FIDELITY ADVISOR EMERGING MARKETS INCOME FUND
TABLE OF
CONTENTS
Financial History
Investment Objective
Investment Policies and
Risks
4 Considerations in
Investing in the Shares
of the Fund
Investment Limitations
How to Buy Shares
Investor Services
Shareholder
Communications
How to Exchange
How to Sell Shares
Distribution Options
Distributions and Taxes
Fees
Valuation
Performance
Portfolio Transactions
The Trust and the
Fidelity Organization
Appendix
A FUND OF FIDELITY ADVISOR SERIES VIII
82 Devonshire Street
Boston, Massachusetts 02109
PROSPECTUS
February 14, 1994
Fidelity Advisor Emerging Markets Income Fund (the Fund) seeks a high level
of current income by investing primarily in debt securities and other
instruments of issuers in emerging markets. As a secondary objective, the
Fund seeks capital appreciation.
INVESTMENTS IN EMERGING MARKETS CAN INVOLVE SIGNIFICANT RISKS AND THE FUND
IS DESIGNED FOR AGGRESSIVE INVESTORS. In addition, the Fund invests in
lower-quality debt securities, which present higher risks of untimely
interest and principal payments, default, and price volatility than
higher-quality securities, and may present problems of liquidity and
valuation.
Please read this Prospectus before investing. It is designed to provide you
with information and help you decide if the Fund's goals match your own.
RETAIN THIS DOCUMENT FOR FUTURE REFERENCE.
A Statement of Additional Information (SAI) dated February 14, 1994 for the
Fund has been filed with the Securities and Exchange Commission (SEC) and
is incorporated herein by reference. The SAI is available free upon request
from Fidelity Distributors Corporation (Distributors), 82 Devonshire
Street, Boston, MA 02109, or from your investment professional.
MUTUAL FUNDS SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANK, SAVINGS ASSOCIATION, INSURED DEPOSITORY
INSTITUTION OR GOVERNMENT AGENCY, NOR ARE THEY FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. INVESTMENTS IN THE FUND INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. THE VALUE OF THE INVESTMENT AND ITS YIELD AND RETURN
WILL FLUCTUATE AND ARE NOT GUARANTEED. WHEN SOLD, THE VALUE OF THE
INVESTMENT MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY
INVESTED .
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(Registered trademark)
1.FINANCIAL HISTORY
The purpose of the table below is to assist you in understanding the
various costs and expenses that an investor in the Fund would bear directly
or indirectly. This standard format was developed for use by all mutual
funds to help investors make their investment decisions. This expense
information should be considered along with other important information
such as the Fund's investment objective.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (as a
percentage of the offering price) 4.75%
Maximum Sales Charge on Reinvested Dividends None
Deferred Sales Charge on Redemptions None
Redemption Fees None
Exchange Fees None
Shareholder Transaction Expenses represent charges paid when you purchase,
sell or exchange shares of a Fund. Lower sales charges may be available
with purchases of $50,000 or more in conjunction with various programs. See
"How To Buy Shares," page .
ESTIMATED ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0. 42 %*
12b-1 Fee 0.25%
Other Expenses 0.83%*
TOTAL OPERATING EXPENSES 1.50 %
* AFTER REIMBURSEMENT
Annual operating expenses are based on the Fund's estimated expenses for
its first year of operation. Management fees are paid by the Fund to
Fidelity Management & Research Company (FMR) for managing its
investments and business affairs. 12b-1 fees are paid by the Fund to
Distributors for services and expenses in connection with the distribution
of Fund shares. Long-term shareholders may pay more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers (NASD) due to 12b-1 payments. The Fund
incurs other expenses for maintaining shareholder records, furnishing
shareholder statements and reports, and for other services. FMR has
voluntarily agreed to reimburse the Fund to the extent that the aggregate
operating expenses (exclusive of taxes, interest, brokerage commissions and
extraordinary expenses) are in excess of an annual rate of 1.50% of average
net assets. If reimbursements were not in effect, the management fees,
other expenses (including 12b-1 fees) and total fund operating expenses
would have been 0.71%, 1.08% and 1.79%, respectively. Please refer to the
section "Fees," page .
EXAMPLE
You would pay the following estimated expenses, including the maximum sales
charge, on a $1,000 investment in the Fund assuming (1) a 5% annual return
and (2) full redemption at the end of each time period:
1 YEAR 3 YEARS
$62 $93
The hypothetical example illustrates the estimated expenses, including the
maximum sales charge, associated with a $1,000 investment in the Fund over
periods of one and three years, based on the estimated expenses (after
reimbursements, if any) in the table and an assumed annual return of 5%.
THE RETURN OF 5% AND EXPENSES SHOULD NOT BE CONSIDERED INDICATIONS OF
ACTUAL OR EXPECTED FUND PERFORMANCE OR EXPENSES, BOTH OF WHICH MAY VARY.
2.INVESTMENT OBJECTIVE
FIDELITY ADVISOR EMERGING MARKETS INCOME FUND seeks a high level of
current income by investing primarily in debt securities and other
instruments of issuers in emerging markets. As a secondary objective, the
Fund seeks capital appreciation. The investment objective of the Fund
is fundamental and may only be changed by vote of a majority of the
outstanding shares of the Fund. Except as otherwise noted, the Fund's
investment limitations and policies are not fundamental. Non-fundamental
investment limitations and policies may be changed without shareholder
approval.
The yield, return and potential price changes of the Fund depend on the
quality and maturity of the obligations in its portfolio, as well as on
market conditions. As is the case with any investment in securities,
investment in the Fund involves certain risks and therefore the Fund may
not always achieve its objective.
3.INVESTMENT POLICIES AND RISKS
Further information relating to the types of securities in which the Fund
may invest and the investment policies of the Fund in general are set forth
in the Appendix to this Prospectus and in the SAI .
The Fund emphasizes countries with relatively low gross national product
per capita compared to the world's major economies, and with the potential
for rapid economic growth. Many investments in emerging markets can be
considered speculative, and therefore may offer higher income potential
than the developed markets of the world.
Under normal conditions, the Fund will invest at least 65% of its total
assets in debt securities and other instruments of issuers in emerging
markets. For this purpose, "emerging markets" will include any countries
(I) having an "emerging stock market" as defined by the International
Finance Corporation; (II) with low- to middle-income economies according to
the International Bank for Reconstruction and Development (the World Bank);
or (III) listed in World Bank publications as "developing." Currently, the
countries NOT included in these categories are Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United
Kingdom, and the U.S. For purposes of this 65% policy, issuers whose
principal activities are in countries with emerging markets include
issuers: (1) organized under the laws of, (2) whose securities have their
primary trading market in, (3) deriving at least 50% of their revenues or
profits from goods sold, investments made, or services performed in, or (4)
having at least 50% of their assets located in a country with an emerging
market.
Under current market conditions, FMR expects that emerging market
opportunities will be found mainly within Latin America, and to a lesser
extent in Africa, Asia and emerging European nations. FMR will actively
manage the allocation of the Fund's investments among countries, geographic
regions, and currency denominations in an attempt to achieve current income
and capital appreciation. In doing so, FMR will also consider such factors
as prospects for relative economic growth among countries, regions, or
geographic areas, expected levels of inflation, government policies
influencing business conditions, current and anticipated interest rates,
and the outlook for currency relationships. Although the Fund will
normally invest in at least three different countries, it is not limited to
any particular country or currency, and may invest substantially all of its
assets in any one country.
The Fund may invest in all types of fixed-income instruments, including
corporate debt securities, sovereign debt instruments issued by governments
or governmental entities, and all types of domestic and foreign money
market instruments. The Fund may invest in lower-rated, high yielding
U.S. corporate debt securities (sometimes referred to as "junk
bonds"). Many emerging market securities are of below investment-grade
quality, and at any one time substantially all of the Fund's assets may be
invested in securities that are of poor quality or are in default.
FMR will use its extensive research facilities in addition to
considering the ratings of Nationally Recognized Statistical Rating
Organizations (NRSROs) in selecting investments for the Fund. Unrated
securities are not necessarily of lower quality than rated securities, but
they may not be attractive to as many buyers. When purchasing obligations
for the Fund, whether rated or unrated, FMR performs its own careful credit
analysis. This credit analysis includes consideration of the economic
feasibility, the financial condition of the issuer with respect to
liquidity, cash flow and political developments that may affect credit
quality. Since the risk of default is higher for lower-quality obligations,
FMR's research and analysis are an integral part of choosing the Fund's
securities. Through portfolio diversification and careful credit analysis,
FMR can reduce risk, although there can be no assurance that losses will
not occur. FMR also considers trends in the economy, in geographic areas,
in various industries, and the financial markets.
Other investments the Fund may make include options and futures contracts,
swap agreements, indexed securities, loans and other direct debt
instruments, repurchase agreements and securities loans, foreign repurchase
agreements, illiquid investments, restricted securities, mortgage-backed
securities, asset-backed securities, delayed-delivery transactions, and
interfund borrowing. The Fund may also invest a portion of its assets
in common and preferred stocks of emerging markets issuers, debt securities
of non-emerging market foreign issuers, and lower-quality debt securities
of U.S. issuers. Although the Fund may invest up to 35% of its total
assets in these securities, FMR does not currently aniticipate that these
investments will exceed approximately 20% of the Fund's total assets.
Though common and preferred stocks and convertible securities present the
possibility for significant capital appreciation over the long-term, they
may fluctuate dramatically in the short-term and entail a high degree of
risk. Please refer to the Appendix for more information on these
investments.
For cash management purposes, the Fund will ordinarily invest a portion of
its assets in high-quality, short-term debt securities and money market
instruments, including repurchase agreements and bank deposits denominated
in U.S. or foreign currencies. When, in FMR's judgment, market conditions
warrant, the Fund can make substantial temporary defensive investments in
money market instruments, U.S. government securities, or investment-grade
obligations of U.S. companies.
4.CONSIDERATIONS IN INVESTING IN SHARES OF THE FUND:
International investing in general may involve greater risks than U.S.
investments. There is generally less publicly available information about
foreign issuers, and there may be less government regulation and
supervision of foreign stock exchanges, brokers, and listed companies.
There may be difficulty in enforcing legal rights outside the U.S.
Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards, practices, and requirements
comparable to those that apply to U.S. companies. Security trading
practices abroad may offer less protection to investors such as the Fund.
Settlement of transactions in some foreign markets may be delayed or may be
less frequent than in the U.S., which could affect the liquidity of the
Fund. Additionally, in some foreign countries, there is the possibility of
expropriation or confiscatory taxation; limitations on the removal of
securities, property, or other assets of the Fund; political or social
instability; or diplomatic developments which could affect U.S. investments
in foreign countries. FMR will take these factors into consideration in
managing the Fund's investments.
These risks may be intensified in the case of investments in emerging
markets or countries with limited or developing capital markets. Security
prices in emerging markets can be significantly more volatile than in more
developed nations, reflecting the greater uncertainties of investing in
less established markets and economies. In particular, countries with
emerging markets may have relatively unstable governments; present the risk
of nationalization of businesses, restrictions on foreign ownership, or
prohibitions of repatriation of assets; and may have less protection of
property rights than more developed countries. The economies of countries
with emerging markets may be predominantly 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 substantial holdings difficult or impossible
at times. Securities of issuers located in countries with emerging markets
may have limited marketability and may be subject to more abrupt or erratic
price movements.
By itself, the Fund does not constitute a balanced investment plan.
The Fund is designed for aggressive investors interested in the investment
opportunities and income potential offered by securities issued in emerging
markets. The value of the Fund's investments and the income they generate
will vary from day to day, generally reflecting changes in interest rates,
market conditions, and other political and economic news. The Fund's
performance will also depend on currency values, foreign economies, and
other factors relating to foreign investments. Because the Fund focuses on
emerging markets, it involves higher risks than U.S. bond investments.
Investors should be willing to assume a greater degree of investment risk
and should expect a higher level of volatility than is generally associated
with investing in more established markets. The Fund's yield and share
price will change based on changes in domestic or foreign interest rates,
the value of foreign currencies, and issuers' creditworthiness. In general,
bond prices rise when interest rates fall, and vice versa .
The Fund is non-diversified, which means that it may invest a greater
portion of its assets in securities of a single issuer than would be the
case if it were diversified. As a result, changes in the financial
condition or market assessment of a single issuer could cause greater
fluctuations in the Fund's share value.
5.INVESTMENT LIMITATIONS
The Fund has adopted the following investment limitations. The policies
and limitations discussed below, and in the Appendix beginning on page ,
are considered at the time of purchase. With the exception of the Fund's
borrowing policy, the sale of portfolio securities is not required in the
event of a subsequent change in circumstances.
1. DIVERSIFICATION. The Fund is non-diversified; however, to meet federal
tax requirements for qualification as a "regulated investment company," the
Fund limits its investments so that at the close of each quarter of its
taxable year: (A) no more than 25% of total assets are invested in the
securities of a single issuer; and (B) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer.
2. BORROWING. (A) The Fund may borrow money solely for temporary or
emergency purposes but not in an amount exceeding 33 1/3% of its total
assets. (B) The Fund may borrow money only from banks or from other
funds advised by FMR or its affiliates, or by engaging in reverse
repurchase agreements. (C) The Fund will not purchase securities when
borrowings exceed 5% of its total assets. 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.
3. LENDING. (A) The Fund may temporarily lend its portfolio
securities to broker-dealers and institutions but only when the loans are
fully collateralized. (B) The Fund may also make cash loans to other funds
advised by FMR in an amount not exceeding 7.5% of its assets. (C) Loans, in
the aggregate, will be limited to 33 1/3% of the Fund's total assets.
4. ILLIQUID SECURITIES. The Fund will not purchase a security if, as a
result, more than 15% of its assets would be invested in illiquid
securities.
Except for the Fund's investment objective and limitations 2(a) and 3(c),
the Fund's policies and limitations described in this Prospectus are
non-fundamental and may be changed without shareholder approval.
6.HOW TO BUY SHARES
Shares of the Fund are offered continuously to investors who engage an
investment professional for investment advice and may be purchased at the
public offering price (the offering price) next determined after the
transfer agent receives your order to purchase. State Street Bank and
Trust Company (the Transfer Agent), P.O. Box 8302, Boston, Massachusetts
02266-8302, provides transfer and dividend paying services for the Fund.
The offering price is equal to the net asset value per share (NAV) plus a
sales charge, which is a variable percentage of the offering price
depending upon the amount of the purchase. The following table shows total
sales charges and concessions to securities dealers and banks (investment
professionals) having Agreements with Distributors.
You can open an account with a minimum investment of $2,500 or more by
completing and returning an Account Application. You can make additional
investments of $250 or more. For tax-deferred retirement plans, including
IRA accounts, there is a $500 minimum initial investment and a $100
subsequent investment minimum. For accounts established under the Fidelity
Advisor Systematic Investment Program or the Fidelity Advisor Systematic
Exchange Program, there is a $1,000 initial and $100 monthly subsequent
investment minimum requirement. FOR FURTHER INFORMATION ON OPENING AN
ACCOUNT, PLEASE CONSULT YOUR INVESTMENT PROFESSIONAL OR REFER TO THE
ACCOUNT APPLICATION.
7.SALES CHARGES AND INVESTMENT PROFESSIONAL CONCESSIONS
SALES CHARGES AS % OF INVESTMENT PROFESSIONAL
AMOUNT OF PURCHASE OFFERING NET AMOUNT CONCESSION AS %
IN SINGLE TRANSACTIONS PRICE INVESTED OF OFFERING PRICE
Less than $50,000 4.75% 4.99% 4.00%
$50,000 to less than $100,000 4.50% 4.71% 4.00%
$100,000 to less than $250,000 3.50% 3.63% 3.00%
$250,000 to less than $500,000 2.50% 2.56% 2.00%
$500,000 to less than $1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more None None See Below*
* INVESTMENT PROFESSIONALS WILL BE COMPENSATED WITH A FEE OF .25% FOR
PURCHASES OF $1 MILLION OR MORE, EXCEPT FOR PURCHASES THROUGH A BANK OR
BANK-AFFILIATED BROKER-DEALER THAT QUALIFY FOR A SALES CHARGE WAIVER
DESCRIBED BELOW. ALL ASSETS ON WHICH THE .25% FEE IS PAID MUST REMAIN
WITHIN THE FIDELITY ADVISER FUNDS (INCLUDING SHARES EXCHANGED INTO DAILY
MONEY FUND AND DAILY TAX-EXEMPT MONEY FUND) FOR A PERIOD OF ONE
UNINTERRUPTED YEAR OR THE INVESTMENT PROFESSIONAL WILL BE REQUIRED TO
REFUND ITS FEE TO DISTRIBUTORS.
It is the responsibility of your investment professional to transmit your
order to purchase shares to the Transfer Agent before 4:00 p.m. Eastern
time in order for you to receive that day's share price. The Transfer Agent
must receive payment within five business days after an order is placed,
otherwise, the purchase order may be canceled and you could be held liable
for resulting fees and/or losses.
All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks. The Fund reserves the right to limit the number of your
checks processed at one time. If your check does not clear, the Fund may
cancel your purchase and you could be held liable for any fees and/or
losses incurred. When you purchase directly by check, the Fund can hold the
proceeds of redemptions until the Transfer Agent is reasonably satisfied
that the purchase payment has been collected (which can take up to seven
calendar days). You may avoid a delay in receiving redemption proceeds by
purchasing shares with a certified check. Shares purchased through
investment professionals utilizing an automated order placement and
settlement system that guarantees payment for orders on a specified date,
begin to earn income dividends on that date. Direct purchases and all
other orders begin to earn dividends on the business day after the Fund
receives payment.
The Fund and Distributors each reserves the right to suspend the offering
of shares for a period of time and to reject any order for the purchase of
shares, including certain purchases by exchange (see "How to Exchange,"
page ).
MINIMUM ACCOUNT BALANCE. You must maintain an account balance of $1,000. If
your account falls below $1,000 due to redemption, the Transfer Agent may
close it at the NAV next determined and mail you the proceeds at the
address shown on the Transfer Agent's records. The Transfer Agent will give
you 30 days' notice that your account will be closed unless you make an
investment to increase your account balance to the $1,000 minimum.
SALES CHARGE WAIVERS. Sales charges do not apply to shares of the Fund
purchased:
(1) by registered representatives, bank trust officers and other employees
(and their immediate families) of investment professionals having
Agreements with Distributors;
(2) by a current or former Trustee or officer of a Fidelity fund or a
current or retired officer, director or full-time employee of FMR Corp. or
its direct or indirect subsidiaries (a "Fidelity Trustee or employee"), the
spouse of a Fidelity Trustee or employee, a Fidelity Trustee or employee
acting as custodian for a minor child, or a person acting as trustee of a
trust for the sole benefit of the minor child of a Fidelity Trustee or
employee;
(3) by a charitable organization (as defined in Section 501(c)(3) of the
Internal Revenue Code) investing $100,000 or more;
(4) by a charitable remainder trust or life income pool established for the
benefit of a charitable organization (as defined in Section 501(c)(3) of
the Internal Revenue Code);
(5) by trust institutions (including bank trust departments)
investing on their own behalf and on behalf of their clients;
(6) in accounts as to which a bank or broker-dealer charges an account
management fee, provided the bank or broker-dealer has an Agreement with
Distributors;
(7) as part of an employee benefit plan having more than 200 eligible
employees or a minimum of $3,000,000 in plan assets invested in Fidelity
mutual funds or a minimum of $1,000,000 invested in Fidelity Advisor
Funds;
(8) in a Fidelity or Fidelity Advisor IRA account purchased with the
proceeds of a distribution from (i) an employee benefit plan having more
than 200 eligible employees or a minimum of $3,000,000 in plan assets
invested in Fidelity mutual funds or $1,000,000 invested in Fidelity
Advisor mutual funds, or (ii) an insurance company separate account
qualifying under (9) below, or funding annuity contracts purchased by
employee benefit plans which in the aggregate have at least $3,000,000 in
plan assets invested in Fidelity mutual funds;
(9) by an insurance company separate account used to fund annuity contracts
purchased by employee benefit plans which in the aggregate have more than
200 eligible employees or $1,000,000 invested in Fidelity Advisor mutual
funds;
(10) by any state, county, city, or any governmental instrumentality,
department, authority or agency; or
(11) with redemption proceeds from other mutual fund complexes on which the
investor has paid a front-end sales charge only. (A Sales Charge Waiver
Form must accompany these transactions.)
Sales charge waivers must be qualified through Distributors in advance, and
employee benefit plan investors must meet additional requirements specified
in the SAI. Your investment professional should call Fidelity for more
information.
8.INVESTOR SERVICES
You may initiate many transactions by telephone. The Transfer Agent will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the identity of the
caller. The Transfer Agent will request personalized security codes or
other information, and may also record calls. You should verify the
accuracy of your confirmation statements immediately after you receive
them. If you do not want the ability to redeem and exchange by telephone,
call the Transfer Agent for instructions.
QUANTITY DISCOUNTS. Reduced sales charges are applicable to purchases of
$50,000 or more of the Fund alone or in combination with purchases of
shares of other Fidelity Advisor Funds made at any one time (including
Daily Money Fund and Daily Tax-Exempt Money Fund shares acquired by
exchange from any Fidelity Advisor Fund). To obtain the reduction of the
sales charge, you or your investment professional must notify the Transfer
Agent at the time of purchase whenever a quantity discount is applicable to
your purchase. Upon such notification, you will receive the lowest
applicable sales charge.
For purposes of qualifying for a reduction in sales charges under the
Combined Purchase, Rights of Accumulation or Letter of Intent provisions,
the following may qualify as an individual, or a "company" as defined in
Section 2(a)(8) of the Investment Company Act of 1940 (1940 Act): an
individual, spouse, and their children under age 21 purchasing for his,
her, or their own account; a trustee, administrator or other fiduciary
purchasing for a single trust estate or single fiduciary account or for a
single or a parent-subsidiary group of "employee benefit plans" (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974);
and tax-exempt organizations as defined under Section 501(c)(3) of the
Internal Revenue Code.
COMBINED PURCHASES. When you invest in the Fund for several accounts at the
same time, you may combine these investments into a single transaction to
qualify for the quantity discount if purchased through one investment
professional, and if the total is at least $50,000.
RIGHTS OF ACCUMULATION. Your "Rights of Accumulation" permit reduced sales
charges on any future purchases after you have reached a new breakpoint in
the Fund's sales charge schedule. You can add the value of existing
Fidelity Advisor Fund shares (including Daily Money Fund and Daily
Tax-Exempt Money Fund shares ACQUIRED BY EXCHANGE FROM ANY FIDELITY ADVISOR
FUND), determined at the current day's NAV at the close of business, to the
amount of your new purchase valued at the current offering price to
determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of the
Fund's shares alone or in combination with shares of other Fidelity Advisor
Funds (excluding Daily Money Fund and Daily Tax-Exempt Money Fund) within a
13-month period, you may obtain shares at the same reduced sales charge as
though the total quantity were invested in one lump sum, by filing a
non-binding Letter of Intent (the Letter) within 90 days of the start of
the purchases. Each investment you make after signing the Letter will be
entitled to the sales charge applicable to the total investment indicated
in the Letter. For example, a $2,500 purchase toward a $50,000 Letter would
receive the same reduced sales charge as if the $50,000 had been invested
at one time. To ensure that the reduced price will be received on future
purchases, you or your investment professional must inform the Transfer
Agent that the Letter is in effect each time shares are purchased. Neither
income dividends nor capital gain distributions taken in additional shares
will apply toward the completion of the Letter.
Your initial investment must be at least 5% of the total amount you plan to
invest. Out of the initial purchase, 5% of the dollar amount specified in
the Letter will be registered in your name and held in escrow. The shares
held in escrow cannot be redeemed or exchanged until the Letter is
satisfied or the additional sales charges have been paid. You will earn
income dividends and capital gain distributions on escrowed shares. The
escrow will be released when your purchase of the total amount has been
completed. You are not obligated to complete the Letter.
If you purchase more than the amount specified in the Letter and qualify
for a further sales charge reduction, the sales charge will be adjusted to
reflect your total purchase at the end of 13 months. Surplus funds will be
applied to the purchase of additional shares at the then current offering
price applicable to the total purchase.
If you do not complete your purchase under the Letter within the 13-month
period, 30 days' written notice will be provided for you to pay the
increased sales charges due. Otherwise, sufficient escrowed shares will be
redeemed to pay such charges.
FIDELITY ADVISOR SYSTEMATIC INVESTMENT PROGRAM. You can make regular
investments in the Fund with the Systematic Investment Program by
completing the appropriate section of the account application and attaching
a voided personal check. Investments may be made monthly by automatically
deducting $100 or more from your bank checking account. You may change the
amount of your monthly purchase at any time. There is a $1,000 minimum
initial investment requirement for the Systematic Investment
Program. Shares will be purchased at the offering price next determined
following receipt of the investment by the Transfer Agent. You may cancel
the Systematic Investment Program at any time without payment of a
cancellation fee. You will receive a confirmation from the Transfer Agent
for every transaction, and a debit entry will appear on your bank
statement.
9.SHAREHOLDER COMMUNICATIONS
The Transfer Agent will send you a confirmation after every transaction
that affects the share balance or the account registration. At least twice
a year each shareholder will receive the Fund's financial statements, with
a summary of its portfolio composition and performance. To reduce expenses,
only one copy of most shareholder reports (such as the Fund's Annual
Report) will be mailed to each shareholder address. Please write to the
Transfer Agent or contact your investment professional if you need to have
additional reports sent each time.
The Fund pays for these shareholder communications, but not for special
services that are required by a few shareholders, such as a request for a
historical transcript of an account. You may be required to pay a fee for
such special services. If you are purchasing shares of the Fund through a
program of administrative services offered by an investment professional,
you should read the additional materials pertaining to that program in
conjunction with this Prospectus. Certain features of the Fund, such as the
minimum initial or subsequent investment, may be modified in these
programs, and administrative charges may be imposed for the services
rendered.
10.HOW TO EXCHANGE
An exchange is the redemption of shares of one fund and the purchase of
shares of another fund, each at the next determined NAV. The exchange
privilege is a convenient way to sell and buy shares of other Fidelity
Advisor Funds and certain Fidelity money market funds registered in your
state.
To protect the Fund's performance and shareholders, FMR discourages
frequent trading in response to short-term market fluctuations. The Fund
reserves the right to refuse exchange purchases by any person or group if,
in FMR's opinion, the Fund would be unable to invest effectively in
accordance with its investment objective and policies, or would otherwise
be affected adversely. Your exchanges may be restricted or refused if the
Fund receives or anticipates simultaneous orders affecting significant
portions of the Fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the Fund.
Exchange restrictions may be imposed at any time. The Fund may modify or
terminate the ex change privilege. The exchange limit may be modified for
certain institutional retirement plans.
Exchange instructions may be given by you in writing or by telephone
directly to the Transfer Agent or through your investment professional.
FOR MORE INFORMATION ON ENTERING AN EXCHANGE TRANSACTION, PLEASE CONSULT
YOUR INVESTMENT PROFESSIONAL.
Before you make an exchange:
1. Read the prospectus of the fund into which you want to exchange.
2. Shares may be exchanged into other Fidelity Advisor Funds seven calendar
days after purchase, at NAV (without a sales charge). Exchanges into a
Fidelity Advisor Fund from eligible Fidelity money market funds will be
processed at the next determined offering price (unless the shares were
acquired by exchange from another Fidelity Advisor Fund). A differential
sales charge will apply for exchanges of shares of Fidelity Advisor Short
Fixed-Income Fund or Fidelity Advisor Short-Intermediate Tax-Exempt Fund
held for less than six months.
3. You may only exchange between accounts that are registered in the same
name, address, and taxpayer identification number.
4. You may make four exchanges out of the Fund per calendar year. If you
exceed this limit, your future purchases of (including exchanges into)
Fidelity Advisor Funds may be permanently refused. For purposes of the four
exchange limit, accounts under common ownership or control, including
accounts having the same taxpayer identification number, will be
aggregated. Systematic exchanges are not subject to this four exchange
limit (see following section).
5. TAXES: The shares exchanged represent a sale and are taxable. The
Transfer Agent will send you a confirmation of each exchange transaction.
FIDELITY ADVISOR SYSTEMATIC EXCHANGE PROGRAM. You can exchange a specific
dollar amount of shares from the Fund into another Fidelity Advisor Fund on
a monthly, quarterly or semiannual basis under the following conditions:
1. The account from which the exchanges are to be processed must have a
minimum balance of $10,000.
2. The account into which the exchanges are to be processed must be an
existing account with a minimum balance of $1,000.
3. Both accounts must have identical registrations and taxpayer
identification numbers. The minimum amount that can be exchanged
systematically into the Fund is $100.
4. Systematic Exchanges will be processed at the NAV determined on the
transaction date, except that Systematic Exchanges into a Fidelity Advisor
Fund from any money market fund will be processed at the offering price
next determined on the transaction date (unless the shares were acquired by
exchange from another Fidelity Advisor Fund).
11.HOW TO SELL SHARES
You may sell (redeem) all or a portion of your shares on any day the New
York Stock Exchange (NYSE) is open, at the NAV next determined after the
Transfer Agent receives your request to sell. Orders to sell may be placed
by you in writing or by telephone or through your investment professional.
Orders to sell received by the Transfer Agent before 4:00 p.m. Eastern time
will receive that day's share price. For orders to sell placed through
your investment professional, it is the investment professional's
responsibility to transmit such orders to the Transfer Agent by 4:00 p.m.
Eastern time for you to receive that day's share price.
Once your shares are redeemed, the Fund normally will send the proceeds on
the next business day to the address of record. If making immediate payment
could adversely affect the Fund, the Fund may take up to seven days to pay
you. The Fund may withhold redemption proceeds until it is reasonably
satisfied that it has collected investments that were made by check (which
can take up to seven calendar days).
When the NYSE is closed (or when trading is restricted) for any reason
other than its customary weekend or holiday closings, or under any
emergency circumstances as determined by the SEC to merit such action, the
Fund may suspend redemption or postpone payment dates for more than
seven days . The Transfer Agent requires additional documentation to
sell shares registered in the name of a corporation, agent or fiduciary or
a surviving joint owner. Call 1-800-221-5207 for specific requirements.
REDEMPTION REQUESTS BY TELEPHONE:
TO RECEIVE A CHECK. You may sell shares of the Fund having a value of
$100,000 or less from your account by calling the Transfer Agent.
Redemption proceeds must be sent to the address of record listed on the
account, and a change of address must not have occurred within the
preceding 60 days.
TO RECEIVE A WIRE. You may sell shares of the Fund and have the proceeds
wired to a pre-designated bank account. Wires will generally be sent the
next business day following the redemption of shares from your account.
Telephone redemptions cannot be processed for Fidelity Advisor Fund
prototype retirement accounts where State Street Bank and Trust Company is
the custodian.
REDEMPTION REQUESTS IN WRITING. For your protection, if you sell shares of
the Fund having a value of more than $100,000, or if you are sending the
proceeds of a redemption of any amount to an address other than the address
of record listed on the account, or if you have requested a change of
address within the preceding 60 days, or if you wish to have the proceeds
wired to a non-predesignated bank account, you must send a letter of
instruction signed by all registered owners with signature(s) guaranteed to
the Transfer Agent. A signature guarantee is a widely recognized way to
protect you by guaranteeing the signature on your request; it may not be
provided by a notary public. Signature guarantee(s) will be accepted from
banks, brokers, dealers, municipal securities dealers, municipal securities
brokers, government securities dealers, government securities brokers,
credit unions (if authorized under state law), national securities
exchanges, registered securities associations, clearing agencies and
savings associations.
REINSTATEMENT PRIVILEGE. If you have sold all or part of your Fund shares
you may reinvest an amount equal to all or a portion of the redemption
proceeds in the Fund, or in any of the other Fidelity Advisor Funds, at the
NAV next determined after receipt of your investment order (without a sales
charge), provided that such reinvestment is made within 30 days of
redemption. You must reinstate your shares into an account with the same
registration. This privilege may be exercised only once by a shareholder
with respect to the Fund and certain restrictions may apply.
FIDELITY ADVISOR SYSTEMATIC WITHDRAWAL PROGRAM. If you own shares of the
Fund worth $10,000 or more, you may periodically have proceeds sent
automatically from your account to you, to a person named by you, or to
your bank checking account. Your Systematic Withdrawal Program payments are
drawn from share redemptions. If Systematic Withdrawal Program redemptions
exceed distributions earned on your shares, your account eventually may be
exhausted. Since a sales charge is applied on new shares you buy, it is to
your disadvantage to buy shares while also making systematic redemptions.
You may obtain information about the Systematic Withdrawal Program by
contacting your investment professional.
12.DISTRIBUTION OPTIONS
When you fill out your account application, you can choose from four
Distribution Options:
1. REINVESTMENT OPTION. Dividends and capital gain distributions will be
automatically reinvested in additional shares of the Fund. If you do not
indicate a choice on your account application, you will be assigned this
option.
2. INCOME-EARNED OPTION. Capital gain distributions will be automatically
reinvested, but a check will be sent for each dividend distribution.
3. CASH OPTION. A check will be sent for each dividend and capital gain
distribution.
4. DIRECTED DIVIDENDS PROGRAM. Dividends and capital gain distributions
will be automatically invested in another identically registered Fidelity
Advisor Fund.
You may change your Distribution Option at any time by notifying the
Transfer Agent in writing. Distribution checks for the Fund will be mailed
no later than seven days after the last day of the month except for
distribution checks from a December ex-dividend date which may take
slightly longer. On the day the Fund goes ex-dividend, the amount of the
distribution is deducted from its share price. Reinvestment of
distribu tions will be made at that day's NAV. If you select option 2 or
3 and the U.S. Postal Service cannot deliver your checks, or if your checks
remain uncashed for six months your distribution checks will be reinvested
in your account at the current NAV and your election may be converted to
the Reinvestment Option.
13.DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. The Fund distributes substantially all of its net investment
income and capital gains, if any, to shareholders each year. Income
dividends are declared daily and paid monthly. Any net capital gains will
normally be distributed in December and February.
The Fund's income dividends are based on the income it earns from its
investments. Because some gains and losses from currency fluctuations are
treated as increasing or reducing the Fund's income for tax purposes, the
Fund may adjust its dividends to attempt to take such gains and losses into
account, which may cause the Fund's dividends to vary. Undistributed net
gains from currency transactions, if any, will generally be distributed as
a separate dividend in December.
CAPITAL GAINS. You may realize a capital gain or loss when you sell or
exchange shares. For most types of accounts, the Fund will report the
proceeds of your redemptions to you and the IRS annually. However, because
the tax treatment also depends on your purchase price and your personal tax
position, YOU SHOULD KEEP YOUR REGULAR ACCOUNT STATEMENTS to use in
determining your tax.
"BUYING A DIVIDEND." On the record date for a distribution from the Fund,
the Fund's share price is reduced by the amount of the distribution. If you
buy shares just before the record date (buying a dividend), you will pay
the full offering price for the shares, and then receive a portion of the
price back as a taxable distribution.
FEDERAL TAXES. Distributions from the Fund's income and short-term capital
gains are taxed as dividends, and long-term capital gain distributions are
taxed as long-term capital gains. Distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional shares,
except that distributions declared in December and paid in January are
taxable as if paid on December 31. The Fund will send you a tax statement
by January 31 showing the tax status of the distributions you received in
the past year. A copy will be filed with the Internal Revenue Service
(IRS). A portion of the Fund's dividends, if any, may qualify for the
dividends-received deduction for corporations. If the Fund's dividends
exceed its taxable income in any year, as a result of currency-related
losses or otherwise, all or a portion of the Fund's dividends may be
treated as a return of capital to shareholders for tax purposes. Returns of
capital are not taxable, but will reduce the cost basis of your shares and
may affect your capital gains or losses. Any returns of capital will be
reported to you on the annual tax statement the Fund sends you in January.
If you have received a return of capital distribution from the Fund, the
distribution will generally be treated as reducing the cost basis of your
shares, and should be taken into account in calculating gains and losses.
Reductions in your cost basis will cause you to report a larger capital
gain or smaller capital loss when you sell your shares.
If the Fund has paid withholding or other taxes to foreign governments
during the year, the taxes will reduce the Fund's dividends but will be
included in the taxable income reported on your tax statement. You may be
able to claim an offsetting tax credit or itemized deduction for foreign
taxes paid by the Fund. Your tax statement will show the amount of foreign
tax for which a credit or deduction may be available.
STATE AND LOCAL TAXES. Mutual fund dividends from most U.S. government
securities generally are free from state and local income taxes. However,
certain types of securities, such as repurchase agreements and certain
agency backed securities, may not qualify for the government interest
exemption on a state-by-state basis. GNMA and other mortgage backed
securities are other notable exceptions in many states. Some states may
impose intangible property taxes. You should consult your own tax advisor
for details and up-to-date information on the tax laws in your state.
OTHER TAX INFORMATION. In addition to federal taxes, you may be subject to
state or local taxes on your investment, depending on the laws in your
area.
When you sign your account application, you will be asked to certify that
your social security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the Fund to
withhold 31% of your taxable distributions and redemptions.
14.FEES
MANAGEMENT AND OTHER SERVICES. For managing its investments and business
affairs, the Fund pays a monthly fee to FMR based on a basic fee rate,
which is the sum of two components.
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by FMR. This rate cannot rise above .37%, and it
drops (to as low as a marginal rate of .1325%) as total assets in all
of these funds rise. The effective group fee rate for the month of December
1993, was .1621%.
2. An individual fund fee rate of .55%.
One-twelfth of the annual management fee rate is applied to the Fund's net
assets averaged over the most recent month, giving a dollar amount which is
the management fee for that month.
The management fee rate is higher than those of most domestic mutual funds,
but not necessarily higher than that of the typical international fund, due
to the greater complexity, expense, and commitment of resources involved in
investing in foreign securities.
FMR may, from time to time, agree to reimburse the Fund for expenses
(excluding interest, taxes, brokerage commissions, and extraordinary
expenses) above a specified percentage of average net assets. FMR retains
the ability to be repaid by the Fund for these expense reimbursements in
the amount that expenses fall below the limit prior to the end of the
fiscal year. Fee reimbursements by FMR will increase the Fund's yield and
total return, and repayment by the Fund will lower its yield and total
return. FMR has voluntarily agreed to reimburse expenses of the Fund to
the extent that total expenses exceed 1.50% of the Fund's average net
assets.
FMR has entered into sub-advisory agreements. Sub-advisors provide research
and investment advice and research services with respect to companies based
outside the U.S. and FMR may grant sub-advisors investment management
authority as well as the authority to buy and sell securities if FMR
believes it would be beneficial to the Fund. The Fund has sub-advisory
agreements with Fidelity Management & Research (U.K.), Inc. (FMR U.K.),
Fidelity Management & Research (Far East), Inc. (FMR Far East),
Fidelity International Investment Advisors (FIIA), and Fidelity Investments
Japan Limited (FIJ). FIJ and FIIA are both Bermuda-based subsidiaries of
Fidelity International Limited (FIL). FIIA, in turn has entered into a
sub-advisory agreement with its wholly owned subsidiary, Fidelity
International Investment Advisors (U.K.) Limited (FIIAL U.K.). Currently,
FIIAL U.K., FMR Far East, FIJ, FIIA and FIIAL U.K. focus on companies in
countries other than those in the U.S., including countries in Asia,
Europe, and the Pacific Basin.
FMR pays FIIAL U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of each sub-advisor's costs incurred in connection with its
sub-advisory agreement. Under the sub-advisory agreement, FMR pays FIJ and
FIIA, respectively, 30% of its monthly management fee with respect to the
average market value of investments held by the Fund for which FIJ and
FIIA, respectively, have provided FMR with investment advice. FIIA, in
turn, pays FIIAL U.K. a fee equal to 110% of FIIAL U.K's costs incurred in
connection with providing investment advice and research services. For
providing investment management services, the sub-advisers are compensated
as follows: (a) FMR pays FMR U.K., FMR Far East, FIJ and FIIA 50% of its
monthly management fee with respect to the Fund's average net assets
managed by the sub-adviser on a discretionary basis; and (b) FIIA pays
FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection with providing
investment management services.
The Transfer Agent has delegated certain transfer, dividend paying and
shareholder services to Fidelity Investments Institutional Operations
Company (FIIOC), 82 Devonshire Street, Boston, Massachusetts 02109, an
affiliate of FMR. The Transfer Agent reallows to FIIOC a portion of its fee
for accounts for which FIIOC provides limited services, or its full fee for
accounts that FIIOC maintains on its behalf.
The Fund pays the Transfer Agent fees based on the type, size and number of
accounts in the Fund and the number of monetary transactions made by
shareholders. The fees for pricing and bookkeeping services are based on
the Fund's average net assets, but must fall within a range of $45,000 to
$750,000 per year.
Fidelity Service Co. (Service), 82 Devonshire Street, Boston, Massachusetts
02109, an affiliate of FMR, calculates the Fund's daily share price, and
maintains its general accounting records. Service also administers the
Fund's securities lending program.
The Fund's operating expenses include custodial, legal and accounting fees,
charges to register the Trust or Fund with federal and state regulatory
authorities and other miscellaneous expenses.
15.DISTRIBUTION AND SERVICE PLAN. The Board of Trustees of the Trust has
adopted a Distribution and Service Plan (the Plan) on behalf of the Fund
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 intended primarily to result in the sale of
shares of the Fund except pursuant to the plan adopted by the Fund under
the Rule. The Board of Trustees has adopted the Plan to allow the Fund and
FMR to incur certain expenses that might be considered to constitute direct
or indirect payment by the Fund of distribution expenses.
Under the Plan, the Fund is authorized to pay Distributors a monthly
distribution fee as compensation for its services and expenses in
connection with the distribution of shares of the Fund. The Fund pays
Distributors a distribution fee at an annual rate of up to .40% (or such
lesser amount as the Trustees may, from time to time, determine) the Fund's
average net assets determined as of the close of business on each day
throughout the month. Currently the Trustees have approved an annual rate
of .25% of the Fund's average net assets. The fee may be increased only
when, in the opinion of the Trustees, it is in the best interest of the
Fund's shareholders, to do so. The distribution fee is paid by the Fund,
not by individual accounts.
All or a portion of the distribution fee may be paid by Distributors to
investment professionals as compensation for selling shares of the Fund and
providing ongoing sales support services or for shareholder support
services. The distribution fee is a Fund expense in addition to the
management fee and the Fund's other expenses. Such expenses will reduce the
Fund's net investment income , yield and total return.
The Plan also provides that, through Distributors, FMR may make payments
from its management fee or other resources to investment professionals in
connection with the distribution of Fund shares. Investment professionals
will be compensated at the rate of .25% for purchases of $1 million or more
except for purchases through a bank or bank-affiliated broker-dealer that
qualify for a Sales Charge Waiver described on pages 7 and 8.
The NASD has approved amendments which subject asset-based sales charges to
its maximum sales charge rule. Fees paid pursuant to the Fund's
Distribution and Service Plan are limited by the restrictions imposed by
the NASD rule.
Distributors pays all or a portion of the applicable sales charge and
distribution and service fee to investment professionals who sell shares of
the Fund. Investment professionals who provide enhanced inquiry, order
entry and sales facilities in connection with transactions in Fund shares
by their clients may receive an administrative fee up to the maximum
applicable sales charge described in "Sales Charges and Investment
Professional Concessions," on page . In addition, Distributors will, at its
expense, provide promotional incentives such as sales contests and trips to
investment professionals who support the sale of shares of the Fund. In
some instances, these incentives will be offered only to certain types of
investment professionals, such as bank-affiliated or non-bank affiliated
broker-dealers, or to investment professionals whose representatives
provide services in connection with the sale or expected sale of
significant amounts of shares.
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 fully defined, in Distributors' opinion it
should not prohibit banks from being paid for shareholder servicing and
recordkeeping. If, because of changes in law or regulation, or because of
new interpretations of existing law, a bank or the Fund were prevented from
continuing these arrangements, it is expected that the Board would make
other arrangements for these services and that shareholders would not
suffer adverse financial consequences. 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.
16.VALUATION
The Fund's shares are valued at NAV. NAV is determined by adding the value
of all security holdings and other assets of the Fund, deducting
liabilities, and then dividing the result by the proportional number of
shares of the Fund outstanding.
NAV normally is calculated as of the close of business of the NYSE
(normally 4:00 p.m. Eastern time). The Fund is open for business and NAV is
calculated each day the NYSE is open for trading. Fund securities and other
assets are valued primarily on the basis of market quotations furnished by
pricing services, or if quotations are not available, by a method that the
Board of Trustees believes accurately reflects fair value. Foreign
securities are valued based on quotations from the primary market in which
they are traded and are converted from the local currency into U.S. dollars
using current exchange rates.
17.PERFORMANCE
The Fund's performance may be quoted in advertising in terms of total
return. All performance information is historical and is not intended to
indicate future performance. Share price and total return fluctuate in
response to market conditions and other factors, and the value of the
Fund's shares when sold may be worth more or less than their original cost.
Excluding the Fund's 4.75% sales charge from a performance calculation
produces a higher return figure. TOTAL RETURN is the change in value of an
investment in the Fund over a given period, assuming reinvestment of any
dividends and capital gains. A CUMULATIVE TOTAL RETURN reflects actual
performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN is
a hypothetical rate of return that, if achieved annually, would have
produced the same cumulative total return if performance had been constant
over the entire period. Average annual total returns smooth out variations
in performance; they are not the same as actual year-by-year results.
Average annual and cumulative total returns usually will include the effect
of paying the Fund's maximum sales charge. When the Fund quotes an
average annual total return covering a period of less than one year, the
calculation assumes the performance will remain constant for the rest of
the year. Since this may or may not occur, these average annual total
returns should be viewed as hypothetical returns rather than actual
performance.
The Fund also may quote performance in terms of yield. YIELD refers to the
income generated by an investment in the Fund over a given period of time,
expressed as an annual percentage rate. Yields are calculated according to
a standard that is required for all stock and bond funds. Because yield
calculations differ from other accounting methods, the quoted yield may not
equal the income actually paid to shareholders. This difference may be
significant for funds whose investments are denominated in foreign
currencies. In calculating yield, the Fund may from time to time use a
security's coupon rate instead of its yield to maturity in order to reflect
the risk premium on that security. This practice will have the effect of
reducing a Fund's yield. Other illustrations of performance may show moving
averages over specified periods.
For additional performance information, please contact your investment
professional or Distributors for a free SAI.
18.PORTFOLIO TRANSACTIONS
The Fund's portfolio securities generally are traded in the
over-the-counter market through broker-dealers. FMR chooses broker-dealers
by judging professional ability and quality of service. A broker -dealer
is a securities firm or bank which makes a market for securities by
offering to buy at one price and sell at a slightly higher price. The
difference is known as a spread. Since FMR trades a large number of
securities, including those of Fidelity's other funds, broker-dealers are
willing to work with the Fund on a more favorable spread than would be
possible for most individual investors. Also, the Fund will pay commissions
in connection with transactions in futures contracts and options.
The Fund has authorized FMR to allocate transactions to some broker-dealers
who help distribute the Fund's shares or the shares of Fidelity's other
funds, and on an agency basis, to Fidelity Brokerage Services, Inc. (FBSI)
and Fidelity Brokerage Services Ltd. (FBSL), affiliates of FMR. FMR will
make such allocations if commissions are comparable to those charged by
non-affiliated qualified broker-dealers for similar services.
FMR may also allocate brokerage transactions to the Fund's custodian,
acting as a broker-dealer, or other broker-dealers, so long as transaction
quality is comparable to that of other qualified broker-dealers, where the
broker-dealer will allocate a portion of the commissions paid toward
payment of the Fund's expenses. These expenses currently include transfer
agent fees and custodian fees.
Higher commissions may be paid to those firms that provide research,
valuation and other services to the extent permitted by law. FMR also is
authorized to allocate brokerage transactions to FBSI in order to secure
from FBSI research services produced by third party, independent entities.
FMR may use this research information in managing the Fund's assets, as
well as assets of other clients.
FMR may engage in short-term trading when it believes it is consistent with
the Fund's investment objective. Also, a security may be sold and another
of comparable quality simultaneously purchased to take advantage of what
FMR believes to be a temporary disparity in the normal yield relationship
of the two securities. The frequency of portfolio transactions - the
turnover rate - will vary from year to year depending on market conditions.
The Fund's annualized portfolio turnover rate is not expected to exceed
200% for its first fiscal period ending December 31, 1994. Because a high
portfolio turnover rate increases transaction costs and may increase
taxable capital gains, FMR carefully weighs the anticipated benefits of
short-term investing against these consequences.
19.THE TRUST AND THE FIDELITY ORGANIZATION
Fidelity Advisor Series VIII (the Trust) is an open-end management
investment company. The Trust was established as a Massachusetts business
trust on September 23, 1983. The Trust's Board of Trustees supervises the
Fund's activities and reviews the Fund's contractual arrangements with
companies that provide the Fund with services. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings,
although special meetings may be called for the Fund or the Trust as a
whole for purposes such as electing or removing Trustees, changing
fundamental investment policies or limitations or approving a management
contract or plan of distribution. As a shareholder, you receive one vote
for each share and fractional votes for fractional shares of the Fund.
Fidelity Investments is one of the largest investment management
organizations in the U.S. and has its principal business address at 82
Devonshire Street, Boston, Massachusetts 02109. It includes a number of
different companies that provide a variety of financial services and
products. The Trust employs various Fidelity companies to perform certain
activities required to operate the Fund.
Fidelity Management & Research Company is the original Fidelity company
founded in 1946. It provides a number of mutual funds and other clients
with investment research and portfolio management services. It maintains a
large staff of experienced investment personnel and a full complement of
related sup port facilities. As of December 31, 1993, FMR advised funds
having approximately 15 million shareholder accounts with a total value of
more than $225 billion. Distributors distributes shares for the Fidelity
funds.
FMR U.K. and FMR Far East, sub-advisors of the Fund, are wholly-owned
subsidiaries of FMR formed in 1986 to provide research and investment
advice with respect to foreign securities. FMR U.K. and FMR Far East have
their principal business offices in London and Tokyo, respectively.
FMR Corp. is the parent company for the Fidelity companies. Through
ownership of voting common stock, Edward C. Johnson 3d (President and a
Trustee of the Trust) Johnson family members, and various trusts for the
benefit of Johnson family members form a controlling group with respect to
FMR Corp.
Robert K. Citrone is manager of the Fund. He also manages Fidelity New
Markets Income Fund, which he has managed since May 1993 and serves as
strategist for Fidelity's emerging market fixed-income investments. Mr.
Citrone joined Fidelity in 1990.
20.APPENDIX
The following paragraphs provide a brief description of securities in which
the Fund may invest and transactions it may make. The Fund is not limited
by this discussion, however, and may purchase other types of securities and
enter into other types of transactions if they are consistent with the
Fund's investment objective and policies.
ASSET-BACKED SECURITIES. The Fund may purchase asset-backed securities
which represent interests in pools of consumer loans (generally unrelated
to mortgage loans) and most often are structured as pass-through
securities. Interest and principal payments ultimately depend on payment
of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the
servicing agent for the loan pool, the originator of the loans, or the
financial institution providing the credit enhancement.
CURRENCY MANAGEMENT. The relative performance of foreign currencies
is an important factor in the Fund's performance. FMR may manage the
Fund's exposure to various currencies to take advantage of different yield,
risk, and return characteristics that different currencies can provide for
U.S. investors.
To manage exposure to currency fluctuations, the Fund may enter into
currency forward contracts (agreements to exchange one currency for another
at a future date) or currency swap agreements, buy and sell options and
futures contracts relating to foreign currencies, and purchase securities
indexed to foreign currencies. The Fund can use currency forward contracts
in the normal course of business to lock in an exchange rate in connection
with purchases and sales of securities denominated in foreign currencies.
Other currency management strategies allow FMR to hedge portfolio
securities, to shift investment exposure from one currency to another, or
to attempt to profit from anticipated declines in the value of a foreign
currency relative to the U.S. dollar. There is no limitation on the amount
of the Fund's assets that may be committed to currency management
strategies.
DELAYED-DELIVERY TRANSACTIONS. The Fund may buy and sell securities on a
when-issued or delayed-delivery basis, with payment and delivery taking
place at a future date. The market value of securities purchased in this
way may change before the delivery date, which could increase fluctuations
in the Fund's yield. Ordinarily, the Fund will not earn interest on the
securities purchases until they are delivered.
EQUITY SECURITIES. The Fund may purchase equity securities including
common stocks, preferred stocks, convertible securities, and warrants.
While FMR believes that these types of investments in emerging markets
present the possibility for significant capital appreciation over the long
term, they also entail a high degree of risk. The prices of emerging
market equities can fluctuate dramatically in response to company, market,
economic, or political news.
FOREIGN CURRENCIES. The value of the Fund's investments and the value of
dividends and interest earned by the Fund may be significantly affected by
changes in currency exchange rates. Some foreign currency values may be
volatile, and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets, which could
adversely affect the Fund. Although FMR may attempt to manage currency
exchange rate risks, there is no assurance that FMR will do so at an
appropriate time or that FMR will be able to predict exchange rates
accurately. For example, if FMR increases the Fund's exposure to a foreign
currency, and that currency's value subsequently falls, FMR's currency
management may result in increased losses to the Fund. Similarly, if FMR
hedges the Fund's exposure to a foreign currency, and that currency's value
rises, the Fund will lose the opportunity to participate in the currency's
appreciation.
ILLIQUID INVESTMENTS. The Fund may invest up to 15% of its assets in
illiquid investments. Under the supervision of the Board of Trustees, FMR
determines the liquidity of the Fund's investments. The absence of a
trading market can make it difficult to ascertain a market value for
illiquid investments. Disposing of illiquid investments may involve
time-consuming negotiation and legal expenses, and it may be difficult or
impossible for the Fund to sell them promptly at an acceptable price.
INDEXED SECURITIES. The Fund may invest in indexed securities whose value
is linked to currencies, interest rates, commodities, indices, or other
financial indicators. Most indexed securities are short to intermediate
term fixed-income securities whose values at maturity or interest rates
rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed
(i.e., their value may increase or decrease if the underlying instrument
appreciates), and may have return characteristics similar to direct
investments in the underlying instrument or to one or more options on the
underlying instrument. Indexed securities may be more volatile than the
underlying instrument.
INTERFUND BORROWING PROGRAM. The Fund has received permission from the SEC
to lend money to and borrow money from other funds advised by FMR or its
affiliates. Interfund loans and borrowings normally will extend overnight,
but can have a maximum duration of seven days. The Fund will lend through
the program only when the returns are higher than those available at the
same time from other short-term instruments (such as repurchase
agreements), and will borrow through the program only when the costs are
equal to or lower than the cost of bank loans. The Fund will not lend more
than 7.5% of its assets to other funds, and will not borrow through the
program if, after doing so, total outstanding borrowings would exceed 15%
of total assets. Loans may be called on one day's notice, and the Fund may
have to borrow from a bank at a higher interest rate if an interfund loan
is called or not renewed. Any delay in repayment to a lending fund could
result in a lost investment opportunity or additional borrowing costs.
Policies with respect to the Interfund Borrowing Program are
non-fundamental.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The Fund may purchase loans and
other direct debt instruments which are interests in amounts owed by a
corporate, governmental or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve the risk
of loss in case of default or insolvency of the borrower. Direct debt
instruments may offer less legal protection to the Fund in the event of
fraud or misrepresentation. In addition, loan participations involve a risk
of insolvency of the lending bank or other financial intermediary. Direct
debt instruments may also include standby financing commitments that
obligate the Fund to supply additional cash to the borrower on demand.
LOWER-RATED DEBT SECURITIES. The Fund may purchase lower-rated
debt securities which are often considered to be speculative and involve
greater risk of default or price change due to changes in the issuer's
creditworthiness. The market price of these securities may fluctuate more
than higher-quality securities and may decline significantly in periods of
general economic difficulty. The Fund may purchase unrated securities.
Unrated securities are not necessarily lower-quality securities. Please
refer to the Fund's SAI for a more complete discussion of lower-rated debt
securities.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security may be an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations or
CMOs, make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Fund may invest in them if FMR determines they are consistent with the
Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
OPTIONS AND FUTURES CONTRACTS. The Fund may buy and sell options and
futures contracts to manage its exposure to changing interest rates,
security prices, and currency exchange rates. Some options and futures
strategies, including selling futures, buying puts, and writing calls, tend
to hedge the Fund's investment against price fluctuations. Other
strategies, including buying futures, writing puts, and buying calls, tend
to increase market exposure. Options and futures may be combined with each
other or with forward contracts in order to adjust the risk and return
characteristics of the overall strategy. The Fund may invest in options and
futures based on any type of security, index, or currency, including
options and futures traded on foreign exchanges and options not traded on
exchanges.
Options and futures can be volatile investments, and involve certain risks.
If FMR applies a hedge at an inappropriate time or judges market conditions
incorrectly, options and futures strategies may lower the Fund's return.
The Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if
it could not close out its positions because of an illiquid secondary
market.
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 may be changed at any time without shareholder
approval.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a
fund buys a security at one price and simultaneously agrees to sell it back
at a higher price. The Fund may also make securities loans to
broker-dealers and institutional investors, including FBSI. In the event of
the bankruptcy of the other party to either a repurchase agreement or a
securities loan, a fund could experience delays in recovering its cash or
the securities it lent. To the extent that, in the meantime, the value of
the securities purchased had decreased or the value of the securities lent
had increased, the Fund could experience a loss. In all cases, FMR must
find the creditworthiness of the other party to the transaction
satisfactory.
FOREIGN REPURCHASE AGREEMENTS. The Fund may enter into repurchase
agreements with respect to foreign securities and repurchase agreements
denominated in foreign currencies. Foreign repurchase agreements may be
less well secured than repurchase agreements in U.S. markets, and may
involve greater risks of default.
RESTRICTED SECURITIES. The Fund may purchase securities which cannot be
sold to the public without registration under the Securities Act of 1933
(restricted securities). Unless registered for sale, these securities can
only be sold in privately negotiated transactions or pursuant to an
exemption from registration.
SOVEREIGN DEBT OBLIGATIONS. The Fund may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of Latin American nations or other developing countries.
Sovereign debt may be in the form of conventional securities or other types
of debt instruments such as loans or loan participations. Sovereign debt
of developing countries may involve a high degree of risk, and may be in
default or present the risk of default. Governmental entities responsible
for repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. In addition, prospects for repayment of principal and interest
may depend on political as well as economic factors. Although some
sovereign debt instru ments, such as Brady Bonds, may be collateralized
by U.S. government securities, repayment of principal and interest is
not guaranteed by the U.S. government.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors. In a
typical interest rate swap, one party agrees to make regular payments equal
to a floating interest rate times a "notional principal amount," in return
for payments equal to a fixed rate times the same amount, for a specified
period of time. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange the notional principal
amount as well. Swaps may also depend on other prices or rates, such as the
value of an index or mortgage prepayment rates.
Swap agreements are sophisticated hedging instruments that typically
involve a small investment of cash relative to the magnitude of risks
assumed. As a result, swaps can be highly volatile and may have a
considerable impact on the Fund's performance. Swap agreements are subject
to risks related to the counterparty's ability to perform, and may decline
in value if the counterparty's creditworthiness deteriorates. The Fund may
also suffer losses if it is unable to terminate outstanding swap agreements
or reduce its exposure through offsetting transactions.
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those
contained in this Prospectus and in the related SAI, in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the Fund or Distributors. This Prospectus and the related SAI
do not constitute an offer by the Fund or by Distributors to sell or to buy
shares of the Fund to any person to whom it is unlawful to make such offer.
FIDELITY ADVISOR EMERGING MARKETS INCOME FUND
A FUND OF FIDELITY ADVISOR SERIES VIII
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 14, 1994
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus (dated February 14,
1994) for Fidelity Advisor Emerging Markets Income fund (the Fund).
Please retain this document for future reference. Additional copies of the
Prospectus or this Statement of Additional Information, are available
without charge upon request from Fidelity Distributors Corporation,
82 Devonshire Street, Boston, Massachusetts, 02109, or from your
investment professional .
NATIONWIDE 800-522-7297
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Special Considerations Affecting Latin America 12
Special Considerations Affecting the Pacific Basin 13
Special Considerations Affecting Europe 14
Special Considerations Affecting Africa 15
Portfolio Transactions 15
Valuation of Portfolio Securities 16
Performance 17
Additional Purchase, Exchange and Redemption Information 21
Distributions and Taxes 24
FMR 25
Trustees and Officers 25
Management Contract and Other Services 27
Distribution and Service Plans 29
Description of the Trust
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Fidelity International Investment Advisors (FIIA)
Fidelity International Investment Advisors (U.K.) Limited (FIIAL U.K.)
Fidelity Investments Japan Limited (FIJ)
DISTRIBUTOR
Fidelity Distributors Corporation (Distributors)
TRANSFER AGENT
State Street Bank and Trust Company (State Street) or (Transfer Agent)
CUSTODIAN
Chase Manhattan Bank, N.A. (Chase) or (Custodian)
I.BD- A EMISAI-294
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be
invested in any security or other assets, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, net assets or other circumstances will not be considered when
determining whether the investment complies with the Fund's investment
policies and limitations.
The Fund's fundamental investment policies and limitations cannot be
changed without approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the 1940
Act)) of the Fund. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
Fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements;
or
(8) notwithstanding any other fundamental investment policy or limitation,
invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, policies, and limitations as the Fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualifications as a "regulated
investment company," the Fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "government securities" as defined for federal tax purposes.
(ii) The Fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The Fund does not currently intend to purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The Fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The Fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The Fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the Fund's total
assets.
(v) The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The Fund does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the
New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX) or
traded on the NASDAQ National Market System.
(vii) The Fund does not currently intend to lend assets other than
securities to other parties, except (a) by lending money (up to 7.5% of the
Fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment adviser, or (b) acquiring
loans, loan participations, or other forms of direct debt instruments and
in connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
(viii) The Fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation or merger.
(ix) The Fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The Fund does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.
(xi) The Fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 10% of the Fund's net assets.
Included in that amount, but not to exceed 2% of net assets, are warrants
whose underlying securities are not traded on principal domestic or foreign
exchanges. Warrants acquired by the Fund in units or attached to
securities are not subject to these restrictions.
For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page 6 .
AFFILIATED BANK TRANSACTIONS. T he 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
include repurchase agreements with custodian banks; purchases, as
principal, of short-term obligations of, and repurchase agreements with,
the 50 largest U.S. banks (measured by deposits); transactions in municipal
securities; transactions in U.S. government securities with
affiliated banks that are primary dealers in these securities ;
short-term currency transactions; and short-term secured borrowing .
In accordance with exemptive orders issued by the SEC, the Board of
Trustees has established and periodically review s procedures
applicable to transactions involving affiliated financial institutions.
THE FUND'S RIGHTS AS A SHAREHOLDER. The Fund does not intend to direct or
administer the day-to-day operations of any company. The Fund, however,
may exercise its rights as a shareholder and may communicate its views on
important matters of policy to management, the Board of Directors, and
other shareholders of a company when FMR determines that such matters could
have a significant effect on the value of the Fund's investment in the
company. The activities that the Fund may engage in, either individually
or in conjunction with others, may include, among others, supporting or
opposing proposed changes in a company's corporate structure or business
activities; seeking changes in a company's directors or management; seeking
changes in company's direction or policies; seeking the sale or
reorganization of the company or a portion of its assets; or supporting or
opposing third-party takeover efforts. This area of corporate activity is
increasingly prone to litigation and it is possible that the Fund could be
involved in lawsuits related to such activities. FMR will monitor such
activities with a view to mitigating, to the extent possible, the risk of
litigation against the Fund and the risk of actual liability if the Fund is
involved in litigation. No guarantee can be made, however, that litigation
against the Fund will not be undertaken or liabilities incurred.
DELAYED-DELIVERY TRANSACTIONS. The Fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the Fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. The Fund may receive fees for entering
into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the Fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the Fund's other investments. If the Fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the Fund has sold a security on a
delayed-delivery basis, the Fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the Fund could miss a favorable price or yield opportunity, or could suffer
a loss.
LOWER-RATED DEBT SECURITIES. The market for lower-rated debt securities
may be thinner and less active than that for higher-rated debt securities,
which can adversely affect the prices at which the former are sold. If
market quotations are not available, lower-rated debt securities will be
valued in accordance with procedures established by the Board of Trustees,
including the use of outside pricing services. Judgment plays a greater
role in valuing high-yield corporate debt securities than is the case for
securities for which more external sources for quotations and last-sale
information are available. Adverse publicity and changing investor
perceptions may affect the ability of outside pricing services to value
lower-rated debt securities and the Fund's ability to dispose of these
securities.
Since the risk of default is higher for lower-rated debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by the Fund. In considering
investments for the Fund, FMR will attempt to identify those issuers of
high-yielding debt securities whose financial condition is adequate to meet
future obligations, has improved, or is expected to improve in the future.
FMR's analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
The Fund may chose, at is expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the Fund's shareholders.
FOREIGN SECURITIES. Investing in securities issued by companies or other
issuers whose principal activities are outside of the U.S. may involve
significant risks not present in U.S. investments. The value of securities
denominated in foreign currencies, and of dividends and interest paid with
respect to such securities, will fluctuate based on the relative strength
of the U.S. dollar. In addition, there is generally less publicly
available information about foreign issuers, particularly those not subject
to the disclosure and reporting requirements of the U.S. securities laws.
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. Investments in foreign securities
also involve the risk of possible adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation, limitation on
the removal of monies or other assets of the Fund, political or financial
instability, or diplomatic and other developments which could affect such
investments. Further, economies of particular countries or areas of the
world may differ favorably or unfavorably from the economy of the U.S.
It is anticipated that in most cases the best available market for foreign
securities will be on exchanges or in over-the-counter markets located
outside of the U.S. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the U.S., and
securities of some foreign issuers (particularly those located in
developing countries) may be less liquid and more volatile than securities
of comparable U.S. issuers. Foreign security trading practices, including
those involving securities settlement where Fund assets may be released
prior to receipt of payment, may expose the Fund to increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer. In
addition, foreign brokerage commissions and other fees are generally higher
than on securities traded in the U.S. and may be non-negotiable. In
general, there is less overall governmental supervision and regulation of
securities exchanges, brokers and listed companies than in the U.S.
The Fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject
to such transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to
such restrictions.
American Depository Receipts and European Depository Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
issuer held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The Fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The Fund will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers generally do not charge a fee for
conversion, they do realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Forward contracts are generally traded in an
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. The parties to a forward contract
may agree to offset or terminate the contract before its maturity, or may
hold the contract to maturity and complete the contemplated currency
exchange.
The Fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes some, but
not all, of the possible currency management strategies involving forward
contracts that could be used by the Fund. The Fund may also use options
and futures contracts relating to foreign currencies for the same purposes.
When the Fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the Fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The Fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For
example, if the Fund owned securities denominated in pounds sterling, the
Fund 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. The Fund could
also hedge the position by selling another currency expected to perform
similarly to the pound sterling -- for example, by entering into a forward
contract to sell Deutschemarks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield or efficiency, but
generally will not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used
to hedge does not perform similarly to the currency in which the hedged
securities are denominated.
The Fund may enter into forward contracts to shift its investment exposure
from one currency into another currency that is expected to perform better
relative to the U.S. dollar. For example, if the Fund held investments
denominated in Deutschemarks, the Fund could enter into forward contracts
to sell Deutschemarks and purchase Swiss Francs. This type of strategy,
sometimes known as a "cross-hedge," will tend to reduce or eliminate
exposure to the currency that is sold, and increase exposure to the
currency that is purchased, much as if the 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 the Fund to assume the
risk of fluctuations in the value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the Fund will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The 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 forward contracts will depend on FMR's skill in
analyzing and predicting currency values. Forward contracts may
substantially change the Fund's investment exposure to changes in currency
exchange rates, and could result in losses to the Fund if currencies do not
perform as FMR anticipates. For example, if a currency's value rose at a
time when FMR had hedged the Fund by selling that currency in exchange for
dollars, the Fund would be unable to participate in the currency's
appreciation. If FMR hedges currency exposure through proxy hedges, the
Fund could realize currency losses from the hedge and the security position
at the same time if the two currencies do not move in tandem. Similarly,
if FMR increases the Fund's exposure to a foreign currency, and that
currency's value declines, the Fund will realize a loss. There is no
assurance at FMR's use of currency forward contracts will be advantageous
to the Fund or that they will hedge at an appropriate time.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund intends to file
a notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets, before engaging in any purchases or sales of futures
contracts or options on futures contracts. The Fund intends to comply with
Section 4.5 of the regulations under the Commodity Exchange Act which
limits the extent to which the Fund can commit assets to initial margin
deposits and option premiums.
In addition, the Fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the Fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the Fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the Fund would
exceed 5% of the Fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.
FUTURES CONTRACTS. When the Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date.
When the Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the Fund enters into the contract. 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 Composite Stock
Price 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 the Fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Fund sells a
futures contract, by contrast, the value of its futures position will tend
to move in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of the Fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of the Fund, the Fund may
be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the Fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Fund
pays the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The Fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the Fund will lose the entire premium it paid. If the Fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The Fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Fund assumes the obligation to pay
the strike price for the option's underlying instrument if the other party
to the option chooses to exercise it. When writing an option on a futures
contract, the Fund will be required to make margin payments to an FCM as
described above for futures contracts. The Fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the Fund has written, however, the
Fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those
of writing put options, except that writing calls generally is a
profitable strategy if prices remain the same or fall. Through receipt of
the option premium, a call writer mitigates the effects of a price decline.
At the same time, because a call writer must be prepared to deliver the
underlying instrument in return for the strike price, even if its current
value is greater, a call writer gives up some ability to participate in
security price increases.
COMBINED POSITIONS. The Fund may purchase and write options in combination
with futures or forward contracts, to adjust the risk and return
characteristics of its overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce
the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and
close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current or
anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which it typically invests,
which involves a risk that the options or futures position will not track
the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the Fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, the Fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options ( not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
Fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The
Fund may purchase and sell currency futures and may purchase and write
currency options to increase or decrease its exposure to different foreign
currencies. The Fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the Fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect
the Fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the Fund's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the Fund's investments exactly over
time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply
with guidelines established by the SEC 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.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the Fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the Fund's investments, FMR may consider various factors
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features) and (5) the nature of the marketplace for
trades (including the ability to assign or offset the Fund's rights and
obligations relating to the investment). Investments currently considered
by the Fund to be illiquid include repurchase agreements not entitling the
holder to payment of principal and interest within seven days,
over-the-counter options and non-government stripped fixed-rate
mortgage-backed securities. Also, FMR may determine some restricted
securities, government stripped fixed-rate mortgage-backed securities,
loans and other direct debt instruments and swap agreements to be illiquid.
However, with respect to over-the-counter options the Fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending
on the assets held to cover the option and the nature and terms of any
agreement the Fund may have to close out the option before expiration. In
the absence of market quotations, illiquid investments are priced at fair
value as determined in good faith by a committee appointed by the Board of
Trustees. If through a change in values, net assets or other
circumstances, the Fund were in a position where more than 15% of its net
assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
INDEXED SECURITIES. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price
of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. Indexed securities may be more volatile
than the underlying instruments.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower
to lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments are subject to the Fund's policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If the Fund does not receive scheduled
interest or principal payments on such indebtedness, the Fund's share price
and yield could be adversely affected. Loans that are fully secured offer
the Fund more protections than an unsecured loan in the event of
non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of developing countries also involves a risk that the
governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund.
For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable
that under emerging legal theories of lender liability, the Fund could be
held liable as a co-lender. Direct debt instruments may also involve a
risk of insolvency of the lending bank or other intermediary. Direct debt
instruments that are not in the form of securities may offer less legal
protection to the Fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, the Fund relies on FMR's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the Fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the
loan or other indebtedness, the Fund has direct recourse against the
borrower, it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the benefit
of the Fund were determined to be subject to the claims of the agent's
general creditors, the Fund might incur certain costs and delays in
realizing payment on the loan or loan participation and could suffer a loss
of principal or interest.
Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments
may have the effect of requiring the Fund to increase its investment in a
borrower at a time when it would not otherwise have done so. The Fund will
set aside appropriate liquid assets in a segregated custodial account to
cover its potential obligations under standby financing commitments.
The Fund limits the amount of total assets that it will invest in issuers
within the same industry (see limitation (4)). For purposes of this
limitation, the Fund generally will treat the borrower as the "issuer" of
indebtedness held by the Fund. In the case of loan participations where a
bank or other lending institution serves as financial intermediary between
the Fund and the borrower, if the participation does not shift to the Fund
the direct debtor-creditor relationship with the borrower, SEC
interpretations require the Fund, in appropriate circumstances, to treat
both the lending bank or other lending institution and the borrower as
"issuers" for the purposes of determining whether the Fund has invested
more than 5% of its total assets in a single issuer. Treating a financial
intermediary as an issuer of indebtedness may restrict the Fund's ability
to invest in indebtedness related to a single financial intermediary, or a
group of intermediaries engaged in the same industry, even if the
underlying borrowers represent many different companies and industries.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security may be an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations or
CMOs, make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Fund may invest in them if FMR determines they are consistent with the
Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed-upon price on an agreed-upon date. 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. A
repurchase agreement involves the obligation of the seller to pay the
agreed-upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed-upon resale price and marked to
market daily) of the underlying security. The Fund may engage in
repurchase agreements with respect to any security in which it is
authorized to invest. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
of a decline in the market value of the underlying securities, as well as
delay and costs to the Fund in connection with bankruptcy proceedings), it
is the policy of the Fund to limit repurchase agreements to those member
banks of the Federal Reserve System and primary dealers in U.S. government
securities whose creditworthiness has been reviewed and found satisfactory
by FMR.
FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements may include
agreements to purchase and sell foreign securities in exchange for fixed
U.S. dollar amounts, or in exchange for specified amounts of foreign
currency. Unlike typical U.S. repurchase agreements, foreign repurchase
agreements may not be fully collateralized at all times: i.e., the value of
the security purchased by the Fund may be more or less than the price at
which the counterparty has agreed to repurchase the security. In the event
of a default by the counterparty, the Fund may suffer a loss if the value
of the security purchased is less than the agreed-upon repurchase price, or
if the Fund is unable to successfully assert a claim to the collateral
under foreign laws. As a result, foreign repurchase agreements may involve
higher credit risks than repurchase agreements in U.S. markets, as well as
risks associated with currency fluctuations. In addition, as with other
emerging market investments, repurchase agreements with counterparties
located in emerging markets or relating to emerging market securities may
involve issuers or counterparties with lower credit ratings than typical
U.S. repurchase agreements.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the Fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the Fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The Fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of the Fund's
assets and may be viewed as a form of leverage.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the Fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during
such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security.
SECURITIES LENDING. The Fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the NYSE and a subsidiary of
FMR Corp.
Securities lending allows the Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may
be delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that the Fund
may engage in loan transactions only under the following conditions: (1)
the Fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the Fund must be able to terminate
the loan at any time; (4) the Fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the Fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease the Fund's exposure to long- or
short-term interest rates (in the U.S. or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names. The Fund is not
limited to any particular form of swap agreement if FMR determines it is
consistent with the Fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines
elements of buying a cap and selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the Fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from the Fund. If a swap
agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be likely to
decline, potentially resulting in losses. The Fund expects to be able to
reduce its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.
The Fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If the
Fund enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Fund's
accrued obligations under the swap agreement over the accrued amount the
Fund is entitled to receive under the agreement. If the Fund enters into a
swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Fund's accrued obligations under the
agreement.
SPECIAL CONSIDERATIONS AFFECTING LATIN AMERICA
Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron ore, forestry, fishing, livestock, and agriculture. The
region has a large population (roughly 300 million) representing a large
series of market s . Economic growth was strong in the 1960s
and 1970s, but slowed dramatically in the 1980s as a result of poor
economic policies, higher international interest rates and the denial of
access to new foreign capital. Capital flight has proven a persistent
problem and external debt has been forcibly rescheduled. Political
turmoil, high inflation, capita l export or repatriation
restrictions, and nationalization have further exacerbated economic
conditions.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform, and fiscal and
monetary reform are among the recent steps taken to renew economic growth.
External debt is being restructured and flight capital (domestic capital
that has left the home country) has begun to return. Inflation control
efforts have also been implemented. Free trade zones are being discussed
in various areas around the region, the most notable being a free z one
recently approved among Mexico, the U.S., and Canada. Latin American
equity markets can be extremely volatile and in the past have shown little
correlation with the U.S. market. Currencies are typically weak, but most
are now relatively free floating, and it is not unusual for the currencies
to undergo wide fluctuations in value over short periods of time due to
changes in the market.
Mexico's economy is a mixture of state-owned industrial plants (notably
oil), private manufacturing and services, and both large-scale and
traditional agriculture. In the 1980s, Mexico experienced severe economic
difficulties: the nation accumulated large external debts as world
petroleum prices fell; rapid population growth outstripped the domestic
food supply; and inflation, unemployment, and pressures to emigrate became
more acute. Growth in national output however appears to be recovering,
rising from 1.4% in 1988 to 3.9% in 1990. The U.S. is Mexico's major
trading partner, accounting for two-thirds of its exports and imports. In
fact, the U.S. now exports more goods to Mexico than Japan. After
petroleum, border assembly plants and tourism are the largest earners of
foreign exchange. The government, in consultation with international
economic agencies, is implementing programs to stabilize the economy and
foster growt h, and strongly supported the recent free trade agreement
with the U.S. and Canada as a means to foster growth.
Brazil entered the 1990s with declining real growth, runaway inflation, an
unserviceable foreign debt of $122 billion, and a lack of policy direction.
A major long-run strength is Brazil's natural resources. Iron ore,
bauxite, tin, gold, and forestry products make up some to Brazil's basic
natural resource base, which includes some of the largest mineral reserves
in the world. A vibrant private sector is marred by an inefficient public
sector. The government has embarked on an ambitious reform program that
seeks to modernize and reinvigorate the economy by stabilizing prices,
deregulating the economy, and opening the economy to increased
foreign competition. Privitization of certain industries has been
proposed and is proceeding slowly. In terms of population, Brazil is
the sixth largest in the world with about 155 million people and represents
a huge domestic market.
Chile, like Brazil, is endowed with considerable mining resources, in
particular copper. Economic reform has been ongoing in Chile for at least
15 years, but political democracy has only recently returned to Chile.
Privatization of the public sector beginning in the early 1980s has
bolstered the equity market. A well-organized pension system has created
a long-term domestic investor base.
Argentina is strong in wheat production and other foodstuffs and livestock
ranching. A well-educated and skilled population boasts one of the highest
literacy rates in the region. The country has been ravaged by decades of
extremely high inflation and political instability. Recent attempts by the
present political regime to slow inflation and rationalize government
spending appear to be meeting with some success. Privatization is ongoing
and should reduce the amount of external debt outstanding. External debt
has grown to $60 billion, creating severe debt servicing difficulties and
hurting the country's creditworthiness with international lenders.
Venezuela has substantial oil reserves. External debt is being
renegotiated, and the government is implementing economic reform in order
to reduce the size of the public sector. Internal gasoline prices, which
are one-third those of international prices, are being increased in order
to reduce subsidies. Plans for privatization and exchange and interest
rate liberalization are examples of recently introduced reforms.
SPECIAL CONSIDERATIONS AFFECTING THE PACIFIC BASIN
Thailand has been transformed into one of the fastest growing stock markets
in the world. On February 23, 1991, the military staged its 17th coup
since the overthrow of the absolute monarchy in 1932. The newly appointed
government quickly focused on the economy and enacted major tax revisions,
slashing personal income tax and reducing taxes on imports. Most
significantly it pushed through a 7% value added tax. Released from
political consideration by the coup, the Bank of Thailand was finally able
to implement a monetary tightening. As a result, interest rates rose and
GDP declined to 7.7% from 10% the previous year. These changes contributed
to the stock market's poor performance, but have positioned Thailand for
continued strong economic growth. Deterioration of infrastructure may
limit future growth.
Hong Kong's impending return to Chinese dominion in 1997 has dampened
its economic growth which was vigorous in the 1980s. However,
authorities in Beijing have agreed to maintain a capitalist system in
Hong Kong for 50 years, which, along with Hong Kong's continued
economic growth, continued to further strong stock market returns. In
preparation for 1997, Hong Kong has continued to develop trade with China,
where it is the largest foreign investor, while also maintaining its
long-standing export relationship with the U.S. Spending on infrastructure
improvements is a significant priority of the colonial government while
the private sector continues to diversify abroad based on its position as
an established international trade center in the Far East.
In terms of GNP, industrial standards, and level of education, South Korea
is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well-developed sectors in electronics, automobiles, textiles
and shoe manufacturing, steel and shipbuilding, among others. The driving
force behind the economy's dynamic growth has been the planned development
of an export-oriented economy in a vigorously entrepreneurial society.
Real GNP grew about 7.5% in 1991. Labor unrest was noticeably calmer,
unemployment averaged a low of 2.3%, and investment was strong. Inflation
rates, however, are beginning to challenge South Korea's strong economic
performance. Moreover, the international situation between South and North
Korea continues to be uncertain.
Indonesia is a mixed economy with many socialist institutions and central
planning but with a recent emphasis on deregulation and private enterprise.
Financial markets in Indonesia are characterized by less disclosure of
information, more thinly capitalized issuers, and less frequent trading
than in more developed markets. Like Thailand, Indonesia has extensive
natural wealth, yet with a large and rapidly increasingly population, it
remains a poor country. Agriculture, including forestry and fishing, is an
important sector, accounting for 21% of GDP and over 50% of the labor
force. Once the world's largest rice importer, Indonesia is now nearly
self-sufficient.
The Malaysian economy continues to perform well growing at an average
annual rate of 9% from 1987 through 1991. This placed Malaysia as one of
the fastest growing economics in the Asian-Pacific region. Malaysia has
become the world's third-largest producer of semiconductor devices (after
the U.S. and Japan) and the world's largest exporter of semiconductor
devices. More remarkable is the country's ability to achieve rapid
economic growth with relative price stability (2% inflation over the past
five years) as the government followed prudent fiscal/monetary policies.
Malaysia's high export dependence level leaves it vulnerable to a recession
in the Organization for Economic Cooperation and Development countries or a
fall in world commodity prices. Moreover, Malaysia's infrastructure may
need significant improvement to support additional growth.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived
from its entrepot history. During the 1970s and the early 1980s, the
economy expanded rapidly, achieving an average annual growth rate of 9%.
Per capita GDP is among the highest in Asia. Singapore holds a position as
a major oil refining and services center.
SPECIAL CONSIDERATIONS AFFECTING EUROPE
Most Eastern European nations, including Hungary, Poland, the
Czech Republic, Slovakia , and Romania have had centrally
planned, socialist economies since shortly after World War II. A number of
their governments, including those of Hungary, the Cze ch
Republic , and Poland are currently implementing or considering reforms
directed at political and economic liberalization, including efforts to
foster multi-party political systems, decentralize economic planning, and
move toward free market economies. At present, no Eastern European country
has a developed stock market, but Poland, Hungary, and the Czech
Republic have small securities markets in operation. Ethnic and civil
conflict currently rage throughout the former Yugoslavia. The outcome is
uncertain.
Both the E uropean Union (EU) and Japan, among others, have made
overtures to establish trading arrangements and assist in the economic
development of the Eastern European nations. A great deal of interest also
surrounds opportunities created by the reunification of East and West
Germany. Following reunification, Germany remain s a firm and
reliable member of the E U and numerous other international alliances
and organizations. To reduce inflation caused by the unification of East
and West Germany, Germany has adopted a tight monetary policy which has led
to weakened exports and a reduced domestic demand for goods and services.
However, in the long-term, reunification could prove to be an engine for
domestic and international growth.
The conditions that have given rise to these developments are changeable,
and there is no assurance that reforms will continue or that their goals
will be achieved.
Portugal is a genuinely emerging market which has experienced rapid growth
since the mid-1980s, except for a brief period of stagnation over 1990-91.
Portugal's government remains committed to privatization of the financial
system away from one dependent upon the banking system to a more balanced
structure appropriate for the requirements of a modern economy. Inflation
continues to be about three times the EC average.
Economic reforms launched in the 1980s continue to benefit Turkey in the
1990s. Turkey's economy has grown steadily since the early 1980s, with real
growth in per capita Gross Domestic Product (GDP) increasing more than 6%
annually. Agriculture remains the most important economic sector,
employing approximately 55% of the labor force, and accounting for nearly
20% of GDP and 20% of exports. Inflation and interest rates remain high,
and a large budget deficit will continue to cause difficulties in Turkey's
substantial transformation from a centrally controlled to a free market
economy.
Like many other Western economies, Greece suffered severely from the global
oil price hikes of the 1970s, with annual GDP growth plunging from 8% to 2%
in the 1980s, and inflation, unemployment, and budget deficits rising
sharply. The fall of the socialist government in 1989 and the inability of
the conservative opposition to obtain a clear majority have led to business
uncertainty and the continued prospects for flat economic performance.
Once Greece has sorted out its political situation, it will have to face
the challenges posed by the steadily increasing integration of the
E U , including the progressive lowering of trade and investment
barriers. Tourism continues as a major industry, providing a vital offset
to a sizable commodity trade deficit.
SPECIAL CONSIDERATIONS AFFECTING AFRICA
Africa is a continent of roughly 50 countries with a total population of
approximately 840 million people. Literacy rates (the percentage of people
who are over 15 years of age and who can read and write) are relatively
low, ranging from 20% to 60%. The primary industries include crude oil,
natural gas, manganese ore, phosphate, bauxite, copper, iron, diamond,
cotton, coffee, cocoa, timber, tobacco, sugar, tourism, and cattle.
Many of the countries are fraught with political instability. However,
there has been a trend over the past five years toward democratization.
Many countries are moving from a military style, Marxist, or single party
government to a multi-party system. Still, there remain many countries
that do not have a stable political process. Other countries have been
enmeshed in civil wars and border clashes.
Economically, the Northern Rim countries (including Morocco, Egypt, and
Algeria, Nigeria, Zimbabwe, and South Africa are the wealthier
countries on the continent due to their strong ties with the European
nations. The market capitalization of these countries has been growing
recently as more international companies invest in Africa and as local
companies start to list on the exchanges. However, religious strife has
been a significant source of instability in the Northern Rim countries.
Although racial discord in South Africa may be reduced by constitutional
changes that are in progress, the long-term future of South Africa is
uncertain.
On the other end of the economic spectrum are countries, such as
Burkina, Faso, Madagascar, and Malawi, that are considered to be
among the poorest or least developed in the world. These countries are
generally landlocked or have poor natural resources. The economies of many
African countries are heavily dependent on international oil prices. Of
all the African industries, oil has been the most lucrative, accounting for
40% to 60% of many countries' Gross Domestic Product. However, general
decline in oil prices has had an adverse impact on many economies.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the Fund by FMR pursuant to authority contained in its Management
Contract. If FMR grants investment authority to the sub-advisers as
described in the section entitled "Management Contract" beginning on page
26, the sub-advisers will be authorized to place orders for the purchase
and sale of portfolio securities and will do so in accordance with the
policies described below. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for which it
or its affiliates act as investment adviser. In selecting broker-dealers,
subject to applicable limitations of the federal securities laws, FMR will
consider various relevant factors, including, but not limited to, the size
and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any spreads or commissions. Commissions for foreign
investments traded on foreign exchanges will generally be higher than for
U.S. investments and may not be subject to negotiation.
The Fund may execute portfolio transactions with broker-dealers who provide
research 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; the availability of securities or the
purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance
and settlement). The selection of such broker-dealers is generally made by
FMR (to the extent possible consistent with execution considerations) based
upon the quality of such brokerage and research services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the Fund may be useful to FMR in rendering investment management
services to the Fund or its other clients, and conversely, such
information provided by broker-dealers who have executed transaction orders
on behalf of other FMR clients may be useful to FMR in carrying out its
obligations to the Fund. The receipt of such research has not reduced
FMR's normal independent research activities; however, it enables FMR to
avoid the additional expenses which might otherwise be incurred if it were
to attempt to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
the Fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers
viewed in terms of a particular transaction or FMR's overall
responsibilities to the Fund 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 Fidelity Brokerage Services, Inc.
(FBSI), and Fidelity Brokerage Services, Ltd. (FBSL), affiliates of FMR, if
the commissions are fair, reasonable and comparable to commissions charged
by non-affiliated, qualified brokerage firms for similar services.
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, except in accordance with
regulation of the SEC. Pursuant to such regulations, the Board of Trustees
has approved a written agreement which permits FBSI to effect the Fund's
securities transactions on national securities exchanges and to retain
compensation in connection with such transactions.
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 annual portfolio turnover rate in its first fiscal period is not
expected to exceed 200%. The portfolio turnover rate will vary from year
to year depending upon market conditions. Because a high turnover rate
increases transaction costs and may increase taxable capital gains, FMR
carefully weighs the benefits of short-term investing against these
consequences.
From time to time the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable. The Fund seeks to recapture soliciting broker- dealer fees
on the tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine, in the exercise of their business judgment,
whether it would be advisable for the Fund to seek such recapture.
Although the Trustees and officers of the Fund are substantially the same
as those of other funds managed by FMR, investment decisions for the Fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds are managed by
the same investment adviser, particularly when the same security is
suitable for the investment objective of more than one fund.
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 a formula considered by the officers of the funds involved to be
equitable to each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as the Fund is
concerned. In other cases, however, the ability of the Fund to participate
in volume transactions will produce better executions and prices for the
Fund. It is the current opinion of the Trustees that the desirability of
retaining FMR as investment adviser to the Fund outweighs any disadvantages
that may be said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
The Fund's portfolio securities, including ADRs, EDRs and other forms of
depository receipts, are valued (i) by appraising portfolio securities that
are traded on the New York Stock Exchange (NYSE) or American Stock Exchange
at the closing bid price, or, if no closing price is available, at the last
traded bid price; and (ii) by appraising foreign securities as nearly as
possible in the manner described in clause (i) if traded on any other U.S.,
Canadian, or foreign exchange, and, if not so traded, on the basis of
closing over-the-counter bid prices, if available.
U.S. Treasury securities are valued on the basis of valuations furnished by
a pricing service which utilizes both dealer-supplied valuations and
electronic data processing techniques. Such techniques take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations
are believed to reflect more accurately the fair value of such securities.
Foreign securities are valued at the closing bid price in the principal
market where they are traded, or, if closing prices are unavailable, at the
last traded bid price available prior to the time the Fund's net asset
value (NAV) is determined. Foreign portfolio security prices are furnished
by quotation services expressed in the local currency's value. Fidelity
Service Co. (Service) translates the value of foreign securities from the
local currency into U.S. dollars. Foreign security prices that cannot be
obtained by the quotation services are priced individually by Service using
dealer-supplied quotations. Short-term obligations that mature in 60 days
or less are valued at amortized cost, which constitutes fair value. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
government securities, money market instruments, and repurchase agreements,
is substantially completed each day at various times prior to the close of
the NYSE. The values of any such securities held by the Fund are
determined as of such times for the purpose of computing the Fund's NAV.
The procedures set forth in (i) and (ii) above need not be used to
determine the value of debt securities owned by the Fund if, in the opinion
of the Board of Trustees, some other method (e.g., based on closing
over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such debt
securities. Foreign currency exchange rates are also generally determined
prior to the close of the NYSE. If an extraordinary event that is expected
to affect the value of a portfolio security materially occurs after the
close of an exchange on which that security is traded, then the security
will be valued at fair value as determined in good faith under the
direction of the Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied in advertising is historical and is not intended to
indicate future returns. Share price , yield and total returns
fluctuate in response to market conditions and other factors, and the value
of shares when redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the NAV over the period.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment over a stated
period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in
value had been constant over the period. For example, a cumulative return
of 100% over ten years would produce an average annual total return of
7.18%, which is the steady annual return that would equal 100% growth on a
compounded basis in ten years. While average annual total returns are a
convenient means of comparing investment alternatives, investors should
realize that performance is not constant over time, but changes from year
to year, and that average annual returns represent averaged figures as
opposed to actual year-to-year performance.
In addition to average annual total returns, unaveraged or cumulative total
returns reflecting the simple change in value of an investment over a
stated period may be quoted. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated
for a single investment, a series of investments, and/or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted with
or without taking the maximum sales charge into account. Total Returns may
be quoted on a before-tax or after-tax basis. Excluding the sales charge
from a total return calculation produces a higher total return figure.
Total returns and other performance information may be quoted numerically
or in a table, graph or similar illustration . To illustrate the
components of overall performance the Fund may separate its cumulative and
average annual returns into income results and capital gains or losses.
YIELD CALCULATIONS. Yields are computed by dividing the Fund's
interest and dividend income for a given 30-day or one-month period,
net of expenses, by the average number of shares entitled to receive
dividends during the period, dividing this figure by the NAV per
share at the end of the period and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate.
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Dividends
from equity investments are treated as if they were accrued on a daily
basis, solely for the purposes of yield calculations. In general, interest
income is reduced with respect to bonds trading at a premium over their par
value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For the Fund's investments
denominated in foreign currencies, income and expenses are calculated first
in their respective currencies, and are then converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Capital gains and losses generally are
excluded from the calculation as are gains and losses from currency
exchange rate fluctuations.
Investors should recognize that in periods of declining interest rates,
yield will tend to be somewhat higher than the prevailing market rates, and
that in periods of rising interest rates, the yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the Fund from the continuous sale of shares will likely be
invested in instruments producing lower yields than the balance of the
Fund's holdings, thereby reducing the current yield. In periods of rising
interest rates, the opposite can be expected to occur.
The distribution rate, which expresses the historical amount of income
dividends paid as a percentage of the share price may also be quoted. The
distribution rate is calculated by dividing the daily dividend per share by
its offering price (including the maximum sales charge) for each day in the
30-day period, averaging the resulting percentages, then expressing the
average rate in annualized terms.
Income calculated for the purposes of calculating yield differs from income
as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding of income assumed
in yield calculations, the yield may not equal its distribution rate, the
income paid to your account, or the income reported in the Fund's financial
statements.
PERFORMANCE COMPARISONS. Performance may be compared to the performance of
other mutual funds in general, or to the performance of particular types of
mutual funds. These comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. (Lipper), an independent
service located in Summit, New Jersey which monitors the performance of
mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration. Lipper may also rank the Fund based on
yield. In addition to the mutual fund rankings, the each class'
performance may be compared to mutual fund performance indices prepared by
Lipper.
From time to time, the performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, Morningstar, Inc. may be quoted in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds
on the basis of risk-adjusted performance. Rankings that compare the
performance of Fidelity funds to one another in appropriate categories over
specific periods of time may also be quoted in advertising.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's Asset Allocation Program materials may include a
workbook describing general principles of investing, such as asset
allocation, diversification, risk tolerance, and goal setting; a
questionnaire designed to help create a personal financial profile; and an
action plan offering investment alternatives.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the Consumer Price Index), and
combinations of various capital markets. The performance of these capital
markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
Performance may also be compared to that of the S&P 500, the Dow Jones
Industrial Average (the DOW or DJIA),the Dimensional Fund Advisors (DFA)
Small Company Fund, and the NASDAQ Composite Index (NASDAQ). The S&P
500 and the DOW are widely recognized, unmanaged indices of common stock
prices. The performance of the S&P 500 and DJIA are
based on changes in the prices of stocks comprising the index and assumes
the reinvestment of all dividends paid on such stocks. Taxes, brokerage
commissions and other fees are disregarded in computing the level of the
S&P 500 and the DJIA. The DFA is a market-value-weighted index of the
ninth and tenth deciles of the NYSE, plus stocks listed on the AMEX and
over-the-counter (OTC) with the same or less capitalization as the
upperbound of the NYSE ninth decile stocks. The yield or total return of
Ginnie Maes, Fannie Maes, Freddie Macs, corporate bonds and U.S. Treasury
bonds and notes, may be quoted either in comparison to each other or to the
performance of the Fund.
From time to time, the Fund may quote its performance in advertising and
other types of literature as compared to the performance of the J.P. Morgan
Emerging Market Bond Index, the Lehman Brothers Aggregate Bond Index, the
Salomon Brothers World Government Bond Index, the Standard and Poor's
500 Composite Stock Price Index, the J.P. Morgan Government Bond
Index , and the Morgan Stanley Emerging Markets Index.
Performance may be compared to the following unmanaged indices of bond
prices and yields.
Lehman Brothers Government Bond Index i s comprised of all public
obligations of the U.S. Treasury, of U.S. Government agencies,
quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government. The index excludes flower bonds, foreign targeted issues and
mortgage-backed securities.
Lehman Brothers Corporate Bond Index is c omprised of all public,
fixed-rate, non-convertible investment grade domestic corporate debt.
Issues included in this index are rated at least Baa by Moody's Investors
Service (Moody's) or BBB by S&P, or in the case of bonds unrated by
Moody's or S&P, BBB by Fitch Investor Service. Collateralized mortgage
obligations are not included in the Corporate Bond Index.
Salomon Brothers High Yield Composite Index is comprised of high
yielding utility and corporate bonds with a minimum maturity of seven years
and with total debt outstanding of at least $50 million. Issues included
in the index are rated Baa or lower by Moody's or BBB or lower by S&P.
Salomon Brothers High Grade Corporate Bond Index is comprised of
high quality corporate bonds with a minimum maturity of at least ten years
and with total debt outstanding of at least $50 million. Issues included
in the index are rated Aa or better by Moody's or AA or better by
S&P. The Fund also may compare its performance to that of other
compilations or indices of comparable quality to those listed above which
may be developed and made available in the future.
Performance, or the performance of securities in which the fund may
invest, may be compared to averages published by IBC USA (Publications),
Inc. of Ashland, Massachusetts. These averages assume reinvestment of
distributions. THE BOND FUND REPORT AVERAGES/fixed-income which is
reported in the BOND FUND REPORT , covers over 250 fixed-income bond funds.
When evaluating comparisons to money market funds, investors should
consider the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. The Fund,
however, invests in longer-term instruments and its share price changes
daily in response to a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; and
charitable giving. In addition, Fidelity may quote financial or
business publications or periodicals, including model portfolios or
allocations, as they relate to fund management, investment philosophy, and
investment techniques.
The Fund may present its fund number, Quotron (registered
trademark) number, CUSIP number, and discuss or quote its current portfolio
manager.
The Fund may quote its performance in advertising and other types of
literature as compared to certificates of deposit (CDs), bank-issued money
market instruments, and money market mutual funds. Unlike CDs and money
market instruments, money market mutual funds and shares of the Fund are
not insured by the FDIC.
According to the Investment Company Institute, over the past nine
years, assets in fixed-income funds increased from $ 26
billion in 19 84 to approximately $ 389 billion at the end of
199 3 . As of December 31, 1993 , FMR managed approximately
$ 95 billion in fixed-income assets, as defined and tracked by
Lipper. From time to time the Fund may compare FMR's fixed income assets
under management with that of other investment advisors.
VOLATILITY. Various measures of volatility and benchmark correlation in
advertising. In addition, the Fund may compare these measures to those of
other funds. Measures of volatility seek to compare the Fund's historical
share price fluctuations or total returns compared to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative
benchmark may be. All measures of volatility and correlation are
calculated using averages of historical data.
MOVING AVERAGES. Performance may be illustrated using moving averages. A
long-term moving average is the average of each week's adjusted closing NAV
for a specified period. A short-term moving average is the average of each
day's adjusted closing NAV for a specified period. Moving Average Activity
Indicators combine adjusted closing NAVs from the last business day of each
week with moving averages for a specified period to produce indicators
showing when an NAV has crossed, stayed above, or stayed below its moving
average.
MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the
fund's percentage change in price movements over that period.
NET ASSET VALUE. Charts and graphs using net asset values, adjusted net
asset values, and benchmark indices may be used to exhibit performance. An
adjusted NAV includes any distributions paid by the Fund and reflects all
elements of its return. Unless otherwise indicated, the Fund's adjusted
NAVs are not adjusted for sales charges, if any.
DURATION. Duration is a measure of volatility commonly used in the bond
market. Bonds with long durations are more volatile, or interest rate
sensitive, than bonds with short durations. (Interest rate sensitivity is
the magnitude of the change in a bond's price for a given change in a
bond's yield to maturity.) Duration also can be calculated for other fixed
income securities, or for portfolios of fixed income securities.
Unlike the maturity of a bond, which reflects only the time remaining until
the final principal payment is made to the bondholders, duration reflects
all of the coupon payments made to bondholders during the life of the bond,
as well as the final principal payment made when the bond matures. More
precisely, duration is the weighted average time remaining for the payment
of all cash flows generated by a bond, with the weights being the present
value of these cash flows. Present values are calculated using the bond's
yield to maturity.
Because there is only one payment to take into account, the duration of a
bond that pays all of its interest at maturity (a zero coupon security) is
the same as its maturity. The duration of a coupon bearing security will
be shorter than its maturity, however, because of the effect of its regular
interest payments. Generally, bonds with lower coupons or longer
maturities will have longer durations, and thus be more volatile, than
otherwise similar bonds with higher coupons or shorter maturities.
With the investment in mortgage-backed securities, callable corporate bonds
or other bonds with imbedded options, there is a degree of uncertainty
regarding the timing of these securities' cash flows. As a result, in
order to calculate the durations of these securities, forecasts of their
probable cash flow patterns must be made. These forecasts require various
assumptions to be made as to future interest rate levels and, for example,
mortgage prepayment rates. Because duration calculation s for these
types of securities are based in part on assumptions, duration figures may
not be precise and may change as economic conditions change.
Examples of the effects of periodic investment plans, including the
principle of dollar cost averaging may be advertised. In such a program,
an investor invests a fixed dollar amount in a portfolio at periodic
intervals, thereby purchasing fewer shares when prices are high and more
shares when prices are low. While such a strategy does not assure a profit
or guard against loss in a declining market, the investor's average cost
per share can be lower than if fixed numbers of shares had been purchased
at the same intervals. In evaluating such a plan, investors should
consider their ability to continue purchasing shares through periods of low
price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000
investment earning a taxable return of 10% annually would have an after-tax
value of $1,949 after ten years, assuming tax was deducted from the return
each year at a 31% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,100 after ten years, assuming tax was deducted at
a 31% rate from the tax-deferred earnings at the end of the ten-year
period.
TRADITION OF PERFORMANCE. Fidelity's tradition of performance is achieved
through:
MONEY MANAGEMENT: a proud tradition of money management motivated by the
expectation of excellence backed by solid analysis and worldwide resources.
Fidelity employs a bottom-up approach to security selection based upon
in-depth analysis of the fundamentals of that investment opportunity.
INNOVATION: constant attention to the changing needs of today's investors
and vigilance to the opportunities that arise from changing global markets.
Research is central to Fidelity's investment decision-making process.
Fidelity's greatest resource--over 200 skilled investment professionals--is
supported with the most sophisticated technology available.
Fidelity provides:
Global research resources: an opportunity to diversify portfolios and
share in the growth of markets outside the United States.
In-house, proprietary bond-rating system, constantly updated, which
provides extremely sensitive credit analysis.
Comprehensive chart room with over 1500 exhibits to provide sophisticated
charting of worldwide economic, financial, and technical indicators, as
well as to provide tracking of over 800 individual stocks for portfolio
managers.
State-of-the-art trading desk, with access to over 200 brokerage houses,
providing real-time information to achieve the best executions and optimize
the value of each transaction.
Use of extensive on-line computer-based research services.
SERVICE: Timely, accurate and complete reporting. Prompt and expert
attention when an investor or an investment professional needs it.
ADDITIONAL EXCHANGE, PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and the NAV is calculated each day the NYSE
is open for trading. The NYSE has designated the following holiday
closings for 1994: Presidents' Day , Good Friday, Memorial Day
(observed) , Independence Day , Labor Day, Thanksgiving Day, and
Christmas Day (observed). Although FMR expects the same holiday schedule,
with the addition of New Year's Day, to be observed in the future, the NYSE
may modify its holiday schedule at any time. On any day that the NYSE
closes early, or as permitted by the SEC, the right is reserved to advance
the time on that day by which purchase and redemption orders must be
received. To the extent that portfolio securities are traded in other
markets on days the NYSE is closed, the Fund's NAV may be affected on days
when investors do not have access to the Fund to purchase or redeem shares.
Certain Fidelity funds may follow different holiday schedules.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV. Shareholders receiving any such securities or other
property on redemption may realize a gain or loss for all purposes, and
will incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the 1 940 Act (the Rule), the
Fund is required to give shareholders at least 60 days' notice prior to
terminating or modifying the Fund's exchange privilege. Under the Rule,
the 60 day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee or deferred sales charge ordinarily payable at the time of
exchange, or (ii) the Fund suspends the redemption of shares to be
exchanged as permitted under the 1940 Act, or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, the Fund has notified shareholders that it
reserves the right at any time, without prior notice, to refuse exchange
purchases by any person or group if, in FMR's judgment, the Fund would be
unable to invest effectively in accordance with its investment objective
and policies or would otherwise potentially be adversely affected.
PURCHASE INFORMATION
As provided for in Rule 22d-1 under the 1940 Act, Distributors exercises
its right to waive the maximum s ales charge in connection with the
Fund's merger with or acquisition of any investment company or trust.
NET ASSET VALUE PURCHASES. Sales charges do not apply to shares of
the Fund purchased: (1) by registered representatives, bank trust
officers and other employees (and their immediate families) of investment
professionals having agreements with Distributors; (2) by a current or
former Trustee or officer of a Fidelity fund or a current or retired
officer, director or full-time employee of FMR Corp. or its direct or
indirect subsidiaries (a "Fidelity Trustee or employee"), the spouse of a
Fidelity Trustee or employee, a Fidelity Trustee or employee acting as
custodian for a minor child, or a person acting as trustee of a trust for
the sole benefit of the minor child of a Fidelity Trustee or employee; (3)
by a charitable organization (as defined in Section 501(c)(3) of the
Internal Revenue Code) investing $100,000 or more; (4) by a charitable
remainder trust or life income pool established for the benefit of a
charitable organization (as defined in Section 501(c)(3) of the Internal
Revenue Code); (5) by trust institutions (including bank trust
departments) investing on their own behalf or on behalf of their
clients; (6) in accounts as to which a bank or broker-dealer charges an
account management fee, provided the bank or broker-dealer has an agreement
with Distributors; (7) as part of an employee benefit plan (including
Fidelity-Sponsored 403(b) and Corporate IRA programs, but otherwise as
defined in the Employee Retirement Income Security Act (ERISA)) maintained
by a U.S. Employer having more than 200 eligible employees or a minimum of
$1,000,000 invested in Fidelity Advisor mutual funds, and the assets of
which are held in a bona fide trust for the exclusive benefit of employees
participating therein; (8) in a Fidelity or Fidelity Advisor IRA
account purchased with the proceeds of a distribution from (i)
an employee benefit plan provided that is part of an employee
benefit plan having more than 200 eligible employees or a minimum of
$3,000,000 in plan assets invested in Fidelity mutual funds or a minimum of
$1,000,000 invested in Fidelity Advisor mutual funds, or (ii) an
insurance company separate account qualifying under (9) below, or
funding annuity contracts purchased by employee benefit plans
which, in the aggregate, have at least $3,000,000 in plan
assets invested in Fidelity mutual funds ; (9) by an insurance
company separate account used to fund annuity contracts purchased by
employee benefit plans (including 403(b) programs, but otherwise as defined
in ERISA), which, in the aggregate, have either more than 200 eligible
employees or a minimum of $3,000,000 in assets invest in Fidetliy mutual
funds or a governmental instrumentality, department, authority or agency;
and (11) with redemption proceeds from other mutual fund complexes on which
the investor has paid a front-end sales charge only. A sales load waiver
form must accompany these transactions.
Distributors compensates securities dealers and banks having agreements
with Distributors (investment professionals), who sell shares according to
the schedule in the Prospectus. Distributors will, at its expense, provide
promotional incentives to investment professionals who support the sale of
shares of the Fund without reimbursement from the Fund. In some instances,
these incentives will be offered only to certain investment professionals
whose representatives provide services in connection with the sale or
expected sale of significant amounts of shares.
Distributors compensates investment professionals with a fee of .25% on
purhcases of $1 million or more, except for purchases made through a bank
or bank-affiliated broker-dealer that qualify for a Sales Charge Waiver
described in the Fund's prospectus. All assets on which the .25% fee is
paid must remain within the Fidelity Advisor Funds (including shares
exchanged into Daily Money Fund and Daily Tax-Exempt Money Fund) for a
period of one uninterrupted year or the investment professional will be
required to refund this fee to Distributors. Purchases by insurance
company separate accounts will qualify for the .25% fee only if an
insurance company's client relationship underlying the separate account
exceeds $1 million. It is the responsibility of the insurance company to
maintain records of purchases by any suich client relationship.
Distributors may request records evidencing any fees payable through this
program.
QUANTITY DISCOUNTS. Reduced sales charges are applicable to purchases of
$50,000 or more alone or in combination with purchases of shares of
other Fidelity Advisor Fund made at any one time (including Daily Money
Fund and Daily Tax-Exempt Money Fund shares acquired by exchange from any
Fidelity Advisor Fund with a sales charge). To obtain the reduction of the
sales charge, you or your investment professional must notify the
Transfer Agent at the time of purchase whenever a quantity discount is
applicable to your purchase. Upon such notification, you will receive the
lowest applicable sales charge.
In addition to investing at one time in any combination of funds in an
amount entitling you to a reduced sales charge, you may qualify for a
reduction in the sales charge under the following programs:
COMBINED PURCHASES. When you invest for several accounts at the same time,
you may combine these investments into a single transaction if purchased
through one investment professional, and if the total is at least $50,000.
The following investors may qualify for this privilege: an
individual, or "company" as defined in Section 2(a)(8) of the 1940 Act; an
individual, spouse, and their children under age 21 purchasing for his,
her, or their own account; a trustee, administrator or other fiduciary
purchasing for a single trust estate or single fiduciary account or for a
single or a parent-subsidiary group of "employee benefit plans" (as defined
in Section 3(3) of the ERISA); and tax-exempt organizations as defined
under Section 501(c)(3) of the Internal Revenue Code.
RIGHTS OF ACCUMULATION. Your "Rights of Accumulation" permit reduced sales
charges on any future purchases after you have reached a new breakpoint in
the sales charge schedule (see the Prospectus for the sales charge
schedule). You can add the value of existing Fidelity Advisor Fund shares
(including Daily Money Fund and Daily Tax-Exempt Money Fund shares acquired
by exchange from any Fidelity Advisor Fund), held by you, your spouse, and
your children under age 21 determined at the previous day's NAV at the
close of business, to the amount of your new purchase valued at the current
offering price to determine your reduced sales charge.
LETTER OF INTENT. If you anticipate purchasing $50,000 or more of
alone or in combination with shares of other Fidelity Advisor Funds
(excluding Daily Money Fund and Daily Tax-Exempt Money Fund) within a
13-month period, you may obtain shares of the funds at the same reduced
sales charge as though the total quantity were invested in one lump sum, by
filing a nonbinding Letter of Intent (the Letter) within 90 days of the
start of the purchases. Each investment you make after signing the Letter
will be entitled to the sales charge applicable to the total investment
indicated in the Letter. For example, a $2,500 purchase toward a $50,000
Letter would receive the same reduced sales charge as if the $50,000 had
been invested at one time. To ensure that the reduced price will be
received on future purchases, you or your investment professional must
inform State Street or the Transfer Agent that the Letter is in effect each
time shares are purchased. Neither income dividends nor capital gain
distributions taken in additional shares will apply toward the completion
of the Letter.
Your initial investment must be at least 5% of the total amount you plan to
invest. Out of the initial purchase, 5% of the dollar amount specified in
the Letter will be registered in your name and held in escrow. The shares
held in escrow cannot be redeemed or exchanged until the Letter is
satisfied or the additional sales charges have been paid. You will earn
income dividends and capital gain distributions on escrowed shares. The
escrow will be released when your purchase of the total amount has been
completed. You are not obligated to complete the Letter.
If you purchase more than the amount specified in the Letter and qualify
for a further sales charge reduction, the sales charge will be adjusted to
reflect your total purchase at the end of 13 months. Surplus funds will be
applied to the purchase of additional shares at the then current offering
price applicable to the total purchase.
If you do not complete your purchase under the Letter within the 13-month
period, your sales charge will be adjusted upward, corresponding to the
amount actually purchased, and if after written notice, you do not pay the
increased sales charge, sufficient escrowed shares will be redeemed to pay
such charge.
FIDELITY ADVISOR SYSTEMATIC INVESTMENT P ROGRAM . You can make
regular investments in the F und or other Fidelity Advisor
Funds with the Systematic Investment P rogram by completing the
appropriate section of the account application and attaching a voided
personal check with your bank's magnetic ink coding number across the
front. If your bank account is jointly owned, be sure that all owners
sign. Investments may be made monthly by automatically deducting $100 or
more from your bank checking account. You may change the amount of your
monthly purchase at any time. There is a $1,000 minimum initial investment
requirement for S ystematic I nvestment Programs.
Your account will be drafted on or about the first business day of every
month. Shares will be purchased at the offering price next determined
following receipt of the order by the Transfer Agent. You may cancel the
Systematic Investment option at any time without payment of a cancellation
fee. You will receive a confirmation from the Transfer Agent for every
transaction, and a debit entry will appear on your bank statement.
EXCHANGE INFORMATION
FIDELITY ADVISOR SYSTEMATIC EXCHANGE P ROGRAM . With the
Systematic Exchange Program, you can exchange a specific dollar amount from
the F und shares into another Fidelity Advisor Fund on a monthly,
quarterly or semiannual basis.
1. The account from which the exchanges are to be processed must have a
minimum value of $10,000
before you may elect to begin exchanging systematically. The account
into which the exchanges are to
be processed must be an existing account with a minimum balance of $1,000.
2. Both accounts must have identical registrations and taxpa yer
identification numbers. The minimum
amount to be exchanged systematically into the Fund is $100.
3. Systematic Exchange s will be processed at the NAV determined on
the transaction date, except that
Systematic Exchanges into a Fidelity Advisor Fund from any money market
fund will be processed at
the offering price next determined on the transaction date, unless the
shares were acquired by exchange
from another Fidelity Advisor Fund.
REDEMPTION INFORMATION
REINSTATEMENT PRIVILEGE. If you have redeemed all or part of your shares
you may reinvest an amount equal to all or a portion of the redemption
proceeds in the Fund or in any of the other Fidelity Advisor Funds, at the
NAV next determined after receipt of your investment order, without a sales
charge, provided that such reinvestment is made within 30 days of
redemption. No charge currently is made for reinvestment in shares of the
Fund. You must reinstate your shares into an account with the same
registration. This privilege may be exercised only once by a shareholder
with respect to the Fund.
FIDELITY ADVISOR SYSTEMATIC WITHDRAWAL P ROGRAM . If you own
shares worth $10,000 or more, you can have monthly, quarterly or semiannual
checks sent from your account to you, to a person named by you, or to your
bank checking account. You may obtain information about the Systematic
Withdrawal P rogram by contacting your investment professional. Your
Systematic Withdrawal P rogram payments are drawn from share
redemptions. If Systematic Withdrawal P rogram redemptions exceed
income dividends earned on your shares, your account eventually may be
exhausted. Since a sales charge is applied on new shares you buy, it is to
your disadvantage to buy shares while also making systematic redemptions.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Transfer Agent may reinvest your distributions
at the then current NAV. All subsequent distributions will then be
reinvested until you provide the Transfer Agen t with alternative
instructions.
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 also earn other types of income, such as interest, income from
securities loans, non-qualifying dividends and short-term capital gains,
the percentage of dividends that qualify for the deduction will generally
be less than 100%. The Fund will notify corporate shareholders annually of
the percentage of Fund dividends which qualify for the dividends received
deduction. A portion of the Fund's dividends derived from certain U.S.
government obligations may be exempt from state and local taxation. Gains
(losses) attributable to foreign currency fluctuations are generally
taxable as ordinary income and, therefore, will increase (decrease)
dividend distributions. The Fund will send each shareholder a notice in
January describing the tax status of dividends and capital gains
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 that
the shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares
are held for less than six months and are sold at a loss, the
portion of the loss equal to the amount of the long-term capital gain
distribution will be considered a long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to
shareholders as dividends, not as capital gains. Distributions from the
short-term capital gains do not qualify for the dividends received
deduction.
FOREIGN TAXES. Foreign governments may withhold taxes from dividends or
interest paid with respect to foreign securities typically at a rate
between 10% and 35%. The Fund intends to elect to pass through foreign
taxes paid in order for a shareholder to take a credit or deduction if, at
the close of its fiscal year, more than 50% of the Fund's total assets are
invested in securities of foreign issuers.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes, so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income and excises taxes, the Fund intends
to distribute substantially all of its net taxable income and realized
capital gains within each calendar year as well as on a fiscal year basis.
The Fund also intends to comply with other tax rules applicable to
regulated investment companies, including a requirement that capital gains
from the sale of securities held for less than three months must constitute
less than 30% of the Fund's gross income for each fiscal year. Gains from
some futures contracts and options, and foreign currency denominated
forward contracts which are not directly related to the Fund's business of
investing in foreign securities, are included in this 30% calculation,
which may limit the Fund's investments in such instruments. If the Fund
purchases shares in certain foreign investment entities, called "passive
foreign investment companies" (PFICs), it may be subject to U.S. federal
income taxes on a portion of any "excess distribution" or gain from the
disposition of such shares. Interest charges may also be imposed on the
Fund with respect to deferred taxes arising from such distributions or
gains.
The Fund is treated as a separate entity from the other funds of Fidelity
Advisor Series VIII for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders of the Fund may be subject
to state and local taxes on distributions received from the Fund.
Investors should consult their tax advisors to determine whether the Fund
is suitable to their particular tax situation.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions, as follows: Service, which is
the transfer and shareholder servicing agent for certain of the funds
advised by FMR; FIIOC, which performs shareholder servicing functions
for certain institutional customers; and Fidelity Investments Retail
Marketing Company, which provides marketing services to various companies
within the Fidelity organization.
Several affiliates of FMR also are engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory and administrative services to retirement plans and corporate
employee benefit accounts. FMR U.K. and FMR Far East, both wholly owned
subsidiaries of FMR formed in 1986, supply investment research, and may
supply portfolio management services, to FMR in connection with certain
funds advised by FMR. Analysts employed by FMR, FMR U.K., FIJ, and FMR Far
East research and visit thousands of domestic and foreign companies each
year. FMR Texas Inc. (FMR Texas), a wholly owned subsidiary of FMR formed
in 1989, supplies portfolio management and research services in connection
with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Board of Trustees 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 officers also serve in similar capacities for other
funds advised by FMR. Unless otherwise noted, the business address of each
Trustee and officer is 82 Devonshire Street, Boston, MA 02109, which is
also the address of FMR. Those Trustees who are "interested persons" (as
defined in the 1940 Act) by virtue of their affiliation with either the
Fund or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
(1989), FMR U.K., and FMR Far East.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas (1989), FMR U.K. and FMR Far
East.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is
President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Prior to his retirement in March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Bonneville Pacific
Corporation (independent power, 1989) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, 340 E. 64th Street #22C, New York, NY, Trustee (1992).
Prior to her retirement in September of 1991, Mrs. Davis was the Senior
Vice President of Corporate Affairs of Avon Products, Inc. She is
currently a Director of BellSouth Corporation (telecommunications), Eaton
Corporation (manufacturing, 1991), and the TJX Companies, Inc. (retail
stores, 1990), and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she serves as a Director
of the New York City Chapter of the National Multiple Sclerosis Society,
and is a member of the Advisory Council of the International Executive
Service Corps. and the President's Advisory Council of the University of
Vermont School of Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3 881-2 Lander Road, Chagrin Falls , OH,
Trustee (1990). Prior to his retirement in 1984, Mr. Jones was Chairman
and Chief Executive Officer of LTV Steel Company. Prior to May 1990, he
was Director of National City Corporation (a bank holding company) and
National City Bank of Cleveland. He is a Director of TRW, Inc. (original
equipment and replacement products), Cleveland-Cliffs, Inc. (mining), NACCO
Industries, Inc. (mining and marketing), Consolidated Rail Corporation,
Birmingham Steel Corporation (1988), Hyster-Yale Materials Handling, Inc.
(1989), and RPM, Inc. (manufacturer of chemical products, 1990). In
addition, he serves as a Trustee of First Union Real Estate Investments;
Chairman of the Board of Trustees and a member of the Executive Committee
of the Cleveland Clinic Foundation, a Trustee and a member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1, North Greenwich,
CT, Trustee, is a Professor at Columbia University Graduate School of
Business and a financial consultant. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) . In addition, he serves as Vice Chairman of
the Board of Directors of the National Arts Stabilization Fund, and
as Vice Chairman of the Board of Trustees of the Greenwich Hospital
Association (1989) .
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1990), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman, Inc. (metal
refining), and York International Corp. (air conditioning and
refrigeration, 1989), and Commercial Intertech Corp. (water treatment
equipment, 1992 ), and Associated Estates Realty Corporation (a real
estate investment trust, 1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee (1990).
Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company.
He is a Director of Allegheny Power Systems, Inc. (electric utility),
General Re Corporation (reinsurance) and Mattel, Inc. (toy manufacturer).
He is also a Trustee of Rensselaer Polytechnic Institute and of Corporate
Property Investors and a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, 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 M.A. Hanna Company (chemicals, 1993)
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 (1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee (1988), is President of The Wales Group, Inc. (management and
financial advisory services). Prior to retiring in 1987, Mr. Williams
served as Chairman of the Board of First Wachovia Corporation (bank holding
company), and Chairman and Chief Executive Officer of The First National
Bank of Atlanta and First Atlanta Corporation (bank holding company). He
is currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software, 1987), National Life Insurance
Company of Vermont, American Software, Inc. (1989), and AppleSouth, Inc.
(restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary (1991), is Senior Vice President and General
Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President and
Clerk of Distributors.
ROBERT H. MORRISON, Manager, Security Transactions, is an employee of FMR.
Under a retirement program which became effective on November 1, 1989,
Trustee s , upon reaching age 72, become eligible to participate
in a defined benefit retirement program under which t he y
receive payments during their lifetime based on their basic trustees
fees and length of service. Currently, Messrs. Robert L. Johnson, William
R. Spaulding, Bertram H. Witham and David L. Yunich participate in the
program.
MANAGEMENT CONTRACT AND OTHER SERVICES
The Fund employs FMR to furnish investment advisory and other services.
Under FMR's m anagement c ontract 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, and compensates all officers of the Trust, all Trustees who
are "interested persons" of the Trust or FMR, and all personnel of the
Trust or FMR performing services relating to research, statistical and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the Fund. These services include providing facilities
for maintaining the Fund's organization, supervising relations with
custodians, transfer and pricing agents, accountants, underwriters and
other persons dealing with the Fund, preparing all general shareholder
communications and conducting shareholder relations, maintaining the Fund's
records, and the registration of the Fund's shares under federal and state
law, developing management and shareholder services for the Fund and
furnishing reports, evaluations and analyses on a variety of subjects to
the Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
State Street and Service, the Fund pays all its expenses, without
limitation, that are not assumed by those parties. The Fund pays for the
typesetting, printing and mailing of proxy material to shareholders, legal
expenses, and the fees of the custodian, auditor and non-interested
Trustees. Although the Fund's management contract provides that the Fund
will pay for typesetting, printing and mailing prospectuses, statements of
additional information, notices and reports to shareholders, pursuant to
the Fund's agreement with State Street, State Street will now bear the cost
of providing these services to shareholders of the Fund. Other expenses
paid by the Fund include interest, taxes, brokerage commissions, the Fund's
proportionate share of insurance premiums and Investment Company Institute
dues, and the costs of registering shares under federal and state
securities laws. The Fund is also liable for such non-recurring expenses
as may arise, including costs of litigation to which the Fund is a party
and any obligation it may have to indemnify its officers and Trustees with
respect to such litigation.
FMR is the Fund's manager pursuant to a m anagement c ontract
dated January 20, 1994. For the services of FMR under the contract, the
Fund pays a monthly fee to FMR at an annual fee rate made up of the sum of
two components: a group fee rate and an individual Fund fee rate.
COMPUTING THE BASIC FEE. The group fee rate is based on the monthly
average net assets of all of the registered investment companies with which
FMR has management contracts and is calculated on a cumulative basis
pursuant to the graduated fee rate schedule shown on the left. On the
right, the effective fee rate schedules are the results of cumulatively
applying the annualized rates at varying asset levels. For example, the
effective annual fee rate at $232 billion of average group net assets -
their approximate level for December 1993 - was .1621, which is the
weighted average of the respective fee rates for each level of group net
assets up to $232 billion.
GROUP FEE EFFECTIVE ANNUAL
RATE SCHEDULE FEE RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annualized Group Effective Annual
Group Assets Rate Net Assets Fee Rates
$ 0 - 3 billion .370% $ 0.5 billion .3700%
3 - 6 .340 25 .2664
6 - 9 .310 50 .2188
9 - 12 .280 75 .1986
12 - 15 .250 100 .1869
15 - 18 .220 125 .1793
18 - 21 .200 150 .1736
21 - 24 .190 175 .1695
24 - 30 .180 200 .1658
30 - 36 .175 225 .1629
36 - 42 .170 250 .1604
42 - 48 .165 275 .1583
48 - 66 .160 300 .1565
66 - 84 .155 325 .1548
84 - 120 .150 350 .1533
120 - 174 .145
174 - 228 .140
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
</TABLE>
*The rates shown for average group assets in excess of $120 billion were
adopted by FMR on a voluntray basis on January 1, 1992. Rates in excess of
$174 billion were adopted on November 1, 1993. Each was adopted pending
shareholder approval of a new management contract reflecting the extended
schedule. The extended schedule provides for lower management fees as
total assets under management increases.
The individual fund fee rate is .55%. Based on the average group net
assets of funds advised by FMR for December 1993, the annual fee rate would
be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate
.1621% + .55% = .7121%
</TABLE>
One-twelfth (1/12) of this annual basic fee rate is applied to the
fund's net assets averaged for the most recent month, giving a dollar
amount, which is the fee for that month.
To comply with the California Code of Regulations, FMR will reimburse the
Fund if and to the extent that the Fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The
applicable percentages are 2 1/2% of the first $30 million, 2% of the next
$70 million, and 1 1/2% of average net assets in excess of $100 million.
When calculating the Fund expenses for purposes of this regulation, the
Fund may exclude interest, taxes, brokerage commissions, and extraordinary
expenses, as well as a portion of its distribution plan expenses and
custodian fees attributable to investments in foreign securities.
FMR may, from time to time, agree to voluntarily reimburse the Fund for
expenses above a specified percentage of net assets of the Fund. 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. Reimbursement by FMR will increase the Fund's total return.
SUB-ADVISERS. FMR has entered into sub-advisory agreements with FMR U.K.,
FMR Far East, and FIIA. FIIA, in turn, has entered into a sub-advisory
agreement with its wholly owned subsidiary FIIAL U.K. Pursuant to the
sub-advisory agreements, FMR may receive investment advice and research
services with respect to companies based outside the U.S. from the
sub-advisors and may grant the sub-advisors investment management authority
as well as the authority to buy and sell securities if FMR believes it
would be beneficial to the funds.
Currently, FMR U.K., FMR Far East, FIIA, and FIIAL U.K. each focus on
companies in countries other than the United States including countries in
Europe Asia, and the Pacific Basin.
FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. FIIA is a
wholly owned subsidiary of Fidelity International Limited (FIL), a Bermuda
company formed in 1968 which primarily provides investment advisory
services to non-U.S. investment companies and institutional investors
investing in securities of issuers throughout the world. Edward C. Johnson
3d, together with various trusts for the benefit of Johnson family members
own, directly or indirectly, more than 25% of the voting stock of FIL.
FIIA was organized in Bermuda in 1983 and FIIAL U.K. was organized in the
United Kingdom in 1984.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows: FMR pays FMR U.K. and FMR Far East fees equal to
110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services. FMR pays FIIA 30% of FMR's monthly management fee with respect
to the average market value of investments held by the Fund for which FIIA
has provided FMR with investment advice. FIIA pays FIIAL U.K. a fee equal
to 110% of FIIAL U.K.'s costs incurred in connection with providing
investment advice and research services.
For providing investment management and executing portfolio transactions,
the sub-advisors are compensated as follows: FMR pays FMR U.K., FMR Far
East, and FIIA 50% of its monthly management fee (including any performance
adjustment) with respect to the Fund's average net assets managed by the
sub-advisor on a discretionary basis. FIIA pays FIIAL U.K. 110% of FIIAL
U.K.'s costs incurred with providing investment management services.
State Street is transfer and shareholder servicing agent for the Fund.
State Street has delegated certain transfer, dividend-paying and
shareholder services to FIIOC. The Fund pays a per account fee and a
monetary transaction fee of $30 and $6, respectively. For accounts that
FIIOC maintains on behalf of State Street, FIIOC receives all such fees.
For accounts as to which FIIOC provides limited services, FIIOC may receive
a portion (currently $20 and $6, respectively) of related per account fees
and monetary transaction fees, less applicable charges and expenses of
State Street for account maintenance and transactions.
The Fund has a contract with Service providing that Service will perform
the calculations necessary to determine the Fund's NAV and dividends and
maintain the Fund's accounting records. The fee rates are based on the
Fund's average net assets, specifically, .06% for the first $500 million of
average net assets and .03% for average net assets in excess of $500
million. The fee is limited to a minimum of $45,000 and a maximum of
$750,000 per year.
THE DISTRIBUTOR
The Fund has a General Distribution Agreement with Distributors,
a Massachusetts corporation organized on July 18, 1960 .
Distributors, located at 82 Devonshire Street, Boston, Massachusetts,
02109, is a broker - dealer registered under the Securities
Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. The General Distribution Agreement calls
for Distributors to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the Fund which are offered
continuously . Promotional and administrative expenses in connection
with the offer and sale of shares are paid by Distributors .
Distributors also acts as general distributor for other publicly offered
Fidelity funds. The expenses of these operations are borne by FMR or
Distributors.
DISTRIBUTION AND SERVICE PLAN
The Trustees of the Trust on behalf of the Fund have adopted a
Distribution and Service Plan ( the Plan) under Rule 12b-1 of
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 mutual
fund except pursuant to a plan adopted by the mutual fund under the Rule.
The Trustees ha ve adopted the Plan to assure that the Fund and FMR
may incur certain expenses that might be considered to constitute indirect
payment of distribution expenses by the Fund . Under the Plan,
if the payment by the Fund to FMR of management fees should be deemed to be
indirect financing of the distribution of its shares, such payment is
authorized by the Plan.
The Plan also specifically recognizes that FMR, either directly or
through Distributors, may use its management fee revenue, past profits or
other resources, without limitation, to pay promotional and administrative
expenses in connection with the offer and sale of shares of the Fund. In
addition, the Plan provides that FMR may use its resources, including its
management fee revenues, to make payments to third parties that provide
assistance in selling shares of the Fund or to third parties, including
banks, that render shareholder support services. The Trustees have not yet
authorized such payments.
In addition, the Fund pays to Distributors a distribution fee at an annual
rate of up to .40% (currently at .25%) of its average net assets determined
as of the close of business on each day throughout the month, but excluding
assets attributable to shares purchased more than 144 months prior to such
day. This distribution fee will be paid by the Fund, not by individual
accounts.
The Plan has been approved by the Trustees. As required by the Rule, the
Trustees carefully considered all pertinent factors relating to the
implementation of the Plan prior to its approval, and have determined that
there is a reasonable likelihood that the Plan will benefit the Fund and
its shareholders. To the extent that the Plan gives FMR and Distributors
greater flexibility in connection with the distribution of shares of the
Fund, additional sales of the Fund's shares may result. Additionally,
certain shareholder support services may be provided more effectively under
the Plan by local entities with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, in Distributors' opinion such Act should
not preclude a bank from performing shareholder servicing and recordkeeping
functions. Distributors intends to engage banks to perform only such
functions. However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates or
subsidiaries, as well as further judicial or administrative decisions or
interpretations, could prevent a bank from continuing to perform all or a
part of the contemplated services. If a bank were prohibited from so
acting, the Trustees would consider what actions, if any, would be
necessary to continue to provide efficient and effective shareholder
services. In such event, changes in the operation of the Fund might occur,
including possible termination of any automatic investment or redemption or
other services then provided by the bank. It is not expected that
shareholders would suffer any adverse financial consequences as a result of
any of these occurrences. The Fund may execute portfolio transactions
with and purchase securities issued by depository institutions that receive
payments under the Plan. No preference will be shown in the selection of
investments for the instruments of such depository institutions.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Advisor Emerging Markets Income Fund
is a Fund of Fidelity Advisor Series VIII (the Trust), an open-end
investment company organized as a Massachusetts business trust by
Declaration of Trust dated September 23, 1983 as amended and restated
October 1, 1986, and as supplemented November 29, 1990. There
currently are three funds in the Trust: the Fund, Fidelity Advisor
Strategic Opportunities Fund, and Fidelity Strategic Opportunities Fund.
The Declaration of Trust permits the Trustees to create additional
funds.
In the event that FMR ceases to be the investment adviser to the Fund,
the right of the Fund to use the identifying name "Fidelity" may be
withdrawn.
The assets of the Trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the Trust. Expenses with respect to the Trust are to
be allocated in proportion to the asset value of the respective funds,
except where allocations of direct expense can otherwise be fairly made.
The officers of the Trust, subject to the general supervision of the Board
of Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the Trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the
type commonly known as a " Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the trust.
The Declaration of Trust provides that the Trust shall not have any claim
against shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or other instrument entered
into or executed by the Trust or the Trustees include a provision limiting
the obligations created thereby to the Trust and its assets. The
Declaration of Trust provides for indemnification out of the Trust'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 neglect or wrongdoing,
but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
VOTING RIGHTS. The Fund's capital currently 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
Fund may, as set forth in the Declaration of Trust, call meetings of the
Fund for any purpose related to the Fund, including the purpose of voting
on removal of one or more Trustees. The 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 the vote of
the holders of a majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.
CUSTODIAN. Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New
York, New York, is custodian of the assets of the Fund. The custodian is
responsible for the safekeeping of the Fund's assets and the appointment of
subcustodian banks and clearing agencies. The custodian takes no part in
determining the investment policies of the Fund or in deciding which
securities are purchased or sold by the Fund. The Fund may, however,
invest in obligations of the custodian and may purchase securities from or
sell securities to the custodian.
FMR, its officers and directors, its affiliated companies and the Trust's
Trustees may from time to time have transactions with various banks,
including banks serving as custodians for certain of the funds advised by
FMR. 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, 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.
APPENDIX
The descriptions that follow are examples of eligible ratings for the
Fund. The Fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND
RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND
RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal
payments.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been filed
but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The D
rating will also be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
