SUPPLEMENT TO THE
FIDELITY DESTINY PORTFOLIOS:
DESTINY I: CLASS N AND DESTINY II: CLASS N
APRIL 26, 1999
STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING INFORMATION REPLACES PARAGRAPH (1) IN THE "INVESTMENT
POLICIES AND LIMITATIONS" SECTION ON PAGE 2.
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities, or
securities of other investment companies) if, as a result, (a) more
than 5% of the fund's total assets would be invested in the securities
of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION ON PAGE 2.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING INFORMATION REPLACES PARAGRAPH (III) IN THE "INVESTMENT
POLICIES AND LIMITATIONS" SECTION ON PAGE 2.
(iii) Each fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)).
THE FOLLOWING INFORMATION REPLACES PARAGRAPH (V) IN THE "INVESTMENT
POLICIES AND LIMITATIONS" SECTION BEGINNING ON PAGE 2.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 15% of
the fund's net assets) to a registered investment company or portfolio
for which FMR or an affiliate serves as investment adviser or (b)
acquiring loans, loan participations, or other forms of direct debt
instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION BEGINNING ON PAGE 2.
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION UNDER THE HEADING
"EXPOSURE TO FOREIGN MARKETS" BEGINNING ON PAGE 3.
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 may 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. For example, many
foreign countries are less prepared than the United States to properly
process and calculate information related to dates from and after
January 1, 2000. As a result, some foreign markets, brokers, banks or
securities depositories could experience at least temporary
disruptions, which could result in difficulty buying and selling
securities in certain foreign markets and pricing foreign investments,
and foreign issuers could fail to pay timely dividends, interest or
principal. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial
costs, are generally higher than with U.S. investments.
THE FOLLOWING INFORMATION FOUND IN THE "TRUSTEES AND OFFICERS"
SECTION BEGINNING ON PAGE 19 HAS BEEN REMOVED.
LEONARD M. RUSH (52), 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 INFORMATION SUPPLEMENTS THE INFORMATION FOUND IN THE
"TRUSTEES AND OFFICERS" SECTION BEGINNING ON PAGE 19.
NED C. LAUTENBACH (55), Member of the Advisory Board (1999), has
been a partner of Clayton, Dubilier & Rice, Inc. (private equity
investment firm) since September 1998. Mr. Lautenbach was Senior Vice
President of IBM Corporation from 1992 until his retirement in July
1998. From 1993 to 1995 he was Chairman of IBM World Trade
Corporation. He also was a member of IBM's Corporate Executive
Committee from 1994 to July 1998. He is a Director of PPG Industries
Inc. (glass, coating and chemical manufacturer), Dynatech Corporation
(global communications equipment), Eaton Corporation (global
manufacturer of highly engineered products) and ChoicePoint Inc. (data
identification, retrieval, storage, and analysis).
THE FOLLOWING INFORMATION REPLACES THE COMPENSATION TABLE FOUND IN
THE "TRUSTEES AND OFFICERS" SECTION BEGINNING ON PAGE 19.
The following table sets forth information describing the
compensation of each Trustee and Member of the Advisory Board of each
fund for his or her services for the fiscal year ended September 30,
1998, or calendar year ended December 31, 1998, as applicable.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Destiny IB,C,E Destiny IIB,D,E Fund Complex*,A
Edward C. Johnson 3d** $ 0 $ 0 $ 0
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox $ 2,265 $ 1,426 $ 223,500
Phyllis Burke Davis $ 2,250 $ 1,416 $ 220,500
Robert M. Gates $ 2,285 $ 1,439 $ 223,500
E. Bradley Jones $ 2,265 $ 1,426 $ 222,000
Donald J. Kirk $ 2,296 $ 1,447 $ 226,500
Ned C. Lautenbach*** $ 0 $ 0 $ 0
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 2,285 $ 214,500 $ 223,500
Gerald C. McDonough $ 2,821 $ 1,776 $ 273,500
Marvin L. Mann $ 2,249 $ 1,417 $ 220,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 2,281 $ 1,436 $ 223,500
</TABLE>
* Information is for the calendar year ended December 31, 1998 for
237 funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are
compensated by FMR.
*** Effective October 14, 1999, Mr. Lautenbach serves as a Member
of the Advisory Board.
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, and may include amounts
required to be deferred and amounts deferred at the election of
Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $1053; Phyllis Burke Davis,
$1053; Robert M. Gates, $1054; E. Bradley Jones, $1053; Donald J.
Kirk, $1053; William O. McCoy, $1053; Gerald C. McDonough, $1229;
Marvin L. Mann, $1053; and Thomas R. Williams, $1053.
D The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $663; Phyllis Burke Davis, $663;
Robert M. Gates, $663; E. Bradley Jones, $663; Donald J. Kirk, $663;
William O. McCoy, $1053; Gerald C. McDonough, $774; Marvin L. Mann,
$663; and Thomas R. Williams, $663.
E Certain of the non-interested Trustees' aggregate compensation
from a fund includes accrued voluntary deferred compensation as
follows: Ralph F. Cox, $895, Destiny I; Ralph F. Cox, $564, Destiny
II; Marvin L. Mann, $895, Destiny I; Marvin L. Mann $564, Destiny II;
William O. McCoy, $669, Destiny I; William O. McCoy, $427, Destiny II;
Thomas R. Williams, $895, Destiny I; Thomas R. Williams, $564, Destiny
II.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION IN THE
"MANAGEMENT CONTRACTS" SECTION BEGINNING ON PAGE 22.
COMPUTING THE PERFORMANCE ADJUSTMENT. The basic fee for each fund is
subject to downward adjustment, depending upon whether, and to what
extent, the fund's Class O investment performance for the performance
period is exceeded by the record of the S&P 500 (the Index) over the
same period. The performance period consists of the most recent month
plus the previous 35 months. After December 31, 2000, no performance
adjustment will be applied to the basic fee for each of Destiny I and
Destiny II.
Each percentage point of difference, calculated to the nearest 1.00%
(up to a maximum difference of -10.00) is multiplied by a performance
adjustment rate of 0.02%.
The performance comparison is made at the end of each month. One
twelfth (1/12) of this rate is then applied to each fund's average net
assets for the entire performance period, giving a dollar amount which
will be subtracted from the basic fee.
The maximum annualized performance adjustment rate is limited to
- -0.24% of each fund's average net assets up to and including
$100,000,000 and -0.20% of each fund's average net assets in excess of
$100,000,000 over the performance period.
A class's performance is calculated based on change in NAV. For
purposes of calculating the performance adjustment, any dividends or
capital gain distributions paid by the class are treated as if
reinvested in that class's shares at the NAV as of the record date for
payment. The record of the Index is based on change in value and is
adjusted for any cash distributions from the companies whose
securities compose the Index.
Because the adjustment to the basic fee is based on a fund's
performance compared to the investment record of the Index, the
controlling factor is not whether the fund's performance is up or down
per se, but whether it is up or down more or less than the record of
the Index. Moreover, the comparative investment performance of each
fund is based solely on the relevant performance period without regard
to the cumulative performance over a longer or shorter period of time.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years, and the amount of
negative or positive performance adjustments to the management fees
paid by each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Fiscal Years Ended September Performance Adjustment Management Fees Paid to FMR
30#
Destiny I 1998 $ (9,828,127) $ 19,657,092*
1997 $ (5,561,177) $ 19,154,944*
1996 $ 6,251,818 $ 26,878,078*
Destiny II 1998 $ (5,588,522) $ 18,377,658*
1997 $ (3,137,435) $ 15,305,746*
1996 $ 2,752,964 $ 16,685,378*
</TABLE>
* Including the amount of the performance adjustment.
# Prior to July 1, 1999, each of Destiny I and Destiny II paid FMR a
monthly management fee with two components: a basic fee and a
performance adjustment. The basic fee was subject to upward or
downward adjustment, depending on whether, and to what extent, the
fund's investment performance for the performance period exceeded, or
was exceeded by, the record over the same period of the S&P 500. The
maximum annualized performance adjustment rate for each fund was
limited to (plus/minus)0.24% of the fund's average net assets up to
and including $100,000,000 and (plus/minus)0.20% of the fund's average
net assets in excess of $100,000,000 over the performance period.
During the reporting period, FMR voluntarily modified the breakpoints
in the group fee rate schedule on January 1, 1996 to provide for lower
management fee rates as FMR's assets under management increase.
FMR may, from time to time, voluntarily reimburse all or a portion of
a class's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to
be repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase a class's total returns,
and repayment of the reimbursement by a fund will lower its total
returns.
THE FOLLOWING INFORMATION REPLACES THE "GROUP FEE RATE" AND "EFFECTIVE
ANNUAL FEE RATE" SCHEDULES FOUND ON PAGE 23.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .5200% $ 1 billion .5200%
3 - 6 .4900 50 .3823
6 - 9 .4600 100 .3512
9 - 12 .4300 150 .3371
12 - 15 .4000 200 .3284
15 - 18 .3850 250 .3219
18 - 21 .3700 300 .3163
21 - 24 .3600 350 .3113
24 - 30 .3500 400 .3067
30 - 36 .3450 450 .3024
36 - 42 .3400 500 .2982
42 - 48 .3350 550 .2942
48 - 66 .3250 600 .2904
66 - 84 .3200 650 .2870
84 - 102 .3150 700 .2838
102 - 138 .3100 750 .2809
138 - 174 .3050 800 .2782
174 - 210 .3000 850 .2756
210 - 246 .2950 900 .2732
246 - 282 .2900 950 .2710
282 - 318 .2850 1,000 .2689
318 - 354 .2800 1,050 .2669
354 - 390 .2750 1,100 .2649
390 - 426 .2700 1,150 .2631
426 - 462 .2650 1,200 .2614
462 - 498 .2600 1,250 .2597
498 - 534 .2550 1,300 .2581
534 - 587 .2500 1,350 .2566
587 - 646 .2463 1,400 .2551
646 - 711 .2426
711 - 782 .2389
782 - 860 .2352
860 - 946 .2315
946 - 1,041 .2278
1,041 - 1,145 .2241
1,145 - 1,260 .2204
over - 1,260 .2167
</TABLE>
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION IN THE
"DESCRIPTION OF THE TRUST" SECTION BEGINNING ON PAGE 26.
AUDITOR. PricewaterhouseCoopers LLP, One Post Office Square,
Boston, Massachusetts served as independent accountant for each fund
for the most recent fiscal period. The auditor examined financial
statements for the funds and provided other audit, tax, and related
services.
Effective February 18, 1999, Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts serves as independent accountant for
each fund. The auditor examines financial statements for the funds and
provides other audit, tax, and related services.
SUPPLEMENT TO THE
FIDELITY DESTINY PORTFOLIOS:
DESTINY I AND DESTINY II
NOVEMBER 19, 1998
STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING INFORMATION REPLACES PARAGRAPH (1) IN THE "INVESTMENT
POLICIES AND LIMITATIONS" SECTION ON PAGE 2.
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities, or
securities of other investment companies) if, as a result, (a) more
than 5% of the fund's total assets would be invested in the securities
of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION ON PAGE 2.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING INFORMATION REPLACES PARAGRAPH (III) IN THE "INVESTMENT
POLICIES AND LIMITATIONS" SECTION ON PAGE 2.
(iii) Each fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)).
THE FOLLOWING INFORMATION REPLACES PARAGRAPH (V) IN THE "INVESTMENT
POLICIES AND LIMITATIONS" SECTION BEGINNING ON PAGE 2.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 15% of
the fund's net assets) to a registered investment company or portfolio
for which FMR or an affiliate serves as investment adviser or (b)
acquiring loans, loan participations, or other forms of direct debt
instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION BEGINNING ON PAGE 2.
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION IN THE
"INVESTMENT POLICIES AND LIMITATIONS" SECTION UNDER THE HEADING
"EXPOSURE TO FOREIGN MARKETS" BEGINNING ON PAGE 3.
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 may 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. For example, many
foreign countries are less prepared than the United States to properly
process and calculate information related to dates from and after
January 1, 2000. As a result, some foreign markets, brokers, banks or
securities depositories could experience at least temporary
disruptions, which could result in difficulty buying and selling
securities in certain foreign markets and pricing foreign investments,
and foreign issuers could fail to pay timely dividends, interest or
principal. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions and custodial
costs, are generally higher than with U.S. investments.
THE FOLLOWING INFORMATION FOUND IN THE "TRUSTEES AND OFFICERS"
SECTION BEGINNING ON PAGE 20 HAS BEEN REMOVED.
LEONARD M. RUSH (52), 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 INFORMATION SUPPLEMENTS THE INFORMATION FOUND IN THE
"TRUSTEES AND OFFICERS" SECTION BEGINNING ON PAGE 20.
NED C. LAUTENBACH (55), Member of the Advisory Board (1999), has
been a partner of Clayton, Dubilier & Rice, Inc. (private equity
investment firm) since September 1998. Mr. Lautenbach was Senior Vice
President of IBM Corporation from 1992 until his retirement in July
1998. From 1993 to 1995 he was Chairman of IBM World Trade
Corporation. He also was a member of IBM's Corporate Executive
Committee from 1994 to July 1998. He is a Director of PPG Industries
Inc. (glass, coating and chemical manufacturer), Dynatech Corporation
(global communications equipment), Eaton Corporation (global
manufacturer of highly engineered products) and ChoicePoint Inc. (data
identification, retrieval, storage, and analysis).
THE FOLLOWING INFORMATION REPLACES THE COMPENSATION TABLE FOUND IN
THE "TRUSTEES AND OFFICERS" SECTION BEGINNING ON PAGE 20.
The following table sets forth information describing the
compensation of each Trustee and Member of the Advisory Board of each
fund for his or her services for the fiscal year ended September 30,
1998, or calendar year ended December 31, 1998, as applicable.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Destiny IB,C,E Destiny IIB,D,E Fund Complex*,A
Edward C. Johnson 3d** $ 0 $ 0 $ 0
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox $ 2,265 $ 1,426 $ 214,500
Phyllis Burke Davis $ 2,250 $ 1,416 $ 210,000
Robert M. Gates $ 2,285 $ 1,439 $ 176,000
E. Bradley Jones $ 2,265 $ 1,426 $ 211,500
Donald J. Kirk $ 2,296 $ 1,447 $ 211,500
Ned C. Lautenbach*** $ 0 $ 0 $ 0
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 2,285 $ 1,439 $ 214,500
Gerald C. McDonough $ 2,821 $ 1,776 $ 264,500
Marvin L. Mann $ 2,249 $ 1,417 $ 214,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 2,281 $ 1,436 $ 214,500
</TABLE>
* Information is for the calendar year ended December 31, 1997 for
230 funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are
compensated by FMR.
*** Effective October 14, 1999, Mr. Lautenbach serves as a Member
of the Advisory Board.
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, and may include amounts
required to be deferred and amounts deferred at the election of
Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $1053; Phyllis Burke Davis,
$1053; Robert M. Gates, $1054; E. Bradley Jones, $1053; Donald J.
Kirk, $1053; William O. McCoy, $1053; Gerald C. McDonough, $1229;
Marvin L. Mann, $1053; and Thomas R. Williams, $1053.
D The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $663; Phyllis Burke Davis, $663;
Robert M. Gates, $663; E. Bradley Jones, $663; Donald J. Kirk, $663;
William O. McCoy, $1053; Gerald C. McDonough, $774; Marvin L. Mann,
$663; and Thomas R. Williams, $663.
E Certain of the non-interested Trustees' aggregate compensation
from a fund includes accrued voluntary deferred compensation as
follows: Ralph F. Cox, $895, Destiny I; Ralph F. Cox, $564, Destiny
II; Marvin L. Mann, $895, Destiny I; Marvin L. Mann $564, Destiny II;
William O. McCoy, $669, Destiny I; William O. McCoy, $427, Destiny II;
Thomas R. Williams, $895, Destiny I; Thomas R. Williams, $564, Destiny
II.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION IN THE
"MANAGEMENT CONTRACTS" SECTION BEGINNING ON PAGE 23.
COMPUTING THE PERFORMANCE ADJUSTMENT. The basic fee for each fund is
subject to downward adjustment, depending upon whether, and to what
extent, the fund's investment performance for the performance period
is exceeded by the record of the S&P 500 (the Index) over the same
period. The performance period consists of the most recent month plus
the previous 35 months. After December 31, 2000, no performance
adjustment will be applied to the basic fee for each of Destiny I and
Destiny II.
Each percentage point of difference, calculated to the nearest 1.00%
(up to a maximum difference of -10.00) is multiplied by a performance
adjustment rate of 0.02%.
The performance comparison is made at the end of each month. One
twelfth (1/12) of this rate is then applied to each fund's average net
assets for the entire performance period, giving a dollar amount which
will be subtracted from the basic fee.
The maximum annualized performance adjustment rate is limited to
- -0.24% of each fund's average net assets up to and including
$100,000,000 and -0.20% of each fund's average net assets in excess of
$100,000,000 over the performance period.
A fund's performance is calculated based on change in NAV. For
purposes of calculating the performance adjustment, any dividends or
capital gain distributions paid by the fund are treated as if
reinvested in that fund's shares at the NAV as of the record date for
payment. The record of the Index is based on change in value and is
adjusted for any cash distributions from the companies whose
securities compose the Index.
Because the adjustment to the basic fee is based on a fund's
performance compared to the investment record of the Index, the
controlling factor is not whether the fund's performance is up or down
per se, but whether it is up or down more or less than the record of
the Index. Moreover, the comparative investment performance of each
fund is based solely on the relevant performance period without regard
to the cumulative performance over a longer or shorter period of time.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years, and the amount of
negative or positive performance adjustments to the management fees
paid by each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Fiscal Years Ended September Performance Adjustment Management Fees Paid to FMR
30#
Destiny I 1998 $ (9,828,127) $ 19,657,092*
1997 $ (5,561,177) $ 19,154,944*
1996 $ 6,251,818 $ 26,878,078*
Destiny II 1998 $ (5,588,522) $ 18,377,658*
1997 $ (3,137,435) $ 15,305,746*
1996 $ 2,752,964 $ 16,685,378*
</TABLE>
* Including the amount of the performance adjustment.
# Prior to July 1, 1999, each of Destiny I and Destiny II paid FMR a
monthly management fee with two components: a basic fee and a
performance adjustment. The basic fee was subject to upward or
downward adjustment, depending on whether, and to what extent, the
fund's investment performance for the performance period exceeded, or
was exceeded by, the record over the same period of the S&P 500. The
maximum annualized performance adjustment rate for each fund was
limited to (plus/minus)0.24% of the fund's average net assets up to
and including $100,000,000 and (plus/minus)0.20% of the fund's average
net assets in excess of $100,000,000 over the performance period.
During the reporting period, FMR voluntarily modified the breakpoints
in the group fee rate schedule on January 1, 1996 to provide for lower
management fee rates as FMR's assets under management increase.
FMR may, from time to time, voluntarily reimburse all or a portion of
a fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to
be repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase a fund's total returns,
and repayment of the reimbursement by a fund will lower its total
returns.
THE FOLLOWING INFORMATION REPLACES THE "GROUP FEE RATE" AND "EFFECTIVE
ANNUAL FEE RATE" SCHEDULES FOUND ON PAGE 24.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .5200% $ 1 billion .5200%
3 - 6 .4900 50 .3823
6 - 9 .4600 100 .3512
9 - 12 .4300 150 .3371
12 - 15 .4000 200 .3284
15 - 18 .3850 250 .3219
18 - 21 .3700 300 .3163
21 - 24 .3600 350 .3113
24 - 30 .3500 400 .3067
30 - 36 .3450 450 .3024
36 - 42 .3400 500 .2982
42 - 48 .3350 550 .2942
48 - 66 .3250 600 .2904
66 - 84 .3200 650 .2870
84 - 102 .3150 700 .2838
102 - 138 .3100 750 .2809
138 - 174 .3050 800 .2782
174 - 210 .3000 850 .2756
210 - 246 .2950 900 .2732
246 - 282 .2900 950 .2710
282 - 318 .2850 1,000 .2689
318 - 354 .2800 1,050 .2669
354 - 390 .2750 1,100 .2649
390 - 426 .2700 1,150 .2631
426 - 462 .2650 1,200 .2614
462 - 498 .2600 1,250 .2597
498 - 534 .2550 1,300 .2581
534 - 587 .2500 1,350 .2566
587 - 646 .2463 1,400 .2551
646 - 711 .2426
711 - 782 .2389
782 - 860 .2352
860 - 946 .2315
946 - 1,041 .2278
1,041 - 1,145 .2241
1,145 - 1,260 .2204
over - 1,260 .2167
</TABLE>
THE FOLLOWING SECTION IS TO BE ADDED, FOLLOWING THE "MANAGEMENT
CONTRACTS" SECTION, ENDING ON PAGE 26.
DISTRIBUTION SERVICES
Each fund has entered into a franchise agreement with FDC, an
affiliate of FMR. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The franchise agreements call
for FDC to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the fund, which are
continuously offered at NAV. Promotional and administrative expenses
in connection with the offer and sale of shares are paid by FMR.
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with providing services intended to
result in the sale of fund shares and/or shareholder support services.
In addition, each Plan provides that FMR, directly or through FDC, may
pay intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for shares.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each Plan does not authorize payments by the fund other
than those made to FMR under its management contract with the fund. To
the extent that each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares or stabilization of cash flows may result. Furthermore,
certain shareholder support services may be provided more effectively
under the Plans by local entities with whom shareholders have other
relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION IN THE
"DESCRIPTION OF THE TRUST" SECTION BEGINNING ON PAGE 26.
AUDITOR. PricewaterhouseCoopers LLP, One Post Office Square, Boston,
Massachusetts served as independent accountant for each fund for the
most recent fiscal period. The auditor examined financial statements
for the funds and provided other audit, tax, and related services.
Effective February 18, 1999, Deloitte & Touche LLP, 200 Berkeley
Street, Boston, Massachusetts serves as independent accountant for
each fund. The auditor examines financial statements for the funds and
provides other audit, tax, and related services.
