/Donald J. Kirk * Trustee December 15, 1995
Donald J. Kirk
/s/Peter S. Lynch * Trustee December 15, 1995
Peter S. Lynch
/s/Edward H. Malone * Trustee December 15, 1995
Edward H. Malone
/s/Marvin L. Mann * Trustee December 15, 1995
Marvin L. Mann
/s/Gerald C. McDonough* Trustee December 15, 1995
Gerald C. McDonough
/s/Thomas R. Williams * Trustee December 15, 1995
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated December 15, 1994 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 15, 1994 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 Advisor Annuity Fund Fidelity Institutional Trust
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series II Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Exchange Fund Fund
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as President and Board Member (collectively, the "Funds"), hereby
severally constitute and appoint J. Gary Burkhead, my true and lawful
attorney-in-fact, with full power of substitution, and with full power to
sign for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, 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 attorney-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and 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.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d December 15, 1994
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 Advisor Annuity Fund Fidelity Income Fund
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Djinis, 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 Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, 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 deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this fifteenth day of December, 1994.
/s/Edward C. Johnson 3d /s/Donald J. Kirk
Edward C. Johnson 3d Donald J. Kirk
/s/J. Gary Burkhead /s/Peter S. Lynch
J. Gary Burkhead Peter S. Lynch
/s/Ralph F. Cox /s/Marvin L. Mann
Ralph F. Cox Marvin L. Mann
/s/Phyllis Burke Davis /s/Edward H. Malone
Phyllis Burke Davis Edward H. Malone
/s/Richard J. Flynn /s/Gerald C. McDonough
Richard J. Flynn Gerald C. McDonough
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
