FIDELITY EXCHANGE FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PART A SECTION
1 *
2 *
3 Financial Statements
4 General Description of the Registrant; Part B Section,
Item 13: Investment Objectives and Policies
5 Management of the Fund; Part B Section, Item 16:
Investment Advisory and Other Services
5 *
5A *
6 Capital Stock and Other Securities
7 Purchase of Securities Being Offered
8 Redemption or Repurchase of Shares
9 *
* Not Applicable
FIDELITY EXCHANGE FUND
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER PART B SECTION
10, 11 *
12 *
13 Investment Objectives and Policies; Brokerage
Allocation and Other Practices
14 Management of the Fund
15 Control Persons and Principal Holders of Securities
16 Investment Advisory and Other Services
17 Brokerage Allocation and Other Practices
18 Part A Section, Item 6: Capital Stock and Other
Securities
19 Purchase, Redemption and Pricing of Securities
Being Offered
20 Part A Section, Item 6: Capital Stock and Other
Securities
21 *
22 *
23 Financial Statements
* Not Applicable
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 9
File No. 811-2614
Fidelity Exchange Fund
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (617) 563-7000
Eric D. Roiter , Secretary
82 Devonshire Street,
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
PART A: INFORMATION REQUIRED IN PROSPECTUS
ITEM 1. COVER PAGE. Not applicable.
ITEM 2. SYNOPSIS. Not applicable.
ITEM 3. CONDENSED FINANCIAL INFORMATION. Per-Share Data in Financial
Statements.
ITEM 4. GENERAL DESCRIPTION OF THE REGISTRANT.
FIDELITY EXCHANGE FUND is a diversified mutual fund of Fidelity
Exchange Fund, an open-end management investment company organized as
a Massachusetts business trust on December 31, 1984.
The fund seeks long-term growth of capital. This objective may not
be changed without a vote of the majority of the fund's voting
securities as defined by the 1940 Act. The fund seeks to accomplish
its objective by acquiring a diversified portfolio of equity
securities, such as common stocks and securities convertible into
common stocks, and by remaining substantially fully invested in equity
securities, except for cash and short-term debt obligations to meet
current and anticipated cash needs. The fund believes that over a
period of time market prices and dividend increases will generally
follow increases in asset values and earnings. Thus the fund expects
to receive moderate income over time. It is probable, however, that
the securities acquired by the fund will have relatively low dividends
at the time of acquisition. The fund has the flexibility to pursue
its objective through domestic or foreign equity securities.
Diversification, or the spreading of risk, is basic to a sound,
well-rounded investment program. The fund's manager, Fidelity
Management & Research Co. (FMR), seeks to diversify the fund's
investments among individual companies. It is also the fund's policy
not to concentrate its assets in any single industry. The emphasis on
these policies in the management of the fund's portfolio, however,
cannot eliminate the market risk inherent in any portfolio of equity
securities.
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 100% of total assets, the fund may not
purchase more than 10% of the outstanding voting securities of a
single issuer.
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 , economic , or
regulatory conditions in foreign countries ; fluctuations in
foreign currencies ; withholding or other taxes ; trading,
settlement, custodial, and other operational risks ; and the
potentially less stringent investor protection and disclosure
standards of foreign markets. Additionally, governmental issuers of
foreign debt securities may be unwilling to pay interest and repay
principal when due and may require that the conditions for payment be
renegotiated. All of these factors can make foreign investments,
especially those in emerging markets, more volatile and
potentially less liquid than U.S. investments.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. The 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 the fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with the fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of
the fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
The fund will not hedge more than 25% of its total assets by selling
futures, buying puts and writing calls under normal conditions. In
addition, the fund will not buy futures or write puts whose underlying
value exceeds 25% of its total assets, and will not buy calls with a
value exceeding 5% of its total assets. The fund's policies regarding
futures contracts and options are not fundamental and may be changed
at any time without shareholder approval.
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.
RESTRICTIONS: With respect to 100% of its total assets, the fund may
not purchase a security if, as a result, more than 5% would be
invested in the securities of any issuer. This limitation does not
apply to U.S. Government securities.
The fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If the fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If the fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 33 1/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering the fund's securities. The fund may also lend
money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 33 1/3% of the
fund's total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS.
The fund seeks long-term growth of capital.
With respect to 100% of its total assets, the fund may not purchase a
security if, as a result, more than 5% would be invested in the
securities of any issuer and may not purchase more than 10% of the
outstanding voting securities of a single issuer.
The fund may not invest more than 25% of its total assets in any one
industry.
The fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Loans, in the aggregate, may not exceed 33 1/3% of the fund's total
assets.
ITEM 5. MANAGEMENT OF THE FUND.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are
experienced executives who meet periodically throughout the
year to oversee the fund's activities, review contractual arrangements
with companies that provide services to the fund, and review the
fund's performance. The trustees serve as trustees for other
Fidelity funds. The majority of trustees are not otherwise
affiliated with Fidelity.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. As of February 28 , 199 8 ,
FMR advised funds having more than 36 million shareholder
accounts with a total value of more than $568 billion.
Timothy E. Heffernan is manager of Exchange, which he has managed
since June 1997. He also manages another Fidelity fund, as well as
limited partnerships and structured equity investments. Mr. Heffernan
joined Fidelity in 1984.
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.
Fidelity Service Company, Inc. (FSC), 82 Devonshire Street,
Boston, Massachusetts 02109, an affiliate of FMR, is transfer,
dividend disbursing, and shareholder servicing agent for the fund. In
the fiscal year ended December 1997, the fund paid FSC fees equal to
0.07% of its average net assets.
FMR Corp. is the ultimate parent company of FMR. 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.
A broker-dealer may use a portion of the commissions paid by the fund
to reduce the fund's custodian or transfer agent fees. FMR may use its
broker-dealer affiliates and other firms that sell fund shares to
carry out the fund's transactions, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
ITEM 5A. MANAGEMENT'S DISCUSSION OF PERFORMANCE. Not applicable.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. You are entitled to one vote for each share you own.
Shareholder inquiries may be made by writing Fidelity Investments, 82
Devonshire Street, Boston, Massachusetts 02109.
Fidelity Exchange Fund (the fund) is an open-end management
investment company originally organized as a limited partnership under
the Uniform Limited Partnership Act of Nebraska on December 22, 1975.
Effective as of the close of business on December 31, 1984, the fund
was reorganized as a Massachusetts business trust.
In the event that FMR ceases to be the investment adviser of the
fund, the right of the fund to use the identifying name "Fidelity" may
be withdrawn.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the
trust. The Declaration of Trust provides that the trust shall not have
any claim against shareholders except for the payment of the purchase
price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the trust or the Trustees shall
include a provision limiting the obligations created thereby to the
trust and its assets. The Declaration of Trust provides for
indemnification out of the fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of
Trust also provides that the fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which 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.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
VOTING RIGHTS. The fund's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the
voting and dividend rights, the right of redemption, and the privilege
of exchange are described in the Prospectus. Shares are fully paid and
nonassessable, except as set forth under the heading "Shareholder and
Trustee Liability" above. Shareholders representing 10% or more of the
trust or a fund may, as set forth in the Declaration of Trust, call
meetings of the trust or a fund for any purpose including the purpose
of voting on removal of one or more Trustees. The trust or any fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
outstanding shares of the trust or the fund. If not so terminated, the
trust and the fund will continue indefinitely.
DIVIDENDS, CAPITAL GAINS, AND TAXES .
The fund distributes substantially all of its net income and
capital gains to shareholders each year. Normally, dividends are
distributed in June and December. Capital gains are distributed in
January and February. Dividend and capital gain distributions are
payable in shares of the fund computed at net asset value or, at the
election of each shareholder, in cash.
DIVIDENDS. A portion of the fund's income may qualify for the
dividends-received deduction available to corporate shareholders to
the extent that the fund's income is derived from qualifying
dividends. Because the fund may 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 fund
that qualifies for the deduction generally will be less than 100%. The
fund will notify corporate shareholders annually of the percentage of
fund dividends that qualifies for the dividends-received deduction. A
portion of the fund's dividends derived from certain U.S. Government
securities 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. If the fund's distributions exceed its net investment
company taxable income during a taxable year, all or a portion of the
distributions made in the same taxable year would be recharacterized
as a return of capital to shareholders, thereby reducing each
shareholder's cost basis in the fund. Short-term capital gains are
distributed as dividend income. The fund will send each shareholder a
notice in January describing the tax status of dividends and capital
gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by
the fund on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains, regardless of the length
of time shareholders have held their shares. If a shareholder receives
a capital gain distribution on shares of the fund, and such shares are
held six months or less and are sold at a loss, the portion of the
loss equal to the amount of the capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by the fund are taxable to shareholders as dividends, not
as capital gains.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends
and interest paid with respect to foreign securities. Foreign
governments may also impose taxes on other payments or gains with
respect to foreign securities. Because the fund does not currently
anticipate that securities of foreign issuers will constitute more
than 50% of its total assets at the end of its fiscal year,
shareholders should not expect to claim a foreign tax credit or
deduction on their federal income tax returns with respect to foreign
taxes withheld.
TAX STATUS OF THE FUND. The fund intends to continue 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, the fund intends to distribute substantially all
of its net investment company taxable income on a fiscal year basis,
and intends to comply with other tax rules applicable to regulated
investment companies.
REDEMPTIONS. Shareholders have the right to redeem all or any
portion of their shares, and will ordinarily receive portfolio
securities of the fund in satisfaction of the redemption price.
Generally speaking, a redemption is a taxable transaction. An
individual shareholder will be taxed on the excess of the cash plus
the fair market value of the portfolio securities received over his
basis in the fund shares surrendered. If the cash plus the fair
market value of the portfolio securities received on redemption do not
exceed the basis of the fund shares redeemed, the shareholder should
realize a capital loss. The basis in the hands of the shareholder of
the portfolio securities received on redemption of the fund shares is
the fair market value of such securities at the time of redemption.
TAX RETURNS AND TAX INFORMATION. Following the close of each fiscal
year the fund will supply each shareholder with information regarding
the fund's activities for the year sufficient to allow him to complete
his Federal income tax returns for such year. The fund's fiscal year
ends on December 31. The fund is required by Federal law to withhold
31% of reportable payments (which includes dividends, capital gain
distributions, and redemptions) paid to certain accounts whose owners
have not complied with IRS regulations.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Shares of the fund are not currently offered to the public.
Fidelity normally calculates the fund's net asset value
( NAV ) as of the close of business of the New York Stock
Exchange ( NYSE ) , normally 4 :00 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed
by adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
The fund's assets are valued primarily on the basis of market
quotations. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
on the basis of amortized cost. This method minimizes the effect of
changes in a security's market value. Foreign securities are
valued on the basis of quotations from the primary market in which
they are traded, and are translated from the local currency into U.S.
dollars using current exchange rates. In addition, 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 may be valued by a nother method that the Board of
Trustees believes accurately reflects fair value.
ITEM 8. REDEMPTION OR REPURCHASE OF SHARES.
Redemption requests must be made in writing. When you place an
order to sell shares, your shares will be sold at the next NAV
calculated after your order is received in proper form. Distribution
of the proceeds of a redemption will be made within seven days after
that date.
A request for redemption or repurchase shall be deemed received in
proper form if it is accompanied by certificates for the shares
(if certificates have been issued) and a stock power (whether or not
certificates have been issued) signed by the holder(s) of record
exactly as the shares are registered, with signature(s) guaranteed by
a bank, broker, dealer, credit union (if authorized under state law),
securities exchange, or saving association. The request shall specify
the number of shares to be redeemed and identify the investor's
account number. Further documentation may be required if the request
is made by a shareholder who is not an individual or by someone other
than the holder of record.
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 net asset value of the shares on redemption or repurchase may be
more or less than the initial offering price of the shares depending
upon the market value of the fund's portfolio securities at the time
of repurchase or redemption.
In order to limit the realization of capital gains from the sale of
portfolio securities to meet redemptions and repurchases of shares,
the fund intends to follow a policy of redeeming or repurchasing its
shares by the distribution of one or more portfolio securities in
kind, to the extent it is practicable to do so. For this purpose
portfolio securities distributed in kind shall be valued at their fair
value as determined for purposes of computing the redemption or
repurchase price. To the extent it is not practicable to redeem shares
by a redemption in kind, the fund will redeem or repurchase its shares
for cash. The securities which the fund will utilize in honoring
redemptions or repurchases in kind will tend to be those which the
fund believes are least likely to contribute to the realization of its
investment objective and will tend to be the lowest tax cost lots of
the security chosen.
The fund will not realize any capital gains for Federal income tax
purposes upon the distribution of portfolio securities in kind.
Shareholders who wish to sell securities distributed to them will
have to make their own arrangements for sale and will incur the
brokerage or other costs involved. Neither the fund nor FSC will
arrange for the sale on behalf of a shareholder of portfolio
securities distributed in kind. The fund will, however, arrange for
the delivery of the securities to a broker or dealer designated in
advance by the redeeming shareholder. Unless granted an exemption by
the SEC, the fund may be restricted in its ability to distribute
portfolio securities in satisfaction of a redemption by a shareholder
owning 5% or more of the fund's shares. If so requested by such a
redeeming shareholder, the shares would be redeemed for cash.
ITEM 9. PENDING LEGAL PROCEEDINGS. Not applicable.
PART B: INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
ITEM 10. COVER PAGE. Not applicable.
ITEM 11. TABLE OF CONTENTS. Not applicable.
ITEM 12. GENERAL INFORMATION AND HISTORY. Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
The following are the fund's fundamental investment limitations set
forth in their entirety. Unless otherwise specified, neither these
restrictions nor the fund's investment objective described above may
be changed without approval by a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the fund. The fund may
not:
(1) purchase or otherwise acquire the securities of any issuer (other
than obligations issued or guaranteed as to principal and interest by
the government of the United States or any agency or instrumentality
thereof) if, as a result thereof, (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 own 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) make short sales of securities, unless at all times while a short
position is open the fund owns or has the right to acquire the same
securities in an amount at least equal thereto; and provided that, for
this purpose, transactions in options and futures contracts shall not
constitute short sales of securities;
(4) purchase securities on margin, provided that payment of initial
or variation margin in connection with transactions in futures
contracts or options on futures contracts shall not constitute
purchasing securities on margin;
(5) 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 3 days to the
extent necessary to comply with the 33 1/3% limitation;
(6) act as an underwriter;
(7) knowingly purchase or otherwise acquire any securities which are
subject to legal or contractual restrictions on resale; but the fund
may acquire securities for which there is no readily available market,
if, as a result thereof, no more than 10% of the fund's total assets
(taken at current value) would thereby be invested in such securities;
(8) purchase or otherwise acquire the securities of any issuer (other
than obligations issued or guaranteed as to principal and interest by
the government of the United States or any agency or instrumentality
thereof) 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
one or more issuers having their principal business activities in the
same industry;
(9) buy or sell real estate;
(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) invest in the securities of other investment companies;
(13) purchase or otherwise acquire the securities of any issuer
(other than obligations issued or guaranteed as to principal and
interest by the government of the United States or any agency or
instrumentality thereof) 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 companies which, including predecessors, have a record
of less than 3 years' continuous operation;
(14) invest in oil, gas, or other mineral exploration or development
programs; or
(15) purchase or retain the securities of an issuer if the Trustees
of the fund, or the directors and officers of its Investment Adviser
who individually own more than 1/2 of 1% of such issuer's outstanding
securities, own, in the aggregate, more than 5% of such issuers
outstanding securities.
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 (5)). 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 lend assets other than
securities to other parties, except by 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. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)
Investment limitation (5) is construed in conformity with the 1940
Act, and, accordingly, "3 days" means three days exclusive of Sundays
and holidays. If the fund borrows money, its share price may be
subject to greater fluctuation until the borrowing is paid off. To
this extent, purchasing securities when borrowings are outstanding may
involve an element of leverage.
For the fund's limitations on futures and options transactions,
see the section entitled "Limitations on Futures and Options
Transactions" on page 16.
The following pages contain more detailed information about types
of instruments in which the fund may invest, strategies FMR may employ
in pursuit of the fund's investment objective, and a summary of
related risks. FMR may not buy all of these instruments or use all of
these techniques unless it believes that doing so will help the fund
achieve its goal.
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 1940 Act.
These transactions may involve 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 SEC, the Board of Trustees has
established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
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.
Foreign investments involve risk s relating to local political,
economic, regulatory 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 e xpropriation 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. In addition, 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.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter
(OTC) 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 m ay be less liquid and more
volatile than securities of comparable U.S. issuers. Foreign security
trading , settlement and custodial practices ( including
those involving securities settlement where fund assets may be
released prior to receipt of payment ) are often less developed than
those in U.S. markets, and may result in increased risk or
substantial delays in the event of a failed trade or the
insolvency of, or breach of duty by, a foreign
broker-dealer , securities depository or foreign subcustodian .
In addition, the costs associated with foreign
invest ments , including withholding taxes, brokerage commissions
and custodial costs, are generally higher than with U.S.
invest ments.
Foreign markets may offer less protection to investors than U.S.
markets. 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.
Adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less
overall governmental supervision and regulation of securities
exchanges, brokers, and listed companies than in the United States.
OTC markets tend to be less regulated than stock exchange markets and,
in certain countries, may be totally unregulated. Regulatory
enforcement may be influenced by economic or political concerns, and
investors may have difficulty enforcing their legal rights in foreign
countries.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject
to such restrictions.
American Depositary Receipts (ADRs) as well as other "hybrid" forms
of ADRs , including European Depositary Receipts (EDRs) and
Global Depositary Receipts (GDRs), are certificates evidencing
ownership of shares of a foreign issuer. These certificates are
issued by depository banks and generally trade on an established
market in the United States or elsewhere. The underlying shares are
held in trust by a custodian bank or similar financial institution in
the issuer's home country. The depository bank may not have physical
custody of the underlying securities at all times and may charge fees
for various services, including forwarding dividends and interest and
corporate actions. ADRs are alternative s 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.
The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be
significantly more volatile than those in more developed markets,
reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets
may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less
protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a
few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times.
FOREIGN CURRENCY TRANSACTIONS. A fund may conduct foreign
currency transactions on a spot (i.e., cash) or forward basis (i.e.,
by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not
charge a fee for such conversions, they do realize a profit based on
the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer.
Forward contracts are customized transactions that require a specific
amount of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange. A fund may use currency
forward contracts for any purpose consistent with its investment
objective.
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.
A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is
made or received. Entering into a forward contract for the purchase
or sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the
U.S. dollar price of the security. Forward contracts to purchase or
sell a foreign currency may also be used by a fund 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 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. 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 direct 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. 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, a
fund 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 currency values. Currency management strategies
may substantially change a fund's investment exposure to changes in
currency exchange rates and could result in losses to a fund if
currencies do not perform as FMR anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR hedges currency exposure through
proxy hedges, a fund could realize currency losses from both the hedge
and the security position if the two currencies do not move in tandem.
Similarly, if FMR increases a fund's exposure to a foreign currency
and that currency's value declines, a fund will realize a loss. There
is no assurance that FMR's use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FUND'S RIGHTS AS A SHAREHOLDER. The fund does not intend to direct
or administer the day-to-day operations of any company. 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 in which a fund may
engage , 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 a fund and the risk of
actual liability if a fund is involved in litigation. No
guarantee can be made, however, that litigation against a 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. The fund will
comply with guidelines established by the S EC with respect to
coverage of options and futures strategies by mutual funds and ,
if the guidelines so require , will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed.
Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the fund's assets could impede
portfolio management or the fund's ability to meet redemption requests
or other current obligations.
COMBINED POSITIONS involve purchas ing and
writ ing 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,
purchasing a put option and writ ing a call option on the
same underlying instrument would 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, to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match the fund's
current or anticipated investments exactly. A fund may invest
in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that
the options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in the fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the
buyer agrees to purchase a specified underlying instrument at a
specified future date. In selling a futures contract, the
seller agrees to sel l a specified underlying instrument at
a specified future date. The price at which the purchase and sale will
take place is fixed when the buyer and seller e nter 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 500 Index (S&P 500). 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. The 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. The fund intends to comply with Rule
4.5 under the Commodity Exchange Act, which limits the extent to which
the fund can commit assets to initial margin deposits and option
premiums.
In addition, the fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of
the fund's total assets would be hedged with futures and options under
normal conditions; (b) purchase futures contracts or write put options
if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would
exceed 25% of its total assets; or (c) purchase call options if, as a
result, the current value of option premiums for call options
purchased by the fund would exceed 5% of the fund's total assets.
These limitations do not apply to options attached to or acquired or
traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options.
The fund currently intends to treat the value of any over-the-counter
option it purchases as illiquid for the purposes of its investment
limitations. Similarly, for any over-the-counter option it writes,
the fund will treat as illiquid the value of the option's underlying
instrument; however, if the fund has a guaranteed right to close out
the option with a primary U.S. government securities dealer, only the
maximum price of the closing transaction minus the amount the option
is "in-the-money" will be considered illiquid.
The above limitations on the fund's investments in futures contracts
and options, and the fund's policies regarding futures contracts and
options discussed elsewhere, are not fundamental policies and 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 t o 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. Currency options m ay
also be purchase d or written 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 the fund against a price decline resulting from deterioration
in the issuer's creditworthiness. Because the value of a fund's
foreign-denominated investments changes in response to many factors
other than exchange rates, it may not be possible to match the amount
of currency options and futures to the value of the fund's investments
exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater
flexibility to tailor an option to its needs, OTC options generally
involve greater credit risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they
are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser 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 purchaser pays the current market price for
the option (known as the option premium). Options have various types
of underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may
terminate its position in a put option b y allowing it to expire
or by exercising the option. If the option is allowed to expire, the
purchaser will lose the entire premium. If the option is
exercised the purchaser completes the sale of the
underlying instrument at the strike price. A purchaser 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, 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. T he writer of a put
or call option takes the opposite side of the transaction
from the option's purchaser. In return for receipt of the premium, the
writer 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. The writer may seek to terminate
a position in a put option be fore exercise by closing
out the option in the secondary market at its current price. If the
secondary market is not liquid for a put option , however, the
writer 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. When writing an
option on a futures contract, the fund will be required to make margin
payments to an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer 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.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and
borrow money from, other funds advised by FMR or its affiliates. A
fund will lend through the program only when the returns are higher
than those available from an investment in repurchase agreements, and
will borrow through the program only when the costs are equal to or
lower than the cost of bank loans. 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. 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.
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. As protection against the risk that the original
seller will not fulfill its obligation, the securities are held in
a separate account 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), t he fund will
e ngage in repurchase agreement transactions with parties whose
creditworthiness has been reviewed and found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement,
a fund sells a security to another party, such as a bank
or broker-dealer, in return for cash and agrees to repurchase th at
security at an agreed-upon 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. The fund will enter into reverse
repurchase agreements w ith parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions
may increase fluctuations in the market value of fund 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 Securities and
Exchange Commission (SEC) Staff that a fund may engage in loan
transactions only under the following conditions: (1) the fund must
receive 100% collateral in the form of cash or cash equivalents (e.g.,
U.S. Treasury bills or notes) from the borrower; (2) the borrower must
increase the collateral whenever the market value of the securities
loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the fund must be able to
terminate the loan at any time; (4) the fund must receive reasonable
interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest, or other distributions
on the securities loaned and to any increase in market value; (5) the
fund may pay only reasonable custodian fees in connection with the
loan; and (6) the Board of Trustees must be able to vote proxies on
the securities loaned, either by terminating the loan or by entering
into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e.,
capital appreciation or depreciation).
ITEM 14. MANAGEMENT OF THE FUND.
The Trustees , Members of the Advisory Board, and executive
officers of the trust are listed below. Except as indicated, each
individual has held the office shown or other offices in the same
company for the last five years. All persons named as Trustees and
Members of the Advisory Board also serve in similar capacities for
other funds advised by FMR. The business address of each Trustee ,
Member of the Advisory Board, and officer who is an "interested
person" (as defined in the Investment Company Act of 1940) is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the
address of FMR. The business address of all the other Trustees is
Fidelity Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235.
Those Trustees who are "interested persons" by virtue of their
affiliation with either the trust or FMR are indicated by an asterisk
(*).
*EDWARD C. JOHNSON 3d ( 67 ), Trustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman
and a Director of Fidelity Investments Money Management, Inc.
(1998), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD ( 56 ), Member of the Advisory Board (1997),
is Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of
F idelity Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to
February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). Until March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources
Company (exploration and production). He is a Director of USA
Waste Services, Inc. (non-hazardous waste, 1993), CH2M Hill
Companies (engineering), Rio Grande, Inc. (oil and gas production),
and Daniel Industries (petroleum measurement equipment manufacturer).
In addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (66), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (5 4 ), Trustee (1997), is a consultant, author,
and lecturer (1993). Mr. Gates was Director of the Central
Intelligence Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates
served as Assistant to the President of the United States and Deputy
National Security Advisor. Mr. Gates is a Director of Lucas Varity
PLC (automotive components and diesel engines), Charles Stark
Draper Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for
International Policy and of the Endowment Association of the College
of William and Mary. In addition, he is a member of the National
Executive Board of the Boy Scouts of America.
E. BRADLEY JONES ( 70 ), Trustee. Prior to his retirement in
1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel
Company. He is a Director of TRW Inc. (original equipment and
replacement products) , Consolidated Rail Corporation,
Birmingham Steel Corporation, and RPM, Inc. (manufacturer of
chemical products), and he previously served as a Director of NACCO
Industries, Inc. (mining and manufacturing, 1985-1995) and Hyster-Yale
Materials Handling, Inc. (1985-1995), and Cleveland-Cliffs Inc
(mining), and as a Trustee of First Union Real Estate Investments. In
addition, he serves as a Trustee of the Cleveland Clinic Foundation,
where he has also been a member of the Executive Committee as well as
Chairman of the Board and President, a Trustee and member of the
Executive Committee of University School (Cleveland), and a Trustee of
Cleveland Clinic Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he
was Chairman of the Financial Accounting Standards Board. Mr. Kirk is
a Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Fund, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (5 4 ), Trustee, is Vice Chairman and Director of
FMR . 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).
I n addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989)
and Society for the Preservation of New England Antiquities, and
as an Overseer of the Museum of Fine Arts of Boston .
WILLIAM O. McCOY (6 4 ), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (6 8 ), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products) from 1987-1996 and Brush-Wellman Inc. (metal refining)
from 1983-1997.
MARVIN L. MANN (6 4 ), Trustee (1993), is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company
(chemicals, 1993) , Imation Corp. (imaging and information storage,
1997), and Infomart (marketing services, 1991), a Trammell Crow
Co. In addition, he serves as the Campaign Vice Chairman of the
Tri-State United Way (1993) and is a member of the University of
Alabama President's Cabinet.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (6 9 ), 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 C onAgra, Inc. (agricultural products),
Georgia Power Company (electric utility), National Life Insurance
Company of Vermont, American Software, Inc., and AppleSouth, Inc.
(restaurants, 1992).
RICHARD A. SPILLANE, JR. (47), is Vice President of certain Equity
Funds and Senior Vice President of FMR (1997). Since joining
Fidelity, Mr. Spillane is Chief Investment Officer for Fidelity
International, Limited. Prior to that position, Mr. Spillane served
as Director of Research.
ERIC D. ROITER (49), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
JOHN H. COSTELLO (5 1 ), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (5 1 ), Assistant Treasurer (1994), is an
employee of FMR (1994). Prior to becoming Assistant Treasurer of the
Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp.
(1993-1994) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
The following table sets forth information describing the
compensation of each Trustee and Member of the Advisory Board
of the fund for his or her services for the fiscal year ended December
31, 199 7 .
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate Total
Compensation Compensation
from from the Fund
Exchange FundA,B Complex*A
J. Gary Burkhead ** $ 0 $ 0
Ralph F. Cox 120 214,500
Phyllis Burke Davis 117 210,000
Robert M. Gates*** 101 176,000
Edward C. Johnson 3d ** 0 0
E. Bradley Jones 118 211,500
Donald J. Kirk 118 211,500
Peter S. Lynch ** 0 0
William O. McCoy**** 123 214,500
Gerald C. McDonough 148 264,500
Marvin L. Mann 120 214,500
Robert C. Pozen** 0 0
Thomas R. Williams 120 214,500
</TABLE>
* Information is for the calendar year ended December 31, 199 7
for 23 0 funds in the complex.
** Interested Trustees of the fund are compensated by FMR.
*** Mr. Gates was appointed to the Board of Trustees effective
March 1, 1997.
**** M r. McCoy was appointed to the Board of Trustees effective
January 1, 1997.
A Compensation figures include cash, amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the calendar year ended December 31, 1997, the Trustees
accrued required deferred compensation from the funds as follows:
Ralph F. Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$62,500; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation as follows: Ralph F. Cox, $53,699; Marvin L. Mann,
$53,699; and Thomas R. Williams, $62,462.
B Compensation figures include cash.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of February 28, 1998, the Trustees, Members of the Advisory Board,
and officers of the fund owned, in the aggregate, less than 1% of the
fund's total outstanding shares.
As of February 28, 1998, the following owned of record or
beneficially 5% or more of the fund's outstanding shares: Sidney A.
Swensrud, Boston, MA (5.13%).
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
FMR is the fund's manager pursuant to a management contract dated
November 1, 1988, which was approved by shareholders on October 18,
1988.
MANAGEMENT SERVICES. The fund employs FMR to furnish investment
advisory and other services. Under the terms of its management
contract with the fund, FMR acts as investment adviser and, subject to
the supervision of the Board of Trustees, directs the investments of
the fund in accordance with its investment objective, policies, and
limitations. FMR also provides the fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of the fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of the
fund or FMR performing services relating to research, statistical, and
investment activities. Under the terms of its management contract
with the fund, FMR also provides portfolio accounting and bookkeeping
services to the fund and determines the net asset value per share of
the fund.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of the fund. These services include
providing facilities for maintaining the fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with the fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws
and making necessary filings under state securities
laws; developing management and shareholder services for the fund;
and furnishing reports, evaluations, and analyses on a variety of
subjects to the Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee
payable to FMR and the fees payable to the transfer, dividend
disbursing, and shareholder servicing agent, and securities lending
agent , the fund pays all of its expenses that are not assumed by
those parties. The fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and
the fees of the custodian, auditor and non-interested Trustees.
T he fund's management contract further provides that the
fund will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders ; however , under the terms of the fund 's
transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. Other expenses paid
by the fund include interest, taxes, brokerage commissions, and the
fund's proportionate share of insurance premiums and Investment
Company Institute dues and the costs of registering shares under
federal securities laws and making necessary filings under state
securities laws . The fund is also liable for such non-recurring
expenses as may arise, including costs of any litigation to which the
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT FEE. For the services of FMR under the
management contract , the fund pays FMR a monthly
management fee at the rate of 1/20 of 1% per month which is
equivalent to an annual rate of 6/10 of 1% of its average net
assets throughout the month. The contract also provides that,
to the extent that the aggregate average net assets of the funds
advised by FMR exceed $4 billion in any month, the management fee
payable by the fund for that month on its portion of that excess
(determined on the basis of the fund's portion of the aggregate
average net assets) will be reduced by 10%. In case of initiation or
termination of this contract during any month, the fee for that month
will be reduced proportionately on the basis of the number of business
days during which it is in effect and the fee will be computed using
the average net assets for the business days the contract was in
effect. In addition, the applicability of the 10% fee reduction will
be determined on the basis of average net assets of the funds advised
by FMR over the same period.
For the fiscal years ended December 31, 1997, 1996, and
1995, the fund paid FMR management fees of $1,576,362,
$1,331,711, and $1,131,323, respectively, after
reductions of $173,615, $146,371, and $123,973, respectively.
FMR has agreed to reimburse the fund, in an amount not in excess
of the amount of the management fee payable by the fund, to the extent
that operating expenses (exclusive of interest, taxes, brokerage
commissions and extraordinary expenses) are in excess of an amount
equal to 1% of the average net assets of the fund for such fiscal
year.
All of the stock of FMR is owned by FMR Corp., its parent organized
in 1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the Investment Company Act of 1940 (1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
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.
The fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreement, FSC performs
transfer agency , dividend disbursing, and shareholder
servic es for the fund.
For providing transfer agent services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in the fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes. The asset-based fees are
subject to adjustment if the year-to-date total return of the S&P 500
exceeds a positive or negative 15%.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
For the fiscal years ended December 1997, 1996, and 1995, the fund
paid FSC transfer agent fees, including reimbursement for
out-of-pocket expenses, of $206,989, $187,355, and $137,642,
respectively.
The fund has also entered into a service agent agreement with FSC.
Under the terms of the agreement, FSC administers the fund's
securities lending program.
For administering the fund's securities lending program , FSC
receives fees based on the number and duration of individual
securities loans. For the fiscal years ended December
199 7 , 199 6 , and 199 5 , the fund paid no
se curities lending fees.
CUSTODIAN. Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, is custodian of the assets of the fund. The custodian
is responsible for the safekeeping of a fund's assets and the
appointment of any subcustodian banks and clearing agencies. The
custodian takes no part in determining the investment policies of a
fund or in deciding which securities are purchased or sold by a fund.
However, a fund may invest in obligations of the custodian and may
purchase securities from or sell securities to the custodian. The Bank
of New York and The Chase Manhattan Bank, each headquartered in New
York, also may serve as special purpose custodians of certain assets
in connection with repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. The Boston branch of the fund's custodian leases its
office space from an affiliate of FMR at a lease payment which, when
entered into, was consistent with prevailing market rates.
Transactions that have occurred to date include mortgages and personal
and general business loans. In the judgment of FMR, the terms and
conditions of those transactions were not influenced by existing or
potential custodial or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts, serves as the fund's independent accountant. The
auditor examines financial statements for the fund and provides other
audit, tax, and related services.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
All orders for the purchase or sale of portfolio securities are
placed on behalf of the fund by FMR pursuant to authority contained in
the management contract. 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, if applicable, 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 fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts;
and effect securities transactions and perform functions
incidental thereto (such as clearance and settlement).
The selection of such broker-dealers for transactions in equity
securities is generally made by FMR (to the extent possible
consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by FMR's investment staff
based upon the quality of research and execution services provided.
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering
investment management services to that fund or its other
clients, and conversely, such research provided by broker-dealers who
have executed transaction orders on behalf of other FMR clients may be
useful to FMR in carrying out its obligations to a fund. The
receipt of such research has not reduced FMR's normal independent
research activities; however, it enables FMR to avoid the additional
expenses that could be incurred if FMR tried to develop comparable
information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws,
the fund may pay a broker-dealer commissions for agency
transactions that are in excess of the amount of commissions charged
by other broker-dealers in recognition of their research and execution
services. In order to cause the fund to pay such higher commissions,
FMR must determine in good faith that such commissions are reasonable
in relation to the value of the brokerage and research services
provided by such executing broker-dealers, viewed in terms of a
particular transaction or FMR's overall responsibilities to
that fund or its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value
on the brokerage and research services provided, or to determine what
portion of the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the fund or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC) and Fidelity
Brokerage Services (Japan), LLC (FBS J ) , indirect
subsidiaries of FMR Corp., if the commissions are fair, reasonable,
and comparable to commissions charged by non-affiliated, qualified
brokerage firms for similar services. Prior to December 9, 1997,
FMR used research services provided by and placed agency transactions
with Fidelity Brokerage Services (FBS), an indirect subsidiary of FMR
Corp.
FMR may allocate brokerage transactions to broker-dealers
(including affiliates of FMR) who have entered into
arrangements with FMR under which the broker-dealer allocates a
portion of the commissions paid by a fund toward the
reduction of that fund's expenses. The transaction 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 NFSC to
execute portfolio transactions on national securities exchanges in
accordance with approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
The fund's policy will be to limit portfolio turnover to transactions
necessary to carry out its investment objective. It is not
anticipated that annual portfolio turnover will exceed 15%. The fund
will not invest for short-term profits and expects that portfolio
turnover will be kept at the level required by prudent long-term
investment practices. One of the factors which will be considered
before any portfolio securities are sold will be the resulting tax
liability; but the fund will make changes in its investments,
consistent with its investment objective, when such changes are
believed to be to the advantage of shareholders even though capital
gains will be realized.
For the fiscal periods ended December 31, 199 7 and 1996 , the
fund's portfolio turnover rates were 0% and 0%. The portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of
portfolio securities for the year by the monthly average current value
of the portfolio securities (excluding U.S. government securities and
all other securities whose maturities at the time of acquisition were
one year or less).
For the fiscal years ended December 199 7, 199 6, and
1995, the fund paid no brokerage commissions.
During the fiscal year ended December 199 7 , the fund paid no
brokerage commissions to firms that provided research services.
The Trustees of the fund have approved procedures in conformity
with Rule 10f-3 under the 1940 Act whereby a fund may purchase
securities that are offered in underwitings in which an affiliate of
FMR participates. These procedures prohibit the fund from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the fund could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the fund of some portion of the brokerage commissions
or similar fees paid by the fund on portfolio transactions is legally
permissible and advisable. The fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the
same as those of other funds managed by FMR or its affiliates ,
investment decisions for the fund are made independently from those of
other funds managed by FMR or accounts managed by FMR affiliates. It
sometimes happens that the same security is held in the portfolio of
more than one of these funds or accounts. Simultaneous transactions
are inevitable when several funds and accounts are managed by the same
investment adviser, particularly when the same security is suitable
for the investment objective of more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as the fund is
concerned. In other cases, however, the ability of the fund to
participate in volume transactions will produce better executions and
prices for the fund. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to the fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES. Information in Item 6 is
complete.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Shares of the fund are not currently offered to the public.
VALUATION. FSC normally determines the fund's net asset value per
share (NAV) as of the close of the New York Stock Exchange (NYSE)
(normally 4:00 p.m. Eastern time). The valuation of portfolio
securities is determined as of this time for the purpose of computing
the fund's NAV.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. 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. Or, fixed-income securities and convertible securities may be
valued on the basis of information furnished by a pricing service that
uses a valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the fund may use various pricing
services or discontinue the use of any pricing service.
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.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized
cost or at original cost plus accrued interest, both of which
approximate current value. In addition, securities and other assets
for which there is no readily available market value may be valued in
good faith by a committee appointed by the Board of Trustees. The
procedures set forth above need not be used to determine the value of
the securities owned by the fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more
accurately reflect the fair market value of such securities.
ITEM 20. TAX STATUS. Information in Item 6 is complete.
ITEM 21. UNDERWRITERS. Not applicable (the fund's shares are not
currently offered to the public).
ITEM 22. CALCULATION OF PERFORMANCE DATA . Not applicable.
ITEM 23. FINANCIAL STATEMENTS. The fund's financial statements and
financial highlights for the fiscal year ended December 31,
199 7 , and report of the auditor, are included in the fund's
Annual Report, which is a separate report. The fund's financial
statements, including the financial highlights, and report of the
auditor are incorporated herein by reference.
Part C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Financial Highlights for Fidelity
Exchange Fund for the fiscal year ended December 31, 1997 were filed
on February 20, 1998 for the fund (File No. 811-2614) pursuant to Rule
30d-1 under the Investment Company Act of 1940 and are incorporated
herein by reference.
(b) Exhibits
1. The Registrant's Restated Declaration of Trust, dated April 18,
1996, is incorporated herein by reference to Exhibit 1 of
Post-Effective Amendment No. 17.
2. (a) Bylaws of the Trust, as amended, are incorporated herein by
reference to Exhibit 2(a) of Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
3. Not applicable.
4. Not applicable.
5. Management Contract between Fidelity Exchange Fund and Fidelity
Management & Research Company, dated November 1, 1988, is filed herein
as Exhibit 5.
6. Not applicable.
7. (a) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is incorporated
herein by reference to Exhibit 7(a) of Fidelity Select Portfolio's
(File No. 2-69972) Post-Effective Amendment No. 54.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's (File No.
33-43529) Post-Effective Amendment No. 19.
8. (a) Custodian Agreement and Appendix C, dated September 1, 1994,
between Brown Brothers Harriman & Company and the Registrant is
incorporated herein by reference to Exhibit 8(a) of Fidelity
Commonwealth Trust's Post-Effective Amendment No. 56 (File No.
2-52322).
(b) Appendix A, dated October 16, 1997, to the Custodian Agreement,
dated September 1, 1994, between Brown Brothers Harriman & Company and
the Registrant is incorporated herein by reference to Exhibit 8(b) of
Fidelity Contrafund's Post-Effective Amendment No. 50 (File No.
2-25235).
(c) Appendix B, dated September 18, 1997, to the Custodian
Agreement, dated September 1, 1994, between Brown Brothers Harriman &
Company and the Registrant is incorporated herein by reference to
Exhibit 8(c) of Fidelity Contrafund's Post-Effective Amendment No. 50
(File No. 2-25235).
(d) Fidelity Group Repo Custodian Agreement among The Bank of New
York, J. P. Morgan Securities, Inc., and the Registrant, dated
February 12, 1996, is incorporated herein by reference to Exhibit 8(d)
of Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(e) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between The Bank of New York and the Registrant, dated February 12,
1996, is incorporated herein by reference to Exhibit 8(e) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(f) Fidelity Group Repo Custodian Agreement among Chemical Bank,
Greenwich Capital Markets, Inc., and the Registrant, dated November
13, 1995, is incorporated herein by reference to Exhibit 8(f) of
Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(g) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between Chemical Bank and [the Registrant, dated November 13, 1995, is
incorporated herein by reference to Exhibit 8(g) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(h) Joint Trading Account Custody Agreement between The Bank of New
York and the Registrant, dated May 11, 1995, is incorporated herein by
reference to Exhibit 8(h) of Fidelity Institutional Cash Portfolios'
(File No. 2-74808) Post-Effective Amendment No. 31.
(i) First Amendment to Joint Trading Account Custody Agreement
between The Bank of New York and the Registrant, dated July 14, 1995,
is incorporated herein by reference to Exhibit 8(i) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
9. Not applicable.
10. Not applicable.
11. Consent of Coopers & Lybrand L.L.P. is filed herein as Exhibit
11.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Not applicable.
17. Financial Data Schedules for the fund are filed herein as Exhibit
27.
18. Not applicable.
Item 25. Persons Controlled by or under Common Control with
Registrant.
The Board of Trustees of the Registrant is the same as the board of
other funds advised by FMR, each of which has Fidelity Management &
Research Company as its investment adviser. In addition, the officers
of these funds are substantially identical. Nonetheless, the
Registrant takes the position that it is not under common control with
these other funds since the power residing in the respective boards
and officers arises as the result of an official position with the
respective funds.
Item 26. Number of Holders of Securities
Title of Class: Shares of Beneficial Interest as of February 28, 1998
Name of Series Number of Record Holders
Fidelity Exchange Fund 412
Item 27. Indemnification.
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Registrant shall indemnify any present or past Trustee or
officer to the fullest extent permitted by law against liability and
all expenses reasonably incurred by him in connection with any claim,
action, suit, or proceeding in which he is involved by virtue of his
service as a Trustee, an officer, or both. Additionally, amounts paid
or incurred in settlement of such matters are covered by this
indemnification. Indemnification will not be provided in certain
circumstances, however. These include instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of
the duties involved in the conduct of the particular office involved.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("Service") is appointed transfer agent, the Registrant agrees to
indemnify and hold Service harmless against any losses, claims,
damages, liabilities or expenses (including reasonable counsel fees
and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names the
Service and/or the Registrant as a party and is not based on and does
not result from Service's willful misfeasance, bad faith or negligence
or reckless disregard of duties, and arises out of or in connection
with Service's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by Service's willful misfeasance, bad faith or
negligence or reckless disregard of duties) which results from the
negligence of the Registrant, or from Service's acting upon any
instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a
result of Service's acting in reliance upon advice reasonably believed
by Service to have been given by counsel for the Registrant, or as a
result of Service's acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser.
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held,
during the past two fiscal years, the following positions of a
substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board and Director of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman
of the Board and Director of FMR Corp., FIMM, FMR
U.K., and FMR FAR EAST; Chairman of the Executive
Committee of FMR; Director of Fidelity Investments
Japan Limited; President and Trustee of funds advised
by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FIMM, FMR U.K., and FMR FAR EAST;
Previously, General Counsel, Managing Director, and
Senior Vice President of FMR Corp.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
John H. Carlson Vice President of FMR and of funds advised by FMR.
Dwight D. Churchill Senior Vice President of FMR and Vice President of
Bond Funds advised by FMR; Vice President of FIMM.
Brian Clancy Vice President of FMR and Treasurer of FMR, FIMM,
FMR U.K., and FMR FAR EAST.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR, FIMM, FMR U.K., FMR
FAR EAST; Treasurer of FMR Corp.
William Danoff Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Scott E. DeSano Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Walter C. Donovan Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and of funds advised by FMR.
William R. Ebsworth Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
U.K., and FMR FAR EAST; Secretary of FIMM.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Senior Vice President of FMR and Vice President of
Money Market Funds advised by FMR.
Bart A. Grenier Vice President of High-Income Funds advised by
FMR;Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
Richard Hazelwood Vice President of FMR.
Fred L. Henning Jr. Senior Vice President of FMR and Vice President of
Fixed-Income funds advised by FMR.
Bruce T. Herring Vice President of FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Senior Vice President of FMR and Vice President of
funds advised by FMR; Director of FMR Corp.;
Associate Director and Senior Vice President of Equity
funds advised by FMR.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
U.K.
Robert A. Lawrence Senior Vice President of FMR and Vice President of
Fidelity Real Estate High Income and Fidelity Real
Estate High income II funds advised by FMR; Associate
Director and Senior Vice President of Equity funds
advised by FMR; Previously, Vice President of High
Income funds advised by FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Charles A. Mangum Vice President of FMR and of a fund advised by FMR.
Kevin McCarey Vice President of FMR and of a fund advised by FMR.
Diane M. McLaughlin Vice President of FMR.
Neal P. Miller Vice President of FMR.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Scott A. Orr Vice President of FMR and of funds advised by FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kevin A. Richardson Vice President of FMR.
Eric D. Roiter Senior Vice President and General Counsel of FMR and
Secretary of funds advised by FMR.
Mark S. Rzepczynski Vice President of FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Fergus Shiel Vice President of FMR.
Richard A. Silver Vice President of FMR.
Carol A. Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by FMR;
Previously, Senior Vice President and Director of
Operations and Compliance of FMR U.K.
Thomas M. Sprague Vice President of FMR and of funds advised by FMR.
Robert E. Stansky Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Scott D. Stewart Vice President of FMR.
Cynthia L. Strauss Vice President of FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR and Vice President of
funds advised by FMR; Director of FMR Corp.
Steven S. Wymer Vice President of FMR and of a fund advised by FMR.
</TABLE>
Item 29. Principal Underwriters
(a)-(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Company, Inc., 82 Devonshire Street, Boston, MA 02109 or the
fund's custodian Brown Brothers Harriman & Co., 40 Water Street,
Boston, MA.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant on behalf of Fidelity Exchange Fund, provided the
information required by Item 5A is contained in the annual report,
undertakes to furnish to each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the
Registrant's latest annual report to shareholders.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this Amendment No. 19 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and Commonwealth of
Massachusetts, on the 15th day of April, 1998.
FIDELITY EXCHANGE FUND
/s/Richard A. Silver
Richard A. Silver, Treasurer
<F1>
<F1>
EXHIBIT 5
MANAGEMENT CONTRACT
between
FIDELITY EXCHANGE FUND
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this 1st day of November, 1988, by and between
Fidelity Exchange Fund, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Fund"), and Fidelity Management & Research Company, a
Massachusetts corporation (hereinafter called the "Adviser").
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Fund and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Fund in
accordance with the investment objective, policies and limitations as
provided in the Fund's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and
rules thereunder, as amended from time to time (the "1940 Act"), and
such other limitations as the Fund may impose by notice in writing to
the Adviser. The Adviser shall also furnish for the use of the Fund
office space and all necessary office facilities, equipment and
personnel for servicing the investments of the Fund; and shall pay the
salaries and fees of all officers of the Fund, of all Trustees of the
Fund who are "interested persons" of the Fund or of the Adviser and of
all personnel of the Fund or the Adviser performing services relating
to research, statistical and investment activities and, either itself
or through such person as approved by the Trustees, shall compute the
net asset value of the shares of beneficial interest of the Fund as
provided in the Fund's Declaration of Trust, and shall maintain the
portfolio and general accounting records of the Fund. The Adviser is
authorized, in its discretion and without prior consultation with the
Fund, to buy, sell, lend and otherwise trade in any stocks, bonds and
other securities and investment instruments on behalf of the Fund. The
investment policies and all other actions of the Fund are and shall at
all times be subject to the control and direction of the Fund's Board
of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for
the performance by its affiliates of) the management and
administrative services necessary for the operation of the Fund. The
Adviser shall, subject to the supervision of the Board of Trustees,
perform various services for the Fund, including but not limited to:
(i) providing the Fund with office space, equipment and facilities
(which may be its own) for maintaining its organization; (ii) on
behalf of the Fund, supervising relations with, and monitoring the
performance of, custodians, depositories, transfer and pricing agents,
accountants, attorneys, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable;
(iii) preparing all general shareholder communications, including
shareholder reports; (iv) conducting shareholder relations; (v)
maintaining the Fund's existence and its records; (vi) during such
times as shares are publicly offered, maintaining the registration and
qualification of the Fund's shares under federal and state law; and
(vii) investigating the development of and developing and
implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Fund as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, or analyses
to the Fund as the Fund's Board of Trustees may request from time to
time or as the Adviser may deem to be desirable. The Adviser shall
make recommendations to the Fund's Board of Trustees with respect to
Fund policies, and shall carry out such policies as are adopted by the
Trustees. The Adviser shall, subject to review by the Board of
Trustees, furnish such other services as the Adviser shall from time
to time determine to be necessary or useful to perform its obligations
under this Contract.
(c) The Adviser, at its own expense, shall place all orders for the
purchase and sale of portfolio securities for the Fund's account with
brokers or dealers selected by the Adviser, which may include brokers
or dealers affiliated with the Adviser. The Adviser shall use its best
efforts to seek to execute portfolio transactions at prices which are
advantageous to the Fund and at commission rates which are reasonable
in relation to the benefits received. In selecting brokers or dealers
qualified to execute a particular transaction, brokers or dealers may
be selected who also provide brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Fund and/or the other accounts over which the Adviser or
its affiliates exercise investment discretion. The Adviser is
authorized to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction
for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
the Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities which the Adviser and its affiliates have with
respect to accounts over which they exercise investment discretion.
The Trustees of the Fund shall periodically review the commissions
paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the
benefits to the Fund.
The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Fund.
2. It is understood that the Trustees, officers and shareholders of
the Fund are or may be or become interested in the Adviser as
directors, officers or otherwise and that directors, officers and
stockholders of the Adviser are or may be or become similarly
interested in the Fund, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
3. For the services and facilities to be furnished hereunder, the
Adviser shall receive a management fee at the rate of 1/20 of 1% per
month (equivalent to an annual rate of 6/10 of 1%) of the average
daily net assets of the Fund (computed in the manner set forth in the
Fund's Declaration of Trust throughout the month (hereinafter call
"average net assets"); provided that: (a) for any month in which the
average net assets of those registered investment companies, including
the Fund, having Management Contracts with the Adviser, exceed
$4,000,000,000, the Fund's management fee attributable to its portion
of such excess (determined on the basis of this Fund's proportionate
share of those average net assets) shall be reduced by 10%; in case of
initiation or termination of this Contract during any month, the fee
for that month shall be reduced proportionately on the basis of the
number of business days during which it is in effect and the fee
computed upon the average net assets for the business days it is so in
effect for that month. (b) In addition, in the event of any such
initiation or termination, the applicability of the 10% fee reduction
will be determined on the basis of the net assets of the respective
registered investment companies averaged over the business days in
such month during which this Contract is in effect.
4. It is understood that the Fund will pay all its expenses other
than those expressly stated to be payable by the Adviser hereunder,
which expenses payable by the Fund shall include, without limitation,
(i) interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Fund's Trustees
other than those who are "interested persons" of the Fund or the
Adviser; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to
the registration and qualification of the Fund and the Fund's shares
for distribution under state and federal securities laws; (vii)
expenses of printing and mailing reports and notices and proxy
material to shareholders of the Fund; (viii) all other expenses
incidental to holding meetings of the Fund's shareholders, including
proxy solicitations therefor; (ix) a pro rata share, based on relative
net assets of the Fund and other registered investment companies
having Advisory and Service or Management Contracts with the Adviser,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Fund is a party
and the legal obligation which the Fund may have to indemnify the
Fund's Trustees and officers with respect thereto.
The Adviser shall reimburse the Fund in an amount not in excess of
the management fee payable by the Fund for any fiscal year, if and to
the extent that the aggregate operating expenses of the fund for its
fiscal year, including the management fee but excluding interest
expense, taxes, brokerage fees and commissions, and extraordinary
expenses, are in excess of an amount equal to 1% of the average of the
daily net assets of the Fund for such fiscal year.
5. The services of the Adviser to the Fund are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the Fund
hereunder. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on
the part of the Adviser, the Adviser shall not be subject to liability
to the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale
of any security.
6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until July
31, 1990 and indefinitely thereafter, but only so long as the
continuance after such date shall be specifically approved at least
annually by vote of the Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Fund.
(b) This Contract may be modified by mutual consent, such consent
on the part of the Fund to be authorized by vote of a majority of the
outstanding voting securities of the Fund.
(c) In addition to the requirements of sub-paragraphs (a) and (b)
of this paragraph 6, the terms of any continuance or modification of
this Contract must have been approved by the vote of a majority of
those Trustees of the Fund who are not parties to the Contract or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract, without payment
of any penalty, by action of its Trustees or Board of Directors, as
the case may be, or with respect to the Fund by vote of a majority of
the outstanding voting securities of the Fund. This Contract shall
terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust
and agrees that the obligations assumed by the Fund pursuant to this
Contract shall be limited in all cases to the Fund and its assets, and
the Adviser shall not seek satisfaction of any such obligation from
the shareholders or any shareholder of the Fund or any other portfolio
of the Fund. In addition, the Adviser shall not seek satisfaction of
any such obligations from the Trustees or any individual Trustee. The
Adviser understands that the rights and obligations of any fund under
the Declaration of Trust are separate and distinct from those of any
and all other funds.
The terms "vote of a majority of the outstanding securities,"
"assignment," and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, as now in effect or
as hereafter amended, and subject to such orders as may be granted by
the Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
FIDELITY EXCHANGE FUND
By /s/Edward C. Johnson 3d
President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By /s/J. Gary Burkhead
President
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Post-Effective
Amendment No. 19 to the Registration Statement on Form N-1A of
Fidelity Exchange Fund, of our report dated February 10, 1998 on the
financial statements and financial highlights included in the December
31, 1997 Annual Report to Shareholders of Fidelity Exchange Fund.
We further consent to the references to our Firm under the heading
"Auditor" in Part B of this Post-Effective Amendment.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 15, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000320254
<NAME> Fidelity Exchange Fund
<SERIES>
<NUMBER> 11
<NAME> Fidelity Exchange Fund
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 35,143
<INVESTMENTS-AT-VALUE> 321,177
<RECEIVABLES> 401
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 321,579
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,488
<TOTAL-LIABILITIES> 1,488
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,993
<SHARES-COMMON-STOCK> 1,513
<SHARES-COMMON-PRIOR> 1,601
<ACCUMULATED-NII-CURRENT> 63
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 286,035
<NET-ASSETS> 320,091
<DIVIDEND-INCOME> 5,015
<INTEREST-INCOME> 639
<OTHER-INCOME> 0
<EXPENSES-NET> 1,830
<NET-INVESTMENT-INCOME> 3,824
<REALIZED-GAINS-CURRENT> 16,665
<APPREC-INCREASE-CURRENT> 64,474
<NET-CHANGE-FROM-OPS> 84,963
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,742
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 93
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 64,955
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 19
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,576
<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 159.390
<PER-SHARE-NII> 2.460
<PER-SHARE-GAIN-APPREC> 52.100
<PER-SHARE-DIVIDEND> 2.450
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 211.500
<EXPENSE-RATIO> 63
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