SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 33-43529)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 22 [X]
and
REGISTRATION STATEMENT (No. 811-6440)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22 [X]
Fidelity Aberdeen Street Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-563-7000
Eric D. Roiter, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
(X) on (May 20, 1999) pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) on ( ) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
Like securities of all mutual
funds, these securities have
not been approved or
disapproved by the
Securities and Exchange
Commission, and the
Securities and Exchange
Commission has not
determined if this
prospectus is accurate or
complete. Any
representation to the
contrary is a criminal
offense.
FIDELITY
FREEDOM
FUNDS(REGISTERED TRADEMARK)
FIDELITY FREEDOM INCOME FUND(REGISTERED TRADEMARK)
(fund number 369, trading symbol FFFAX)
FIDELITY FREEDOM 2000 FUND(REGISTERED TRADEMARK)
(fund number 370, trading symbol FFFBX)
FIDELITY FREEDOM 2010 FUND(REGISTERED TRADEMARK)
(fund number 371, trading symbol FFFCX)
FIDELITY FREEDOM 2020 FUND(REGISTERED TRADEMARK)
(fund number 372, trading symbol FFFDX)
FIDELITY FREEDOM 2030 FUND(REGISTERED TRADEMARK)
(fund number 373, trading symbol FFFEX)
PROSPECTUS
MAY 20, 1999
(FIDELITY_LOGO_GRAPHIC)(REGISTERED TRADEMARK)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
FUND SUMMARY 4 INVESTMENT SUMMARY
8 PERFORMANCE
11 FEE TABLE
FUND BASICS 14 INVESTMENT DETAILS
21 VALUING SHARES
SHAREHOLDER INFORMATION 21 BUYING AND SELLING SHARES
29 EXCHANGING SHARES
29 ACCOUNT FEATURES AND POLICIES
32 DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS
32 TAX CONSEQUENCES
FUND SERVICES 32 FUND MANAGEMENT
33 FUND DISTRIBUTION
APPENDIX 33 FINANCIAL HIGHLIGHTS
FUND SUMMARY
INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
FREEDOM INCOME FUND seeks high current income and, as a secondary
objective, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Strategic Advisers, Inc.SM (Strategic Advisers)'s principal investment
strategies include:
(small solid bullet) Investing in a combination of Fidelity(registered
trademark) equity, fixed-income and money market funds using a
moderate asset allocation strategy designed for investors already in
retirement.
(small solid bullet) Allocating assets among these underlying Fidelity
funds according to a stable target asset allocation.
(small solid bullet) Using a target asset allocation as of March 31,
1999 of approximately:
Domestic
Equity
Funds 20%
International
Equity Funds 0%
Row: 1, Col: 1, Value: 40.0
Row: 1, Col: 2, Value: 20.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 40.0
Investment-
Grade Fixed-
Income
Funds 40%
High Yield
Fixed-Income
Funds 0%
Money Market
Funds 40%
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt or money market security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market.
(small solid bullet) FINANCIAL SERVICES EXPOSURE. Changes in
government regulation or economic downturns can have a significant
negative affect on issuers in the financial sector.
(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. A decline in the credit quality of
an issuer or the provider of credit support or a maturity-shortening
structure for a security can cause the price of a money market
security to decrease. The value of securities of smaller issuers can
be more volatile than that of larger issuers. Lower-quality debt
securities (those of less than investment-grade quality) can be more
volatile due to increased sensitivity to adverse issuer, political,
regulatory, market or economic developments.
(small solid bullet) QUANTITATIVE INVESTING. Securities selected using
quantitative analysis can perform differently than the market as a
whole as a result of the factors used in the analysis, the weight
placed on each factor, and changes in the factors' historical trends.
(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.
(small solid bullet) "VALUE" INVESTING. "Value" stocks can perform
differently than the market as a whole and other types of stocks and
can continue to be undervalued by the market for long periods of time.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE
FREEDOM 2000 FUND seeks high total return.
PRINCIPAL INVESTMENT STRATEGIES
Strategic Advisers' principal investment strategies include:
(small solid bullet) Investing in a combination of Fidelity equity,
fixed-income and money market funds using a moderate asset allocation
strategy designed for investors expecting to retire around the year
2000.
(small solid bullet) Allocating assets among these underlying Fidelity
funds according to an asset allocation strategy that becomes
increasingly conservative until it reaches 20% in domestic equity
funds, 40% in investment-grade fixed-income funds and 40% in money
market funds (approximately five to ten years after the year 2000).
(small solid bullet) Using a target asset allocation as of March 31,
1999 of approximately:
Domestic
Equity
Funds 35%
International
Equity Funds 3%
Row: 1, Col: 1, Value: 40.0
Row: 1, Col: 2, Value: 35.0
Row: 1, Col: 3, Value: 3.0
Row: 1, Col: 4, Value: 3.0
Row: 1, Col: 5, Value: 19.0
Investment-
Grade Fixed-
Income
Funds 40%
High Yield
Fixed-Income
Funds 3%
Money Market
Funds 19%
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt or money market security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market.
(small solid bullet) FINANCIAL SERVICES EXPOSURE. Changes in
government regulation or economic downturns can have a significant
negative affect on issuers in the financial sector.
(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. A decline in the credit quality of
an issuer or the provider of credit support or a maturity-shortening
structure for a security can cause the price of a money market
security to decrease. The value of securities of smaller issuers can
be more volatile than that of larger issuers. Lower-quality debt
securities (those of less than investment-grade quality) can be more
volatile due to increased sensitivity to adverse issuer, political,
regulatory, market or economic developments.
(small solid bullet) QUANTITATIVE INVESTING. Securities selected using
quantitative analysis can perform differently than the market as a
whole as a result of the factors used in the analysis, the weight
placed on each factor, and changes in the factors' historical trends.
(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.
(small solid bullet) "VALUE" INVESTING. "Value" stocks can perform
differently than the market as a whole and other types of stocks and
can continue to be undervalued by the market for long periods of time.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE
FREEDOM 2010 FUND seeks high total return.
PRINCIPAL INVESTMENT STRATEGIES
Strategic Advisers' principal investment strategies include:
(small solid bullet) Investing in a combination of Fidelity equity,
fixed-income and money market funds using a moderate asset allocation
strategy designed for investors expecting to retire around the year
2010.
(small solid bullet) Allocating assets among these underlying Fidelity
funds according to an asset allocation strategy that becomes
increasingly conservative until it reaches 20% in domestic equity
funds, 40% in investment-grade fixed-income funds and 40% in money
market funds (approximately five to ten years after the year 2010).
(small solid bullet) Using a target asset allocation as of March 31,
1999 of approximately:
Domestic
Equity
Funds 52%
International
Equity Funds 8%
Row: 1, Col: 1, Value: 30.0
Row: 1, Col: 2, Value: 52.0
Row: 1, Col: 3, Value: 8.0
Row: 1, Col: 4, Value: 6.0
Row: 1, Col: 5, Value: 4.0
Investment-
Grade Fixed-
Income
Funds 30%
High Yield
Fixed-Income
Funds 6%
Money Market
Funds 4%
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market.
(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. The value of securities of smaller
issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) can be more volatile due to increased sensitivity to adverse
issuer, political, regulatory, market or economic developments.
(small solid bullet) QUANTITATIVE INVESTING. Securities selected using
quantitative analysis can perform differently than the market as a
whole as a result of the factors used in the analysis, the weight
placed on each factor, and changes in the factors' historical trends.
(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.
(small solid bullet) "VALUE" INVESTING. "Value" stocks can perform
differently than the market as a whole and other types of stocks and
can continue to be undervalued by the market for long periods of time.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE
FREEDOM 2020 FUND seeks high total return.
PRINCIPAL INVESTMENT STRATEGIES
Strategic Advisers' principal investment strategies include:
(small solid bullet) Investing in a combination of Fidelity equity,
fixed-income and money market funds using a moderate asset allocation
strategy designed for investors expecting to retire around the year
2020.
(small solid bullet) Allocating assets among these underlying Fidelity
funds according to an asset allocation strategy that becomes
increasingly conservative until it reaches 20% in domestic equity
funds, 40% in investment-grade fixed-income funds and 40% in money
market funds (approximately five to ten years after the year 2020).
(small solid bullet) Using a target asset allocation as of March 31,
1999 of approximately:
Domestic
Equity
Funds 66%
International
Equity Funds 11%
Row: 1, Col: 1, Value: 15.0
Row: 1, Col: 2, Value: 66.0
Row: 1, Col: 3, Value: 11.0
Row: 1, Col: 4, Value: 8.0
Row: 1, Col: 5, Value: 0.0
Investment-
Grade Fixed-
Income
Funds 15%
High Yield
Fixed-Income
Funds 8%
Money Market
Funds 0%
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market. Emerging markets can be subject to greater social, economic,
regulatory and political uncertainties and can be extremely volatile.
(small solid bullet) GEOGRAPHIC CONCENTRATION IN EUROPE. Both
developed and emerging market countries in Europe will be
significantly affected by the tight fiscal and monetary controls
required to join the European Economic and Monetary Union (EMU).
(small solid bullet) GEOGRAPHIC CONCENTRATION IN JAPAN. The Japanese
economy is currently in a recession. International trade and
government policy, significantly affect economic growth.
(small solid bullet) GEOGRAPHIC CONCENTRATION IN SOUTHEAST ASIA. Most
Southeast Asian economies are generally considered emerging markets
and are currently in recessions. International trade, government
policy and political and social stability significantly affect
economic growth. The markets in Southeast Asia can be extremely
volatile.
(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. The value of securities of smaller
issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) can be more volatile due to increased sensitivity to adverse
issuer, political, regulatory, market or economic developments.
(small solid bullet) QUANTITATIVE INVESTING. Securities selected using
quantitative analysis can perform differently than the market as a
whole as a result of the factors used in the analysis, the weight
placed on each factor, and changes in the factors' historical trends.
(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.
(small solid bullet) "VALUE" INVESTING. "Value" stocks can perform
differently than the market as a whole and other types of stocks and
can continue to be undervalued by the market for long periods of time.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE
FREEDOM 2030 FUND seeks high total return.
PRINCIPAL INVESTMENT STRATEGIES
Strategic Advisers' principal investment strategies include:
(small solid bullet) Investing in a combination of Fidelity equity,
fixed-income and money market funds using a moderate asset allocation
strategy designed for investors expecting to retire around the year
2030.
(small solid bullet) Allocating assets among these underlying Fidelity
funds according to an asset allocation strategy that becomes
increasingly conservative until it reaches 20% in domestic equity
funds, 40% in investment-grade fixed-income funds and 40% in money
market funds (approximately five to ten years after the year 2030).
(small solid bullet) Using a target asset allocation as of March 31,
1999 of approximately:
Domestic
Equity
Funds 70%
International
Equity Funds 14%
Row: 1, Col: 1, Value: 7.0
Row: 1, Col: 2, Value: 70.0
Row: 1, Col: 3, Value: 14.0
Row: 1, Col: 4, Value: 9.0
Row: 1, Col: 5, Value: 0.0
Investment-
Grade Fixed-
Income
Funds 7%
High Yield
Fixed-Income
Funds 9%
Money Market
Funds 0%
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market. Emerging markets can be subject to greater social, economic,
regulatory and political uncertainties and can be extremely volatile.
(small solid bullet) GEOGRAPHIC CONCENTRATION IN EUROPE. Both
developed and emerging market countries in Europe will be
significantly affected by the tight fiscal and monetary controls
required to join the European Economic and Monetary Union.
(small solid bullet) GEOGRAPHIC CONCENTRATION IN JAPAN. The Japanese
economy is currently in a recession. International trade and
government policy, significantly affect economic growth.
(small solid bullet) GEOGRAPHIC CONCENTRATION IN SOUTHEAST ASIA. Most
Southeast Asian economies are generally considered emerging markets
and are currently in recessions. International trade, government
policy and political and social stability significantly affect
economic growth. The markets in Southeast Asia can be extremely
volatile.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. The value of securities of smaller
issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) can be more volatile due to increased sensitivity to adverse
issuer, political, regulatory, market or economic developments.
(small solid bullet) QUANTITATIVE INVESTING. Securities selected using
quantitative analysis can perform differently than the market as a
whole as a result of the factors used in the analysis, the weight
placed on each factor, and changes in the factors' historical trends.
(small solid bullet) "GROWTH" INVESTING. "Growth" stocks can perform
differently than the market as a whole and other types of stocks and
can be more volatile than other types of stocks.
(small solid bullet) "VALUE" INVESTING. "Value" stocks can perform
differently than the market as a whole and other types of stocks and
can continue to be undervalued by the market for long periods of time.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in each Freedom
Fund's performance from year to year and compares each Freedom Fund's
performance to the performance of a market index and a combination of
market indexes over various periods of time. Returns are based on past
results and are not an indication of future performance.
YEAR-BY-YEAR RETURNS
FREEDOM INCOME
Calendar Years 1997 1998
10.91% 11.10%
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: 10.91
Row: 10, Col: 1, Value: 11.1
DURING THE PERIODS SHOWN IN THE CHART FOR FREEDOM INCOME, THE
HIGHEST RETURN FOR A QUARTER WAS 5.01% (QUARTER ENDING JUNE 30, 1997)
AND TH E LOWEST RETURN FOR A QUARTER WAS 0.19% (QUARTER ENDING
SEPTEMBER 30, 1998).
THE YE AR-TO-DATE RE TURN AS OF MARCH 31, 1999 FOR FREEDOM INCOME
WAS 1.26%.
FREEDOM 2000
Calendar Years 1997 1998
15.29% 15.26%
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: 15.29
Row: 10, Col: 1, Value: 15.26
DURING THE PERIODS SHOWN IN THE CHART FO R FREEDOM 2000, THE HIGHEST
RETURN FOR A QUARTER WAS 8.90% (QUARTER ENDING DECEMBER 31, 1998) AND
THE LOWEST RETURN FOR A QU ARTER WAS -2.66% (QUARTER ENDING
SEPTEMBER 30, 1998).
THE YEAR-TO-DATE RE TURN AS OF MARCH 31, 1999 FOR FREEDOM 2000
WAS 2.19%.
FREEDOM 2010
Calendar Years 1997 1998
19.36% 19.31%
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: 19.36
Row: 10, Col: 1, Value: 19.31
DURING THE PERIODS SHOWN IN THE CHART FOR FREEDOM 2010, THE HIGHEST
RETURN FOR A QUARTER WAS 13.50% (QUARTER ENDING DECEMBER 31, 1998) AND
THE LO WEST RETURN FOR A QUARTER WAS -5.99% (QUARTER ENDING
SEPTEMBER 30, 1998).
THE YEAR-TO-DATE RETURN AS OF MARCH 31, 1999 FOR FREEDOM 2010
WAS 3.46%.
FREEDOM 2020
Calendar Years 1997 1998
21.24% 21.67%
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: 21.24
Row: 10, Col: 1, Value: 21.76
DURING THE PERIODS SHOW N IN THE CHART FOR FREEDOM 2020, THE HIGHEST
RETURN FOR A QUARTER WAS 17.19% (QUARTER ENDING DECEMBER 31, 1998) AND
T HE LOWEST RETURN FOR A QUARTER WAS -8.59% (QUARTER ENDING
SEPTEMBER 30, 1998).
THE YEAR-TO-DATE RETU RN AS OF MARCH 31, 1999 FOR FREEDOM 2020
WAS 4.30%.
FREEDOM 2030
Calendar Years 1997 1998
21.40% 22.12%
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: nil
Row: 7, Col: 1, Value: nil
Row: 8, Col: 1, Value: nil
Row: 9, Col: 1, Value: 21.4
Row: 10, Col: 1, Value: 22.12
DURING THE PERIODS SHOWN IN THE CHART F OR FREEDOM 2030, THE HIGHEST
RETURN FOR A QUARTER WAS 18.43% (QUARTER ENDING DECEMBER 31, 1998) AND
THE LOWEST RETURN FOR A QUARTER WAS -9.71% (QUARTER ENDING
SEPTEMBER 30, 1998).
THE YEAR-TO-DA TE RETURN AS OF MARCH 31, 1999 FOR FREEDOM 2030
WAS 4.75%.
AVERAGE ANNUAL RETURNS
For the periods ended Past 1 year Life of fundA,B
December 31, 1998
Freedom Income 11.10% 11.01%
Lehman Bros. Aggregate Bond 8.69% 9.17%
Index
Freedom Income Composite Index 10.58% 11.36%
Freedom 2000 15.26% 15.28%
Lehman Bros. Aggregate Bond 8.69% 9.17%
Index
Freedom 2000 Composite Index 14.58% 15.84%
Freedom 2010 19.31% 19.34%
S&P 500 28.58% 30.95%
Freedom 2010 Composite Index 18.22% 19.90%
Freedom 2020 21.67% 21.46%
S&P 500 28.58% 30.95%
Freedom 2020 Composite Index 20.22% 21.96%
Freedom 2030 22.12% 21.76%
S&P 500 28.58% 30.95%
Freedom 2030 Composite Index 20.50% 22.05%
A BEGINNING JANUARY 1 OF THE FIRST CALENDAR YEAR FOLLOWING THE
FUNDS ' COMMENCEMENT OF OPERATIONS.
B FROM JANUARY 1, 1997.
If Strategic Advisers had not reimbursed certain fund expenses during
these periods, each fund's returns would have been lower.
Standard & Poor's 500 Index (S&P 500(registered trademark)) is a
market capitalization-weighted index of common stocks.
Fidelity Freedom Funds' Composite Indexes are hypothetical
representations of the performance of each Freedom Fund's asset
classes according to their respective weightings adjusted on June 30
and December 31 of each calendar year for Freedom Funds with target
retirement dates, to reflect the increasingly conservative asset
allocations.
The following indexes are used to calculate a Freedom Fund's Composite
Index: Wilshire 5000 Index for the domestic equity fund class, Morgan
Stanley Capital International Europe, Australasia, Far East (EAFE)
Index for the international equity fund class, Lehman Brothers
Aggregate Bond Index for the investment - grade fixed-income fund
class, Merrill Lynch High Yield Master Index for the high yield
fixed-income fund class, and Lehman Brothers 3-Month Treasury Bill
Index for the money market fund class. The index weightings of each
Composite Index are rebalanced monthly.
Wilshire 5000 is a market capitalization-weighted index of
approximately 7,000 U.S. equity securities.
Morgan Stanley Capital International Europe, Australasia, Far East
(EAFE) Index is a market capitalization-weighted index that is
designed to represent the performance of developed stock markets
outside the United States and Canada. As of December 31, 1998, the
index inc luded over 1000 equity securities of com panies
domiciled in 20 countries.
The Lehman Brothers Aggregate Bond Index is a market value-weighted
index of investment-grade fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities,
with maturities of one year or more.
Merrill Lynch High Yield Master Index is a market value-weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of one year or more and have a credit rating
lower than BBB-/Baa3, but are not in default.
The Lehman Brothers 3-Month Treasury Bill Index represents the average
of Treasury Bill rates for each of the prior three months, adjusted to
a bond equivalent yield basis (short-term and money market
instruments).
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold or sell shares of a Freedom Fund. The annual fund
operating expenses provided below for each Freedom Fund do not reflect
the effect of any expense reimbursements or reduction of certain
expenses during the period.
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
Sales charge (load) on None
purchases and reinvested
distributions
Deferred sales charge (load) None
on redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
FREEDOM INCOME Management fee 0.10%
Distribution and Service None
(12b-1) fee
Other expenses 0.00%
Total annual fund operating 0.10%
expensesA
FREEDOM 2000 Management fee 0.10%
Distribution and Service None
(12b-1) fee
Other expenses 0.00%
Total annual fund operating 0.10%
expensesA
FREEDOM 2010 Management fee 0.10%
Distribution and Service None
(12b-1) fee
Other expenses 0.00%
Total annual fund operating 0.10%
expensesA
FREEDOM 2020 Management fee 0.10%
Distribution and Service None
(12b-1) fee
Other expenses 0.00%
Total annual fund operating 0.10%
expensesA
FREEDOM 2030 Management fee 0.10%
Distribution and Service None
(12b-1) fee
Other expenses 0.00%
Total annual fund operating 0.10%
expensesA
A EFFECTIVE NOVEMBER 1, 1996, STRATEGIC ADVISERS HAS VOLUNTARILY
AGREED TO REIMBURSE EACH FREEDOM FUND TO THE EXTENT THAT TOTAL
OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS
AND EXTRAORDINARY EXPENSES) EXCEED 0 . 08 % OF ITS AVERAGE
NET ASSETS. THIS ARRANGEMENT CAN BE TERMINATED BY STRATEGIC ADVISERS
AT ANY TIME.
Strategic Advisers has entered into arrangements on behalf of each
Freedom Fund with the fund's custodian and transfer agent whereby
credits realized as a result of uninvested cash balances are used to
reduce fund expenses. Including these reductions, the total fund
operating expenses, after reimbursement, would have been 0.07 %
for Freedom Income, 0.07 % for Freedom 2000, 0.07 % for
Freedom 2010, 0.07 % for Freedom 2020 and 0.07 % for
Freedom 2030.
Each Freedom Fund will not incur any sales charges , but it
may incur exchange fees or trading fees, if applicable, when it
invests in underlying Fidelity funds .
In addition to the total fund operating expenses shown above, each
Freedom Fund, as a shareholder in an underlying Fidelity fund, will
indirectly bear its pro rata share of the fees and expenses incurred
by the underlying Fidelity fund, and each Freedom Fund's investment
return will be net of underlying Fidelity fund expenses.
The total expense ratios of each Freedom Fund (calculated as a
percentage of average net assets) are as follows: Freedom Income:
0.68 %; Freedom 2000: 0.76 %; Freedom 2010: 0.82 %;
Freedom 2020: 0.85 %; and Freedom 2030: 0.87 %. Each
Freedom Fund's total expense ratio is based on its total operating
expense ratio plus a weighted average of the total operating expense
ratios of the underlying Fidelity funds in which it was invested (as
of each underlying Fidelity fund's most recently reported fiscal
year-end) as of March 31, 1999. The total expense ratios for
each Freedom Fund may be higher or lower depending on the
allocation of a fund's assets among the underlying Fidelity
funds and the actual expenses of the underlying Fidelity funds.
This EXAMPLE helps you compare the cost of investing in the Freedom
Funds with the cost of investing in other mutual funds.
Let's say, hypothetically, that each Freedom Fund's annual return is
5%, that your shareholder fees are exactly as described in the fee
table, and that each Freedom Fund's total expense ratio is as
described above. This example illustrates the effect of fees and
expenses, but is not meant to suggest actual or expected fees and
expenses or returns, all of which may vary. For every $10,000 you
invested, here's how much you would pay in total expenses if you close
your account after the number of years indicated:
FREEDOM INCOME 1 year $ 69
3 years $ 218
5 years $ 379
10 years $ 847
FREEDOM 2000 1 year $ 78
3 years $ 243
5 years $ 422
10 years $ 942
FREEDOM 2010 1 year $ 84
3 years $ 262
5 years $ 455
10 years $ 1,014
FREEDOM 2020 1 year $ 87
3 years $ 271
5 years $ 471
10 years $ 1,049
FREEDOM 2030 1 year $ 89
3 years $ 278
5 years $ 482
10 years $ 1,073
FUND BASICS
INVESTMENT DETAILS
INVESTMENT OBJECTIVE
Each of FREEDOM 2000 FUND, FREEDOM 2010 FUND, FREEDOM 2020 FUND, and
FREEDOM 2030 FUND seeks high total return.
FREEDOM INCOME FUND seeks high current income and, as a secondary
objective, capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Strategic Advisers invests each Freedom Fund's assets in a
combination of Fidelity funds: domestic and international equity
funds, investment-grade and high yield fixed-income funds, and money
market funds (underlying Fidelity funds). The Freedom Funds differ
primarily due to their asset allocations among these fund types. The
target asset allocation strategy for each Freedom Fund is designed to
provide an approach to asset allocation that is neither overly
aggressive nor overly conservative.
Strategic Advisers allocates the assets of each Freedom Fund with a
target retirement date (Freedom 2000, Freedom 2010, Freedom 2020, and
Freedom 2030) among underlying Fidelity funds according to an asset
allocation strategy that becomes increasingly conservative over time.
Each fund's name refers to the approximate retirement year of the
investors for whom the fund's asset allocation strategy is designed.
For example, Freedom 2030 is designed for investors planning to retire
around the year 2030. Freedom 2030, whose target retirement is
approximately 30 years away, will start with a relatively aggressive
target asset allocation, with a substantial portion of its assets
invested in equity funds and a modest portion of its assets invested
in fixed-income funds. By contrast, Freedom 2000, whose target
retirement year is less than a year away, will start with a relatively
conservative target asset allocation, with less than half of its
assets invested in equity funds and the majority of its assets
invested in fixed-income and money market funds.
Freedom Income is designed for investors in their retirement years.
Strategic Advisers allocates the fund's assets according to a stable
target asset allocation that emphasizes fixed-income and money market
funds but also includes a small amount of equity funds.
The table to the right lists the underlying Fidelity funds in
which each Freedom Fund currently may invest and each Freedom
Fund's approximate target asset allocation to each underlying Fidelity
fund as of March 31, 1999. Strategic Advisers may change these
percentages over time.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Categories Freedom Income Freedom 2000 Freedom 2010 Freedom 2020 Freedom 2030
EQUITY FUNDS
DOMESTIC EQUITY FUNDS
Fidelity Blue Chip Growth Fund 3% 5% 8% 10% 11%
Fidelity Disciplined Equity 3% 5% 8% 10% 11%
Fund
Fidelity Equity-Income Fund 3% 5% 8% 10% 11%
Fidelity Fund 3% 5% 8% 10% 11%
Fidelity Growth & Income 3% 5% 8% 10% 11%
Portfolio
Fidelity Growth Company Fund 3% 5% 8% 10% 11%
Fidelity OTC Portfolio 2% 3% 5% 7% 7%
INTERNATIONAL EQUITY FUNDS
Fidelity Diversified 0% 1% 2% 3% 4%
International Fund
Fidelity Europe Fund 0% 1% 3% 4% 5%
Fidelity Japan Fund 0% 1% 1% 1% 1%
Fidelity Overseas Fund 0% 1% 2% 3% 4%
Fidelity Southeast Asia Fund 0% <1% <1% 1% 1%
FIXED-INCOME FUNDS
INVESTMENT-GRADE FIXED-INCOME
FUNDS
Fidelity Government Income Fund 15% 15% 11% 6% 3%
Fidelity Intermediate Bond Fund 10% 10% 7% 4% 2%
Fidelity Investment Grade 15% 15% 11% 6% 3%
Bond Fund
HIGH YIELD FIXED-INCOME FUND
Fidelity Capital & Income Fund 0% 3% 6% 8% 9%
MONEY MARKET FUND
Fidelity Money Market Trust: 40% 19% 4% 0% 0%
Retirement Money Market
Portfolio
Note: The allocation
percentages may not add to
100% due to rounding.
</TABLE>
The chart below illustrates each Freedom Fund's approximate
target asset allocation among equity, fixed-income and money market
funds as of March 31, 1999. The chart also illustrates how these
allocations may change over time. The Freedom Funds' target asset
allocations may differ from this illustration.
DESCRIPTION OF CHART WHICH APPEARS ON PAGE 18 OF THE FIDELITY FREEDOM
FUNDS' PROSPECTUS:The chart is a rectangular box. The x-axis (the
bottom of the box) charts, from left to right, years to retirement and
years after retirement in five-year intervals, counting down from 40
years to retirement, reaching retirement, and then counting up to 15
years after retirement. Immediately below and parallel to the x-axis
is a straight line with an arrow at each end. A perpendicular line
crosses the line at retirement and the word "Retirement" appears below
the perpendicular line. The words "Years to Retirement" appear below
the parallel line to the left of the perpendicular line, and the words
"Years after Retirement" appear below the parallel line to the right
of the perpendicular line. The y-axis (the left side of the box) is
marked in ten percentage point intervals up from 0% to 100% to
indicate the percentage of assets allocated to equity, fixed-income,
and money market funds.The Freedom Funds are positioned along the top
of the box at 31, 21, 11, and one years to retirement for Freedom 2030
Fund, Freedom 2020 Fund, Freedom 2010 Fund, and Freedom 2000 Fund,
respectively. Freedom Income Fund is positioned at the top of the box
at seven years after retirement. Each Fund's position is indicated
with a downward pointing solid triangle.Inside the box are vertical
lines (from the top of the box to the bottom of the box) at each of
the five-year intervals marked on the x-axis. Also inside the box,
directly below each Fund's position, are data points that indicate the
target asset allocation for that Fund as of March 31, 1999. The first
set of data points is charted at 84%, 77%, 60%, 38%, and 20% for
Freedom 2030 Fund, Freedom 2020 Fund, Freedom 2010 Fund, Freedom 2000
Fund, and Freedom Income Fund, respectively. The second set of data
points is charted at 96%, 81%, and 60% for Freedom 2010 Fund, Freedom
2000 Fund, and Freedom Income Fund, respectively. The data points are
indicated by a solid circle.The data points in each set are connected
by a dotted line. The area on the chart from the x-axis up to the
dotted line connecting the first set of data points (the "first dotted
line") represents the percentage allocation in equity funds. The
words "Equity Funds" appear in this area. The area on the chart from
the first dotted line up to the dotted line connecting the second set
of data points (the "second dotted line") represents the percentage
allocation in fixed-income funds. The words "Fixed-Income Funds"
appear in this area. The area on the chart from the second dotted
line up to the top of the chart represents the percentage allocation
in money market funds. The words "Money Market Funds" appear in this
area.
When the target asset allocation of a Freedom Fund with a target
retirement date matches Freedom Income's target asset allocation
(approximately five to ten years after the fund's retirement date), it
is expected that the fund will be combined with Freedom Income and the
fund's shareholders will become shareholders of Freedom Income.
Strategic Advisers intends to manage each Freedom Fund according to
its target asset allocation strategy, and does not intend to trade
actively among underlying Fidelity funds or intend to attempt to
capture short-term market opportunities. However, Strategic Advisers
may modify the target asset allocation strategy for any Freedom Fund
and modify the selection of underlying Fidelity funds for any Freedom
Fund from time to time.
DESCRIPTION OF UNDERLYING FIDELITY FUNDS
Although the underlying Fidelity funds are categorized generally as
equity (domestic or international), fixed-income (investment-grade or
high yield) and money market funds, many of the underlying Fidelity
funds may invest in a mix of securities of foreign and domestic
issuers, investment-grade and high yield bonds, and other securities.
DOMESTIC EQUITY FUNDS
FIDELITY BLUE CHIP GROWTH FUND seeks growth of capital over the long
term by investing primarily in a diversified portfolio of common
stocks of well-known and established companies. FMR normally invests
at least 65% of the fund's total assets in the common stock of blue
chip companies. FMR defines blue chip companies to include those with
a market capitalization of at least $200 million, if the company's
stock is included in the S&P 500 or the Dow Jones Industrial Average,
or $1 billion if not included in either index.
Blue chip companies typically have a large number of publicly held
shares and a high trading volume, resulting in a high degree of
liquidity. These tend to be quality companies with strong management
organizations. Companies that demonstrate the potential to become blue
chip companies in the future may also be selected by FMR for the
fund's investments.
When choosing the fund's domestic or foreign investments, FMR seeks
companies that it expects will demonstrate greater long-term earnings
growth than the average company included in the S&P 500. This method
of selecting stocks is based on the belief that growth in a company's
earnings will eventually translate into growth in the price of its
stock. FMR looks at strong market sectors and then identifies those
companies that offer the most attractive values based on earnings
prospects. The fund's sector emphasis may shift based on changes in
the sectors' earnings outlook.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY DISCIPLINED EQUITY FUND seeks capital growth.
FMR normally invests at least 65% of the fund's total assets in common
stocks.
FMR seeks to reduce the impact of industry weightings on the
performance of the fund by considering each industry's weighting in
the S&P 500 when allocating the fund's investments across industries.
FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.
In buying and selling securities for the fund, FMR uses a disciplined
approach that involves computer-aided, quantitative analysis supported
by fundamental analysis. FMR's computer model systematically reviews
thousands of stocks, using data such as historical earnings, dividend
yield, earnings per share, and other quantitative factors. Then, the
issuers of potential investments are analyzed further using
fundamental factors such as growth potential, earnings estimates and
financial condition.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY EQUITY-INCOME FUND seeks reasonable income. In pursuing this
objective, the fund will also consider the potential for capital
appreciation. The fund seeks a yield for its shareholders that exceeds
the yield on the securities comprising the S&P 500.
FMR normally invests at least 65% of the fund's total assets in
income-producing equity securities. FMR may also invest the fund's
assets in other types of equity securities and debt securities,
including lower-quality debt securities.
FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.
FMR's emphasis on above-average income-producing equity securities
tends to lead to investments in large cap "value" stocks. However, FMR
is not constrained by any particular investment style. In buying and
selling securities for the fund, FMR relies on fundamental analysis of
each issuer and its potential for success in light of its current
financial condition, its industry position, and economic and market
conditions. Factors considered include growth potential, earnings
estimates and management.
FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY FUND seeks long-term capital growth by investing mainly in
common stocks and securities convertible into common stocks.
In pursuit of a current return, the fund invests in some securities
for their income characteristics. This two-fold approach, which may
limit the fund's growth potential, leads to investments in a broad
range of domestic and foreign equity and debt securities.
FMR is not constrained by any particular investment style. At any
given time, FMR may tend to buy "growth" stocks or "value" stocks, or
a combination of both types. In buying and selling securities for the
fund, FMR relies on fundamental analysis of each issuer and its
potential for success in light of its current financial condition, its
industry position, and economic and market conditions. Factors
considered include growth potential, earnings estimates and
management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY GROWTH & INCOME PORTFOLIO seeks high total return through a
combination of current income and capital appreciation by investing
mainly in equity securities. FMR expects to invest the majority of the
fund's assets in domestic and foreign equity securities, with a focus
on those that pay current dividends and show potential earnings
growth. However, FMR may buy debt securities as well as equity
securities that are not currently paying dividends, but offer
prospects for capital appreciation or future income.
FMR is not constrained by any particular investment style. At any
given time, FMR may tend to buy "growth" stocks or "value" stocks, or
a combination of both types. In buying and selling securities for the
fund, FMR relies on fundamental analysis of each issuer and its
potential for success in light of its current financial condition, its
industry position, and economic and market conditions. Factors
considered include growth potential, earnings estimates and
management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY GROWTH COMPANY FUND seeks capital appreciation.
FMR normally invests the fund's assets primarily in common stocks.
FMR invests the fund's assets in companies FMR believes have
above-average growth potential. Growth may be measured by
factors such as earnings or revenue.
Companies with high growth potential tend to be companies with
higher than average price/earnings (P/E) ratios. Companies with strong
growth potential often have new products, technologies, distribution
channels or other opportunities or have a strong industry or market
position. The stocks of these companies are often called "growth"
stocks.
FMR may invest the fund's assets in securities of foreign issuers in
addition to securities of domestic issuers.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY OTC PORTFOLIO seeks capital appreciation by investing
primarily in securities traded on the over-the-counter (OTC) market.
FMR normally invests at least 65% of the fund's total assets in
securities principally traded on the OTC market. The fund focuses on
common stock but may invest in securities of all types.
In the OTC market, securities are traded through a telephone or
computer network that connects securities dealers. A security that
trades solely on the OTC market is not traded on the floor of an
organized exchange. Securities that begin to trade principally on an
exchange after purchase continue to be considered OTC securities for
the purpose of the 65% policy.
The fund does not place any emphasis on income, except when FMR
believes income will have a favorable influence on the security's
market value.
FMR is not constrained by any particular investment style. At any
given time, FMR may tend to buy "growth" stocks or "value" stocks or a
combination of both types. In buying and selling securities for the
fund, FMR relies on fundamental analysis of each issuer and its
potential for success in light of its current financial condition, its
industry position, and economic and market conditions. Factors
considered include growth potential, earnings estimates and
management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
INTERNATIONAL EQUITY FUNDS
FIDELITY DIVERSIFIED INTERNATIONAL FUND seeks capital growth.
FMR normally invests at least 65% of the fund's total assets in
foreign securities. FMR normally invests the fund's assets primarily
in common stocks.
FMR normally diversifies the fund's investments across different
countries and regions. In allocating the fund's investments across
countries and regions, FMR will consider the size of the market in
each country and region relative to the size of the international
market as a whole.
In buying and selling securities for the fund, FMR uses a disciplined
approach that involves computer-aided, quantitative analysis supported
by fundamental analysis. FMR's computer model systematically reviews
thousands of stocks, using data such as historical earnings, dividend
yield, earnings per share, and other quantitative factors. Then, the
issuers of potential investments are analyzed further using
fundamental factors such as growth potential, earnings estimates and
financial condition.
FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY EUROPE FUND seeks growth of capital over the long-term.
FMR normally invests at least 65% of the fund's total assets in
securities of issuers that have their principal activities in Europe.
Europe includes Austria, Belgium, Belarus, Bulgaria, the Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
Ireland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands,
Norway, Poland, Portugal, Russia, Slovakia, Slovenia, Spain, Sweden,
Switzerland, Turkey, and the United Kingdom. FMR normally invests the
fund's assets primarily in common stocks.
FMR normally diversifies the fund's investments across different
European countries. In allocating the fund's investments across
countries, FMR will consider the size of the market in each country
relative to the size of the markets in Europe as a whole.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY JAPAN FUND seeks long-term growth of capital.
FMR normally invests at least 65% of the fund's total assets in
securities of Japanese issuers. FMR normally invests the fund's assets
primarily in common stocks.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY OVERSEAS FUND seeks long-term growth of capital.
FMR normally invests at least 65% of the fund's total assets in
foreign securities. FMR normally invests the fund's assets primarily
in common stocks.
FMR normally diversifies the fund's investments across different
countries and regions. In allocating the fund's investments across
countries and regions, FMR will consider the size of the market in
each country and region relative to the size of the international
market as a whole.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
FIDELITY SOUTHEAST ASIA FUND seeks capital appreciation.
FMR normally invests at least 65% of the fund's total assets in
securities of Southeast Asian issuers. Southeast Asia includes Hong
Kong, Indonesia, South Korea, Malaysia, the Philippines, the People's
Republic of China, Singapore, Taiwan, and Thailand. FMR normally
invests the fund's assets primarily in common stocks.
FMR normally diversifies the fund's investments across different
Southeast Asian countries. In allocating the fund's investments across
countries, FMR will consider the size of the market in each country
relative to the size of the markets in Southeast Asia as a whole.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may lend the fund's securities to broker-dealers or other
institutions to earn income for the fund.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices or other factors that affect security values. If FMR's
strategies do not work as intended, the fund may not achieve its
objective.
INVESTMENT-GRADE FIXED-INCOME FUNDS
FIDELITY GOVERNMENT INCOME FUND seeks high current income, consistent
with preservation of principal, by investing in U.S. Government
securities and instruments related to U.S. Government securities under
normal conditions.
The fund normally invests only in U.S. Government securities,
repurchase agreements and other instruments related to U.S. Government
securities. FMR normally invests at least 65% of the fund's total
assets in U.S. Government securities and repurchase agreements for
U.S. Government securities. Other instruments may include futures or
options on U.S. Government securities or interests in U.S. Government
securities that have been repackaged by dealers or other third
parties. It is important to note that neither the fund's share price
nor its yield is guaranteed by the U.S. Government.
In managing the fund, FMR selects a benchmark index that is
representative of the universe of securities in which the fund
invests. FMR uses this benchmark as a guide in structuring the fund
and selecting its investments. The benchmark index for the fund is the
Lehman Brothers Government Bond Index, a market value-weighted
benchmark of U.S. Government and government agency securities (other
than mortgage securities) with maturities of one year or more. FMR
manages the fund to have similar overall interest rate risk to the
index. As of July 31, 1998, the dollar weighted average maturity of
the fund and index was approximately 8.70 years and 8.90 years,
respectively.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
FMR allocates among different market sectors (for example, U.S.
Treasury or U.S. Government agency securities) and different
maturities based on its view of the relative value of each sector or
maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
FIDELITY INTERMEDIATE BOND FUND seeks high current income by investing
in U.S. dollar-denominated investment-grade debt securities under
normal conditions.
In managing the fund, FMR selects a benchmark index that is
representative of the universe of securities in which the fund
invests. FMR uses this benchmark as a guide in structuring the fund
and selecting its investments. The benchmark index for the fund is the
Lehman Brothers Intermediate Government/Corporate Bond Index, a market
value-weighted benchmark of government and investment-grade corporate
fixed-rate debt issues with maturities between one and 10 years. FMR
manages the fund to have similar overall interest rate risk to the
index. As of April 30, 1998, the dollar-weighted average maturity of
the fund and the index was approximately 5.1 and 4.28 years,
respectively. In addition, the fund normally maintains a
dollar-weighted average maturity between three and 10 years.
In determining a security's maturity for purposes of calculating a
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
FMR allocates assets among different market sectors (for example,
corporate or government securities) and different maturities based on
its view of the relative value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
FIDELITY INVESTMENT GRADE BOND FUND seeks high current income,
consistent with reasonable risk, by investing in U.S.
dollar-denominated investment-grade debt securities under normal
conditions. The fund also considers capital preservation and, where
appropriate, takes advantage of opportunities to realize capital
appreciation.
In managing the fund, FMR selects a benchmark index that is
representative of the universe of securities in which the fund
invests. FMR uses this benchmark as a guide in structuring the fund
and selecting its investments. The benchmark index for the fund is the
Lehman Brothers Aggregate Bond Index, a market value-weighted
benchmark of investment-grade fixed-rate debt issues with maturities
of one year or more. FMR manages the fund to have similar overall
interest rate risk to the index. As of April 30, 1998, the
dollar-weighted average maturity of the fund and the index was
approximately 8.8 and 8.8 years, respectively.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
FMR allocates assets among different market sectors (for example,
corporate or government securities) and different maturities based on
its view of the relative value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund may invest. FMR's
evaluation of a potential investment include s an analysis of
the credit quality of the issuer, its structural features, its current
price compared to FMR's estimates of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
HIGH YIELD FIXED-INCOME FUND
FIDELITY CAPITAL & INCOME FUND seeks income and capital growth by
investing primarily in debt instruments, convertible securities, and
common and preferred stocks. The fund has broad flexibility to pursue
its goal by investing in instruments of any type or quality, but FMR
expects to invest the majority of the fund's assets in debt
instruments and convertible securities, with particular emphasis on
lower-quality securities. Many of these securities present the risk of
default or may be in default.
In pursuit of its goal, the fund may invest in the equity and debt
securities of domestic and foreign companies whose financial condition
is perceived to be troubled or uncertain. These companies may be
involved in bankruptcy proceedings, reorganizations, or financial
restructurings.
The fund's success depends on FMR's financial analysis and research,
and its ability to identify undervalued investments in the market. FMR
also evaluates the probable outcome of any pending restructurings and
any legal or regulatory risks.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
MONEY MARKET FUND
RETIREMENT MONEY MARKET PORTFOLIO seeks to obtain as high a level of
current income as is consistent with the preservation of capital and
liquidity.
FMR invests the funds assets in U.S. dollar-denominated money market
securities of domestic and foreign issuers, including U.S. Government
securities and repurchase agreements. FMR also may enter into reverse
repurchase agreements for the fund.
FMR will invest more than 25% of the fund's total assets in the
financial services industry.
In buying and selling securities for the fund, FMR complies with
industry-standard requirements for money market funds regarding the
quality, maturity and diversification of the fund's investments. FMR
stresses maintaining a stable $1.00 share price, liquidity and income.
PRINCIPAL INVESTMENT RISKS
Many factors affect each Freedom Fund's performance. Each Freedom
Fund's share price and Freedom Income's yield change daily based on
the performance of the underlying Fidelity funds in which it invests.
The ability of each Freedom Fund to meet its investment objective is
directly related to its target asset allocation among underlying
Fidelity funds and the ability of those funds to meet their investment
objectives. When you sell your shares of a Freedom Fund, they could be
worth more or less than what you paid for them.
The following factors may significantly affect a Freedom Fund's
performance:
STOCK MARKET VOLATILITY. The value of equity securities fluctuates in
response to issuer, political, market and economic developments. In
the short term, equity prices can fluctuate dramatically in response
to these developments. Different parts of the market and different
types of equity securities can react differently to these
developments. For example, large cap stocks can react differently than
small cap stocks, and "growth" stocks can react differently than
"value" stocks. Issuer, political or economic developments can affect
a single issuer, issuers within an industry or economic sector or
geographic region, or the market as a whole.
INTEREST RATE CHANGES. Debt and money market securities have varying
levels of sensitivity to changes in interest rates. In general, the
price of a debt or money market security can fall when interest rates
rise and can rise when interest rates fall. Securities with longer
maturities, mortgage securities, and the securities of issuers in the
financial services sector can be more sensitive to interest rate
changes. In other words, the longer the maturity of a security, the
greater the impact a change in interest rates could have on the
security's price. In addition, short-term and long-term interest rates
do not necessarily move in the same amount or the same direction.
Short-term securities tend to react to changes in short-term interest
rates, and long-term securities tend to react to changes in long-term
interest rates.
FOREIGN EXPOSURE. Foreign securities, foreign currencies, securities
issued by U.S. entities with substantial foreign operations, and
securities for which an entity located in a foreign country provides
credit support or a maturity-shortening structure can involve
additional risks relating to political, economic or regulatory
conditions in foreign countries. These risks include fluctuations in
foreign currencies; withholding or other taxes; trading, settlement,
custodial and other operational risks; and the less stringent investor
protection and disclosure standards of some foreign markets. All of
these factors can make foreign investments, especially those in
emerging markets, more volatile and potentially less liquid than U.S.
investments. In addition, foreign markets can perform differently than
the U.S. market.
Investing in emerging markets involves risks in addition to and
greater than those generally associated with investing in more
developed foreign markets. The extent of foreign development;
political stability; market depth, infrastructure and capitalization
and regulatory oversight are generally less than in more developed
markets. Emerging market economies can be subject to greater social,
economic, regulatory and political uncertainties. All of these factors
can make emerging market securities more volatile and potentially less
liquid than securities issued in more developed markets.
GEOGRAPHIC CONCENTRATION. Political and economic conditions and
changes in regulatory, tax or economic policy in a country could
significantly affect the market in that country and in surrounding or
related countries.
EUROPE. Europe includes both developed and emerging markets. Most
developed countries in Western Europe are members of the European
Union (EU) and many are also members of the EMU, which requires
compliance with restrictions on inflation rates, deficits and debt
levels. Many Eastern European countries continue to move toward market
economies. However, their markets remain relatively undeveloped and
are particularly sensitive to political and economic developments. The
tight fiscal and monetary controls necessary to join the EMU will
significantly affect every country in Europe.
ASIA. Asia includes countries in all stages of economic development,
from the highly developed economy of Japan to the emerging market
economy of the People's Republic of China. Most Asian economies are
characterized by over-extension of credit, currency devaluations,
rising unemployment, decreased exports, and economic recessions.
Currency devaluations in any one country generally have a significant
affect on the entire region. Recently, the markets in each Asian
country have suffered significant downturns as well as significant
volatility. Increased political and social unrest in some or all Asian
countries could cause further economic and market uncertainty.
The JAPANESE economy is currently in a recession. The economy is
characterized by government intervention and protectionism, an
unstable financial services sector, and relatively high unemployment.
Economic growth is dependent on international trade, government
support of the financial services sector and other troubled sectors,
and consistent government policy. The Japanese market has decreased
significantly recently.
The SOUTHEAST ASIA economies are generally in recessions. Many of
their economies are characterized by undeveloped financial services
sectors and heavy reliance on international trade. Currency
devaluations, political and social instability, and general economic
conditions have resulted in significant market downturns and
volatility. A small number of companies and industries represent a
large portion of the market in many Southeast Asian countries.
FINANCIAL SERVICES EXPOSURE. Financial services companies are highly
dependent on the supply of short-term financing. The value of
securities of issuers in the financial services sector can be
sensitive to changes in government regulation and interest rates and
to economic downturns in the United States and abroad.
PREPAYMENT. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment occurs when the
issuer of a security can repay principal prior to the security's
maturity. Securities subject to prepayment generally offer less
potential for gains during a declining interest rate environment and
similar or greater potential for loss in a rising interest rate
environment. In addition, the potential impact of prepayment features
on the price of a debt security can be difficult to predict and result
in greater volatility.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of security or issuer, and changes in general
economic or political conditions can affect the credit quality or
value of an issuer's securities. Entities providing credit support or
a maturity-shortening structure also can be affected by these types of
changes. If the structure of a security fails to function as intended,
the security could decline in value. The value of securities of
smaller, less well-known issuers can be more volatile than that of
larger issuers. Smaller issuers can have more limited product lines,
markets or financial resources. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more sensitive to
these changes than higher-quality debt securities.
Lower-quality debt securities involve greater risk of default or price
changes due to changes in the credit quality of the issuer. The value
of lower-quality debt securities often fluctuates in response to
company, political or economic developments and can decline
significantly over short periods of time or during periods of general
or regional economic difficulty. Lower-quality debt securities can be
thinly traded or have restrictions on resale, making them difficult to
sell at an acceptable price. The default rate for lower-quality debt
securities is likely to be higher during economic recessions or
periods of high interest rates.
QUANTITATIVE INVESTING. The value of securities selected using
quantitative analysis can react differently to issuer, political,
market and economic developments than the market as a whole or
securities selected using only fundamental analysis. The factors used
in quantitative analysis and the weight placed on those factors may
not be predictive of a security's value. In addition, factors that
affect a security's value can change over time and these changes may
not be reflected in the quantitative model.
"GROWTH" INVESTING. "Growth" stocks can react differently to issuer,
political, market and economic developments than the market as a whole
and other types of stocks. "Growth" stocks tend to be more expensive
relative to their earnings or assets compared to other types of
stocks. As a result, "growth" stocks tend to be sensitive to changes
in their earnings and more volatile than other types of stocks.
"VALUE" INVESTING. "Value" stocks can react differently to issuer,
political, market and economic developments than the market as a whole
and other types of stocks. "Value" stocks tend to be inexpensive
relative to their earnings or assets compared to other types of
stocks. However, "value" stocks can continue to be inexpensive for
long periods of time and may not ever realize their full value.
In response to market, economic, political or other conditions,
Strategic Advisers may temporarily use a different investment strategy
for defensive purposes. If Strategic Advisers does so, different
factors could affect a Freedom Fund's performance and the fund may not
achieve its investment objective.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
Each of FREEDOM 2000 FUND, FREEDOM 2010 FUND, FREEDOM 2020 FUND, AND
FREEDOM 2030 FUND seeks high total return.
FREEDOM INCOME FUND seeks high current income and, as a secondary
objective, capital appreciation.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time. However, NAV
may be calculated earlier if trading on the NYSE is restricted or as
permitted by the Securities and Exchange Commission (SEC). Each fund's
assets are valued as of this time for the purpose of computing the
fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
The assets of each Freedom Fund consist primarily of shares of the
underlying Fidelity funds, which are valued at their respective NAVs.
Most underlying Fidelity fund assets are valued primarily on the basis
of market quotations or on the basis of information furnished by a
pricing service. Certain short-term securities are valued on the basis
of amortized cost. If market quotations or information furnished by a
pricing service is not available for a security held by an underlying
Fidelity fund or if the value of a security held by an underlying
Fidelity fund has been materially affected by events occurring after
the close of the exchange or market on which the security is
principally traded (for example, a foreign exchange or market), that
security may be valued by another method that the Board of Trustees
believes accurately reflects fair value. A security's valuation may
differ depending on the method used for determining value. A money
market underlying Fidelity fund's assets are valued on the basis of
amortized cost.
SHAREHOLDER INFORMATION
BUYING AND SELLING SHARES
GENERAL INFORMATION
Fidelity Investments(registered trademark) was established in 1946 to
manage one of America's first mutual funds. Today, Fidelity is the
largest mutual fund company in the country, and is known as an
innovative provider of high-quality financial services to individuals
and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage
Services, Inc. (FBSI). Fidelity is also a leader in providing
tax-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
Web site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's Web site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use TouchTone Xpress(registered trademark), 1-800-544-5555.
(small solid bullet) For exchanges and redemptions, 1-800-544-7777.
(small solid bullet) For account assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and retirement information,
1-800-544-8888.
(small solid bullet) For brokerage information, 1-800-544-7272.
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5517
You may buy or sell shares of the funds through a retirement account
or an investment professional. If you invest through a retirement
account or an investment professional, the procedures for buying,
selling and exchanging shares of a fund and the account features and
policies may differ. Additional fees may also apply to your investment
in a fund, including a transaction fee if you buy or sell shares of
the fund through a broker or other investment professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
(solid bullet) ROTH IRAS
(solid bullet) ROLLOVER IRAS
(solid bullet) 401(K) PLANS AND CERTAIN OTHER
401(A)-QUALIFIED PLANS
(solid bullet) KEOGH PLANS
(solid bullet) SIMPLE IRAS
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS
(SEP-IRAS)
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS)
(solid bullet) 403(B) CUSTODIAL ACCOUNTS
(solid bullet) DEFERRED COMPENSATION PLANS
(457 PLANS)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of each fund is the fund's NAV. Each fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of a fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, a fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term
or excessive trading or whose trading has been or may be disruptive to
that fund. For these purposes, FMR may consider an investor's
trading history in that fund or other Fidelity funds, and accounts
under common ownership or control.
Each fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) Fidelity reserves the right to limit the number
of checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees the fund or
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (FDC) may enter confirmed
purchase orders on behalf of customers by phone, with payment to
follow no later than the time when a fund is priced on the following
business day. If payment is not received by that time, the order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT $2,500
For certain Fidelity retirement accountsA $500
TO ADD TO AN ACCOUNT $250
Through regular investment plans $100
MINIMUM BALANCE $2,000
For certain Fidelity retirement accountsA $500
A FIDELITY TRADITIONAL IRA, ROTH IRA, ROLLOVER IRA, SEP-IRA, AND KEOGH
ACCOUNTS.
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory
ServicesSM, certain Fidelity retirement accounts funded through salary
deduction, or accounts opened with the proceeds of distributions from
such retirement accounts. In addition, each fund may waive or lower
purchase minimums in other circumstances.
KEY INFORMATION
PHONE 1-800-544-7777 TO OPEN AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
(small solid bullet) Use
Fidelity Money
Line(registered trademark)
to transfer from your bank
account.
INTERNET WWW.FIDELITY.COM TO OPEN AN ACCOUNT
(small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account.
MAIL FIDELITY INVESTMENTS TO OPEN AN ACCOUNT
P.O. BOX 770001 CINCINNATI, (small solid bullet) Complete
OH 45277-0002 and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address at
left.
TO ADD TO AN ACCOUNT
(small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address at left.
(small solid bullet) Exchange
from another Fidelity fund.
Send a letter of instruction
to the address at left,
including your name, the
funds' names, the fund
account numbers, and the
dollar amount or number of
shares to be exchanged.
IN PERSON TO OPEN AN ACCOUNT
(small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
TO ADD TO AN ACCOUNT
(small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
WIRE TO OPEN AN ACCOUNT
(small solid bullet) Call
1-800-544-7777 to set up
your account and to arrange
a wire transaction.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
# 021001033, Account #
00163053.
(small solid bullet) Specify
the complete name of the
fund and include your new
fund account number and your
name.
TO ADD TO AN ACCOUNT
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing # 021001033, Account
# 00163053.
(small solid bullet) Specify
the complete name of the
fund and include your fund
account number and your name.
AUTOMATICALLY TO OPEN AN ACCOUNT
(small solid bullet) Not
available.
TO ADD TO AN ACCOUNT
(small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark) or Direct Deposit.
(small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from a
Fidelity money market fund.
SELLING SHARES
The price to sell one share of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form.
Certain requests must include a signature guarantee. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 30 days;
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address);
(small solid bullet) The check is being made payable to someone other
than the account owner; or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
When you place an order to sell shares, note the following:
(small solid bullet) If you are selling some but not all of your
shares, leave at least $2,000 worth of shares in the account to keep
it open ($500 for retirement accounts), except accounts not subject to
account minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
a fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays),
when trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) Redemption proceeds may be paid in securities or
other assets rather than in cash if the Board of Trustees determines
it is in the best interests of a fund.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY INFORMATION
PHONE 1-800-544-7777 (small solid bullet) Call the
phone number at left to
initiate a wire transaction
or to request a check for
your redemption.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
(small solid bullet) Exchange
to another Fidelity fund.
Call the phone number at left.
INTERNET WWW.FIDELITY.COM (small solid bullet) Exchange
to another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
MAIL FIDELITY INVESTMENTS INDIVIDUAL, JOINT TENANT,
P.O. BOX 660602 DALLAS, TX SOLE PROPRIETORSHIP, UGMA,
75266-0602 UTMA
(small solid bullet) Send a
letter of instruction to the
address at left, including
your name, the fund's name,
your fund account number,
and the dollar amount or
number of shares to be sold.
The letter of instruction
must be signed by all
persons required to sign for
transactions, exactly as
their names appear on the
account.
RETIREMENT ACCOUNT
(small solid bullet) The
account owner should
complete a retirement
distribution form. Call
1-800-544-6666 to request one.
TRUST
(small solid bullet) Send a
letter of instruction to the
address at left, including
the trust's name, the fund's
name, the trust's fund
account number, and the
dollar amount or number of
shares to be sold. The
trustee must sign the letter
of instruction indicating
capacity as trustee. If the
trustee's name is not in the
account registration,
provide a copy of the trust
document certified within
the last 60 days.
BUSINESS OR ORGANIZATION
(small solid bullet) Send a
letter of instruction to the
address at left, including
the firm's name, the fund's
name, the firm's fund
account number, and the
dollar amount or number of
shares to be sold. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Call
1-800-544-6666 for
instructions.
IN PERSON INDIVIDUAL, JOINT TENANT,
SOLE PROPRIETORSHIP, UGMA,
UTMA
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
RETIREMENT ACCOUNT
(small solid bullet) The
account owner should
complete a retirement
distribution form. Visit a
Fidelity Investor Center to
request one. Call
1-800-544-9797 for the
center nearest you.
TRUST
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
trustee must sign the letter
of instruction indicating
capacity as trustee. If the
trustee's name is not in the
account registration,
provide a copy of the trust
document certified within
the last 60 days.
BUSINESS OR ORGANIZATION
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Visit a
Fidelity Investor Center for
instructions. Call
1-800-544-9797 for the
center nearest you.
AUTOMATICALLY (small solid bullet) Use
Personal Withdrawal Service
to set up periodic
redemptions from your account.
EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
As a shareholder, you have the privilege of exchanging shares of a
fund for shares of other Fidelity funds including each of the
underlying Fidelity funds.
However, you should note the following policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Each fund may temporarily or permanently
terminate the exchange privilege of any investor who makes more than
four exchanges out of the fund per calendar year. Accounts under
common ownership or control will be counted together for purposes of
the four exchange limit.
(small solid bullet) The exchange limit may be modified for accounts
held by certain institutional retirement plans to conform to plan
exchange limits and Department of Labor regulations. See your plan
materials for further information.
(small solid bullet) Each fund may refuse exchange purchases by any
person or group if, in Strategic Advisers' judgment, the fund would be
unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
The funds may terminate or modify the exchange privileges in the
future.
Other funds may have different exchange restrictions, and may impose
trading fees of up to 3.00% of the amount exchanged. Check each fund's
prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
funds.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between accounts or out of your account. While automatic
investment programs do not guarantee a profit and will not protect you
against loss in a declining market, they can be an excellent way to
invest for retirement, a home, educational expenses, and other
long-term financial goals. Automatic withdrawal or exchange programs
can be a convenient way to provide a consistent income flow or to move
money between your investments.
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC ACCOUNT
BUILDER TO MOVE MONEY FROM
YOUR BANK ACCOUNT TO A
FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$100 Monthly or quarterly (small solid bullet) To set
up for a new account,
complete the appropriate
section on the fund
application.
(small solid bullet) To set
up for existing accounts,
call 1-800-544-6666 or visit
Fidelity's Web site for an
application.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
investment date.
DIRECT DEPOSIT TO SEND ALL OR
A PORTION OF YOUR PAYCHECK
OR GOVERNMENT CHECK TO A
FIDELITY FUND.A
MINIMUM FREQUENCY PROCEDURES
$100 Every pay period (small solid bullet) To set
up for a new account, check
the appropriate box on the
fund application.
(small solid bullet) To set
up for an existing account,
call 1-800-544-6666 or visit
Fidelity's Web site for an
authorization form.
(small solid bullet) To make
changes you will need a new
authorization form. Call
1-800-544-6666 or visit
Fidelity's Web site to
obtain one.
A BECAUSE THEIR SHARE PRICES
FLUCTUATE, THESE FUNDS MAY
NOT BE APPROPRIATE CHOICES
FOR DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.
FIDELITY AUTOMATIC EXCHANGE
SERVICE TO MOVE MONEY FROM A
FIDELITY MONEY MARKET FUND
TO ANOTHER FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$100 Monthly, bimonthly, (small solid bullet) To set
quarterly, or annually up, call 1-800-544-6666
after both accounts are
opened.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
exchange date.
PERSONAL WITHDRAWAL SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM YOUR
ACCOUNT TO YOU OR TO YOUR
BANK ACCOUNT.
FREQUENCY PROCEDURES
Monthly (small solid bullet) To set
up, call 1-800-544-6666.
(small solid bullet) To make
changes, call Fidelity at
1-800-544-6666 at least
three business days prior to
your next scheduled
withdrawal date.
</TABLE>
OTHER FEATURES. The following other features are also available to buy
and sell shares of the funds.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(small solid bullet) You must sign up for the Wire feature before
using it. Complete the appropriate section on the application when
opening your account, or call 1-800-544-7777 to add the feature after
your account is opened. Call 1-800-544-7777 before your first use to
verify that this feature is set up on your account.
(small solid bullet) To sell shares by wire, you must designate the
U.S. commercial bank account(s) into which you wish the redemption
proceeds deposited.
FIDELITY MONEY LINE
TO TRANSFER MONEY BETWEEN YOUR BANK ACCOUNT AND Y O UR FUND
ACCOUNT.
(small solid bullet) You must sign up for the Money Line feature
before using it. Complete the appropriate section on the application
and then call 1-800-544-7777 or visit Fidelity's Web site before your
first use to verify that this feature is set up on your account.
(small solid bullet) Most transfers are complete within three business
days of your call.
(small solid bullet) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544-7272 OR VISIT FIDELITY'S WEB SITE FOR MORE INFORMATION.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) For access to research and analysis tools.
FIDELITY O NL INE TRADING
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S WEB
SITE.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) To obtain quotes;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) To access third-party research on companies,
stocks, mutual funds and the market.
TOUCHTONE XPRESS
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATICALLY BY PHONE.
CALL 1-800-544-5555.
(small solid bullet) For account balances and holdings;
(small solid bullet) For mutual fund and brokerage trading;
(small solid bullet) To obtain quotes;
(small solid bullet) To review orders and mutual fund activity; and
(small solid bullet) To change your personal identification number
(PIN).
POLICIES
The following policies apply to you as a shareholder.
COMBINATION WITH FREEDOM INCOME FUND. Each Freedom Fund with a target
retirement date may be combined with Freedom Income, without a vote of
shareholders, if the funds' Board of Trustees determines at the time
of the proposed combination that combining the funds is in the best
interests of the funds and their shareholders. Prior to a combination,
Fidelity will notify shareholders of a Freedom Fund with a target
retirement date of the combination and any tax consequences.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund and certain transactions through automatic investment or
withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(small solid bullet) Financial reports (every six months).
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in a fund. Call Fidelity at 1-800-544-8544 if you
need additional copies of financial reports or prospectuses.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's Web
site for more information.
You may initiate many TRANSACTIONS BY TELEPHONE OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to sell and
exchange by telephone, call Fidelity for instructions.
When you sign your ACCOUNT APPLICATION, you will be asked to certify
that your social security or taxpayer identification number is correct
and that you are not subject to 31% backup withholding for failing to
report income to the IRS. If you violate IRS regulations, the IRS can
require a fund to withhold 31% of your taxable distributions and
redemptions.
Fidelity may deduct an ANNUAL MAINTENANCE FEE of $12.00 from accounts
with a value of less than $2,500, subject to an annual maximum charge
of $24.00 per shareholder. It is expected that accounts will be valued
on the second Friday in November of each year. Accounts opened after
September 30 will not be subject to the fee for that year. The fee,
which is payable to Fidelity, is designed to offset in part the
relatively higher costs of servicing smaller accounts. This fee will
not be deducted from Fidelity brokerage accounts, retirement accounts
(except non-prototype retirement accounts), accounts using regular
investment plans, or if total assets with Fidelity exceed $30,000.
Eligibility for the $30,000 waiver is determined by aggregating
accounts with Fidelity maintained by Fidelity Service Company, Inc. or
FBSI which are registered under the same social security number or
which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
If your ACCOUNT BALANCE falls below $2,000 (except accounts not
subject to account minimums), you will be given 30 days' notice to
reestablish the minimum balance. If you do not increase your balance,
Fidelity may close your account and send the proceeds to you. Your
shares will be sold at the NAV on the day your account is closed.
Fidelity may charge a FEE FOR CERTAIN SERVICES, such as providing
historical account documents.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Freedom Fund earns dividends, interest and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. Each Freedom Fund also realizes capital
gains from its investments, and distributes these gains (less any
losses) to shareholders as capital gains distributions.
Each Freedom Fund with a target retirement date normally pays
dividends and capital gains distributions in May and December.
Freedom Income normally pays dividends monthly and pays capital gains
distributions in May and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
each fund's distributions:
1. REINVESTMENT OPTION. Your dividends and capital gains distributions
will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned
this option.
2. INCOME-EARNED OPTION. Your capital gains distributions will be
automatically reinvested in additional shares of the fund. Your
dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital gains distributions will be
paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gains distributions will be
automatically invested in shares of another identically registered
Fidelity fund, automatically reinvested in additional shares of the
fund, or paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in a fund could have tax
consequences for you. If you are not investing through a
tax-advantaged retirement account, you should consider these tax
consequences.
TAXES ON DISTRIBUTIONS. Distributions you receive from each fund are
subject to federal income tax, and may also be subject to state or
local taxes.
For federal tax purposes, each fund's dividends and distributions of
short-term capital gains are taxable to you as ordinary income. Each
fund's distributions of long-term capital gains are taxable to you
generally as capital gains.
If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will be "buying a dividend" by paying the
full price for the shares and then receiving a portion of the price
back in the form of a taxable distribution.
Any taxable distributions you receive from a fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your redemptions, including exchanges may
result in a capital gain or loss for federal tax purposes. A capital
gain or loss on your investment in a fund is the difference between
the cost of your shares and the price you receive when you sell them.
FUND SERVICES
FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
Strategic Advisers, Inc. is each Freedom Fund's investment manager.
Fidelity Management & Research Company (FMR), an affiliate of
Strategic Advisers, is each underlying Fidelity fund's manager.
As of March 19, 1999 , Strategic Advisers had approximately
$ 14.1 billion in discretionary assets under management.
As of March 25, 1999 , FMR had approximately $521.7
billion in discretionary assets under management.
As the manager, Strategic Advisers administers the asset allocation
program for each Freedom Fund.
As the manager for the underlying Fidelity funds, FMR is responsible
for choosing each fund's investments and handling their business
affairs. FMR is also responsible for handling the business affairs for
each Freedom Fund.
A fund could be adversely affected if the computer systems used by
Strategic Advisers, FMR and other service providers do not properly
process and calculate date-related information from and after January
1, 2000. Strategic Advisers and FMR have advised each fund that they
are actively working on necessary changes to their computer systems
and expects that their systems, and those of other major service
providers, will be modified prior to January 1, 2000. However, there
can be no assurance that there will be no adverse impact on a fund.
Ren Cheng is Vice President and co-manager of the Freedom Funds,
which he has managed since inception. He also manages structured
investments for Fidelity Management Trust Company. Mr. Cheng joined
Fidelity as a portfolio manager in 1994. Previously, he was a senior
portfolio manager for Putnam Investments from 1985 to 1994.
Scott Stewart is Vice President and co-manager of the Freedom Funds,
which he has managed since inception. He also manages other Fidelity
Funds. Mr. Stewart is a Senior Vice President and head of Fidelity's
structured equity group. He joined Fidelity in 1987 as a portfolio
manager.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each Freedom Fund pays a management fee to Strategic Advisers.
The management fee is calculated and paid to Strategic Advisers every
month.
Strategic Advisers is responsible for the payment of all other
expenses of each Freedom Fund with limited exceptions.
Each Freedom Fund's annual management fee rate is 0.10% of its average
net assets.
For the fiscal year ended March 31, 1999, each Freedom Fund paid a
management fee of 0.08 % of the fund's average net assets, after
reimbursement.
Strategic Advisers pays FMR an administration fee for handling the
business affairs for each Freedom Fund.
Strategic Advisers may, from time to time, agree to reimburse the
funds for management fees above a specified limit. Strategic Advisers
retains the ability to be repaid by a fund if expenses fall below the
specified limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated by Strategic Advisers at any
time, can decrease a fund's expenses and boost its performance.
FUND DISTRIBUTION
Fidelity Distributors Corporation (FDC) distributes each fund's
shares.
Each Freedom Fund has adopted a Distribution and Service Plan pursuant
to Rule 12b-1 under the Investment Company Act of 1940 that recognizes
that Strategic Advisers or FMR may use its management or
administration fee revenues, respectively, as well as its past profits
or its resources from any other source, to pay FDC for expenses
incurred in connection with providing services intended to result in
the sale of Freedom Fund shares and/or shareholder support services.
Strategic Advisers or FMR, directly or through FDC, may pay
intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees of each Freedom Fund has authorized such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
Strategic Advisers and FMR may allocate brokerage transactions in a
manner that takes into account the sale of shares of a fund, provided
that the fund receives brokerage services and commission rates
comparable to those of other broker-dealers.
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
statement of additional information (SAI), in connection with the
offer contained in this prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This prospectus and the related SAI do
not constitute an offer by the funds or by FDC to sell shares of
the funds to or to buy shares of the funds f r om any person
to whom it is unlawful to make such offer.
APPENDIX
FINANCIAL HIGHLIGHTS
The financial highlights table s are intended to help you
understand each fund's financial history for the period of the
fund's operations . Certain information reflects financial results
for a single fund share. Total returns for each period include the
reinvestment of all dividends and distributions. This information has
been audited by PricewaterhouseCoopers LLP , independent
accountants, whose report, along with each fund's financial highlights
and financial statements, are included in the funds' annual report. A
free copy of the annual report is available upon request.
FREEDOM INCOME FUND
Years ended March 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.95 $ 10.06 $ 10.00
period
Income from Investment
Operations
Net investment income D .49 .50 .22
Net realized and unrealized .40 .96 (.02)
gain (loss)
Total from investment .89 1.46 .20
operations
Less Distributions
From net investment income (.47) (.51) (.14)
From net realized gain (.12) (.06) -
Total distributions (.59) (.57) (.14)
Net asset value, end of period $ 11.25 $ 10.95 $ 10.06
TOTAL RETURN B, C 8.41% 14.88% 1.99%
RATIOS AND SUPPLEMENTAL DATA
(amounts do not include the
activity of the underlying
funds)
Net assets, end of period $ 197,638 $ 55,472 $ 9,427
(000 omitted)
Ratio of expenses to average .08% F .08% F .08% A, F
net assets
Ratio of expenses to average .07% G .08% .08% A
net assets after expense
reductions
Ratio of net investment 4.46% 4.71% 4.95% A
income to average net assets
Portfolio turnover rate 29% 33% 32% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD OCTOBER 17, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997.
F STRATEGIC ADVISORS AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G STRATEGIC ADVISORS OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION
OF THE FUND'S EXPENSES.
FREEDOM 2000 FUND
Years ended March 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.98 $ 10.12 $ 10.00
period
Income from Investment
Operations
Net investment income D .45 .60 .18
Net realized and unrealized .78 1.71 .03
gain (loss)
Total from investment 1.23 2.31 .21
operations
Less Distributions
From net investment income (.40) (.33) (.09)
From net realized gain (.21) (.12) -
Total distributions (.61) (.45) (.09)
Net asset value, end of period $ 12.60 $ 11.98 $ 10.12
TOTAL RETURN B, C 10.51% 23.25% 2.09%
RATIOS AND SUPPLEMENTAL DATA
(amounts do not include the
activity of the underlying
funds)
Net assets, end of period $ 563,718 $ 325,126 $ 15,946
(000 omitted)
Ratio of expenses to average .08% F .08% F .08% A, F
net assets
Ratio of expenses to average .07% G .08% .08% A
net assets after expense
reductions
Ratio of net investment 3.76% 3.72% 4.00% A
income to average net assets
Portfolio turnover rate 27% 24% 19% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD OCTOBER 17, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997.
F STRATEGIC ADVISERS AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G STRATEGIC ADVISERS OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION
OF THE FUND'S EXPENSES.
FREEDOM 2010 FUND
Years ended March 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 12.81 $ 10.15 $ 10.00
period
Income from Investment
Operations
Net investment income D .36 .30 .11
Net realized and unrealized 1.22 2.82 .15
gain (loss)
Total from investment 1.58 3.12 .26
operations
Less Distributions
From net investment income (.35) (.37) (.11)
From net realized gain (.28) (.09) -
Total distributions (.63) (.46) (.11)
Net asset value, end of period $ 13.76 $ 12.81 $ 10.15
TOTAL RETURN B, C 12.65% 31.31% 2.59%
RATIOS AND SUPPLEMENTAL DATA
(amounts do not include the
activity of the underlying
funds)
Net assets, end of period $ 1,088,909 $ 647,356 $ 23,600
(000 omitted)
Ratio of expenses to average .08% F .08% F .08% A, F
net assets
Ratio of expenses to average .07% G .08% .08% A
net assets after expense
reductions
Ratio of net investment 2.82% 2.54% 2.56% A
income to average net assets
Portfolio turnover rate 27% 20% 3% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD OCTOBER 17, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997.
F STRATEGIC ADVISERS AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G STRATEGIC ADVISERS OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION
OF THE FUND'S EXPENSES.
FREEDOM 2020 FUND
Years ended March 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 13.28 $ 10.21 $ 10.00
period
Income from Investment
Operations
Net investment income D .27 .21 .08
Net realized and unrealized 1.55 3.33 .22
gain (loss)
Total from investment 1.82 3.54 .30
operations
Less Distributions
From net investment income (.28) (.34) (.09)
From net realized gain (.27) (.13) -
Total distributions (.55) (.47) (.09)
Net asset value, end of period $ 14.55 $ 13.28 $ 10.21
TOTAL RETURN B, C 14.00% 35.36% 2.99%
RATIOS AND SUPPLEMENTAL DATA
(amounts do not include the
activity of the underlying
funds)
Net assets, end of period $ 994,648 $ 577,603 $ 14,958
(000 omitted)
Ratio of expenses to average .08% F .08% F .08% A, F
net assets
Ratio of expenses to average .07% G .08% .08% A
net assets after expense
reductions
Ratio of net investment 2.03% 1.76% 1.75% A
income to average net assets
Portfolio turnover rate 18% 15% 21% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD OCTOBER 17, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997.
F STRATEGIC ADVISORS AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G STRATEGIC ADVISORS OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION
OF THE FUND'S EXPENSES.
FREEDOM 2030 FUND
Years ended March 31, 1999 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 13.42 $ 10.21 $ 10.00
period
Income from Investment
Operations
Net investment income D .25 .22 .08
Net realized and unrealized 1.60 3.42 .22
gain (loss)
Total from investment 1.85 3.64 .30
operations
Less Distributions
From net investment income (.24) (.17) (.09)
In excess of net investment - (.14) -
income
From net realized gain (.48) (.12) -
Total distributions (.72) (.43) (.09)
Net asset value, end of period $ 14.55 $ 13.42 $ 10.21
TOTAL RETURN B, C 14.29% 36.28% 2.99%
RATIOS AND SUPPLEMENTAL DATA
(amounts do not include the
activity of the underlying
funds)
Net assets, end of period $ 365,657 $ 115,072 $ 5,725
(000 omitted)
Ratio of expenses to average .08% F .08% F .08% A, F
net assets
Ratio of expenses to average .07% G .08% .08% A
net assets after expense
reductions
Ratio of net investment 1.87% 1.78% 1.71% A
income to average net assets
Portfolio turnover rate 16% 34% 19% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD OCTOBER 17, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997.
F STRATEGIC ADVISERS AGREED TO REIMBURSE A PORTION OF THE FUND'S
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S
EXPENSE RATIO WOULD HAVE BEEN HIGHER.
G STRATEGIC ADVISERS OR THE FUND HAS ENTERED INTO VARYING
ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION
OF THE FUND'S EXPENSES.
You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of the fund's holdings and recent market
conditions and the fund's investment strategies that affected
performance.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8544. In addition, you may visit Fidelity's Web site
at www.fidelity.com for a free copy of a prospectus or an annual or
semi-annual report or to request other information .
The SAI, the funds' annual and semi-annual reports and other
related materials are available on the SEC's Internet Web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBER 811-6440
F idelity Investments & (Pyramid) Design, Fidelity, Fidelity
Investments, TouchTone Xpress, Fidelity Money Line, Fidelity Automatic
Account Builder, Fidelity On-Line Xpress+, and Directed Dividends are
registered trademarks of FMR Corp.
Fidelity Freedom Funds, Fidelity Freedom Income Fund, Fidelity
Freedom 2000 Fund, Fidelity Freedom 2010 Fund, Fidelity Freedom 2020
Fund, and Fidelity Freedom 2030 Fund are registered service marks of
FMR Corp.
Strategic Advisers and Fidelity Portfolio Advisory Services are
service marks of FMR Corp.
1.702545.101 FF-pro-0599
FIDELITY FREEDOM FUNDS(registered trademark)
FIDELITY FREEDOM INCOME FUND(registered trademark)
FIDELITY FREEDOM 2000 FUND(registered trademark)
FIDELITY FREEDOM 2010 FUND(registered trademark)
FIDELITY FREEDOM 2020 FUND(registered trademark)
FIDELITY FREEDOM 2030 FUND(registered trademark)
FUNDS OF FIDELITY ABERDEEN STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 20, 1999
This s tatement of a dditional i nformation (SAI) is
not a prospectus. Portions of the funds' a nnual r eport
are incorporated herein. The a nnual r eport is supplied
with this SAI.
To obtain a free additional copy of the p rospectus, dated May
20, 1999, or an a nnual r eport, please call
Fidelity(registered trademark) at 1-800-544-8544 or visit Fidelity's
Web site at www.fidelity.com.
TABLE OF CONTENTS PAGE
Investment Policies and 37
Limitations
Special Considerations 45
Regarding Africa
Special Considerations 45
Regarding Canada
Special Considerations 46
Regarding Europe
Special Considerations 48
Regarding Asia
Special Considerations 54
Regarding Latin America
Special Considerations 56
Regarding the Russian
Federation
Portfolio Transactions 57
Valuation 58
Performance 59
Additional Purchase, Exchange 81
and Redemption Information
Distributions and Taxes 81
Trustees and Officers 81
Control of Investment Advisers 85
Management Contracts 85
Distribution Services 87
Transfer and Service Agent 87
Agreements
Description of the Trust 88
Financial Statements 88
Appendix 88
FF-ptb-0599
1.475644.101
(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the p rospectus. Unless otherwise noted, whenever an investment
policy or limitation states a maximum percentage of a Freedom Fund's
assets that may be invested in any security or other asset, or sets
forth a policy regarding quality standards, such standard or
percentage limitation will be determined immediately after and as a
result of the Freedom 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 Freedom Fund's investment policies
and limitations.
A Freedom Fund's fundamental investment policies and
limitations cannot be changed without approval by a "majority of the
outstanding voting securities" (as defined in the Investment Company
Act of 1940 (the 1940 Act)) of the fund. However, except for the
fundamental investment limitations listed below, the investment
policies and limitations described in this SAI are not fundamental and
may be changed without shareholder approval.
THE FOLLOWING ARE THE FREEDOM FUNDS' FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. EACH FREEDOM FUND MAY NOT:
(1) With respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities, or
securities of other investment companies) if, as a result, (a) more
than 5% of the fund's total assets would be invested in the securities
of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise permitted
under the Investment Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry (provided that
investments in other investment companies shall not be considered an
investment in any particular industry for purposes of this investment
limitation);
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(9) Each fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) Each fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) Each fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) Each fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which Fidelity
Management & Research Company or an affiliate serves as investment
adviser or (b) by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). Each fund will not
borrow from other funds advised by Fidelity Management & Research
Company or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) Each fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) Each fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which Fidelity Management & Research Company or an
affiliate serves as investment adviser or (b) acquiring loans, loan
participations, or other forms of direct debt instruments and, in
connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
(vi) Each fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, each Freedom Fund were in a position
where more than 10% of its net assets was invested in illiquid
securities, it would consider appropriate steps to protect liquidity.
For the Freedom Funds' limitations on futures and options
transactions, see the section entitled "Limitations on Futures and
Options Transactions" on page 61 .
Notwithstanding the foregoing investment limitations, the underlying
Fidelity funds in which the Freedom Funds may invest have adopted
certain investment limitations that may be more or less restrictive
than those listed above, thereby permitting a Freedom Fund to engage
indirectly in investment strategies that are prohibited under the
investment limitations listed above. The investment limitations of
each underlying Fidelity fund are set forth in its SAI.
In accordance with each Freedom Fund's investment program as set forth
in the prospectus, a Freedom Fund may invest more than 25% of its
assets in any one underlying Fidelity fund. However, each of the
underlying Fidelity funds in which a Freedom Fund may invest (other
than Fidelity Money Market Trust: Retirement Money Market Portfolio)
will not concentrate more than 25% of its total assets in any one
industry, except that Fidelity Money Market Trust: Retirement Money
Market Portfolio will invest more than 25% of its total assets in the
financial services industry.
INVESTMENT PRACTICES OF THE FREEDOM FUNDS
The following pages contain more detailed information about types of
instruments in which a Freedom Fund may invest, strategies Strategic
Advisers may employ in pursuit of a Freedom Fund's investment
objective, and a summary of related risks. Strategic Advisers may not
buy all of these instruments or use all of these techniques unless it
believes that doing so will help a Freedom Fund achieve its goal.
BORROWING. Each Freedom Fund may borrow from banks or from other funds
advised by FMR or its affiliates, or through reverse repurchase
agreements. If a fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If a fund makes
additional investments while borrowings are outstanding, this may be
considered a form of leverage.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity and diversification of their investments.
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. Also, the maturities of mortgage securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices,
such as the Standard & Poor's 500 Index (S&P 500(registered
trademark)). Futures can be held until their delivery dates, or can be
closed out before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading
Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The funds intend to comply with Rule
4.5 under the Commodity Exchange Act, which limits the extent to which
the funds can commit assets to initial margin deposits and option
premiums.
In addition, each fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of
the fund's total assets would be hedged with futures and options under
normal conditions; (b) purchase futures contracts or write put options
if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would
exceed 25% of its total assets under normal conditions; 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 funds' investments in futures contracts
and options, and the funds' policies regarding futures contracts and
options discussed elsewhere in this SAI, may be changed as regulatory
agencies permit.
ILLIQUID SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. Under the supervision of the Board of Trustees,
FMR, on behalf of Strategic Advisers, determines the liquidity of a
fund's investments and, through reports from FMR, the Board monitors
investments in illiquid securities. In determining the liquidity of a
fund's investments, FMR may consider various factors, including (1)
the frequency and volume of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market and (4) the nature of the security and
the market in which it trades (including any demand, put or tender
features, the mechanics and other requirements for transfer, any
letters of credit or other credit enhancement features, any ratings,
the number of holders, the method of soliciting offers, the time
required to dispose of the security, and the ability to assign or
offset the rights and obligations of the security).
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the Securities and Exchange Commission (SEC), a fund
may lend money to, and borrow money from, other funds advised by FMR
or its affiliates. A fund will lend through the program only when the
returns are higher than those available from an investment in
repurchase agreements, and will borrow through the program only when
the costs are equal to or lower than the cost of bank loans. Interfund
loans and borrowings normally extend overnight, but can have a maximum
duration of seven days. Loans may be called on one day's notice. A
fund may have to borrow from a bank at a higher interest rate if an
interfund loan is called or not renewed. Any delay in repayment to a
lending fund could result in a lost investment opportunity or
additional borrowing costs.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt security is
considered to be investment-grade if it is rated investment-grade by
Moody's Investors Service, Standard & Poor's (registered
trademark) , Duff & Phelps Credit Rating Co., or Fitch IBCA Inc.,
or is unrated but considered to be of equivalent quality by FMR.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
to sell that security back to the original seller at an agreed-upon
price. The resale price reflects the purchase price plus an
agreed-upon incremental amount which is unrelated to the coupon rate
or maturity of the purchased security. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The Freedom Funds will engage in repurchase agreement
transactions with parties whose creditworthiness has been reviewed and
found satisfactory by FMR on behalf of Strategic Advisers.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder might obtain a less
favorable price than prevailed when it decided to seek registration of
the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The Freedom Funds will
enter into reverse repurchase agreements with parties whose
creditworthiness has been reviewed and found satisfactory by FMR on
behalf of Strategic Advisers. Such transactions may increase
fluctuations in the market value of fund assets and may be viewed as a
form of leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or other institutions, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the
securities loaned and, at the same time, earn additional income. The
borrower provides the fund with collateral in an amount at least equal
to the value of the securities loaned. The fund maintains the ability
to obtain the right to vote or consent on proxy proposals involving
material events affecting securities loaned. If the borrower defaults
on its obligation to return the securities loaned because of
insolvency or other reasons, a fund could experience delays and costs
in recovering the securities loaned or in gaining access to the
collateral. These delays and costs could be greater for foreign
securities. If a fund is not able to recover the securities loaned, a
fund may sell the collateral and purchase a replacement investment in
the market. The value of the collateral could decrease below the value
of the replacement investment by the time the replacement investment
is purchased. Loans will be made only to parties deemed by Strategic
Advisers to be in good standing and when, in Strategic Advisers's
judgement, the income earned would justify the risks.
Cash received as collateral through loan transactions may be
invested in other eligible securities. Investing this cash subjects
that investment, as well as the securit ies loaned, to market
appreciation or depreciation.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial
institutions. Strategic Advisers may rely on FMR's evaluation of the
credit of the credit or liquidity enhancement provider in determining
whether to purchase a security supported by such enhancement. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider whether adequate public information about the entity is
available and whether the entity may be subject to unfavorable
political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its
commitment. Changes in the credit quality of the entity providing the
enhancement could affect the value of the security or a fund's share
price.
TEMPORARY DEFENSIVE POLICIES. Each of the Freedom Funds reserves the
right to invest without limitation in Fidelity Money Market Trust:
Retirement Money Market Portfolio for temporary, defensive purposes.
INVESTMENT PRACTICES OF THE UNDERLYING FIDELITY FUNDS
The following pages contain more detailed information about types of
instruments in which an underlying Fidelity fund may invest,
strategies FMR may employ in pursuit of an underlying Fidelity fund's
investment objective, and a summary of related risks. FMR may not buy
all of these instruments or use all of these techniques unless it
believes that doing so will help an underlying Fidelity fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the SEC, the Board of Trustees has established and periodically
reviews procedures applicable to transactions involving affiliated
financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds, or other credit enhancements.
Asset-backed security values may also be affected by other factors
including changes in interest rates, the availability of information
concerning the pool and its structure, the creditworthiness of the
servicing agent for the pool, the originator of the loans or
receivables, or the entities providing the credit enhancement. In
addition, these securities may be subject to prepayment risk.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, or through reverse repurchase agreements. If
a fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If a fund makes
additional investments while borrowings are outstanding, this may be
considered a form of leverage.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity and diversification of their investments.
COMMON STOCK represents an equity or ownership interest in an issuer.
In the event an issuer is liquidated or declares bankruptcy, the
claims of owners of bonds and preferred stock take precedence over the
claims of those who own common stock.
CONVERTIBLE SECURITIES are bonds, debentures, notes, preferred stocks
or other securities that may be converted or exchanged (by the holder
or by the issuer) into shares of the underlying common stock (or cash
or securities of equivalent value) at a stated exchange ratio. A
convertible security may also be called for redemption or conversion
by the issuer after a particular date and under certain circumstances
(including a specified price) established upon issue. If a convertible
security held by a fund is called for redemption or conversion, the
fund could be required to tender it for redemption, convert it into
the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields
higher than the underlying common stocks, but generally lower than
comparable non-convertible securities. Because of this higher yield,
convertible securities generally sell at prices above their
"conversion value," which is the current market value of the stock to
be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time
depending on changes in the value of the underlying common stocks and
interest rates. When the underlying common stocks decline in value,
convertible securities will tend not to decline to the same extent
because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities.
However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. When the
underlying common stocks rise in value, the value of convertible
securities may also be expected to increase. At the same time,
however, the difference between the market value of convertible
securities and their conversion value will narrow, which means that
the value of convertible securities will generally not increase to the
same extent as the value of the underlying common stocks. Because
convertible securities may also be interest-rate sensitive, their
value may increase as interest rates fall and decrease as interest
rates rise. Convertible securities are also subject to credit risk,
and are often lower-quality securities.
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay interest but are
sold at a deep discount from their face values. Debt securities
include corporate bonds, government securities, and mortgage and other
asset-backed securities.
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. Also, the maturities of mortgage securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
DOMESTIC AND FOREIGN INVESTMENTS (MONEY MARKET FUND ONLY) include U.S.
dollar-denominated time deposits, certificates of deposit, and
bankers' acceptances of U.S. banks and their branches located outside
of the United States, U.S. branches and agencies of foreign banks, and
foreign branches of foreign banks. Domestic and foreign investments
may also include U.S. dollar-denominated securities issued or
guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign
governments, foreign government agencies or instrumentalities, and
U.S. and foreign financial institutions, including savings and loan
institutions, insurance companies, mortgage bankers, and real estate
investment trusts, as well as banks.
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and by
governmental regulation. Payment of interest and repayment of
principal on these obligations may also be affected by governmental
action in the country of domicile of the branch (generally referred to
as sovereign risk). In addition, evidence of ownership of portfolio
securities may be held outside of the United States and a fund may be
subject to the risks associated with the holding of such property
overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.
Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
federal and state regulation, as well as by governmental action in the
country in which the foreign bank has its head office.
Obligations of foreign issuers involve certain additional risks. These
risks may include future unfavorable political and economic
developments, withholding taxes, seizures of foreign deposits,
currency controls, interest limitations, or other governmental
restrictions that might affect repayment of principal or payment of
interest, or the ability to honor a credit commitment. Additionally,
there may be less public information available about foreign entities.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing, and financial reporting
requirements comparable to those applicable to U.S. issuers.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks
inherent in U.S. investments.
Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments, and may be affected by
actions of foreign governments adverse to the interests of U.S.
investors. Such actions may include expropriation or nationalization
of assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. Additionally, governmental
issuers of foreign debt securities may be unwilling to pay interest
and repay principal when due and may require that the conditions for
payment be renegotiated. There is no assurance that FMR will be able
to anticipate these potential events or counter their effects. In
addition, the value of securities denominated in foreign currencies
and of dividends and interest paid with respect to such securities
will fluctuate based on the relative strength of the U.S. dollar.
The risks of foreign investing may be magnified for investments in
emerging markets, which may have relatively unstable governments,
economies based on only a few industries, and securities markets that
trade a small number of securities.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC)
markets located outside of the United States. Foreign stock markets,
while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some
foreign issuers may be less liquid and more volatile than securities
of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices (including those involving securities settlement
where fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in
increased risk or substantial delays in the event of a failed trade or
the insolvency of, or breach of duty by, a foreign broker-dealer,
securities depository or foreign subcustodian. For example, many
foreign countries are less prepared than the United States to properly
process and calculate information related to dates from and after
January 1, 2000. As a result, some foreign markets, brokers, banks or
securities depositories could experience at least temporary
disruptions, which could result in difficulty buying and selling
securities in certain foreign markets and pricing foreign investments,
and foreign issuers could fail to pay timely dividends, interest or
principal. In addition, the costs associated with foreign
investments, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than with U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to U.S. issuers.
Adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less overall
governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. OTC markets
tend to be less regulated than stock exchange markets and, in certain
countries, may be totally unregulated. Regulatory enforcement may be
influenced by economic or political concerns, and investors may have
difficulty enforcing their legal rights in foreign countries.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject
to such restrictions.
American Depositary Receipts (ADRs) as well as other "hybrid" forms of
ADRs, including European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs), are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by
depository banks and generally trade on an established market in the
United States or elsewhere. The underlying shares are held in trust by
a custodian bank or similar financial institution in the issuer's home
country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various
services, including forwarding dividends and interest and corporate
actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However,
ADRs continue to be subject to many of the risks associated with
investing directly in foreign securities. These risks include foreign
exchange risk as well as the political and economic risks of the
underlying issuer's country.
The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be
significantly more volatile than those in more developed markets,
reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets
may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less
protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a
few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times.
FOREIGN CURRENCY TRANSACTIONS. A bond or equity fund may conduct
foreign currency transactions on a spot (i.e., cash) or forward basis
(i.e., by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange.
The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by a fund. A
fund may also use swap agreements, indexed securities, and options and
futures contracts relating to foreign currencies for the same
purposes.
A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is
made or received. Entering into a forward contract for the purchase or
sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the
U.S. dollar price of the security. Forward contracts to purchase or
sell a foreign currency may also be used by a fund in anticipation of
future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected
by FMR.
A fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's
value. Such a hedge, sometimes referred to as a "position hedge,"
would tend to offset both positive and negative currency fluctuations,
but would not offset changes in security values caused by other
factors. A fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would
not hedge currency exposure as effectively as a direct hedge into U.S.
dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged
securities are denominated.
A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to
the currency that is sold, and increase exposure to the currency that
is purchased, much as if a fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause a fund to assume the risk of
fluctuations in the value of the currency it purchases.
Successful use of currency management strategies will depend on FMR's
skill in analyzing currency values. Currency management strategies may
substantially change a fund's investment exposure to changes in
currency exchange rates and could result in losses to a fund if
currencies do not perform as FMR anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR hedges currency exposure through
proxy hedges, a fund could realize currency losses from both the hedge
and the security position if the two currencies do not move in tandem.
Similarly, if FMR increases a fund's exposure to a foreign currency
and that currency's value declines, a fund will realize a loss. There
is no assurance that FMR's use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements involve
an agreement to purchase a foreign security and to sell that security
back to original seller at an agreed-upon price in either U.S. dollars
or foreign currency. Unlike typical U.S. repurchase agreements,
foreign repurchase agreements may not be fully collateralized at all
times. The value of a security purchased by a fund may be more or less
than the price at which the counterparty has agreed to repurchase the
security. In the event of 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 markets may involve issuers
or counterparties with lower credit ratings than typical U.S.
repurchase agreements.
FUNDS' RIGHTS AS SHAREHOLDERS. The funds do not intend to direct or
administer the day-to-day operations of any company. A fund, however,
may exercise its rights as a shareholder and may communicate its views
on important matters of policy to management, the Board of Directors,
and shareholders of a company when FMR determines that such matters
could have a significant effect on the value of the fund's investment
in the company. The activities in which a fund may engage, either
individually or in conjunction with others, may include, among others,
supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's
directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of the company or a
portion of its assets; or supporting or opposing third-party takeover
efforts. This area of corporate activity is increasingly prone to
litigation and it is possible that a fund could be involved in
lawsuits related to such activities. FMR will monitor such activities
with a view to mitigating, to the extent possible, the risk of
litigation against a fund and the risk of actual liability if a fund
is involved in litigation. No guarantee can be made, however, that
litigation against a fund will not be undertaken or liabilities
incurred.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Combined Positions, Correlation of Price Changes, Futures
Contracts, Futures Margin Payments, Limitations on Futures and Options
Transactions, Liquidity of Options and Futures Contracts, Options and
Futures Relating to Foreign Currencies, OTC Options, Purchasing Put
and Call Options, and Writing Put and Call Options.
COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price, to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter 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 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.
Futures may be based on foreign indexes such as the CAC 40 (France),
DAX 30 (Germany), EuroTop 100 (Europe), IBEX (Spain), FTSE 100 (United
Kingdom), All Ordinary (Australia), Hang Seng (Hong Kong), and Nikkei
225, Nikkei 300 and TOPIX (Japan).
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a futures commission merchant (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive
all or a portion of this amount. Initial and variation margin payments
do not constitute purchasing securities on margin for purposes of a
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of a fund, the fund may be entitled to
return of margin owed to it only in proportion to the amount received
by the FCM's other customers, potentially resulting in losses to the
fund.
Although futures exchanges generally operate similarly in the United
States and abroad, foreign futures exchanges may follow trading,
settlement and margin procedures that are different from those for
U.S. exchanges. Futures contracts traded outside the United States may
involve greater risk of loss than U.S.-traded contracts, including
potentially greater risk of losses due to insolvency of a futures
broker, exchange member or other party that may owe initial or
variation margin to a fund. Because initial and variation margin
payments may be measured in foreign currency, a futures contract
traded outside the United States may also involve the risk of foreign
currency fluctuation.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond and equity
fund has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" with the Commodity
Futures Trading Commission (CFTC) and the National Futures
Association, which regulate trading in the futures markets. The funds
intend to comply with Rule 4.5 under the Commodity Exchange Act, which
limits the extent to which the funds can commit assets to initial
margin deposits and option premiums.
In addition, each equity 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 under normal conditions;
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.
In addition, each bond 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.
Fidelity Government Income Fund further limits its options and futures
investments to options and futures contracts relating to U.S.
Government securities.
The above limitations on the bond and equity funds' investments in
futures contracts and options, and the funds' policies regarding
futures contracts and options discussed elsewhere in this SAI, may be
changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible to enter into new positions or close out
existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and potentially
could require a fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and
are standardized as to contract size and delivery date. Most currency
futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency
call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. A fund may purchase and sell currency futures and may purchase
and write currency options to increase or decrease its exposure to
different foreign currencies. Currency options may also be purchased
or written in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected
to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in
the Yen, but will not protect a fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value
of a fund's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to
match the amount of currency options and futures to the value of the
fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater flexibility
to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer assumes the obligation
to pay the strike price for the option's underlying instrument if the
other party to the option chooses to exercise it. The writer may seek
to terminate a position in a put option 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, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market and (4) the nature of the security and the market in which it
trades (including any demand, put or tender features, the mechanics
and other requirements for transfer, any letters of credit or other
credit enhancement features, any ratings, the number of holders, the
method of soliciting offers, the time required to dispose of the
security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, 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.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership.
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. Currency-indexed securities may be
positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also
have prices that depend on the values of a number of different foreign
currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes
in the United States and abroad. Indexed securities may be more
volatile than the underlying instruments. Indexed securities are also
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.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will lend
through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the
cost of bank loans. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt security is
considered to be investment-grade if it is rated investment-grade by
Moody's Investors Service, Standard & Poor's, Duff & Phelps Credit
Rating Co., or Fitch IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
ISSUER LOCATION. FMR determines where an issuer or its principal
activities are located by looking at such factors as the issuer's
country of organization, the primary trading market for the issuer's
securities, and the location of the issuer's assets, personnel, sales,
and earnings. The issuer of a security is considered to be located in
a particular country if (1) the security is issued or guaranteed by
the government of the country or any of its agencies, political
subdivisions, or instrumentalities; (2) the security has its primary
trading market in that country; or (3) the issuer is organized under
the laws of that country, derives at least 50% of its revenues or
profits from goods sold, investments made, or services performed in
the country, or has at least 50% of its assets located in the country.
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
involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the purchaser in the
event of fraud or misrepresentation, or there may be a requirement
that a fund supply additional cash to a borrower on demand.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
interest and repayment of principal. If scheduled interest or
principal payments are not made, the value of the instrument may be
adversely affected. Loans that are fully secured provide more
protections than an unsecured loan in the event of failure to make
scheduled interest or principal payments. However, there is no
assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off
their indebtedness, or may pay only a small fraction of the amount
owed. Direct indebtedness of developing countries also involves a risk
that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal
when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional
risks. For example, if a loan is foreclosed, the purchaser 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, a purchaser 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.
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 purchaser has direct recourse
against the borrower, the purchaser may have to rely on the agent to
apply appropriate credit remedies against a borrower. If assets held
by the agent for the benefit of a purchaser were determined to be
subject to the claims of the agent's general creditors, the purchaser
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 may include letters of credit, revolving credit
facilities, or other standby financing commitments that obligate
purchasers to make additional cash payments on demand. These
commitments may have the effect of requiring a purchaser to increase
its investment in a borrower at a time when it would not otherwise
have done so, even if the borrower's condition makes it unlikely that
the amount will ever be repaid.
Each fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see each fund's
investment limitations). For purposes of these limitations, a fund
generally will treat the borrower as the "issuer" of indebtedness held
by the fund. In the case of loan participations where a bank or other
lending institution serves as financial intermediary between a fund
and the borrower, if the participation does not shift to the fund the
direct debtor-creditor relationship with the borrower, SEC
interpretations require a fund, in appropriate circumstances, to treat
both the lending bank or other lending institution and the borrower as
"issuers" for these purposes. Treating a financial intermediary as an
issuer of indebtedness may restrict a fund's ability to invest in
indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying
borrowers represent many different companies and industries.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
Because the risk of default is higher for lower-quality debt
securities, FMR's research and credit analysis are an especially
important part of managing securities of this type. FMR will attempt
to identify those issuers of high-yielding securities whose financial
condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. FMR's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects, and the experience and managerial
strength of the issuer.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MONEY MARKET SECURITIES are high-quality, short-term obligations.
Money market securities may be structured to be, or may employ a trust
or other form so that they are, eligible investments for money market
funds. For example, put features can be used to modify the maturity of
a security or interest rate adjustment features can be used to enhance
price stability. If a structure fails to function as intended, adverse
tax or investment consequences may result. Neither the Internal
Revenue Service (IRS) nor any other regulatory authority has ruled
definitively on certain legal issues presented by certain structured
securities. Future tax or other regulatory determinations could
adversely affect the value, liquidity, or tax treatment of the income
received from these securities or the nature and timing of
distributions made by the fund.
MORTGAGE SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage security is an obligation of the issuer backed by a mortgage
or pool of mortgages or a direct interest in an underlying pool of
mortgages. Some mortgage securities, such as collateralized mortgage
obligations (or "CMOs"), make payments of both principal and interest
at a range of specified intervals; others make semiannual interest
payments at a predetermined rate and repay principal at maturity (like
a typical bond). Mortgage securities are based on different types of
mortgages, including those on commercial real estate or residential
properties. Stripped mortgage securities are created when the interest
and principal components of a mortgage security are separated and sold
as individual securities. In the case of a stripped mortgage security,
the holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage, while the holder
of the "interest-only" security (IO) receives interest payments from
the same underlying mortgage.
Fannie Maes and Freddie Macs are pass-through securities issued by
Fannie Mae and Freddie Mac, respectively. Fannie Mae and Freddie Mac,
which guarantee payment of interest and repayment of principal on
Fannie Maes and Freddie Macs, respectively, are federally chartered
corporations supervised by the U.S. Government that act as
governmental instrumentalities under authority granted by Congress.
Fannie Mae is authorized to borrow from the U.S. Treasury to meet its
obligations. Fannie Maes and Freddie Macs are not backed by the full
faith and credit of the U.S. Government.
The value of mortgage securities may change due to shifts in the
market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the mortgage
securities market as a whole. Non-government mortgage securities may
offer higher yields than those issued by government entities, but also
may be subject to greater price changes than government issues.
Mortgage securities are subject to prepayment risk, which is the risk
that early principal payments made on the underlying mortgages,
usually in response to a reduction in interest rates, will result in
the return of principal to the investor, causing it to be invested
subsequently at a lower current interest rate. Alternatively, in a
rising interest rate environment, mortgage security values may be
adversely affected when prepayments on underlying mortgages do not
occur as anticipated, resulting in the extension of the security's
effective maturity and the related increase in interest rate
sensitivity of a longer-term instrument. The prices of stripped
mortgage securities tend to be more volatile in response to changes in
interest rates than those of non-stripped mortgage securities.
In order to earn additional income for a fund, FMR may use a trading
strategy that involves selling mortgage securities and simultaneously
agreeing to purchase similar securities on a later date at a set
price. This trading strategy may result in an increased portfolio
turnover rate which increases costs and may increase taxable gains.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
or private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities.
They may be issued in anticipation of future revenues and may be
backed by the full taxing power of a municipality, the revenues from a
specific project, or the credit of a private organization. The value
of some or all municipal securities may be affected by uncertainties
in the municipal market related to legislation or litigation involving
the taxation of municipal securities or the rights of municipal
securities holders. A municipal security may be owned directly or
through a participation interest.
PREFERRED STOCK is a class of equity or ownership in an issuer that
pays dividends at a specified rate and that has precedence over common
stock in the payment of dividends. In the event an issuer is
liquidated or declares bankruptcy, the claims of owners of bonds take
precedence over the claims of those who own preferred and common
stock.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. In exchange
for this benefit, a fund may accept a lower interest rate. Securities
with put features are subject to the risk that the put provider is
unable to honor the put feature (purchase the security). Put providers
often support their ability to buy securities on demand by obtaining
letters of credit or other guarantees from other entities. Demand
features, standby commitments, and tender options are types of put
features.
REAL ESTATE INVESTMENT TRUSTS. Equity real estate investment trusts
own real estate properties, while mortgage real estate investment
trusts make construction, development, and long-term mortgage loans.
Their value may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as
those relating to the environment. Both types of trusts are dependent
upon management skill, are not diversified, and are subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the
1940 Act.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
to sell that security back to the original seller at an agreed-upon
price. The resale price reflects the purchase price plus an
agreed-upon incremental amount which is unrelated to the coupon rate
or maturity of the purchased security. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The funds will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder might obtain a less
favorable price than prevailed when it decided to seek registration of
the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The funds will enter into
reverse repurchase agreements with parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SECURITIES OF OTHER INVESTMENT COMPANIES, including shares of
closed-end investment companies, unit investment trusts, and open-end
investment companies, represent interests in professionally managed
portfolios that may invest in any type of instrument. Investing in
other investment companies involves substantially the same risks as
investing directly in the underlying instruments, but may involve
additional expenses at the investment company-level, such as portfolio
management fees and operating expenses. Certain types of investment
companies, such as closed-end investment companies, issue a fixed
number of shares that trade on a stock exchange or over-the-counter at
a premium or a discount to their net asset value. Others are
continuously offered at net asset value, but may also be traded in the
secondary market.
The extent to which a fund can invest in securities of other
investment companies is limited by federal securities laws.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or other institutions, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the
securities loaned and, at the same time, earn additional income. The
borrower provides the fund with collateral in an amount at least equal
to the value of the securities loaned. The fund maintains the ability
to obtain the right to vote or consent on proxy proposals involving
material events affecting securities loaned. If the borrower defaults
on its obligation to return the securities loaned because of
insolvency or other reasons, a fund could experience delays and costs
in recovering the securities loaned or in gaining access to the
collateral. These delays and costs could be greater for foreign
securities. If a fund is not able to recover the securities loaned, a
fund may sell the collateral and purchase a replacement investment in
the market. The value of the collateral could decrease below the value
of the replacement investment by the time the replacement investment
is purchased. Loans will be made only to parties deemed by FMR to be
in good standing and when, in FMR's judgement, the income earned would
justify the risks.
Cash received as collateral through loan transactions may be
invested in other eligible securities. Investing this cash subjects
that investment, as well as the securit ies loaned, to market
appreciation or depreciation.
SHORT SALES "AGAINST THE BOX" (GROWTH AND MONEY MARKET FUNDS) are
short sales of securities that a fund owns or has the right to obtain
(equivalent in kind or amount to the securities sold short). If a fund
enters into a short sale against the box, it will be required to set
aside securities equivalent in kind and amount to the securities sold
short (or securities convertible or exchangeable into such securities)
and will be required to hold such securities while the short sale is
outstanding.
Short sales against the box could be used to protect the net asset
value per share (NAV) of a money market fund in anticipation of
increased interest rates, without sacrificing the current yield of the
securities sold short. A money market fund will incur transaction
costs in connection with opening and closing short sales against the
box. An equity fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing short
sales against the box.
SHORT SALES (GROWTH & INCOME AND HIGH YIELD FUNDS). Stocks
underlying a fund's convertible security holdings can be sold short.
For example, if FMR anticipates a decline in the price of the stock
underlying a convertible security held by a fund, it may sell the
stock short. If the stock price subsequently declines, the proceeds of
the short sale could be expected to offset all or a portion of the
effect of the stock's decline on the value of the convertible
security. Each fund currently intends to hedge no more than 15% of its
total assets with short sales on equity securities underlying its
convertible security holdings under normal circumstances.
A fund will be required to set aside securities equivalent in kind and
amount to those sold short (or securities convertible or exchangeable
into such securities) and will be required to hold them aside while
the short sale is outstanding. A fund will incur transaction costs,
including interest expenses, in connection with opening, maintaining,
and closing short sales.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial
institutions. FMR may rely on its evaluation of the credit of the
credit or liquidity enhancement provider in determining whether to
purchase a security supported by such enhancement. In evaluating the
credit of a foreign bank or other foreign entities, FMR will consider
whether adequate public information about the entity is available and
whether the entity may be subject to unfavorable political or economic
developments, currency controls, or other government restrictions that
might affect its ability to honor its commitment. Changes in the
credit quality of the entity providing the enhancement could affect
the value of the security or a fund's share price.
SOVEREIGN DEBT OBLIGATIONS are 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 pay interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of
principal and payment of interest may depend on political as well as
economic factors. Although some sovereign debt, such as Brady Bonds,
is collateralized by U.S. Government securities, repayment of
principal and payment of interest is not guaranteed by the U.S.
Government.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security
with a custodian for safekeeping. The custodian issues separate
receipts for the coupon payments and the principal payment, which the
dealer then sells.
Because the SEC does not consider privately stripped government
securities to be U.S. Government securities for purposes of Rule 2a-7,
a fund must evaluate them as it would non-government securities
pursuant to regulatory guidelines applicable to money market funds.
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 a fund's exposure to long- or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such
as security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names.
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 a 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 a fund's investments
and its share price and yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors
that determine the amounts of payments due to and from a fund. If a
swap agreement calls for payments by 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.
A fund may be able to eliminate its exposure under a swap agreement
either by assignment or other disposition, or by entering into an
offsetting swap agreement with the same party or a similarly
creditworthy party.
TEMPORARY DEFENSIVE POLICIES. Each of Fidelity Blue Chip Growth
Fund, Fidelity Disciplined Equity Fund, Fidelity Equity-Income Fund,
Fidelity Fund, Fidelity Growth & Income Portfolio, Fidelity Growth
Company Fund, Fidelity OTC Portfolio, Fidelity Diversified
International Fund, Fidelity Europe Fund, Fidelity Japan Fund,
Fidelity Overseas Fund, and Fidelity Southeast Asia Fund reserves
the right to invest without limitation in preferred stocks and
investment-grade debt instruments for temporary, defensive purposes.
Each of Fidelity Government Income Fund, Fidelity Intermediate Bond
Fund, and Fidelity Investment Grade Bond Fund reserves the right
to invest without limitation in investment-grade money market or
short-term debt instruments for temporary, defensive purposes.
Fidelity Capital & Income Fund reserves the right to invest without
limitation in investment-grade securities for temporary, defensive
purposes.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
WARRANTS. Warrants are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time.
Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a
warrant may be more volatile than the price of its underlying
security, and a warrant may offer greater potential for capital
appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying security and do not represent any rights in
the assets of the issuing company. A warrant ceases to have value if
it is not exercised prior to its expiration date. These factors can
make warrants more speculative than other types of investments.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, the fund does not
participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
The following pages contain detailed information about special
considerations of underlying international Fidelity funds, in which
certain Freedom Funds may invest.
SPE CIA L CONSIDERATIONS REGARDING AFRICA
Africa is a highly diverse and politically unstable continent of
over 50 countries and 720 million people. Civil wars, coups and even
genocidal warfare have beset much of this region in recent years.
Nevertheless, it is home to an abundance of natural resources,
including natural gas, aluminum, crude oil, copper, iron, bauxite,
cotton, diamonds and timber. Wealthier countries generally have strong
connections to European partners, and evidence of these relationships
is seen in the growing market capitalization and foreign investment of
these countries. Economic performance is closely tied to world
commodity markets, particularly oil, and also to weather conditions,
such as drought.
Five African countries are among the 20 fastest growing in the
world (Uganda, Ivory Coast, Botswana, Angola and Zimbabwe), with GDP
growth rates ranging from 5.5% to 6.0%. Two countries, Yemen and
Bahrain, are experiencing growth at or below 2.0%, and one country,
Libya, is experiencing (-4.0%) negative growth.
African economic growth is projected to remain higher than in any
recent year other than 1996. The relatively small effects of the Asian
crisis are attributable to the comparatively low levels of private
capital flows to most countries in the regions. Africa can be
negatively impacted from the slowdown in global growth, and its
effects on commodity prices.
Several African countries in the north have substantial oil
reserves and accordingly their economies react strongly to world oil
prices. They share a regional and sometimes religious identification
with the oil producing nations of the Middle East and can be strongly
affected by political and economic developments in those countries. As
in the south, weather conditions also have a strong impact on many of
their natural resources, and, as was the case in 1995, severe drought
can adversely effect economic growth.
Twelve African countries have active equity markets (Bahrain,
Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, Oman, South Africa,
Tunisia, Zambia, and Zimbabwe). The oldest market, in Egypt, was
established in 1883, while the youngest, in Zambia, was established in
1994. Four additional markets have been established since 1989, and
the mean age for all equity markets is 40 years old. A total of 1,830
firms are listed on the respective exchanges. Total market
capitalization for these countries in 1996 was $290 billion, an
average increase of 54% over 1995 levels.
The South African market is the largest in Africa and has a
capitalization of more than ten times that of all the other African
markets combined. In 1997, the country's Johannesburg Stock Exchange
fell by 6.8%, due largely to weakening commodity prices and a slowdown
in the South African economy. The market decline extended into 1998 as
the South African rand declined versus the world's major
currencies.
SPECIA L CONSIDERATIONS REGARDING CANADA
Canada is a confederation of ten provinces with a parliamentary
system of government. Canada is the world's second largest nation by
landmass and is inhabited by 30.2 million people, most of whom are
descendants of France, the United Kingdom and indigenous peoples. The
country has a workforce of over 15 million people in various
industries such as trade, manufacturing, mining, finance, construction
and government. While the country has many institutions which closely
parallel the United States, such as a transparent stock market and
similar accounting practices, it differs from the United States in
that it has an extensive social welfare system, much more akin to
European welfare states.
The confederated structures combined with recent financial pressure
on the federal government have pushed provinces, Quebec in particular,
to call for a revaluation of the legal and financial relationships
between the federal government in Ottawa and the provinces. Recent
referendums on Quebec sovereignty have been narrowly defeated and the
issue appears far from resolved. However, in August of 1998, the
country's Supreme Court decided that Quebec does not have the right to
secede unilaterally, removing any immediate threat that Canada will
break up. Nevertheless, the Canadian markets could continue to react
to any periodic escalations of separatist calls.
Canada is one of the richest nations in the world in terms of
natural resources. The country is a major producer of such commodities
as forest products, mining, metals, and agricultural products.
Additionally, energy related products such as oil, gas, and
hydroelectricity are important components of their economy.
Accordingly, the Canadian stock market is strongly represented by
basic material stocks, and movements in the supply and demand of
industrial materials, agriculture, and energy, both domestically and
internationally, can have a strong effect on market performance.
The United States is Canada's largest trading partner and
approximately 80% of Canadian merchandise traded in 1997 was with the
United States. Automobiles and auto parts accounted for the largest
export items followed by energy, mining and forest products. Canada is
the largest energy supplier to the United States, while the United
States is Canada's largest foreign investor. United States investment
has been largely focused on financial, energy, metals and mining
businesses. The expanding economic and financial integration of the
United States and Canada will likely make the Canadian economy and
securities markets increasingly sensitive to U.S. economic and market
events.
For United States investors in Canadian markets, currency has
become an important determinant of investment return. Since Canada let
its dollar float in 1970, its value has been in a steady decline
against its United States counterpart. While the decline has enabled
Canada to stay competitive with its more efficient southern neighbor,
which buys four-fifths of its exports, United States investors have
seen their in vestment returns eroded by the impact of currency
conversion.
SPE CIAL CONSIDERATIONS REGARDING EUROPE
Europe can be divided into two distinct categories of market
development: the developed economies of Western Europe and the
transition economies of Eastern Europe.
Any discussion of European national economies and securities
markets must be made with an eye to the impact that the European Union
(EU) and European Economic and Monetary Union (EMU) will have upon the
future of these countries as well as the rest of the world. The scope
and magnitude of these economic and political initiatives dwarfs
anything attempted to date. If successful, the EU will change or erase
many political, economic, cultural and market distinctions that define
and differentiate each of the Continent's countries today. The third
and final stage of the EMU was implemented on January 1, 1999.
The EU consists of 15 countries of western Europe: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United
Kingdom. The six founding countries first formed an economic community
in the 1950s to bring down trade barriers such as taxes and quotas, to
eliminate technical restrictions such as special standards and
regulations for foreigners, and to coordinate various industrial
policies, such as those pertaining to agriculture. Since that time the
group has admitted new members and, in time, may expand its membership
to other nations such as those of Eastern Europe. The EU has as its
goal, the creation of a single, unified market that would be, at over
370 million people, the largest in the developed world and through
which goods, people and capital could move freely.
A second component of the EU is the establishment of a single
currency - the Euro, to replace each member country's domestic
currencies. In preparation for the creation of the Euro, the Exchange
Rate Mechanism (ERM) was established to keep the various national
currencies at a pre-specified value relative to each other. The year
1997 is significant for membership in the EU as it is the initial
reference year for evaluating debt levels and deficits within the
criteria set forth by the Maastricht treaty. Specifically, the
Maastricht criteria include, among other indicators, an inflation rate
below 3.3%, a public debt below 60% of GDP, and a deficit of 3% or
less of GDP. Failure to meet the Maastricht levels would disqualify
any country from membership.
On May 3, 1998 the European Council of Ministers formally announced
the "first wave" of EMU participants. They are: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. On January 1, 1999, the Euro became a currency,
while the bank notes used by EMU's eleven members remain legal tender.
After a three year transition period, the Euro will begin circulating
on January 1, 2002. Six months later, today's currencies will cease to
exist.
Many foreign and domestic businesses are establishing or increasing
their presence in Europe in anticipation of the new unified single
market. Clear, confident visions of a diverse, multi-industrial,
unified market under a single currency have been the impetus for much
of the recent corporate restructuring initiatives as well as for the
increased mergers and acquisitions activity in the region. A
successful EMU could prove to be an engine for sustained growth
throughout Europe.
While the securities markets view the introduction of the Euro as
inevitable, the success of the union is not wholly assured. Europe
must grapple with a number of challenges, any one of which could
threaten the survival of this monumental undertaking. For example,
eleven disparate economies must adjust to a unified monetary system,
the absence of exchange rate flexibility and the loss of economic
sovereignty. The Continent's economies are diverse, its governments
decentralized and its cultures differ widely. Unemployment is
historically high and could pose a political risk that one or more
countries might exit the union placing the currency and banking system
in jeopardy.
For those countries in Western and Eastern Europe that were not
included in the first round of the EU implementation, the prospects
for eventual membership serves as a strong political impetus for many
governments to employ tight fiscal and monetary policies. Particularly
for the Eastern European countries, aspirations to join the EU are
likely to push governments to act decisively. At the same time, there
could become an increasingly widening gap between rich and poor both
within the aspiring countries and also those countries who are close
to meeting membership criteria and those who are not. Realigning
traditional alliances could result in altering trading relationships
and potentially provoking divisive socio-economic splits.
The economies of Eastern Europe are embarking on the transition
from communism at different paces with appropriately different
characteristics. The transition countries also display sharp contrasts
in performance. Those that are most advanced in the transformation
process are now reaping the rewards of comprehensive reform and
stabilization policies pursued with determination over recent years.
These include Poland, the Baltic countries, Croatia, the Czech
Republic, Hungary, the Slovak Republic and Slovenia. Conversely, those
that are less advanced in the transition are struggling with a number
of policy challenges to strengthen their economies. Several countries
have made good progress, and in Armenia, Azerbaijan, Georgia,
Kazakhstan, and the Kyrgyz Republic, inflation has fallen considerably
in recent years. Nevertheless, the East European markets are
particularly vulnerable to weakness in the world's other emerging
countries and are particularly sensitive to events in Russia. For
example, in mid-1998 when economic and political turmoil forced the
Russian government to devalue its currency and restructure its debt
payments, the other markets in Eastern Europe suffered significant
destabilization of which the extent and duration is still unknown.
FRANCE. France is a republic of over 58 million people in
the historic if not the geographic center of Western Europe. The Fifth
French Republic, established in the early postwar period under Charles
de Gaulle, provides for a strong Presidency which can appoint its own
cabinet but must win approval of a parliamentary majority. The
government was founded upon the French cultural values of liberty,
brotherhood and egalitarianism. In France, this latter value often
translates into a government burden of providing job security. The
result is a large, vast bureaucracy in the public sector and strict
employment and labor laws in the private sector. In addition, a
significant portion of government economic policy revolves around
regulating and protecting domestic industries, particularly farming
and manufacturing. Finally, the French government frequently owns high
majority or minority interests in large companies, particularly
utility, transport and communications concerns. While privatization
has been a popular movement in many other European countries, it has
encountered a stalled stop-and-go cycle in France.
The French economy is the world's fourth-largest Western
industrialized economy, with a GDP of $1538 billion in 1996. The
nation has substantial agricultural resources, a diversified modern
industrial system, and a highly skilled labor force. France's economy
boasts a sophisticated industrial manufacturing base, which includes
not only high technology (information technology and
telecommunications, vehicles, aircraft, computer equipment, etc.) but
also a number of very large companies producing consumer goods. The
country's industrial structure is unusual for an industrialized
economy because the state still controls a large proportion of the
heavy strategic goods industries as well as institutions such as banks
and communications companies. The agricultural sector continues to be
important; however, most farms are small by European standards and
require massive government support. Exports are an economic strong
point and the nation has enjoyed trade surpluses in recent years.
Leading exports include chemicals, electronics and automotive and
aircraft machinery, while imports are dominated by petroleum,
industrial machinery and electronics. Their main trading partners are
the United States, Japan, and other EU countries.
The country is one of the largest consumers of nuclear energy,
obtaining nearly 75% of its total electricity needs from reactors.
While it has some small deposits of oil and gas, it remains heavily
dependent on imports for most of its needs.
In recent years, the country's economic growth has been hindered by
a series of general strikes. The government's efforts to reduce
spending to meet the Maastricht criteria have prompted strikes and
unrest from France's powerful trade unions. In addition, striking
workers have pushed their demands for a lower retirement age and a
reduction in the work week. With an unemployment rate above 12%, the
country's labor markets are not functioning efficiently. France's
pay-as-you-go pension program is an additional deterrent to economic
growth as spending on pensions account for a tenth of GDP. While all
parties agree that the system must be replaced, no agreement has been
reached on an alternative.
France went to the polls in May 1997 after a surprise decision to
hold early elections by conservative President Jacques Chirac.
Chirac's calculation was to capitalize on popular support before he
was forced to undertake austere fiscal measures to meet the Maastricht
criteria. Voters responded that they were more concerned about the
country's high level of unemployment and Chirac's party lost enough
seats in the parliament that the president must now share power for
the remaining five years in office with a socialist-led government.
This change could set back the previous government's pledges to
continue its privatization initiatives, restrain spending, support the
franc, and endure fiscal austerity. It also calls into question
whether the French people have the will to adhere to the EMU
convergence criteria over the next few years.
The stock market in France has undergone both gradual and dramatic
changes in recent years, keeping pace with global trends toward
deregulation, privatization, and cross border activities, allowing
Paris to maintain its position as the world's fourth-largest financial
center. Until 1996, the Paris Bourse was the country's sole stock
exchange, providing access to all listed French securities. Since
then, foreign interest has been stimulated by the creation of new
markets, such as the Nouveau March<UNDEF>, for riskier, growth
oriented, small corporations. While the listings of these combined
markets are fairly diverse, financial companies account for
approximately one-third of the total. The system underwent many
regulatory changes in the late 1980s, taking steps toward combating
insider trading and ensuring market transparency.
GERMANY. Germany is the largest economy in all of Europe and
is the third largest economy in the world behind the United States and
Japan. The country occupies a central position in Western Europe with
strong cultural and economic ties with the countries of Eastern Europe
and borders on no less than six other Western European countries. The
country's size, location and proven industrial ability have
historically thrust it to the center of European economic life, a
position it was able to re-attain in the wake of the post-war period.
More recently, Germany has used this position as a platform to
champion the cause of the EU, and also to absorb and transform the
devastated economy of its former communist eastern half.
The German economy is heavily industrialized, with a strong
emphasis on manufacturing. The manufacturing sector is driven by small
and medium-sized companies, most of which are very efficient and
dynamic. Germany, nevertheless, has many large industries and
manufacturing is dominated by the production of motor vehicles,
precision engineering, brewing, chemicals, pharmaceuticals and heavy
metal products.
The economy has benefited from a strong export performance
throughout the decade. Exports, weighted heavily in the industrial
machinery, autos and chemicals sector s, have provided the economy
with positive trade balances. Exports are the main engine of GDP
growth, highlighting Germany's dependence on the prosperity of its
trading partners. Five out of its top six trading partners are fellow
EU members (the sixth is the United States), while very low levels of
trade are conducted with Asian and Latin American countries. Germany
stands very well poised to supply the emerging markets of central
Europe. It is already the largest European foreign investor in the
Czech Republic and the largest trading partner for Poland and Hungary.
Accordingly, any weakness in the emerging market economies might
likely dampen demand for German goods, to the detriment of the German
economy. As most of these emerging markets aspire to join the EU, it
is possible that a larger EU could alter Germany's trading
relationships due to new quotas, tax rates, exchange rates and other
factors which will come with EU membership.
The recent performance of the German economy must be evaluated
within the context of the 1990 reunification of the eastern and
western states. GDP growth dropped markedly during the early years of
reunification. Industry in Eastern Germany is still catching up.
Workers in Eastern Germany earn two-thirds of western wages but
produce only half as much. In addition, one of the byproducts of
assimilating East Germany into the state has been the need to
restructure many of the government services to accommodate the new and
substantially less affluent citizens. Significant tax and welfare
reforms have yet to be undertaken, and pressure is mounting on the
government to address these issues. Unemployment rates have begun to
cause some discontent among German citizens whose culture generally
places strong emphasis on a social compact.
Germany is faced with other significant economic challenges.
Unemployment is currently above 12% as the country experiences its
longest period of slow growth since the Second World War. The
government's ability to deal with the problem is limited by its
efforts to meet the stringent Maastricht criteria for convergence.
There are also growing concerns about the exodus of German companies
relocating abroad in order to avoid the country's high labor costs. In
the longer run, Germany's government must alter the peculiar mix of
capitalism, welfarism and consensus that sets the country apart. Those
decisions will be politically sensitive - especially if they
antagonize the powerful trade unions or the country's many family-run
firms.
Germany's stock market has enjoyed dramatic growth in volume as the
main DAX index has soared over the past two years. Much of the
market's strength has been attributed to the dollar's recovery and
rising corporate earnings. In addition, a number of changes have
occurred recently to support the share-buying explosion and to
establish a German equity culture. A number of initial public
offerings were launched as the government sought to divest itself of
ownership in such businesses as the nation's telephone utility and
post office businesses to ease budgetary pressures. The government
also created a supervisory authority which has outlawed insider
trading and established stiffer company reporting standards intended
to further increase the appeal of Germany's stock market.
Nevertheless, while there has been progress in broadening the investor
base, shares remain overwhelmingly in the hands of institutions and
companies.
The German central bank is one of the world's strongest and most
independent. Their high interest rates have contributed to a
controlled growth of the stock market and a steadily decreasing
inflation rate. Keeping the Deutsche Mark strong in leading up to EMU
was a priority for the bank. Nevertheless, exports have thrived
despite the currency's strong position.
A founding member of the EU and the most ardent proponent of EMU,
Germany is seen as the primary player in Union economics and politics.
Seeking to consolidate this position, recent government policy has put
a strong emphasis on the maintenance of a strong currency and the
achievement of the Maastricht criteria.
NORDIC COUNTRIES. Increasing economic globalization and the
expansion of the EU have forced the Nordic Countries to scale back
their historically liberal welfare spending policies. While public
spending has dropped from average levels, the cutbacks in social
programs have sparked drops in domestic demand and increases in
unemployment. Nevertheless, the Nordic economies are experiencing
positive growth fueled largely by strong exports and low interest
rates. The EMU put pressure on each nation to maintain their economies
in line with requirements of the Maastricht treaty criteria and the
fiscal and political issues remain central in political debates.
Of the Nordic countries, Finland, Denmark and Sweden are all
members of the EU. Only Norway has elected not to join. However, the
decision likely will not isolate the Norwegian economy from those of
its Nordic neighbors. The country maintains a "shadow membership" in
the EU, by which it seeks to stay as closely informed as possible and
to make its voice heard on the issues. This may ensure that it will
become more closely aligned with the rest of Europe as time passes.
One significant aspect of opting out of the EU is that the central
bank is free to pursue its own agenda, such as setting inflation
targets as opposed to exchange rate targets. Inflation patterns and
currency stability could prove to be issues that may separate the
policy decisions of Norway from the other Nordic countries.
Politically, the countries of this region are historically known
for their approach to policy making that emphasizes consensus. The
most common type of government among the Nordic countries is dominated
by long-standing, left-of-center parties which often align themselves
with smaller centrist parties for majority support. The landscape,
however, is so fractured that governing from a minority position is
common. The absence of a clear majority party slows and sometimes
arrests policy making. The strongest opposition comes from traditional
European conservative parties, which have gained support in recent
years with the decline of the welfare state and the need for the
libertarian policies necessary to compete and integrate with free
markets. None of the Nordic countries face any serious risk of any
anti-democratic political change. However, in Sweden, the prospects of
the present government will depend on its ability to create more jobs
and maintain the economy for EMU. A large minority of voters are
also disappointed about the benefits which membership in the EU was
expected to bring and have been increasingly voicing anti-EU
sentiments. However, in May 1998, Finland was formally admitted in the
"first wave" of the EMU.
Industry in the region is heavily resource-oriented. Denmark's
agricultural sector remains the backbone of the economy although other
industries have been developing rapidly in recent years, with
engineering, food processing, pharmaceuticals, brewing and
shipbuilding gaining in importance. Finland's major industry is
forestry which supplies a large paper and timber products sector. It
also produces household goods and telecommunications equipment and has
an extremely important heavy goods sector producing ships, cement,
steel and machine tools. In Sweden, the manufacturing sector dominates
the economy and includes major industries which range from motor
vehicles to aerospace, chemicals, pharmaceuticals, timber, pulp and
paper. Several of the country's export-oriented industries (in
particular forestry, mining and steel) are suffering as the country's
high wages squeeze them out of foreign markets. Norway's oil-driven
economy has provided its citizens with one of the highest standards of
living in the world. However, they must prepare for the time, due to
arrive early in the next century, when their vast reserves run out.
Reliance on exports concentrated in a few sectors tie these countries
closely to one another.
Economically, the Nordic countries are strong export economies that
take advantage of their abundant natural resources. They are also very
closely tied both to each other and to the rest of Europe. Most
countries have witnessed low levels of positive growth in the last six
years. Finland is the exception. As a significant portion of its trade
is with Russia, Finland suffered in the early years of the collapse of
the Soviet Union. However, in the past two years its economy has
recorded some of the highest growth rates in Western Europe while
having the lowest rate of inflation. Similarly, after five years of
recession, the overall outlook for the Swedish economy is also vastly
improved. A stringent package of spending cuts and tax increases has
brought down the budget deficit to a level that is well within the EMU
target. Exports are recovering as other parts of Europe are coming out
of recession and its inflation is among the lowest in Western Europe.
However, the one weak spot in both countries' economies is a
persistently high unemployment rate. Finland's unemployment, at 17%,
is the second highest in Europe after Spain, and Finland's rate
represents only a marginal improvement over the previous year.
Norway's oil driven economy is the envy of many and unemployment is
just a little over five percent.
A portion of the region's unemployment woes can be attributed to
the cultural ethic which was advanced during the years of the welfare
state. Subsequent cuts in public spending, particularly in those
sectors that traditionally rely on large government spending,
exacerbated the problem. Labor market reform will be a critical issue
in these countries as public spending is cut back. Pensions and
structural issues such as union regulations all need to be reformed, a
task which brings both challenges and unpopularity to the government
that accepts it. Not only will labor market reforms give governments a
daunting challenge; they could also cause the public to regret their
participation in the EMU. One positive point is that the countries
boast very high standards of living, which create healthy and highly
educated workforces.
The stock markets in Scandinavia are of medium size, and frequently
are strongly influenced by a small number of large multinational
firms. For example, in Sweden thirty firms constituted 75% of the
market's total capitalization and market turnover in 1997. Weighing
heavily in the equity markets are the electronics, forest products,
mining and manufacturing sectors. Market capitalization is highest in
Sweden at $273 billion, while the others are between $74 and $94
billion. Sweden also leads in numbers of firms (261) listed. Other
countries' listings range from 126 (Finland) to 249 (Denmark).
Performance of Nordic country indexes tend to be skewed owing to the
dominant weightings that a few large companies have in the index. For
example, the market capitalization of Finnish telecommunications
equipment manufacturer Nokia comprises about one-third of the total
market capitalization of the Finnish exchange and has a substantial
impact upon the performance of the companies in the HEX Index.
UNITED KINGDOM. The United Kingdom is the world's sixth
largest economy and is home to one of the oldest, most established,
and most active stock markets. An island nation, it built an empire of
strategically located trading posts such as Hong Kong and India. While
today the empire is largely dissolved, trade remains a very key
component of the U.K. economy. Strong domestic sectors are services,
natural energy resources, and heavy industry, including steel, autos,
and machinery. Imports generally emphasize food and manufacturing
components. The United Kingdom's trading partners are predominately
established market economies, such as the United States, Japan, and
other member countries of the European Union. The United Kingdom, via
the North Sea, also has substantial petroleum resources.
The London Stock Exchange is comprised of six offices scattered
throughout Great Britain and Northern Ireland. It lists over 2900
firms, and trades both foreign and domestic securities as well as
securities issued by the British Government. A vast majority of the
firms listed (80%) are from the United Kingdom. Total market
capitalization in 1997 was over $5,440 billion. Such size prevents the
stock market from being overly sensitive to the performance of
individual firms.
In 1997 the U.K. posted its sixth year of recovery with GDP growth
of 3.5%, the third highest in the EU. The labor market also appears to
have improved as pay settlements and wages remain under control
despite the unemployment rate falling from 6.5% to 5% over the year.
The strengthening economy prompted a sharp acceleration in consumer
spending and, in response, the nation's Monetary Policy Committee was
forced to raise base rates. The interest rate rise added fuel to an
already robust sterling which rose 8.6% in 1997 after appreciating by
15.6% in 1996. This proved particularly damaging to the manufacturing
sector and, although exports held up well during the year, there were
early indications that a decline was underway. Inflation is low,
making the country attractive for foreign investment. Investment is
especially attractive to the United States, with which the United
Kingdom shares many market similarities. Each country is the
other' s largest foreign investment partner.
Under Conservative Party leadership in the early 1980s, the United
Kingdom privatized many state-run utilities, such as British Gas and
British Telecom. The success of these efforts is evidence both of the
strong entrepreneurial spirit of British society and also a
fundamental rejection of the welfare state policies that dominated the
scene in the early post-war period. Even today, the Labour Party has
shed much of its socialist economic platform, reflecting a strong
break away from policies that continue to be popular in other European
countries. Eager to attract foreign investment the new administration
is not expected to undo any of the major reforms put in place by the
Conservatives during their last 18 years in power. Some changes could
include an increase in spending on social programs, a slowing of
privatization, and an increase in corporate taxes. Tight monetary
policy and interest rate hikes could be used to keep inflation below
the government's self-imposed 2.5% ceiling. In addition, the
government will probably wish to rebuild ties with the rest of the EU
and has already taken steps to get the pound back into the European
system by increasing the independence of the country's central
bank.
Nevertheless, there appears to be some nervousness among many
investors who see the U.K. market lagging behind the continental
European stock markets where they see more compelling prospects for
economic growth. In addition, the manufacturing industry is suffering
from the pound's lofty valuation and many fear that an economic
slowdown could spread to the services sector.
The political scene in London is largely shaped by positions
regarding EMU. Pro Europe MPs in the Tory opposition leadership were
marginalized after the 1997 election, further polarizing the positions
of the two parties. Despite this expression of support, the United
Kingdom continues to be overtly less enthusiastic about EMU than other
countries in Europe and has not committed itself to immediately
joining the new currency once it is established. While the new
government has stated that it hopes to meet the Maastricht criteria,
it is less a self-imposed pressure on the U.K. government than it is
for other countries in the Union. Signing on to the EU Social Charter
would neutralize the policies which have set the United Kingdom above
other countries in attracting investment, such as wages and employment
conditions.
SP ECIAL CO NSIDERATIONS REGARDING ASIA
Asia has undergone an impressive economic transformation in the
past decade. Many developing economies, utilizing substantial foreign
investments, established themselves as inexpensive producers of
manufactured and re-manufactured consumer goods for export. As
household incomes rose, middle classes increased, stimulating domestic
consumption. In recent years, large projects in infrastructure and
energy resource development have been undertaken, and have benefited
from cheap labor, foreign investment, and a business friendly
regulatory environment. During the course of development, democratic
governments fought to maintain the stability and control necessary to
attract investment and provide labor. Subsequently, Asian countries
today are coming under increasing, if inconsistent, pressure from
western governments regarding human rights practices.
Manufacturing exports declined significantly in 1997, due to drops
in demand, increased competition, and strong performance of the U.S.
dollar. This significant decline is particularly true of electronics,
a critical industry for several Asian economies. Declines in exports
reveal how much of the recent growth in these countries is dependent
on their trading partners. Many Asian exports are priced in U.S.
dollars, while the majority of its imports are paid for in local
currencies. A stable exchange rate between the U.S. dollar and Asian
currencies is important to Asian trade balances.
Despite the impressive economic growth experienced by Asia's
emerging economies, currency and economic concerns have recently
roiled these markets. Over the summer of 1997, a plunge in Thailand's
currency set off a wave of currency depreciations throughout South and
Southeast Asia. The Thai crisis was brought on by the country's
failure to take steps to curb its current-account deficit, reduce
short-term foreign borrowing and strengthen its troubled banking
industry, which was burdened by speculative property loans. Most of
Southeast Asia's stock markets tumbled in reaction to these events.
Investors were heavy sellers as they became increasingly concerned
that other countries in the region, faced with similar problems, would
have to allow their currencies to weaken further or take steps that
would choke off economic growth and erode company profits. For U.S.
investors, the impact of the market declines were further exacerbated
by the effect of the decline in the value of local currencies versus
the U.S. dollar.
The same kind of concerns that effected Thailand and other
Southeast Asian countries subsequently spread to North Asia. To widely
varying degrees, Taiwan, South Korea and Hong Kong all faced related
currency and/or equity market declines. Due to continued weakness in
the Japanese economy combined with the reliance of Asian economies on
intra-Asian trade and capital flows, most of the region was mired in
their worst recessions since World War II.
Investors continue to face considerable risk in Asian markets as
political, economic and currency turmoil has continued to undermine
market valuations throughout the first half of 1998. Rising
unemployment, food shortages and declining purchasing power could lead
to social unrest and threaten the orderly functioning of government.
Currency devaluations also increase pressure on both the consumers who
must pay more for imported goods and on many businesses that must deal
with the rising costs of raw materials. For U.S. investors, weakening
local currencies erode their returns in these markets upon currency
translation. Certainly, the resolve of the region's governments to
adhere to International Monetary Fund-mandated benchmarks will be
sorely tested, as their implementation could further exacerbate these
pressures on the nation's populace and businesses. In addition,
Japan's paralysis is fast becoming a problem for Asia. Worsening
Japanese banking problems could lead to a contraction of credit for
all of Asia and slow rehabilitation in the region. Similarly, a
significant portion of both domestic and foreign investors have fled
these markets in favor of safer havens outside of the region and will
not likely return until they see more evidence that these problems are
being effectively addressed. The scope and magnitude of the tasks that
these countries face in resolving their problems could mean that
investors will see a continuation of high market volatility over an
extended period.
JAPAN. A country of 126 million with a labor force of 64
million people, Japan is renowned as the preeminent economic miracle
of the post-war era. Fueled by public investment, protectionist trade
policies, and innovative management styles, the Japanese economy has
transformed itself since World War II into the world's second largest
economy. An island nation with limited natural resources, Japan has
developed a strong heavy industrial sector and is highly dependent on
international trade. Strong domestic industries are automotive,
electronics, and metals. Needed imports revolve around raw materials
such as oil, forest products, and iron ore. Subsequently, Japan is
sensitive to fluctuations in commodity prices. With only 19% of its
land suitable for cultivation, the agricultural industry is small and
largely protected. While the United States is Japan's largest single
trading partner, close to half of Japan's trade is conducted with
developing nations, almost all of which are in southeast Asia.
Investment patterns generally mirror these trade relationships. Japan
has over $100 billion of direct investment in the United States.
The Tokyo Stock Exchange (TSE) is the largest of eight exchanges in
Japan. The exchanges divide the market for domestic stocks into two
sections, with larger companies assigned to the first section and
newly listed or smaller companies assigned to the second. In 1997,
1,805 firms were listed on the TSE, 96% of which were domestic. Some
believe that the TSE has a tendency to be strongly influenced by the
performance of a small circle of large cap firms that dominate the
market. The two key indexes are the Tokyo Stock Price Index (TOPIX)
and the Nikkei. In 1997, TSE performance was disappointing, with the
TOPIX down 28% for the year.
Since Japan's bubble economy collapsed seven years ago, the nation
has drifted between modest growth and recession. By mid-year 1998 the
world's second largest economic power had slipped into its deepest
recession since World War II. Much of the blame can be placed on
government inaction in implementing long-neglected structural reforms
despite strong and persistent proddings from the International
Monetary Fund and the G-7 nations. Steps have been taken to institute
deregulation and liberalization of protected areas of the economy, but
the pace of change has been disappointedly slow.
Unemployment levels, already at record rates when measured by the
broader criteria used in many other countries, have been an area of
increasing concern and a major cause of recent voter dissatisfaction
with recent governments. However, the most pressing need for action is
the daunting task of overhauling the nation's financial institutions
and securing public support for taxpayer-funded bailouts. Banks, in
particular, must dispose of their huge overhang of bad loans and trim
their balance sheets in preparation for greater competition from
foreign financial institutions as more areas of the financial sector
are opened. Successful financial sector reform would allow Japan's
financial institutions to act as a catalyst for economic recovery at
home and across the troubled Asian region. Further steps toward
complete financial liberalization are in the initial stages of
implementation. Proposals under consideration could lower many
barriers allowing foreign firms greater and cheaper access to funds,
and the recent relaxation of restrictions on the insurance market also
promise greater access to foreign companies. A large factor in
determining the pace and scope of recovery is the government's
handling of deregulation programs, a delicate task given the recent
changes in Japanese politics.
Recent political initiatives in Japan have fundamentally
transformed Japanese political life, ushering in a new attitude which
is strongly reverberating in the economy. The Japanese Parliament (the
Diet) had been consistently dominated by the Liberal Democratic Party
(LDP) since 1955. The LDP dynasty, recently fraught with scandal,
corruption, accusations of maintaining a virtual monopoly, effectively
ended in 1994 as a result of electoral reform measures that brought
Diet seats to previously underrepresented areas. The first election
under this new system was held in October 1996. While the LDP remained
as the ruling party, it did so from a minority position. A key result
of the electoral reforms has been a strengthening of ideas of
opposition parties. Indeed, many of the LDP's recent reforms
originated with the leaders of the opposition New Frontier Party. The
LDP's ability to consistently produce bold innovations in a
politically competitive environment is untested. The opposition
parties suffer from structural and organizational weaknesses.
Infighting and defections are common. This inexperience with a true
multi-party system has caused the rise and fall of four coalition
governments in recent years. Between the adjusting of the monolithic
LDP to a more demanding and competitive system and the settling of the
opposition parties, Japan's political environment remains unstable.
The desire for electoral reform arose out of what many see as a basic
change in Japanese public opinion in recent years. Faced with
recurring scandal and corruption, Japanese society has come to demand
more accountability from their leaders, more transparency in their
institutions, and less interference from their intensely bureaucratic
government. This attitude was reflected in the results of the recent
election where candidates of the LDP party were heavily defeated in an
election for the upper house of parliament and prime minister
Hashimoto was forced to resign. The election results were considered
to be a repudiation of the government's failure to come to grips with
the country's economic decline, widening corruption scandals and a
lack of any discernable progress in addressing the nation's banking
problems.
Nevertheless, sustaining reforms and recovery are not guaranteed.
Drops in consumption, increased budget deficits, or halting
deregulation could exacerbate the nation's economic woes. Furthermore,
as a trade-dependent nation long used to high levels of government
protection, it is unclear how the Japanese economy will react to the
potential adoption of the trade liberalization measures which are
constantly promoted by their trading partners. In addition, as the
largest economy in a rapidly changing and often volatile region of the
world, external events such as the Korean conflict could effect
Japan. As many of the governments of Southeast Asia frequently face
domestic discontent, and as many of these countries are Japanese
trading partners and investment recipients, their internal stability
and its impact on regional security are of tremendous importance to
Japan.
Also of concern are Japan's trade and current-account surpluses. If
they continue to grow, they could lead to an increase in trade
friction between Japan and the United States. Additionally, with
inflationary pressures largely absent and wholesale prices falling,
Japan may be entering a period of deflation. A deflationary
environment would both hit corporate profits and increase the debt
burden of Japan' s most highly leveraged companies.
CHINA AND HONG KONG. China is one of the world's last
remaining communist systems, and the only one that appears poised to
endure due to its measured embrace of capitalist institutions. It is
the world's most populous nation, with 1.22 billion people creating a
workforce of 699 million people. Today's Chinese economy, roughly
separated between the largely agricultural interior provinces and the
more industrialized coastal and southern provinces, has its roots in
the reforms of the recently deceased communist leader Deng Xiaoping.
Originally an orthodox communist system, China undertook economic
reforms in 1978 by providing broad autonomy to certain industries and
establishing special economic zones (SEZs) to attract foreign
investment (FDI). Attracted to low labor costs and favorable
government policies, investment flowed from many sources, with Hong
Kong, Taiwan, and the United States leading the way. Most of this
investment has been concentrated in the southern provinces,
establishing manufacturing facilities to process goods for
re-export.
The result has been a steadily high level of real GDP growth,
averaging 11.35% per year so far this decade. With this growth has
come a doubli ng of total consumption, a tripling of real incomes
for many workers, and a reduction in the number of people living in
absolute poverty from 270 to 100 million people. Today there is a
market of more than 80 million people who are now able to afford
middle class western goods.
Such success has not come without negatives. As a communist system
in transition, there still exist high levels of subsidies to
state-owned enterprises (SOE) which are not productive. At the end of
1997, it was reported that close to half of the SOEs ran losses. In
addition, the inefficiencies endemic to communist systems, with their
parallel (thus redundant) political, economic and governmental policy
bodies, contribute to high levels of inflation. Fighting inflation and
attempting to cool runaway growth has forced the government to
repeatedly implement periods of fiscal and monetary austerity.
Periodic intervention seems to be their chosen method of guarding
against overheating.
Performance in 1997 reflects this dynamic between growth,
inflation, and the government's attempts to control them. Growth
slowed to 9.1%, largely as a result of a tightening of credits to
SOEs. Policy was a mix between a loose monetary stance and some
relatively austere fiscal positions. While growth was a priority, it
came at the cost of double-digit inflation.
China has two stock exchanges that are set up to accommodate
foreign investment, in Shenzhen and in Shanghai. In both cases,
foreign trading is limited to a special class of shares (Class B)
which was created for that purpose. Only foreign investors may own
Class B shares, but the government must approve sales of Class B
shares among foreign investors. As of December 1997, there were 51
companies with Class B shares on the two exchanges, for a total Class
B market capitalization of $2.1 billion U.S. dollars. In 1997, all of
China's stock market indices finished the year below the level at
which they began it. These markets were buoyed by strong speculative
buying in the year's second quarter. Market valuations peaked in
September and were subsequently hit by a heavy sell off from October
onwards.
In Shanghai, all "B" shares are denominated in Chinese renminbi but
all transactions in "B" shares must be settled in U.S. dollars. All
distributions made on "B" shares are also payable in U.S. dollars, the
exchange rate being the weighted average exchange rate for the U.S.
dollar as published by the Shanghai Foreign Exchange Adjustment
Center. In Shenzhen, the purchase and sale prices for "B" shares are
quoted in Hong Kong dollars. Dividends and other lawful revenue
derived from "B" shares are calculated in renminbi but payable in Hong
Kong dollars, the rate of exchange being the average rate published by
the Shenzhen Foreign Exchange Adjustment Center. There are no foreign
exchange restrictions on the repatriation of gains made on or income
derived from "B" shares, subject to the repayment of taxes imposed by
China thereon.
China's proven ability to nurture domestic consumption and expand
export markets leads many to believe that the bulk of its growth has
yet to be seen. Most sources, notably the World Bank, predict future
growth levels through the year 2000 of over 7%. This auspicious
indicator notwithstanding, there are a few special considerations
regarding China's future. While this list is not all-inclusive, it
does highlight some internal and external forces that have a strong
influence on the country's future.
To begin with the internal issues, one matter is that
infrastructure bottlenecks could prove to be a problem, as most FDI
has been concentrated in manufacturing and industry at the expense of
badly needed transportation and power improvements. Secondly, as with
all transition economies, the ability to develop and sustain a
credible legal, regulatory, and tax system could influence the course
of investments. Third, environmentalists warn of the current and
looming problems regarding pollution and resource destruction, a
common result of such industrial growth in developing economies which
can't afford effective environmental protection. This is a
particularly noteworthy issue, given the size of the country's
agricultural sector. Lastly, given China's unique method of transition
there exists the possibility that further economic liberalization
could give rise to new social issues which have heretofore been
effectively mitigated. One such issue is the possible dismantling of
inefficient state-owned enterprises, something which is potentially
socially explosive given the communist policy of providing social
welfare through the firm. Exposing what many economists feel is a high
level of open unemployment and widening the gap between the newly
empowered business class and the disenfranchised could pressure the
government to retreat on the road to reform and continue with massive
state spending.
Regarding external issues, China's position in the world economy
and its relationship with the United States also have a strong
influence on it's economic performance. The country has recently
enjoyed an almost uninterrupted positive trade balance. As the largest
country amidst the fastest growing region in the world, China and its
multi-million person ethnic diaspora have a significant role to play
in Asian growth. Should China ascend to become a member of the World
Trade Organization (WTO), as it desires, such movements of capital and
goods will become easier.
Export growth in China has recently been subject to fluctuations
caused by external political events, such as the U.S. elections and
debates over human rights issues. U.S. policy (specifically most
favored nation status) is frequently reconsidered by various elements
of the U.S. government in reaction to a variety of issues, from
nuclear proliferation to Tibetan rights. Significant changes in U.S.
policy could impact China's growth, as close to 9% of their GDP is
trade with the U.S. and the U.S. represents the third biggest investor
in China.
Perhaps the strongest influence on the Chinese economy is the
policy that is set by the political leaders in Beijing and this is
somewhat of an open question as the death of Deng has created a slight
vacuum in Chinese political society. A large part of Deng's strength
derived from a newly empowered business class endeared to him and it
is unclear if any of his successors can harness this loyalty as
effectively as he did. Sustained growth is one possible way to win
over this constituency, leading many to believe that the future
Chinese leadership will respect market forces at least as much as Deng
did. Choosing between double digit growth and reduced inflation could
continue to be a central economic question, with 1997 (Deng
influenced) decisions pointing to an acceptance of lower, albeit still
high, GDP growth.
Another key political player is the Chinese army. With provocative
situations occurring in Taiwan and the Korean peninsula, and with ever
present pressure from internal democrats, the military is in a
position of leverage regarding the shaping of the future political
scene. Finally, there is the communist party, long seen as a loser
amongst the beneficiaries of Deng's reforms. Many view the battle
between the party and the middle class as a zero sum game and as the
leadership settles, respective alliances and constituencies could
determine how much the government pursues its growth strategy.
As with almost all foreign investments, U.S. investors face the
significant risk of currency devaluation by the Chinese government.
Despite assurances from officials reemphasizing China's policy
commitment to maintain the current exchange rate of the renminbi
against the U.S. dollar, many observers believe that this policy will
be soon tested as China monitors the effect of regional devaluations
on exports. Government authorities feel that China has boosted its
international reputation by refraining from devaluing the renminbi at
a time when such a move could further destabilize the currencies of
its neighbors. Nevertheless, Chinese authorities have recently hinted
that a continued slide in the Japanese yen would make it very
difficult for them to maintain their promise not to devalue. If
efforts to prevent the slide in the yen fail, then China may be pushed
into devaluing their currency. For U.S. investors, a devaluation would
erode the investment returns on their investments.
The last significant force in the Chinese economy is the
acquisition on July 1, 1997 of Hong Kong as a Special Autonomous
Region (SAR). For the past 99 years as a British Colony, Hong Kong has
established itself as the world's freest market and more recently as
an economic gateway between China and the west.
A tiny, 814 square mile area adjacent to the coast of southern
China with a population of 6.3 million, Hong Kong has a long
established history as a global trading center. Originally a
manufacturing-based economy, most of these businesses have migrated to
southern China. In their place has emerged a developed, mature service
economy which currently accounts for approximately 80% of ITS GROSS
DOMESTIC PRODUCT. Hong Kong trades over $400 billion in goods and
services each year with countries throughout the world, notably China,
Japan, and the U.S. Its leading exports are textiles and electronics
while imports tend to revolve around foodstuffs and raw materials.
Hong Kong's currency, the HK dollar, was pegged to the US dollar at
HK7.7=$1 in 1983 and investors consider it to be a stable mechanism in
enduring confidence lapses and speculator attacks. The operation of a
currency board and accumulation of U.S. dollars in its monetary fund
is partly responsible for this stability.
The stock market (SEHK) listed 658 publicly traded companies by the
end of 1997, with total capitalization at $413 billion U.S. dollars. A
significant portion of SEHK firms are in real estate, and are
sensitive to fluctuations in the property markets. 1997 was a
tumultuous year for the Hong Kong stock market as a speculative attack
on the Hong Kong dollar in October provoked a global sell-off in
equities. Investors were shocked as the Hong Kong market, long
regarded as a safe-haven, plunged 40% in October. The stock market's
decline and the attack on the local currency sent interest rates
soaring, precipitating an erosion in local property values. This in
turn put additional pressure on the banking sector which is heavily
geared to real estate. The Hong Kong market's dramatic downturn
illustrates how vulnerable it is to the Asian region's economic
problems. The structural problems besetting Hong Kong's neighbors in
Southeast and Northeast Asia may not be quickly resolved. Exports to
the Asian region may remain depressed as the process of economic
reform in countries such as Thailand, Malaysia, Indonesia, Japan and
South Korea will likely hold back economic growth in the area.
Accordingly, Hong Kong and China will likely be more dependent upon
demand from the U.S. and Europe for some time to come.
As a trade center, Hong Kong's economy is very closely tied to that
of its trading partners, particularly China and the United States. In
th e wake of Deng's reforms, Hong Kong and China have become
increasingly interdependent economically. Currently, China is Hong
Kong's largest trading partner. After Taiwan, Hong Kong is the largest
foreign investor in China, accounting for about 60 percent of overall
foreign direct investment. Hong Kong plays a particularly significant
role as an intermediary in U.S.-China trade. In 1996, it handled 56%
of China's exports to the U.S. and 49% of Chinese imports from the
U.S.
The critical question regarding the future of Hong Kong is how the
Chinese leadership will exert its influence now that it has become a
Special Autonomous Region (SAR). This new status is in accordance with
pledges made at the Joint Declaration on the Question of Hong Kong
made by the Chinese and British governments in 1984. Leading up to the
hand over of the colony, the Chinese government has pledged to uphold
the Basic Law of 1990 which states that Hong Kong's status as an
unfettered financial center will remain intact for at least 50 years
after 1997. Part of this status includes retaining the legal,
financial and monetary systems (specifically the HK$/US$ peg) which
guarantee economic freedom and foster market expansion.
Many investors and citizens are closely monitoring Chinese actions
in order to assess their actual commitment to these principles.
Already there is evidence of a clear, if slow, current of political
change coming from Beijing. Certain actions, such as the curbing of
media freedoms, indicate that there is the possibility of significant
interference from communist authorities. More significant was the
clash between the U.K. and Chinese governments over China's abolition
of the elected legislature and subsequent installation of governmental
leaders in both the executive and the legislature who are directly
appointed by Beijing. Mr. Tung Chee-hwa, appointed as the first Chief
Executive of the SAR, has surrounded himself with like-minded
Machiavellian figures who have strong ties to both market successes
and Beijing leaders. They are portrayed as believing in the powers of
capitalism and central authority, if not democracy, leading some to
speculate that the SAR could develop into a South Korean style of
corporatism which preserves the economic status quo without
incorporating further political freedoms.
In assessing the prospects for Hong Kong's future, it must be noted
that China has a very strong interest in a prosperous SAR.
Particularly if Beijing pursues a growth strategy as it has in the
past, Hong Kong can be a key agent in China's economic policy. Desire
for investment and new technologies necessary for modernization is a
strong incentive to send positive signals through the treatment of
Hong Kong. This is reinforced by the respect Hong Kong is due given
its role in China's recent dynamic performance.
To be sure, there are more adamant concerns over the effect of the
acquisition. Many are skeptical of Beijing's ability to leave the
currency alone. Some note the continuous drop in GDP as evidence that
Hong Kong has yet to mature as a service economy and that the
workforce hasn't fully adjusted to the switch out of manufacturing.
Additionally, by tying Hong Kong so closely with China, it now must
weather the ups and downs of Beijing's relationship with the U.S. Most
Favored Nation Status now means just as much, if not more, to the SAR
as it does to Beijing, with some asserting that revoking MFN could
result in substantial losses in trade, income, and jobs.
Hong Kong's competitive advantage has traditionally been a mix of
geography, market freedoms and entrepreneurial spirit. The
preservation of these advantages is now a function of the island's
independence from Beijing. Today's investors will be vigilant in
measuring how mu ch of that independence is retained after July 1,
1997.
AU STRALIA. Australia is a 3 million square mile continent
(about the size of the 48 continental United States) with a
predominantly European ethnic population of 18.2 million people. A
member of the British Commonwealth, its government is a democratic,
federa l-state system.
The country has a western style capitalist economy with a workforce
of 9.2 million people that is concentrated in services, mining, and
agriculture. Australia's large agricultural sector specializes in
wheat and sheep rearing and together, these two activities account for
more than half of the country's export revenues. Australia also
possesses abundant natural resources such as bauxite, coal, iron ore,
copper, tin, silver, uranium, nickel, tungsten, mineral sands, lead,
zinc, diamonds, natural gas, and oil. The health of the country's
domestic economy is particularly sensitive to movements in the world
prices of these commodities. Primary trading partners are the United
States, Japan, South Korea, New Zealand, the United Kingdom and
Germany. Imports revolve around machinery and high technology
equipment.
Historically, Australia's strong points were its agricultural and
mining sectors. While this is still true to a large extent, the
government managed to boost its manufacturing sector by undertaking
protective measures in the 1970's and early 1980's. These have
subsequently been liberalized in an effort to spur growth in the
industrial sector. Today's economy is more diverse, as manufacturers'
share of total exports is increasing. Part of the government's effort
to make manufacturing more competitive was a floating of the
Australian dollar in 1984, precipitating an initial depreciation, and
a campaign to reduce taxes. Such reforms have attracted foreign
investment, particularly in the transport and manufacturing sectors.
Restrictions do exist on investment in certain areas as media, mining
and some real estate.
With inflation well under control but unemployment stubbornly high
and signs of cyclical slack in the economy, Australia's monetary
policy is focused on preserving the low inflation environment while
keeping monetary conditions conducive to stronger economic growth. The
government has set a goal of achieving a government budget surplus in
fiscal year 1998/1999.
Australia is fully integrated into the world economy, participating
in GATT and also more regional trade associations such as the Asia and
the Pacific Economic Cooperation (APEC) forum. Future growth could
result from their movement towards regional economic liberalization,
but a countervailing force is the reality that some export markets in
Europe could be lost to continued European economic integration.
After suffering a significant recession in 1990-91, the Australian
economy has enjoyed six years of expansion. The medium-term outlook
appears favorable, with domestic spending supported by low interest
rates, improving consumer confidence and a strengthening labor market.
GDP growth has increased steadily throughout 1997. However, weakness
in commodity prices, particularly metal prices, coupled with an
increase in the nation's current account deficit have placed
significant pressure on the Australian dollar.
Investors should be aware that, while Australia's prospects for
strong economic growth appear favorable over the long-term, many
sectors currently face significant risks arising from the recent
turbulence in Asian countries, which account altogether for almost 60
percent of Australia's exports. While projections already embody a
more subdued outlook for growth in these countries, there is a risk of
this outlook deteriorating further, especially in Japan and Korea.
Due to the large position that the agriculture and natural resource
sectors have in the nation's export driven economy, any weakness in
commodity prices may negatively impact both the economy and stock
prices. In addition, United States investors face the risk that their
investment returns from investments in Australia could be eroded if
the Australian currency declines relative to the United States
dollar.
INDO NE SIA. Indonesia is a country that encompasses over 17,000
islands on which live 195 million people. It is a mixed economy that
balances free enterprise with significant government intervention.
Deregulation policies, diversification of strong domestic sectors, and
investment in infrastructure projects have all contributed to high
levels of growth since the late 1980's. Indonesia's economy grew at
7.1% in 1996, the exact average of its performance for the current
decade. Growth in the 1990's had been fairly steady, hovering between
6.5-7.5% for the most part, peaking at 8.1% in 1995. Moderate growth
in investment, including public investment, and also in import growth,
helped to slowdown GDP growth. Growth has been accompanied by
moderately high levels of inflation.
In recent years, Indonesia had been undergoing a diversification of
the core of its economy. No longer strictly revolving around oil and
textiles, it is now gaining strength in high technology manufactures,
such as electronics. Indonesia consistently runs a positive trade
balance. Strong export performers are oil, gas, and textiles and
apparel. Oil, once responsible for 80% of export revenues, now
accounts for only 25%, an indication of how far other (mostly
manufacturing and apparel) sectors have developed. Main imports are
raw materials and capital goods.
However, as with many of its Asian neighbors, Indonesia's bright
prospects came to a sudden halt in August of 1997 when the plunging
Thai baht began to destabilize the rupiah. By mid-year 1998 the local
currency had fallen more than 80% against the dollar, and hugely
increased the cost of servicing foreign debts; a collapse of the real
economy, and a growing number of bad loans. Various central bank
initiatives, including a doubling of interest rates, failed to halt
the currency's depreciation. The nation's banks, unable to service
their extensive short-term borrowings, were suddenly in danger of
collapse. Of more than 200 local banks, a mere handful were estimated
to be solvent at mid-year 1998.
The social effects of this decline have been devastating. By the
end of 1998 the government expects 47% of the population to be living
below the poverty line and unemployment is expected to surpass 20% of
the workforce. This has led to an increase in social tensions and food
riots and large-scale strikes have broken out sporadically. Rioting
and attacks upon the country's business-oriented ethnic Chinese
population have prompted as many as 80,000 to flee the country. Rising
popular opposition forced President Suharto to resign less than three
months after being appointed to his seventh consecutive five-year term
and was replaced by his vice-president, B. J. Habibie. The political
upheaval and resulting uncertainty has resulted in the further erosion
in public confidence at home and abroad.
The breakdown in public confidence in the Indonesian economy will
likely be difficult to reverse, and will prolong the period of
recovery. Resumption of lending by multilateral institutions under a
rescue package drawn up by the International Monetary Fund (IMF) may
speed up the process of restoring the faith in the government's
efforts to shore up the banking system. Nevertheless, even if the two
critical outstanding issues of restructuring the corporate sector's
external debt and shoring up the banking sector can be resolved this
year, the economy will remain weak in 1999 and recover only slowly in
the following years.
The Indonesian stock market plunged to record lows in 1997 under
the combined impact of the country's economic implosion, political
uncertainty and social unrest. The market's retreat continued into
mid-1998 as domestic and foreign investors fled the market for safer
havens overseas. While many investors believe that the market's steep
decline has brought valuations of a number of Indonesian companies to
very attractive levels, there remains considerable risk particularly
for foreign investors. As with most foreign investments, United States
investors could see their investment returns eroded if the Indonesian
currency declines in value relative to the U.S. dollar. Secondly, any
escalation of rioting and other forms of social unrest could be a
major obstacle in the path of economic recovery. Thirdly, many
question the will of the Indonesian government and its people to
accept the conditions of economic reform as mandated by the IMF.
Fourth, the Indonesian economy, currency and securities markets are
extremely sensitive to events that take place within the Asian region
and their fortunes are somewhat dependent upon how well other Asian
nations resolve their own economic and currency problems.
MALAYSIA. 1997 saw Malaysia's GDP growth slow to 7.4%, down
from over 8.2% in 1996 and 9.5% in 1995. Inflation has been kept
relatively low at 3.8%. Performance in 1996 avoided the economy's
potential overheating as export growth, investment, and consumption
all slowed. A large part of Malaysia's recent growth is due to its
manufacturing industries, particularly electronics and semiconductors.
This has led t o an increased reliance on imports; thus the economy
is sensitive to shifts in foreign production and demand. This is
particu larly true regarding its main trading partners: the United
States, Japan, and Singapore. Such shifts were partly responsible for
the slowdown in 1997. In addition, monetary policies to stem the
threat of overheating were evident, but the country still needs
massive public and private investment to finance several large
infrastructure projects. Government industrial policy seeks investment
to create more value added high technology manufacturing and service
sectors in order to decrease the emphasis on low skilled
manufacturing. Already U.S. investors have invested over $9 billion,
and most of this is in electronics and energy projects.
However, like its Asian neighbors, Malaysia has stumbled in its
dash to become a developed nation by 2020. The grandiose ambitions of
Malaysian Prime Minister Mahathir Mohamad have been set back by its
worst-ever currency crisis, which also brought a sharp fall in the
country's stock market. An overheated property market, a growing
current-account deficit and a highly leveraged economy, precipitated
much of the country's problems. Following the sharp decline of
Thailand's currency, the Malaysian ringgit came under severe pressure.
The Malaysian central bank attempted to defend the currency and the
resulting spikes in interbank rates marked the start of a period of
escalating interest rates. Once the central bank ceased using foreign
exchange reserves to slow the ringgit's depreciation in the
region-wide currency slide, the Malaysian currency quickly weakened
versus the United States dollar and by year end had declined by
35%.
By mid-year 1998, the outlook for the Malaysian economy remained
bleak as economists predicted that the economy would shrink by at
least 5 percent this year, the first contraction in 13 years. The
likelihood that Malaysia will be forced to seek IMF assistance is
increasing. Although Malaysia does not have the high level of foreign
debt that has overwhelmed its Asian neighbors, domestic lending, at
170 percent of GDP, was the highest in Southeast Asia when the
currency crisis struck. The nation's banks are now faced with a
growing number of unpaid loans as more businesses are struggling to
stay afloat in the sagging economic environment.
Adding to the bleak outlook is the government's seemingly confused
and erratic response to the nation's serious economic and currency
crisis. The Prime Minister is increasingly at odds with the finance
minister on what policies the country has to institute to remedy the
country's serious problems. Prime Minister Mahathir has abandoned the
tight money, financially conservative recovery policy endorsed by the
IMF and has placed the blame for the nation's troubles on foreign
currency and stock market speculators. The move risks triggering
another round of currency devaluations, inflation and, in the long
run, economic collapse.
Investors should be aware that investing in Malaysia currently
entails a number of potential risks, not the least of which is the
increasingly erratic economic policies of the Malaysian government
that are counter to the advice of the IMF and many of the developed
nations. In addition, the government appears to be escalating its
hostile attitude toward foreign investors. In September of 1998
Malaysian authorities imposed new restrictions on the foreign exchange
and securities markets. Included were limitations in repatriating the
investment proceeds of foreign investors.
While the Malaysian population has been relatively passive during
the first year of the economic meltdown, there could be mounting
social unrest if the crisis is prolonged. Should the country finally
adopt IMF remedies the Malaysian people may be reluctant to accept the
additional sacrifices that they will be called upon to endure. This
could seriously undermine the recovery of Malaysia's economy as well
as its currency and stock market. An increasingly hostile government
towards foreign investors could also lead to additional curbs on the
free access to their funds. As with other Asian markets, currency risk
remains substantial.
SINGAPORE. Since achieving independence from the British in
1965, Singapore has repeatedly elected the People's Action Party (PAP)
as their government. It is a party that is so consistent it has only
offered up two prime ministers in this 32-year period. Elections in
January 1997 returned the PAP to power, signaling satisfaction with
their policy of close coordination with the private sector to
stimulate investment. Typical policies include selective tax
incentives, subsidies for R&D, and joint ventures with private firms.
While the combination of consistent leadership and interventionist
policies is sometimes seen as impeding civil liberties and
laissez-faire economics, it has produced an attractive investment
environment.
The Singapore economy is almost devoid of agriculture and natural
resources, not surprising given the island nation's geographic size.
Its strongest sector is manufacturing, particularly of electronics,
machinery and petroleum and chemical products. They produce 45% of the
world's computer disk drives. Major trading partners are Japan,
Malaysia and the United States.
The economic situation in Singapore registered a passable year in
1996 but weakened in early 1997, dragged down by the downturn in the
global electronics industry. However, it ended the year on a firmer
footing as real GDP growth rose from 4.1% in the first quarter to 7%
by the fourth quarter. Inflation remained low and the current account
balance maintained its large surplus. Property values have declined
recently, impacted by continuing oversupply.
Although Singapore boasts one of the strongest economies in Asia,
investors in that market face a number of possible risks. Chief among
these is that the country is not immune to the region's economic
troubles, as Singapore's neighbors account for nearly one-quarter of
its trade. Any prolonged regional economic downturn could slow its
growth. In addition, analysts believe that there is considerable
downside risk in the current Singapore dollar exchange rate and any
decline in the Singapore currency versus the U.S. dollar could erode
the investment return of United States investors in that market.
SOUTH KOREA. South Korea has been one of the more
spectacular economic stories of the post-war period. Coming out of a
civil war in the mid-1950's, the country found itself with a destroyed
economy and boundaries that excluded most of the peninsula's mineral
and industrial resourc es. It proceeded over the next 40 years to
create a society that includes a highly skilled and educated labor
force and an economy that exploited the large amounts of foreign
aid given to it by the United States and other countries. Exports of
labor intensive products such as textiles initially drove the economy
and were eventually replaced by heavy industries such as
automobiles.
Hostile relations with North Korea dictate large expenditures on
the military and political uncertainty and potential famine in the
north has put the south on high alert. Any kind of significant
military effort could have multiple effects, both positive and
negative, on the economy. South Korea's lack of natural resources put
a premium on imported energy products, making the economy very
sensitive to oil prices.
Since 1991, GDP growth has fluctuated widely between 5% and 9%,
settling down at 5.6% last year. Currently the labor market is in need
of restructuring, and its rigidity has hurt performance. Relations
between labor and the large conglomerates, or Chaebols, could prove to
be a significant influence on future growth. Inflation in the same
period has been consistently dropping, save a brief rise in 1994 and
finished the year at 4.5%. The country consistently runs trade
deficits, and the current account deficit widened sharply in 1996,
more than doubling to $19.3 billion. South Korea's strong domestic
sectors are electronics, textiles and industrial machinery. Exports
revolve around electronics, textiles, automobiles, steel and footwear,
while imports focus on oil, food, chemicals and metals.
The stock market (Korea Stock Exchange) is currently undergoing
liberalization to include more foreign participation, which was only
first allowed in 1992, but the bond market remains off limits until
1999. Foreign ownership has since been increased to 55% for all listed
stocks except three. The foreign ownership liberalization is in
response to the KSE 1996 performance, which was down 18%. The number
of listed companies totaled 726 in 1997, a decline of 34 from the
previous year, while the market's capitalization plummeted 70 percent
from its 1996 level.
Over the calendar year 1997, the Korean stock market extended its
two-year decline plunging by 42% to its lowest year-end level since
1986. The collapse came as a direct result of the Asian region's
currency crisis and the failure of several Korean conglomerates. In
the summer of 1997, the South Korean won hit record lows against the
U.S. dollar as a series of nationwide labor strikes aggravated the
already escalating trade deficit. Despite aggressive official
intervention to support the local currency, the won had fallen from
860 to 914 to the U.S. dollar by year-end.
The Korean market poses risks for current and prospective
investors. The Korean government will need to maintain public support
to implement the radical and difficult restructuring of the economy
demanded by the IMF under a $58 million loan package. This opposition
could come from the country's major conglomerates that have yet to
institute necessary restructuring initiatives, and from workers
protesting against rising unemployment.
In addition, relations with its long-standing enemy, North Korea
have been worsening as widespread famine could prompt another attack
on its southern neighbor to divert the attention of its people from
their suffering. More importantly, South Korea's heavy reliance on
exporting to the Asian region holds its economy hostage to the
economic fortunes of its neighbors.
THAILAND. The Thai economy has witnessed a fundamental
transition in recent years. Traditionally it was a strong producer of
textiles, minerals and agricultural products, but more recently it has
tried to build high technology export industries. This proved
particularly fortuitous in the mid 1990s when flooding wiped out much
of their traditional exports, but the newer industries remained
strong, keeping the growth rate above 8%. (This level had been
achieved through the 1990s, giving the economy a name as one of the
fastest growing in the region.) Successive governments have also taken
steps toward reducing the influence of central planning, opening its
market to foreigners and abandoning five-year plans. This
restructuring is still underway, and the change can cause difficulty
at times.
The political situation in Thailand is tenuous. Democracy has a
short history in the country, and power is alternatively obtained by
the military, a non-elected bureaucratic elite, and democratically
elected officials. The frequent transfers of power have generally gone
without divisive, bloody conflicts, but there are bitter differences
between the military and the political parties. Free elections in 1992
and again in 1995 have produced non-military democratic leaders from
different parties, a healthy sign of party competition. More recently,
the dramatic downturn in the economy generated demands from all
sectors of society for the resignation of Prime Minister Chavalit. The
worsening economic situation threatened social stability of the nation
and the Prime Minister resigned after barely one year in power.
In 1997 GDP contracted by approximately 0.3%, compared with 7.2%
growth in 1996 and 8.6% in 1995. The 1997 current account deficit was
1.9% of GDP as against 7.9% in 1996. Inflation was 5.6%, however, the
government has projected a 16.2% rate for 1998. One cause for
Thailand's economic downturn was a decline in export growth as its
manufacturing industry faces stiff competition from low priced
competitors and its agriculture has suffered a severe drop in
production. In 1996, Thailand's currency, the baht, was linked to a
U.S. dollar dominated basket, and monetary policy had remained tight
to keep that link strong and avoid inflationary pressures.
The situation changed in early 1997, however, with the revelation
of many bad bank loans and a bubbling of property prices due to
over-investment. Many companies, faced with slowing exports, stopped
servicing their debts. Many other firms have stayed alive only with
infusions of public cash, and the government has been slow to let many
property laden financial firms fail. The stock market has reacted
strongly, dropping to new lows for the decade. Reluctant to float the
baht, indeed promising that it wouldn't, the government relent ed
in early July hoping to revive export and stock market growth. The
subsequent devaluation (approximately 20% against the dollar in the
first month) led to the need for a $16 billion loan coordinated by the
IMF to shore up foreign reserves. Most of the loan came from
neighboring countries led by Japan, indicating their desire to both
protect their own investments in Thailand, and also mitigate the
effect of the devaluation on their home currencies.
The total impact of the entire situation is negative, particularly
on inflation, unemployment and foreign debt. Significant turnover and
a major gamble on the currency has put the government in a precarious
position, especially given the fact that it is a six party coalition.
Dissatisfaction amongst the military, always a political factor, is
high.
The new Thai government has produced mixed results in their efforts
to remedy the country's serious economic woes. Crucial to Thailand's
recovery are both the outcome of newly instituted economic and banking
reforms and the outlook for both China's and Malaysia's economies.
Looking forward, currency risk remains high and the baht will likely
be highly vulnerable to regional contagion.
INDIA. India is the second most populous and seventh largest
country in the world. Although the country occupies only 2.4% of the
world's land area, it supports over 15% of the world's population.
Only China has a larger population. The Indian government is
classified as a federation, or union, and is, under its constitution a
"sovereign, socialist, secular, democratic republic" composed of 25
states and 7 union territories. Like the United States, it has a
federal form of government. However, the central government in India
has greater power in relation to its states, and is patterned after
the British parliamentary system.
India's population was estimated at 952 million in 1997 and has
been projected to double by the year 2028. Religion, caste, and
language are major determinants of social and political organization.
Although 83% of the people are Hindu, India also is the home of more
than 120 million Muslims - one of the world's largest Muslim
populations. Despite economic modernization and laws countering
discrimination against the lower end of the class structure, the caste
system remains an important factor in Indian society.
India has the world's fifth largest economy in terms of purchasing
power parity. About 62% of the population depends directly on
agriculture. Industry and services sectors are growing in importance
and account for 29% and 42% of GDP, respectively, while agriculture
contributes about 29%. More than 35% of the population lives below the
poverty line, but a large and growing middle class of 150 - 200
million has disposable income for consumer goods. In the industrial
sector, India now manufactures a variety of finished products for
domestic use and export.
India gained independence in 1947 after two centuries of British
colonial rule. Economic policies in the first four decades of
independence were driven by its leaders' deep distrust of foreign
economic interests and admiration for the Soviet model of centrally
planned industrialization. Accordingly, the country has followed a
policy regime that has been characterized by extreme protectionism and
public sector dominance in strategic sectors. Nevertheless, India has
developed a large and diversified private sector, and agriculture has
remained almost entirely in private hands.
India's treatment of foreign investment has been alternatively
encouraging, ambivalent or difficult, depending on the industry sector
involved. Most industries are open to limited investment by
multinational companies while others are closed to foreign investors.
Sectors closed to foreign investment currently number five: mineral
oils; railway transport; war ships and the military-related areas of
aircraft; atomic energy; and associated minerals. Although recent
measures have liberalized the investment limits on a number of major
industries, several political parties, deeply hostile to foreign
investment, have made these issues the subject of pre-election
rhetoric.
India has a large and active stock market which ranks twentieth
globally in market value. There are 23 recognized stock exchanges in
India. The BSE is the premier exchange; accounting for more than
one-third of trading volume, over 70% of listed capital and over 90%
of market capitalization. As of the end of 1997 there were 5,842
listed companies on the BSE with a total market value of US$128.27
billion.
Relations between India and its neighbors have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. More recently, India's nuclear tests prompted Pakistan to reply
in kind, despite Western efforts to dissuade it. Economic sanctions
imposed by the U.S. and other industrialized countries following the
nuclear tests in May of 1998 have not been without consequences. While
their short-term, direct effect on the economy has been relatively
modest, the indirect and medium-term consequences of sanctions could
become more serious. Relations with Nepal, with Bhutan and with China
are marred by China's two territorial claims in the nation's east and
north. Historical suspicions remain following the 1962 border war
between India and China and the two countries have continued to work
towards expanding their political and economic influence in the South
Asian region.
While India presents many attractions for U.S. investors, there are
a number of factors that could pose considerable risk to those
investing in this market: Contemporary politics have become
increasingly unpredictable since the resounding defeat of Congress in
1996 after decades at the helm. The alignment of political forces has
become increasingly erratic among factions, parties and interest
groups. Some factions within the current administration have been
hostile to foreign investment and could impose measures that would be
detrimental to the interests and rights of these investors.
India's foreign relations in the region remain fragile and the
possibility of increased tensions or open warfare is an ever-present
danger to the stability of the market. In addition, the monetary
cost of economic sanctions resulting from recent nuclear tests could
substantially impact economic growth and corporate profits.
Sanctions affect India in several ways. Crucially, there will be a
deferment or loss of direct aid and concessional loans, from
multilateral agencies (notably the World Bank) and bilateral donors
(the U.S., Japan and Canada, among others). The loss of export credit
and guarantees, notably from the US Export-Import Bank could delay and
increase the cost of large infrastructure and foreign investment
projects. This, in turn, could have a negative impact upon creditor
and investor confidence in the Indian market.
Relative to the more mature markets of the world, the level of
corporate disclosure in India is very low and companies are generally
less disposed to act in the best interests of their shareholders.
Accordingly, investors face a much more difficult task in ascertaining
the true investment worth of a particular stock.
As with most other emerging markets, the Indian market has been
negatively impacted by recent economic and currency turmoil in the
world's less developed regions and is likely to be similarly impacted
in any future weakness. Currency fluctuation is an additional risk to
U.S. investors as any weakening in the value of the Indian rupee
versus the U.S. dollar could erode the value of their investments upon
currency translation.
TAIWAN. Taiwan is one of the most densely populated
countries in the world, with a population of over 20 million, or 1,504
persons per square mile. Most Taiwanese are descendants of immigrants
who came from China's Fukien and Kwantung provinces over 100 years
ago. Mandarin is the official language while English is taught to all
students as their first foreign language, beginning in the seventh
grade.
Although settled by Chinese in the seventeenth century, Taiwan
(also called Formosa) was ruled by Japan from 1895-1945 and
subsequently reverted to Chinese administration at the end of World
War II. In 1949, nationalist leader Chiang Kai-shek took control of
the island after fleeing mainland China with two million supporters,
following his defeat at the hands of the communists. Since that time,
Taiwan has been governed by the right-wing Kuomintang (KMT) which was
founded by Chiang Kai-shek. In 1996 the island held its first popular
presidential elections in which the KMT retained its control.
Both the Taipei and Beijing governments consider Taiwan an integral
part of China. The KMT has vowed to reconquer the mainland while The
People's Republic of China has urged Taiwan to accept a peaceful
reunification with the mainland. China has proposed that they regain
sovereignty over Taiwan on the basis of a "`one country - two
systems'" arrangement similar to that of the recent reunification of
Hong Kong. Nevertheless, China has periodically threatened to annex
Taiwan through military action.
Under the KMT government, Taiwan achieved a remarkable record of
economic growth with the assistance of massive U.S. aid in the early
years of the post war period. Today, Taiwan has one of the world's
strongest economies and is among the ten leading capital exporters.
Between 1980 and 1990 real GDP expanded at an average annual rate of
7.9%. During 1990-95 an annual GDP growth rate of 6.6% was recorded.
In 1996, compared with the previous year, GDP increased by 5.7% in
real terms, while it was anticipated that growth would exceed 6.0% in
1997 and 1998. Between 1960 and 1973 the island's exports rose 20 fold
and real GDP increased 3.3 times. Even more remarkable, as the shift
of millions of people from villages to cities took place, was the high
level of employment. Between 1964 and 1995 the unemployment rate
rarely exceeded 2% of the work force in any year.
Prior to 1967 foreign sources played a large role in financing
capital formation expansion, but thereafter domestic savings financed
the entire growth of net capital formation. By 1986 the ratio of
national gross savings to GDP had reached 38.5%. Thereafter the ratio
declined, standing at 26.0% in 1996. The expansion of foreign trade
was the major reason for Taiwan's rapid capital growth. Much of the
growth in exports could be attributed to the competitiveness of its
exports in price and quality in world markets.
Since the mid-1990s the island's traditional reliance upon light
industry has gradually given way to high technology activities, as
emphasis shifted from labor-intensive to capital-intensive production.
The electrical and electronic machinery sector continued to show
particularly strong growth in the 1990s as did the chemical sector.
Taiwan also has eleven vehicle manufacturers, all of which have
contracted joint ventures with foreign companies. By the mid-1990s
Taiwan had become one of the world's largest producers of personal
computers and semiconductors.
Taiwan has a large and active stock market ranking twelfth by
market value among the world's markets. The TSE in Taipei is the only
official stock exchange in Taiwan, although there is also a small OTC
market. At the end of 1997 there were 404 companies listed on the TSE
with a market capitalization of US$288.1 billion. The market is
dominated by individual investors, who account for 90.7% of total
turnover in listed shares. Many local institutions, such as banks,
insurance companies or pension funds, are prohibited or restricted
from investing in listed shares. Foreign individuals and institutional
investors meeting certain criteria have been able to invest in the
market directly since 1990 but are subject to certain limits. Foreign
involvement in the market through qualified foreign institutional
investors and mutual funds is small but growing.
Investing in Taiwan entails special risks as well as those risks
that are common to other emerging markets. Taiwan's relations with The
People's Republic of China remain fragile. The conflict between the
entrenched nationalization of China and the nascent nationalism of
Taiwan persists and armed conflict between the two nations remains a
possibility. Beijing continues its policy of attempting to isolate
Taiwan and could use its growing economic power and political
influence to interfere with the nation's trade with the rest of the
world's economies.
In addition, the Taiwan market has been one of the most volatile in
Asia over the past decade. The country did not escape the effects of
the Asian e conomic and currency crises in 1997 and 1998 and could
continue to be negatively impacted by an extension of the current
regional turmoil. The nation's heavy dependence upon trade and
manufacturing partnerships with foreign companies also leaves it
particularly vulnerable to downturns in the global economies. Currency
fluctuation is an additional risk to U. S. investors as any weakening
in the value of the local currency versus the U.S. dollar could erode
the value of their investments upon currency conversion.
THE PHILIPPINES. The Philippines is a developing democratic
republic. After 300 years of Spanish rule, the United States acquired
the Philippines from Spain in 1898 and ruled for 48 years. The country
subsequently gained its independence from the United States in 1946.
The nation, as provided by the 1987 Constitution, is a democratic
republican state with a presidential form of government. However,
since its independence, the government has been periodically roiled by
military coups, martial law and political assassinations.
The Filipino population consists of approximately 70 million
people, primarily of Indo-Malay, Chinese and Spanish descent. Thirteen
percent of the population lives within the Metro Manila area. Most
Filipinos are bilingual, with English as the basic language in
business, government, schools, and everyday communication. While there
are 87 languages spoken throughout the Philippines, the official
language is Filipino, which is spoken mainly in the Metro Manila area
and widely used in the mass media.
The Philippine economy is basically agricultural if food-processing
manufacture is included. Agriculture (including forestry and fishing)
contributed 21.5% of GDP in 1996, and engaged 39.8% of the employed
labor force, while industry (including mining, manufacturing,
construction and power) contributed 31.9% of GDP and engaged 16.5% of
the employed labor force.
Manufacturing accounted for 22.6% of GDP in 1996 and engaged 9.8%
of the labor force. The principal branches of manufacturing are food
products, petroleum refineries, electrical machinery, chemical
products, beverages, metals and textiles.
The services sector contributed 46.6% of GDP in 1996, and engaged
43.7% of the employed labor force. Remittances from Filipino workers
abroad constituted the Government's principal source of foreign
exchange, while tourism remains a significant sector of the
economy.
In 1995 the Philippines recorded a trade deficit and a deficit on
the current account of the balance of payments. The principal source
of imports was Japan, which accounted for 22.1% of the total. Other
significant suppliers were the United States, Saudi Arabia, Singapore,
the Republic of Korea and Taiwan. The United States was the principal
market for exports (35.8%), while other purchasers were Japan,
Singapore and the United Kingdom.
Under the regime of General Fidel Ramos, installed in 1992, the
economic performance of the Philippines improved dramatically, owing
to extensive structural reforms, including the dismantling of
protectionist legislation and the liberalization of trade, foreign
investment and foreign exchange controls. However, economic growth was
adversely affected by the regional financial crisis in 1997. The
effective devaluation of the peso in July caused a collapse of the
stock market and led to rising inflation and the depletion of foreign
exchange reserves. The absence of large foreign investment inflows,
which had previously contributed to an overall surplus on the balance
of payments despite a recurrent account deficit, resulted in an
overall deficit in 1997.
The Philippine stock exchange (PSE) is the country's only exchange
and ranks thirty-sixth in total market capitalization among the
world's markets. The total number of companies listed on the exchange
was 221 in 1997. Individual domestic investors are the majority
participants while foreign investment is dominated by the Taiwanese,
who are closely followed by the Japanese and Hong Kong Chinese.
Foreign investors are generally allowed to acquire 100% of the equity
of a Philippine listed company, although there are businesses where
foreign ownership is restricted by law.
Foreign investors face special risks when investing in the
Philippines. The country's economy and stock market have historically
been highly sensitive to changes in the Asian region's economies and
this has been amply demonstrated in recent years. After posting
dramatic gains in the four years preceding Asia's financial crisis in
mid-1997, the Philippine stock market plummeted in response to the
spreading economic, political turmoil in Southeast Asia and Japan. The
market's weakness was further exacerbated as foreign investors pulled
out of the market in large numbers.
Weakening conditions in neighboring countries has also negatively
impacted the Philippine peso. Plummeting currencies in Thailand,
Indonesia, Singapore and Malaysia sent the Philippine peso into a
steady decline. Over the 1997 calendar year, the value of the peso
fell by 52 percent versus the U.S. dollar.
For U.S. investors, currency fluctuation presents an additional
risk to investing in the Philippines as a weakening peso can erode the
investment returns on their investments in that country.
Because the Philippines is highly dependent upon the United States,
Japan and the Southeast Asian countries as the primary purchasers of
its exports, its economy is particularly sensitive to changes in the
economic fortunes of these nations.
Although the Philippine political climate appears to have improved
over the past few years, investors should be aware that the country
has periodically been subjected to military coups, martial law, and
widespread political corruption since it gained independence. Several
past administrations have instituted policies that have also been
detrimental to the domestic economy and the rights of its citizens.
Cronyism and corruption have also been rampant in both government and
the business community to the detriment of the interests of corporate
shareholders.
PAKISTAN. The Islamic Republic of Pakistan was founded in
1947, when the British partitioned the South Asian subcontinent into
two states: India and Pakistan. (East Pakistan broke away to become
Bangladesh in 1971). The Pakistan constitution of 1973, amended
substantially in 1985, provides for a President (Chief of State) who
is elected by an electoral college consisting of both houses of the
federal parliament and members of the four provincial legislatures.
The National Assembly in a special session elects a Prime Minister.
Following the election, the President invites the Prime Minister to
create a government. The constitution permits a vote of "no
confidence" against the Prime Minister by a majority of the National
Assembly. In practice, the army has a strong voice in the
decision-making process and few Presidents have been able to oppose
its interests for long.
Relations between Pakistan and India have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. India has accused Pakistan of fomenting religious and political
unrest and in 1994 there were frequent disturbances in the region. The
two sides frequently exchange gunfire. More recently, India's nuclear
tests prompted Pakistan to reply in kind, despite Western efforts to
dissuade it. Economic sanctions imposed by the U.S. and other
industrialized countries following the nuclear tests have not been
without consequences. While their short-term, direct effect on the
economy has been relatively modest, the indirect and medium-term
consequences of sanctions could become more serious as the resumption
of IMF funding is currently in jeopardy.
With a per capita GDP of about $470, Pakistan is considered a
low-income country by the World Bank. No more than 39% of adults are
literate and life expectancy at birth is about 62 years. Relatively
few resources have been devoted to socio-economic development or
infrastructure projects. Inadequate provision of social services and
high population growth have contributed to a persistence of poverty
and unequal income distribution.
The country's principal natural resource is arable land (25% of the
total land area is under cultivation). Agriculture accounts for 24% of
GDP and employs about 50% of the labor force. Wheat, cotton, and rice
together account for almost 70% of the value of total crop output and
are among the country's major exports. Pakistan's manufacturing sector
accounts for about 20% of GDP. Cotton textile production and apparel
manufacturing are Pakistan's largest industries, accounting for about
50% of total exports. Other major industries include cement,
fertilizer, sugar, steel, tobacco, chemicals, machinery and food
processing.
Weak world demand for its exports and domestic political
uncertainty have contributed to the nation's widening trade deficit.
The nation continues to rely heavily on imports of such materials as
petroleum products, capital goods, industrial raw materials and
consumer products and the resulting external imbalance has left
Pakistan with a growing foreign debt burden. Annual debt service now
exceeds 27% of export earnings.
Pakistan has three stock exchanges located in Karachi, Lahore and
Islamabad. The Karachi Stock Exchange (KSE) is dominant, accounting
for approximately 80% of equity transactions in Pakistan. The KSE
ranks forty-eighth among the world's markets and had a market
capitalization of $11 billion in 1997. At the end of that year there
were 781 companies listed on the KSE. The combined market
capitalization of the 20 largest companies represented 71.7% of the
market total.
U.S. investors should be aware that there are a number of factors
that could pose special risks to investing in Pakistan securities.
Among these is the country's long history of government instability
marked by military coups, political assassinations and frequent
outbreaks of violent rioting, strikes and ethnic unrest. While recent
governments have made some progress on addressing some of the
country's social and economic ills, the current administration is
faced with a number of serious crises. The country appears to be close
to defaulting on its international commitments. With no debt
repayments made since August of 1998, Pakistan faces the possibility
of outright default unless it can secure a bailout package and debt
rescheduling. Recent talks with the IMF on a debt rescue package broke
down and a default could precipitate declines in the nation's trade
and currency. By November of 1998, foreign investment had slowed
dramatically in response to a rise in investment risk and new
restrictions imposed by the central bank designed to limit the outflow
of foreign exchange.
Corruption within the government and business community remains a
problem and corporate managers are generally not focused on improving
shareholder interests.
The threat of war with India over the disputed province of Kashmir
remains a threat to peace in the region and any outbreak of
hostilities would likely plunge the nation's economy into deep
depression and further erode the relative value of its currency versus
the world's major currencies.
SPECIAL CONSID ER ATIONS REGARDING LATIN AMERICA
Latin America represents one of the world's more advanced emerging
markets. With a total population of 427 million people and its
abundant natural resources, the area is a prime trading partner for
the United States and Canada. Latin American exports represent, on
average, 16.6% of GDP. Strong export sectors are petroleum,
manufactured goods, agricultural commodities such as coffee and beef,
and metals and mining products. GDP growth in Latin America as a
region was 3.4% in 1996, up from 0.1% in 1995. Recognizing the
important role of international trade as a component of GDP, the
countries of Latin America have formed strong regional trade
organizations, notably Mercado Comun del Sur (MERCOSUR). Talk of
extending the North American Free Trade Agreement (NAFTA) down through
Latin America indicates some desire to tie the economies even closer
to those of the north.
Politically, Latin American countries generally have strong
presidential systems closely modeled after the United States. The
transition to democracy is largely complete in most countries. All
countries enjoy good relations with the United States, with whom they
cooperate on a range of non-economic matters, such as preservation of
the environment and drug control. Monetarist minded governments were
responsible for the successful staving off of contagion from the 1995
currency crisis in Mexico, increasing their stature in the eyes of
most capital market participants.
ARGENTINA. Prior to 1989, Argentine politics were
characterized by populist leaders, sometimes democratically elected
and sometimes not, who ruled with the overt support of the military.
Coups and outright military rule were not uncommon. Economic policies
were highly protectionist, with significant barriers and restrictions
on foreign trade and investment. Markets were highly regulated and the
state was heavily involved in many industries. Inflation was routinely
high and growth stagnant.
President Carlos Menem was first elected to office in 1989 and
undertook a program of deregulation, liberalization and macroeconomic
reform. The results have been positive. GDP growth in 1997 was 8.0%,
up from 4.4% in 1996 and -4.4% in 1995. Argentina's growth, averaging
over 6% from 1991 to 1997, had been driven primarily by domestic
consumption. Immediately after the Mexican crisis, bank liquidity was
restrained. However, deposits have since returned to the system
surpassing the levels that existed prior to the crisis and liquidity
is very much improved. Lending also increased and consumer spending
rebounded although it has slowed somewhat due to the most recent
Brazilian crisis. The positive effect is that inflation, well over
150% at the beginning of the decade, was 0.4% in 1996. Still
troublesome for Argentina is unemployment, quite high at 15%. Menem's
economic liberalization policies have succeeded in attracting foreign
investment. From the U.S. alone, approximately $10 billion was
invested by 1996. Investors have been most attracted to the
telecommunications, finance, and energy sectors.
Argentina enjoys a positive trade balance. The export economy is
heavily weighted toward agriculture, which represents 60% of the total
value of all Argentine exports. Primary products are livestock,
oilseeds, and grain. Argentina's single biggest trading partner is
Brazil, and the United States is the second. Primary imports are
machinery, vehicles and chemicals.
The resignation of Economy Minister Domingo Cavallo in July 1996
was initially greeted with skepticism from the markets. Cavallo was
widely recognized as the man responsible for ensuring the
convertibility of the peso by pegging it to the dollar, a move which
saved Argentina from the hyperinflation and continuous drops in output
which could have followed from the Mexican crisis in 1994. Confidence
was quickly restored, however, with the appointment of Roque
Fernandez, who promptly reaffirmed commitment to Cavallo's plan and
introduced further measures for fiscal stability.
The next presidential election is due in 1999. In accordance with
the constitution, Menem, a member of the Peronist party, can not seek
a third consecutive term. The next election is likely to present a
third candidate to the voters beyond the traditional contestants from
the Peronist and Radical parties. Frepaso, a center-left alliance,
first emerged in the 1995 elections and by 1999 could build itself up
enough to promote a viable alternative to the older parties. It is
uncertain how policies would be effected by the systemic change from a
predominantly two party system to a three party one.
The Argentine stock market reached an all-time high in October of
1997 in response to rising corporate earnings and strong economic
growth. However, the market underwent a significant correction due
largely to the "contagion effect" of the Asian economic and currency
crisis and the Mervel index ended the year only 5.9% ahead. While
there was little direct impact from the Asian crisis on Argentina's
economy, foreign investors fled the market, as they feared that Asia's
currency problems would spread to Latin America.
The Argentine market may pose special risks for investors. As an
emerging nation, Argentina's stock market may be particularly
vulnerable to widespread economic, currency and market turmoil such as
we have seen recently in Asia. These crises may prompt investors to
become increasingly averse to emerging market exposure on concern that
the impact of these events will spread to other countries. In
addition, mutual funds that invest in emerging markets may be forced
to sell holdings in countries that have little similarity with the
markets in trouble, merely to raise cash to meet redemptions.
Similarly, the Asian crisis has accelerated a growing imbalance
between supply and demand for basic commodities such as oil, metals,
pulp, grains and others. This could impact the Argentinean stock
market where energy stocks (oil, gas and electricity) comprise
approximately 40% of the market's total value. A currency devaluation
by one or more of its Latin American neighbors could precipitate a
recession and political pressure for competitive devaluation to
protect the country's trade competitiveness.
While Argentina's political situation is relatively stable, there
is a high degree of dissatisfaction with the government's inability to
lower the country's high unemployment rate. This could eventually lead
to social unrest and a turnover of the government to the control of
parties less favorable to investors.
BRAZIL. Brazil is the largest country in South America and
is home to vast amounts of natural resources. Its 155 million people
are descendants from indigenous tribes and European immigrants. They
live in diverse socio-economic conditions, from the urban cities of
Sao Paolo to the undeveloped trading posts of the distant regions.
Industrial development has been concentrated in specific areas. The
disenfranchised population is quite large and is a source of many of
Brazil's social problems.
The Brazilian economy is currently undergoing extensive reforms,
stemming from a 1994 effort to stabilize the currency called the Real
Plan. With the aim of curbing inflation, a new currency, the Real,
was introduced and supported via a floating exchange band. The plan
has stabilized the exchange rate and controlled inflation which was at
2,700% in 1994. Inflation in 1995 dropped to 81%, and fell even
further in 1996, settling at 18.7%. Perhaps the most remarkable
achievement for the Brazilian economy in 1997 was the lowest rate of
inflation in the past 40 years, as the National Consumer Price Index
increased just 7.48%. At the same time, however, the Real Plan has
sent the trade and current account balances into a deficit. The
current account deficit is expected to reach $30 billion in 1998,
equivalent to 3.6% of GDP.
Other objectives of the administration of the current President,
Fernando Henrique Cardoso, are trade liberalization and privatization,
but these efforts are sporadic and often stalled by special interests
in the legislature. Some privatization efforts are performing well,
particularly in the utilities sector. Utilities and telecommunications
have been key draws for foreign investment, and foreign direct
investment (FDI) is coming in at record levels. In 1998 the country
received over $20 billion from privatizations. Still, there are
restrictions against investments in certain industries, such as metals
and mining.
Traditionally a primarily agricultural economy, a strong industrial
sector has developed which produces metals, chemicals, and
manufactured consumer goods. Agriculture still plays a significant
role, however, representing 11% of the GDP, 40% of exports and
employing over 35% of the workforce. Primary agricultural products are
grains, coffee, and cattle. Regarding energy and utilities, the
country is a leading producer of hydroelectric power, but is dependent
on imports for oil.
Presidential elections were held in October of 1998 and President
Cardoso won with 53% of the vote. This should insure continuity in
policy, which will be much needed given the difficulties caused by the
recent instability in the global markets and its impact on Brazil.
In 1997 the Brazilian stock market rose to an all-time high in the
first quarter. Over the summer, the speculative attack on the Thai
currency triggered a sharp reversal in the Brazilian market, as
investors feared a raid on the Brazilian real. However, the market
ended the year with a gain of 4.34%. By mid-year 1998 the Brazilian
market plummeted amid growing concern that Brazil, Latin America's
largest economy, might suffer the confidence crisis that had caused
large currency devaluations in Russia and Asia.
Investing in Brazil could entail special risks: High unemployment
is the chief challenge facing Brazil's president Cardoso following his
reelection in October of 1998. Joblessness is at a record high and
social unrest could hinder his progress in subduing inflation and
denationalizing government ownership of many of its businesses. Brazil
could be a likely target for a renewed attack on its currency. The
economy is in a more precarious state: interest rates remain high and,
despite austerity measures, little progress has been made in reducing
the current account deficit. This poses particular risk for U.S.
investors who would see their investment returns eroded if the
Brazilian real were to be devalued.
Overall, Brazil remains vulnerable to both external shocks and
changing sentiment due to worsening domestic indicators or political
risk.
CHILE. Chile is a transition economy which has recently made
great strides toward putting its authoritarian, statist, past behind
itself. In all of Latin America, it is the country with the highest
rates of growth. Averaging 7.3% so far this decade, GDP grew at 6.0%
in 1996, down from 6.6% the previous year. Inflation has been steadily
declining and is down over 15% in the last five years. Inflation in
1997 was 6.0%, a 0.6% drop over 1996. Unemployment in 1996 was 6.2%,
particularly low for the Latin American region. Chile is still
considered to have one of the best performing stock markets in the
region.
Performance of the Chilean stock market was lackluster in 1997 as
weak copper prices and rising interest rates led to a contraction in
the domestic economy. Also contributing to the market's weakness was
the contagion effect of the Asian economic and currency crises, a
decline in pulp and steel prices, and uncertainty about the growth
prospects of its Latin American neighbors. These factors combined to
produce a 15% decline in the stock market for the 1997 calendar year.
The market weakness carried through into the first half of the next
year.
Eduardo Frei is President and is due for reelection in 1999.
President Frei has been trying to decentralize the government but
encounters stiff opposition from the powerful trade unions; also high
on Frei's agenda is tax reform.
There is a considerable military component to political life in
Chile. Constitutional reforms, currently in progress, are attempting
to further diminish the role and influence of the military. A
successful outcome requires that the military acquiesce as it is
stripped of its political powers.
Investors in the Chilean market face special risks. The Chilean
market is particularly sensitive to the fluctuation in the
international price of copper and pulp on the international markets
and they have a significant impact on the nation's economy and stock
market.
As is typical of most emerging markets, much of the Chilean market
equity is firmly held by controlling families and their associates.
Accordingly, these owners may not always act in the interests of
outside shareholders. In addition, any weakness in the Chilean
currency versus the dollar could erode the investment returns to U.S.
investors upon currency conversion.
MEXICO. The Mexican economy has recovered fairly well since
the currency crisis of December 1994 thanks in large part to growth in
exports, peso stabilization, and massive financial assistance from the
United States. GDP growth rose to 7.3%, with consumer spendin g and
investment leading the way. A major positive factor supporting growth
during 1997 was the strength of the peso, which closed the year
little changed from its 1996 year-end level. In addition, the nation's
inflation rate declined to 15.7% from the 27.7% rate of 1996. This
marked the second straight year of improvement. Inflation is the chief
concern of the central bank, which takes active measures such as the
setting of wage ceilings and the adjustment of interest rates to
control it. Domestic consumption, while improved, has yet to return to
pre-1994 levels, and has also contributed to the containment of
inflation.
The Mexican economy is very strong in manufacturing and natural
resources, specifically oil. Manufacturing alone counts for 22% of the
Mexican GDP and 21% of all urban employment. The economy is also very
closely tied to the United States, which is responsible for 60% of all
foreign investment and with whom it conducts over 75% of all trade.
Trade pacts such as NAFTA further integrate the economies, giving the
United States strong incentives to provide assistance in times of
crisis. NAFTA also enabled the recent recovery, given the ease with
which it allows increases in exports and investment. The Mexican stock
market listed 194 companies with total capitalization of $156 billion
in 1997.
Internally, the various people of the Mexican states have recently
experienced a great deal of dissatisfaction with their relationship to
the federal government. Most notably, in Chiapas there have been armed
uprisings by indigenous groups demanding further autonomy. While the
rebellions have not strongly shaken financial markets, they serve as a
reminder of the diversity of Mexico, of the vast socio-economic gaps
between various peoples, and of the potential for such groups to
demand the attention of both their government and the world.
Politically, the landscape changed fundamentally in July 1997.
The defeat of candidates from the Institutional Revolutionary Party
(PRI) in legislative elections signaled the end of decades of one
party rule. Citizens now have the confidence that their votes count
and that the PRI is no longer invincible. Winning every presidential
election since its founding in 1929, the PRI was the country's
monolithic political machine, maintaining power through rigged
elections and ruling in an environment rife with intrigue and
corruption. Internal pressures including armed rebellion from domestic
interest groups, extensive crises and scandals caused by intra-party
rivalries and corruption, and deteriorating relationships with foreign
countries over financial mismanagement and mutual social problems all
contributed to the establishment of fully free and unfettered
elections. Numerous electoral reforms implemented since 1989 have
aided in the further opening of the Mexican political system and
opposition parties have made historic gains in elections at all
levels. Much of the impetus for establishing a real two party system
in Mexico can be credited to President Zedillo and the PRI majority in
Congress. During 1995-96 the political parties negotiated
constitutional amendments to address electoral campaign fairness
issues, which passed unanimously. The response from the Mexican people
was clear as a record number of registered voters cast ballots. Though
they took the most votes (39%) for the 500-member Lower House of
Congress, the PRI has lost their majority. Mid-term elections held in
July of 1997, also saw large gains for opposition parties and marked a
significant step in Mexico's political transformation. Market reaction
to the new Mexican political world was positive. The IPC index,
consisting of 35 of the most representative stocks on the Mexican
Stock Exchange, rose 3.25% the day after the election. Further
financial implications of the new landscape are as yet uncertain.
Relevant considerations are the effect of the new configurations on
government consensus and policy making, the demands of newly empowered
groups on economic and other resources, the balance of power between
the executive and t he legislature, and the ability of the
government to maintain law and order.
Mexico's stock market fell sharply in late 1997 and continued its
descent through mid-1998 as the worsening Asian economic and currency
crises threatened to cause problems for Mexico's trade balance and
raised questions concerning the sustainability of its economic growth.
Foreign investors fled the Mexican market, as they feared that Asia's
currency problems would spread to Latin Ameri ca.
Investors in Mexico face a number of potential risks. As an
emerging nation, Mexico's stock market may be particularly vulnerable
to widespread economic, currency and stock market turmoil such as that
recently experienced in Asia and Russia. These crises may prompt
investors to become increasingly averse to emerging market exposure on
concern that the impact of these events will spread to other
countries. In addition, mutual funds that invest in emerging markets
may be forced to sell holdings in countries that have little
similarity with the troubled markets, merely to raise cash to meet
redemptions. Similarly, because the United States is Mexico's largest
trading partner, any economic downturn in the U.S. economy can have a
strongly adverse impact upon Mexico's economy and stock market.
While Mexico's political situation is relatively stable, there is a
high degree of dissatisfaction with the government's inability to
effectively address the nation's growing social problems, particularly
in the country's less developed regions. Occasional flair-ups of
strikes a nd armed rebellion could pose a threat to Mexico's
political and economic stability.
SP E CIAL CONSIDERATIONS REGARDING THE RUSSIAN FEDERATION
The Russian Federation is the largest republic of the Commonwealth
of Independent States with a 1995 population of 147,500,000. It is
about one and four fifths of the land area of the United States and
occupies most of Eastern Europe and north Asia.
Russia has had a long history of political and economic turbulence.
The USSR lasted 69 years and for more than half that time it ranked as
a nuclear superpower. In the 1930's tens of millions of its citizens
were collectivized under state agricultural and industrial enterprises
and millions died in political purges and the vast penal and labor
system or in state-created famines. During World War II, as many as
2 0 million Soviet citizens died. After decades of communist rule,
the Soviet Union was dissolved on December 8, 1991 following a
failed coup attempt against the government of Mikhail Gorbachev. On
the day that the leaders declared that the Soviet Union ceased to
exist, the Soviet republics were invited to join with Russia in the
Commonwealth of Independent States (CIS). At one time or another those
that have agreed to join have included the Ukraine, Belarus, Moldova,
Georgia, Armenia, Azerbaijan, Uzbekistan, Turkmenistan, Tajikistan,
Kazakhstan and Kyrgyzstan, but a number have dropped out since or have
only observer status. Each of the republics is a sovereign state that
controls its own economy and natural resources and collects its own
taxes, providing only minimal support to the CIS.
Boris Yeltsin, President of Russia, inherited the mantle of
economic and political chaos. With the freeing of most prices he
staked his political life on the rapid creation of a free market
economy. Since 1991 Yeltsin and his Russian reformers have been faced
with the daunting task of stabilizing the Russian economy while
transforming it into a modern and efficient structure able to compete
in international markets and respond to the needs of the Russian
people. To date, their efforts have yielded widely mixed results. On
the one hand, they have made some impressive progress. Since 1992,
they have abolished central planning, decontrolled prices, unified the
foreign exchange market, made the ruble convertible, and privatized
two thirds of the economy. They have accomplished this in spite of the
crushing burdens inherited from the communist system: huge industrial
enterprises that are unprofitable, an obsolete capital stock, a
crumbling energy sector, huge external debt, and armies that had to be
repatriated and resettled at home.
Russia remains a paradox among the major economies of the world in
that it is a country marked by stagnation in production levels, but
has few constraints on growth. Labor supply is adequate and savings
are high. In addition, there is almost unlimited scope for increasing
productivity through the introduction of improved technologies,
production process and market-oriented managerial development. There
are 147 million consumers who are slowly increasing their buying power
and education standards are high. Russia is also rich in natural
resources. It has 40% of the world's natural gas reserves, 6% of its
oil, 25% of coal, diamonds, gold and nickel, and 30% of timber and
bauxite. Approximately ten million people are engaged in agriculture
and they produce half of the region's grain, meat, milk, and other
dairy products.
The main reason for the continued poor performance of the Russian
economy is the country's failure to mobilize the resources that are
available. While the official unemployment rate was at 10.6% in 1996,
up to half of the working population is, in effect, unemployed or, to
a significant degree, underemployed in inefficient and unproductive
industries. Much of the country's savings have been siphoned off
through capital flight. Russia's technological potential for
assimilating both domestic and foreign technologies is not being
exploited. Industry privatization and restructuring initiatives have
generally failed to mobilize the available factors of production as
the country's privatization program virtually ensures the predominance
of the old management teams that are largely non market-oriented in
their management approach. Approximately 80% of Russian privatized
companies continue to be majority-owned by insiders and only 10% are
owned by investors with large enough stakes to influence the running
of the company.
In July 1996, Boris Yeltsin was re-elected for a second term and it
was hoped that the election would mark the start of a more stable
period of economic growth. However, macroeconomic indicators in 1996
proved contradictory. On the one hand, the Russian government
continued its strict credit policies, and the annual inflation rate
for 1997 dropped to 11%, down from 22% in 1996. Inflation has since
remained below 3% a month through the first half of 1997. In addition,
expenditure cuts trimmed the budget deficit to 7% of GDP for the first
nine months of 1996.
By the end of 1997, GDP was up 0.4% following 1996's 6% fall, and
industrial production was up by 1.9%. Non-payment continues to
represent a serious problem for the economy, particularly in the
energy sector.
While Russia is widely believed to be one of the most risky markets
in Eastern Europe, it is also recognized for its potential for
positive returns. However, the market has been essentially liquidity
driven and concentrated in very few of the country's largest
companies. At just $129 billion, the total capitalization of the stock
market accounts for just 28.7 percent of GDP. The majority of
investors in Russian equities are small and medium-sized United States
hedge funds. In addition, several country specific funds have been
established to make direct and portfolio investments in Russian
companies. To facilitate foreign investment, a number of the larger
Russian companies have issued equity in the form of American
depository receipts while six big firms have issued securities in the
form of Russian depository certificates. These certificates are issued
and marketed by the Bank of New York. Any investment in Russia is
risky and deciding which companies will perform well at this stage of
the country's transformation is far from easy. A combination of poor
accounting standards, inept management, limited shareholder rights and
the criminalization of large sectors of the economy pose a significant
risk, particularly to foreign investors.
In 1996 the Russian market delivered the world's best stock market
performance and was among the top performing markets in the first half
of 1997. However, the market's strength masked a rapidly deteriorating
political and economic picture. Many of the country's economic reform
initiatives have floundered as the proceeds of IMF and other
assistance have been squandered or stolen. Taxes were not being
collected and Russian banks, suffering from a collapsed ruble, could
not meet the demands of either domestic depositors or foreign
creditors. In August of 1998 the Yeltsin government effectively
devalued the Russian ruble by approximately 34% to strengthen the
ailing banking system and stimulate demand for Russian exports. In
addition the government announced a restructuring of its local debt
that would allow a 90-day moratorium on banks' foreign loans and a
rescheduling of $40 billion in domestic debt. These actions were
viewed by investors as being tantamount to default and they fled the
Russian stock and bond markets. President Yeltsin's relations with the
communist dominated Duma worsened and there was talk among the body of
beginning impeachment proceedings against the president. By August
o f 1998 the ruble had fallen by 70 percent and food prices soared,
heightening fears of social unrest. By early September the Russian
economy appeared to be slipping out of control and the government in a
state of paralysis as the President and the Duma feuded over remedial
initiatives. Many observers fear that country's communist party could
regain control of the government and end free market refor ms,
which could further negatively impact stock prices.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities (normally,
shares of the underlying Fidelity funds) are placed on behalf of each
Freedom Fund by Strategic Advisers, either itself or through its
affiliates, pursuant to authority contained in each Freedom Fund's
management contract. A Freedom Fund will not incur any commissions or
sales charges when it invests in underlying Fidelity funds, but it may
incur such costs if it invests directly in other types of securities.
All orders for the purchase or sale of portfolio securities are placed
on behalf of each underlying Fidelity fund by FMR pursuant to
authority contained in each underlying Fidelity fund's management
contract. Because the market for most OTC securities is made by market
makers or dealers, rather than on an exchange, FMR will place most of
its orders on behalf of Fidelity OTC Portfolio with dealers.
Ordinarily commissions are not charged on such orders. Thus, Fidelity
OTC Portfolio should incur a relatively small amount of commission
expenses. When Fidelity OTC Portfolio places an order with a dealer,
it pays a spread, which is included in the cost of the security, and
is the difference between the dealer's cost and the cost to the fund.
If FMR grants investment management authority to an underlying
Fidelity fund's sub-adviser, the sub-adviser is authorized to place
orders for the purchase and sale of portfolio securities on behalf of
that fund, and will do so in accordance with the policies described
below.
Strategic Advisers and FMR each is also responsible for the placement
of transaction orders for other investment companies and investment
accounts for which it or its affiliates act as investment adviser. In
selecting broker-dealers, subject to applicable limitations of the
federal securities laws, Strategic Advisers and FMR 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; the
reasonableness of any commissions; and, in selecting broker-dealers to
place portfolio transactions for certain underlying Fidelity funds,
arrangements for payment of fund expenses.
Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
The Freedom Funds and underlying Fidelity funds may execute portfolio
transactions with broker-dealers who provide research and execution
services to the funds or other investment accounts over which
Strategic Advisers, FMR or their affiliates exercise investment
discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing, or selling
securities; and the availability of securities or the purchasers or
sellers of securities. In addition, such broker-dealers may furnish
analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and performance of
investment accounts; and effect securities transactions and perform
functions incidental thereto (such as clearance and settlement).
The selection of such broker-dealers for transactions in equity
securities on behalf of the underlying funds is generally made by
Strategic Advisers or FMR (to the extent possible consistent with
execution considerations) in accordance with a ranking of
broker-dealers determined periodically by Strategic Advisers' or FMR's
investment staff based upon the quality of research and execution
services provided.
For transactions in fixed-income securities, Strategic Advisers' or
FMR's selection of broker-dealers is generally based on the
availability of a security and its price and, to a lesser extent, on
the overall quality of execution and other services, including
research, provided by the broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of the Freedom Funds or an underlying Fidelity fund may be
useful to Strategic Advisers or FMR, as the case may be, in rendering
investment management services to that fund or its other clients, and
conversely, such research provided by broker-dealers who have executed
transaction orders on behalf of other Strategic Advisers or FMR
clients may be useful to Strategic Advisers or FMR, as the case may
be, in carrying out its obligations to a fund. The receipt of such
research has not reduced Strategic Advisers' or FMR's normal
independent research activities; however, it enables Strategic
Advisers and FMR to avoid the additional expenses that could be
incurred if Strategic Advisers or FMR tried to develop comparable
information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher commissions, FMR
must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided
by such executing broker-dealers, viewed in terms of a particular
transaction or FMR's overall responsibilities to that fund or its
other clients. In reaching this determination, FMR will not attempt to
place a specific dollar value on the brokerage and research services
provided, or to determine what portion of the compensation should be
related to those services.
To the extent permitted by applicable law, Strategic Advisers and FMR
are authorized to allocate portfolio transactions in a manner that
takes into account assistance received in the distribution of shares
of the funds or other Fidelity funds and to use the research services
of brokerage and other firms that have provided such assistance.
Strategic Advisers and FMR may use research services provided by and
place agency transactions with National Financial Services Corporation
(NFSC) and Fidelity Brokerage Services Japan LLC (FBSJ), indirect
subsidiaries of FMR Corp., if the commissions are fair, reasonable,
and comparable to commissions charged by non-affiliated, qualified
brokerage firms for similar services. Prior to December 9, 1997, FMR
and Strategic Advisers used research services provided by and placed
agency transactions with Fidelity Brokerage Services (FBS), an
indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
an underlying Fidelity fund toward the reduction of that fund's
expenses. The transaction quality must, however, be comparable to
those of other qualified broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment accounts which they or their affiliates manage, unless
certain requirements are satisfied. Pursuant to such requirements, the
Board of Trustees has authorized NFSC to execute portfolio
transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
The Trustees of each fund periodically review Strategic Advisers' or
FMR's performance of its responsibilities in connection with the
placement of portfolio transactions on behalf of the Freedom Funds or
the underlying Fidelity funds, respectively, 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.
Each Freedom Fund's turnover rates for the fiscal periods ended March
31, 1999 and 1998 are presented in the table below. Variations in
turnover rate may be due to a fluctuating volume of shareholder
purchase and redemption orders, market conditions, or changes in
Strategic Advisers' investment outlook.
Turnover Rates 1999 1998
Freedom Income 29% 33%
Freedom 2000 27% 24%
Freedom 2010 27% 20%
Freedom 2020 18% 15%
Freedom 2030 16% 34%
A fund may pay both commissions and spreads in connection with the
placement of portfolio transactions. For the fiscal years ended March
31, 1999 and March 31, 1998, and the fiscal period ended
March 31, 1997, the funds paid no brokerage commissions.
For the fiscal year ended March 31, 1999 the funds paid no
brokerage commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the Freedom Funds or the underlying Fidelity funds of
some portion of the brokerage commissions or similar fees paid by the
funds on portfolio transactions is legally permissible and advisable.
Each fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each Freedom Fund are
substantially the same as those of the underlying Fidelity funds and
other funds managed by FMR or its affiliates, investment decisions for
each Freedom Fund are made independently from those of other funds
managed by FMR or investment 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 investment accounts. Simultaneous
transactions are inevitable when several funds and investment accounts
are managed by the same investment adviser, or an affiliate thereof,
particularly when the same security is suitable for the investment
objective of more than one fund or investment account.
When two or more Freedom Funds and/or underlying Fidelity funds are
simultaneously engaged in the purchase or sale of the same security,
the prices and amounts are allocated in accordance with procedures
believed to be appropriate and equitable for each fund. In some cases
this system could have a detrimental effect on the price or value of
the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume
transactions will produce better executions and prices for the funds.
It is the current opinion of the Trustees that the desirability of
retaining Strategic Advisers or FMR as investment adviser to each
Freedom Fund and underlying Fidelity fund, as applicable, outweighs
any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
Each fund's NAV is the value of a single share. The NAV of each fund
is computed by adding the value of the fund's investments, cash, and
other assets, subtracting its liabilities, and dividing the result by
the number of shares outstanding.
The assets of each Freedom Fund consist primarily of shares of the
underlying Fidelity funds, which are valued at their respective NAVs.
VALUATION OF UNDERLYING FIDELITY FUNDS
GROWTH AND GROWTH & INCOME FUNDS. Portfolio securities are valued by
various methods depending on the primary market or exchange on which
they trade. Most equity securities for which the primary market is the
United States are valued at last sale price or, if no sale has
occurred, at the closing bid price. Most equity securities for which
the primary market is outside the United States are valued using the
official closing price or the last sale price in the principal market
in which they are traded. If the last sale price (on the local
exchange) is unavailable, the last evaluated quote or closing bid
price normally is used. Securities of other open-end investment
companies are valued at their respective NAVs.
Fixed-income securities and other assets for which market quotations
are readily available may be valued at market values determined by
such securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets. Or, fixed-income securities and convertible securities may be
valued on the basis of information furnished by a pricing service that
uses a valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the funds may use various pricing
services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Independent brokers or quotation services provide prices of foreign
securities in their local currency. Fidelity Service Company, Inc.
(FSC) gathers all exchange rates daily at the close of the New York
Stock Exchange (NYSE) using the last quoted price on the local
currency and then translates the value of foreign securities from
their local currencies into U.S. dollars. Any changes in the value of
forward contracts due to exchange rate fluctuations and days to
maturity are included in the calculation of NAV. If an event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange or market on which that security is
traded, then that security will be valued in good faith by a committee
appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value.
The procedures set forth above need not be used to determine the value
of the securities owned by a fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more
accurately reflect the fair value of such securities. For example,
securities and other assets for which there is no readily available
market value may be valued in good faith by a committee appointed by
the Board of Trustees. In making a good faith determination of the
value of a security, the committee may review price movements in
futures contracts and ADRs, market and trading trends, the bid/ask
quotes of brokers and off-exchange institutional trading.
TAXABLE BOND FUNDS. Portfolio securities are valued by various methods
depending on the primary market or exchange on which they trade.
Fixed-income securities and other assets for which market quotations
are readily available may be valued at market values determined by
such securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets. Or, fixed-income securities and convertible securities may
be valued on the basis of information furnished by a pricing service
that uses a valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the funds may use various pricing
services or discontinue the use of any pricing service.
Most equity securities for which the primary market is the United
States are valued at last sale price or, if no sale has occurred, at
the closing bid price. Most equity securities for which the primary
market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which
they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or closing bid price normally is
used.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Independent brokers or quotation services provide prices of foreign
securities in their local currency. FSC gathers all exchange rates
daily at the close of the NYSE using the last quoted price on the
local currency and then translates the value of foreign securities
from their local currencies into U.S. dollars. Any changes in the
value of forward contracts due to exchange rate fluctuations and days
to maturity are included in the calculation of NAV. If an event that
is expected to materially affect the value of a portfolio security
occurs after the close of an exchange or market on which that security
is traded, then that security will be valued in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value.
The procedures set forth above need not be used to determine the value
of the securities owned by a fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more
accurately reflect the fair value of such securities. For example,
securities and other assets for which there is no readily available
market value may be valued in good faith by a committee appointed by
the Board of Trustees. In making a good faith determination of the
value of a security, the committee may review price movements in
futures contracts and ADRs, market and trading trends, the bid/ask
quotes of brokers and off-exchange institutional trading.
MONEY MARKET FUND. Portfolio securities and other assets are valued on
the basis of amortized cost. This technique involves initially valuing
an instrument at its cost as adjusted for amortization of premium or
accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
Securities of other open-end investment companies are valued at their
respective NAVs.
At such intervals as they deem appropriate, the Trustees consider the
extent to which NAV calculated by using market valuations would
deviate from the $1.00 per share calculated using amortized cost
valuation. If the Trustees believe that a deviation from the fund's
amortized cost per share may result in material dilution or other
unfair results to shareholders, the Trustees have agreed to take such
corrective action, if any, as they deem appropriate to eliminate or
reduce, to the extent reasonably practicable, the dilution or unfair
results. Such corrective action could include selling portfolio
instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; withholding dividends; redeeming
shares in kind; establishing NAV by using available market quotations;
and such other measures as the Trustees may deem appropriate.
PERFORMANCE
The Freedom Funds and the underlying Fidelity funds may quote
performance in various ways, and the Freedom Funds may quote the
performance of various underlying Fidelity funds. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. The share price of a bond or
equity fund, the yield, if applicable, of a bond, money market or
equity fund, and return fluctuate in response to market conditions and
other factors, and the value of an equity or bond fund's shares when
redeemed may be more or less than their original cost. The following
paragraphs describe how yield and return are calculated by the Freedom
Funds and the underlying Fidelity funds.
YIELD CALCULATIONS (FREEDOM INCOME). The yield for Freedom Income is
the asset-weighted average of the yields of the underlying Fidelity
funds in which it invests, reduced by Freedom Income's expenses. The
asset-weighted yield is calculated by multiplying the yield of each
underlying fund by the value of Freedom Income's investment in that
fund, adding together the results, dividing the sum by Freedom
Income's total net assets and then subtracting the annualized expenses
of Freedom Income. The asset-weighted yield is currently calculated
once a month as of the last day of the prior month. In those cases
where a yield is not published for an underlying fund, that fund's
yield is assumed to be zero for purposes of this calculation.
YIELD CALCULATIONS (MONEY MARKET FUND).To compute the yield for a
money market fund for a period, the net change in value of a
hypothetical account containing one share reflects the value of
additional shares purchased with dividends from the one original share
and dividends declared on both the original share and any additional
shares. The net change is then divided by the value of the account at
the beginning of the period to obtain a base period return. This base
period return is annualized to obtain a current annualized yield. A
money market fund also may calculate an effective yield by compounding
the base period return over a one-year period. In addition to the
current yield, a money market fund may quote yields in advertising
based on any historical seven-day period. Yields for a money market
fund are calculated on the same basis as other money market funds, as
required by applicable regulation.
Yield information may be useful in reviewing a fund's performance and
in providing a basis for comparison with other investment
alternatives. However, a fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing a fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
YIELD CALCULATIONS (BOND AND EQUITY FUNDS). Yields for a fund are
computed by dividing a fund's interest and dividend income for a given
30-day or one-month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing
this figure by the fund's NAV or offering price, as applicable at the
end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Yields do not
reflect Fidelity Capital & Income Fund's trading fee or Fidelity
Europe Fund's, Fidelity Japan Fund's, and Fidelity Southeast Asia
Fund's short-term trading fee . Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable
to all stock and bond funds. Dividends from equity investments are
treated as if they were accrued on a daily basis, solely for the
purposes of yield calculations. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For a fund's investments
denominated in foreign currencies, income and expenses are calculated
first in their respective currencies, and then are 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. Income is adjusted
to reflect gains and losses from principal repayments received by a
fund with respect to mortgage-related securities and other
asset-backed securities. Other capital gains and losses generally are
excluded from the calculation as are gains and losses from currency
exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a fund's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
In calculating a fund's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing a fund's yield.
Yield information may be useful in reviewing a fund's performance and
in providing a basis for comparison with other investment
alternatives. However, a fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing a fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
RETURN CALCULATIONS. Returns quoted in advertising reflect all aspects
of a fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in a fund's NAV over a
stated period. A cumulative return reflects actual performance over a
stated period of time. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%,
which is the steady annual rate of return that would equal 100% growth
on a compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors
should realize that a fund's performance is not constant over time,
but changes from year to year, and that average annual returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote unaveraged or
cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative returns
may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a
series of redemptions, over any time period. 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 return.
Returns may be quoted on a before-tax or after-tax basis. Returns may
or may not include the effect of a fund's maximum sales charge or the
effect of Fidelity Capital & Income Fund's trading fee or Fidelity
Europe Fund's, Fidelity Japan Fund's, and Fidelity Southeast Asia
Fund's short-term trading fee . Excluding a fund's sales charge ,
trading fee or short-term trading fee from a return calculation
produces a higher return figure. Returns, yields, if applicable, and
other performance information may be quoted numerically or in a table,
graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using a fund's NAVs, adjusted NAVs,
and benchmark indexes may be used to exhibit performance. An adjusted
NAV includes any distributions paid by a fund and reflects all
elements of its return. Unless otherwise indicated, a fund's adjusted
NAVs are not adjusted for sales charges, if any.
MOVING AVERAGES. A fund may illustrate performance using moving
averages. A long-term moving average is the average of each week's
adjusted closing NAV for a specified period. A short-term moving
average is the average of each day's adjusted closing 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. The
13-week and 39-week long-term moving averages on March 26, 1999 are
shown below.
13-week Moving Averages 39-week Moving Averages
Freedom Income $ 11.17 $ 10.84
Freedom 2000 $ 12.44 $ 11.89
Freedom 2010 $ 13.49 $ 12.67
Freedom 2020 $ 14.20 $ 13.18
Freedom 2030 $ 14.16 $ 13.09
CALCULATING HISTORICAL FUND RESULTS. The following tables show
performance for each fund.
HISTORICAL FUND RESULTS. The following table shows each Freedom
Fund's return and for Freedom Income, its 30-day yield, for
the fiscal period ended March 31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Annual Returns Cumulative Returns
Thirty-Day Yield One Year Life of Fund** One Year Life of Fund**
Freedom Income 4.03%* 8.41% 10.24% 8.41% 27.01%
Freedom 2000 N/A 10.51% 14.39% 10.51% 39.05%
Freedom 2010 N/A 12.65% 18.54% 12.65% 51.75%
Freedom 2020 N/A 14.00% 20.80% 14.00% 58.93%
Freedom 2030 N/A 14.29% 21.25% 14.29% 60.41%
</TABLE>
* The yield for Freedom Income is the asset-weighted average of the
yields of the underlying Fidelity funds in which it invests, reduced
by Freedom Income's expenses.
** From October 17, 1996 (commencement of operations).
Note: If Strategic Advisers had not reimbursed certain fund expenses
during these periods, each fund's returns would have been lower.
Note: If Strategic Advisers had not reimbursed certain fund expenses
during these periods, Freedom Income's yield would have been
4.01 %.
HISTORICAL FUND RESULTS - UNDERLYING FIDELITY FUNDS. The following
table shows the underlying Fidelity funds' 7-day or 30-day yields
and/or return for the periods ended March 31, 1999. Returns include
the effect of a fund's maximum sales charge, if any, but do not
include the effect of a fund's short-term trading fee.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
Underlying Fidelity Fund Yield(dagger) One Year Five Years Ten Years/ Life of Fund* One Year
Fidelity Blue Chip Growth Fund1 N/A 24.98% 23.91% 23.06% 24.98%
Fidelity Capital & Income Fund2 9.06% 4.94% 9.86% 11.79% 4.94%
Fidelity Disciplined Equity N/A 12.46% 21.49% 18.63% 12.46%
Fund
Fidelity Diversified N/A 3.67% 13.40% 11.92% 3.67%
International Fund
Fidelity Equity-Income Fund N/A 3.44% 19.87% 15.13% 3.44%
Fidelity Europe Fund3 N/A (3.97)% 16.95% 13.02% (3.97)%
Fidelity Fund N/A 22.56% 25.10% 18.57% 22.56%
Fidelity Government Income Fund 5.30% 5.59% 6.80% 8.62% 5.59%
Fidelity Growth & Income N/A 16.07% 23.79% 19.55% 16.07%
Portfolio
Fidelity Growth Company Fund4 N/A 22.95% 22.11% 20.58% 22.95%
Fidelity Intermediate Bond Fund 5.56% 6.06% 6.40% 7.92% 6.06%
Fidelity Investment Grade 5.57% 5.74% 6.71% 8.84% 5.74%
Bond Fund
Fidelity Japan Fund5 N/A 26.78% (0.49)% 4.66% 26.78%
Fidelity Money Market Trust: 4.68% 5.22% 5.28% 5.49% 5.22%
Retirement Money Market
Portfolio
Fidelity OTC Portfolio6 N/A 30.01% 23.65% 19.36% 30.01%
Fidelity Overseas Fund N/A 1.77% 9.50% 8.67% 1.77%
Fidelity Southeast Asia Fund7 N/A (12.43)% (6.09)% (1.38)% (12.43)%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cumulative Total Returns
Underlying Fidelity Fund Five Years Ten Years/ Life of Fund*
Fidelity Blue Chip Growth Fund1 192.13% 696.76%
Fidelity Capital & Income Fund2 60.05% 204.71%
Fidelity Disciplined Equity 164.72% 452.09%
Fund
Fidelity Diversified 87.52% 126.63%
International Fund
Fidelity Equity-Income Fund 147.54% 309.28%
Fidelity Europe Fund3 118.81% 240.01%
Fidelity Fund 206.38% 449.33%
Fidelity Government Income Fund 38.97% 128.68%
Fidelity Growth & Income 190.72% 496.39%
Portfolio
Fidelity Growth Company Fund4 171.49% 549.70%
Fidelity Intermediate Bond Fund 36.36% 114.23%
Fidelity Investment Grade 38.34% 133.31%
Bond Fund
Fidelity Japan Fund5 (2.43)% 34.69%
Fidelity Money Market Trust: 29.35% 70.72%
Retirement Money Market
Portfolio
Fidelity OTC Portfolio6 189.04% 487.02%
Fidelity Overseas Fund 57.45% 129.62%
Fidelity Southeast Asia Fund7 (26.95)% (7.96)%
</TABLE>
* Fidelity Diversified International Fund commenced operations on
December 27, 1991.
Fidelity Japan Fund commenced operations on September 15, 1992.
Fidelity Southeast Asia Fund commenced operations on April 19, 1993.
(dagger) Yields shown are for the 30-day period ended March 31, 1999,
except for the yield shown for Fidelity Money Market Trust: Retirement
Money Market Portfolio, which is for the seven-day period ended March
31, 1999.
1 Total return figures include the effect of Fidelity Blue Chip Growth
Fund's 3.0% sales charge which was in effect prior to October 1, 1998.
2 Total return figures do not include the effect of Fidelity Capital &
Income Fund's 1.5% redemption fee, applicable to shares held less than
365 days. In addition, when considering historical performance, be
aware that effective December 30, 1990, the fund adopted a new
investment objective and changed its name from Fidelity High Income
Fund to Fidelity Capital & Income Fund. Accordingly, historical
performance may not be representative of the fund's future performance
under its current investment objective and policies.
3 Total return figures include the effect of Fidelity Europe Fund's
3.0% sales charge, but do not include the effect of the fund's 1.0%
short-term trading fee, applicable to shares held less than 90 days.
4 Total return figures include the effect of Fidelity Growth Company's
3.0% sales charge which was in effect prior to January 1, 1997.
5 Total return figures include the effect of Fidelity Japan Fund's
3.0% sales charge, but do not include the effect of the fund's 1.5%
short-term trading fee, applicable to shares held less than 90 days.
6 Total return figures include the effect of Fidelity OTC Portfolio's
3.0% sales charge which was in effect prior to October 1, 1998.
7 Total return figures include the effect of Fidelity Southeast Asia
Fund's 3.0% sales charge, but do not include the effect of the fund's
1.5% short-term trading fee, applicable to shares held less than 90
days.
Note: If FMR had not reimbursed certain underlying Fidelity fund
expenses during these periods, Fidelity Diversified International
Fund, Fidelity Intermediate Bond Fund, Fidelity Europe Fund, Fidelity
Southeast Asia Fund, Fidelity Japan Fund, and Fidelity Money Market
Trust: Retirement Money Market Portfolio's returns would have been
lower.
The performance data relating to the underlying Fidelity funds set
forth above is not indicative of future performance of either the
underlying Fidelity funds or the Freedom Funds. The performance
reflects the impact of sales charges that will not be incurred by the
Freedom Funds when they purchase shares of the underlying Fidelity
funds.
The following tables show the income and capital elements of each
fund's cumulative return. The tables compare each fund's return to the
record of the S&P 500, the Dow Jones Industrial Average (DJIA), and
the cost of living, as measured by the Consumer Price Index (CPI),
over the same period. The CPI information is as of the month-end
closest to the initial investment date for each fund. The S&P 500 and
DJIA comparisons are provided to show how each fund's return compared
to the record of a broad unmanaged index of common stocks and a
narrower set of stocks of major industrial companies, respectively,
over the same period. Each fund has the ability to invest in
securities not included in either index, and its investment portfolio
may or may not be similar in composition to the indexes. The S&P 500
and DJIA returns are based on the prices of unmanaged groups of stocks
and, unlike each fund's returns, do not include the effect of
brokerage commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the life of each fund, assuming
all distributions were reinvested. Returns are based on past results
and are not an indication of future performance. Tax consequences of
different investments have not been factored into the figures below.
During the period from October 17, 1996 (commencement of operations)
to March 31, 1999, a hypothetical $10,000 investment in Freedom Income
would have grown t o $12 , 701.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FREEDOM INCOME INDEXES
Period Ended
March 31 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 11,250 $ 1,250 $ 201 $ 12,701 $ 18,945
1998 $ 10,950 $ 702 $ 65 $ 11,717 $ 15,993
1997* $ 10,060 $ 139 $ 0 $ 10,199 $ 10,806
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FREEDOM INCOME INDEXES
Period Ended March 31 DJIA Cost of Living**
1999 $ 16,858 $ 10,423
1998 $ 14,906 $ 10,246
1997* $ 10,966 $ 10,107
</TABLE>
* From October 17, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Freedom
Income on October 17, 1996, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) am ounted to $11,3 80 . If
distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash
payments for the period would have amounted to $1,120 for dividends
a nd $180 for capital gain distributions.
During the period from October 17, 1996 (commencement of operations)
to March 31, 1999, a hypothetical $10,000 investment in Freedom 2000
wo u ld have grown to $13,905.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FREEDOM 2000 INDEXES
Period Ended
March 31 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 12,600 $ 933 $ 372 $ 13,905 $ 18,945
1998 $ 11,980 $ 470 $ 133 $ 12,583 $ 15,993
1997* $ 10,120 $ 89 $ 0 $ 10,209 $ 10,806
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FREEDOM 2000 INDEXES
Period Ended March 31 DJIA Cost of Living**
1999 $ 16,858 $ 10,423
1998 $ 14,906 $ 10,246
1997* $ 10,966 $ 10,107
</TABLE>
* From October 17, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Freedom
2000 on October 17, 1996, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period c ov ered (their cash value at the
time they were reinvested) amounted to $11,19 5 . If
distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash
payments for the period would have amounted to $820 for
d ivi dends and $330 for capital gain distributions.
During the period from October 17, 1996 (commencement of operations)
to March 31, 1999, a hypothetical $10,000 investment in Freedom 2010
would ha v e grown to $15,175.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FREEDOM 2010 INDEXES
Period Ended
March 31 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 13,760 $ 990 $ 425 $ 15,175 $ 18,945
1998 $ 12,810 $ 558 $ 103 $ 13,471 $ 15,993
1997* $ 10,150 $ 109 $ 0 $ 10,259 $ 10,806
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FREEDOM 2010 INDEXES
Period Ended March 31 DJIA Cost of Living**
1999 $ 16,858 $ 10,423
1998 $ 14,906 $ 10,246
1997* $ 10,966 $ 10,107
</TABLE>
* From October 17, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Freedom
2010 on October 17, 1996, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
th ey were reinvested) amounted to $11,247. If distributions had
not been reinvested, the amount of distributions earned from the fund
over time would have been smaller, and cash payments for the period
would ha ve amounted to $830 for dividends and $370 for capital
gain distributions.
During the period from October 17, 1996 (commencement of operations)
to March 31, 1999, a hypothetical $10,000 investment in Fr eed om
2020 would have grown to $15,893.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FREEDOM 2020 INDEXES
Period Ended
March 31 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 14,550 $ 872 $ 471 $ 15,893 $ 18,945
1998 $ 13,280 $ 510 $ 151 $ 13,941 $ 15,993
1997* $ 10,210 $ 89 $ 0 $ 10,299 $ 10,806
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FREEDOM 2020 INDEXES
Period Ended March 31 DJIA Cost of Living**
1999 $ 16,858 $ 10,423
1998 $ 14,906 $ 10,246
1997* $ 10,966 $ 10,107
</TABLE>
* From October 17, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Freedom
2020 on October 17, 1996, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the
time they were reinvested) amounted to $11,149. If distributions had
not been reinvested, the amount of distributions earned from the fund
over time would have been smaller, and cash payments for the period
would have amounted to $7 1 0 for dividends and $400 for capital
gain distributions.
During the period from October 17, 1996 (commencement of operations)
to March 31, 1999, a hypothetical $10,000 investment in Freedom 2030
would h a ve grown to $16,041.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FREEDOM 2030 INDEXES
Period Ended
March 31 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 14,550 $ 788 $ 703 $ 16,041 $ 18,945
1998 $ 13,420 $ 475 $ 140 $ 14,035 $ 15,993
1997* $ 10,210 $ 89 $ 0 $ 10,299 $ 10,806
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FREEDOM 2030 INDEXES
Period Ended March 31 DJIA Cost of Living**
1999 $ 16,858 $ 10,423
1998 $ 14,906 $ 10,246
1997* $ 10,966 $ 10,107
</TABLE>
* From October 17, 1996 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Freedom
2030 on October 17, 1996, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amo un ted to $11,288. If distributions had
not been reinvested, the amount of distributions earned from the fund
over time would have been smaller, and cash payments for the period
would have a m ounted to $640 for dividends and $600 for capital
gain distributions.
The following pages contain detailed information about
international indexes, market capitalization, and national stock
market return of certain countries in which the underlying
international Fidelity funds may invest.
I NTERNATIONAL INDEXES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of
certain countries according to the Morgan Stanley Capital
International indexes database, the total market capitalization of
Latin American countries according to the International Finance
Corporation Emerging Markets database, and the performance of national
stock markets as measured in U.S. dollars by the Morgan Stanley
Capital International stock market indexes for the twelve months ended
March 31, 1999. Of course, these results are not indicative of future
stock market performance or the funds' performance. Market conditions
during the periods measured fluctuated widely. Brokerage commissions
and other fees are not factored into the values of the indexes.
MARKET CAPITALIZATION. Companies outside the United States
now make up nearly two-thirds of the world's stock market
capitalization. According to Morgan Stanley Capital International, the
size of the markets as measured in U.S. dollars grew from $6,207.8
billion in 1998 to $7,920.2 billion in 1999.
The following table measures the total market capitalization of
certain countries according to the Morgan Stanley Capital
International indexes database. T he value of the markets are
measured in billions of U.S. dollars as of March 31, 1999.
TOTAL MARKET CAPITALIZATION
Australia $ 214.4 Japan $ 1,755.8
Austria 24.3 Netherlands 449.0
Belgium 125.1 Norway 31.3
Canada 306.3 Singapore/Malaysia 92.3
Denmark 57.1 Spain 231.8
France 136.7 Sweden 206.5
Germany 720.0 Switzerland 558.7
Hong Kong 163.1 United Kingdom 1,697.1
Italy 380.8 United States 8,416.3
The following table measures the total market capitalization of
Latin American countries according to the International Finance
Corporation Emerging Markets datab ase. The value of the markets is
measured in billions of U.S. dollars as of March 31, 1999.
TOTAL M AR KET CAPITALIZATION - LATIN AMERICA
Argentina $ 26.8
Brazil 68.7
Chile 37.0
Colombia 5.5
Mexico 85.9
Venezuela 3.7
Total Latin America $227.6
NATIONAL STOCK MARKET PER FORMANCE. Certain national stock markets
have outperformed the U.S. stock market. The first table below
represents the performance of national stock markets as measured in
U.S. dollars by the Morgan Stanley Capital International stock market
indexes for the twelve months ended March 31, 1999. The second table
shows the same performance as measured in local currency. Each table
measures return based on the period's change in price, dividends paid
on stocks in the index, and the effect of reinvesting dividends net of
any applicable foreign taxes. These are unmanaged indexes composed of
a sampling of selected companies representing an approximation of the
mark et structure of the designated country.
STOCK MARKET PERFORMANCE MEASURED IN U.S. DOLLARS
Australia 5.0% Japan 15.5%
Austria -14.6 Netherlands -0.4
Belgium 24.1 Norway -24.8
Canada -12.9 Singapore/Malaysia -50.3
Denmark -17.8 Spain 0.8
France 11.1 Sweden 0.0
Germany 0.4 Switzerland -0.6
Hong Kong 2.5 United Kingdom 4.1
Italy 8.7 United States 20.5
S TOCK MARKET PERFORMANCE ME ASURED IN LOCAL CURRENCY
Australia 10.2% Japan 2.6%
Austria -16.4 Netherlands -2.4
Belgium 21.5 Norway -11.0
Canada -7.3 Singapore/Malaysia -30.7
Denmark -19.8 Spain -1.1
France 8.9 Sweden 2.8
Germany -1.6 Switzerland -3.5
Hong Kong 2.5 United Kingdom 8.0
Italy 7.0 United States 20.5
The f o llowing table shows the average annualized stock market
returns measured in U.S. dollars as of March 31, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
STOCK MARKET PERFORMANCE
Five Years Ended March 31, 1999 Ten Years Ended March 31, 1999
Germany 16.94% 14.32%
Hong Kong -1.13 13.84
Japan -7.65 -5.69
Spain 24.05 13.66
United Kingdom 17.49 14.38
United States 24.51 18.58
</TABLE>
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on return, assume reinvestment of distributions, do not take
sales charges or trading fees into consideration, and are prepared
without regard to tax consequences. Lipper may also rank based on
yield. In addition to the mutual fund rankings, a fund's performance
may be compared to stock, bond, and money market mutual fund
performance indexes prepared by Lipper or other organizations. When
comparing these indexes, it is important to remember the risk and
return characteristics of each type of investment. For example, while
stock mutual funds may offer higher potential returns, they also carry
the highest degree of share price volatility. Likewise, money market
funds may offer greater stability of principal, but generally do not
offer the higher potential returns available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising.
A fund's performance may also be compared to that of each
benchmark index representing the universe of securities in which the
fund may invest. The return of each index reflects reinvestment
of all dividends and capital gains paid by securities included in
each index. Unlike a fund's returns, however, each index's returns
do not reflect brokerage commissions, transaction fees, or other costs
of investing directly in the securities included in the index.
The performance of each Freedom Fund may be compared to the
performance of a target asset allocation composite index (Composite
Index). A Freedom Fund's Composite Index is a representation of the
performance of the asset classes (domestic and international equity
funds, investment - grade and high yield fixed-income funds, and
money market funds) in which a Freedom Fund is invested and is based
on the weightings of each asset class in a Freedom Fund. The following
indexes are used to calculate a Freedom Fund's Composite Index:
Wilshire 5000 Index for the domestic equity fund class, Morgan Stanley
Capital International Europe, Australasia, Far East Index (MSCI EAFE)
for the international equity fund class, Lehman Brothers Aggregate
Bond Index for the investment - grade fixed-income fund class,
Merrill Lynch High Yield Master Index for the high yield fixed-income
fund class, and Lehman Brothers 3-Month Treasury Bill Index for the
money market fund class. The index weightings of each Composite Index
are rebalanced monthly.
The index weightings in the Fidelity Freedom 2000 Composite Index,
Fidelity Freedom 2010 Composite Index, Fidelity Freedom 2020 Composite
Index, and Fidelity Freedom 2030 Composite Index, are adjusted
semi-annually to reflect the changing asset allocations of the Freedom
Funds with target retirement dates. On June 30 of each calendar year,
the index weightings will be adjusted to reflect the average of the
Freedom Fund's actual asset allocation as of March 31 and its
projected target asset allocation as of September 30, as reported in
the Freedom Funds' Annual Report for the fiscal year ended March 31.
On December 31, the index weightings will be adjusted to reflect each
Freedom Fund's actual asset allocation as of September 30 and its
projected target asset allocation as of March 31, as reported in the
Freedom Funds' Semi-Annual Report for the period ended September 30.
The index weightings in the Fidelity Freedom Income Composite Index
are not adjusted semi-annually, as Freedom Income maintains a stable
asset allocation strategy.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: OCTOBER
17, 1996 THROUGH JUNE 30,
1997*
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield
Bond Index Master Index
Freedom Income 20.0% -- 40.0% --
Freedom 2000 39.2% 4.4% 40.9% 4.0%
Freedom 2010 59.2% 9.7% 24.1% 7.0%
Freedom 2020 70.0% 12.4% 10.1% 7.5%
Freedom 2030 70.0% 15.0% 5.0% 10.0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: OCTOBER
17, 1996 THROUGH JUNE 30,
1997*
Lehman Brothers 3-Month
T-Bill Index
Freedom Income 40.0%
Freedom 2000 11.5%
Freedom 2010 --
Freedom 2020 --
Freedom 2030 --
</TABLE>
* The weightings of the Composite Indices of the Freedom Funds' did
not change on December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: JUNE 30,
1997 THROUGH DECEMBER 31, 1997
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield
Bond Index Master Index
Freedom Income 20.0% -- 40.0% --
Freedom 2000 38.2% 4.5% 40.8% 4.0%
Freedom 2010 57.7% 9.5% 25.0% 7.1%
Freedom 2020 69.1% 12.6% 10.7% 7.6%
Freedom 2030 69.6% 15.1% 5.3% 10.0%
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: DECEMBER
31, 1997 THROUGH JUNE 30, 1998
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield
Bond Index Master Index
Freedom Income 20.0% -- 40.0% --
Freedom 2000 37.9% 4.3% 40.5% 3.9%
Freedom 2010 56.8% 9.2% 25.7% 7.0%
Freedom 2020 68.6% 12.4% 11.4% 7.6%
Freedom 2030 69.6% 15.0% 5.5% 9.9%
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: JUNE 30,
1998 THROUGH DECEMBER 31, 1998
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield
Bond Index Master Index
Freedom Income 20.0% -- 40.0% --
Freedom 2000 36.8% 3.9% 40.3% 3.6%
Freedom 2010 55.2% 8.5% 27.2% 6.7%
Freedom 2020 67.9% 11.9% 12.7% 7.5%
Freedom 2030 70.0% 14.5% 6.0% 9.5%
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: DECEMBER
31, 1998 THROUGH JUNE 30, 1999
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield
Bond Index Master Index
Freedom Income 20.0% -- 40.0% --
Freedom 2000 34.9% 3.4% 40.5% 3.4%
Freedom 2010 52.4% 7.8% 29.5% 6.6%
Freedom 2020 66.3% 11.3% 14.8% 7.6%
Freedom 2030 70.0% 13.9% 6.8% 9.3%
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: JUNE 30,
1999 THROUGH DECEMBER 31, 1999
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield
Bond Index Master Index
Freedom Income 20.0% -- 40.0% --
Freedom 2000 33.7% 3.4% 39.8% 3.3%
Freedom 2010 50.2% 7.6% 31.1% 6.3%
Freedom 2020 64.7% 11.4% 16.3% 7.6%
Freedom 2030 69.8% 13.9% 7.4% 8.9%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: JUNE 30,
1997 THROUGH DECEMBER 31, 1997
Lehman Brothers 3-Month
T-Bill Index
Freedom Income 40.0%
Freedom 2000 12.5%
Freedom 2010 0.7%
Freedom 2020 --
Freedom 2030 --
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: DECEMBER
31, 1997 THROUGH JUNE 30, 1998
Lehman Brothers 3-Month
T-Bill Index
Freedom Income 40.0%
Freedom 2000 13.4%
Freedom 2010 1.3%
Freedom 2020 --
Freedom 2030 --
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: JUNE 30,
1998 THROUGH DECEMBER 31, 1998
Lehman Brothers 3-Month
T-Bill Index
Freedom Income 40.0%
Freedom 2000 15.4%
Freedom 2010 2.4%
Freedom 2020 --
Freedom 2030 --
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: DECEMBER
31, 1998 THROUGH JUNE 30, 1999
Lehman Brothers 3-Month
T-Bill Index
Freedom Income 40.0%
Freedom 2000 17.8%
Freedom 2010 3.7%
Freedom 2020 --
Freedom 2030 --
THE FREEDOM FUNDS' COMPOSITE
INDEX WEIGHTINGS: JUNE 30,
1999 THROUGH DECEMBER 31, 1999
Lehman Brothers 3-Month
T-Bill Index
Freedom Income 40.0%
Freedom 2000 19.8%
Freedom 2010 4.8%
Freedom 2020 --
Freedom 2030 --
</TABLE>
WILSHIRE 5000 is a market capitalization-weighted index of
approximately 7,000 U.S. equity securities which contains all actively
traded common stocks with readily available price data traded on the
New York Stock Exchange, American Stock Exchange and NASDAQ.
MSCI EAFE. The Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index is a market capitalization-weighted
index that is designed to represent the performance of developed stock
markets outside of the United States and Canada. The index returns for
periods after January 1, 1997 are adjusted for tax withholding rates
applicable to U.S.-based mutual funds organized as Massachusetts
business trusts. Effective October 1, 1998, the country of Malaysia
was removed from this index. The index returns reflect the inclusion
of Malaysia prior to October 1, 1998.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a market value-weighted index
for investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities. Issues
included in the index have an outstanding par value of at least $100
million and maturities of at least one year. Government and corporate
issues include all public obligations of the U.S. Treasury (excluding
flower bonds and foreign-targeted issues) and U.S. Government
agencies, as well as nonconvertible investment-grade, SEC-registered
corporate debt. Mortgage-backed securities include 15- and 30-year
fixed-rate securities backed by mortgage pools of the Government
National Mortgage Association (GNMA), Federal Home Loan Mortgage
Corporation (FHLMC), and Fannie Mae. Asset-backed securities include
credit card, auto, and home equity loans.
MERRILL LYNCH HIGH YIELD MASTER INDEX is a market value-weighted index
of all domestic and yankee high-yield bonds with an outstanding par
value of at least $50 million and maturities of at least one year.
Issues included in the index have a credit rating lower than BBB-/Baa3
but are not in default (DDD1 or lower). Split-rated issues (i.e.,
rated investment-grade by one rating agency and high-yield by another)
are included in the index based on the issue's corresponding composite
rating. Structured-note issues, deferred interest bonds, and
pay-in-kind bonds are excluded.
LEHMAN BROTHERS 3-MONTH TREASURY BILL INDEX is a representation of the
average of T-Bill rates for each of the prior three months, adjusted
to a bond equivalent yield basis (short-term instruments).
The following table represents the comparative indexes' calendar
year-to-year performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Wilshire 5000 MSCI EAFE Lehman Brothers Aggregate Merrill Lynch High Yield Lehman Brothers 3-Month
Bond Index Master Index Treasury Bill Index
1998 23.43% 20.27% 8.69% 3.66% 5.31%
1997 31.29% 2.01% 9.65% 12.82% 5.52%
1996 21.21% 6.05% 3.63% 11.06% 5.38%
1995 36.45% 11.21% 18.47% 19.91% 6.09%
1994 (0.06)% 7.78% (2.92)% (1.17)% 4.26%
1993 11.28% 32.56% 9.75% 17.18% 3.20%
1992 8.97% (12.17)% 7.40% 18.16% 2.92%
1991 34.21% 12.13% 16.00% 34.58% 6.22%
1990 (6.18)% (23.45)% 8.96% (4.35)% 8.21%
1989 29.17% 10.53% 14.53% 4.23% 8.74%
</TABLE>
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indexes.
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 returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes that may be developed and made
available in the future.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
A fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, a fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific
periods of time. Each point on the momentum indicator represents a
fund's percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
A fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which
may produce superior after-tax returns over time. For example, a
$1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of March 31, 1999, FMR advised over $ 34 billion in municipal
fund assets, $ 125 billion in taxable fixed-income fund assets,
$ 129 billion in money market fund assets, $ 523 billion
in equity fund assets, $ 13 billion in international fund
assets, and $ 33 billion in Spartan(registered trademark) fund
assets. The funds may reference the growth and variety of money market
mutual funds and the adviser's innovation and participation in the
industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock) fund manager. FMR, its subsidiaries, and affiliates
maintain a worldwide information and communications network for the
purpose of researching and managing investments abroad.
Each Freedom Fund may reference, illustrate or discuss the performance
of the underlying Fidelity f unds.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
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 each fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
DISTRIBUTIONS AND TAXES
DIVIDENDS. A portion of each Freedom Fund's income may qualify for the
dividends-received deduction available to corporate shareholders to
the extent that each Freedom Fund's income is derived from qualifying
dividends or from the qualifying portion of dividends from an
underlying Fidelity fund. For each Freedom Fund and for those
underlying Fidelity funds that may earn other types of income that do
not qualify for the dividends-received deduction available to
corporate shareholders, such as interest, short-term capital gains
(including short-term capital gains distributed by an underlying
Fidelity fund as a dividend as well as short-term capital gains earned
on the sale of underlying Fidelity fund shares or other securities),
and non-qualifying dividends, the percentage of fund dividends that
qualifies for the deduction generally will be less than 100%. A
portion of each Freedom Fund's dividends derived from certain U.S.
Government securities, including the portion of dividends from an
underlying Fidelity fund derived from certain U.S. Government
securities, and securities of certain other investment companies may
be exempt from state and local taxation.
CAPITAL GAINS DISTRIBUTIONS. Each Freedom Fund's long-term capital
gains distributions, including amounts attributable to an underlying
Fidelity fund's long-term capital gains distributions, are federally
taxable to shareholders generally as capital gains.
RETURNS OF CAPITAL. If a fund's distributions exceed its taxable
income and capital gains realized during a taxable year, all or a
portion of the distributions made in the same taxable year may be
recharacterized as a return of capital to shareholders. A return of
capital distribution will generally not be taxable, but will reduce
each shareholder's cost basis in the fund and result in a higher
reported capital gain or lower reported capital loss when those shares
on which the distribution was received are sold.
TAX STATUS OF THE FUNDS. Each Freedom Fund intends to qualify each
year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code so that it will not be liable for federal tax on
income and capital gains distributed to shareholders. In order to
qualify as a regulated investment company, and avoid being subject to
federal income or excise taxes at the fund level, each Freedom Fund
intends to distribute substantially all of its net investment income
and net realized capital gains within each calendar year as well as on
a fiscal year basis, and intends to comply with other tax rules
applicable to regulated investment companies.
Five to ten years after a Freedom Fund with a target retirement date
reaches its target retirement year, its asset allocation target is
expected to match Freedom Income Fund's asset allocation target. It is
expected that at such time the assets of the Freedom Fund with a
target retirement date will be combined with the assets of Freedom
Income Fund. The Trustees reserve the right to engage in such
transactions in the best interests of the funds, taking into account
then existing laws and regulations. The trust's Trust Instrument
empowers the Trustees to take these actions with or without seeking
shareholder approval. A combination of assets may result in a capital
gain or loss for shareholders of a Freedom Fund with a target
retirement date.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each Freedom Fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. It is up to you or your tax preparer to determine
whether the sale of shares of a fund resulted in a capital gain or
loss or other tax consequence to you. In addition to federal income
taxes, shareholders may be subject to state and local taxes on fund
distributions, and shares may be subject to state and local personal
property taxes. Investors should consult their tax advisers to
determine whether a Freedom Fund is suitable to their particular tax
situation.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. The
Board of Trustees governs each Freedom Fund and is responsible for
protecting the interests of shareholders. The Trustees are experienced
executives who meet periodically throughout the year to oversee each
Freedom Fund's activities, review contractual arrangements with
companies that provide services to each Freedom Fund and review each
Freedom Fund's performance. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees also serve in similar
capacities for other funds advised by FMR or its affiliates, including
the underlying Fidelity funds. If the interests of a Freedom Fund and
an underlying Fidelity fund were to diverge, a conflict of interest
could arise and affect how the Trustees fulfill their fiduciary duties
to the affected funds. Strategic Advisers has structured the Freedom
Funds to avoid these potential conflicts, although there may be
situations where a conflict of interest is unavoidable. In such
instances, Strategic Advisers and the Trustees would take reasonable
steps to minimize and, if possible, eliminate the conflict. The
business address of each Trustee and officer who is an "interested
person" (as defined in the 1940 Act) is 82 Devonshire Street, Boston,
Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees is Fidelity Investments(registered
trademark), P.O. Box 9235, Boston, Massachusetts 02205-9235. Those
Trustees who are "interested persons" by virtue of their affiliation
with the trust, Strategic Advisers, or FMR are indicated by an
asterisk (*).
*EDWARD C. JOHNSON 3d (68), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Man agement, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc., and a Director of FDC. Abigail Johns on,
Member of the Advisory Board of Fidelity Aberdeen Street Trust, is Mr.
Johnson's daughter.
ABIGAIL P. JOHNSON (37), Member of the Advisory Board of Fidelity
Aberdeen Street Trust (1999), is Vice President of certain Equity
Funds (1997), and is a Director of FMR Corp. (1994). Before assuming
her current responsibilities, Ms. Johnson managed a number of Fidelity
funds. Edward C. Johnson 3d, Trustee and President of the Funds, is
Ms. Johnson's father.
J. GARY BURKHEAD (57), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (66), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (67), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (55), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES (71), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc. (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (66), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk
previous ly s erved as a Director of General Re Corporation
(reinsurance, 1987-1998) a n d Valuation Research Corp.
(appraisals and valuations, 1993-1995). He serves as Chairman of the
Board of Directors of National Arts Stabilization Inc., Chairman of
the Board of Trustees of the Greenwich Hospital Association, Director
of the Yale-New Haven Health Services Corp. (1998), a Member of the
Public Oversight Board of the American Institute of Certified Public
Accountants' SEC Practice Section (1995), and as a Public Governor of
the National Association of Securities Dealers, Inc. (1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan(registered trademark) Fund and FMR
Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was
also Vice President of Fidelity Investments Corporate Services
(1991-1992). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and
Society for the Preservation of New England Antiquities, and as an
Overseer of the Museum of Fine Arts of Boston.
WILLIAM O. McCOY (65), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (70), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board, of
Lexmark International, Inc. (office machines, 1991). Prior to 1991, he
held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993), Imation Corp. (imaging and
information storage, 1997).
*ROBERT C. POZEN (52), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (70), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
ROBERT A. LAWRENCE (46), is Vice President of certain Equity Funds
(1997), Vice President of Fidelity Real Estate High Income Fund (1995)
and Fidelity Real Estate High Income Fund II (1996), and Senior Vice
President of FMR (1993).
REN Y. CHENG (42), is Vice President of Fidelity Freedom 2000
(1998), Fidelity Freedom 2010 (1998), Fidelity Freedom 2020 (1998),
Fidelity Freedom 2030 (1998), and Fidelity Freedom Income Fund (1998).
Prior to joining Fidelity as a portfolio manager in 1994, Mr. Cheng
spent nine years at Putnam Investments, most recently as a senior vice
president and senior portfolio manager.
SCOTT D. STEWART (40), is Vice President of the Freedom Funds (1996),
and other funds advised by FMR. He is also a Senior Vice President and
group leader of Fidelity's Structured Equity Group. Prior to his
current responsibilities, Mr. Stewart has managed a variety of
Fidelity funds.
ERIC D. ROITER (50), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998) and Vice President and Clerk of FDC
(1998). Prior to joining Fidelity, Mr. Roiter was with the law firm of
Debevoise & Plimpton, as an associate (1981-1984) and as a partner
(1985-1997), and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981). Mr. Roiter was an
Adjunct Member, Faculty of Law, at Columbia University Law School
(1996-1997).
RICHARD A. SILVER (51), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
MATTHEW N. KARSTETTER (37), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
JOHN H. COSTELLO (52), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (52), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended March 31, 1999, or calendar
year ended December 31, 1998, as applicable.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation Table
AGGREGATE COMPENSATION FROM A Edward C. Johnson 3d** Abigail P. Johnson ** J. Gary Burkhead ** Ralph F. Cox
FUND
Freedom IncomeB $ 0 $ 0 $ 0 $ 21
Freedom 2000B $ 0 $ 0 $ 0 $ 52
Freedom 2010B $ 0 $ 0 $ 0 $ 94
Freedom 2020B $ 0 $ 0 $ 0 $ 88
Freedom 2030B $ 0 $ 0 $ 0 $ 29
TOTAL COMPENSATION FROM THE $ 0 $ 0 $ 0 $ 223,500
FUND COMPLEX*,A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
AGGREGATE COMPENSATION FROM A Phyllis Burke Davis Robert M. Gates E. Bradley Jones Donald J. Kirk Peter S. Lynch **
FUND
Freedom IncomeB $ 21 $ 21 $ 21 $ 22 $ 0
Freedom 2000B $ 49 $ 51 $ 49 $ 50 $ 0
Freedom 2010B $ 90 $ 92 $ 90 $ 90 $ 0
Freedom 2020B $ 85 $ 87 $ 85 $ 85 $ 0
Freedom 2030B $ 28 $ 28 $ 28 $ 28 $ 0
TOTAL COMPENSATION FROM THE $ 220,500 $ 223,500 $222,000 $ 226,500 $ 0
FUND COMPLEX*,A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
AGGREGATE COMPENSATION
FROM A William O. McCoy Gerald C. Mc- Donough Marvin L. Mann Robert C. Pozen** Thomas R. Williams
FUND
Freedom IncomeB $ 21 $ 26 $ 21 $ 0 $ 21
Freedom 2000B $ 51 $ 61 $ 51 $ 0 $ 51
Freedom 2010B $ 92 $ 112 $ 92 $ 0 $ 92
Freedom 2020B $ 87 $ 105 $ 87 $ 0 $ 87
Freedom 2030B $ 28 $ 34 $ 28 $ 0 $ 28
TOTAL COMPENSATION
FROM THE $ 223,500 $ 273,500 $ 220,500 $ 0 $ 223,500
FUND COMPLEX*,A
</TABLE>
* Information is for the calendar year ended December 31, 1998 for 237
funds in the complex.
** Interested Trustees of the funds, M s. Joh nson and Mr.
Burkhead are compensated by FMR.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1998, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $75,000; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $55,039; Marvin L. Mann, $55,039; Thomas R.
Williams, $63,433; and William O. McCoy, $55,039.
B Compensation figures include cash.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of March 31, 1999, approximately 1.43% of Freedom Income's total
outstanding shares was held by FMR. FMR Corp. is the ultimate parent
company of FMR. By virtue of his ownership interest in FMR Corp., as
described in the "Control of Investment Advisers" section below, Mr.
Edward C. Johnson 3d, President and Trustee of the fund, may be deemed
to be a beneficial owner of these shares. As of the above date, with
the exception of Mr. Johnson 3d's deemed ownership of Freedom Income's
shares, the Trustees, Members of the Advisory Board, and officers of
the funds owned, in the aggregate, less than 1% of each fund's total
outstanding shares.
As of March 31, 1999, the following owned of record or beneficially
5% or more (up to and including 25%) of each fund's outstanding
shares:
Freedom Income: General Motors Corporation, New York, NY
(7.14%).
Freedom 2030: Lucent Technologies, Morristown, NJ (22.93%).
As of March 31, 1999, approximately 29.02% of Freedom Income's
total outstanding shares were held by Lucent Technologies, Morristown,
NJ; approximately 45.38% of Freedom 2000's total outstanding shares
were held by Lucent Technologies, Morristown, NJ; approximately 48.96%
of Freedom 2010's total outstanding shares were held by Lucent
Technologies, Morristown, NJ; and approximately 52.27% of Freedom
2020's total outstanding shares were held by Lucent Technologies,
Morristown, NJ.
A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other
shareholders.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and Strategic Advisers. The voting common stock of FMR Corp. is
divided into two classes. Class B is held predominantly by members of
the Edward C. Johnson 3d family and is entitled to 49% of the vote on
any matter acted upon by the voting common stock. Class A is held
predominantly by non-Johnson family member employees of FMR Corp. and
its affiliates and is entitled to 51% of the vote on any such matter.
The Johnson family group and all other Class B shareholders have
entered into a shareholders' voting agreement under which all Class B
shares will be voted in accordance with the majority vote of Class B
shares. Under the 1940 Act, control of a company is presumed where one
individual or group of individuals owns more than 25% of the voting
stock of that company. Therefore, through their ownership of voting
common stock and the execution of the shareholders' voting agreement,
members of the Johnson family may be deemed, under the 1940 Act, to
form a controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that sets forth all
employees' fiduciary responsibilities regarding the funds, establishes
procedures for personal investing and restricts certain transactions.
For example, all personal trades in most securities require
pre-clearance, and participation in initial public offerings is
prohibited. In addition, restrictions on the timing of personal
investing in relation to trades by Fidelity funds and on short-term
trading have been adopted.
MANAGEMENT CONTRACTS
Each Freedom Fund has entered into a management contract with
Strategic Advisers, pursuant to which Strategic Advisers furnishes
investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
each fund, Strategic Advisers 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. Strategic Advisers is authorized, in its discretion, to
allocate each fund's assets among the underlying Fidelity funds in
which the fund may invest. Strategic Advisers also provides each fund
with all necessary office facilities and personnel for servicing the
fund's investments and compensates all personnel of each fund or
Strategic Advisers performing services relating to research,
statistical and investment activities.
Strategic Advisers in turn has entered into administration agreements
with FMR on behalf of each Freedom Fund. Under the terms of each
administration agreement, FMR or its affiliates provide the management
and administrative services (other than investment advisory services)
necessary for the operation of each Freedom Fund. These services
include providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state laws; developing management and
shareholder services for each fund; and furnishing reports,
evaluations and analyses on a variety of subjects to the Trustees.
MANAGEMENT-RELATED EXPENSES. Under the terms of each Freedom Fund's
management contract, Strategic Advisers, either itself or through an
affiliate, is responsible for payment of all operating expenses of
each Freedom Fund with certain exceptions. Under the terms of each
administration agreement, FMR pays all management and administrative
expenses (other than investment advisory expenses) for which Strategic
Advisers is responsible. Specific expenses payable by FMR include
expenses for typesetting, printing, and mailing proxy materials to
shareholders, legal expenses, fees of the custodian and auditor, and
each fund's proportionate share of insurance premiums and Investment
Company Institute dues. Each administration agreement further provides
that FMR will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders; however, under the terms of each Freedom Fund's transfer
agent agreement, the transfer agent bears the costs of providing these
services to existing shareholders. In addition, FMR compensates all
officers of each fund and all Trustees who are "interested persons" of
the trust, Strategic Advisers, or FMR. FMR also pays all fees
associated with transfer agent, dividend disbursing, and shareholder
services, pricing and bookkeeping services, and administration of each
Freedom Fund's securities lending program.
Each Freedom Fund pays the following expenses: fees and expenses of
the non-interested Trustees, interest on borrowings, taxes, brokerage
commissions (if any), shareholder charges (if any) associated with
investing in the underlying Fidelity funds, and such nonrecurring
expenses as may arise, including costs of any litigation to which a
fund may be a party, and any obligation it may have to indemnify the
officers and Trustees with respect to litigation.
MANAGEMENT FEES. For the services of Strategic Advisers under each
management contract, each Freedom Fund pays Strategic Advisers a
monthly management fee at the annual rate of 0.10% of its average net
assets throughout the month. The management fee paid to Strategic
Advisers by each Freedom Fund is reduced by an amount equal to the
fees and expenses paid by each Freedom Fund to the non-interested
Trustees.
For the services of FMR under each administration agreement, Strategic
Advisers pays FMR a monthly administration fee equal to the monthly
management fee received by Strategic Advisers from each Freedom Fund,
minus an amount equal to an annual rate of 0.02% of that fund's
average net assets throughout the month.
The following table shows the amount of management fees paid by each
Freedom Fund to Strategic Advisers for the past three fiscal years,
and the amount of credits reducing management fees for each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Fiscal Years Ended March 31 Amount of Credits Reducing Management Fees Paid to
Management Fees Strategic Advisers
Freedom Income 1999 $ 10,273 $ 116,588*
1998 $ 33 $ 24,292*
1997** $ 50 $ 1,428*
Freedom 2000 1999 $ 48,347 $ 378,241*
1998 $ 3,562 $ 88,363*
1997** $ 27 $ 2,691*
Freedom 2010 1999 $ 69,453 $ 723,047*
1998 $ 7,774 $ 152,611*
1997** $ 31 $ 3,651*
Freedom 2020 1999 $ 69,229 $ 654,849*
1998 $ 5,024 $ 124,538*
1997** $ 32 $ 2,469*
Freedom 2030 1999 $ 24,815 $ 191,985*
1998 $ 253 $ 41,724*
1997** $ 27 $ 692*
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
** From October 17, 1996 (commencement of operations).
Strategic Advisers may, from time to time, voluntarily reimburse all
or a portion of a Freedom Fund's operating expenses (exclusive of
interest, taxes, brokerage commissions, shareholder charges, and
extraordinary expenses), which is subject to revision or termination.
Strategic Advisers retains the ability to be repaid for these expense
reimbursements in the amount that expenses fall below the limit prior
to the end of the fiscal year.
Expense reimbursements by Strategic Advisers will increase each
Freedom Fund's returns and yield and repayment of the reimbursement by
each fund will lower its returns and yield.
Effective November 1, 1996, Strategic Advisers voluntarily agreed to
reimburse each Freedom Fund if and to the extent that its aggregate
operating expenses, including management fees, were in excess of an
annual rate of 0.08% of its average net assets. The table below shows
the periods of reimbursement and levels of expense limitations; the
dollar amount of management fees incurred under each fund's contract
before reimbursement; and the dollar amount of management fees
reimbursed by Strategic Advisers under the expense reimbursement for
each period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Years Ended March 31 Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Freedom Income 1999 $ 126,861* $ 24,831
1998 $ 24,325* $ 4,813
1997** $ 1,478* $ 283
Freedom 2000 1999 $ 426,588* $ 85,083
1998 $ 91,925* $ 17,482
1997** $ 2,718* $ 444
Freedom 2010 1999 $ 792,500* $ 158,244
1998 $ 160,385* $ 30,159
1997** $ 3,682* $ 623
Freedom 2020 1999 $ 724,078* $ 144,340
1998 $ 129,562* $ 24,214
1997** $ 2,501* $ 436
Freedom 2030 1999 $ 216,800* $ 43,119
1998 $ 41,977* $ 8,077
1997** $ 719* $ 118
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
** From October 17, 1996 (commencement of operations).
DISTRIBUTION SERVICES
Each Freedom Fund has entered into a distribution agreement with
Fidelity Distributors Corporation (FDC), an affiliate of Strategic
Advisers and FMR. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements
call for FDC to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of each fund, which are
continuously offered at NAV. Promotional and administrative expenses
in connection with the offer and sale of shares are paid by Strategic
Advisers or FMR.
The Trustees have approved a Distribution and Service Plan on behalf
of each Freedom Fund (the Plans) pursuant to Rule 12b-1 under the 1940
Act (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the Freedom Funds, Strategic
Advisers and FMR to incur certain expenses that might be considered to
constitute indirect payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the Freedom
Funds to Strategic Advisers, or the payment of administration fees by
Strategic Advisers to FMR out of the management fees, is deemed to be
indirect financing by the fund of the distribution of its shares, such
payment is authorized by the Plan. Each Plan specifically recognizes
that Strategic Advisers or FMR may use its past profits or its other
resources, including management fees paid to Strategic Advisers by the
funds, or administration fees paid to FMR by Strategic Advisers out of
the management fees, to pay FDC for expenses incurred in connection
with providing services intended to result in the sale of Freedom Fund
shares and/or shareholder support services. In addition, each Plan
provides that Strategic Advisers or FMR, directly or through FDC, may
pay intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for the Freedom Funds.
Payments made by Strategic Advisers or FMR either directly or through
FDC to intermediaries for the fiscal year ended 1999 amounted to
$ 1,517 .
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the Freedom Funds and its shareholders. In particular, the
Trustees noted that each Plan does not authorize payments by the
Freedom Funds other than those made to Strategic Advisers under its
management contract with each fund. To the extent that each Plan gives
Strategic Advisers, FMR and FDC greater flexibility in connection with
the distribution of fund shares, additional sales of fund shares or
stabilization of cash flows may result. Furthermore, certain
shareholder support services may be provided more effectively under
the Plans by local entities with whom shareholders have other
relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
Each Freedom Fund may execute portfolio transactions with, and
purchase securities issued by, depository institutions that receive
payments under the Plans. No preference for the instruments of such
depository institutions will be shown in the selection of investments.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each Freedom Fund has entered into a transfer agent agreement with
Fidelity Investments Institutional Operations Company, Inc. (FIIOC),
an affiliate of Strategic Advisers and FMR. Under the terms of the
agreements, FIIOC performs transfer agency, dividend disbursing, and
shareholder services for each Freedom Fund.
For providing transfer agency services, FIIOC receives no fees from
each Freedom Fund; however, each underlying Fidelity fund pays its
respective transfer, dividend disbursing, and shareholder servicing
agent (either FIIOC or an affiliate of FIIOC) fees based, in part, on
the number of accounts in and assets of each Freedom Fund invested in
such underlying Fidelity fund.
FIIOC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FIIOC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each Freedom Fund has also entered into a service agent agreement with
FSC, an affiliate of Strategic Advisers and FMR. Under the terms of
the agreements, FSC calculates the NAV and dividends for each Freedom
Fund, maintains each Freedom Fund's portfolio and general accounting
records, and administers each Freedom Fund's securities lending
program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each Freedom Fund's average daily net assets throughout
the month.
For administering each Freedom Fund's securities lending program, FSC
receives fees based on the number and duration of individual
securities loans.
FMR bears the cost of pricing and bookkeeping services and
administration of the securities lending program under the terms of
its administration agreements with Strategic Advisers.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. The Freedom Funds are funds of Fidelity Aberdeen
Street Trust, an open-end management investment company organized as a
Delaware business trust on June 20, 1991. Currently, there are five
funds in Fidelity Aberdeen Street Trust: Fidelity Freedom Income Fund,
Fidelity Freedom 2000 Fund, Fidelity Freedom 2010 Fund, Fidelity
Freedom 2020 Fund and Fidelity Freedom 2030 Fund. The Trustees are
permitted to create additional funds in the trust.
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 to the rights of creditors, are allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets
of each fund in the trust shall be charged with the liabilities and
expenses attributable to such fund. Any general expenses of the trust
shall be allocated between or among any one or more of the funds.
SHAREHOLDER LIABILITY. Each trust is a business trust organized under
Delaware law. Delaware law provides that shareholders shall be
entitled to the same limitations of personal liability extended to
stockholders of private corporations for profit. The courts of some
states, however, may decline to apply Delaware law on this point. The
Trust Instrument contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
trust. The Trust Instrument provides that the trust shall not have any
claim against shareholders except for the payment of the purchase
price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the trust or the Trustees
relating to the trust or to a fund shall include a provision limiting
the obligations created thereby to the trust or to one or more funds
and its or their assets. The Trust Instrument further provides that
shareholders of a fund shall not have a claim on or right to any
assets belonging to any other fund.
The Trust Instrument provides for indemnification out of each fund's
property of any shareholder or former shareholder held personally
liable for the obligations of the fund solely by reason of his or her
being or having been a shareholder and not because of his or her acts
or omissions or for some other reason. The Trust Instrument also
provides that each fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the
fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which Delaware law does not apply, no
contractual limitation of liability was in effect, and a fund is
unable to meet its obligations. Strategic Advisers believes that, in
view of the above, the risk of personal liability to shareholders is
extremely remote.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you are entitled to one vote for each
share that you own. The voting rights of shareholders can be changed
only by a shareholder vote. Shares may be voted in the aggregate, by
fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
On matters submitted for consideration by shareholders of any
underlying Fidelity fund, a Freedom Fund will vote its shares in
proportion to the vote of all other holders of shares of that
underlying Fidelity Fund or, in certain limited instances, the Freedom
Fund will vote its shares in the manner indicated by a vote of its
shareholders.
The trust or any of its funds may be terminated upon the sale of its
assets to another open-end management investment company or series
thereof, or upon liquidation and distribution of its assets. Generally
such terminations must be approved by a vote of shareholders; however,
the Trustees may, without prior shareholder approval authorize a
transfer of all assets of a Freedom Fund with a target retirement date
into Freedom Income Fund, or any successor thereto. In the event of
the dissolution or liquidation of the trust, shareholders of each of
its funds are entitled to receive the underlying assets of such fund
available for distribution. In the event of the dissolution or
liquidation of a fund, shareholders of that fund are entitled to
receive the underlying assets of the fund available for distribution.
Under the Trust Instrument, the Trustees may, without shareholder
vote, in order to change the form of organization of the trust cause
the trust to merge or consolidate with one or more trusts,
partnerships, associations, limited liability companies or
corporations, as long as the surviving entity is an open-end
management investment company, or is a fund thereof, that will succeed
to or assume the trust's registration statement, or cause the trust to
incorporate under Delaware law.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, New
York, is custodian of the assets of each fund. The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any subcustodian banks and clearing agencies. The Chase Manhattan
Bank, headquartered in New York, also may serve as a special purpose
custodian of certain assets in connection with repurchase agreement
transactions.
FMR, its officers and directors, its affiliated companies, and members
of the Board of Trustees may, from time to time, conduct transactions
with various banks, including banks serving as custodians for certain
funds advised by FMR. 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. PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts , serves as independent accountant for eac h
fun d. The auditor examines financial statements for the funds and
provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended March 31, 1999, and report of the auditor, are
included in the funds' a nnual r eport and are
incorporated herein by reference.
APPENDIX
Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity Focus, and
Fidelity Investments are registered trademarks of FMR Corp.
Fidelity Freedom Funds, Fidelity Freedom Income Fund, Fidelity
Freedom 2000 Fund, Fidelity Freedom 2010 Fund, Fidelity Freedom 2020
Fund, Fidelity Freedom 2030 Fund, Magellan , and Spartan are
registered service marks of FMR Corp.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Trust Instrument of the Trust, dated June 20, 1991, is
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 13.
(2) Certificate of Amendment of the Trust Instrument, dated January
16, 1992, is incorporated herein by reference to Exhibit 1(b)
of Post-Effective Amendment No. 13.
(3) Supplemental Trust Instrument, dated August 21, 1996, is
incorporated herein by reference to Exhibit 1(b) of
Post-Effective Amendment No. 16.
(4) Certificate of Amendment of the Trust Instrument, dated August
22, 1996, is incorporated herein by reference to Exhibit 1(c)
of Post-Effective Amendment No. 16.
(5) Supplemental Trust Instrument, dated March 31, 1997, is
incorporated herein by reference to Exhibit 1(e) of
Post-Effective Amendment No. 19.
(b) Bylaws of the Trust, as amended and dated May 19, 1994, are
incorporated herein by reference to Exhibit 2(a) of Fidelity Union
Street Trust II's (File No. 33-43757) Post-Effective Amendment No.
10.
(c) Not applicable.
(d)(1) Management Contract between the Registrant, on behalf of
Fidelity Freedom 2030 Fund and Strategic Advisers, Inc., is
incorporated herein by reference to Exhibit 5(a) of
Post-Effective Amendment No. 18.
(2) Management Contract between the Registrant, on behalf of
Fidelity Freedom 2020 Fund and Strategic Advisers, Inc., is
incorporated herein by reference to Exhibit 5(b) of
Post-Effective Amendment No. 18.
(3) Management Contract between the Registrant, on behalf of
Fidelity Freedom 2010 Fund and Strategic Advisers, Inc., is
incorporated herein by reference to Exhibit 5(c) of
Post-Effective Amendment No. 18.
(4) Management Contract between the Registrant, on behalf of
Fidelity Freedom 2000 Fund and Strategic Advisers, Inc., is
incorporated herein by reference to Exhibit 5(d) of
Post-Effective Amendment No. 18.
(5) Management Contract between the Registrant, on behalf of
Fidelity Freedom Income Fund and Strategic Advisers, Inc., is
incorporated herein by reference to Exhibit 5(e) of
Post-Effective Amendment No. 18.
(6) Administration Agreement between Strategic Advisers, Inc. and
Fidelity Management & Research Company for Fidelity Freedom
2030 Fund is incorporated herein by reference to Exhibit 5(f)
of Post-Effective Amendment No. 18.
(7) Administration Agreement between Strategic Advisers, Inc. and
Fidelity Management & Research Company for Fidelity Freedom
2020 Fund is incorporated herein by reference to Exhibit 5(g)
of Post-Effective Amendment No. 18.
(8) Administration Agreement between Strategic Advisers, Inc. and
Fidelity Management & Research Company for Fidelity Freedom
2010 Fund is incorporated herein by reference to Exhibit 5(h)
of Post-Effective Amendment No. 18.
(9) Administration Agreement between Strategic Advisers, Inc. and
Fidelity Management & Research Company for Fidelity Freedom
2000 Fund is incorporated herein by reference to Exhibit 5(i)
of Post-Effective Amendment No. 18.
(10) Administration Agreement between Strategic Advisers, Inc. and
Fidelity Management & Research Company for Fidelity Freedom
Income Fund is incorporated herein by reference to Exhibit 5(j)
of Post-Effective Amendment No. 18.
(e)(1) General Distribution Agreement between the Registrant, on
behalf of Fidelity Freedom 2030 Fund, and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(a)
of Post-Effective Amendment No. 18.
(2) General Distribution Agreement between the Registrant, on
behalf of Fidelity Freedom 2020 Fund, and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(b)
of Post-Effective Amendment No. 18.
(3) General Distribution Agreement between the Registrant, on
behalf of Fidelity Freedom 2010 Fund, and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(c)
of Post-Effective Amendment No. 18.
(4) General Distribution Agreement between the Registrant, on
behalf of Fidelity Freedom 2000 Fund, and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(d)
of Post-Effective Amendment No. 18.
(5) General Distribution Agreement between the Registrant, on
behalf of Fidelity Freedom Income Fund, and Fidelity
Distributors Corporation is incorporated herein by reference to
Exhibit 6(e) of Post-Effective Amendment No. 18.
(f)(1) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is
incorporated herein by reference to Exhibit 7(a) of Fidelity
Select Portfolio's (File No. 2-69972) Post-Effective Amendment
No. 54.
(2) The Fee Deferral Plan for Non-Interested Persons, Directors,
and Trustees of the Fidelity Funds, effective as of September
14, 1995 and amended through November 14, 1996, is incorporated
herein by reference to Exhibit 7(b) of Post-Effective Amendment
No. 19.
(g)(1) Custodian Agreement and Appendix C, dated December 1, 1994,
between The Bank of New York and the Registrant are
incorporated herein by reference to Exhibit 8(a) of Fidelity
Hereford Street Trust's (File No. 33-52577) Post-Effective
Amendment No. 4.
(2) Appendix A, dated September 17, 1998, to the Custodian
Agreement, dated December 1, 1994, between The Bank of New York
and the Registrant is incorporated herein by reference to
Exhibit g(2) of Fidelity Concord Street Trust's (File No.
33-15983) Post-Effective Amendment No. 31.
(3) Appendix B, dated December 17, 1998, to the Custodian
Agreement, dated December 1, 1994, between The Bank of New York
and the Registrant is incorporated herein by reference to
Exhibit g(3) of Fidelity Concord Street Trust's (File No.
33-15983) Post-Effective Amendment No. 31.
(4) Addendum, dated August 31, 1996, to Custodian Agreement, dated
December 1, 1994, between The Bank of New York and the
Registrant, is incorporated herein by reference to Exhibit 8(d)
of Post-Effective Amendment No. 19.
(5) Fidelity Group Repo Custodian Agreement among The Bank of New
York, J. P. Morgan Securities, Inc., and the Registrant, dated
February 12, 1996, is incorporated herein by reference to
Exhibit 8(d) of Fidelity Institutional Cash Portfolios' (File
No. 2-74808) Post-Effective Amendment No. 31.
(6) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between The Bank of New York and the Registrant, dated February
12, 1996, is incorporated herein by reference to Exhibit 8(e)
of Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(7) Fidelity Group Repo Custodian Agreement among Chemical Bank,
Greenwich Capital Markets, Inc., and the Registrant, dated
November 13, 1995, is incorporated herein by reference to
Exhibit 8(f) of Fidelity Institutional Cash Portfolios' (File
No. 2-74808) Post-Effective Amendment No. 31.
(8) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between Chemical Bank and the Registrant, dated November 13,
1995, is incorporated herein by reference to Exhibit 8(g) of
Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(9) Joint Trading Account Custody Agreement between The Bank of New
York and the Registrant, dated May 11, 1995, is incorporated
herein by reference to Exhibit 8(h) of Fidelity Institutional
Cash Portfolios' (File No. 2-74808) Post-Effective Amendment No.
31.
(10) First Amendment to Joint Trading Account Custody Agreement
between The Bank of New York and the Registrant, dated July 14,
1995, is incorporated herein by reference to Exhibit 8(i) of
Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(h) Not applicable.
(i) Not applicable.
(j) Consent of PricewaterhouseCoopers LLP, dated May 7, 1999 is filed
herein as Exhibit j(1).
(k) Not applicable.
(l) Not applicable.
(m)(1) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Freedom 2030 Fund is filed herein as Exhibit m(1).
(2) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Freedom 2020 Fund is filed herein as Exhibit m(2).
(3) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Freedom 2010 Fund is filed herein as Exhibit m(3).
(4) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Freedom 2000 Fund is filed herein as Exhibit m(4).
(5) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Freedom Income Fund is filed herein as Exhibit m(5).
(n) Financial Data Schedules for the funds are filed herein as
Exhibit 27.
(o) Not applicable.
Item 24. Trusts Controlled by or under Common Control with this Trust
The Board of Trustees of the Trust is the same as the board of other
Fidelity funds, each of which has Fidelity Management & Research
Company, or an affiliate, as its investment adviser. In addition, the
officers of the Trust are substantially identical to those of the
other Fidelity funds. Nonetheless, the Trust takes the position that
it is not under common control with other Fidelity funds because the
power residing in the respective boards and officers arises as the
result of an official position with the respective trusts.
Item 25. Indemnification
Pursuant to Del. Code Ann. title 12 (sub-section) 3817, a Delaware
business trust may provide in its governing instrument for the
indemnification of its officers and trustees from and against any and
all claims and demands whatsoever. Article X, Section 10.02 of the
Trust Instrument sets forth the reasonable and fair means for
determining whether indemnification shall be provided to any past or
present Trustee or officer. It states that the Trust shall indemnify
any present or past trustee or officer to the fullest extent permitted
by law against liability, and all expenses reasonably incurred by him
or her in connection with any claim, action, suit or proceeding in
which he or she is involved by virtue of his or her service as a
trustee or officer and against any amount incurred in settlement
thereof. Indemnification will not be provided to a person adjudged by
a court or other adjudicatory body to be liable to the Trust or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties (collectively,
"disabling conduct"), or not to have acted in good faith in the
reasonable belief that his or her action was in the best interest of
the Trust. In the event of a settlement, no indemnification may be
provided unless there has been a determination, as specified in the
Trust Instrument, that the officer or trustee did not engage in
disabling conduct.
Pursuant to Section 11 of the Distribution Agreement, the Trust
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading
under the 1933 Act, or any other statute or the common law. However,
the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust by or on behalf of the Distributor. In no case is the indemnity
of the Trust in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any
liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
Pursuant to the agreement by which Fidelity Investments Institutional
Operations Company, Inc. ("FIIOC") is appointed transfer agent, the
Registrant agrees to indemnify and hold FIIOC harmless against any
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names FIIOC
and/or the Registrant as a party and is not based on and does not
result from FIIOC's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with
FIIOC's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FIIOC's willful misfeasance, bad faith or negligence
or reckless disregard of duties) which results from the negligence of
the Registrant, or from FIIOC's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of FIIOC's
acting in reliance upon advice reasonably believed by FIIOC to have
been given by counsel for the Registrant, or as a result of FIIOC's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Item 26. Business and Other Connections of Investment Advisers
(1) STRATEGIC ADVISERS, INC.
82 Devonshire Street, Boston, MA 02109
Strategic Advisers, Inc. serves as investment adviser to the Fidelity
Freedom Funds and provides investment supervisory services to
individuals, banks, thrifts, pension and profit sharing plans, trusts,
estates, charitable organizations, corporations, and other business
organizations, and provides a variety of publications on investment
and personal finance. The directors and officers of Strategic
Advisers have held, during the past two fiscal years, the following
positions of a substantial nature.
Roger T. Servison President and Director of
Strategic Advisers, Inc.;
Director of Fidelity
Brokerage Services, Inc.
James C. Curvey Chairman of the Board and
Director of Strategic
Advisers, Inc.; Chief
Operating Officer, Director
and Senior Vice Chairman FMR
Corp.
Lynn Davis Vice President of Portfolio
Advisory Services of
Strategic Advisers, Inc.
Donald Alhart Vice President of Crosby
Advisors of Strategic
Advisers, Inc.
Amy F. Barnwell Vice President of Charitable
Advisory Services of
Strategic Advisers, Inc.
Stephen G. Manning Treasurer of Strategic
Advisers, Inc.; Vice
President and Treasurer of
FMR Corp.; Assistant
Treasurer of Fidelity
Management & Research
Company (FMR), Fidelity
Investments Money
Management, Inc. (FIMM),
Fidelity Management &
Research (U.K.) Inc. (FMR
U.K.), and Fidelity
Management & Research (Far
East) Inc. (FMR Far East).
Gary Greenstein Assistant Treasurer of
Strategic Advisers, Inc.;
Vice President of Taxation
for FMR Corp.
Linda C. Holland Compliance Officer of
Strategic Advisers, Inc.
Jay Freedman Clerk of Strategic Advisers,
Inc.; Associate General
Counsel FMR Corp.; Assistant
Clerk of FMR Corp., FMR
U.K., and FMR Far East;
Secretary of FIMM.
Susan Shields Assistant Clerk of Strategic
Advisers, Inc.
Page Pennell Assistant Clerk of Strategic
Advisers, Inc.
Item 27. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for
all funds advised by FMR or an affiliate.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Fund
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
James Curvey Director None
Martha B. Willis President None
Eric D. Roiter Vice President Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 28. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company, Fidelity Service
Company, Inc. or Fidelity Investments Institutional Operations
Company, Inc., 82 Devonshire Street, Boston, MA 02109, or the funds'
custodian, The Bank of New York, 110 Washington Street, New York, NY.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for the effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment No. 22 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and Commonwealth of
Massachusetts, on the 14th day of May 1999.
Fidelity Aberdeen Street Trust
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
(Signature) (Title) (Date)
/s/Edward C. Johnson 3d President and Trustee May 14, 1999
(dagger)
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer May 14, 1999
Richard A. Silver
/s/Robert C. Pozen Trustee May 14, 1999
Robert C. Pozen
/s/Ralph F. Cox Trustee May 14, 1999
*
Ralph F. Cox
/s/Phyllis Burke Davis Trustee May 14, 1999
*
Phyllis Burke Davis
/s/Robert M. Gates Trustee May 14, 1999
**
Robert M. Gates
/s/E. Bradley Jones Trustee May 14, 1999
*
E. Bradley Jones
/s/Donald J. Kirk Trustee May 14, 1999
*
Donald J. Kirk
/s/Peter S. Lynch Trustee May 14, 1999
*
Peter S. Lynch
/s/Marvin L. Mann Trustee May 14, 1999
*
Marvin L. Mann
/s/William O. McCoy Trustee May 14, 1999
*
William O. McCoy
/s/Gerald C. McDonough Trustee May 14, 1999
*
Gerald C. McDonough
/s/Thomas R. Williams Trustee May 14, 1999
*
Thomas R. Williams
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash
Fidelity Advisor Series III Portfolios
Fidelity Advisor Series IV Fidelity Institutional
Fidelity Advisor Series V Tax-Exempt Cash Portfolios
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts
Fidelity Beacon Street Trust Municipal Trust
Fidelity Boston Street Trust Fidelity Money Market Trust
Fidelity California Municipal Fidelity Mt. Vernon Street
Trust Trust
Fidelity California Municipal Fidelity Municipal Trust
Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal
Fidelity Charles Street Trust Trust
Fidelity Commonwealth Trust Fidelity New York Municipal
Fidelity Concord Street Trust Trust II
Fidelity Congress Street Fund Fidelity Phillips Street Trust
Fidelity Contrafund Fidelity Puritan Trust
Fidelity Corporate Trust Fidelity Revere Street Trust
Fidelity Court Street Trust Fidelity School Street Trust
Fidelity Court Street Trust II Fidelity Securities Fund
Fidelity Covington Trust Fidelity Select Portfolios
Fidelity Daily Money Fund Fidelity Sterling Performance
Fidelity Destiny Portfolios Portfolio, L.P.
Fidelity Deutsche Mark Fidelity Summer Street Trust
Performance Fidelity Trend Fund
Portfolio, L.P. Fidelity U.S.
Fidelity Devonshire Trust Investments-Bond Fund, L.P.
Fidelity Exchange Fund Fidelity U.S.
Fidelity Financial Trust Investments-Government
Fidelity Fixed-Income Trust Securities
Fidelity Government Fund, L.P.
Securities Fund Fidelity Union Street Trust
Fidelity Hastings Street Trust Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Newbury Street Trust
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
Variable Insurance Products
Fund III
in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Government
Fidelity Advisor Annuity Fund Securities Fund
Fidelity Advisor Series I Fidelity Hastings Street Trust
Fidelity Advisor Series II Fidelity Hereford Street Trust
Fidelity Advisor Series III Fidelity Income Fund
Fidelity Advisor Series IV Fidelity Institutional Cash
Fidelity Advisor Series V Portfolios
Fidelity Advisor Series VI Fidelity Institutional
Fidelity Advisor Series VII Tax-Exempt Cash Portfolios
Fidelity Advisor Series VIII Fidelity Institutional Trust
Fidelity Beacon Street Trust Fidelity Investment Trust
Fidelity Boston Street Trust Fidelity Magellan Fund
Fidelity California Municipal Fidelity Massachusetts
Trust Municipal Trust
Fidelity California Municipal Fidelity Money Market Trust
Trust II Fidelity Mt. Vernon Street
Fidelity Capital Trust Trust
Fidelity Charles Street Trust Fidelity Municipal Trust
Fidelity Commonwealth Trust Fidelity Municipal Trust II
Fidelity Congress Street Fund Fidelity New York Municipal
Fidelity Contrafund Trust
Fidelity Corporate Trust Fidelity New York Municipal
Fidelity Court Street Trust Trust II
Fidelity Court Street Trust II Fidelity Phillips Street Trust
Fidelity Covington Trust Fidelity Puritan Trust
Fidelity Daily Money Fund Fidelity Revere Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity School Street Trust
Fidelity Destiny Portfolios Fidelity Securities Fund
Fidelity Deutsche Mark Fidelity Select Portfolios
Performance Fidelity Sterling Performance
Portfolio, L.P. Portfolio, L.P.
Fidelity Devonshire Trust Fidelity Summer Street Trust
Fidelity Exchange Fund Fidelity Trend Fund
Fidelity Financial Trust Fidelity U.S.
Fidelity Fixed-Income Trust Investments-Bond Fund, L.P.
Fidelity U.S.
Investments-Government
Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson /s/Peter S.
3d___________ Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary /s/William O.
Burkhead_______________ McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox /s/Gerald C.
__________________ McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke /s/Marvin L.
Davis_____________ Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley /s/Thomas R. Williams
Jones________________ ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk
__________________
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Government
Fidelity Advisor Annuity Fund Securities Fund
Fidelity Advisor Series I Fidelity Hastings Street Trust
Fidelity Advisor Series II Fidelity Hereford Street Trust
Fidelity Advisor Series III Fidelity Income Fund
Fidelity Advisor Series IV Fidelity Institutional Cash
Fidelity Advisor Series V Portfolios
Fidelity Advisor Series VI Fidelity Institutional
Fidelity Advisor Series VII Tax-Exempt Cash Portfolios
Fidelity Advisor Series VIII Fidelity Institutional Trust
Fidelity Beacon Street Trust Fidelity Investment Trust
Fidelity Boston Street Trust Fidelity Magellan Fund
Fidelity California Municipal Fidelity Massachusetts
Trust Municipal Trust
Fidelity California Municipal Fidelity Money Market Trust
Trust II Fidelity Mt. Vernon Street
Fidelity Capital Trust Trust
Fidelity Charles Street Trust Fidelity Municipal Trust
Fidelity Commonwealth Trust Fidelity Municipal Trust II
Fidelity Congress Street Fund Fidelity New York Municipal
Fidelity Contrafund Trust
Fidelity Corporate Trust Fidelity New York Municipal
Fidelity Court Street Trust Trust II
Fidelity Court Street Trust II Fidelity Phillips Street Trust
Fidelity Covington Trust Fidelity Puritan Trust
Fidelity Daily Money Fund Fidelity Revere Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity School Street Trust
Fidelity Destiny Portfolios Fidelity Securities Fund
Fidelity Deutsche Mark Fidelity Select Portfolios
Performance Fidelity Sterling Performance
Portfolio, L.P. Portfolio, L.P.
Fidelity Devonshire Trust Fidelity Summer Street Trust
Fidelity Exchange Fund Fidelity Trend Fund
Fidelity Financial Trust Fidelity U.S.
Fidelity Fixed-Income Trust Investments-Bond Fund, L.P.
Fidelity U.S.
Investments-Government
Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the
Prospectus and Statement of Additional Information in Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A of
Fidelity Aberdeen Street Trust: Fidelity Freedom Income
Fund(registered trademark), Fidelity Freedom 2000 Fund(registered
trademark), Fidelity Freedom 2010 Fund(registered trademark), Fidelity
Freedom 2020 Fund(registered trademark), and Fidelity Freedom 2030
Fund(registered trademark), of our report dated May 7, 1999 on the
financial statements and financial highlights included in the March
31, 1999 Annual Report to Shareholders of Fidelity Freedom Income
Fund, Fidelity Freedom 2000 Fund, Fidelity Freedom 2010 Fund, Fidelity
Freedom 2020 Fund, and Fidelity Freedom 2030 Fund.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Auditor" in the
Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 14, 1999
Exhibit m(1)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Aberdeen Street Trust:
Fidelity Freedom 2030 Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Freedom 2030 Fund (the "Portfolio"), a series of shares of
Fidelity Aberdeen Street Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company ("FMR"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest (the
"shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that Strategic Advisers,
Inc. ("Strategic Advisers"), an affiliate of FMR, and/or FMR may use
its revenues, including management fees paid to Strategic Advisers by
the Portfolio, or fees paid to FMR by Strategic Advisers out of such
management fees, as well as its past profits or its resources from any
other source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of shares of the
Portfolio, including the activities referred to above.
3. Strategic Advisers and/or FMR directly, or through the Distributor,
may, subject to the approval of the Trustees, make payments to
securities dealers and other third parties who engage in the sale of
shares or who render shareholder support services, including but not
limited to providing office space, equipment and telephone facilities,
answering routine inquiries regarding the Portfolio, processing
shareholder transactions and providing such other shareholder services
as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to Strategic Advisers, FMR, the Distributor or any other party,
it being recognized that the Portfolio presently pays, and will
continue to pay, a management fee to Strategic Advisers. To the
extent that any payments made by the Portfolio to Strategic Advisers,
including payment of management fees, out of which management fees
Strategic Advisers may pay fees to FMR, should be deemed to be
indirect financing of any activity primarily intended to result in the
sale of shares of the Portfolio within the context of Rule 12b-1 under
the Act, then such payments shall be deemed to be authorized by this
Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until April 30, 2000, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, or to increase materially the amount
spent by the Portfolio for distribution, shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of the Portfolio, and (b) any material amendments of this Plan shall
be effective only upon approval in the manner provided in the first
sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require Strategic
Advisers and/or FMR and/or the Distributor to provide the Fund, for
review by the Fund's Board of Trustees, and the Trustees shall review,
at least quarterly, a written report of the amounts expended in
connection with financing any activity primarily intended to result in
the sale of shares of the Portfolio (making estimates of such costs
where necessary or desirable) and the purposes for which such
expenditures were made.
9. This Plan does not require Strategic Advisers, FMR, or the
Distributor to perform any specific type or level of distribution
activities or to incur any specific level of expenses for activities
primarily intended to result in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Trust Instrument or other organizational document,
any obligations assumed by the Portfolio pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
Portfolio and its assets, and shall not constitute obligations of any
other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit m(2)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Aberdeen Street Trust:
Fidelity Freedom 2020 Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Freedom 2020 Fund (the "Portfolio"), a series of shares of
Fidelity Aberdeen Street Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company ("FMR"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest (the
"shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that Strategic Advisers,
Inc. ("Strategic Advisers"), an affiliate of FMR, and/or FMR may use
its revenues, including management fees paid to Strategic Advisers by
the Portfolio, or fees paid to FMR by Strategic Advisers out of such
management fees, as well as its past profits or its resources from any
other source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of shares of the
Portfolio, including the activities referred to above.
3. Strategic Advisers and/or FMR directly, or through the Distributor,
may, subject to the approval of the Trustees, make payments to
securities dealers and other third parties who engage in the sale of
shares or who render shareholder support services, including but not
limited to providing office space, equipment and telephone facilities,
answering routine inquiries regarding the Portfolio, processing
shareholder transactions and providing such other shareholder services
as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to Strategic Advisers, FMR, the Distributor or any other party,
it being recognized that the Portfolio presently pays, and will
continue to pay, a management fee to Strategic Advisers. To the
extent that any payments made by the Portfolio to Strategic Advisers,
including payment of management fees, out of which management fees
Strategic Advisers may pay fees to FMR, should be deemed to be
indirect financing of any activity primarily intended to result in the
sale of shares of the Portfolio within the context of Rule 12b-1 under
the Act, then such payments shall be deemed to be authorized by this
Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until April 30, 2000, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, or to increase materially the amount
spent by the Portfolio for distribution, shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of the Portfolio, and (b) any material amendments of this Plan shall
be effective only upon approval in the manner provided in the first
sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require Strategic
Advisers and/or FMR and/or the Distributor to provide the Fund, for
review by the Fund's Board of Trustees, and the Trustees shall review,
at least quarterly, a written report of the amounts expended in
connection with financing any activity primarily intended to result in
the sale of shares of the Portfolio (making estimates of such costs
where necessary or desirable) and the purposes for which such
expenditures were made.
9. This Plan does not require Strategic Advisers, FMR, or the
Distributor to perform any specific type or level of distribution
activities or to incur any specific level of expenses for activities
primarily intended to result in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Trust Instrument or other organizational document,
any obligations assumed by the Portfolio pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
Portfolio and its assets, and shall not constitute obligations of any
other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit m(3)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Aberdeen Street Trust:
Fidelity Freedom 2010 Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Freedom 2010 Fund (the "Portfolio"), a series of shares of
Fidelity Aberdeen Street Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company ("FMR"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest (the
"shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that Strategic Advisers,
Inc. ("Strategic Advisers"), an affiliate of FMR, and/or FMR may use
its revenues, including management fees paid to Strategic Advisers by
the Portfolio, or fees paid to FMR by Strategic Advisers out of such
management fees, as well as its past profits or its resources from any
other source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of shares of the
Portfolio, including the activities referred to above.
3. Strategic Advisers and/or FMR directly, or through the Distributor,
may, subject to the approval of the Trustees, make payments to
securities dealers and other third parties who engage in the sale of
shares or who render shareholder support services, including but not
limited to providing office space, equipment and telephone facilities,
answering routine inquiries regarding the Portfolio, processing
shareholder transactions and providing such other shareholder services
as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to Strategic Advisers, FMR, the Distributor or any other party,
it being recognized that the Portfolio presently pays, and will
continue to pay, a management fee to Strategic Advisers. To the
extent that any payments made by the Portfolio to Strategic Advisers,
including payment of management fees, out of which management fees
Strategic Advisers may pay fees to FMR, should be deemed to be
indirect financing of any activity primarily intended to result in the
sale of shares of the Portfolio within the context of Rule 12b-1 under
the Act, then such payments shall be deemed to be authorized by this
Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until April 30, 2000, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, or to increase materially the amount
spent by the Portfolio for distribution, shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of the Portfolio, and (b) any material amendments of this Plan shall
be effective only upon approval in the manner provided in the first
sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require Strategic
Advisers and/or FMR and/or the Distributor to provide the Fund, for
review by the Fund's Board of Trustees, and the Trustees shall review,
at least quarterly, a written report of the amounts expended in
connection with financing any activity primarily intended to result in
the sale of shares of the Portfolio (making estimates of such costs
where necessary or desirable) and the purposes for which such
expenditures were made.
9. This Plan does not require Strategic Advisers, FMR, or the
Distributor to perform any specific type or level of distribution
activities or to incur any specific level of expenses for activities
primarily intended to result in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Trust Instrument or other organizational document,
any obligations assumed by the Portfolio pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
Portfolio and its assets, and shall not constitute obligations of any
other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit m(4)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Aberdeen Street Trust:
Fidelity Freedom 2000 Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Freedom 2000 Fund (the "Portfolio"), a series of shares of
Fidelity Aberdeen Street Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company ("FMR"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest (the
"shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that Strategic Advisers,
Inc. ("Strategic Advisers"), an affiliate of FMR, and/or FMR may use
its revenues, including management fees paid to Strategic Advisers by
the Portfolio, or fees paid to FMR by Strategic Advisers out of such
management fees, as well as its past profits or its resources from any
other source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of shares of the
Portfolio, including the activities referred to above.
3. Strategic Advisers and/or FMR directly, or through the Distributor,
may, subject to the approval of the Trustees, make payments to
securities dealers and other third parties who engage in the sale of
shares or who render shareholder support services, including but not
limited to providing office space, equipment and telephone facilities,
answering routine inquiries regarding the Portfolio, processing
shareholder transactions and providing such other shareholder services
as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to Strategic Advisers, FMR, the Distributor or any other party,
it being recognized that the Portfolio presently pays, and will
continue to pay, a management fee to Strategic Advisers. To the
extent that any payments made by the Portfolio to Strategic Advisers,
including payment of management fees, out of which management fees
Strategic Advisers may pay fees to FMR, should be deemed to be
indirect financing of any activity primarily intended to result in the
sale of shares of the Portfolio within the context of Rule 12b-1 under
the Act, then such payments shall be deemed to be authorized by this
Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until April 30, 2000, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, or to increase materially the amount
spent by the Portfolio for distribution, shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of the Portfolio, and (b) any material amendments of this Plan shall
be effective only upon approval in the manner provided in the first
sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require Strategic
Advisers and/or FMR and/or the Distributor to provide the Fund, for
review by the Fund's Board of Trustees, and the Trustees shall review,
at least quarterly, a written report of the amounts expended in
connection with financing any activity primarily intended to result in
the sale of shares of the Portfolio (making estimates of such costs
where necessary or desirable) and the purposes for which such
expenditures were made.
9. This Plan does not require Strategic Advisers, FMR, or the
Distributor to perform any specific type or level of distribution
activities or to incur any specific level of expenses for activities
primarily intended to result in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Trust Instrument or other organizational document,
any obligations assumed by the Portfolio pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
Portfolio and its assets, and shall not constitute obligations of any
other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit m(5)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Aberdeen Street Trust:
Fidelity Freedom Income Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Freedom Income Fund (the "Portfolio"), a series of shares of
Fidelity Aberdeen Street Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company ("FMR"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest (the
"shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that Strategic Advisers,
Inc. ("Strategic Advisers"), an affiliate of FMR, and/or FMR may use
its revenues, including management fees paid to Strategic Advisers by
the Portfolio, or fees paid to FMR by Strategic Advisers out of such
management fees, as well as its past profits or its resources from any
other source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of shares of the
Portfolio, including the activities referred to above.
3. Strategic Advisers and/or FMR directly, or through the Distributor,
may, subject to the approval of the Trustees, make payments to
securities dealers and other third parties who engage in the sale of
shares or who render shareholder support services, including but not
limited to providing office space, equipment and telephone facilities,
answering routine inquiries regarding the Portfolio, processing
shareholder transactions and providing such other shareholder services
as the Fund may reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to Strategic Advisers, FMR, the Distributor or any other party,
it being recognized that the Portfolio presently pays, and will
continue to pay, a management fee to Strategic Advisers. To the
extent that any payments made by the Portfolio to Strategic Advisers,
including payment of management fees, out of which management fees
Strategic Advisers may pay fees to FMR, should be deemed to be
indirect financing of any activity primarily intended to result in the
sale of shares of the Portfolio within the context of Rule 12b-1 under
the Act, then such payments shall be deemed to be authorized by this
Plan.
5. This Plan shall become effective upon the first business day of the
month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until April 30, 2000, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, or to increase materially the amount
spent by the Portfolio for distribution, shall be effective only upon
approval by a vote of a majority of the outstanding voting securities
of the Portfolio, and (b) any material amendments of this Plan shall
be effective only upon approval in the manner provided in the first
sentence in this paragraph.
7. This Plan may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require Strategic
Advisers and/or FMR and/or the Distributor to provide the Fund, for
review by the Fund's Board of Trustees, and the Trustees shall review,
at least quarterly, a written report of the amounts expended in
connection with financing any activity primarily intended to result in
the sale of shares of the Portfolio (making estimates of such costs
where necessary or desirable) and the purposes for which such
expenditures were made.
9. This Plan does not require Strategic Advisers, FMR, or the
Distributor to perform any specific type or level of distribution
activities or to incur any specific level of expenses for activities
primarily intended to result in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Trust Instrument or other organizational document,
any obligations assumed by the Portfolio pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
Portfolio and its assets, and shall not constitute obligations of any
other series of shares of the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
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<NAME> Fidelity Aberdeen Street Trust
<SERIES>
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<S>
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<NAME> Fidelity Aberdeen Street Trust
<SERIES>
<NUMBER> 31
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