Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, NW
Second Floor
Washington, DC 20036-1800
202.778.9000
www.kl.com
September 1, 2000
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Christian Sandoe
Re: Fidelity Covington Trust (the trust):
Fidelity Real Estate High Income Fund II (the fund)
File No. 811-7319
Ladies and Gentlemen:
On behalf of the above referenced fund, transmitted herewith for filing
pursuant to Rule 14a-6(a) of Regulation 14A under the Securities Exchange Act of
1934 is a preliminary copy of the Notice, Proxy Statement, and Form of Proxy to
be sent to shareholders of the fund in connection with a Special Meeting of
Shareholders of the fund to be held on November 15, 2000. Pursuant to Rule
14a-3(c), the required informational copy of the fund's Annual Report for the
fiscal period ended December 31, 1999 has been previously furnished to the
commission.
We anticipate mailing definitive proxy materials to shareholders on or
about October 2, 2000, and in order to allow sufficient time to meet this
schedule, we would greatly appreciate receiving comments (if any) from the Staff
no later than September 11, 2000. Please advise the undersigned as soon as
possible if any delays are anticipated.
The proposals for consideration by shareholders are as follows. To
facilitate the Staff's review of this filing, we make the following
representations concerning disclosure for the proxy proposals included herein:
1. TO ELECT A BOARD OF TRUSTEES.
This proposal is a routine item. In addition to the
current Trustees, J. Michael Cook and Marie L. Knowles will
be elected.
<PAGE>
Real Estate High Income Fund II
September 1, 2000
Page 2
2. TO RATIFY AUDITORS.
This is the standard proposal ratifying the selection of the trust's
auditor.
3. TO APPROVE AN AMENDED AND RESTATED DECLARATION OF TRUST (NEW
DECLARATION OF TRUST).
The Declaration of Trust is a more modern form of trust instrument
for a Massachusetts business trust. It gives the Trustees more
flexibility, and subject to the applicable requirements of Federal
and state law, broader authority to act. This increased flexibility
may allow the Trustees to react more quickly to changes in
competitive and regulatory conditions. Adoption of the New
Declaration of Trust will not alter the Trustees' existing fiduciary
obligations to act in the best interests of the shareholders. This
proposal is substantially similar to that contained in the proxy
statement for VARIABLE INSURANCE PRODUCTS FUND III (FILE NO.
811-7205) FILED ON MAY 22, 2000. WE DO NOT BELIEVE THAT THIS
PROPOSAL REQUIRES REVIEW.
4. TO AMEND THE MANAGEMENT CONTRACT FOR THE FUND.
The purpose of this proposal is to revise the management fee
calculation to provide for lower fees when FMR's assets under
management exceed a certain level. Otherwise, the modified contracts
are substantially similar to the current management contracts. The
proposal is substantially similar to the proposal contained in
VARIABLE INSURANCE PRODUCTS FUND III (FILE NO. 811-7205) FILED ON
MAY 22, 2000. WE DO NOT BELIEVE THAT THIS PROPOSAL REQUIRES REVIEW.
5. TO APPROVE A NEW SUB-ADVISORY AGREEMENT WITH FIDELITY MANAGEMENT &
RESEARCH (U.K.) INC. FOR THE FUND.
6. TO APPROVE A NEW SUB-ADVISORY AGREEMENT WITH FIDELITY MANAGEMENT &
RESEARCH (FAR EAST) INC. FOR THE FUND.
<PAGE>
Real Estate High Income Fund II
September 1, 2000
Page 3
7. TO MODIFY THE FUND'S INVESTMENT OBJECTIVE AND ELIMINATE A FUNDAMENTAL
INVESTMENT POLICY OF THE FUND.
This is a standard proposal, the purpose of which is to allow the
fund to communicate more clearly its investment objective and
strategies by standardizing its investment disclosure in a manner
consistent with other Fidelity funds with similar investment
disciplines. This proposal is substantially similar to the proposal
contained in VARIABLE INSURANCE PRODUCTS FUND III (FILE NO.
811-7205) FILED ON MAY 22, 2000. WE DO NOT BELIEVE THAT THIS
PROPOSAL REQUIRES REVIEW.
8. TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION CONCERNING THE
UNDERWRITING OF SECURITIES.
9. TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION CONCERNING THE
CONCENTRATION OF ITS INVESTMENTS IN A SINGLE INDUSTRY.
The primary purpose of Proposals 8 and 9 is to conform fundamental
investment limitations to Fidelity's standard investment limitations. FMR
believes that increased standardization will help to promote certain operational
efficiencies and facilitate monitoring of compliance with fundamental and
non-fundamental investment limitations. On the whole, these proposals are
substantially similar to those contained in VARIABLE INSURANCE PRODUCTS FUND III
(FILE NO. 811-7205) FILED ON MAY 22, 2000.
Please contact Tiffany Hornsby at (202) 778-9451 with any questions or
comments relating to this filing.
Sincerely,
/s/Tiffany Hornsby
------------------
Tiffany Hornsby
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
FIDELITY COVINGTON TRUST
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee Paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
<PAGE>
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
FIDELITY REAL ESTATE HIGH INCOME FUND II
A FUND OF
FIDELITY COVINGTON TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-[TO BE SUPPLIED]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of FIDELITY REAL ESTATE HIGH INCOME FUND II:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
Meeting) of Real Estate High Income Fund II (the fund), a series of Fidelity
Covington Trust, a single series trust (the trust), will be held at an office of
the trust, 27 State Street, 10th Floor, Boston, Massachusetts 02109 on November
15, 2000, at 10:00 a.m. The purpose of the Meeting is to consider and act upon
the following proposals, and to transact such other business as may properly
come before the Meeting or any adjournments thereof.
1. To elect a Board of Trustees.
2. To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the fund.
3. To authorize the Trustees to adopt an amended and restated Declaration
of Trust.
4. To approve an amended management contract for the fund.
5. To approve a new sub-advisory agreement with Fidelity Management &
Research (U.K.) Inc. for the fund.
6. To approve a new sub-advisory agreement with Fidelity Management &
Research (Far East) Inc. for the fund.
7. To modify the fund's investment objective and eliminate a fundamental
investment policy of the fund.
8. To amend the fund's fundamental investment limitation concerning
underwriting.
9. To amend the fund's fundamental investment limitation concerning the
concentration of its investments in a single industry.
The Board of Trustees has fixed the close of business on September 18,
2000 as the record date for the determination of the shareholders of the fund
entitled to notice of, and to vote at, such Meeting and any adjournments
thereof.
By order of the Board of Trustees,
ERIC D. ROITER Secretary
October 2, 2000
<PAGE>
YOUR VOTE IS IMPORTANT -
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO
DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING INSTRUCTIONS
ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENVELOPE
PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO
AVOID UNNECESSARY EXPENSE, WE ASK YOUR COOPERATION IN RESPONDING PROMPTLY, NO
MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of assistance
to you and help avoid the time and expense involved in validating your vote if
you fail to execute your proxy card properly.
1. Individual Accounts: Your name should be signed exactly as it appears in
the registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to a name shown in the registration.
3. All other accounts should show the capacity of the individual signing.
This can be shown either in the form of the account registration itself
or by the individual executing the proxy card. For example:
REGISTRATION VALID SIGNATURE
------------ ---------------
A. 1) ABC Corp. John Smith, Treasurer
2) ABC Corp. John Smith, Treasurer
c/o John Smith, Treasurer
B. 1) ABC Corp. Profit Sharing Plan Ann B. Collins, Trustee
2) ABC Trust Ann B. Collins, Trustee
3) Ann B. Collins, Trustee Ann B. Collins, Trustee
u/t/d 12/28/78
C. 1) Anthony B. Craft, Cust. Anthony B. Craft
f/b/o Anthony B. Craft, Jr.
UGMA
2
<PAGE>
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS OF
FIDELITY COVINGTON TRUST: FIDELITY REAL ESTATE HIGH
INCOME FUND II
TO BE HELD ON NOVEMBER 15, 2000
This Proxy Statement is furnished in connection with a solicitation of
proxies made by, and on behalf of, the Board of Trustees of Fidelity Covington
Trust (the trust) to be used at the Special Meeting of Shareholders of Fidelity
Real Estate High Income Fund II (the fund) and at any adjournments thereof (the
Meeting), to be held on November 15, 2000 at 10:00 a.m. at 27 State Street, 10th
Floor, Boston, Massachusetts 02109, an office of the trust and Fidelity
Management & Research Company (FMR), the fund's investment adviser.
The purpose of the Meeting is set forth in the accompanying Notice. The
solicitation is being made primarily by the mailing of this Proxy Statement and
the accompanying proxy card on or about October 2, 2000. Supplementary
solicitations may be made by mail, telephone, telegraph, facsimile, electronic
means or by personal interview by representatives of the trust. If the fund
records votes by telephone, it will use procedures designed to authenticate
shareholders' identities, to allow shareholders to authorize the voting of their
shares in accordance with their instructions, and to confirm that their
instructions have been properly recorded. Proxies voted by telephone may be
revoked at any time before they are voted in the same manner that proxies voted
by mail may be revoked. The expenses in connection with preparing this Proxy
Statement and its enclosures and of all solicitations, including telephone
voting, will be paid by the fund. The fund will reimburse brokerage firms and
others for their reasonable expenses in forwarding solicitation material to the
beneficial owners of shares.
The principal business address of Fidelity Distributors Corporation (FDC),
the fund's principal underwriter and distribution agent, is 82 Devonshire
Street, Boston, Massachusetts 02109.
If the enclosed proxy card is executed and returned, it may nevertheless be
revoked at any time prior to its use by written notification received by the
trust, by the execution of a later-dated proxy card, by the trust's receipt of a
subsequent valid telephonic vote or by attending the Meeting and voting in
person.
3
<PAGE>
All proxy cards solicited by the Board of Trustees that are properly
executed and received by the Secretary prior to the Meeting, and are not
revoked, will be voted at the Meeting. Shares represented by such proxies will
be voted in accordance with the instructions thereon. If no specification is
made on a proxy card, it will be voted FOR the matters specified on the proxy
card. Only proxies that are voted will be counted towards establishing a quorum.
Broker non-votes are not considered voted for this purpose. Shareholders should
note that while votes to ABSTAIN will count toward establishing a quorum,
passage of any proposal being considered at the Meeting will occur only if a
sufficient number of votes are cast FOR the proposal. Accordingly, votes to
ABSTAIN and votes AGAINST will have the same effect in determining whether the
proposal is approved. With respect to fund shares held in Fidelity individual
retirement accounts (including Traditional, Rollover, SEP, SARSEP, Roth and
SIMPLE IRAs), the IRA Custodian will vote those shares for which it has received
instructions from shareholders only in accordance with such instructions. If
Fidelity IRA shareholders do not vote their shares, the IRA Custodian will vote
their shares for them, in the same proportion as other Fidelity IRA shareholders
have voted, but only to the extent necessary to reach quorum at the meeting.
If a quorum is not present at the Meeting, or if a quorum is present at the
Meeting but sufficient votes to approve one or more of the proposed items are
not received, or if other matters arise requiring shareholder attention, the
persons named as proxy agents may propose one or more adjournments of the
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of those shares present at the
Meeting or represented by proxy. When voting on a proposed adjournment, the
persons named as proxy agents will vote FOR the proposed adjournment all shares
that they are entitled to vote with respect to each item, unless directed to
vote AGAINST the item, in which case such shares will be voted AGAINST the
proposed adjournment with respect to that item. A shareholder vote may be taken
on one or more of the items in this Proxy Statement prior to such adjournment if
sufficient votes have been received and it is otherwise appropriate.
4
<PAGE>
On July 31, 2000 there were 34,747,793.079 shares of the fund issued and
outstanding. To the knowledge of the trust, substantial (5% or more) record or
beneficial ownership of the fund on July 31, 2000 was as follows:
IBM Retirement Plan Trust Investment Account (29.12%)
Fidelity Real Estate Asset Manager II, LP (22.77%)
Fidelity Real Estate Asset Manager III, LP (33.22%)
Summer Federal Partners, LP (14.89%)
Fidelity Real Estate Partners II Corp., the general partner of Fidelity Real
Estate Manager II, L.P., Fidelity Real Estate Partners III Corp., the general
partner of Fidelity Real Estate Manager III, L.P., and Summer Federal Partners
L.P., have advised the Trust that for Proposals 1-9 contained in this Proxy
Statement, each will vote its shares at the meeting for each Proposal. To the
knowledge of the trust, no other shareholder owned of record or beneficially
more than 5% of the outstanding shares of the fund on that date.
Shareholders of record at the close of business on September 18, 2000 will
be entitled to vote at the Meeting. Each such shareholder will be entitled to
one vote for each dollar of net asset value held on that date.
FOR A FREE COPY OF THE FUND'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999 AND THE SEMIANNUAL REPORT FOR THE FISCAL PERIOD ENDED JUNE 30,
2000 CALL 1-800-[TBD] OR WRITE TO FIDELITY DISTRIBUTORS CORPORATION AT 82
DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109.
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE MEETING IS SUFFICIENT TO
APPROVE PROPOSAL 1 AND A MAJORITY OF ALL VOTES OF THE FUND CAST AT THE MEETING
IS SUFFICIENT TO APPROVE PROPOSAL 2. PROPOSAL 3 REQUIRES THE AFFIRMATIVE VOTE OF
A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF THE ENTIRE TRUST. APPROVAL
OF PROPOSALS 4 THROUGH 9 REQUIRES THE AFFIRMATIVE VOTE OF A "MAJORITY OF THE
OUTSTANDING VOTING SECURITIES" OF THE FUND. UNDER THE INVESTMENT COMPANY ACT OF
1940 (THE 1940 ACT), THE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING
SECURITIES" MEANS THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE
VOTING SECURITIES PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE HOLDERS
OF MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE
5
<PAGE>
PRESENT OR REPRESENTED BY PROXY OR (B) MORE THAN 50% OF THE OUTSTANDING VOTING
SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED "PRESENT" FOR THIS PURPOSE.
1. TO ELECT A BOARD OF TRUSTEES.
The purpose of this proposal is to elect a Board of Trustees of the trust.
Pursuant to the provisions of the Declaration of Trust of Fidelity Covington
Trust, the Trustees have determined that the number of Trustees shall be fixed
at twelve. Gerald C. McDonough and Thomas R. Williams are scheduled to retire at
the end of 2000 and it is proposed that J. Michael Cook and Marie L. Knowles
serve as Trustees effective January 1, 2001. It is intended that the enclosed
proxy card will be voted for the election as Trustees of the twelve nominees
listed below, unless such authority has been withheld in the proxy card.
Except for Mr. Cook and Ms. Knowles, all nominees named below are currently
Trustees of Fidelity Covington Trust and have served in that capacity
continuously since originally elected or appointed. Robert M. Gates, Ned C.
Lautenbach, William O. McCoy and Robert C. Pozen were selected by the trust's
Nominating and Administration Committee (see page ___) and were appointed to the
Board in March 1997, January 2000, January 1997 and August 1997, respectively.
Mr. Cook and Ms. Knowles are currently Members of the Advisory Board of the
trust. They were selected by the trust's Nominating and Administration Committee
and were appointed as Members of the Advisory Board on March 16, 2000 and June
15, 2000, respectively. None of the nominees are related to one another. Those
nominees indicated by an asterisk (*) are "interested persons" of the trust by
virtue of, among other things, their affiliation with either the trust, the
fund's investment adviser (FMR, or the Adviser), or the fund's distribution
agent, FDC. The business address of each nominee who is an "interested person"
is 82 Devonshire Street, Boston, Massachusetts 02109, and the business address
of all other nominees is Fidelity Investments, P.O. Box 9235, Boston,
Massachusetts 02205-9235. Except for Robert M. Gates, Ned C. Lautenbach, William
O. McCoy and Robert C. Pozen, each of the nominees is currently a Trustee of 56
registered investment companies advised by FMR. Mr. Gates, Mr. McCoy and Mr.
Pozen are currently Trustees of 55 registered investment companies advised by
FMR. Mr. Lautenbach is currently a Trustee of 52 registered investment companies
advised by FMR. Mr. Cook and Ms. Knowles are not currently Trustees of any
registered investment companies advised by FMR.
6
<PAGE>
In the election of Trustees, those twelve nominees receiving the highest
number of votes cast at the Meeting, providing a quorum is present, shall be
elected.
7
<PAGE>
Year of
Nominee Election or
(Age) Principal Occupation ** Appointment
------- -------------------- -----------
J. Michael Cook*** Prior to Mr. Cook's retirement in -
May 1999, he served as Chairman and
(58) Chief Executive Officer of Deloitte
& Touche LLP, Chairman of the
Deloitte & Touche Foundation, and a
member of the Board of Deloitte
Touche Tohmatsu. He currently
serves as an Executive in Residence
of the Columbia Business School and
as a Director of Dow Chemical
Company (2000), HCA - The
Healthcare Company (1999), and
Children First (1999). He is a
member of the Executive Committee
of the Securities Regulation
Institute, a member of the Advisory
Board of Boardroom Consultants,
past chairman and a member of the
Board of Catalyst (a leading
organization for the advancement of
women in business), and a Director
of the STAR Foundation (Society to
Advance the Retarded and
Handicapped). He also serves as a
member of the Board and Executive
Committee and as Co-Chairman of the
Audit and Finance Committee of the
Center for Strategic &
International Studies, a member of
the Board of Overseers of the
Columbia Business School, and a
Member of the Advisory Board of the
Graduate School of Business of the
University of Florida.
8
<PAGE>
Ralph F. Cox President of RABAR Enterprises 1991
(management consulting-engineering
industry, 1994). Prior to February
(68) 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 Waste Management Inc.
(non-hazardous waste, 1993), CH2M
Hill Companies (engineering), and
Bonneville Pacific (independent
power and petroleum production). In
addition, he is a member of
advisory boards of Texas A&M
University and the University of
Texas at Austin.
Phyllis Burke Davis Retired from Avon Products, Inc. 1992
where she held various positions
including Senior Vice President of
(68) Corporate Affairs and Group Vice
President of U.S. sales,
distribution, and manufacturing.
She is currently a Director of
BellSouth Corporation
(telecommunications), Eaton
Corporation (manufacturing), and
the TJX Companies, Inc. (retail
stores), and previously served as a
Director of Hallmark Cards, Inc.,
Nabisco Brands, Inc., and Standard
Brands, Inc. In addition, she is a
member of the Board of Directors of
the Southampton Hospital in
Southampton, N.Y. (1998).
9
<PAGE>
Robert M. Gates Consultant, author, and lecturer 1997
(1993). Mr. Gates was Director of
(57) 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
Charles Stark Draper Laboratory
(non-profit), NACCO Industries,
Inc. (mining and manufacturing),
and TRW Inc. (automotive, space,
defense, and information
technology). Mr. Gates previously
served as a Director of LucasVarity
PLC (automotive components and
diesel engines). He is currently
serving as Dean of the George Bush
School of Government and Public
Service at Texas A&M University
(1999-2001). Mr. Gates also is a
Trustee of the Forum for
International Policy and of the
Endowment Association of the
College of William and Mary.
10
<PAGE>
*Edward C. Johnson 3d President of Fidelity Real Estate 1996
High Income Fund II. Mr. Johnson
also serves as President of other
(70) Fidelity funds. He is Chief
Executive Officer, Chairman, 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
Management & Research (U.K.) Inc.
and of Fidelity Management &
Research (Far East) Inc.; Chairman
(1998) and a Director (1997) of
Fidelity Investments Money
Management, Inc.; Chairman and
Representative Director of Fidelity
Investments Japan Limited (1997);
and a Director of FDC and of FMR
Co., Inc. (2000).
11
<PAGE>
Donald J. Kirk Executive-in-Residence (1995) at 1987
Columbia University Graduate
School of Business. From 1987 to
(67) 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
previously served as a Director
of General Re Corporation
(reinsurance, 1987-1998) and as a
Director of 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), Vice Chairman 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).
12
<PAGE>
Marie L. Knowles*** Beginning in 1972, Ms. Knowles -
served in various positions with
Atlantic Richfield Company (ARCO)
(54) (diversified energy) including
Executive Vice President and Chief
Financial Officer (1996-2000);
Director (1996-1998); and Senior
Vice President (1993-1996). In
addition, Ms. Knowles served as
President of ARCO Transportation
Company (1993-1996). She currently
serves as a Director of Phelps
Dodge Corporation (copper mining
and manufacturing), URS Corporation
(multidisciplinary engineering,
1999), and America West Holdings
Corporation (aviation and travel
services, 1999). Ms. Knowles also
serves as a member of the National
Board of the Smithsonian
Institution and she is a trustee of
the Brookings Institution.
13
<PAGE>
Ned C. Lautenbach Partner of Clayton, Dubilier & 2000
Rice, Inc. (private equity
investment firm) since September
(56) 1998. Mr. Lautenbach was Senior
Vice President of IBM Corporation
from 1992 until his retirement in
July 1998. From 1993 to 1995 he was
Chairman of IBM World Trade
Corporation. He also was a member
of IBM's Corporate Executive
Committee from 1994 to July 1998.
He is a Director of PPG Industries
Inc. (glass, coating and chemical
manufacturer), Dynatech Corporation
(global communications equipment),
Eaton Corporation (global
manufacturer of highly engineered
products) and ChoicePoint Inc.
(data identification, retrieval,
storage, and analysis).
*Peter S. Lynch Vice Chairman and a Director of 1990
FMR; and a Director of FMR Co.,
Inc. (2000). Prior to May 31, 1990,
(57) he was a Director of FMR and
Executive Vice President of FMR (a
position he held until March 31,
1991); Vice President of Fidelity
Magellan Fund and FMR Growth Group
Leader; and Managing Director of
FMR Corp. Mr. Lynch was also Vice
President of Fidelity Investments
Corporate Services (1991-1992). 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.
14
<PAGE>
William O. McCoy Interim Chancellor for the 1997
University of North Carolina at
Chapel Hill. Previously he had
(67) served from 1995 through 1998 as
Vice President of Finance for the
University of North Carolina
(16-school system). 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), Duke-Weeks Realty
Corporation (real estate, 1994),
Carolina Power and Light Company
(electric utility, 1996), the Kenan
Transport Company (trucking, 1996),
and Dynatech Corporation
(electronics, 1999). Previously, he
was a Director of First American
Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy
served as a member of the Board of
Visitors for the University of
North Carolina at Chapel Hill
(1994-1998) and currently serves on
the Board of Visitors of the
Kenan-Flager Business School
(University of North Carolina at
Chapel Hill, 1988).
15
<PAGE>
Marvin L. Mann Chairman Emeritus of Lexmark 1993
International, Inc. (office
machines, 1991) where he still
(67) remains a member of the Board.
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). He is a Board
member of Dynatech Corporation
(electronics, 1999).
*Robert C. Pozen Senior Vice President of Fidelity 1997
Real Estate High Income Fund II
1997. Mr. Pozen also serves as
(54) Senior Vice President of other
Fidelity funds (1997). He is
President and a Director of FMR
(1997), Fidelity Management &
Research (U.K.) Inc. (1997),
Fidelity Management & Research (Far
East) Inc. (1997), Fidelity
Investments Money Management, Inc.
(1998), and FMR Co., Inc. (2000); a
Director of Strategic Advisers,
Inc. (1999); and Vice Chairman of
Fidelity Investments (2000).
Previously, Mr. Pozen served as
General Counsel, Managing Director,
and Senior Vice President of FMR
Corp.
** Except as otherwise indicated, each individual has held the office shown or
other offices in the same company for the last five years.
*** Nominated to serve as Trustee effective on or about January 1, 2001, upon
the retirement of Gerald C. McDonough and Thomas R. Williams.
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<PAGE>
As of July 31, 2000, the nominees, Trustees and officers of the trust and the
fund owned, in the aggregate, less than 1% of fund's outstanding shares.
If elected, the Trustees will hold office without limit in time except that
(a) any Trustee may resign; (b) any Trustee may be removed by written
instrument, signed by at least two-thirds of the number of Trustees prior to
such removal; (c) any Trustee who requests to be retired or who has become
incapacitated by illness or injury may be retired by written instrument signed
by a majority of the other Trustees; and (d) a Trustee may be removed at any
Special Meeting of shareholders by a two-thirds vote of the outstanding voting
securities of the trust. In case a vacancy shall for any reason exist, the
remaining Trustees will fill such vacancy by appointing another Trustee, so long
as, immediately after such appointment, at least two-thirds of the Trustees have
been elected by shareholders. If, at any time, less than a majority of the
Trustees holding office has been elected by the shareholders, the Trustees then
in office will promptly call a shareholders' meeting for the purpose of electing
a Board of Trustees. Otherwise, there will normally be no meeting of
shareholders for the purpose of electing Trustees.
The trust's Board, which is currently composed of three interested and nine
non-interested Trustees, met eleven times during the twelve months ended
December 31, 1999. It is expected that the Trustees will meet at least ten times
a year at regularly scheduled meetings.
The trust's Audit Committee is composed entirely of Trustees who are not
interested persons of the trust, FMR or its affiliates and normally meets four
times a year, or as required, in conjunction with meetings of the Board of
Trustees. Currently, Messrs. Kirk (Chairman), Gates and Lautenbach, and Mrs.
Davis are members of the committee. The committee oversees and monitors the
trust's internal control structure, its auditing function and its financial
reporting process, including the resolution of material reporting issues. The
committee recommends to the Board of Trustees the appointment of auditors for
the trust. It reviews audit plans, fees and other material arrangements in
respect of the engagement of auditors, including non-audit services to be
performed. It reviews the qualifications of key personnel involved in the
foregoing activities. The committee plays an oversight role in respect of the
trust's investment compliance procedures and the code of ethics. During the
twelve months ended December 31, 1999, the committee held nine meetings.
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The trust's Nominating and Administration Committee is currently composed of
Messrs. McDonough (Chairman) (scheduled to retire at the end of 2000), Cox,
Mann, Gates, and Williams (scheduled to retire at the end of 2000). The
committee members confer periodically and hold meetings as required. The
committee makes nominations for independent trustees, and for membership on
committees. The committee periodically reviews procedures and policies of the
Board of Trustees and committees. It acts as the administrative committee under
the Retirement Plan for non-interested trustees who retired prior to December
30, 1996. It monitors the performance of legal counsel employed by the trust and
the independent trustees. The committee in the first instance monitors
compliance with, and acts as the administrator of the provisions of the code of
ethics applicable to the independent trustees. During the twelve months ended
December 31, 1999, the committee held three meetings. The Nominating and
Administration Committee will consider nominees recommended by shareholders.
Recommendations should be submitted to the committee in care of the Secretary of
the Trust. The trust does not have a compensation committee; such matters are
considered by the Nominating and Administration Committee.
The following table sets forth information describing the compensation of
each Trustee and Member of the Advisory Board of the fund for his or her
services for the fiscal year ended December 31, 1999.
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<PAGE>
COMPENSATION TABLE
Aggregate
Compensation
from Total
Trustees and Members of Real Estate High Compensation from the
the Advisory Board Income II B Fund Complex*,A
------------------ ------------ ---------------
Edward C. Johnson 3d ** $ 0 $ 0
Abigail P. Johnson **,# $ 0 $ 0
J. Michael Cook***** $ 0 $ 0
Ralph F. Cox $ 75 $217,500
Phyllis Burke Davis $ 73 $211,500
Robert M. Gates $ 75 $217,500
E. Bradley Jones**** $ 75 $217,500
Marie L. Knowles****** $ 0 $ 0
Donald J. Kirk $ 75 $217,500
Ned C. Lautenbach*** $ 20 $ 54,000
Peter S. Lynch** $ 0 $ 0
William O. McCoy $ 74 $214,500
Gerald C. McDonough ## $ 93 $269,000
Marvin L. Mann $ 75 $217,500
Robert C. Pozen** $ 0 $ 0
Thomas R. Williams## $ 73 $213,000
* Information is for the calendar year ended December 31, 1999 for 236 funds
in the complex.
** Interested Trustees of the fund and Ms. Johnson are compensated by FMR.
***During the period from October 14, 1999 through December 31, 1999, Mr.
Lautenbach served as a Member of the Advisory Board of the trust. Mr.
Lautenbach was appointed to the Board of Trustees of Fidelity Covington
Trust effective January 1, 2000.
****Mr. Jones served on the Board of Trustees through December 31, 1999.
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<PAGE>
*****Effective March 16, 2000, Mr. Cook serves as a Member of the Advisory
Board.
******Effective June 15, 2000, Ms. Knowles serves as a Member of the Advisory
Board.
# Effective April 1, 1999, Ms. Johnson serves as a Member of the Advisory
Board of certain trusts, including Fidelity Covington Trust.
## Gerald C. McDonough and Thomas R. Williams are scheduled to retire at the
end of 2000.
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, 1999, 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, $53,735; William O. McCoy, $53,735;
and Thomas R. Williams, $62,319.
B Compensation figures include cash, and may include amounts required to be
deferred and amounts deferred at the election of Trustees.
Under a deferred compensation plan adopted in September 1995 and amended in
November 1996 and January 2000 (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 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.
2. TO RATIFY THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS OF THE FUND.
By a vote of the non-interested Trustees, the firm of PricewaterhouseCoopers
LLP has been selected as independent accountants for the fund to sign or certify
any financial statements of the fund required by any law or regulation to be
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<PAGE>
certified by an independent accountant and filed with the Securities and
Exchange Commission (SEC) or any state. Pursuant to the 1940 Act, such selection
requires the ratification of shareholders. In addition, as required by the 1940
Act, the vote of the Trustees is subject to the right of the fund, by vote of a
majority of its outstanding voting securities at any meeting called for the
purpose of voting on such action, to terminate such employment without penalty.
PricewaterhouseCoopers LLP has advised the fund that to the best of its
knowledge and belief, as of the record date, no PricewaterhouseCoopers LLP
professional had any direct or material indirect ownership interest in the fund
inconsistent with the independence standards pertaining to accountants.
The independent accountants examine annual financial statements for the fund
and provide other audit and tax-related services. In recommending the selection
of the fund's accountants, the Audit Committee reviewed the nature and scope of
the services to be provided (including non-audit services) and whether the
performance of such services would affect the accountants' independence.
Representatives of PricewaterhouseCoopers LLP are not expected to be present at
the Meeting, but have been given the opportunity to make a statement if they so
desire and will be available should any matter arise requiring their presence.
3. TO AUTHORIZE THE TRUSTEES TO ADOPT AN AMENDED AND RESTATED DECLARATION OF
TRUST.
The Board of Trustees has approved and recommends that the shareholders of
the trust authorize them to adopt and execute an Amended and Restated
Declaration of Trust for the trust and the fund in the form attached to this
Proxy Statement as Exhibit 1 (New Declaration of Trust). The attached New
Declaration of Trust has been marked to show changes from the trust's existing
Declaration of Trust (Current Declaration of Trust). The New Declaration of
Trust is a more modern form of trust instrument for a Massachusetts business
trust, and, going forward, will be used as the standard Declaration of Trust for
all new Fidelity Massachusetts business trusts.
The New Declaration of Trust gives the Trustees more flexibility and,
subject to applicable requirements of the 1940 Act and Massachusetts law,
broader authority to act. This increased flexibility may allow the Trustees to
react more quickly to changes in competitive and regulatory conditions and, as a
consequence, may allow the fund to operate in a more efficient and economical
manner. ADOPTION OF THE NEW DECLARATION OF TRUST WILL NOT ALTER IN ANY WAY THE
TRUSTEES' EXISTING FIDUCIARY OBLIGATIONS TO ACT WITH DUE CARE AND IN THE
SHAREHOLDERS' INTERESTS. BEFORE UTILIZING ANY NEW FLEXIBILITY THAT THE NEW
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<PAGE>
DECLARATION OF TRUST MAY AFFORD, THE TRUSTEES MUST FIRST CONSIDER THE
SHAREHOLDERS' INTERESTS AND THEN ACT IN ACCORDANCE WITH SUCH INTERESTS.
Adoption of the New Declaration of Trust will NOT result in any changes in
the fund's Trustees or officers or in the investment policies described in the
fund's current prospectus.
Generally, a majority of the Trustees may amend the Current Declaration of
Trust when authorized by a "majority of the outstanding voting securities" (as
defined in the 1940 Act) of the trust. On October 16, 1997, the Trustees
approved the form of the New Declaration of Trust. On December 18, 1997 and
November 18, 1999, the Board approved several additional changes to the form of
the New Declaration of Trust, which changes have been incorporated into the form
attached to this Proxy Statement. On July 15, 1999, the Board authorized the
submission of the New Declaration of Trust to the trust's shareholders for their
authorization at this Meeting.
The New Declaration of Trust amends the Current Declaration of Trust in a
number of significant ways. The following discussion summarizes some of the more
significant amendments to the Current Declaration of Trust effected by the New
Declaration of Trust.
IN ADDITION TO THE CHANGES DESCRIBED BELOW, THERE ARE OTHER SUBSTANTIVE AND
STYLISTIC DIFFERENCES BETWEEN THE NEW DECLARATION OF TRUST AND THE CURRENT
DECLARATION OF TRUST. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE NEW DECLARATION OF TRUST ITSELF, WHICH IS ATTACHED AS EXHIBIT 1
TO THIS PROXY STATEMENT.
SIGNIFICANT CHANGES EFFECTED BY THE NEW DECLARATION OF TRUST.
REORGANIZATION OR TERMINATION OF THE TRUST OR ITS SERIES OR CLASSES. Unlike
the Current Declaration of Trust, the New Declaration of Trust generally permits
the Trustees, subject to applicable Federal and state law, to reorganize or
terminate the trust or any of its series or classes. The Current Declaration of
Trust requires shareholder approval in order to reorganize or terminate the
trust or any of its series.
Under certain circumstances, it may not be in the shareholders' interest to
require a shareholder meeting to permit all or a portion of the trust, a fund or
class to reorganize into another entity. For example, in order to reduce the
cost and scope of state regulatory constraints or to take advantage of a more
favorable tax treatment offered by another state, the Trustees may determine
that it would be in the shareholders' interests to reorganize a fund to domicile
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<PAGE>
it in another state or to change its legal form. Under the Current Declaration
of Trust, the Trustees cannot effectuate such a potentially beneficial
reorganization without first conducting a shareholder meeting and incurring the
attendant costs and delays. In contrast, the New Declaration of Trust gives the
Trustees the flexibility to reorganize all or a portion of the trust or any of
its series or classes and achieve potential shareholder benefits without
incurring the delay and potential costs of a proxy solicitation. Such
flexibility should help to assure that the trust and its funds operate under the
most appropriate form of organization.
Similarly, under certain circumstances, it may not be in the shareholders'
interest to require a shareholder meeting to permit the Trustees to terminate a
fund or class. For example, a fund may have insufficient assets to invest
effectively or excessively high expense levels due to operational needs. Under
such circumstances, absent viable alternatives, the Trustees may determine that
terminating the fund is in the shareholders' interest and the only appropriate
course of action. The process of obtaining shareholder approval of the fund's
termination may, however, make it more difficult to complete the fund's
liquidation and termination and, in general, will increase the costs associated
with the termination. In such a case, it may be in the shareholders' interest to
permit fund termination without incurring the costs and delays of a shareholder
meeting.
As discussed above, before allowing a trust, fund, or class reorganization
or termination to proceed without shareholder approval, the Trustees have a
fiduciary responsibility to first determine that the proposed transaction is in
the shareholders' interest. Any exercise of the Trustees' increased authority
under the New Declaration of Trust is also subject to any applicable
requirements of the 1940 Act and Massachusetts law. Of course, in all cases, the
New Declaration of Trust would require that shareholders receive written
notification of any proposed transaction.
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<PAGE>
The New Declaration of Trust does NOT give the Trustees the authority to
merge a fund or class with another operating mutual fund or sell all or a
portion of a class's or fund's assets to another operating mutual fund without
first seeking shareholder approval. Under the New Declaration of Trust,
shareholder approval is still required for these transactions.
FUTURE AMENDMENTS OF THE DECLARATION OF TRUST. The New Declaration of Trust
permits the Trustees, with certain exceptions, to amend the Declaration of Trust
without shareholder approval. Under the New Declaration of Trust, shareholders
generally have the right to vote on any amendment affecting their right to vote,
on any amendment altering the maximum number of permitted Trustees, on any
amendment affecting the New Declaration of Trust's amendment provisions, on any
amendment required by law or the trust's registration statement, and on any
matter submitted to shareholders by the Trustees. The Current Declaration of
Trust, on the other hand, generally gives shareholders the exclusive power to
amend the Declaration of Trust. By allowing amendment of the Declaration of
Trust without shareholder approval, the New Declaration of Trust gives the
Trustees the necessary authority to react quickly to future contingencies. As
mentioned above, such increased authority remains subordinate to the Trustees'
continuing fiduciary obligations to act with due care and in the shareholders'
interest.
REFERENCES TO CLASSES. The New Declaration of Trust includes explicit
references to "classes" of a fund in appropriate places throughout the document.
Classes are often a more efficient way of offering a specific investment
strategy to different types of investors without creating separate funds for
each type of investor. Each class represents an interest in the same portfolio
of securities but may be offered with different service features, distribution
arrangements or fees. Although the Trustees are not prohibited from authorizing
the issuance of classes of shares under the Current Declaration of Trust, the
Trustees believe that it is appropriate to explicitly describe their ability,
without a vote of shareholders, to establish new classes of shares, to change or
abolish existing classes of shares, to divide an existing fund into classes of
shares, and to take any other action with respect to classes that they deem
appropriate.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The New Declaration of Trust
clarifies that the Trustees may authorize the investment of a portion of the
fund's assets in one or more open-end investment companies (Fund-of-Funds
Structure). The current Declaration of Trust explicitly allows the Trustees to
authorize the fund to invest all of its assets in a single open-end
24
<PAGE>
investment company but does not specifically provide the Trustees with the
ability to invest a portion of its assets in one or more investment companies.
In a Fund-of-Funds Structure, each fund retains its own characteristics, but is
able to achieve efficiencies by consolidating portfolio management for some or
all of its assets with other funds or to achieve other operational efficiencies.
The purpose of the Fund-of-Funds Structure generally is to achieve operational
efficiencies by consolidating portfolio management for a portion of the fund's
assets with other funds which invest a portion of their assets similarly. For
example, three different funds with different allocations among stocks, bonds
and money market investments but similar investment policies within each asset
class might each invest in the same stock, bond and money market funds. The
Fund-of-Funds Structure allows multiple funds with similar investment policies
for a portion of their assets to consolidate portfolio management in a single
pool for their assets that are managed similarly. FMR and the Board of Trustees
continually review methods of structuring mutual funds to take advantage of
potential efficiencies or other benefits. While neither FMR nor the Trustees
have determined that a Fund-of-Funds Structure is appropriate at this time, the
Trustees believe it could be in the best interests of the fund to adopt such a
structure at a future date. If approved, the New Declaration of Trust would
provide the Trustees with the power to authorize the fund to invest all or a
portion of its assets in one or more open-end investment companies. The Trustees
will authorize such a transaction only if a Fund-of-Funds Structure is permitted
under the fund's investment policies and if they determine that a Fund-of-Funds
Structure is in the best interests of the fund and its shareholders.
DERIVATIVE SUIT. The New Declaration of Trust provides that a Trustee shall
not be deemed to have a personal interest or otherwise be disqualified from
considering a pre-suit demand by a shareholder to bring a derivative action on
behalf of a fund due to his or her service on boards of trustees of other funds
with the same or affiliated investment adviser. There is some legal uncertainty
regarding whether a Trustee serving on multiple boards of trustees is
independent of the investment adviser and, therefore, permitted to consider a
pre-suit demand by a fund shareholder seeking to assert a claim against the
fund's investment adviser. The board of trustees seeks to ensure that they
retain the ability to manage the affairs of the fund, including control of
derivative actions that are brought on behalf of the fund. A specific provision
in the New Declaration of Trust will resolve any legal uncertainty by expressly
stating that a Trustee shall not be deemed to have a personal interest or
otherwise be disqualified from considering a pre-suit demand due to his or her
service on multiple fund boards.
OTHER CHANGES EFFECTED BY THE NEW DECLARATION OF TRUST.
In addition to the significant changes above, the New Declaration of Trust
modifies the Current Declaration of Trust in a number of important ways,
including the following:
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<PAGE>
1. The New Declaration of Trust modifies the Current Declaration of Trust to
allow FMR to enter into a Management Contract with the trust, on behalf of each
fund, and to amend the fund's respective Management Contract subject to the
provisions of Section 15 of the 1940 Act, as modified or interpreted by the SEC.
In contrast, the Current Declaration of Trust explicitly requires the vote of a
majority of the outstanding voting securities of a fund to enter into and amend
Management Contracts. A corresponding change is also proposed for the fund's
Management Contract. For more information on this topic generally, see
"Modification of Management Contract Amendment Provisions" on page _ and _.
2. The New Declaration of Trust broadens the authority of the Trustees to
redeem a shareholder for any reason deemed appropriate by the Trustees. The
Trustees' ability to do so would be limited by the 1940 Act and other applicable
legal and regulatory requirements. The Current Declaration of Trust explicitly
allows the Trustees only to redeem shareholders who do not meet a fund's minimum
balance requirement.
3. The New Declaration of Trust explicitly allows the Trustees to effect
Fund-of-Funds Structures, mergers, reorganizations and similar transactions
through any method approved by the Trustees, including share-for-share
exchanges, transfers or sale of assets, shareholder in-kind redemptions and
purchases, and exchange offers.
4 The New Declaration of Trust clarifies that the Trustees may impose other
fees (for example, purchase fees) in addition to sales charges upon investment
in a fund and clarifies that deferred sales charges and other fees (for example,
redemption fees) may be imposed upon redemption of a fund's shares.
5. The New Declaration of Trust confirms and clarifies various existing
Trustee powers. For example, the New Declaration of Trust clarifies that the
Trustees, in addition to banks and trust companies, may employ as fund
custodians companies that are members of a national securities exchange or other
entities permitted under the 1940 Act; delegate authority to investment advisers
and other agents; adopt and offer dividend reinvestment and related plans;
operate and carry on the business of an investment company; interpret the
investment policies, practices, and limitations of any fund; and deal in shares
of a fund.
6. The New Declaration of Trust clarifies that no shareholder of a trust
series shall have a claim on the assets of another series and further clarifies
that, by virtue of investing in a fund, a shareholder is deemed to have assented
to and agreed to be bound by the terms of the New Declaration of Trust.
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<PAGE>
7. The New Declaration of Trust deletes various technical and/or antiquated
requirements from the Current Declaration of Trust, including existing
requirements that a Trustee vacancy be deemed to occur when a Trustee is absent
from his or her state of residence, that Trustee vacancies must be filled within
six calendar months, and that portfolio securities be held pursuant to
safeguards prescribed by usual Massachusetts practice.
8. The New Declaration of Trust clarifies that the Trustees may authorize
dividends of fund property in addition to stock dividends.
9. The New Declaration of Trust permits the rights and preferences of a
series or class to be set forth in the registration statement for such series or
class or in any other document in addition to in a resolution of the Board of
Trustees.
10. Lastly, the New Declaration of Trust generally expands various 1940 Act
defined terms to encompass SEC modifications and interpretations. Specific
references to discrete sections of the 1940 Act that are contained in the New
Declaration of Trust have likewise been expanded to include SEC modifications
and interpretations.
CONCLUSION. The Board of Trustees has concluded that the proposed adoption
of the New Declaration of Trust is in the best interests of the trust's
shareholders. Accordingly, the Trustees unanimously recommend that the
shareholders vote FOR the proposal to authorize them to adopt and execute the
New Declaration of Trust. If the proposal is not approved, the Current
Declaration of Trust will remain unchanged and in effect.
4. TO APPROVE AN AMENDED MANAGEMENT CONTRACT FOR THE FUND.
The Board of Trustees, including the Trustees who are not "interested
persons" of the trust or of FMR (the Independent Trustees), has approved, and
recommends that shareholders of the fund approve, a proposal to adopt an amended
management contract with FMR (the Amended Contract). The Amended Contract
modifies the management fee that FMR receives from the fund to provide for lower
fees when FMR's assets under management exceed certain levels. In addition, the
Amended Contract allows FMR and the trust, on behalf of the fund, to modify the
Management Contract subject to the requirements of the 1940 Act. The existing
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<PAGE>
Management Contract (Present Contract) currently requires the vote of a majority
of the fund's outstanding voting securities to authorize all amendments. See
"Modification of Management Contract Amendment Provisions" on page __ for more
details. THE AMENDED CONTRACT WILL RESULT IN A MANAGEMENT FEE THAT IS THE SAME
AS, OR LOWER THAN, THE FEE PAYABLE UNDER THE PRESENT CONTRACT. (For information
on FMR, see the section entitled "Activities and Management of FMR" on page __.)
PROPOSED AMENDMENTS TO THE PRESENT MANAGEMENT CONTRACT. A copy of the
Amended Contract, marked to indicate the proposed amendment(s), is supplied as
Exhibit 2 on page __ . Except for the modifications discussed above, it is
substantially identical to the Present Contract. (For a detailed discussion of
the fund's Present Contract, refer to the section entitled "Present Management
Contract" beginning on page __.) If approved by shareholders, the Amended
Contract will take effect on December 1, 2000 (or, if later, the first day of
the first month following approval) and will remain in effect through June 30,
2001 and thereafter, but only as long as its continuance is approved at least
annually by (i) the vote, cast in person at a meeting called for the purpose, of
a majority of the Independent Trustees and (ii) the vote of either a majority of
the Trustees or by the vote of a majority of the outstanding shares of the fund.
If the Amended Contract is not approved, the Present Contract will continue in
effect through June 30, 2001, and thereafter only as long as its continuance is
approved at least annually as above.
The management fee is an annual percentage of the fund's average net assets
(the management fee rate), calculated and paid monthly. The management fee rate
is the sum of two components: a Group Fee Rate, which varies according to assets
under management by FMR, and a fixed Individual Fund Fee Rate. The Amended
Contract modifies the Group Fee Rate by providing for lower fee rates if FMR's
assets under management remain above $587 billion.
MODIFICATION TO GROUP FEE RATE. The Group Fee Rate varies based upon the
monthly average of the aggregate net assets of all registered investment
companies having management contracts with FMR (assets under management by FMR).
For example, as assets under management by FMR increase, the Group Fee Rate
declines. The Amended Contract would not change the group fee calculation for
assets under management by FMR of $587 billion or less. Above $587 billion in
assets under FMR's management, the Group Fee Rate declines under both the
Present Contract
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<PAGE>
and the Amended Contact, but under the Amended Contract, it declines faster.
Group Fee Rates that are lower than those contained in the fund's Present
Contract have been voluntarily implemented by FMR on August 1, 1999.
The Group Fee Rate is calculated according to a graduated schedule providing
for different rates for different levels of assets under management by FMR. The
rate at which the Group Fee Rate declines is determined by fee "breakpoints"
that provide for lower fee rates when assets increase. The Amended Contract adds
10 new breakpoints for assets under FMR's management above $587 billion as
illustrated in the following table. (For an explanation of how the Group Fee
Rate is used to calculate the management fee, see the section entitled "Present
Management Contract" beginning on page ___.)
GROUP FEE RATE BREAKPOINTS
PRESENT CONTRACT AMENDED CONTRACT
---------------- ----------------
Average Group Average Group
Assets Present Assets Amended
($ billions) Contract* ($ billions) Contract
------------ --------- ------------ --------
Over 516 .1100% 516 - 587 .1100%
587 - 646 .1080%
646 - 711 .1060%
711 - 782 .1040%
782 - 860 .1020%
860 - 946 .1000%
946 - 1,041 .0980%
1,041 - 1,145 .0960%
1,145 - 1,260 .0940%
over 1,260 .0920%
The result at various levels of group net assets is illustrated by the table
below.
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EFFECTIVE ANNUAL GROUP FEE RATES
Group Net
Assets Present Amended
($ billions) Contract* Contract
------------ -------- --------
150 .----% .1736%
200 .----% .1652%
250 .----% .1587%
300 .----% .1536%
350 .----% .1494%
400 .----% .1459%
450 .----% .1427%
500 .----% .1399%
550 .----% .1372%
600 .----% .1349%
650 .----% .1328%
700 .----% .1309%
750 .----% .1291%
800 .----% .1275%
850 .----% .1260%
900 .----% .1246%
950 .----% .1233%
1,000 .----% .1220%
1,050 .----% .1209%
1,100 .----% .1197%
1,150 .----% .1187%
1,200 .----% .1177%
1,250 .----% .1167%
1,300 .----% .1158%
1,350 .----% .1149%
1,400 .----% .1141%
[GET NUMBERS FROM TREASURERS - CURRENTLY PATTY THIBODEAU.]
* Does not reflect voluntary adoption of extended group fee rate
schedules by FMR on August 1, 1999.
Average assets under FMR's management for July 2000 were approximately
$884 billion.
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COMPARISON OF MANAGEMENT FEES. For the month ended July 2000 average assets
under management by FMR were approximately $884 billion. The fund's management
fee rate under the Amended Contract, for the month ended July 2000 would have
been 0.7267%, compared to 0.7281% under the Present Contract. The management fee
rate remains the same under both the Present Contract and the Amended Contract
until assets under FMR's management exceed $587 billion, at which point the
management fee rate under the Amended Contract begins to decline relative to the
Present Contract.
The following chart compares the fund's management fee as calculated under
the terms of the Present Contract for fiscal 1999 to the management fee the fund
would have incurred if the Amended Contract had been in effect, and shows the
difference between the two as a percentage of the management fee paid under the
Present Contract.
Present Contract Amended Contract Percentage Difference
Management Management
Fee* Fee
$2,023,831 $2,022,496 (.07)%
* Does not reflect voluntary adoption of extended group fee rate schedules by
FMR on August 1, 1999.
The following chart compares the fund's management fee under the terms of
the Present Contract for the twelve month period ended July 31, 2000 to the
management fee the fund would have incurred if the Amended Contract had been in
effect, and shows the difference between the two as a percentage of the
management fee paid under the Present Contract.
Present Contract Amended Contract Percentage Difference
Management Management
Fee* Fee
$2,376,175 $2,371,400 (.20)%
* Does not reflect voluntary adoption of extended group fee rate schedules by
FMR on August 1, 1999.
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MODIFICATION OF MANAGEMENT CONTRACT AMENDMENT PROVISIONS. The Amended
Contract allows FMR and the Trust, on behalf of the fund, to amend the
Management Contract subject to the provisions of Section 15 of the 1940 Act, as
modified or interpreted by the SEC. In contrast, the Present Contract explicitly
requires the vote of a majority of the outstanding voting securities of the fund
to authorize all amendments. Generally, the proposed modification to the Present
Contract's amendment provisions will allow FMR and the Trust, on behalf of the
fund, to amend the Management Contract without shareholder vote IF THE 1940 ACT
PERMITS THEM TO DO SO. For example, under current interpretations of Section 15
of the 1940 Act, the Amended Contract would give FMR and the trust the ability
to amend the Management Contract to immediately reflect a management fee
decrease without the delay of having to first conduct a proxy solicitation,
while a management fee increase still would require shareholder approval. In
short, the proposed modification gives FMR and the trust added flexibility to
amend the Management Contract subject to 1940 Act constraints. Of course, any
future amendments to the Management Contract would require the approval of the
fund's Board of Trustees.
MATTERS CONSIDERED BY THE BOARD. The mutual funds for which the members of
the Board of Trustees serve as Trustees are referred to herein as the "Fidelity
funds." The Board of Trustees meets eleven times a year. The Board of Trustees,
including the Independent Trustees, believes that matters bearing on the
appropriateness of the fund's management fees are considered at most, if not
all, of their meetings. While the full Board of Trustees or the Independent
Trustees, as appropriate, act on all major matters, a significant portion of the
activities of the Board of Trustees (including certain of those described
herein) are conducted through committees. The Independent Trustees meet
frequently in executive session and are advised by independent legal counsel
selected by the Independent Trustees.
The proposal to present the Amended Contract to shareholders was approved by
the Board of Trustees of the fund, including all of the Independent Trustees, on
July 15, 1999. The Board of Trustees considered and approved the modifications
to the Group Fee Rate schedule during the two month period from September to
October 1999. The Board of Trustees received materials relating to the Amended
Contract in advance of the meeting at which the Amended Contract was considered,
and had the opportunity to ask questions and request further information in
connection with such consideration.
INFORMATION RECEIVED BY THE INDEPENDENT TRUSTEES. In connection with their
meetings the Trustees received materials specifically relating to
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the Amended Contract. These materials included (i) information on the
investment performance of the fund, a peer group of funds and an appropriate
index or combination of indices, (ii) sales and redemption data in respect of
the fund, and (iii) the economic outlook and the general investment outlook in
the markets in which the fund invests. The Board of Trustees and the Independent
Trustees also consider periodically other material facts such as (1) FMR's
results and financial condition, (2) arrangements in respect of the distribution
of the fund's shares, (3) the procedures employed to determine the value of the
fund's assets, (4) the allocation of the fund's brokerage, if any, including
allocations to brokers affiliated with FMR, (5) FMR's management of the
relationships with the fund's custodian and subcustodians, (6) the resources
devoted to and the record of compliance with the fund's investment policies and
restrictions and with policies on personal securities transactions and (7) the
nature, cost and character of non-investment management services provided by FMR
and its affiliates.
In response to questions raised by the Independent Trustees, additional
information was furnished by FMR including, among other items, information on
and analysis of (a) the overall organization of FMR, (b) the choice of
performance indices and benchmarks, (c) the composition of peer groups of funds,
(d) transfer agency and bookkeeping fees paid to affiliates of FMR, (e)
investment performance, (f) investment management staffing, (g) the potential
for achieving further economies of scale, (h) operating expenses paid to third
parties, and (i) the information furnished to investors, including the fund's
shareholders.
In considering the Amended Contract, the Board of Trustees and the
Independent Trustees did not identify any single factor as all-important or
controlling, and the following summary does not detail all the matters
considered. Matters considered by the Board of Trustees and the Independent
Trustees in connection with their approval of the Amended Contract include the
following:
BENEFITS TO SHAREHOLDERS. The Board of Trustees and the Independent Trustees
considered the benefit to shareholders of investing in a fund that is part of a
large family of funds offering a variety of investment disciplines and providing
for a large variety of fund and shareholder services. With regard to the
proposed modification to the Present Contract's amendment provisions, the Board
of Trustees and the Independent Trustees considered the benefit to shareholders
of FMR's and the trust's increased flexibility (within 1940 Act constraints) to
amend the Management Contract without the delays and potential costs of a proxy
solicitation.
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INVESTMENT COMPLIANCE AND PERFORMANCE. The Board of Trustees and the
Independent Trustees considered whether the fund has operated within its
investment objective and its record of compliance with its investment
restrictions. They also reviewed monthly the fund's investment performance as
well as the performance of a peer group of mutual funds, and the performance of
an appropriate index or combination of indices.
FMR'S PERSONNEL AND METHODS. The Board of Trustees and the Independent
Trustees review at least annually the background of the fund's portfolio manager
and the fund's investment objective and discipline. The Independent Trustees
have also had discussions with senior management of FMR responsible for
investment operations and the senior management of Fidelity's fixed income
group. Among other things they considered the size, education and experience of
FMR's investment staff, its use of technology, and FMR's approach to recruiting,
training and retaining portfolio managers and other research, advisory and
management personnel.
NATURE AND QUALITY OF OTHER SERVICES. The Board of Trustees and the
Independent Trustees considered the nature, quality, cost and extent of
administrative and shareholder services performed by FMR and affiliated
companies, both under the Present Contract and the Amended Contract and under
separate agreements covering transfer agency functions and pricing, bookkeeping
and securities lending services, if any. The Board of Trustees and the
Independent Trustees have also considered the nature and extent of FMR's
supervision of third party service providers, principally custodians and
subcustodians.
EXPENSES. The Board of Trustees and the Independent Trustees considered the
fund's expense ratio and expense ratios of a peer group of funds. They also
considered the amount and nature of fees paid by shareholders.
PROFITABILITY. The Board of Trustees and the Independent Trustees considered
the level of FMR's profits in respect of the management of the Fidelity funds,
including the fund. This consideration included an extensive review of FMR's
methodology in allocating its costs to the management of the fund. The Board of
Trustees and the Independent Trustees have concluded that the cost allocation
methodology employed by FMR has a reasonable basis and is appropriate in light
of all of the circumstances. They considered the profits realized by FMR in
connection with the operation of the fund and whether the amount of profit is a
fair entrepreneurial profit for the management of the fund. They also considered
the profits realized from
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non-fund businesses which may benefit from or be related to the fund's business.
The Board of Trustees and the Independent Trustees also considered FMR's profit
margins in comparison with available industry data, both accounting for and
ignoring marketing expenses.
ECONOMIES OF SCALE. The Board of Trustees and the Independent Trustees
considered whether there have been economies of scale in respect of the
management of the Fidelity funds, whether the Fidelity funds (including the
fund) have appropriately benefited from any economies of scale, and whether
there is potential for realization of any further economies of scale. The Board
of Trustees and the Independent Trustees have concluded that FMR's mutual fund
business presents some limited opportunities to realize economies of scale and
that these economies are being shared between fund shareholders and FMR in an
appropriate manner. The Independent Trustees have also concluded that the
existing group fee structure should be continued but determined that it would be
appropriate to change the group fee structure as proposed herein.
OTHER BENEFITS TO FMR. The Board of Trustees and the Independent Trustees
also considered the character and amount of fees paid by the fund and the fund's
shareholders for services provided by FMR and its affiliates, including fees for
services like transfer agency, fund accounting and direct shareholder services.
They also considered the allocation of fund brokerage to brokers affiliated with
FMR and the receipt of sales loads and payments under Rule 12b-1 plans in
respect of certain of the Fidelity funds. The Board of Trustees and the
Independent Trustees also considered the revenues and profitability of FMR
businesses other than its mutual fund business, including FMR's retail
brokerage, correspondent brokerage, capital markets, trust, investment advisory,
pension record keeping, insurance, publishing, real estate, international
research and investment funds, and others. The Board of Trustees and the
Independent Trustees considered the intangible benefits that accrue to FMR and
its affiliates by virtue of their relationship with the fund.
CONCLUSION. Based on their evaluation of all material factors and assisted
by the advice of independent counsel, the Trustees concluded (i) that the
existing management fee structure is fair and reasonable and (ii) that the
proposed modifications to the management fee structure, that is the reduction of
the Group Fee Rate schedule and the proposed modification to the Present
Contract's amendment provisions, are in the best interest of the fund's
shareholders. The Board of Trustees, including the Independent Trustees, voted
to approve the submission of the Amended Contract to shareholders of the fund
and recommends that shareholders of the fund
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vote FOR the Amended Contract. If approved, the Amended Contract will take
effect on the first day of the first month following shareholder approval.
5. TO APPROVE A SUB-ADVISORY AGREEMENT WITH FMR U.K. FOR THE FUND.
In conjunction with its portfolio management responsibilities on behalf of
the fund, FMR proposes to enter into sub-advisory agreements with affiliates
whose offices are geographically dispersed around the world. To strengthen these
relationships, the Board of Trustees proposes that shareholders of the fund
approve a sub-advisory agreement (the Proposed Agreement) among FMR, FMR U.K.
and the trust on behalf of the fund. The Proposed Agreement would allow FMR not
only to receive investment advice and research services from FMR U.K., but also
would permit FMR to grant FMR U.K. investment management authority if FMR
believes it would be beneficial to the fund and its shareholders. Because FMR
would pay all of FMR U.K.'s fees, the Proposed Agreement would not affect the
fees paid by the fund to FMR.
On July 15, 1999, the Board of Trustees agreed to submit the Proposed
Agreement to shareholders of the fund pursuant to a unanimous vote of both the
full Board of Trustees and those Trustees who were not "interested persons" of
the trust or FMR. FMR provided substantial information to the Trustees to assist
them in their deliberations. The Trustees determined that allowing FMR to
receive investment advice and research services from FMR U.K. as well as to
grant investment management authority to FMR U.K. would provide FMR increased
flexibility in the assignment of portfolio managers and give the fund access to
managers located abroad who may have more specialized expertise with respect to
local companies and markets. Additionally, the Trustees believe that the fund
and its shareholders may benefit from giving FMR, through FMR U.K., the ability
to execute portfolio transactions from points in Europe that are physically
closer to foreign issuers and the primary markets in which their securities are
traded. Increasing FMR's proximity to foreign markets should enable the fund to
participate more readily in full trading sessions on foreign exchanges, and to
react more quickly to changing market conditions. A copy of the Proposed
Agreement is attached to this proxy statement as Exhibit 3.
FMR U.K., with its principal office in London, England, is a wholly-owned
subsidiary of FMR established in 1986 to provide investment research to FMR with
respect to foreign securities. This research
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complements other research on foreign securities produced by FMR's U.S.-based
research analysts and portfolio managers, or obtained from broker-dealers or
other sources.
FMR U.K. may also provide investment advisory services to FMR with respect
to other investment companies for which FMR serves as investment adviser, and to
other clients. Currently, FMR U.K.'s only client other than FMR is Fidelity
International Limited (FIL), an affiliate of FMR organized under the laws of
Bermuda. FIL provides investment advisory services to non-U.S. investment
companies and institutional investors investing in securities of issuers
throughout the world. Edward C. Johnson 3d, President and a Trustee of the
trust, is Chairman and a Director of FMR U.K., Chairman, and a Director of FIL,
and a principal stockholder of both FIL and FMR. For more information on FMR
U.K., see the section entitled "Activities and Management of FMR U.K. and FMR
Far East" on page__.
Under the Proposed Agreement, FMR U.K. could act as an investment consultant
to FMR and could supply FMR with investment research information and portfolio
management advice as FMR reasonably requests on behalf of the fund. FMR U.K.
would provide investment advice and research services with respect to issuers
located outside of the United States focusing primarily on companies based in
Europe. Under the Proposed Agreement with FMR U.K., FMR, NOT THE FUND, would pay
FMR U.K.'s fee equal to 110% of its costs incurred for providing investment
advice and research services.
Under the Proposed Agreement, FMR could also grant investment management
authority with respect to all or a portion of the fund's assets to FMR U.K. If
FMR U.K. were to exercise investment management authority on behalf of the fund,
it would be required, subject to the supervision of FMR, to direct the
investments of the fund in accordance with the fund's investment objective,
policies, and limitations as provided in the fund's prospectus or other
governing instruments and such other limitations as the fund may impose by
notice in writing to FMR or FMR U.K. If FMR grants investment management
authority to FMR U.K. with respect to all or a portion of the fund's assets, FMR
U.K. would be authorized to buy or sell stocks, bonds, and other securities for
the fund subject to the overall supervision of FMR and the Board of Trustees. In
addition, the Proposed Agreement would authorize FMR to delegate other
Investment management services to FMR U.K., including, but not limited to,
currency management services (including buying and selling currency options and
entering into currency forward and futures contracts on behalf
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of the fund), other transactions in futures contracts and options, and borrowing
or lending portfolio securities. If any of these investment management services
were delegated, FMR U.K. would continue to be subject to the control and
direction of FMR and the Board of Trustees and to be bound by the investment
objective, policies, and limitations of the fund.
THE PROPOSED AGREEMENT WOULD NOT INCREASE THE FEES PAID TO FMR BY THE FUND.
To the extent that FMR granted investment management authority to FMR U.K., FMR
would pay FMR U.K. 50% of its monthly management fee with respect to the average
net assets managed on a discretionary basis by FMR U.K. for investment
management.
If approved by shareholders, the Proposed Agreement would take effect on
December 1, 2000 (or, if later, the first day of the first month following
approval) and would continue in force until June 30, 2001 and from year to year
thereafter, but only as long as its continuance was approved at least annually
by (i) the vote, cast in person at a meeting called for the purpose, of a
majority of those Trustees who are not "interested persons" of the trust or FMR
and (ii) the vote of either a majority of the Trustees or by the vote of a
majority of the outstanding shares of the fund.
The Proposed Agreement could be transferred to a successor of FMR U.K.
without resulting in its termination and without shareholder approval, as long
as the transfer did not constitute an assignment under applicable securities
laws and regulations. The Proposed Agreement would be terminable on 60 days'
written notice by either party to the agreement and the Proposed Agreement would
terminate automatically in the event of its assignment.
CONCLUSION. The Board of Trustees has concluded that the proposal will
benefit the fund and its shareholders. The Trustees recommend voting FOR the
proposal. If the Proposed Agreement is approved by shareholders, the Proposed
Agreement will take effect on the first day of the first month following
approval. If the Proposed Agreement is not approved, FMR will continue to manage
the fund under its Management Contract with the flexibility to use sub-advisors,
excluding Fidelity Investments Japan (FIJ), as previously approved.
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6. TO APPROVE A SUB-ADVISORY AGREEMENT WITH FMR FAR EAST FOR THE FUND.
In conjunction with its portfolio management responsibilities on behalf of
the fund, FMR proposes to enter into sub-advisory agreements with affiliates
whose offices are geographically dispersed around the world. To strengthen these
relationships, the Board of Trustees proposes that shareholders of the fund
approve a sub-advisory agreement (the Proposed Agreement) among FMR, FMR Far
East, and the trust on behalf of the fund. The Proposed Agreement would allow
FMR not only to receive investment advice and research services from FMR Far
East, but also would permit FMR to grant FMR Far East investment management
authority if FMR believes it would be beneficial to the fund and its
shareholders. Because FMR would pay all of FMR Far East's fees, the Proposed
Agreement would not affect the fees paid by the fund to FMR.
On July 15, 1999, the Board of Trustees agreed to submit the Proposed
Agreement to shareholders of the fund pursuant to a unanimous vote of both the
full Board of Trustees and those Trustees who were not "interested persons" of
the trust or FMR. FMR provided substantial information to the Trustees to assist
them in their deliberations. The Trustees determined that allowing FMR to
receive investment advice and research services from FMR Far East as well as to
grant investment management authority to FMR Far East would provide FMR
increased flexibility in the assignment of portfolio managers and give the fund
access to managers located abroad who may have more specialized expertise with
respect to local companies and markets. Additionally, the Trustees believe that
the fund and its shareholders may benefit from giving FMR, through FMR Far East,
the ability to execute portfolio transactions from points in the Far East that
are physically closer to foreign issuers and the primary markets in which their
securities are traded. Increasing FMR's proximity to foreign markets should
enable the fund to participate more readily in full trading sessions on foreign
exchanges, and to react more quickly to changing market conditions. A copy of
the Proposed Agreement is attached to this proxy statement as Exhibit 4.
FMR Far East, is a wholly-owned subsidiary of FMR established in 1986 to
provide investment research to FMR with respect to foreign securities. This
research complements other research on foreign securities produced by FMR's
U.S.-based research analysts and portfolio managers, or obtained from
broker-dealers or other sources.
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FMR Far East may also provide investment advisory and management services to
FMR with respect to other investment companies for which FMR serves as
investment adviser, and to other clients. Currently, FMR Far East's only client
is FMR. Edward C. Johnson 3d, President and a Trustee of the trust, is Chairman
and a Director of FMR Far East, and a principal stockholder of both FMR and
Fidelity International Limited (FIL). For more information on FMR Far East, see
the section entitled "Activities and Management of FMR U.K. and FMR Far East" on
page__.
Under the Proposed Agreement, FMR Far East could act as an investment
consultant to FMR and could supply FMR with investment research information and
portfolio management advice as FMR reasonably requests on behalf of the fund.
FMR Far East would provide investment advice and research services with respect
to issuers located outside of the United States focusing primarily on companies
based in the Far East. Under the Proposed Agreement with FMR Far East, FMR, NOT
THE FUND, would pay FMR Far East's fee equal to 105% of its costs incurred for
providing investment advice and research services. If this proposal is approved,
FMR Far East, will in turn, enter into an agreement with FIJ, a wholly-owned
subsidiary of FIL, to provide such investment research and portfolio management
advice as FMR Far East reasonably requests. FMR Far East, not the fund, pays FIJ
a sub-advisory fee equal to 100% of FIJ's costs incurred in connection with
providing investment advice and research services.
Under the Proposed Agreement, FMR could also grant investment management
authority with respect to all or a portion of the fund's assets to FMR Far East.
If FMR Far East were to exercise investment management authority on behalf of
the fund, it would be required, subject to the supervision of FMR, to direct the
investments of the fund in accordance with the fund's investment objective,
policies, and limitations as provided in the fund's prospectus or other
governing instruments and such other limitations as the fund may impose by
notice in writing to FMR or FMR Far East. If FMR grants investment management
authority to FMR Far East with respect to all or a portion of the fund's assets,
FMR Far East would be authorized to buy or sell stocks, bonds, and other
securities for the fund subject to the overall supervision of FMR and the Board
of Trustees. In addition, the Proposed Agreement would authorize FMR to delegate
other investment management services to FMR Far East, including, but not limited
to, currency management services (including buying and selling currency options
and entering into currency forward and futures contracts on behalf of the fund),
other transactions in futures contracts and options, and borrowing or lending
portfolio securities. If any of these investment management services were
delegated, FMR Far East would continue to be subject to the control and
direction of FMR and the Board of Trustees and to be bound by the investment
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objective, policies, and limitations of the fund.
THE PROPOSED AGREEMENT WOULD NOT INCREASE THE FEES PAID TO FMR BY THE FUND.
To the extent that FMR granted investment management authority to FMR Far East,
FMR, NOT THE FUND, would pay FMR Far East a fee equal to 50% of its monthly
management fee with respect to the fund's average net assets managed on a
discretionary basis by FMR Far East.
If approved by shareholders, the Proposed Agreement would take effect on
December 1, 2000 (or, if later, the first day of the first month following
approval) and would continue in force until June 30, 2001 and from year to year
thereafter, but only as long as its continuance was approved at least annually
by (i) the vote, cast in person at a meeting called for the purpose, of a
majority of those Trustees who are not "interested persons" of the trust or FMR
and (ii) the vote of either a majority of the Trustees or by the vote of a
majority of the outstanding shares of the fund.
The Proposed Agreement could be transferred to a successor of FMR Far East
without resulting in its termination and without shareholder approval, as long
as the transfer did not constitute an assignment under applicable securities
laws and regulations. The Proposed Agreement would be terminable on 60 days'
written notice by either party to the agreement and the Proposed Agreement would
terminate automatically in the event of its assignment.
CONCLUSION. The Board of Trustees has concluded that the proposal will
benefit the fund and its shareholders. The Trustees recommend voting FOR the
proposal. If the Proposed Agreement is approved by shareholders, the Proposed
Agreement will take effect on the first day of the first month following
approval. If the Proposed Agreement is not approved, FMR will consider
alternative means of obtaining the investment services to be provided under the
Proposed Agreement.
7. TO MODIFY THE FUND'S INVESTMENT OBJECTIVE AND ELIMINATE A FUNDAMENTAL
INVESTMENT POLICY OF THE FUND.
The Board of Trustees has approved, and recommends that the
shareholders of the fund approve, a proposal that would modify the fund's
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investment objective and eliminate one of its fundamental investment policies.
The proposal is intended to allow the fund to communicate more clearly its
investment objective and strategies by standardizing its investment disclosure
in a manner consistent with other Fidelity funds with similar investment
disciplines. The modification to the fund's investment objective and the
elimination of the fundamental investment policy are not expected to materially
affect the way the fund is managed.
The fund's investment objective and fundamental investment policy
currently read as follows:
Real Estate High Income Fund II seeks a high level of current
income by investing primarily in commercial mortgage-backed
securities and the securities of real estate investment
trusts.
Because the fund's investment objective and the foregoing
policy are fundamental, they cannot be modified or eliminated without
shareholder approval.
If the proposal is approved, the fund's investment objective would read
as follows (additional language is ((underlined)) and deleted language is
[bracketed]):
Real Estate High Income Fund II seeks a high level of current
income [by investing primarily in commercial mortgage-backed
securities and the securities of real estate investment
trusts]. ((In seeking current income, the fund may also
consider the potential for capital gain.))
DISCUSSION OF PROPOSED MODIFICATIONS. Modifying the fund's investment
objective and eliminating the foregoing fundamental investment policy will allow
the fund to communicate more clearly its investment objective and investment
strategies by standardizing its investment disclosure in a manner consistent
with other Fidelity funds with similar investment disciplines. If the proposal
is approved, the fund will continue to rely on its existing non-fundamental
policy of investing at least 65% of its total assets in lower-quality real
estate debt securities, including commercial mortgage-backed securities, and the
securities of real estate investment trusts.
Fundamental policies can be changed or eliminated only with shareholder
approval, while non-fundamental policies can be changed or eliminated without
shareholder approval. Changes in non-fundamental policies, however, are still
subject to the supervision of the Board of
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Trustees. Modifying the fund's investment objective and eliminating the
fundamental investment policy as proposed is not expected to materially affect
the way the fund is managed.
CONCLUSION. The Board of Trustees has concluded that modifying the
fund's investment objective and eliminating the fundamental policy as described
above are in the best interests of the fund and its shareholders. The Trustees
recommend voting FOR the proposal. If approved by shareholders, the changes will
become effective when disclosure is revised to reflect them. If the proposal is
not approved by the fund's shareholders, the fund's current investment objective
and fundamental investment policy discussed above will not change.
8. TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
UNDERWRITING.
The fund's current fundamental investment limitation concerning underwriting
states:
The fund may not 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;
The Trustees recommend that shareholders of the fund vote to replace this
limitation with the following fundamental investment limitation governing
underwriting (additional language is ((underlined))):
The fund may not 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
((or in connection with investments in other investment companies));
The primary purpose of the proposal is to clarify that the fund is not
prohibited from investing in other investment companies, even if as a result of
such investment, the fund is technically considered an underwriter under federal
securities laws.
The proposal also serves to conform the fund's fundamental investment
limitation concerning underwriting to a limitation which is expected to become
standard for all funds managed by FMR or its affiliates. If the
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proposal is approved, the new limitation may not be changed without the approval
of shareholders.
Adoption of the proposed limitation concerning underwriting is not expected
to affect the way in which the fund is managed, the investment performance of
the fund, or the securities or instruments in which the fund invests.
CONCLUSION. The Board of Trustees has concluded that the proposal will
benefit the fund and its shareholders. The Trustees recommend voting FOR the
proposal. Upon shareholder approval, the amended fundamental limitation will
become effective when disclosure is revised to reflect the changes. If the
proposal is not approved by the shareholders of the fund, the fund's current
limitation will remain unchanged.
9. TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT LIMITATION CONCERNING THE
CONCENTRATION OF ITS INVESTMENTS IN A SINGLE INDUSTRY.
The fund's current fundamental investment limitation concerning the
concentration of its investments within a single industry states:
The fund may not 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, except that, under
normal market conditions, the fund will invest more than 25%
of its total assets in securities and instruments backed by
real estate and real estate mortgages and securities of
companies engaged in the real estate business, including
interests in real estate investment trusts;
The Trustees recommend that shareholders of the fund vote to replace this
fundamental investment limitation with the following amended fundamental
investment limitation governing concentration (additional language is
((underlined))):
The fund may not 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, more than
25% of the fund's total assets would be invested in the
securities of companies whose principal business activities
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are in the same industry, except that, under normal market
conditions, the fund will invest more than 25% of its total
assets in securities and instruments backed by real estate
and real estate mortgages and securities of companies engaged
in the real estate business, including interests in real
estate investment trusts;
The primary purpose of the proposal is to explicitly exclude investment
companies from the fund's fundamental concentration limitation.
FMR does not believe that investment companies should be treated as an
industry for purposes of the fund's fundamental concentration limitation.
Significant investments in investment companies do not expose the fund to the
risk of any specific industry like significant investments in an industry such
as financial services or real estate would.
The proposal also serves to conform the fund's fundamental investment
limitation concerning concentration to a limitation which is expected to become
standard for all similar funds managed by FMR or its affiliates. If the proposal
is approved, the new limitation may not be changed without the approval of
shareholders.
Adoption of the proposed limitation concerning concentration is not expected
to affect the way in which the fund is managed, the investment performance of
the fund, or the securities or instruments in which the fund invests because
currently, if the fund were to invest in certain open-end investment companies
managed by FMR or an affiliate, FMR would treat the issuers of the underlying
securities held by such open-end investment company as the issuer of such
investment company for purposes of the fund's fundamental concentration
limitation.
CONCLUSION. The Board of Trustees has concluded that the proposal will
benefit the fund and its shareholders. The Trustees recommend voting FOR the
proposal. Upon shareholder approval, the amended fundamental limitation will
become effective when disclosure is revised to reflect the changes. If the
proposal is not approved by the shareholders of the fund, the fund's current
limitation will remain unchanged.
OTHER BUSINESS
The Board knows of no other business to be brought before the Meeting.
However, if any other matters properly come before the Meeting, it is the
intention that proxies that do not contain specific instructions to the contrary
will be voted on such matters in accordance with the judgment of the persons
therein designated.
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ACTIVITIES AND MANAGEMENT OF FMR
FMR, a corporation organized in 1946, serves as investment adviser to a
number of investment companies. Information concerning the advisory fees and
average net assets of funds with investment objectives similar to Fidelity Real
Estate High Income Fund II and advised by FMR is contained in the Table of
Average Net Assets and Expense Ratios in Exhibit 5 beginning on page __.
FMR, its officers and directors, its affiliated companies, and the Trustees,
from time to time have transactions with various banks, including the custodian
banks for certain of the funds advised by FMR. Those transactions that have
occurred to date have included 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.
The Directors of FMR are Edward C. Johnson 3d, Chairman of the Board and of
the Executive Committee; Robert C. Pozen, President; Peter S. Lynch, Vice
Chairman; and Abigail P. Johnson, Senior Vice President. With the exception of
Ms. Johnson, each of the Directors is also a Trustee of the trust. Messrs.
Johnson 3d, Pozen, John H. Costello, Eric D. Roiter, Robert A. Dwight, Robert A.
Lawrence, Mark P. Snyderman, and Ms. Maria F. Dwyer are currently officers of
the trust and officers or employees of FMR or FMR Corp. All of these persons
hold or have options to acquire stock of FMR Corp. The principal business
address of each of the Directors of FMR is 82 Devonshire Street, Boston,
Massachusetts 02109.
All of the stock of FMR is owned by its parent company, FMR Corp., 82
Devonshire Street, Boston, Massachusetts 02109, which was organized on October
31, 1972. Members of Mr. Edward C. Johnson 3d and Ms. Abigail P. Johnson's
family are the predominant owners of a class of shares of common stock,
representing approximately 49% of the voting power of FMR Corp., and, therefore,
under the 1940 Act may be deemed to form a controlling group with respect to FMR
Corp.
During the period January 1, 1999 through July 31, 2000 the following
transaction was entered into by Trustees and nominees as Trustee of the trust
involving more than 1% of the voting common, non-voting
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common and equivalent stock, or preferred stock of FMR Corp. The Peter S. Lynch
Revocable Trust sold 60,566 shares of preferred stock of FMR Corp. to FMR Corp.
for a cash payment of approximately $9 million and a promissory note in the
amount of approximately $44 million.
ACTIVITIES AND MANAGEMENT OF FMR U.K., FMR FAR EAST, AND FIJ
FMR U.K. and FMR Far East are wholly-owned subsidiaries of FMR formed in
1986 to provide research and investment advice with respect to companies based
outside the United States for certain funds for which FMR acts as investment
adviser. FMR may grant FMR U.K. and FMR Far East investment management authority
as well as authority to buy and sell securities for certain of the funds for
which it acts as investment adviser, if FMR believes it would be beneficial to a
fund. FIJ is a wholly-owned subsidiary of Fidelity International Limited,
organized in Japan in 1986 to provide research and investment recommendations
with respect to companies primarily based in Japan and other parts of Asia.
Funds with investment objectives similar to Fidelity Real Estate High Income
Fund II managed by FMR with respect to which FMR currently has sub-advisory
agreements with either FMR U.K. or FMR Far East, and the net assets of each of
these funds, are indicated in the Table of Average Net Assets and Expense Ratios
in Exhibit 6 beginning on page __.
The Directors of FMR U.K. and FMR Far East are Edward C. Johnson 3d,
Chairman, and Robert C. Pozen, President. Mr. Johnson 3d also is President and a
Trustee of the trust and other funds advised by FMR; Chairman and a Director of
Fidelity Investments Money Management, Inc. (FIMM); Chairman, Chief Executive
Officer, President, and a Director of FMR Corp.; and a Director and Chairman of
the Board and of the Executive Committee of FMR. In addition, Mr. Pozen is
Senior Vice President and a Trustee of the trust and of other funds advised by
FMR; President and a Director of FMR; and President and a Director of FIMM. Each
of the Directors is a stockholder of FMR Corp. The principal business address of
the Directors is 82 Devonshire Street, Boston, Massachusetts 02109.
The Directors of FIJ are Billy Wilder, President, Simon Haslam, Edward C.
Johnson 3d, Noboru Kawai, Yasuo Kuramoto, Tetsuzo Nishimura, Takeshi Okazaki,
and Hiroshi Yamashita. With the exception of Mr. Edward C. Johnson 3d, the
principal business address of each of the Directors is 1-8-8 Shinkawa, Chuo-ku,
Tokyo 104-0033, Japan. The principal business address of Mr. Edward C. Johnson
3d is 82 Devonshire Street, Boston, Massachusetts 02109.
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PRESENT MANAGEMENT CONTRACT
The fund employs FMR to furnish investment advisory and other services.
Under its management contract with the fund, FMR acts as investment adviser and,
subject to the supervision of the Board of Trustees, directs the investments of
the fund in accordance with its investment objective, policies, and limitations.
FMR also provides the fund with all necessary office facilities and personnel
for servicing the fund's investments, compensates all officers of the fund and
all Trustees who are "interested persons" of the trust or of FMR, and all
personnel of the fund or FMR performing services relating to research,
statistical, and investment activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary for
the operation of the fund. These services include providing facilities for
maintaining the fund's organization; supervising relations with custodians,
transfer and pricing agents, accountants, underwriters, and other persons
dealing with the fund; preparing all general shareholder communications and
conducting shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal and state laws; developing
management and shareholder services for the fund; and furnishing reports,
evaluations, and analyses on a variety of subjects to the Trustees. Services
provided by affiliates of FMR will continue under the proposed management
contract described in proposal 4.
In addition to the management fee payable to FMR, the fund pays transfer
agent and pricing and bookkeeping fees to Fidelity Service Company, Inc. (FSC),
an affiliate of FMR, its transfer, dividend disbursing, and shareholder
servicing agent. Although the fund's current management contract provides that
the fund will pay for typesetting, printing and mailing prospectuses, statements
of additional information, notices, and reports to shareholders, the trust, on
behalf of the fund, has entered into a revised transfer agent agreement with
FSC, pursuant to which FSC bears the costs of providing these services to
existing shareholders. Other expenses paid by the fund include interest, taxes,
brokerage commissions, and the fund's proportionate share of insurance premiums
and Investment Company Institute dues. The fund is also liable for such
non-recurring expenses as may arise, including costs of any litigation to which
the fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
Transfer agent fees and pricing and bookkeeping fees, including
reimbursement for out-of-pocket expenses, paid to FSC by the fund for fiscal
1999 amounted to $197,740.
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The fund also has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered under
the Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The distribution agreement calls for FDC to use all
reasonable efforts, consistent with its other business, to secure purchasers for
shares of the fund, which are continuously offered at net asset value per share.
Promotional and administrative expenses in connection with the offer and sale of
shares are paid by FMR.
FDC received no payments from the fund pursuant to a Distribution and
Service Plan under Rule 12b-1. The Plan does not authorize payments by the fund
other than those that are to be made to FMR under its management contract.
FMR is the fund's manager pursuant to a management contract dated May 16,
1996, which was approved by FMR, as the then sole shareholder of the fund on May
16, 1996.
For the services of FMR under the management contract, the fund pays FMR a
monthly management fee which has two components: a group fee rate and an
individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and is
calculated on a cumulative basis pursuant to the graduated fee rate schedule
shown below on the left. The schedule below on the right shows the effective
annual group fee rate at various asset levels, which is the result of
cumulatively applying the annualized rates on the left. For example, the
effective annual fee rate at $826 billion of group net assets - the approximate
level for December 1999 was 0.1267%, which is the weighted average of the
respective fee rates for each level of group net assets up to $826 billion.
On August 1, 1999, FMR voluntarily modified the breakpoints in the group fee
rate schedule. The revised group fee rate schedule, depicted below, provides for
lower management fee rates as FMR's assets under management increase.
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GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
------ ---- ------ --------
0 - $3 billion .3700% $1 billion .3700%
3 - 6 .3400 50 .2188
6 - 9 .3100 100 .1869
9 - 12 .2800 150 .1736
12 - 15 .2500 200 .1652
15 - 18 .2200 250 .1587
18 - 21 .2000 300 .1536
21 - 24 .1900 350 .1494
24 - 30 .1800 400 .1459
30 - 36 .1750 450 .1427
36 - 42 .1700 500 .1399
42 - 48 .1650 550 .1372
48 - 66 .1600 600 .1349
66 - 84 .1550 650 .1328
84 - 120 .1500 700 .1309
120 - 156 .1450 750 .1291
156 - 192 .1400 800 .1275
192 - 228 .1350 850 .1260
228 - 264 .1300 900 .1246
264 - 300 .1275 950 .1233
300 - 336 .1250 1,000 .1220
336 - 372 .1225 1,050 .1209
372 - 408 .1200 1,100 .1197
408 - 444 .1175 1,150 .1187
444 - 480 .1150 1,200 .1177
480 - 516 .1125 1,250 .1167
516 - 587 .1100 1,300 .1158
587 - 646 .1080 1,350 .1149
646 - 711 .1060 1,400 .1141
711 - 782 .1040
782 - 860 .1020
860 - 946 .1000
946 - 1,041 .0980
1,041 - 1,145 .0960
1,145 - 1,260 .0940
Over 1,260 .0920
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The fund's individual fund fee rate is 0.60%. Based on the average
group net assets of the funds advised by FMR for December 1999, the fund's
annual management fee rate would be calculated as follows:
Group Fee Individual Fund Management
Rate Fee Rate Fee Rate
---- -------- --------
.1267% + .6000% = .7267%
One-twelfth of this annual management fee rate is applied to the fund's net
assets averaged for the most recent month, giving a dollar amount, which is the
fee for that month.
During the fiscal year ended 1999 FMR received $2,022,496 for its services
as investment adviser to the fund. This fee was equivalent to 0.73% of the
average net assets of the fund.
FMR may, from time to time, voluntarily agree to reimburse all or a portion
of the fund's total operating expenses (exclusive of interest, taxes, certain
securities lending costs, brokerage commissions, and extraordinary expenses).
FMR retains the ability to be repaid for these expense reimbursements in the
amount that expenses fall below the limit prior to the end of the fiscal year.
This arrangement can be discontinued by FMR at any time.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the fund by FMR pursuant to authority contained in the fund's
management contract.
FMR may 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. FMR may also place agency transactions with REDIBook ECN
LLC (REDIBook), an electronic communication network (ECN) in which a
wholly-owned subsidiary of FMR Corp. has an equity ownership interest, if the
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services.
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During the fiscal year ended December 31, 1999, the fund paid brokerage
commissions of $26,424 to NFSC. During the fiscal year ended December 31, 1999,
this amounted to approximately 3.79% of the aggregate brokerage commissions paid
by the fund.
SUBMISSION OF CERTAIN SHAREHOLDER PROPOSALS
The trust does not hold annual shareholder meetings. Shareholders wishing to
submit proposals for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of the Trust, 82
Devonshire Street, Boston, Massachusetts 02109.
NOTICE TO BANKS, BROKER-DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES
Please advise the trust, in care of Client Services at 1-617-563-6414,
whether other persons are beneficial owners of shares for which proxies are
being solicited and, if so, the number of copies of the Proxy Statement and
Annual Report you wish to receive in order to supply copies to the beneficial
owners of the respective shares.
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