|
Fund
|
Ticker
|
|
Moderate
with Income Allocation Fund |
FMWIX
|
|
Balanced
Allocation Fund |
FRYBX
|
|
Growth
Allocation Fund |
FRGAX
|
|
Aggressive
Growth Allocation Fund |
FRAGX
|
Funds
of Fidelity Charles Street Trust
STATEMENT
OF ADDITIONAL INFORMATION
November
29, 2022
This
Statement of Additional Information (SAI) is not a prospectus. Portions of each
fund's annual
report are
incorporated herein. The annual report(s) are supplied with this SAI.
To
obtain a free additional copy of a prospectus or SAI, dated November 29, 2022,
or an annual report, please call Fidelity at 1-800-544-3716 or visit Fidelity's
web site at www.netbenefits.com.
For
more information on any Fidelity ®
fund,
including charges and expenses, call Fidelity at the number indicated above for
a free prospectus. Read it carefully before investing or sending money.
245
Summer Street, Boston, MA 02210
HSA-PTB-1122
1.9904667.101
The
following policies and limitations supplement those set forth in the prospectus.
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a fund's assets that may be invested in any security or
other asset, or sets forth a policy regarding quality standards, such standard
or percentage limitation will be determined immediately after and as a result of
the fund's acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will not be
considered when determining whether the investment complies with the fund's
investment policies and limitations.
A
fund's fundamental investment policies and limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (1940 Act)) of the fund. However, except for the
fundamental investment limitations listed below, the investment policies and
limitations described in this Statement of Additional Information (SAI) are not
fundamental and may be changed without shareholder approval.
The
following are each fund's fundamental investment limitations set forth in their
entirety.
Diversification
For
each fund:
The
fund may not with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, or securities of other
investment companies) if, as a result, (a) more than 5% of the fund's total
assets would be invested in the securities of that issuer, or (b) the fund would
hold more than 10% of the outstanding voting securities of that issuer.
Senior
Securities
For
each fund:
The
fund may not issue senior securities, except as permitted under the Investment
Company Act of 1940.
Borrowing
For
each fund:
The
fund may not borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33 1/3% limitation.
Underwriting
For
each fund:
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.
Concentration
For
each fund:
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 (provided that investments in other
investment companies shall not be considered an investment in any particular
industry for purposes of this investment limitation).
For
purposes of each of Moderate with Income Allocation Fund's, Balanced Allocation
Fund's, Growth Allocation Fund's, and Aggressive Growth Allocation Fund's
concentration limitation discussed above, with respect to any investment in
repurchase agreements collateralized by U.S. Government securities, Fidelity
Management & Research Company LLC (FMR) looks through to the U.S. Government
securities.
For
purposes of each of Moderate with Income Allocation Fund's, Balanced Allocation
Fund's, Growth Allocation Fund's, and Aggressive Growth Allocation Fund's
concentration limitation discussed above, with respect to any investment in
Fidelity® Money Market Central Fund and/or any non-money market Central fund,
FMR looks through to the holdings of the Central fund.
For
purposes of each of Moderate with Income Allocation Fund's, Balanced Allocation
Fund's, Growth Allocation Fund's, and Aggressive Growth Allocation Fund's
concentration limitation discussed above, FMR may analyze the characteristics of
a particular issuer and security and assign an industry or sector classification
consistent with those characteristics in the event that the third-party
classification provider used by FMR does not assign a classification.
Real
Estate
For
each fund:
The
fund may not purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
fund from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
Commodities
For
each fund:
The
fund may not purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent the
fund from purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities).
Loans
For
each fund:
The
fund may not lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or to repurchase agreements, or
to acquisitions of loans, loan participations or other forms of debt
instruments.
The
following investment limitations are not fundamental and may be changed without
shareholder approval.
Short
Sales
For
each fund:
The
fund does not currently intend to sell securities short, unless it owns or has
the right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that transactions in futures contracts and options are
not deemed to constitute selling securities short.
Margin
Purchases
For
each fund:
The
fund does not currently intend to purchase securities on margin, except that the
fund may obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with futures
contracts and options on futures contracts shall not constitute purchasing
securities on margin.
Borrowing
For
each fund:
The
fund may borrow money only (a) from a bank or from a registered investment
company or portfolio for which FMR or an affiliate serves as investment adviser
or (b) by engaging in reverse repurchase agreements with any party (reverse
repurchase agreements are treated as borrowings for purposes of the fundamental
borrowing investment limitation).
Illiquid
Securities
For
each fund:
The
fund does not currently intend to purchase any security if, as a result, more
than 10% of its net assets would be invested in securities that are deemed to be
illiquid because they are subject to legal or contractual restrictions on resale
or because they cannot be sold or disposed of in the ordinary course of business
at approximately the prices at which they are valued.
For
purposes of each fund's illiquid securities limitation discussed above, if
through a change in values, net assets, or other circumstances, the fund were in
a position where more than 10% of its net assets were invested in illiquid
securities, it would consider appropriate steps to protect liquidity.
Loans
For
each fund:
The
fund does not currently intend to lend assets other than securities to other
parties, except by (a) lending money (up to 15% of the fund's net assets) to a
registered investment company or portfolio for which FMR or an affiliate serves
as investment adviser or (b) assuming any unfunded commitments in connection
with the acquisition of loans, loan participations, or other forms of debt
instruments. (This limitation does not apply to purchases of debt securities, to
repurchase agreements, or to acquisitions of loans, loan participations or other
forms of debt instruments.)
In
addition to each fund's fundamental and non-fundamental investment limitations
discussed above:
In
order to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended, each fund currently intends to comply
with certain diversification limits imposed by Subchapter M.
For
a fund's policies and limitations on futures and options transactions, see
"Investment Policies and Limitations - Futures, Options, and Swaps."
Notwithstanding
the foregoing investment limitations, the underlying Fidelity ®
funds
in which a fund may invest have adopted certain investment limitations that may
be more or less restrictive than those listed above, thereby permitting a fund
to engage indirectly in investment strategies that are prohibited under the
investment limitations listed above. The investment limitations of each
underlying Fidelity ®
fund
are set forth in its SAI.
In
accordance with its investment program as set forth in the prospectus, each fund
may invest more than 25% of its assets in any one underlying Fidelity
®
fund.
Although each fund does not intend to concentrate its investments in a
particular industry, a fund may indirectly concentrate in a particular industry
or group of industries through its investments in one or more underlying
Fidelity ®
funds.
The
following pages contain more detailed information about types of instruments in
which a fund may invest, techniques a fund's adviser may employ in pursuit of
the fund's investment objective, and a summary of related risks. A fund's
adviser may not buy all of these instruments or use all of these techniques
unless it believes that doing so will help the fund achieve its goal. However, a
fund's adviser is not required to buy any particular instrument or use any
particular technique even if to do so might benefit the fund.
Moderate
with Income Allocation Fund, Balanced Allocation Fund, Growth Allocation Fund,
and Aggressive Growth Allocation Fund may have exposure to instruments,
techniques, and risks either directly or indirectly through an investment in an
underlying fund. An underlying fund may invest in the same or other types of
instruments and its adviser (or a sub-adviser) may employ the same or other
types of techniques. Moderate with Income Allocation Fund's, Balanced Allocation
Fund's, Growth Allocation Fund's, and Aggressive Growth Allocation Fund's
performance will be affected by the instruments, techniques, and risks
associated with an underlying fund, in proportion to the amount of assets that
the fund allocates to that underlying fund.
On
the following pages in this section titled "Investment Policies and
Limitations," except as otherwise indicated, references to "a fund" or "the
fund" may relate to Moderate with Income Allocation Fund, Balanced Allocation
Fund, Growth Allocation Fund, or Aggressive Growth Allocation Fund or an
underlying fund in which Moderate with Income Allocation Fund, Balanced
Allocation Fund, Growth Allocation Fund, or Aggressive Growth Allocation Fund
invests, and references to "an adviser" or "the adviser" may relate to FMR (or
its affiliates) or an adviser (or sub-adviser) of an underlying fund.
Affiliated
Bank Transactions. A
Fidelity ®
fund
may engage in transactions with financial institutions that are, or may be
considered to be, "affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks; short-term
obligations of, and repurchase agreements with, the 50 largest U.S. banks
(measured by deposits); municipal securities; U.S. Government securities with
affiliated financial institutions that are primary dealers in these securities;
short-term currency transactions; and short-term borrowings. In accordance with
exemptive orders issued by the Securities and Exchange Commission (SEC), the
Board of Trustees has established and periodically reviews procedures applicable
to transactions involving affiliated financial institutions.
Asset-Backed
Securities represent
interests in pools of mortgages, loans, receivables, or other assets. Payment of
interest and repayment of principal may be largely dependent upon the cash flows
generated by the assets backing the securities and, in certain cases, supported
by letters of credit, surety bonds, or other credit enhancements. Asset-backed
security values may also be affected by other factors including changes in
interest rates, the availability of information concerning the pool and its
structure, the creditworthiness of the servicing agent for the pool, the
originator of the loans or receivables, or the entities providing the credit
enhancement. In addition, these securities may be subject to prepayment
risk.
Collateralized
Loan Obligations (CLO) are a type of asset-backed security. A CLO is a trust
typically collateralized by a pool of loans, which may include, among others,
domestic and foreign senior secured loans, senior unsecured loans, and
subordinate corporate loans, including loans that may be rated below investment
grade or equivalent unrated loans. CLOs may charge management fees and
administrative expenses. For CLOs, the cash flows from the trust are split into
two or more portions, called tranches, varying in risk and yield. The riskiest
portion is the "equity" tranche which bears the bulk of defaults from the bonds
or loans in the trust and serves to protect the other, more senior tranches from
default in all but the most severe circumstances. Since they are partially
protected from defaults, senior tranches from a CLO trust typically have higher
ratings and lower yields than their underlying securities and can be rated
investment grade. Despite the protection from the equity tranche, CLO tranches
can experience substantial losses due to actual defaults, increased sensitivity
to defaults due to collateral default and disappearance of protecting tranches,
market anticipation of defaults, as well as aversion to CLO securities as a
class. Normally, CLOs are privately offered and sold, and thus, are not
registered under the securities laws. As a result, investments in CLOs may be
characterized by a fund as illiquid securities, however an active dealer market
may exist allowing them to qualify for Rule 144A transactions.
Borrowing.
If
a fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
Cash
Management. A
fund may hold uninvested cash or may invest it in cash equivalents such as money
market securities, repurchase agreements, or shares of short-term bond or money
market funds, including (for Fidelity ®
funds
and other advisory clients only) shares of Fidelity ®
Central
funds. Generally, these securities offer less potential for gains than other
types of securities.
Central
Funds are
special types of investment vehicles created by Fidelity for use by the
Fidelity ®
funds
and other advisory clients. Central funds are used to invest in particular
security types or investment disciplines, or for cash management. Central funds
incur certain costs related to their investment activity (such as custodial fees
and expenses), but do not pay additional management fees. The investment results
of the portions of a Fidelity ®
fund's
assets invested in the Central funds will be based upon the investment results
of those funds.
Commodity
Futures Trading Commission (CFTC) Notice of Exclusion. The
Adviser, on behalf of the Fidelity® funds to which this SAI relates, has filed
with the National Futures Association a notice claiming an exclusion from the
definition of the term "commodity pool operator" (CPO) under the Commodity
Exchange Act, as amended, and the rules of the CFTC promulgated thereunder, with
respect to each fund's operation. Accordingly, neither a fund nor its adviser is
subject to registration or regulation as a commodity pool or a CPO. As of the
date of this SAI, the adviser does not expect to register as a CPO of the funds.
However, there is no certainty that a fund or its adviser will be able to rely
on an exclusion in the future as the fund's investments change over time. A fund
may determine not to use investment strategies that trigger additional CFTC
regulation or may determine to operate subject to CFTC regulation, if
applicable. If a fund or its adviser operates subject to CFTC regulation, it may
incur additional expenses.
Common
Stock represents
an equity or ownership interest in an issuer. In the event an issuer is
liquidated or declares bankruptcy, the claims of owners of bonds and preferred
stock take precedence over the claims of those who own common stock, although
related proceedings can take time to resolve and results can be unpredictable.
For purposes of a Fidelity ®
fund's
policies related to investment in common stock Fidelity considers depositary
receipts evidencing ownership of common stock to be common stock.
Convertible
Securities are
bonds, debentures, notes, or other securities that may be converted or exchanged
(by the holder or by the issuer) into shares of the underlying common stock (or
cash or securities of equivalent value) at a stated exchange ratio. A
convertible security may also be called for redemption or conversion by the
issuer after a particular date and under certain circumstances (including a
specified price) established upon issue. If a convertible security held by a
fund is called for redemption or conversion, the fund could be required to
tender it for redemption, convert it into the underlying common stock, or sell
it to a third party.
Convertible
securities generally have less potential for gain or loss than common stocks.
Convertible securities generally provide yields higher than the underlying
common stocks, but generally lower than comparable non-convertible securities.
Because of this higher yield, convertible securities generally sell at prices
above their "conversion value," which is the current market value of the stock
to be received upon conversion. The difference between this conversion value and
the price of convertible securities will vary over time depending on changes in
the value of the underlying common stocks and interest rates. When the
underlying common stocks decline in value, convertible securities will tend not
to decline to the same extent because of the interest or dividend payments and
the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means
that the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest-rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
Debt
Securities are
used by issuers to borrow money. The issuer usually pays a fixed, variable, or
floating rate of interest, and must repay the amount borrowed, usually at the
maturity of the security. Some debt securities, such as zero coupon bonds, do
not pay interest but are sold at a deep discount from their face values. Debt
securities include corporate bonds, government securities, repurchase
agreements, and mortgage and other asset-backed securities.
Disruption
to Financial Markets and Related Government Intervention. Economic
downturns can trigger various economic, legal, budgetary, tax, and regulatory
reforms across the globe. Instability in the financial markets in the wake of
events such as the 2008 economic downturn led the U.S. Government and other
governments to take a number of then-unprecedented actions designed to support
certain financial institutions and segments of the financial markets that
experienced extreme volatility, and in some cases, a lack of liquidity. Federal,
state, local, foreign, and other governments, their regulatory agencies, or
self-regulatory organizations may take actions that affect the regulation of the
instruments in which a fund invests, or the issuers of such instruments, in ways
that are unforeseeable. Reforms may also change the way in which a fund is
regulated and could limit or preclude a fund's ability to achieve its investment
objective or engage in certain strategies. Also, while reforms generally are
intended to strengthen markets, systems, and public finances, they could affect
fund expenses and the value of fund investments in unpredictable ways.
Similarly,
widespread disease including pandemics and epidemics, and natural or
environmental disasters, such as earthquakes, droughts, fires, floods,
hurricanes, tsunamis and climate-related phenomena generally, have been and can
be highly disruptive to economies and markets, adversely impacting individual
companies, sectors, industries, markets, currencies, interest and inflation
rates, credit ratings, investor sentiment, and other factors affecting the value
of a fund's investments. Economies and financial markets throughout the world
have become increasingly interconnected, which increases the likelihood that
events or conditions in one region or country will adversely affect markets or
issuers in other regions or countries, including the United States.
Additionally, market disruptions may result in increased market volatility;
regulatory trading halts; closure of domestic or foreign exchanges, markets, or
governments; or market participants operating pursuant to business continuity
plans for indeterminate periods of time. Further, market disruptions can (i)
prevent a fund from executing advantageous investment decisions in a timely
manner, (ii) negatively impact a fund's ability to achieve its investment
objective, and (iii) may exacerbate the risks discussed elsewhere in a fund's
registration statement, including political, social, and economic risks.
The
value of a fund's portfolio is also generally subject to the risk of future
local, national, or global economic or natural disturbances based on unknown
weaknesses in the markets in which a fund invests. In the event of such a
disturbance, the issuers of securities held by a fund may experience significant
declines in the value of their assets and even cease operations, or may receive
government assistance accompanied by increased restrictions on their business
operations or other government intervention. In addition, it remains uncertain
that the U.S. Government or foreign governments will intervene in response to
current or future market disturbances and the effect of any such future
intervention cannot be predicted.
Dollar-Weighted
Average Maturity is
derived by multiplying the value of each security by the time remaining to its
maturity, adding these calculations, and then dividing the total by the value of
a fund's portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
Under
certain circumstances, a fund may invest in nominally long-term securities that
have maturity-shortening features of shorter-term securities, and the maturities
of these securities may be deemed to be earlier than their ultimate maturity
dates by virtue of an existing demand feature or an adjustable interest rate.
Under other circumstances, if it is probable that the issuer of an instrument
will take advantage of a maturity-shortening device, such as a call, refunding,
or redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date. The
maturities of mortgage securities, including collateralized mortgage
obligations, and some asset-backed securities are determined on a weighted
average life basis, which is the average time for principal to be repaid. For a
mortgage security, this average time is calculated by estimating the timing of
principal payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to be
substantially shorter than their stated final maturity.
Duration
is
a measure of a bond's price sensitivity to a change in its yield. For example,
if a bond has a 5-year duration and its yield rises 1%, the bond's value is
likely to fall about 5%. Similarly, if a bond fund has a 5-year average duration
and the yield on each of the bonds held by the fund rises 1%, the fund's value
is likely to fall about 5%. For funds with exposure to foreign markets, there
are many reasons why all of the bond holdings do not experience the same yield
changes. These reasons include: the bonds are spread off of different yield
curves around the world and these yield curves do not move in tandem; the shapes
of these yield curves change; and sector and issuer yield spreads change. Other
factors can influence a bond fund's performance and share price. Accordingly, a
bond fund's actual performance will likely differ from the example.
Exchange
Traded Funds (ETFs) are
shares of other investment companies, commodity pools, or other entities that
are traded on an exchange. Typically, assets underlying the ETF shares are
stocks, though they may also be commodities or other instruments. An ETF may
seek to replicate the performance of a specific index or may be actively
managed.
Typically,
shares of an ETF that tracks an index are expected to increase in value as the
value of the underlying benchmark increases. However, in the case of inverse
ETFs (also called "short ETFs" or "bear ETFs"), ETF shares are expected to
increase in value as the value of the underlying benchmark decreases. Inverse
ETFs seek to deliver the opposite of the performance of the benchmark they track
and are often marketed as a way for investors to profit from, or at least hedge
their exposure to, downward moving markets. Investments in inverse ETFs are
similar to holding short positions in the underlying benchmark.
ETF
shares are redeemable only in large blocks of shares often called "creation
units" by persons other than a fund, and are redeemed principally in-kind at
each day's next calculated net asset value per share (NAV). ETFs typically incur
fees that are separate from those fees incurred directly by a fund. A fund's
purchase of ETFs results in the layering of expenses, such that the fund would
indirectly bear a proportionate share of any ETF's operating expenses. Further,
while traditional investment companies are continuously offered at NAV, ETFs are
traded in the secondary market (e.g., on a stock exchange) on an intra-day basis
at prices that may be above or below the value of their underlying
portfolios.
Some
of the risks of investing in an ETF that tracks an index are similar to those of
investing in an indexed mutual fund, including tracking error risk (the risk of
errors in matching the ETF's underlying assets to the index or other benchmark);
and the risk that because an ETF that tracks an index is not actively managed,
it cannot sell stocks or other assets as long as they are represented in the
index or other benchmark. Other ETF risks include the risk that ETFs may trade
in the secondary market at a discount from their NAV and the risk that the ETFs
may not be liquid. ETFs also may be leveraged. Leveraged ETFs seek to deliver
multiples of the performance of the index or other benchmark they track and use
derivatives in an effort to amplify the returns (or decline, in the case of
inverse ETFs) of the underlying index or benchmark. While leveraged ETFs may
offer the potential for greater return, the potential for loss and the speed at
which losses can be realized also are greater. Most leveraged and inverse ETFs
"reset" daily, meaning they are designed to achieve their stated objectives on a
daily basis. Leveraged and inverse ETFs can deviate substantially from the
performance of their underlying benchmark over longer periods of time,
particularly in volatile periods.
Exchange
Traded Notes (ETNs) are
a type of senior, unsecured, unsubordinated debt security issued by financial
institutions that combines aspects of both bonds and ETFs. An ETN's returns are
based on the performance of a market index or other reference asset minus fees
and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the
secondary market. However, unlike an ETF, an ETN can be held until the ETN's
maturity, at which time the issuer will pay a return linked to the performance
of the market index or other reference asset to which the ETN is linked minus
certain fees. Unlike regular bonds, ETNs typically do not make periodic interest
payments and principal typically is not protected.
ETNs
also incur certain expenses not incurred by their applicable index. The market
value of an ETN is determined by supply and demand, the current performance of
the index or other reference asset, and the credit rating of the ETN issuer. The
market value of ETN shares may differ from their intraday indicative value. The
value of an ETN may also change due to a change in the issuer's credit rating.
As a result, there may be times when an ETN's share trades at a premium or
discount to its NAV. Some ETNs that use leverage in an effort to amplify the
returns of an underlying index or other reference asset can, at times, be
relatively illiquid and, thus, they may be difficult to purchase or sell at a
fair price. Leveraged ETNs may offer the potential for greater return, but the
potential for loss and speed at which losses can be realized also are
greater.
Exposure
to Foreign and Emerging Markets. Foreign
securities, foreign currencies, and securities issued by U.S. entities with
substantial foreign operations may involve significant risks in addition to the
risks inherent in U.S. investments.
Foreign
investments involve risks relating to local political, economic, regulatory, or
social instability, military action or unrest, or adverse diplomatic
developments, and may be affected by actions of foreign governments adverse to
the interests of U.S. investors. Such actions may include expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. From time to time, a fund's adviser
and/or its affiliates may determine that, as a result of regulatory requirements
that may apply to the adviser and/or its affiliates due to investments in a
particular country, investments in the securities of issuers domiciled or listed
on trading markets in that country above certain thresholds (which may apply at
the account level or in the aggregate across all accounts managed by the adviser
and its affiliates) may be impractical or undesirable. In such instances, the
adviser may limit or exclude investment in a particular issuer, and investment
flexibility may be restricted. Additionally, governmental issuers of foreign
debt securities may be unwilling to pay interest and repay principal when due
and may require that the conditions for payment be renegotiated. There is no
assurance that a fund's adviser will be able to anticipate these potential
events or counter their effects. In addition, the value of securities
denominated in foreign currencies and of dividends and interest paid with
respect to such securities will fluctuate based on the relative strength of the
U.S. dollar.
The
risks of foreign investing may be magnified for investments in emerging markets,
which may have relatively unstable governments, economies based on only a few
industries, and securities markets that trade a small number of
securities.
It
is anticipated that in most cases the best available market for foreign
securities will be on an exchange or in over-the-counter (OTC) markets located
outside of the United States. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the United States,
and securities of some foreign issuers may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices (including those involving securities settlement where fund
assets may be released prior to receipt of payment) are often less developed
than those in U.S. markets, and may result in increased investment or valuation
risk or substantial delays in the event of a failed trade or the insolvency of,
or breach of duty by, a foreign broker-dealer, securities depository, or foreign
subcustodian. In addition, the costs associated with foreign investments,
including withholding taxes, brokerage commissions, and custodial costs, are
generally higher than with U.S. investments.
Foreign
markets may offer less protection to investors than U.S. markets. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to U.S. issuers. Adequate public information on foreign issuers may not be
available, and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less overall
governmental supervision and regulation of securities exchanges, brokers, and
listed companies than in the United States. OTC markets tend to be less
regulated than stock exchange markets and, in certain countries, may be totally
unregulated. Regulatory enforcement may be influenced by economic or political
concerns, and investors may have difficulty enforcing their legal rights in
foreign countries.
Some
foreign securities impose restrictions on transfer within the United States or
to U.S. persons. Although securities subject to such transfer restrictions may
be marketable abroad, they may be less liquid than foreign securities of the
same class that are not subject to such restrictions.
American
Depositary Receipts (ADRs) as well as other "hybrid" forms of ADRs, including
European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs), are
certificates evidencing ownership of shares of a foreign issuer. These
certificates are issued by depository banks and generally trade on an
established market in the United States or elsewhere. The underlying shares are
held in trust by a custodian bank or similar financial institution in the
issuer's home country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions. ADRs are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. However, ADRs continue to be subject to many of
the risks associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks of the
underlying issuer's country.
The
risks of foreign investing may be magnified for investments in emerging markets.
Security prices in emerging markets can be significantly more volatile than
those in more developed markets, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, may present the
risks of nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less protection of
property rights than more developed countries. The economies of countries with
emerging markets may be based on only a few industries, may be highly vulnerable
to changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of holdings difficult
or impossible at times.
Foreign
Currency Transactions. A
fund may conduct foreign currency transactions on a spot (i.e., cash) or forward
basis (i.e., by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge a fee for
such conversions, they do realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency at one rate, while offering a lesser rate
of exchange should the counterparty desire to resell that currency to the
dealer. Forward contracts are customized transactions that require a specific
amount of a currency to be delivered at a specific exchange rate on a specific
date or range of dates in the future. Forward contracts are generally traded in
an interbank market directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the contract
to maturity and complete the contemplated currency exchange.
The
following discussion summarizes the principal currency management strategies
involving forward contracts that could be used by a fund. A fund may also use
swap agreements, indexed securities, and options and futures contracts relating
to foreign currencies for the same purposes. Forward contracts not calling for
physical delivery of the underlying instrument will be settled through cash
payments rather than through delivery of the underlying currency. All of these
instruments and transactions are subject to the risk that the counterparty will
default.
A
"settlement hedge" or "transaction hedge" is designed to protect a fund against
an adverse change in foreign currency values between the date a security
denominated in a foreign currency is purchased or sold and the date on which
payment is made or received. Entering into a forward contract for the purchase
or sale of the amount of foreign currency involved in an underlying security
transaction for a fixed amount of U.S. dollars "locks in" the U.S. dollar price
of the security. Forward contracts to purchase or sell a foreign currency may
also be used to protect a fund in anticipation of future purchases or sales of
securities denominated in foreign currency, even if the specific investments
have not yet been selected.
A
fund may also use forward contracts to hedge against a decline in the value of
existing investments denominated in a foreign currency. For example, if a fund
owned securities denominated in pounds sterling, it could enter into a forward
contract to sell pounds sterling in return for U.S. dollars to hedge against
possible declines in the pound's value. Such a hedge, sometimes referred to as a
"position hedge," would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. A fund could also attempt to hedge the position by selling another
currency expected to perform similarly to the pound sterling. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency exposure
as effectively as a direct hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
A
fund may enter into forward contracts to shift its investment exposure from one
currency into another. This may include shifting exposure from U.S. dollars to a
foreign currency, or from one foreign currency to another foreign currency. This
type of strategy, sometimes known as a "cross-hedge," will tend to reduce or
eliminate exposure to the currency that is sold, and increase exposure to the
currency that is purchased, much as if a fund had sold a security denominated in
one currency and purchased an equivalent security denominated in another. A fund
may cross-hedge its U.S. dollar exposure in order to achieve a representative
weighted mix of the major currencies in its benchmark index and/or to cover an
underweight country or region exposure in its portfolio. Cross-hedges protect
against losses resulting from a decline in the hedged currency, but will cause a
fund to assume the risk of fluctuations in the value of the currency it
purchases.
Successful
use of currency management strategies will depend on an adviser's skill in
analyzing currency values. Currency management strategies may substantially
change a fund's investment exposure to changes in currency exchange rates and
could result in losses to a fund if currencies do not perform as an adviser
anticipates. For example, if a currency's value rose at a time when a fund had
hedged its position by selling that currency in exchange for dollars, the fund
would not participate in the currency's appreciation. If a fund hedges currency
exposure through proxy hedges, the fund could realize currency losses from both
the hedge and the security position if the two currencies do not move in tandem.
Similarly, if a fund increases its exposure to a foreign currency and that
currency's value declines, the fund will realize a loss. Foreign currency
transactions involve the risk that anticipated currency movements will not be
accurately predicted and that a fund's hedging strategies will be ineffective.
Moreover, it is impossible to precisely forecast the market value of portfolio
securities at the expiration of a foreign currency forward contract.
Accordingly, a fund may be required to buy or sell additional currency on the
spot market (and bear the expenses of such transaction), if an adviser's
predictions regarding the movement of foreign currency or securities markets
prove inaccurate.
A
fund may be required to limit its hedging transactions in foreign currency
forwards, futures, and options in order to maintain its classification as a
"regulated investment company" under the Internal Revenue Code (Code). Hedging
transactions could result in the application of the mark-to-market provisions of
the Code, which may cause an increase (or decrease) in the amount of taxable
dividends paid by a fund and could affect whether dividends paid by a fund are
classified as capital gains or ordinary income. There is no assurance that an
adviser's use of currency management strategies will be advantageous to a fund
or that it will employ currency management strategies at appropriate
times.
Options
and Futures Relating to Foreign Currencies. Currency
futures contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally is
purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase the
underlying currency, and the purchaser of a currency put obtains the right to
sell the underlying currency.
The
uses and risks of currency options and futures are similar to options and
futures relating to securities or indexes, as discussed below. A fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. Currency
options may also be purchased or written in conjunction with each other or with
currency futures or forward contracts. Currency futures and options values can
be expected to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for example,
should protect a Yen-denominated security from a decline in the Yen, but will
not protect a fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of a fund's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the fund's investments exactly over time.
Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of the fund to reduce foreign currency risk using
such options.
Foreign
Repurchase Agreements. Foreign
repurchase agreements involve an agreement to purchase a foreign security and to
sell that security back to the original seller at an agreed-upon price in either
U.S. dollars or foreign currency. Unlike typical U.S. repurchase agreements,
foreign repurchase agreements may not be fully collateralized at all times. The
value of a security purchased by a fund may be more or less than the price at
which the counterparty has agreed to repurchase the security. In the event of
default by the counterparty, a fund may suffer a loss if the value of the
security purchased is less than the agreed-upon repurchase price, or if the fund
is unable to successfully assert a claim to the collateral under foreign laws.
As a result, foreign repurchase agreements may involve higher credit risks than
repurchase agreements in U.S. markets, as well as risks associated with currency
fluctuations. In addition, as with other emerging markets investments,
repurchase agreements with counterparties located in emerging markets or
relating to emerging markets may involve issuers or counterparties with lower
credit ratings than typical U.S. repurchase agreements.
Funds
of Funds and Other Large Shareholders. Certain
Fidelity ®
funds
and accounts (including funds of funds) invest in other funds ("underlying
funds") and, as a result, may at times have substantial investments in one or
more underlying funds.
An
underlying fund may experience large redemptions or investments due to
transactions in its shares by funds of funds, other large shareholders, or
similarly managed accounts. While it is impossible to predict the overall effect
of these transactions over time, there could be an adverse impact on an
underlying fund's performance. In the event of such redemptions or investments,
an underlying fund could be required to sell securities or to invest cash at a
time when it may not otherwise desire to do so. Such transactions may increase
an underlying fund's brokerage and/or other transaction costs and affect the
liquidity of a fund's portfolio. In addition, when funds of funds or other
investors own a substantial portion of an underlying fund's shares, a large
redemption by such an investor could cause actual expenses to increase, or could
result in the underlying fund's current expenses being allocated over a smaller
asset base, leading to an increase in the underlying fund's expense ratio.
Redemptions of underlying fund shares could also accelerate the realization of
taxable capital gains in the fund if sales of securities result in capital
gains. The impact of these transactions is likely to be greater when a fund of
funds or other significant investor purchases, redeems, or owns a substantial
portion of the underlying fund's shares.
When
possible, Fidelity will consider how to minimize these potential adverse
effects, and may take such actions as it deems appropriate to address potential
adverse effects, including redemption of shares in-kind rather than in cash or
carrying out the transactions over a period of time, although there can be no
assurance that such actions will be successful. A high volume of redemption
requests can impact an underlying fund the same way as the transactions of a
single shareholder with substantial investments. As an additional safeguard,
Fidelity ®
fund
of funds may manage the placement of their redemption requests in a manner
designed to minimize the impact of such requests on the day-to-day operations of
the underlying funds in which they invest. This may involve, for example,
redeeming its shares of an underlying fund gradually over time or through use of
a transition account.
Funds'
Rights as Investors. Fidelity
®
funds
do not intend to direct or administer the day-to-day operations of any company.
A fund may, however, exercise its rights as a shareholder or lender and may
communicate its views on important matters of policy to a company's management,
board of directors, and shareholders, and holders of a company's other
securities when such matters could have a significant effect on the value of the
fund's investment in the company. The activities in which a fund may engage,
either individually or in conjunction with others, may include, among others,
supporting or opposing proposed changes in a company's corporate structure or
business activities; seeking changes in a company's directors or management;
seeking changes in a company's direction or policies; seeking the sale or
reorganization of the company or a portion of its assets; supporting or opposing
third-party takeover efforts; supporting the filing of a bankruptcy petition; or
foreclosing on collateral securing a security. This area of corporate activity
is increasingly prone to litigation and it is possible that a fund could be
involved in lawsuits related to such activities. Such activities will be
monitored with a view to mitigating, to the extent possible, the risk of
litigation against a fund and the risk of actual liability if a fund is involved
in litigation. No guarantee can be made, however, that litigation against a fund
will not be undertaken or liabilities incurred. A fund's proxy voting guidelines
are included in its SAI.
Futures,
Options, and Swaps. The
success of any strategy involving futures, options, and swaps depends on an
adviser's analysis of many economic and mathematical factors and a fund's return
may be higher if it never invested in such instruments. Additionally, some of
the contracts discussed below are new instruments without a trading history and
there can be no assurance that a market for the instruments will continue to
exist. Government legislation or regulation could affect the use of such
instruments and could limit a fund's ability to pursue its investment
strategies. If a fund invests a significant portion of its assets in
derivatives, its investment exposure could far exceed the value of its portfolio
securities and its investment performance could be primarily dependent upon
securities it does not own.
Each
of Moderate with Income Allocation Fund, Balanced Allocation Fund, Growth
Allocation Fund, and Aggressive Growth Allocation Fund will not: (a) sell
futures contracts, purchase put options, or write call options if, as a result,
more than 25% of the fund's total assets would be hedged with futures and
options under normal conditions; (b) purchase futures contracts or write put
options if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would exceed 25%
of its total assets under normal conditions; or (c) purchase call options if, as
a result, the current value of option premiums for call options purchased by the
fund would exceed 5% of the fund's total assets. These limitations do not apply
to options attached to or acquired or traded together with their underlying
securities, and do not apply to structured notes.
The
policies and limitations regarding the funds' investments in futures contracts,
options, and swaps may be changed as regulatory agencies permit.
The
requirements for qualification as a regulated investment company may limit the
extent to which a fund may enter into futures, options on futures, and forward
contracts.
Futures
Contracts. In
purchasing a futures contract, the buyer agrees to purchase a specified
underlying instrument at a specified future date. In selling a futures contract,
the seller agrees to sell a specified underlying instrument at a specified date.
Futures contracts are standardized, exchange-traded contracts and the price at
which the purchase and sale will take place is fixed when the buyer and seller
enter into the contract. Some currently available futures contracts are based on
specific securities or baskets of securities, some are based on commodities or
commodities indexes (for funds that seek commodities exposure), and some are
based on indexes of securities prices (including foreign indexes for funds that
seek foreign exposure). In addition, some currently available futures contracts
are based on Eurodollars. Positions in Eurodollar futures reflect market
expectations of forward levels of three-month London Interbank Offered Rate
(LIBOR) rates. Futures on indexes and futures not calling for physical delivery
of the underlying instrument will be settled through cash payments rather than
through delivery of the underlying instrument. Futures can be held until their
delivery dates, or can be closed out by offsetting purchases or sales of futures
contracts before then if a liquid market is available. A fund may realize a gain
or loss by closing out its futures contracts.
The
value of a futures contract tends to increase and decrease in tandem with the
value of its underlying instrument. Therefore, purchasing futures contracts will
tend to increase a fund's exposure to positive and negative price fluctuations
in the underlying instrument, much as if it had purchased the underlying
instrument directly. When a fund sells a futures contract, by contrast, the
value of its futures position will tend to move in a direction contrary to the
market for the underlying instrument. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The
purchaser or seller of a futures contract or an option for a futures contract is
not required to deliver or pay for the underlying instrument or the final cash
settlement price, as applicable, unless the contract is held until the delivery
date. However, both the purchaser and seller are required to deposit "initial
margin" with a futures broker, known as a futures commission merchant, when the
contract is entered into. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to settle
the change in value on a daily basis. This process of "marking to market" will
be reflected in the daily calculation of open positions computed in a fund's
NAV. The party that has a gain is entitled to receive all or a portion of this
amount. Initial and variation margin payments do not constitute purchasing
securities on margin for purposes of a fund's investment limitations. Variation
margin does not represent a borrowing or loan by a fund, but is instead a
settlement between a fund and the futures commission merchant of the amount one
would owe the other if the fund's contract expired. In the event of the
bankruptcy or insolvency of a futures commission merchant that holds margin on
behalf of a fund, the fund may be entitled to return of margin owed to it only
in proportion to the amount received by the futures commission merchant's other
customers, potentially resulting in losses to the fund.
Although
futures exchanges generally operate similarly in the United States and abroad,
foreign futures exchanges may follow trading, settlement, and margin procedures
that are different from those for U.S. exchanges. Futures contracts traded
outside the United States may not involve a clearing mechanism or related
guarantees and may involve greater risk of loss than U.S.-traded contracts,
including potentially greater risk of losses due to insolvency of a futures
broker, exchange member, or other party that may owe initial or variation margin
to a fund. Because initial and variation margin payments may be measured in
foreign currency, a futures contract traded outside the United States may also
involve the risk of foreign currency fluctuation.
There
is no assurance a liquid market will exist for any particular futures contract
at any particular time. Exchanges may establish daily price fluctuation limits
for futures contracts, and may halt trading if a contract's price moves upward
or downward more than the limit in a given day. On volatile trading days when
the price fluctuation limit is reached or a trading halt is imposed, it may be
impossible to enter into new positions or close out existing positions. The
daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
If
the market for a contract is not liquid because of price fluctuation limits or
other market conditions, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a position
until delivery or expiration regardless of changes in its value. These risks may
be heightened for commodity futures contracts, which have historically been
subject to greater price volatility than exists for instruments such as stocks
and bonds.
Because
there are a limited number of types of exchange-traded futures contracts, it is
likely that the standardized contracts available will not match a fund's current
or anticipated investments exactly. A fund may invest in futures contracts based
on securities with different issuers, maturities, or other characteristics from
the securities in which the fund typically invests, which involves a risk that
the futures position will not track the performance of the fund's other
investments.
Futures
prices can also diverge from the prices of their underlying instruments, even if
the underlying instruments match a fund's investments well. Futures prices are
affected by such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same way.
Imperfect correlation may also result from differing levels of demand in the
futures markets and the securities markets, from structural differences in how
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A fund may purchase or sell futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in a fund's futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains or
result in losses that are not offset by gains in other investments.
In addition, the price of a commodity futures contract can reflect the
storage costs associated with the purchase of the physical commodity.
Futures
contracts on U.S. Government securities historically have reacted to an increase
or decrease in interest rates in a manner similar to the manner in which the
underlying U.S. Government securities reacted. To the extent, however, that a
fund enters into such futures contracts, the value of these futures contracts
will not vary in direct proportion to the value of the fund's holdings of U.S.
Government securities. Thus, the anticipated spread between the price of the
futures contract and the hedged security may be distorted due to differences in
the nature of the markets. The spread also may be distorted by differences in
initial and variation margin requirements, the liquidity of such markets and the
participation of speculators in such markets.
Options.
By
purchasing a put option, the purchaser obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike price.
In return for this right, the purchaser pays the current market price for the
option (known as the option premium). Options have various types of underlying
instruments, including specific assets or securities, baskets of assets or
securities, indexes of securities or commodities prices, and futures contracts
(including commodity futures contracts). Options may be traded on an exchange or
OTC. The purchaser may terminate its position in a put option by allowing it to
expire or by exercising the option. If the option is allowed to expire, the
purchaser will lose the entire premium. If the option is exercised, the
purchaser completes the sale of the underlying instrument at the strike price.
Depending on the terms of the contract, upon exercise, an option may require
physical delivery of the underlying instrument or may be settled through cash
payments. A purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The
buyer of a typical put option can expect to realize a gain if the underlying
instrument's price falls substantially. However, if the underlying instrument's
price does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium, plus
related transaction costs).
The
features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right (but not the
obligation) to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate in
potential price increases of the underlying instrument with risk limited to the
cost of the option if the underlying instrument's price falls. At the same time,
the buyer can expect to suffer a loss if the underlying instrument's price does
not rise sufficiently to offset the cost of the option.
The
writer of a put or call option takes the opposite side of the transaction from
the option's purchaser. In return for receipt of the premium, the writer assumes
the obligation to pay or receive the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it. The writer
may seek to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the secondary market
is not liquid for a put option, however, the writer must continue to be prepared
to pay the strike price while the option is outstanding, regardless of price
changes. When writing an option on a futures contract, a fund will be required
to make margin payments to a futures commission merchant as described above for
futures contracts.
If
the underlying instrument's price rises, a put writer would generally expect to
profit, although its gain would be limited to the amount of the premium it
received. If the underlying instrument's price remains the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If the underlying instrument's price falls, the put
writer would expect to suffer a loss. This loss should be less than the loss
from purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the
decline.
Writing
a call option obligates the writer to sell or deliver the option's underlying
instrument or make a net cash settlement payment, as applicable, in return for
the strike price, upon exercise of the option. The characteristics of writing
call options are similar to those of writing put options, except that writing
calls generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer should mitigate the effects
of a price increase. At the same time, because a call writer must be prepared to
deliver the underlying instrument or make a net cash settlement payment, as
applicable, in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in price increases
and, if a call writer does not hold the underlying instrument, a call writer's
loss is theoretically unlimited.
Where
a put or call option on a particular security is purchased to hedge against
price movements in a related security, the price to close out the put or call
option on the secondary market may move more or less than the price of the
related security.
There
is no assurance a liquid market will exist for any particular options contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for exchange-traded options contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible to enter into new positions or close out
existing positions. If the market for a contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable positions, and potentially could require a fund to continue to hold
a position until delivery or expiration regardless of changes in its
value.
Unlike
exchange-traded options, which are standardized with respect to the underlying
instrument, expiration date, contract size, and strike price, the terms of OTC
options (options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this type of
arrangement allows the purchaser or writer greater flexibility to tailor an
option to its needs, OTC options generally are less liquid and involve greater
credit risk than exchange-traded options, which are backed by the clearing
organization of the exchanges where they are traded.
Combined
positions involve purchasing and writing options in combination with each other,
or in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, purchasing a put
option and writing a call option on the same underlying instrument would
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. Another possible combined position would involve
writing a call option at one strike price and buying a call option at a lower
price, to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
A
fund may also buy and sell options on swaps (swaptions), which are generally
options on interest rate swaps. An option on a swap gives a party the right (but
not the obligation) to enter into a new swap agreement or to extend, shorten,
cancel or modify an existing contract at a specific date in the future in
exchange for a premium. Depending on the terms of the particular option
agreement, a fund will generally incur a greater degree of risk when it writes
(sells) an option on a swap than it will incur when it purchases an option on a
swap. When a fund purchases an option on a swap, it risks losing only the amount
of the premium it has paid should it decide to let the option expire
unexercised. However, when a fund writes an option on a swap, upon exercise of
the option the fund will become obligated according to the terms of the
underlying agreement. A fund that writes an option on a swap receives the
premium and bears the risk of unfavorable changes in the preset rate on the
underlying interest rate swap. Whether a fund's use of options on swaps will be
successful in furthering its investment objective will depend on the adviser's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Options on swaps may involve
risks similar to those discussed below in "Swap Agreements."
Because
there are a limited number of types of exchange-traded options contracts, it is
likely that the standardized contracts available will not match a fund's current
or anticipated investments exactly. A fund may invest in options contracts based
on securities with different issuers, maturities, or other characteristics from
the securities in which the fund typically invests, which involves a risk that
the options position will not track the performance of the fund's other
investments.
Options
prices can also diverge from the prices of their underlying instruments, even if
the underlying instruments match a fund's investments well. Options prices are
affected by such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in how options and futures and securities are traded, or from
imposition of daily price fluctuation limits or trading halts. A fund may
purchase or sell options contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in a fund's options positions are poorly correlated with its other investments,
the positions may fail to produce anticipated gains or result in losses that are
not offset by gains in other investments.
Swap
Agreements (except equity index funds). Swap
agreements are two-party contracts entered into primarily by institutional
investors. Cleared swaps are transacted through futures commission merchants
that are members of central clearinghouses with the clearinghouse serving as a
central counterparty similar to transactions in futures contracts. In a standard
"swap" transaction, two parties agree to exchange one or more payments based,
for example, on the returns (or differentials in rates of return) earned or
realized on particular predetermined investments or instruments (such as
securities, commodities, indexes, or other financial or economic interests). The
gross payments to be exchanged between the parties are calculated with respect
to a notional amount, which is the predetermined dollar principal of the trade
representing the hypothetical underlying quantity upon which payment obligations
are computed.
Swap
agreements can take many different forms and are known by a variety of names,
including interest rate swaps (where the parties exchange a floating rate for a
fixed rate), asset swaps (e.g., where parties combine the purchase or sale of a
bond with an interest rate swap), total return swaps, and credit default swaps.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of a fund's investments and its share price and, if
applicable, its yield. Swap agreements are subject to liquidity risk, meaning
that a fund may be unable to sell a swap contract to a third party at a
favorable price. Certain standardized swap transactions are currently subject to
mandatory central clearing or may be eligible for voluntary central clearing.
Central clearing is expected to decrease counterparty risk and increase
liquidity compared to uncleared swaps because central clearing interposes the
central clearinghouse as the counterpart to each participant's swap. However,
central clearing does not eliminate counterparty risk or illiquidity risk
entirely. In addition depending on the size of a fund and other factors, the
margin required under the rules of a clearinghouse and by a clearing member
futures commission merchant may be in excess of the collateral required to be
posted by a fund to support its obligations under a similar uncleared swap.
However, regulators have adopted rules imposing certain margin requirements,
including minimums, on certain uncleared swaps which could reduce the
distinction.
A
total return swap is a contract whereby one party agrees to make a series of
payments to another party based on the change in the market value of the assets
underlying such contract (which can include a security or other instrument,
commodity, index or baskets thereof) during the specified period. In exchange,
the other party to the contract agrees to make a series of payments calculated
by reference to an interest rate and/or some other agreed-upon amount (including
the change in market value of other underlying assets). A fund may use total
return swaps to gain exposure to an asset without owning it or taking physical
custody of it. For example, a fund investing in total return commodity swaps
will receive the price appreciation of a commodity, commodity index or portion
thereof in exchange for payment of an agreed-upon fee.
In
a credit default swap, the credit default protection buyer makes periodic
payments, known as premiums, to the credit default protection seller. In return
the credit default protection seller will make a payment to the credit default
protection buyer upon the occurrence of a specified credit event. A credit
default swap can refer to a single issuer or asset, a basket of issuers or
assets or index of assets, each known as the reference entity or underlying
asset. A fund may act as either the buyer or the seller of a credit default
swap. A fund may buy or sell credit default protection on a basket of issuers or
assets, even if a number of the underlying assets referenced in the basket are
lower-quality debt securities. In an unhedged credit default swap, a fund buys
credit default protection on a single issuer or asset, a basket of issuers or
assets or index of assets without owning the underlying asset or debt issued by
the reference entity. Credit default swaps involve greater and different risks
than investing directly in the referenced asset, because, in addition to market
risk, credit default swaps include liquidity, counterparty and operational
risk.
Credit
default swaps allow a fund to acquire or reduce credit exposure to a particular
issuer, asset or basket of assets. If a swap agreement calls for payments by a
fund, the fund must be prepared to make such payments when due. If a fund is the
credit default protection seller, the fund will experience a loss if a credit
event occurs and the credit of the reference entity or underlying asset has
deteriorated. If a fund is the credit default protection buyer, the fund will be
required to pay premiums to the credit default protection seller. In the case of
a physically settled credit default swap in which a fund is the protection
seller, the fund must be prepared to pay par for and take possession of debt of
a defaulted issuer delivered to the fund by the credit default protection buyer.
Any loss would be offset by the premium payments the fund receives as the seller
of credit default protection.
If
the creditworthiness of a fund's swap counterparty declines, the risk that the
counterparty may not perform could increase, potentially resulting in a loss to
the fund. To limit the counterparty risk involved in swap agreements, a
Fidelity ®
fund
will enter into swap agreements only with counterparties that meet certain
standards of creditworthiness. This risk for cleared swaps is generally lower
than for uncleared swaps since the counterparty is a clearinghouse, but there
can be no assurance that a clearinghouse or its members will satisfy its
obligations. Although there can be no assurance that a fund will be able to do
so, a fund may be able to reduce or eliminate its exposure under a swap
agreement either by assignment or other disposition, or by entering into an
offsetting swap agreement with the same party or another creditworthy party. A
fund may have limited ability to eliminate its exposure under a credit default
swap if the credit of the reference entity or underlying asset has
declined.
A
fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. A fund would generally be required to provide margin or collateral
for the benefit of that counterparty. If a counterparty to a swap transaction
becomes insolvent, the fund may be limited temporarily or permanently in
exercising its right to the return of related fund assets designated as margin
or collateral in an action against the counterparty.
Swap
agreements are subject to the risk that the market value of the instrument will
change in a way detrimental to a fund's interest. A fund bears the risk that an
adviser will not accurately forecast market trends or the values of assets,
reference rates, indexes, or other economic factors in establishing swap
positions for a fund. If an adviser attempts to use a swap as a hedge against,
or as a substitute for, a portfolio investment, a fund may be exposed to the
risk that the swap will have or will develop imperfect or no correlation with
the portfolio investment, which could cause substantial losses for a fund. While
hedging strategies involving swap instruments can reduce the risk of loss, they
can also reduce the opportunity for gain or even result in losses by offsetting
favorable price movements in other fund investments. Swaps are complex and often
valued subjectively.
Swap
Agreements (equity index funds only). Under
a typical equity swap agreement, a counterparty such as a bank or broker-dealer
agrees to pay a fund a return equal to the dividend payments and increase in
value, if any, of an index or group of stocks, or of a stock, and the fund
agrees in return to pay a fixed or floating rate of interest, plus any declines
in value of the index. Swap agreements can also have features providing for
maximum or minimum exposure to a designated index. In order to hedge its
exposure effectively, a fund would generally have to own other assets returning
approximately the same amount as the interest rate payable by the fund under the
swap agreement.
Swap
agreements allow a fund to acquire or reduce credit exposure to a particular
issuer, asset, or basket of assets. The most significant factor in the
performance of swap agreements is the change in value of the specific index,
security, or currency, or other factors that determine the amounts of payments
due to and from a fund. If a swap agreement calls for payments by a fund, the
fund must be prepared to make such payments when due. If the creditworthiness of
a fund's swap counterparty declines, the risk that the counterparty may not
perform could increase, potentially resulting in a loss to the fund and
impairing the fund's correlation with its applicable index. Although there can
be no assurance that a fund will be able to do so, a fund may be able to reduce
or eliminate its exposure under a swap agreement either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or another more creditworthy party.
A
fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. A fund would generally be required to provide margin or collateral
for the benefit of that counterparty. If a counterparty to a swap transaction
becomes insolvent, the fund may be limited temporarily or permanently in
exercising its right to the return of related fund assets designated as margin
or collateral in an action against the counterparty.
Swap
agreements are subject to the risk that the market value of the instrument will
change in a way detrimental to a fund's interest. A fund bears the risk that an
adviser will not accurately forecast market trends or the values of assets,
reference rates, indexes, or other economic factors in establishing swap
positions for a fund. If an adviser attempts to use a swap as a hedge against,
or as a substitute for, a portfolio investment, a fund may be exposed to the
risk that the swap will have or will develop imperfect or no correlation with
the portfolio investment, which could cause substantial losses for a fund. While
hedging strategies involving swap instruments can reduce the risk of loss, they
can also reduce the opportunity for gain or even result in losses by offsetting
favorable price movements in other fund investments. Swaps are complex and often
valued subjectively.
Hybrid
and Preferred Securities. A
hybrid security may be a debt security, warrant, convertible security,
certificate of deposit or other evidence of indebtedness on which the value of
the interest on or principal of which is determined by reference to changes in
the value of a reference instrument or financial strength of a reference entity
(e.g., a security or other financial instrument, asset, currency, interest rate,
commodity, index, or business entity such as a financial institution). Another
example is contingent convertible securities, which are fixed income securities
that, under certain circumstances, either convert into common stock of the
issuer or undergo a principal write-down by a predetermined percentage if the
issuer's capital ratio falls below a predetermined trigger level. The
liquidation value of such a security may be reduced upon a regulatory action and
without the need for a bankruptcy proceeding. Preferred securities may take the
form of preferred stock and represent an equity or ownership interest in an
issuer that pays dividends at a specified rate and that has precedence over
common stock in the payment of dividends. In the event an issuer is liquidated
or declares bankruptcy, the claims of owners of bonds generally take precedence
over the claims of those who own preferred and common stock.
The
risks of investing in hybrid and preferred securities reflect a combination of
the risks of investing in securities, options, futures and currencies. An
investment in a hybrid or preferred security may entail significant risks that
are not associated with a similar investment in a traditional debt or equity
security. The risks of a particular hybrid or preferred security will depend
upon the terms of the instrument, but may include the possibility of significant
changes in the value of any applicable reference instrument. Such risks may
depend upon factors unrelated to the operations or credit quality of the issuer
of the hybrid or preferred security. Hybrid and preferred securities are
potentially more volatile and carry greater market and liquidity risks than
traditional debt or equity securities. Also, the price of the hybrid or
preferred security and any applicable reference instrument may not move in the
same direction or at the same time. In addition, because hybrid and preferred
securities may be traded over-the-counter or in bilateral transactions with the
issuer of the security, hybrid and preferred securities may be subject to the
creditworthiness of the counterparty of the security and their values may
decline substantially if the counterparty's creditworthiness deteriorates. In
addition, uncertainty regarding the tax and regulatory treatment of hybrid and
preferred securities may reduce demand for such securities and tax and
regulatory considerations may limit the extent of a fund's investments in
certain hybrid and preferred securities.
Illiquid
Investments means
any investment that cannot be sold or disposed of in current market conditions
in seven calendar days or less without the sale or disposition significantly
changing the market value of the investment. Difficulty in selling or disposing
of illiquid investments may result in a loss or may be costly to a fund.
Illiquid securities may include (1) repurchase agreements maturing in more than
seven days without demand/redemption features, (2) OTC options and certain other
derivatives, (3) private placements, (4) securities traded on markets and
exchanges with structural constraints, and (5) loan participations.
Under
the supervision of the Board of Trustees, a Fidelity ®
fund's
adviser classifies the liquidity of the fund's investments and monitors the
extent of funds' illiquid investments.
Various
market, trading and investment-specific factors may be considered in determining
the liquidity of a fund's investments including, but not limited to (1) the
existence of an active trading market, (2) the nature of the security and the
market in which it trades, (3) the number, diversity, and quality of dealers and
prospective purchasers in the marketplace, (4) the frequency, volume, and
volatility of trade and price quotations, (5) bid-ask spreads, (6) dates of
issuance and maturity, (7) demand, put or tender features, and (8) restrictions
on trading or transferring the investment.
Fidelity
classifies certain investments as illiquid based upon these criteria. Fidelity
also monitors for certain market, trading and investment-specific events that
may cause Fidelity to re-evaluate an investment's liquidity status and may lead
to an investment being classified as illiquid. In addition, Fidelity uses a
third-party to assist with the liquidity classifications of the fund's
investments, which includes calculating the time to sell and settle a specified
size position in a particular investment without the sale significantly changing
the market value of the investment.
Increasing
Government Debt. The
total public debt of the United States and other countries around the globe as a
percent of gross domestic product has grown rapidly since the beginning of the
2008 financial downturn. Although high debt levels do not necessarily indicate
or cause economic problems, they may create certain systemic risks if sound debt
management practices are not implemented.
A
high national debt level may increase market pressures to meet government
funding needs, which may drive debt cost higher and cause a country to sell
additional debt, thereby increasing refinancing risk. A high national debt also
raises concerns that a government will not be able to make principal or interest
payments when they are due. In the worst case, unsustainable debt levels can
decline the valuation of currencies, and can prevent a government from
implementing effective counter-cyclical fiscal policy in economic
downturns.
On
August 5, 2011, Standard & Poor's Ratings Services lowered its long-term
sovereign credit rating on the United States one level to "AA+" from "AAA."
While Standard & Poor's Ratings Services affirmed the United States'
short-term sovereign credit rating as "A-1+," there is no guarantee that
Standard & Poor's Ratings Services will not decide to lower this rating in
the future. Standard & Poor's Ratings Services stated that its decision was
prompted by its view on the rising public debt burden and its perception of
greater policymaking uncertainty. The market prices and yields of securities
supported by the full faith and credit of the U.S. Government may be adversely
affected by Standard & Poor's Ratings Services decisions to downgrade the
long-term sovereign credit rating of the United States.
Indexed
Securities are
instruments whose prices are indexed to the prices of other securities,
securities indexes, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose values at maturity or
coupon rates are determined by reference to a specific instrument, statistic, or
measure.
Indexed
securities also include commercial paper, certificates of deposit, and other
fixed-income securities whose values at maturity or coupon interest rates are
determined by reference to the returns of particular stock indexes. Indexed
securities can be affected by stock prices as well as changes in interest rates
and the creditworthiness of their issuers and may not track the indexes as
accurately as direct investments in the indexes.
Mortgage-indexed
securities, for example, could be structured to replicate the performance of
mortgage securities and the characteristics of direct ownership.
The
performance of indexed securities depends to a great extent on the performance
of the instrument or measure to which they are indexed, and may also be
influenced by interest rate changes in the United States and abroad. Indexed
securities may be more volatile than the underlying instruments or measures.
Indexed securities are also subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government agencies.
Insolvency
of Issuers, Counterparties, and Intermediaries. Issuers
of fund portfolio securities or counterparties to fund transactions that become
insolvent or declare bankruptcy can pose special investment risks. In each
circumstance, risk of loss, valuation uncertainty, increased illiquidity, and
other unpredictable occurrences may negatively impact an investment. Each of
these risks may be amplified in foreign markets, where security trading,
settlement, and custodial practices can be less developed than those in the U.S.
markets, and bankruptcy laws differ from those of the U.S.
As
a general matter, if the issuer of a fund portfolio security is liquidated or
declares bankruptcy, the claims of owners of bonds and preferred stock have
priority over the claims of common stock owners. These events can negatively
impact the value of the issuer's securities and the results of related
proceedings can be unpredictable.
If
a counterparty to a fund transaction, such as a swap transaction, a short sale,
a borrowing, or other complex transaction becomes insolvent, the fund may be
limited in its ability to exercise rights to obtain the return of related fund
assets or in exercising other rights against the counterparty. Uncertainty may
also arise upon the insolvency of a securities or commodities intermediary such
as a broker-dealer or futures commission merchant with which a fund has pending
transactions. In addition, insolvency and liquidation proceedings take time to
resolve, which can limit or preclude a fund's ability to terminate a transaction
or obtain related assets or collateral in a timely fashion. If an intermediary
becomes insolvent, while securities positions and other holdings may be
protected by U.S. or foreign laws, it is sometimes difficult to determine
whether these protections are available to specific trades based on the
circumstances. Receiving the benefit of these protections can also take time to
resolve, which may result in illiquid positions.
Interfund
Borrowing and Lending Program. Pursuant
to an exemptive order issued by the SEC, a Fidelity ®
fund
may lend money to, and borrow money from, other funds advised by FMR or its
affiliates. A Fidelity ®
fund
will borrow through the program only when the costs are equal to or lower than
the costs of bank loans. A Fidelity ®
fund
will lend through the program only when the returns are higher than those
available from an investment in repurchase agreements. Interfund loans and
borrowings normally extend overnight, but can have a maximum duration of seven
days. Loans may be called on one day's notice. A Fidelity ®
fund
may have to borrow from a bank at a higher interest rate if an interfund loan is
called or not renewed. Any delay in repayment to a lending fund could result in
a lost investment opportunity or additional borrowing costs.
Investment-Grade
Debt Securities. Investment-grade
debt securities include all types of debt instruments that are of medium and
high-quality. Investment-grade debt securities include repurchase agreements
collateralized by U.S. Government securities as well as repurchase agreements
collateralized by equity securities, non-investment-grade debt, and all other
instruments in which a fund can perfect a security interest, provided the
repurchase agreement counterparty has an investment-grade rating. Some
investment-grade debt securities may possess speculative characteristics and may
be more sensitive to economic changes and to changes in the financial conditions
of issuers. An investment-grade rating means the security or issuer is rated
investment-grade by a credit rating agency registered as a nationally recognized
statistical rating organization (NRSRO) with the SEC (for example, Moody's
Investors Service, Inc.), or is unrated but considered to be of equivalent
quality by a fund's adviser. For purposes of determining the maximum maturity of
an investment-grade debt security, an adviser may take into account normal
settlement periods.
Loans
and Other Direct Debt Instruments. Direct
debt instruments are interests in amounts owed by a corporate, governmental, or
other borrower to lenders or lending syndicates (loans and loan participations),
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments involve a risk of loss in case of default
or insolvency of the borrower and may offer less legal protection to the
purchaser in the event of fraud or misrepresentation, or there may be a
requirement that a fund supply additional cash to a borrower on demand. A fund
may acquire loans by buying an assignment of all or a portion of the loan from a
lender or by purchasing a loan participation from a lender or other purchaser of
a participation. If permitted by its investment policies, a fund also may
originate or otherwise acquire loans directly at the time of the loan's
closing.
Lenders
and purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower and/or any collateral for payment of
interest and repayment of principal. If scheduled interest or principal payments
are not made, the value of the instrument may be adversely affected. Loans that
are fully secured provide more protections than an unsecured loan in the event
of failure to make scheduled interest or principal payments. However, there is
no assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be liquidated.
Indebtedness of borrowers whose creditworthiness is poor involves substantially
greater risks and may be highly speculative. Different types of assets may be
used as collateral for a fund's loans and there can be no assurance that a fund
will correctly evaluate the value of the assets collateralizing the fund's
loans. Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. In any
restructuring or bankruptcy proceedings relating to a borrower funded by a fund,
a fund may be required to accept collateral with less value than the amount of
the loan made by the fund to the borrower. Direct indebtedness of foreign
countries also involves a risk that the governmental entities responsible for
the repayment of the debt may be unable, or unwilling, to pay interest and repay
principal when due.
Loans
and other types of direct indebtedness (which a fund may originate, acquire or
otherwise gain exposure to) may not be readily marketable and may be subject to
restrictions on resale. Some indebtedness may be difficult to dispose of readily
at what the Adviser believes to be a fair price. In addition, valuation of
illiquid indebtedness involves a greater degree of judgment in determining a
fund's net asset value than if that value were based on readily available market
quotations, and could result in significant variations in a fund's daily share
price. Some loan interests are traded among certain financial institutions and
accordingly may be deemed liquid. As the market for different types of
indebtedness develops, the liquidity of these instruments is expected to
improve.
Direct
lending and investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks. For
example, if a loan is foreclosed, the lender/purchaser could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In the event of a default by the
borrower, a fund may have difficulty disposing of the assets used as collateral
for a loan. In addition, a purchaser could be held liable as a co-lender. Direct
debt instruments may also involve a risk of insolvency of the lending bank or
other intermediary.
A
loan is often administered by a bank or other financial institution that acts as
agent for all holders. The agent administers the terms of the loan, as specified
in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the purchaser has direct recourse against the borrower, the
purchaser may have to rely on the agent to apply appropriate credit remedies
against a borrower. If assets held by the agent for the benefit of a purchaser
were determined to be subject to the claims of the agent's general creditors,
the purchaser might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or interest.
Direct loans are typically not administered by an underwriter or agent bank. The
terms of direct loans are negotiated with borrowers in private transactions.
Direct loans are not publicly traded and may not have a secondary market.
A
fund may seek to dispose of loans in certain cases, to the extent possible,
through selling participations in the loan. In that case, a fund would remain
subject to certain obligations, which may result in expenses for a fund and
certain additional risks.
Direct
indebtedness may include letters of credit, revolving credit facilities, or
other standby financing commitments that obligate lenders/purchasers, including
a fund, to make additional cash payments on demand. These commitments may have
the effect of requiring a lender/purchaser to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be
repaid.
In
the process of originating, buying, selling and holding loans, a fund may
receive and/or pay certain fees. These fees are in addition to the interest
payments received and may include facility, closing or upfront fees, commitment
fees and commissions. A fund may receive or pay a facility, closing or upfront
fee when it buys or sells a loan. A fund may receive a commitment fee throughout
the life of the loan or as long as the fund remains invested in the loan (in
addition to interest payments) for any unused portion of a committed line of
credit. Other fees received by the fund may include prepayment fees, covenant
waiver fees, ticking fees and/or modification fees. Legal fees related to the
originating, buying, selling and holding loans may also be borne by the fund
(including legal fees to assess conformity of a loan investment with 1940 Act
provisions).
When
engaging in direct lending, if permitted by its investment policies, a fund's
performance may depend, in part, on the ability of the fund to originate loans
on advantageous terms. A fund may compete with other lenders in originating and
purchasing loans. Increased competition for, or a diminished available supply
of, qualifying loans could result in lower yields on and/or less advantageous
terms for such loans, which could reduce fund performance.
For
a Fidelity ®
fund
that limits the amount of total assets that it will invest in any one issuer or
in issuers within the same industry, the fund generally will treat the borrower
as the "issuer" of indebtedness held by the fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between a fund and the borrower, if the participation does not
shift to the fund the direct debtor-creditor relationship with the borrower, SEC
interpretations require a fund, in appropriate circumstances, to treat both the
lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict a fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
A
fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise to exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of the fund's shareholders.
If
permitted by its investment policies, a fund may also obtain exposure to the
lending activities described above indirectly through its investments in
underlying Fidelity funds or other vehicles that may engage in such activities
directly.
Lower-Quality
Debt Securities. Lower-quality
debt securities include all types of debt instruments that have poor protection
with respect to the payment of interest and repayment of principal, or may be in
default. These securities are often considered to be speculative and involve
greater risk of loss or price changes due to changes in the issuer's capacity to
pay. The market prices of lower-quality debt securities may fluctuate more than
those of higher-quality debt securities and may decline significantly in periods
of general economic difficulty, which may follow periods of rising interest
rates.
The
market for lower-quality debt securities may be thinner and less active than
that for higher-quality debt securities, which can adversely affect the prices
at which the former are sold. Adverse publicity and changing investor
perceptions may affect the liquidity of lower-quality debt securities and the
ability of outside pricing services to value lower-quality debt
securities.
Because
the risk of default is higher for lower-quality debt securities, research and
credit analysis are an especially important part of managing securities of this
type. Such analysis may focus on relative values based on factors such as
interest or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer, in an attempt to identify
those issuers of high-yielding securities whose financial condition is adequate
to meet future obligations, has improved, or is expected to improve in the
future.
A
fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise to exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of the fund's shareholders.
Low
or Negative Yielding Securities. During
periods of very low or negative interest rates, a fund may be unable to maintain
positive returns. Interest rates in the U.S. and many parts of the world,
including Japan and some European countries, are at or near historically low
levels. Japan and those European countries have, from time to time, experienced
negative interest rates on certain fixed income instruments. Very low or
negative interest rates may magnify interest rate risk for the markets as a
whole and for the funds. Changing interest rates, including rates that fall
below zero, may have unpredictable effects on markets, may result in heightened
market volatility and may detract from fund performance to the extent a fund is
exposed to such interest rates.
Mortgage
Securities are
issued by government and non-government entities such as banks, mortgage
lenders, or other institutions. A mortgage security is an obligation of the
issuer backed by a mortgage or pool of mortgages or a direct interest in an
underlying pool of mortgages. Some mortgage securities, such as collateralized
mortgage obligations (or "CMOs"), make payments of both principal and interest
at a range of specified intervals; others make semi-annual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Mortgage securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped mortgage
securities are created when the interest and principal components of a mortgage
security are separated and sold as individual securities. In the case of a
stripped mortgage security, the holder of the "principal-only" security (PO)
receives the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments from the
same underlying mortgage.
Fannie
Maes and Freddie Macs are pass-through securities issued by Fannie Mae and
Freddie Mac, respectively. Fannie Mae and Freddie Mac, which guarantee payment
of interest and repayment of principal on Fannie Maes and Freddie Macs,
respectively, are federally chartered corporations supervised by the U.S.
Government that act as governmental instrumentalities under authority granted by
Congress. Fannie Mae and Freddie Mac are authorized to borrow from the U.S.
Treasury to meet their obligations. Fannie Maes and Freddie Macs are not backed
by the full faith and credit of the U.S. Government.
The
value of mortgage securities may change due to shifts in the market's perception
of issuers and changes in interest rates. In addition, regulatory or tax changes
may adversely affect the mortgage securities market as a whole. Non-government
mortgage securities may offer higher yields than those issued by government
entities, but also may be subject to greater price changes than government
issues. Mortgage securities are subject to prepayment risk, which is the risk
that early principal payments made on the underlying mortgages, usually in
response to a reduction in interest rates, will result in the return of
principal to the investor, causing it to be invested subsequently at a lower
current interest rate. Alternatively, in a rising interest rate environment,
mortgage security values may be adversely affected when prepayments on
underlying mortgages do not occur as anticipated, resulting in the extension of
the security's effective maturity and the related increase in interest rate
sensitivity of a longer-term instrument. The prices of stripped mortgage
securities tend to be more volatile in response to changes in interest rates
than those of non-stripped mortgage securities.
A
fund may seek to earn additional income by using a trading strategy (commonly
known as "mortgage dollar rolls" or "reverse mortgage dollar rolls") that
involves selling (or buying) mortgage securities, realizing a gain or loss, and
simultaneously agreeing to purchase (or sell) mortgage securities on a later
date at a set price. During the period between the sale and repurchase in a
mortgage dollar roll transaction, a fund will not be entitled to receive
interest and principal payments on the securities sold but will invest the
proceeds of the sale in other securities that are permissible investments for
the fund. During the period between the purchase and subsequent sale in a
reverse mortgage dollar roll transaction, a fund is entitled to interest and
principal payments on the securities purchased. Losses may arise due to changes
in the value of the securities or if the counterparty does not perform under the
terms of the agreement. If the counterparty files for bankruptcy or becomes
insolvent, a fund's right to repurchase or sell securities may be limited. This
trading strategy may increase interest rate exposure and result in an increased
portfolio turnover rate which increases costs and may increase taxable
gains.
Real
Estate Investment Trusts (REITs). Equity
REITs own real estate properties, while mortgage REITs make construction,
development, and long-term mortgage loans. Their value may be affected by
changes in the value of the underlying property of the trusts, the
creditworthiness of the issuer, property taxes, interest rates, and tax and
regulatory requirements, such as those relating to the environment. Both types
of trusts are dependent upon management skill, are not diversified, and are
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the 1940
Act.
REITs
issue debt securities to fund the purchase and/or development of commercial
properties. The value of these debt securities may be affected by changes in the
value of the underlying property owned by the trusts, the creditworthiness of
the trusts, interest rates, and tax and regulatory requirements. REITs are
dependent upon management skill and the cash flow generated by the properties
owned by the trusts. REITs are at the risk of the possibility of failing to
qualify for tax-free status of income under the Internal Revenue Code and
failing to maintain exemption from the 1940 Act.
Repurchase
Agreements involve
an agreement to purchase a security and to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the purchase
price plus an agreed-upon incremental amount which is unrelated to the coupon
rate or maturity of the purchased security. As protection against the risk that
the original seller will not fulfill its obligation, the securities are held in
a separate account at a bank, marked-to-market daily, and maintained at a value
at least equal to the sale price plus the accrued incremental amount. The value
of the security purchased may be more or less than the price at which the
counterparty has agreed to purchase the security. In addition, delays or losses
could result if the other party to the agreement defaults or becomes insolvent.
A fund may be limited in its ability to exercise its right to liquidate assets
related to a repurchase agreement with an insolvent counterparty. A
Fidelity ®
fund
may engage in repurchase agreement transactions with parties whose
creditworthiness has been reviewed and found satisfactory by the fund's
adviser.
Restricted
Securities (including Private Placements) are
subject to legal restrictions on their sale. Difficulty in selling securities
may result in a loss or be costly to a fund. Restricted securities, including
private placements of private and public companies, generally can be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the Securities Act of 1933 (1933 Act), or in a registered public offering.
Where registration is required, the holder of a registered security may be
obligated to pay all or part of the registration expense and a considerable
period may elapse between the time it decides to seek registration and the time
it may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the holder might obtain a less favorable price than prevailed when it decided to
seek registration of the security.
Reverse
Repurchase Agreements. In
a reverse repurchase agreement, a fund sells a security to another party, such
as a bank or broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. A Fidelity ®
fund
may enter into reverse repurchase agreements with parties whose creditworthiness
has been reviewed and found satisfactory by the fund's adviser. Such
transactions may increase fluctuations in the market value of a fund's assets
and, if applicable, a fund's yield, and may be viewed as a form of leverage.
Under SEC requirements, a fund needs to aggregate the amount of indebtedness
associated with its reverse repurchase agreements and similar financing
transactions with the aggregate amount of any other senior securities
representing indebtedness (e.g., borrowings, if applicable) when calculating the
fund's asset coverage ratio or treat all such transactions as derivatives
transactions.
SEC
Rule 18f-4.
In
October 2020, the SEC adopted a final rule related to the use of derivatives,
short sales, reverse repurchase agreements and certain other transactions by
registered investment companies (the "rule"). Subject to certain exceptions, the
rule requires the funds to trade derivatives and certain other transactions that
create future payment or delivery obligations subject to a value-at-risk (VaR)
leverage limit and to certain derivatives risk management program, reporting and
board oversight requirements. Generally, these requirements apply to any fund
engaging in derivatives transactions unless a fund satisfies a "limited
derivatives users" exception, which requires the fund to limit its gross
notional derivatives exposure (with certain exceptions) to 10% of its net assets
and to adopt derivatives risk management procedures. Under the rule, when a fund
trades reverse repurchase agreements or similar financing transactions, it needs
to aggregate the amount of indebtedness associated with the reverse repurchase
agreements or similar financing transactions with the aggregate amount of any
other senior securities representing indebtedness (e.g., borrowings, if
applicable) when calculating the fund's asset coverage ratio or treat all such
transactions as derivatives transactions. The SEC also provided guidance in
connection with the final rule regarding the use of securities lending
collateral that may limit securities lending activities. In addition, under the
rule, a fund may invest in a security on a when-issued or forward-settling
basis, or with a non-standard settlement cycle, and the transaction will be
deemed not to involve a senior security (as defined under Section 18(g) of the
1940 Act), provided that (i) the fund intends to physically settle the
transaction and (ii) the transaction will settle within 35 days of its trade
date (the "Delayed-Settlement Securities Provision"). A fund may otherwise
engage in when-issued, forward-settling and non-standard settlement cycle
securities transactions that do not meet the conditions of the
Delayed-Settlement Securities Provision so long as the fund treats any such
transaction as a derivatives transaction for purposes of compliance with the
rule. Furthermore, under the rule, a fund will be permitted to enter into an
unfunded commitment agreement, and such unfunded commitment agreement will not
be subject to the asset coverage requirements under the 1940 Act, if the fund
reasonably believes, at the time it enters into such agreement, that it will
have sufficient cash and cash equivalents to meet its obligations with respect
to all such agreements as they come due. These requirements may limit the
ability of the funds to use derivatives, short sales, reverse repurchase
agreements and similar financing transactions, and the other relevant
transactions as part of its investment strategies. These requirements also may
increase the cost of the fund's investments and cost of doing business, which
could adversely affect investors.
Securities
Lending. A
Fidelity ®
fund
may lend securities to parties such as broker-dealers or other institutions,
including an affiliate, National Financial Services LLC (NFS). Fidelity
®
funds
for which Geode Capital Management, LLC (Geode) serves as sub-adviser or adviser
will not lend securities to Geode or its affiliates. Securities lending allows a
fund to retain ownership of the securities loaned and, at the same time, earn
additional income. The borrower provides the fund with collateral in an amount
at least equal to the value of the securities loaned. The fund seeks to maintain
the ability to obtain the right to vote or consent on proxy proposals involving
material events affecting securities loaned. If the borrower defaults on its
obligation to return the securities loaned because of insolvency or other
reasons, a fund could experience delays and costs in recovering the securities
loaned or in gaining access to the collateral. These delays and costs could be
greater for foreign securities. If a fund is not able to recover the securities
loaned, the fund may sell the collateral and purchase a replacement investment
in the market. The value of the collateral could decrease below the value of the
replacement investment by the time the replacement investment is purchased. For
a Fidelity ®
fund,
loans will be made only to parties deemed by the fund's adviser to be in good
standing and when, in the adviser's judgment, the income earned would justify
the risks.
The
Fidelity ®
funds
have retained agents, including NFS, an affiliate of the funds, to act as
securities lending agent. If NFS acts as securities lending agent for a fund, it
is subject to the overall supervision of the fund's adviser, and NFS will
administer the lending program in accordance with guidelines approved by the
fund's Trustees.
Cash
received as collateral through loan transactions may be invested in other
eligible securities, including shares of a money market fund. Investing this
cash subjects that investment, as well as the securities loaned, to market
appreciation or depreciation.
Securities
of Other Investment Companies ,
including shares of closed-end investment companies (which include business
development companies (BDCs)), unit investment trusts, and open-end investment
companies, represent interests in professionally managed portfolios that may
invest in any type of instrument. Investing in other investment companies
involves substantially the same risks as investing directly in the underlying
instruments, but may involve additional expenses at the underlying investment
company-level, such as portfolio management fees and operating expenses. Fees
and expenses incurred indirectly by a fund as a result of its investment in
shares of one or more other investment companies generally are referred to as
"acquired fund fees and expenses" and may appear as a separate line item in a
fund's prospectus fee table. For certain investment companies, such as BDCs,
these expenses may be significant. Certain types of investment companies, such
as closed-end investment companies, issue a fixed number of shares that trade on
a stock exchange or over-the-counter at a premium or a discount to their NAV.
Others are continuously offered at NAV, but may also be traded in the secondary
market.
The
securities of closed-end funds may be leveraged. As a result, a fund may be
indirectly exposed to leverage through an investment in such securities. An
investment in securities of closed-end funds that use leverage may expose a fund
to higher volatility in the market value of such securities and the possibility
that the fund's long-term returns on such securities will be diminished.
A
fund's ability to invest in securities of other investment companies may be
limited by federal securities laws. To the extent a fund acquires securities
issued by unaffiliated investment companies, the Adviser's access to information
regarding such underlying fund's portfolio may be limited and subject to such
fund's policies regarding disclosure of fund holdings.
A
fund that seeks to track the performance of a particular index could invest in
investment companies that seek to track the performance of indexes other than
the index that the fund seeks to track.
Short
Sales "Against the Box" are
short sales of securities that a fund owns or has the right to obtain
(equivalent in kind or amount to the securities sold short). If a fund enters
into a short sale against the box, it will be required to set aside securities
equivalent in kind and amount to the securities sold short (or securities
convertible or exchangeable into such securities) and will be required to hold
such securities while the short sale is outstanding. A fund will incur
transaction costs, including interest expenses, in connection with opening,
maintaining, and closing short sales against the box.
Sources
of Liquidity or Credit Support. Issuers
may employ various forms of credit and liquidity enhancements, including letters
of credit, guarantees, swaps, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial institutions.
An adviser and its affiliates may rely on their evaluation of the credit of the
issuer or the credit of the liquidity or credit enhancement provider in
determining whether to purchase or hold a security supported by such
enhancement. In evaluating the credit of a foreign bank or other foreign
entities, factors considered may include whether adequate public information
about the entity is available and whether the entity may be subject to
unfavorable political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its commitment.
Changes in the credit quality of the issuer and/or entity providing the
enhancement could affect the value of the security or a fund's share
price.
Special
Purpose Acquisition Companies ("SPACs"). A
fund may invest in stock, warrants, and other securities of SPACs or similar
special purpose entities that pool money to seek potential acquisition
opportunities. SPACs are collective investment structures formed to raise money
in an initial public offering for the purpose of merging with or acquiring one
or more operating companies (the "de-SPAC Transaction"). Until an acquisition is
completed, a SPAC generally invests its assets in US government securities,
money market securities and cash. In connection with a de-SPAC Transaction, the
SPAC may complete a PIPE (private investment in public equity) offering with
certain investors. A fund may enter into a contingent commitment with a SPAC to
purchase PIPE shares if and when the SPAC completes its de-SPAC
Transaction.
Because
SPACs do not have an operating history or ongoing business other than seeking
acquisitions, the value of their securities is particularly dependent on the
ability of the SPAC's management to identify and complete a profitable
acquisition. Some SPACs may pursue acquisitions only within certain industries
or regions, which may increase the volatility of their prices. An investment in
a SPAC is subject to a variety of risks, including that (i) an attractive
acquisition or merger target may not be identified at all and the SPAC will be
required to return any remaining monies to shareholders; (ii) an acquisition or
merger once effected may prove unsuccessful and an investment in the SPAC may
lose value; (iii) the values of investments in SPACs may be highly volatile and
may depreciate significantly over time; (iv) no or only a thinly traded market
for shares of or interests in a SPAC may develop, leaving a fund unable to sell
its interest in a SPAC or to sell its interest only at a price below what the
fund believes is the SPAC interest's intrinsic value; (v) any proposed merger or
acquisition may be unable to obtain the requisite approval, if any, of
shareholders; (vi) an investment in a SPAC may be diluted by additional later
offerings of interests in the SPAC or by other investors exercising existing
rights to purchase shares of the SPAC; (vii) the warrants or other rights with
respect to the SPAC held by a fund may expire worthless or may be repurchased or
retired by the SPAC at an unfavorable price; (viii) a fund may be delayed in
receiving any redemption or liquidation proceeds from a SPAC to which it is
entitled; and (ix) a significant portion of the monies raised by the SPAC for
the purpose of identifying and effecting an acquisition or merger may be
expended during the search for a target transaction.
Purchased
PIPE shares will be restricted from trading until the registration statement for
the shares is declared effective. Upon registration, the shares can be freely
sold, but only pursuant to an effective registration statement or other
exemption from registration. The securities issued by a SPAC, which are
typically traded either in the over-the-counter market or on an exchange, may be
considered illiquid, more difficult to value, and/or be subject to restrictions
on resale.
Stripped
Securities are
the separate income or principal components of a debt security. The risks
associated with stripped securities are similar to those of other debt
securities, although stripped securities may be more volatile, and the value of
certain types of stripped securities may move in the same direction as interest
rates. U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
Privately
stripped government securities are created when a dealer deposits a U.S.
Treasury security or other U.S. Government security with a custodian for
safekeeping. The custodian issues separate receipts for the coupon payments and
the principal payment, which the dealer then sells.
Structured
Securities (also
called "structured notes") are derivative debt securities, the interest rate on
or principal of which is determined by an unrelated indicator. The value of the
interest rate on and/or the principal of structured securities is determined by
reference to changes in the value of a reference instrument (e.g., a security or
other financial instrument, asset, currency, interest rate, commodity, or index)
or the relative change in two or more reference instruments. A structured
security may be positively, negatively, or both positively and negatively
indexed; that is, its value or interest rate may increase or decrease if the
value of the reference instrument increases. Similarly, its value or interest
rate may increase or decrease if the value of the reference instrument
decreases. Further, the change in the principal amount payable with respect to,
or the interest rate of, a structured security may be calculated as a multiple
of the percentage change (positive or negative) in the value of the underlying
reference instrument(s); therefore, the value of such structured security may be
very volatile. Structured securities may entail a greater degree of market risk
than other types of debt securities because the investor bears the risk of the
reference instrument. Structured securities may also be more volatile, less
liquid, and more difficult to accurately price than less complex securities or
more traditional debt securities. In addition, because structured securities
generally are traded over-the-counter, structured securities are subject to the
creditworthiness of the counterparty of the structured security, and their
values may decline substantially if the counterparty's creditworthiness
deteriorates.
Temporary
Defensive Policies. In
response to market, economic, political, or other conditions, a fund may
temporarily use a different investment strategy for defensive purposes. If a
fund does so, different factors could affect the fund's performance and the fund
may not achieve its investment objective.
Each
of Moderate with Income Allocation Fund, Balanced Allocation Fund, Growth
Allocation Fund, and Aggressive Growth Allocation Fund reserves the right to
invest without limitation in investment-grade money market instruments for
temporary, defensive purposes.
Transfer
Agent Bank Accounts. Proceeds
from shareholder purchases of a Fidelity ®
fund
may pass through a series of demand deposit bank accounts before being held at
the fund's custodian. Redemption proceeds may pass from the custodian to the
shareholder through a similar series of bank accounts.
If
a bank account is registered to the transfer agent or an affiliate, who acts as
an agent for the funds when opening, closing, and conducting business in the
bank account, the transfer agent or an affiliate may invest overnight balances
in the account in repurchase agreements. Any balances that are not invested in
repurchase agreements remain in the bank account overnight. Any risks associated
with such an account are investment risks of the funds. A fund faces the risk of
loss of these balances if the bank becomes insolvent.
Variable
and Floating Rate Securities provide
for periodic adjustments in the interest rate paid on the security. Variable
rate securities provide for a specified periodic adjustment in the interest
rate, while floating rate securities have interest rates that change whenever
there is a change in a designated benchmark rate or the issuer's credit quality,
sometimes subject to a cap or floor on such rate. Some variable or floating rate
securities are structured with put features that permit holders to demand
payment of the unpaid principal balance plus accrued interest from the issuers
or certain financial intermediaries. For purposes of determining the maximum
maturity of a variable or floating rate security, a fund's adviser may take into
account normal settlement periods.
In
addition to other interbank offered rates (IBORs), the most common benchmark
rate for floating rate securities is LIBOR, which is the rate of interest
offered on short-term interbank deposits, as determined by trading between major
international banks. After the global financial crisis, regulators globally
determined that existing interest rate benchmarks should be reformed based on
concerns that LIBOR and other IBORs were susceptible to manipulation.
Replacement rates that have been identified include the Secured Overnight
Financing Rate (SOFR, which is intended to replace U.S. dollar LIBOR and
measures the cost of U.S. dollar overnight borrowings) and the Sterling
Overnight Index Average rate (SONIA, which is intended to replace pound sterling
LIBOR and measures the overnight interest rate paid by banks in the sterling
market). In March 2021, the United Kingdom's Financial Conduct Authority and ICE
Benchmark Authority formally announced the dates after which the LIBORs will no
longer be representative and subsequently cease publication. Certain LIBOR
settings will cease publication after the end of 2021. However, the publication
of certain other LIBOR settings will continue through at least mid-2023. While
various regulators and industry bodies are working globally on transitioning to
alternative rates, there remains uncertainty regarding the future utilization of
the IBORs and the transition to, and the nature of, replacement rates. As such,
the effect of a transition away from the IBORs on a fund and the financial
instruments in which it invests cannot yet be determined, and may depend on
factors that include, but are not limited to: (i) existing fallback or
termination provisions in individual contracts; (ii) the effect of new
legislation relating to the discontinuation of LIBOR and the use of replacement
rates, and (iii) whether, how, and when industry participants develop and adopt
new reference rates and fallbacks for both legacy and new products and
instruments. Such transition may result in a reduction in the value of
IBOR-based instruments held by a fund, a reduction in the effectiveness of
certain hedging transactions and increased illiquidity and volatility in markets
that currently rely on an IBOR to determine interest rates, any of which could
adversely impact the fund's performance.
Warrants.
Warrants
are instruments which entitle the holder to buy an equity security at a specific
price for a specific period of time. Changes in the value of a warrant do not
necessarily correspond to changes in the value of its underlying security. The
price of a warrant may be more volatile than the price of its underlying
security, and a warrant may offer greater potential for capital appreciation as
well as capital loss.
Warrants
do not entitle a holder to dividends or voting rights with respect to the
underlying security and do not represent any rights in the assets of the issuing
company. A warrant ceases to have value if it is not exercised prior to its
expiration date. These factors can make warrants more speculative than other
types of investments.
When-Issued
and Forward Purchase or Sale Transactions involve
a commitment to purchase or sell specific securities at a predetermined price or
yield in which payment and delivery take place after the customary settlement
period for that type of security. Typically, no interest accrues to the
purchaser until the security is delivered.
When
purchasing securities pursuant to one of these transactions, the purchaser
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until the
delivery date, these risks are in addition to the risks associated with a fund's
investments. If a fund remains substantially fully invested at a time when a
purchase is outstanding, the purchases may result in a form of leverage. When a
fund has sold a security pursuant to one of these transactions, the fund does
not participate in further gains or losses with respect to the security. If the
other party to a delayed-delivery transaction fails to deliver or pay for the
securities, a fund could miss a favorable price or yield opportunity or suffer a
loss.
A
fund may renegotiate a when-issued or forward transaction and may sell the
underlying securities before delivery, which may result in capital gains or
losses for the fund.
A
fund may also engage in purchases or sales of "to be announced" or "TBA"
securities, which usually are transactions in which a fund buys or sells
mortgage-backed securities on a forward commitment basis. A TBA transaction
typically does not designate the actual security to be delivered and only
includes an approximate principal amount. TBA trades can be used by a fund for
investment purposes in order to gain exposure to certain securities, or for
hedging purposes to adjust the risk exposure of a fund portfolio without having
to restructure a portfolio. Purchases and sales of TBA securities involve risks
similar to those discussed above for other when-issued and forward purchase and
sale transactions. In addition, when a fund sells TBA securities, it incurs
risks similar to those incurred in short sales. For example, when a fund sells
TBA securities without owning or having the right to obtain the deliverable
securities, it incurs a risk of loss because it could have to purchase the
securities at a price that is higher than the price at which it sold them. Also,
a fund may be unable to purchase the deliverable securities if the corresponding
market is illiquid.
Zero
Coupon Bonds do
not make interest payments; instead, they are sold at a discount from their face
value and are redeemed at face value when they mature. Because zero coupon bonds
do not pay current income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a fund's
dividend, a portion of the difference between a zero coupon bond's purchase
price and its face value is considered income.
In
addition to the investment policies and limitations discussed above, a fund is
subject to the additional operational risk discussed below.
Considerations
Regarding Cybersecurity. With
the increased use of technologies such as the Internet to conduct business, a
fund's service providers are susceptible to operational, information security
and related risks. In general, cyber incidents can result from deliberate
attacks or unintentional events and may arise from external or internal sources.
Cyber attacks include, but are not limited to, gaining unauthorized access to
digital systems (e.g., through "hacking" or malicious software coding) for
purposes of misappropriating assets or sensitive information; corrupting data,
equipment or systems; or causing operational disruption. Cyber attacks may also
be carried out in a manner that does not require gaining unauthorized access,
such as causing denial-of-service attacks on websites (i.e., efforts to make
network services unavailable to intended users). Cyber incidents affecting a
fund's manager, any sub-adviser and other service providers (including, but not
limited to, fund accountants, custodians, transfer agents and financial
intermediaries) have the ability to cause disruptions and impact business
operations, potentially resulting in financial losses, interference with a
fund's ability to calculate its NAV, impediments to trading, the inability of
fund shareholders to transact business, destruction to equipment and systems,
violations of applicable privacy and other laws, regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs, or additional
compliance costs. Similar adverse consequences could result from cyber incidents
affecting issuers of securities in which a fund invests, counterparties with
which a fund engages in transactions, governmental and other regulatory
authorities, exchange and other financial market operators, banks, brokers,
dealers, insurance companies and other financial institutions (including
financial intermediaries and service providers for fund shareholders) and other
parties. In addition, substantial costs may be incurred in order to prevent any
cyber incidents in the future.
While
a fund's service providers have established business continuity plans in the
event of, and risk management systems to prevent, such cyber incidents, there
are inherent limitations in such plans and systems including the possibility
that certain risks have not been identified. Furthermore, a fund cannot control
the cyber security plans and systems put in place by its service providers or
any other third parties whose operations may affect a fund or its shareholders.
A fund and its shareholders could be negatively impacted as a result.
SPECIAL
GEOGRAPHIC CONSIDERATIONS
Emerging
Markets. Emerging
markets include countries that have an emerging stock market as defined by MSCI,
countries or markets with low- to middle-income economies as classified by the
World Bank, and other countries or markets that the Adviser identifies as having
similar emerging markets characteristics. Emerging markets tend to have
relatively low gross national product per capita compared to the world's major
economies and may have the potential for rapid economic growth.
Investments
in companies domiciled in emerging market countries may be subject to
potentially higher risks than investments in developed countries. These risks
include: (i) less social, political, and economic stability; (ii) greater
illiquidity and price volatility due to smaller or limited local capital markets
for such securities, or low or non-existent trading volumes; (iii) foreign
exchanges and broker-dealers may be subject to less oversight and regulation by
local authorities; (iv) local governments may decide to seize or confiscate
securities held by foreign investors, restrict an investor's ability to sell or
redeem securities, decide to suspend or limit an issuer's ability to make
dividend or interest payments; and/or may limit or entirely restrict
repatriation of invested capital, profits, and dividends; (v) capital gains may
be subject to local taxation, including on a retroactive basis; (vi) issuers
facing restrictions on dollar or euro payments imposed by local governments may
attempt to make dividend or interest payments to foreign investors in the local
currency; (vii) investors may experience difficulty in enforcing legal claims
related to the securities, shareholder claims common in the United States may
not exist in emerging markets, and/or local judges may favor the interests of
the issuer over those of foreign investors; (viii) U.S. authorities may be
unable to investigate, bring, or enforce actions against non-U.S. companies and
non-U.S. persons; (ix) bankruptcy judgments may only be permitted to be paid in
the local currency; (x) limited public information regarding the issuer may
result in greater difficulty in determining market valuations of the securities;
and (xi) infrequent financial reporting, substandard disclosure, and differences
in financial reporting, audit and accounting requirements and standards may make
it difficult to ascertain the financial health of an issuer. In addition, unlike
developed countries, many emerging countries' economic growth highly depends on
exports and inflows of external capital, making them more vulnerable to the
downturns of the world economy. The enduring low growth in the global economy
has weakened the global demand for emerging market exports and tightened
international credit supplies, highlighting the sensitivity of emerging
economies to the performance of their trading partners. Developing countries may
also face disproportionately large exposure to the negative effects of climate
change, due to both geography and a lack of access to technology to adapt to its
effects, which could include increased frequency and severity of natural
disasters and extreme weather events such as droughts, rising sea levels,
decreased crop yields, and increased spread of disease, all of which could harm
performance of affected economies. Given the particular vulnerability of
emerging market countries to the effects of climate change, disruptions in
international efforts to address climate-related issues may have a
disproportionate impact on developing countries.
Many
emerging market countries suffer from uncertainty and corruption in their legal
frameworks. Legislation may be difficult to interpret or laws may be too new to
provide any precedential value. Laws regarding foreign investment and private
property may be weak, not enforced consistently, or non-existent. Sudden changes
in governments or the transition of regimes may result in policies that are less
favorable to investors such as the imposition of price controls or policies
designed to expropriate or nationalize "sovereign" assets. Certain emerging
market countries in the past have expropriated large amounts of private
property, in many cases with little or no compensation, and there can be no
assurance that such expropriation will not occur in the future.
The
United States, other nations, or other governmental entities (including
supranational entities) could impose sanctions on a country that limits or
restricts foreign investment, the movement of assets or other economic activity.
In addition, an imposition of sanctions upon certain issuers in a country could
have a materially adverse effect on the value of such companies' securities,
delay a fund's ability to exercise certain rights as security holder, and/or
impair a fund's ability to meet its investment objectives. A fund may be
prohibited from investing in securities issued by companies subject to such
sanctions and may be required to freeze its existing investments in those
companies, prohibiting the fund from selling or otherwise transacting in these
investments. Such sanctions, or other intergovernmental actions that may be
taken in the future, may result in the devaluation of the country's currency, a
downgrade in the country's credit rating, and/or a decline in the value and
liquidity of impacted company stocks.
Many
emerging market countries in which a fund may invest lack the social, political,
and economic stability characteristic exhibited by developed countries.
Political instability among emerging market countries can be common and may be
caused by an uneven distribution of wealth, governmental corruption, social
unrest, labor strikes, civil wars, and religious oppression. Economic
instability in emerging market countries may take the form of: (i) high interest
rates; (ii) high levels of inflation, including hyperinflation; (iii) high
levels of unemployment or underemployment; (iv) changes in government economic
and tax policies, including confiscatory taxation (or taxes on foreign
investments); and (v) imposition of trade barriers.
Currencies
of emerging market countries are subject to significantly greater risks than
currencies of developed countries. Some emerging market currencies may not be
internationally traded or may be subject to strict controls by local
governments, resulting in undervalued or overvalued currencies. Some emerging
market countries have experienced balance of payment deficits and shortages in
foreign exchange reserves, which has resulted in some governments restricting
currency conversions. Future restrictive exchange controls could prevent or
restrict a company's ability to make dividend or interest payments in the
original currency of the obligation (usually U.S. dollars). In addition, even
though the currencies of some emerging market countries may be convertible into
U.S. dollars, the conversion rates may be artificial relative to their actual
market values.
Governments
of many emerging market countries have become overly reliant on the
international capital markets and other forms of foreign credit to finance large
public spending programs that cause huge budget deficits. Often, interest
payments have become too overwhelming for these governments to meet, as these
payments may represent a large percentage of a country's total GDP. Accordingly,
these foreign obligations have become the subject of political debate within
emerging market countries, which has resulted in internal pressure for such
governments to not make payments to foreign creditors, but instead to use these
funds for social programs. As a result of either an inability to pay or
submission to political pressure, the governments sought to restructure their
loan and/or bond obligations, have declared a temporary suspension of interest
payments, or defaulted (in part or full) on their outstanding debt obligations.
These events have adversely affected the values of securities issued by the
governments and corporations domiciled in these emerging market countries and
have negatively affected not only their cost of borrowing, but their ability to
borrow in the future as well. Emerging markets have also benefited from
continued monetary policies adopted by the central banks of developed countries.
After a period of continuously raising interest rates, the U.S. Federal Reserve
and central banks in other developed countries have reduced interest rates to
historically low levels. To the extent the Federal Reserve Board maintains near
zero rates, emerging market economies may benefit.
In
addition to their continued reliance on international capital markets, many
emerging economies are also highly dependent on international trade and exports,
including exports of oil and other commodities. As a result, these economies are
particularly vulnerable to downturns of the world economy. In recent years,
emerging market economies have been subject to tightened international credit
supplies and weakened global demand for their exports and, as a result, certain
of these economies faced significant difficulties and some economies face
recessionary concerns. Over the last decade, emerging market countries, and
companies domiciled in such countries, have acquired significant debt levels.
Any increase in U.S. interest rates could restrict the access to relatively
inexpensive credit supplies and jeopardize the ability of emerging market
countries to pay their respective debt service obligations. Although certain
emerging market economies have shown signs of growth and recovery, continued
growth is dependent on the uncertain economic outlook of China, Japan, the
European Union, and the United States. The reduced demand for exports and lack
of available capital for investment resulting from the European debt crisis, a
slowdown in China, the effects of the COVID-19 pandemic, and persistent low
growth in the global economy may inhibit growth for emerging market
countries.
Canada.
Economic.
Canada
is a major producer of commodities such as forest products, metals, agricultural
products, and energy related products like oil, gas, and hydroelectricity.
Accordingly, events affecting the supply and demand of base commodity resources
and industrial and precious metals and materials, both domestically and
internationally, can have a significant effect on Canadian market
performance.
The
United States is Canada's largest trading partner and developments in economic
policy and U.S. market conditions have a significant impact on the Canadian
economy. The economic and financial integration of the United States, Canada,
and Mexico through the United States-Mexico-Canada Agreement
(USMCA) may make the Canadian economy and securities market more sensitive
to North American trade patterns. Any disruption in the continued operation
of USMCA may have a significant and adverse impact on Canada's
economic outlook and the value of a fund's investments in Canada.
Growth
has continued to slow in recent years for certain sectors of the Canadian
economy, particularly energy extraction and manufacturing. Forecasts on growth
remain modest. Oil prices have fluctuated greatly over time and the enduring
volatility in the strength of the Canadian dollar may also negatively impact
Canada's ability to export, which could limit Canada's economic
growth.
Europe.
The
European Union (EU) is an intergovernmental and supranational union of European
countries spanning the continent, each known as a member state. One of the key
activities of the EU is the establishment and administration of a common single
market, consisting of, among other things, a common trade policy. In order to
further the integration of the economies of member states, member states
established, among other things, the European Economic and Monetary Union (EMU),
a collection of policies that set out different stages and commitments that
member states need to follow to achieve greater economic policy coordination and
monetary cooperation, including the adoption of a single currency, the euro.
While all EU member states participate in the economic union, only certain EU
member states have adopted the euro as their currency. When a member state
adopts the euro as its currency, the member state no longer controls its own
monetary policies. Instead, the authority to direct monetary policy is exercised
by the European Central Bank (ECB).
While
economic and monetary convergence in the EU may offer opportunities for those
investing in the region, investors should be aware that the success of the EU is
not wholly assured. European countries can be significantly affected by the
tight fiscal and monetary controls that the EU governing institutions may impose
on its members or with which candidates for EMU membership are required to
comply. Europe must grapple with a number of challenges, any one of which could
threaten the sustained economic growth, regulatory efficiency, or political
survival of the political and economic union. The countries adopting the euro
must adjust to a unified monetary system, which has resulted in the loss of
exchange rate flexibility and some degree of economic sovereignty. Europe's
economies are diverse, governance is decentralized, and its cultures differ
widely. Unemployment in some European countries has historically been higher
than in the United States, and a number of countries continue to face abnormally
high unemployment levels, particularly for younger workers, which could pose a
political risk. Many EU nations are susceptible to the economic risks associated
with high levels of debt. The EU continues to face major issues involving its
membership, structure, procedures and policies, including the successful
political, economic and social integration of new member states, the EU's
resettlement and distribution of refugees, and resolution of the EU's
problematic fiscal and democratic accountability. Efforts of the member states
to continue to unify their economic and monetary policies may increase the
potential for similarities in the movements of European markets and reduce the
benefit of diversification within the region.
Political.
Over
the last two decades, the EU has extended its membership and influence to the
countries of Eastern Europe. It has accepted several Eastern European countries
as new members, and has engaged with several other countries regarding future
enlargement. Membership for these states is intended to, among other things,
cement economic and political stability across the region. For these countries,
membership serves as a strong political impetus to engage in regulatory and
political reforms and to employ tight fiscal and monetary policies.
Nevertheless, certain new member states, particularly former satellites of the
former Soviet Union, remain burdened to various extents by certain
infrastructural, bureaucratic, and business inefficiencies inherited from their
history of economic central planning. Further expansion of the EU has long-term
economic benefits for both member states and potential expansion candidates.
However, certain European countries are not viewed as currently suitable for
membership, especially countries further east with less developed economies. The
current and future status of the EU therefore continues to be the subject of
political controversy, with widely differing views both within and between
member states. The growth of nationalist and populist parties in both national
legislatures and the European Parliament may further threaten enlargement, and
impede both national and supranational governance.
An
increasingly assertive Russia poses its own set of risks for the EU. Opposition
to EU expansion to members of the former Soviet bloc may prompt more
intervention by Russia in the affairs of its neighbors. This interventionist
stance may carry various negative consequences, including direct effects, such
as export restrictions on Russia's natural resources, Russian support for
separatist groups or pro-Russian parties located in EU countries, Russian
interference in the internal political affairs of current or potential EU
members or of the EU itself, externalities of ongoing conflict, such as an
influx of refugees from Ukraine and Syria, or collateral damage to foreign
assets in conflict zones, all of which could negatively impact EU economic
activity.
It
is possible that, as wealth and income inequality grow both within and between
individual member states, socioeconomic and political tensions may be
exacerbated. The potential direct and indirect consequences of this growing gap
may be substantial.
The
transition to a more unified economic system also brings uncertainty.
Significant political decisions will be made that may affect market regulation,
subsidization, and privatization across all industries, from agricultural
products to telecommunications, that may have unpredictable effects on member
states and companies within those states.
The
influx of migrants and refugees seeking resettlement in the EU as a result of
ongoing conflicts around the world also poses certain risks to the EU. The
COVID-19 pandemic has served to exacerbate need in unstable regions, leading to
increased numbers of refugees. Resettlement itself may be costly for individual
member states, particularly those border countries on the periphery of the EU
where migrants first enter. In addition, pressing questions over accepting,
processing and distributing migrants have been a significant source of
intergovernmental disagreements and could pose significant dangers to the
integrity of the EU.
Economic.
As
economic conditions across member states may vary widely, there is continued
concern about national-level support for the euro and the accompanying
coordination of fiscal and wage policy among EMU member states. Member states
must maintain tight control over inflation, public debt, and budget deficits in
order to qualify for participation in the euro. These requirements severely
limit EMU member states' ability to implement fiscal policy to address regional
economic conditions. Moreover, member states that use the euro cannot devalue
their currencies in the face of economic downturn, precluding them from stoking
inflation to reduce their real debt burden and potentially rendering their
exports less competitive.
The
United Kingdom (UK) left the European Union (EU) on January 31, 2020 under the
terms of a negotiated departure deal. A transition period, which kept most
pre-departure arrangements in place, ended on December 31, 2020, and the UK
entered into a new trading relationship with the EU under the terms of the EU-UK
trade agreement which reflected the long-term, post-transition landscape.
Further discussions are to be held between the UK and the EU in relation to
matters not covered by the trade agreement, such as financial services.
Significant economic and regulatory uncertainty caused by the UK's exit from the
EU has resulted in volatile markets for the UK and broader international
financial markets. While the long-term effects of Brexit remain unclear, in the
short term, financial markets may experience, among other things, greater
volatility and/or illiquidity, currency fluctuations, and a decline in
cross-border investment between the UK and the EU. The effects of Brexit will
also be shaped by new trade deals that the UK is negotiating with more than 60
other countries, including the United States. Brexit could lead to legal and tax
uncertainty and potentially divergent national laws and regulations as the UK
determines which EU laws to replicate or replace. The impact of Brexit on the UK
and in global markets as well as any associated adverse consequences remains
unclear, and the uncertainty may have a significant negative effect on the value
of a fund's investments.
The
global financial crisis of 2008-2009 brought several small countries in Europe
to the brink of sovereign default. Many other economies fell into recession,
decreasing tax receipts and widening budget deficits. In response, many
countries of Europe have implemented fiscal austerity, decreasing discretionary
spending in an attempt to decrease their budget deficits. However, many European
governments continue to face high levels of public debt and substantial budget
deficits, some with shrinking government expenditures, which hinder economic
growth in the region and may still threaten the continued viability of the EMU.
Due to these large public deficits, some European issuers may continue to have
difficulty accessing capital and may be dependent on emergency assistance from
European governments and institutions to avoid defaulting on their outstanding
debt obligations. The availability of such assistance, however, may be
contingent on an issuer's implementation of certain reforms or reaching a
required level of performance, which may increase the possibility of default.
Such prospects could inject significant volatility into European markets, which
may reduce the liquidity or value of a fund's investments in the region.
Likewise, the high levels of public debt raise the possibility that certain
European issuers may be forced to restructure their debt obligations, which
could cause a fund to lose the value of its investments in any such
issuer.
The
legacy of the global financial crisis of 2008-2009, the European sovereign debt
crisis, and the ongoing recession in parts of Europe have left the banking and
financial sectors of many European countries weakened and, in some cases,
fragile. Many institutions remain saddled with high default rates on loans,
still hold assets of indeterminate value, and have been forced to maintain
higher capital reserves under new regulations. This has led to decreased returns
from finance and banking directly, and has constricted the sector's ability to
lend, thus potentially reducing future returns and constricting economic growth.
The ECB has sought to spur economic growth and ward off deflation by engaging in
quantitative easing, lowering the ECB's benchmark rate into negative territory,
and opening a liquidity channel to encourage bank lending. Most recently, in
September 2019, the ECB announced a new bond-buying program and changed its
targeted long-term refinancing rate to provide more favorable bank lending
conditions. In response to the economic consequences of the COVID-19 pandemic,
the ECB has significantly increased bond purchases, and only began slowing their
purchasing strategy in September 2021.
Ongoing
regulatory uncertainty could have a negative effect on the value of a fund's
investments in the region. Governments across the EMU are facing increasing
opposition to certain measures taken in response to the recent economic crises.
In light of such uncertainty, the risk that certain member states will abandon
the euro persists, and any such occurrence would likely have wide-ranging
effects on global markets that are difficult to predict. However, these effects
would likely have a negative impact on a fund's investments in the
region.
Although
some European economies have begun to show more sustained economic growth, the
ongoing debt crisis, political and regulatory responses to the financial crisis,
the effects of the COVID-19 pandemic, and uncertainty over the future of the EMU
and the EU itself may continue to limit short-term growth and economic recovery
in the region. Some countries have experienced prolonged stagnation or returns
to recession, raising the possibility that other European economies could follow
suit. Economic challenges facing the region include high levels of public debt,
significant rates of unemployment, aging populations, heavy regulation of
non-financial businesses, persistent trade deficits, rigid labor markets, and
inability to access credit. Although certain of these challenges may weigh more
heavily on some European economies than others, the economic integration of the
region increases the likelihood that an economic downturn in one country may
spread to others. Should Europe fall into another recession, the value of a
fund's investments in the region may be affected.
Currency.
Investing
in euro-denominated securities (or securities denominated in other European
currencies) entails risk of being exposed to a currency that may not fully
reflect the strengths and weaknesses of the disparate European economies. In
addition, many European countries rely heavily upon export-dependent businesses
and significant change in the exchange rate between the euro and the U.S. dollar
can have either a positive or a negative effect upon corporate profits and the
performance of EU investments. If one or more countries abandon the use of the
euro as a currency, the value of investments tied to those countries or the euro
could decline significantly. In addition, foreign exchange markets have recently
experienced sustained periods of high volatility, subjecting a fund's foreign
investments to additional risks.
Nordic
Countries. The
Nordic countries - Iceland, Denmark, Finland, Norway, and Sweden - relate to
European integration in different ways. Norway and Iceland are outside the EU,
although they are members of the European Economic Area. Denmark, Finland, and
Sweden are EU members, but only Finland has adopted the euro as its currency,
while Denmark has pegged its currency to the euro. Faced with stronger global
competition, some Nordic countries have had to scale down their historically
generous welfare programs, resulting in drops in domestic demand and increased
unemployment. Economic growth in many Nordic countries continues to be
constrained by tight labor markets and adverse European and global economic
conditions, particularly the volatility in global commodity demand. The Nordic
countries' manufacturing sector has experienced continued contraction due to
outsourcing and flagging demand, spurring increasing unemployment. Furthermore,
the protracted recovery due to the ongoing European debt crisis and persistent
low growth in the global economy may limit the growth prospects of the Nordic
economies.
Eastern
Europe. Investing
in the securities of Eastern European issuers is highly speculative and involves
risks not usually associated with investing in the more developed markets of
Western Europe. Political and economic reforms are too recent to establish a
definite trend away from centrally planned economies and state-owned industries.
Investments in Eastern European countries may involve risks of nationalization,
expropriation, and confiscatory taxation.
Eastern
European countries continue to move towards market economies at different paces
with varying characteristics. Many Eastern European markets suffer from thin
trading activity, dubious investor protections, and often a lack of reliable
corporate information. Information and transaction costs, differential taxes,
and sometimes political, regulatory, or transfer risk may give a comparative
advantage to the domestic investor rather than the foreign investor. In
addition, these markets are particularly sensitive to social, political,
economic, and currency events in Western Europe and Russia and may suffer heavy
losses as a result of their trading and investment links to these economies and
their currencies. In particular, the disruption to the Russian economy as a
result of sanctions imposed by the United States and EU in connection with
Russia's involvement in Ukraine may hurt Eastern European economies with close
trade links to Russia. Russia may also attempt to directly assert its influence
in the region through coercive use of its economic, military, and natural
resources.
In
some of the countries of Eastern Europe, there is no stock exchange or formal
market for securities. Such countries may also have government exchange
controls, currencies with no recognizable market value relative to the
established currencies of Western market economies, little or no experience in
trading in securities, weak or nonexistent accounting or financial reporting
standards, a lack of banking and securities infrastructure to handle such
trading and a legal tradition without strongly defined property rights. Due to
the value of trade and investment between Western Europe and Eastern Europe,
credit and debt issues and other economic difficulties affecting Western Europe
and its financial institutions can negatively affect Eastern European
countries.
Eastern
European economies may also be particularly susceptible to the volatility of the
international credit market due to their reliance on bank related inflows of
foreign capital. Although many Eastern European economies have experienced
modest growth for several periods due, in part, to external demand, tighter
labor markets, and the attraction of foreign investment, major challenges
persist as a result of their continued dependence on Western European countries
for credit and trade. Accordingly, the European crisis may present serious risks
for Eastern European economies, which may have a negative effect on a fund's
investments in the region.
Several
Eastern European countries on the periphery of the EU have recently been the
destination for a surge of refugees and migrants fleeing global conflict zones,
particularly the civil wars in Syria and Afghanistan and economic hardship
across Africa and the developing world. While these countries have borne many of
the direct costs of managing the flow of refugees and migrants seeking
resettlement in Europe, they have also faced significant international criticism
over their treatment of migrants and refugees which may affect foreign investor
confidence in the attractiveness of such markets.
Japan.
Japan
continues to recover from recurring recessionary forces that have negatively
impacted Japan's economic growth over the last decade. Despite signs of economic
growth in recent years, Japan is still vulnerable to persistent underlying
systemic risks. For instance, Japan continues to face massive government debt,
an aging and shrinking of the population, an uncertain financial sector, low
domestic consumption, and certain corporate structural weaknesses, which remain
some of the major long-term problems of the Japanese economy.
Overseas
trade is important to Japan's economy and its economic growth is significantly
driven by its exports. Meanwhile, Japan's aging and shrinking population
increases the cost of the country's pension and public welfare system and lowers
domestic demand, making Japan more dependent on exports to sustain its economy.
Therefore, any developments that negatively affect Japan's exports could present
risks to a fund's investments in Japan. For example, domestic or foreign trade
sanctions or other protectionist measures could harm Japan's economy. In
addition, currency fluctuations may also significantly affect Japan's economy,
as a stronger yen would negatively impact Japan's ability to export. Likewise,
any escalation of tensions in the region, including disruptions caused by
political tensions with North Korea or territorial disputes with Japan's major
trading partners, may adversely impact Japan's economic outlook. In particular,
Japan is heavily dependent on oil imports, and higher commodity prices could
have a negative impact on its economy. Japan is also particularly susceptible to
the effects of declining growth rates in China, Japan's largest export market.
Given that China is a large importer of Japanese goods and is a significant
source of global economic growth, a continued Chinese slowdown may negatively
impact Japanese economic growth both directly and indirectly. Similarly, the
European debt crisis, the effects of the COVID-19 pandemic, and persistent low
growth in the global economy could present additional risks to a fund's
investments in Japan.
Japan's
economic recovery has been affected by economic stress resulting from a number
of natural disasters, including disasters that caused damage to nuclear power
plants in the region, which have introduced volatility into Japan's financial
markets. In response to these events, the government has injected capital into
the economy and reconstruction efforts in disaster-affected areas in order to
stimulate economic growth. The risks of natural disasters of varying degrees,
such as earthquakes and tsunamis, continue to persist. The full extent of the
impact of recurring natural disasters on Japan's economy and foreign investment
in Japan is difficult to estimate.
Although
Japanese banks are stable, maintaining large capital bases, they continue to
face difficulties generating profits. In recent years, Japan has employed a
program of monetary loosening, fiscal stimulus, and growth-oriented structural
reform, which has generated limited success in raising growth rates. Although
Japan's central bank has continued its quantitative easing program, there is no
guarantee such efforts will be sufficient or that additional stimulus policies
will not be necessary in the future. Furthermore, the long term potential of
this strategy remains uncertain, as the first of two planned increases in
Japan's consumption tax resulted in a decline in consumption and the effect of
the second increase remains to be seen.
Asia
Pacific Region (ex Japan). Many
countries in the region have historically faced political uncertainty,
corruption, military intervention, and social unrest. Examples include military
threats on the Korean peninsula and along the Taiwan Strait, the ethnic,
sectarian, extremist, and/or separatist violence found in Indonesia and the
Philippines, and the nuclear arms threats between India and Pakistan. To the
extent that such events continue in the future, they can be expected to have a
negative effect on economic and securities market conditions in the region. In
addition, the Asia Pacific geographic region has historically been prone to
natural disasters. The occurrence of a natural disaster in the region could
negatively impact the economy of any country in the region. Natural disasters
may become more frequent and severe as a result of global climate change. Given
the particular vulnerability of the region to the effects of climate change,
disruptions in international efforts to address climate-related issues may have
a disproportionate impact on a fund's investments in the region.
Economic.
The
economies of many countries in the region are heavily dependent on international
trade and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners, principally, the United States, Japan,
China, and the European Union. The countries in this region are also heavily
dependent on exports and are thus particularly vulnerable to any weakening in
global demand for these products. Many countries in the region are economically
reliant on a wide range of commodity exports. Consequently, countries in this
region have been adversely affected by the persistent volatility in global
commodity prices and are particularly susceptible to declines in growth rates in
China. The Australian and New Zealand economies are also heavily dependent on
the economies of China and other Asian countries. Countries in this region have
experienced high debt levels, an issue that is being compounded by weakened
local currencies. Although the economies of many countries in the region have
exhibited signs of growth, such improvements, if sustained, may be gradual.
Significantly, the Australian economy has declined in recent years and in 2019
the Reserve Bank of Australia cut interest rates to an all-time low in response
to a reduction in consumption brought on, in part, by a downturn in the property
market and rising levels in unemployment. The Reserve Bank of Australia cut
rates further in response to the economic effects of the COVID-19 pandemic.
Though the country has seen marginal improvements, the Reserve Bank anticipates
leaving rates near zero until 2024. Furthermore, any future growth experienced
in the region may be limited or hindered by the reduced demand for exports due
to a continued economic slowdown in China, which could significantly lower
demand for the natural resources many Asia Pacific economies export. Because
China has been such a major source of demand for raw materials and a supplier of
foreign direct investment to exporting economies, the slowdown of the Chinese
economy could significantly affect regional growth. In addition, the trading
relationship between China and a number of Asia Pacific countries has been
strained by the geopolitical conflict created by competing territorial claims in
the South China Sea, which has created diplomatic tension in the region that may
adversely impact the economies of the affected countries. Regional growth may
also be limited by lack of available capital for investment resulting from the
European debt crisis and persistent low growth in the global economy, as well as
increases in interest rates and the tapering of other monetary policies adopted
by the central banks of developed countries.
The
Republic of Korea (South Korea) .
Investing in South Korea involves risks not typically associated with investing
in the U.S. securities markets. Investments in South Korea are, in part,
dependent on the maintenance of peaceful relations with North Korea, on both a
bilateral and global basis. Relations between the two countries remain tense, as
exemplified in periodic acts of hostility, and the possibility of serious
military engagement still exists. Any escalation in hostility, initiation of
military conflict, or collateral consequences of internal instability within
North Korea would likely cause a substantial disruption in South Korea's
economy, as well as the region as a whole.
South
Korea's economic reliance on international trade makes it highly sensitive to
fluctuations in international commodity prices, currency exchange rates and
government regulation, and vulnerable to downturns of the world economy. South
Korea has experienced modest economic growth in recent years. Such continued
growth may slow due, in part, to a continued economic slowdown in China. South
Korea is particularly sensitive to the economic volatility of its four largest
export markets (the European Union, Japan, United States, and China), which all
face varying degrees of economic uncertainty, including persistent low growth
rates. The economic weakness of South Korea's most important trading partners
could stifle demand for South Korean exports and damage its own economic growth
outlook. In particular, given that China is both a large importer of South
Korean goods and a significant source of global demand, a continued Chinese
slowdown may, directly or indirectly, negatively impact South Korean economic
growth. The South Korean economy's long-term challenges include a rapidly aging
population, inflexible labor market, dominance of large conglomerates, and
overdependence on exports to drive economic growth.
China
Region. The
China Region encompasses the People's Republic of China, Taiwan, and Hong Kong.
The region is highly interconnected and interdependent, with relationships and
tensions built on trade, finance, culture, and politics. The economic success of
China will continue to have an outsized influence on the growth and prosperity
of both Taiwan and Hong Kong.
Although
the People's Republic of China has experienced three decades of unprecedented
growth, it now faces a slowing economy that is due, in part, to China's effort
to shift away from an export-driven economy. Other contributing factors to the
slowdown include lower-than-expected industrial output growth, reductions in
consumer spending, a decline in the real estate market, which many observers
believed to be inflated, and most recently, the COVID-19 pandemic and China's
containment strategy. Further, local governments, which had borrowed heavily to
bolster growth, face high debt burdens and limited revenue sources. Demand for
Chinese exports by Western countries, including the United States and Europe,
may weaken due to the effects of weakened economic growth in those countries
resulting from the European debt crisis and persistent low growth in the global
economy. Additionally, Chinese land reclamation projects, actions to lay claim
to disputed islands, and China's attempt to assert territorial claims in the
South China Sea have caused strains in China's relationship with various
regional trading partners, and could cause further disruption to regional trade.
In the long term, China's ability to develop and sustain a credible legal,
regulatory, monetary, and socioeconomic system could influence the course of
foreign investment in China.
Hong
Kong is closely tied to China, economically and politically, following the
United Kingdom's 1997 handover of the former colony to China to be governed as a
Special Administrative Region. Changes to Hong Kong's legal, financial, and
monetary system could negatively impact its economic prospects. Hong Kong's
evolving relationship with the central government in Beijing has been a source
of political unrest and may result in economic disruption.
Although
many Taiwanese companies heavily invest in China, a state of hostility continues
to exist between China and Taiwan. Taiwan's political stability and ability to
sustain its economic growth could be significantly affected by its political and
economic relationship with China. Although economic and political relations have
both improved, Taiwan remains vulnerable to both Chinese territorial ambitions
and economic downturns.
In
addition to the risks inherent in investing in the emerging markets, the risks
of investing in China, Hong Kong, and Taiwan merit special
consideration.
People's
Republic of China. China's
economy has transitioned from a rigidly central-planned state-run economy to one
that has been only partially reformed by more market-oriented policies. Although
the Chinese government has implemented economic reform measures, reduced state
ownership of companies and established better corporate governance practices, a
substantial portion of productive assets in China are still owned or controlled
by the Chinese government. The government continues to exercise significant
control over regulating industrial development and, ultimately, over China's
economic growth, both through direct involvement in the market through state
owned enterprises, and indirectly by allocating resources, controlling access to
credit, controlling payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or
companies.
After
many years of steady growth, the growth rate of China's economy has declined
relative to prior years. Although this slowdown may have been influenced by the
government's desire to stop certain sectors from overheating, and to shift the
economy from one based on low cost export manufacturing to a model driven more
by domestic consumption, it holds significant economic, social and political
risks. For one, the real estate market, once rapidly growing in major cities,
has slowed down and may prompt government intervention to prevent collapse.
Additionally, local government debt is still very high, and local governments
have few viable means to raise revenue, especially with continued declines in
demand for housing. Moreover, although China has tried to restructure its
economy towards consumption, it remains heavily dependent on exports and is,
therefore, susceptible to downturns abroad which may weaken demand for its
exports and reduced foreign investments in the country. Reduction in spending on
Chinese products and services, institution of tariffs or other trade barriers or
a downturn in any of the economies of China's key trading partners may have an
adverse impact on the securities of Chinese issuers. In particular, the economy
faces the prospect of prolonged weakness in demand for Chinese exports as its
major trading partners, such as the United States, Japan, and Europe, continue
to experience economic uncertainty stemming from the European debt crisis, the
effects of the COVID-19 pandemic, and persistent low growth in the global
economy, among other things. After a period of intensified concerns about trade
tariffs and further escalation of the trade war between China and the United
States, the two countries reached a trade agreement in January 2020. However, it
is uncertain if the positive trend in U.S.-China trade relations will continue.
If the countries reinstitute tariffs, it may trigger a significant reduction in
international trade, the oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual companies and/or
large segments of China's export industry with a potentially negative impact to
a fund. These kinds of events and their consequences are difficult to foresee
and it is unclear whether future tariffs may be imposed or other escalating
actions may be taken in the future. Over the long term, China's aging
infrastructure, worsening environmental conditions, rapid and inequitable
urbanization, and quickly widening urban and rural income gap, which all carry
political and economic implications, are among the country's major challenges.
China also faces problems of domestic unrest and provincial separatism.
Additionally, the Chinese economy may be adversely affected by diplomatic
developments, the imposition of economic sanctions, changes in international
trading patterns, trade barriers, and other protectionist or retaliatory
measures.
Chinese
territorial claims are another source of tension and present risks to diplomatic
and trade relations with certain of China's regional trade partners. Actions by
the Chinese government, such as its land reclamation projects, assertion of
territorial claims in the South China Sea, and the establishment of an Air
Defense Identification Zone over disputed islands, raises the fear of both
accidental military conflict, and that Chinese territorial claims may result in
international reprisal. Such a reprisal may reduce international demand for
Chinese goods and services or cause a decline in foreign direct investment, both
of which could have a negative effect on a fund's investments in the securities
of Chinese issuers.
As
with all transition economies, China's ability to develop and sustain a credible
legal, regulatory, monetary, and socioeconomic system could influence the course
of outside investment. The Chinese legal system, in particular, constitutes a
significant risk factor for investors. Since the late 1970s, Chinese legislative
bodies have promulgated laws and regulations dealing with various economic
matters such as foreign investment, corporate organization and governance,
commerce, taxation, and trade. However, despite the expanding body of law in
China, legal precedent and published court decisions based on these laws are
limited and non-binding. The interpretation and enforcement of these laws and
regulations are uncertain, and investments in China may not be subject to the
same degree of legal protection as in other developed countries.
China
continues to limit direct foreign investments generally in industries deemed
important to national interests. Foreign investment in domestic securities is
also subject to substantial restrictions, although Chinese regulators have begun
to introduce new programs through which foreign investors can gain direct access
to certain Chinese securities markets. For instance, Chinese regulators have
implemented a program that will permit direct foreign investment in permissible
products (which include cash bonds) traded on the China inter-bank bond market
(CIBM) in compliance with the relevant rules established by applicable Chinese
regulators. While CIBM is relatively large and trading volumes are generally
high, the market remains subject to similar risks as fixed income securities
markets in other developing countries. As foreign investment access to CIBM is
relatively new and its rules may be materially amended as the program continues
to develop, it is uncertain how this program will impact economic growth within
China.
Securities
listed on China's two main stock exchanges are divided into two classes. One of
the two classes is limited to domestic investors (and a small group of qualified
international investors), while the other is available to both international and
domestic investors. Although the Chinese government has announced plans to merge
the two markets, it is uncertain whether and to what extent such a merger will
take place. The existing bifurcated system raises liquidity and stability
concerns.
Investments
in securities listed and traded through the Shanghai-Hong Kong Stock Connect and
Shenzhen-Hong Kong Stock Connect programs (Stock Connect Programs) involve
unique risks. The Stock Connect Programs are relatively new and there is no
guarantee that they will continue. Trading through Stock Connect Programs is
subject to daily quotas that limit the maximum daily net purchases and daily
limits on permitted price fluctuations. Trading suspensions are more likely in
these markets than in many other global equity markets. There can be no
assurance that a liquid market on an exchange will exist. In addition,
investments made through Stock Connect Programs are subject to comparatively
untested trading, clearance and settlement procedures. Stock Connect Programs
are available only on days when markets in both China and Hong Kong are open. A
fund's ownership interest in securities traded through the Stock Connect
Programs will not be reflected directly, and thus a fund may have to rely on the
ability or willingness of a third party to enforce its rights. Investments in
Stock Connect Program A-shares are generally subject to Chinese securities
regulations and listing rules, among other restrictions. Hong Kong investor
compensation funds, which protect against trade defaults, are unavailable when
investing through Stock Connect Programs. Uncertainties in Chinese tax rules
could also result in unexpected tax liabilities for the fund.
Currency
fluctuations could significantly affect China and its trading partners. China
continues to exercise control over the value of its currency, rather than
allowing the value of the currency to be determined by market forces. This type
of currency regime may experience sudden and significant currency adjustments,
which may adversely impact investment returns. One such currency adjustment
occurred in 2015, in which China purposefully devalued the yuan in an effort to
bolster economic growth. However, the government has taken steps to
internationalize its currency. This policy change is driven, in part, by the
government's desire for the yuan's continued inclusion in the basket of
currencies that comprise the International Monetary Fund's Special Drawing
Rights.
Chinese
companies, particularly those located in China, may be smaller and less
seasoned. China may lack, or have different, accounting and financial reporting
standards, which may result in the unavailability of material information about
Chinese issuers. Moreover, the Public Company Accounting Oversight Board (PCAOB)
has warned that it lacks the ability to inspect audit work and practices of
PCAOB-registered auditing firms within China. PCAOB's limited ability to oversee
the operations of auditing firms within China may result in inaccurate or
incomplete financial records of an issuer's operations within China, which may
negatively impact a fund's investments in such companies.
Additionally,
China's stock market has experienced tumult and high volatility, which has
prompted the Chinese government to implement a number of policies and
restrictions with regards to the securities market. While China may take actions
aimed at maintaining growth and stability in the stock market, investors in
Chinese securities may be negatively affected by, among other things,
disruptions in the ability to sell securities for compliance with investment
objectives or when most advantageous given market conditions. It is not clear
what the long-term effect of such policies would be on the securities market in
China or whether additional actions by the government will occur in the
future.
Hong
Kong. In
1997, the United Kingdom handed over control of Hong Kong to the People's
Republic of China. Since that time, Hong Kong has been governed by a
quasi-constitution known as the Basic Law, while defense and foreign affairs are
the responsibility of the central government in Beijing. The chief executive of
Hong Kong is appointed by the Chinese government. However, Hong Kong is able to
participate in international organizations and agreements and it continues to
function as an international financial center, with no exchange controls, free
convertibility of the Hong Kong dollar and free inward and outward movement of
capital. The Basic Law also guarantees existing freedoms, including the freedom
of speech, assembly, press, and religion, as well as the right to strike and
travel. Business ownership, private property, the right of inheritance and
foreign investment are also protected by law.
By
treaty, China has committed to preserve Hong Kong's high degree of autonomy in
certain matters until 2047. However, as demonstrated by Hong Kong protests in
recent years over political, economic, and legal freedoms, and the Chinese
government's response to them, there continues to exist political uncertainty
within Hong Kong. For example, in June 2020 China adopted a new security law
that severely limits freedom of speech in Hong Kong and expands police powers to
seize electronic devices and intercept communications of suspects. Widespread
protests were held in Hong Kong in response to the new law, and the United
States imposed sanctions on 11 Hong Kong officials for cracking down on
pro-democracy protests. Pro-democracy protests, which have become increasingly
violent over time, have continued into 2021, and there is no guarantee that
additional protests will not arise in the future or whether the United States
will respond to such protests with additional sanctions.
Hong
Kong has experienced strong economic growth in recent years due, in part, to its
close ties with China and a strong service sector, but Hong Kong still faces
concerns over overheating in certain sectors of its economy, such as its real
estate market, which could limit Hong Kong's future growth. In addition, due to
Hong Kong's heavy reliance on international trade and global financial markets,
Hong Kong remains exposed to significant risks as a result of the European debt
crisis and persistent low growth in the global economy. Likewise, due to Hong
Kong's close political and economic ties with China, a continued economic
slowdown on the mainland could continue to have a negative impact on Hong Kong's
economy.
Taiwan.
For
decades, a state of hostility has existed between Taiwan and the People's
Republic of China. China has long deemed Taiwan a part of the "one China" and
has made a nationalist cause of reuniting Taiwan with mainland China. In the
past, China has staged frequent military provocations off the coast of Taiwan
and made threats of full-scale military action. However, tensions have lowered,
exemplified by improved relations, including the first official contacts between
the governments' leaders of China and Taiwan in 2015. Despite closer relations
in recent years, the relationship with China remains a divisive political issue
within Taiwan. Foreign trade has been the engine of rapid growth in Taiwan and
has transformed the island into one of Asia's great exporting nations. As an
export-oriented economy, Taiwan depends on a free-trade trade regime and remains
vulnerable to downturns in the world economy. Taiwanese companies continue to
compete mostly on price, producing generic products or branded merchandise on
behalf of multinational companies. Accordingly, these businesses can be
particularly vulnerable to currency volatility and increasing competition from
neighboring lower-cost countries. Moreover, many Taiwanese companies are heavily
invested in mainland China and other countries throughout Southeast Asia, making
them susceptible to political events and economic crises in these parts of the
region. Significantly, Taiwan and China have entered into agreements covering
banking, securities, and insurance. Closer economic links with the mainland may
bring greater opportunities for the Taiwanese economy, but such arrangements
also pose new challenges. For example, foreign direct investment in China has
resulted in Chinese import substitution away from Taiwan's exports and a
constriction of potential job creation in Taiwan. Likewise, the Taiwanese
economy has experienced slow economic growth as demand for Taiwan's exports has
weakened due, in part, to declines in growth rates in China. Taiwan has sought
to diversify its export markets and reduce its dependence on the Chinese market
by increasing exports to the United States, Japan, Europe, and other Asian
countries by, in part, entering into free-trade agreements. In addition, the
lasting effects of the European debt crisis and persistent low growth in the
global economy may reduce global demand for Taiwan's exports. The Taiwanese
economy's long-term challenges include a rapidly aging population, low birth
rate, and the lingering effects of Taiwan's diplomatic isolation.
India.
The
value of a fund's investments in Indian securities may be affected by, among
other things, political developments, rapid changes in government regulation,
state intervention in private enterprise, nationalization or expropriation of
foreign assets, legal uncertainty, high rates of inflation or interest rates,
currency volatility, and civil unrest. Moreover, the Indian economy remains
vulnerable to natural disasters, such as droughts and monsoons. Natural
disasters may become more frequent and severe as a result of global climate
change. Given the particular vulnerability of India to the effects of climate
change, disruptions in international efforts to address climate-related issues
may have a disproportionate impact on a fund's investments in the country. In
addition, any escalation of tensions with Pakistan may have a negative impact on
India's economy and foreign investments in India. Likewise, political, social
and economic disruptions caused by domestic sectarian violence or terrorist
attacks may also present risks to a fund's investments in India.
The
Indian economy is heavily dependent on exports and services provided to U.S. and
European companies, and is vulnerable to any weakening in global demand for
these products and services. In recent years, rising wages have chipped away at
India's competitive advantage in certain service sectors. A large fiscal deficit
and persistent inflation have contributed to modest economic growth in India in
recent years. While the economic growth rate has risen more recently, the Indian
economy continues to be susceptible to a slowdown in the manufacturing sector,
and it is uncertain whether higher growth rates are sustainable without more
fundamental governance reforms.
India's
market has less developed clearance and settlement procedures and there have
been times when settlements have not kept pace with the volume of securities and
have been significantly delayed. The Indian stock exchanges have in the past
been subject to closure, broker defaults and broker strikes, and there can be no
certainty that this will not recur. In addition, significant delays are common
in registering transfers of securities and a fund may be unable to sell
securities until the registration process is completed and may experience delays
in the receipt of dividends and other entitlements. Furthermore, restrictions or
controls applicable to foreign investment in the securities of issuers in India
may also adversely affect a fund's investments within the country. The
availability of financial instruments with exposure to Indian financial markets
may be substantially limited by restrictions on foreign investors and subject to
regulatory authorizations. Foreign investors are required to observe certain
investment restrictions, including limits on shareholdings, which may impede a
fund's ability to invest in certain issuers or to fully pursue its investment
objective. These restrictions may also have the effect of reducing demand for,
or limiting the liquidity of, such investments. There can be no assurance that
the Indian government will not impose restrictions on foreign capital
remittances abroad or otherwise modify the exchange control regime applicable to
foreign investors in such a way that may adversely affect the ability of a fund
to repatriate their income and capital.
Shares
of many Indian issuers are held by a limited number of persons and financial
institutions, which may limit the number of shares available for investment.
Sales of securities by such issuer's major shareholders may also significantly
and adversely affect other shareholders. Moreover, a limited number of issuers
represent a disproportionately large percentage of market capitalization and
trading value in India.
The
Indian government has sought to implement numerous reforms to the economy,
including efforts to bolster the Indian manufacturing sector and entice foreign
direct investment. However, such reformation efforts have proven difficult and
there is no guarantee that such reforms will be implemented or that they will be
fully implemented in a manner that benefits investors.
Indonesia.
Over
the last decade, Indonesia has applied prudent macroeconomic efforts and policy
reforms that have led to modest growth in recent years, but many economic
development problems remain, including poverty and unemployment, corruption,
inadequate infrastructure, a complex regulatory environment, and unequal
resource distribution among regions. Although Indonesia's government has taken
steps in recent years to improve the country's infrastructure and investment
climate, these problems may limit the country's ability to maintain such
economic growth as Indonesia has begun to experience slowing growth rates in
recent years. Indonesia is prone to natural disasters such as typhoons,
tsunamis, earthquakes and flooding, which may also present risks to a fund's
investments in Indonesia. Natural disasters may become more frequent and severe
as a result of global climate change. Given the particular vulnerability of
Indonesia to the effects of climate change, disruptions in international efforts
to address climate-related issues may have a disproportionate impact on a fund's
investments in the country. In addition, Indonesia continues to be at risk of
ethnic, sectarian, and separatist violence.
In
recent periods, Indonesia has employed a program of monetary loosening through
reductions in interest rates and implemented a number of reforms to encourage
investment. Although Indonesia's central bank has continued to utilize monetary
policies to promote growth, there can be no guarantee such efforts will be
sufficient or that additional stimulus policies will not be necessary in the
future.
Indonesia's
dependence on resource extraction and export leaves it vulnerable to a slowdown
of the economies of its trading partners and a decline in commodity prices more
generally. Commodity prices have experienced significant volatility in recent
years, which has adversely affected the exports of Indonesia's economy.
Indonesia is particularly vulnerable to the effects of a continued slowdown in
China, which has been a major source of demand growth for Indonesia's commodity
exports. Indonesia is also vulnerable to further weakness in Japan, which
remains one of Indonesia's largest single export markets. Indonesia has recently
reversed several policies that restricted foreign investment by permitting
increased foreign ownership in several sectors and opening up sectors previously
closed to foreign investors. Failure to pursue internal reform, peacefully
resolve internal conflicts, bolster the confidence of international and domestic
investors, and weak global economic growth could limit Indonesia's economic
growth in the future.
Thailand.
Thailand
has well-developed infrastructure and a free-enterprise economy, which is both
conducive and enticing to certain foreign investment. While Thailand experienced
an increase in exports in recent years, the rate of export growth has since
slowed, in part due to domestic political turmoil, weakness in commodity prices
and declines in growth rates in China. Moreover, Thailand has pursued
preferential trade agreements with a variety of partners in an effort to boost
exports and maintain high growth. However, weakening fiscal discipline,
separatist violence in the south, the intervention by the military in civilian
spheres, and continued political instability may cause additional risks for
investments in Thailand. The risk of political instability has proven
substantial, as the protests, disputed election, government collapse, and coup
of 2014 have led to short term declines in GDP, a collapse of tourism, and a
decrease in foreign direct investment. The military junta formally controlled
the government from 2014 until July 2019. Parliamentary elections were
held in May 2019 in which pro-military parties won a slim majority and the
former military junta leader became Prime Minister. However, international
watchdog groups claimed the election was not free and fair. Uncertainty
regarding the stability and legitimacy of Thailand's new elected government
could have a negative impact on economic growth.
In
the long term, Thailand's economy faces challenges including an aging
population, outdated infrastructure, and an inadequate education system.
Thailand's cost of labor has risen rapidly in recent years, threatening its
status as a low cost manufacturing hub. In addition, natural disasters may
affect economic growth in the country. Natural disasters may become more
frequent and severe as a result of global climate change. Given the particular
vulnerability of Thailand to the effects of climate change, disruptions in
international efforts to address climate-related issues may have a
disproportionate impact on a fund's investments in the country. Thailand
continues to be vulnerable to weak economic growth of its major trading
partners, particularly China and Japan. Additionally, Thailand's economy may be
limited by lack of available capital for investment resulting from the European
debt crisis and persistent slow growth in the global economy.
Philippines.
The
economy of the Philippines has benefitted from its relatively low dependence on
exports and high domestic rates of consumption, as well as substantial
remittances received from large overseas populations. Although the economy of
the Philippines has grown quickly in recent years, there can be no assurances
that such growth will continue. Like other countries in the Asia Pacific region,
the Philippines' growth in recent years has been reliant, in part, on exports to
larger economies, notably the United States, Japan and China. Given that China
is a large importer and source of global demand, a continued Chinese slowdown
may, directly or indirectly, negatively impact Philippine economic growth.
Additionally, lower global economic growth may lead to lower remittances from
Filipino emigrants abroad, negatively impacting economic growth in the
Philippines. Furthermore, certain weaknesses in the economy, such as inadequate
infrastructure, high poverty rates, uneven wealth distribution, low fiscal
revenues, endemic corruption, inconsistent regulation, unpredictable taxation,
unreliable judicial processes, and the appropriation of foreign assets may
present risks to a fund's investments in the Philippines. In more recent years,
poverty rates have declined; however, there is no guarantee that this trend will
continue. In addition, investments in the Philippines are subject to risks
arising from political or social unrest, including governmental actions that
strain relations with the country's major trading partners, threats from
military coups, terrorist groups and separatist movements. Likewise, the
Philippines is prone to natural disasters such as typhoons, tsunamis,
earthquakes and flooding, which may also present risks to a fund's investments
in the Philippines. Natural disasters may become more frequent and severe as a
result of global climate change. Given the particular vulnerability of the
Philippines to the effects of climate change, disruptions in international
efforts to address climate-related issues may have a disproportionate impact on
a fund's investments in the country.
Latin
America. Latin
American countries have historically suffered from social, political, and
economic instability. For investors, this has meant additional risk caused by
periods of regional conflict, political corruption, totalitarianism,
protectionist measures, nationalization, hyperinflation, debt crises, sudden and
large currency devaluation, and intervention by the military in civilian and
economic spheres. In recent decades, certain Latin American economies have
experienced prolonged, significant economic growth, and many countries have
developed sustainable democracies and a more mature and accountable political
environment. However, in recent periods, many Latin American countries have
experienced persistent low growth rates and certain countries have fallen into
recessions. Specifically, the region has recently suffered from the effects of
Argentina's economic crisis. While the region is experiencing an economic
recovery, there can be no guarantee that such recovery will continue or that
Latin American countries will not face further recessionary
pressures. Furthermore, economic recovery efforts continue to be weighed
down by the costs of the COVID-19 pandemic.
The
region's economies represent a spectrum of different levels of political and
economic development. In many Latin American countries, domestic economies have
been deregulated, privatization of state-owned companies had been undertaken and
foreign trade restrictions have been relaxed. However, there can be no guarantee
that such trends in economic liberalization will continue or that the desired
outcomes of these developments will be successful. Nonetheless, to the extent
that the risks identified above continue or re-emerge in the future, such
developments could reverse favorable trends toward market and economic reform,
privatization, and removal of trade barriers, and result in significant
disruption in securities markets in the region. In addition, recent favorable
economic performance in much of the region has led to a concern regarding
government overspending in certain Latin American countries. Investors in the
region continue to face a number of potential risks. Certain Latin American
countries depend heavily on exports to the United States and investments from a
small number of countries. Accordingly, these countries may be sensitive to
fluctuations in demand, exchange rates and changes in market conditions
associated with those countries. The economic growth of most Latin American
countries is highly dependent on commodity exports and the economies of certain
Latin American countries, particularly Mexico and Venezuela, are highly
dependent on oil exports. These economies are particularly susceptible to
fluctuations in the price of oil and other commodities and currency
fluctuations. The prices of oil and other commodities are in the midst of a
period of high volatility driven, in part, by a continued slowdown in growth in
China and the effects of the COVID-19 pandemic. If growth in China remains slow,
or if global economic conditions worsen, Latin American countries may face
significant economic difficulties. Although certain Latin American countries
have recently shown signs of improved economic growth, such improvements, if
sustained, may be gradual. In addition, prolonged economic difficulties may have
negative effects on the transition to a more stable democracy in some Latin
American countries. Political risks remain prevalent throughout the region,
including the risk of nationalization of foreign assets. Certain economies in
the region may rely heavily on particular industries or foreign capital and are
more vulnerable to diplomatic developments, the imposition of economic sanctions
against a particular country or countries, changes in international trading
patterns, trade barriers, and other protectionist or retaliatory
measures.
For
certain countries in Latin America, political risks have created significant
uncertainty in financial markets and may further limit the economic recovery in
the region. For example, in Mexico, uncertainty regarding the recently ratified
United States-Mexico-Canada Agreement may have a significant and adverse impact
on Mexico's economic outlook and the value of a fund's investments in Mexico.
Additionally, recent political and social unrest in Venezuela has resulted in a
massive disruption in the Venezuelan economy, including a deep recession and
near hyperinflation.
A
number of Latin American countries are among the largest debtors of developing
countries and have a long history of reliance on foreign debt and default. The
majority of the region's economies have become highly dependent upon foreign
credit and loans from external sources to fuel their state-sponsored economic
plans. Most countries have been forced to restructure their loans or risk
default on their debt obligations. In addition, interest on the debt is subject
to market conditions and may reach levels that would impair economic activity
and create a difficult and costly environment for borrowers. Accordingly, these
governments may be forced to reschedule or freeze their debt repayment, which
could negatively affect local markets. Most recently, Argentina defaulted on its
debt after a U.S. court ruled in 2014 that payments to a majority of bondholders
(who had settled for lower rates of repayment) could not be made so long as
holdout bondholders were not paid the full value of their bonds. Although
Argentina settled with its bondholders following the 2014 court ruling, the
country defaulted on its debt obligations again in May 2020. While Argentina
continues to negotiate with its bondholders, it may continue to experience
constraints on its ability to issue new debt, and therefore fund its government.
Further, the ruling increases the risk of default on all sovereign debt
containing similar clauses.
Because
of their dependence on foreign credit and loans, a number of Latin American
economies may benefit from the U.S. Federal Reserve's recent lowering of
interest rates; however the impact of such interest rate cuts remains to be
seen. While the region has recently had mixed levels of economic growth,
recovery from past economic downturns in Latin America has historically been
slow, and such growth, if sustained, may be gradual. The ongoing effects of the
European debt crisis, the effects of the COVID-19 pandemic, and persistent low
growth in the global economy may reduce demand for exports from Latin America
and limit the availability of foreign credit for some countries in the region.
As a result, a fund's investments in Latin American securities could be harmed
if economic recovery in the region is limited.
Russia.
Investing
in Russian securities is highly speculative and involves significant risks and
special considerations not typically associated with investing in the securities
markets of the United States and most other developed countries.
Political.
Over
the past century, Russia has experienced political and economic turbulence and
has endured decades of communist rule under which tens of millions of its
citizens were collectivized into state agricultural and industrial enterprises.
Since the collapse of the Soviet Union, Russia's government has been faced with
the daunting task of stabilizing its domestic economy, while transforming it
into a modern and efficient structure able to compete in international markets
and respond to the needs of its citizens. However, to date, many of the
country's economic reform initiatives have floundered or been retrenched. In
this environment, political and economic policies could shift suddenly in ways
detrimental to the interest of foreign and private investors.
In
the last several years, as significant income from oil and commodity exports
boosted Russia's economic growth, the Russian government began to re-assert its
regional geopolitical influence, including most recently its military actions in
Ukraine and Syria. The involvement in Ukraine has increased tensions between
Russia and its neighbors and the West, resulting in the United States and EU
placing sanctions on the Russian financial, energy, and defense sectors, as well
as targeting top Russian officials. These sanctions, combined with a collapse in
energy and commodity prices, have had the effect of slowing the Russian economy,
which has continued to experience recessionary trends. Additionally, the
conflict has caused capital flight, loss of confidence in Russian sovereign
debt, and a retaliatory import ban by Russia that has helped stoke inflation.
Further possible actions by Russia, including restricting gas exports to Ukraine
and countries downstream, or provoking another military conflict elsewhere in
Eastern Europe could lead to greater consequences for the Russian
economy.
Economic.
Many
Russian businesses are inefficient and uncompetitive by global standards due to
systemic corruption, regulatory favoritism for government-affiliated
enterprises, or the legacy of old management teams and techniques left over from
the command economy of the Soviet Union. Poor accounting standards, inept
management, pervasive corruption, insider trading and crime, and inadequate
regulatory protection for the rights of investors all pose a significant risk,
particularly to foreign investors. In addition, enforcement of the Russian tax
system is prone to inconsistent, arbitrary, retroactive, confiscatory, and/or
exorbitant taxation.
Compared
to most national stock markets, the Russian securities market suffers from a
variety of problems not encountered in more developed markets. There is little
long-term historical data on the Russian securities market because it is
relatively new and a substantial proportion of securities transactions in Russia
are privately negotiated outside of stock exchanges. The inexperience of the
Russian securities market and the limited volume of trading in securities in the
market may make obtaining accurate prices on portfolio securities from
independent sources more difficult than in more developed markets. Additionally,
there is little solid corporate information available to investors because of
less stringent auditing and financial reporting standards that apply to
companies operating in Russia. As a result, it may be difficult to assess the
value or prospects of an investment in Russian companies.
Because
of the recent formation of the Russian securities market as well as the
underdeveloped state of the banking and telecommunications systems, settlement,
clearing and registration of securities transactions are subject to significant
risks. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by extracts from the
register or by formal share certificates. However, these services are carried
out by the companies themselves or by registrars located throughout Russia.
These registrars are not necessarily subject to effective state supervision nor
are they licensed with any governmental entity and it is possible for a fund to
lose its registration through fraud, negligence, or even mere oversight. While a
fund will endeavor to ensure that its interest continues to be appropriately
recorded either itself or through a custodian or other agent inspecting the
share register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive a fund of
its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for a fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, significant delays or problems
may occur in registering the transfer of securities, which could cause a fund to
incur losses due to either a counterparty's failure to pay for securities the
fund has delivered or the fund's inability to complete its contractual
obligations. The designation of the National Settlement Depository (NSD) as the
exclusive settlement organization for all publicly traded Russian companies and
investment funds has enhanced the efficiency and transparency of the Russian
securities market. Additionally, agreements between the NSD and foreign central
securities depositories and settlement organizations have allowed for simpler
and more secure access for foreign investors as well.
The
Russian economy is heavily dependent upon the export of a range of commodities
including industrial metals, forestry products, oil, and gas. Accordingly, it is
strongly affected by international commodity prices and is particularly
vulnerable to any weakening in global demand for these products. Furthermore,
the sale and use of certain strategically important commodities, such as gas,
may be dictated by political, rather than economic, considerations.
The
recent fall in the price of commodities has demonstrated the sensitivity of the
Russian economy to such price volatility, especially in oil and gas markets.
During this time, many sectors in the Russian economy fell into turmoil, pushing
the whole economy into recession. In addition, prior to the global financial
crisis, Russia's economic policy encouraged excessive foreign currency borrowing
as high oil prices increased investor appetite for Russian financial assets. As
a result of this credit boom, Russia reached alarming debt levels and suffered
from the effects of tight credit markets. Russia continues to face significant
economic challenges, including weak levels of investment, falling domestic
consumption levels, and low global commodity demand. In the near term, the
ongoing European sovereign debt crisis, a continued slowdown in China, the
effects of the COVID-19 pandemic, and persistent low growth in the global
economy may continue to result in low prices for Russian exports such as oil and
gas, which could limit Russia's economic growth. Over the long-term, Russia
faces challenges including a shrinking workforce, high levels of corruption,
difficulty in accessing capital for smaller, non-energy companies, and poor
infrastructure in need of large investments.
The
sanctions imposed on Russia by the United States and the European Union, as well
as the threat of additional sanctions, could have further adverse consequences
for the Russian economy, including continued weakening of the ruble, additional
downgrades in the country's credit rating, and a significant decline in the
value and liquidity of securities issued by Russian companies or the Russian
government. The imposition of broader sanctions targeting specific issuers or
sectors could prohibit a fund from investing in any securities issued by
companies subject to such sanctions. In addition, these sanctions and/or
retaliatory action by Russia could require a fund to freeze its existing
investments in Russian companies. This could prohibit a fund from selling or
transacting in these investments and potentially impact a fund's
liquidity.
Currency.
Foreign
investors also face a high degree of currency risk when investing in Russian
securities and a lack of available currency hedging instruments. The Russian
ruble has recently been subject to significant devaluation pressure due to the
fall in commodity prices and the collapse in the value of Russian exports. The
Russian Central Bank has spent significant foreign exchange reserves to maintain
the value of the ruble. However, such reserves are finite and, as exemplified by
the recent rise in inflation, the Russian Central Bank may be unable to properly
manage competing demands of supporting the ruble, managing inflation, and
stimulating a struggling Russian economy. Although Russia's foreign exchange
reserves have begun to rebound, there can be no guarantee that this trend will
continue or that the Russian Central Bank will not need to spend these reserves
to stabilize Russia's currency and/or economy in the future. Therefore, any
investment denominated in rubles may be subject to significant devaluation in
the future. Although official sovereign debt to GDP figures are low for a
developed economy, sovereign default remains a risk. Even absent a sovereign
default, foreign investors could face the possibility of further devaluations.
There is the risk that the government may impose capital controls on foreign
portfolio investments in the event of extreme financial or political crisis.
Such capital controls could prevent the sale of a portfolio of foreign assets
and the repatriation of investment income and capital. Such risks have led to
heightened scrutiny of Russian liquidity conditions, which in turn creates a
heightened risk of the repatriation of ruble assets by concerned foreign
investors. The persistent economic turmoil in Russia caused the Russian ruble to
depreciate as unemployment levels increased and global demand for oil exports
decreased. In particular, the recent collapse in energy prices has shrunk the
value of Russian exports and further weakened both the value of the ruble and
the finances of the Russian state. The Russian economy has also suffered
following the conflict in Ukraine, as a result of significant capital flight
from the country. The pressure put on the ruble caused by this divestment has
been compounded by the sanctions from the United States and EU, leading to
further depreciation, a limitation of the ruble's convertibility, and an
increase in inflation.
The
Middle East and Africa. Investing
in Middle Eastern and African securities is highly speculative and involves
significant risks and special considerations not typically associated with
investing in the securities markets of the United States and most other
developed countries.
Political.
Many
Middle Eastern and African countries historically have suffered from political
instability. Despite a growing trend towards democratization, especially in
Africa, significant political risks continue to affect some Middle Eastern and
African countries. These risks may include substantial government intervention
in and control over the private sector, corrupt leaders, civil unrest,
suppression of opposition parties that can lead to further dissidence and
militancy, fixed elections, terrorism, coups, and war. In recent years, several
countries in the Middle East and North Africa have experienced pro-democracy
movements that resulted in swift regime changes. In some instances where
pro-democracy movements successfully toppled regimes, the stability of successor
regimes has proven weak, as evidenced, for example, in Egypt. In other
instances, these changes have devolved into armed conflict involving local
factions, regional allies or international forces, and even protracted civil
wars, such as in Libya and Syria.
The
protracted civil war in Syria has given rise to numerous militias, terrorist
groups, and most notably, the proto-state of ISIS. The conflict has disrupted
oil production across Syria and Iraq, effectively destroying the economic value
of large portions of the region, and caused a massive exodus of refugees into
neighboring states, which further threatens government infrastructure of the
refuge countries.
Regional
instability has not been confined to the Middle East. In Nigeria, Africa's
largest economy, radical groups have conducted a disruptive insurgency in the
country's north. In addition, Africa has experienced a number of regional health
crises in recent years, which has demonstrated the vulnerabilities of political
institutions and health care systems in the face of crisis. African
countries, particularly in Eastern and sub-Saharan Africa, have struggled to
access sufficient quantities of COVID-19 vaccines to support their
populations.
Continued
instability may slow the adoption of economic and political reforms and could
damage trade, investment, and economic growth going forward. Further, because
many Middle East and African nations have a history of dictatorship, military
intervention, and corruption, any successful reforms may prove impermanent. In
addition, there is an increasing risk that historical animosities, border
disputes, or defense concerns may lead to further armed conflict in the region.
Across the Middle East and Africa, such developments could have a negative
effect on economic growth and reverse favorable trends toward economic and
market reform, privatization, and the removal of trade barriers. Such
developments could also result in significant disruptions in securities
markets.
Economic.
Middle
Eastern and African countries historically have suffered from underdeveloped
infrastructure, high unemployment rates, a comparatively unskilled labor force,
and inconsistent access to capital, which have contributed to economic
instability and stifled economic growth in the region. Furthermore, certain
Middle Eastern and African markets may face a higher concentration of market
capitalization, greater illiquidity and greater price volatility than that found
in more developed markets of Western Europe or the United States. Additionally,
certain countries in the region have a history of nationalizing or expropriating
foreign assets, which could cause a fund to lose the value of its investments in
those countries or negatively affect foreign investor confidence in the region.
Despite a growing trend towards economic diversification, many Middle Eastern
and African economies remain heavily dependent upon a limited range of
commodities. These include gold, silver, copper, cocoa, diamonds, natural gas
and petroleum. These economies are greatly affected by international commodity
prices and are particularly vulnerable to any weakening in global demand for
these products. The demand in global commodities continues to decrease,
particularly the decline in the price of oil, causing certain countries in the
region to face significant economic difficulties. As a result, many countries
have been forced to scale down their infrastructure investment and the size of
their public welfare systems, which could have long-term economic, social, and
political implications.
South
Africa, Africa's second largest economy, is the largest destination for foreign
direct investment on the continent. The country has a two-tiered, developing
economy with one tier similar to that of a developed country and the second tier
having only the most basic infrastructure. Although South Africa has experienced
modest economic growth in recent years, such growth has been sluggish, hampered
by endemic corruption, ethnic and civil conflicts, labor unrest, the effects of
the HIV health crisis, and political instability. In addition, reduced demand
for South African exports due to the lasting effects of the European debt crisis
and persistent low growth in the global economy may limit any such recovery.
These problems have been compounded by worries over South African sovereign debt
prompted by an increasing deficit and rising level of sovereign debt. These
conditions led Fitch and S&P to downgrade South African debt to "junk"
status and to downgrade South Africa's long-term foreign currency issuer default
rating to "negative" in 2017. Additionally, Moody's downgraded South African
debt to "junk" status in 2020. Such downgrades in South African sovereign debt
and issuer default could have serious consequences for investments in South
Africa.
Currency.
Certain
Middle Eastern and African countries have currencies pegged to the U.S. dollar
or euro, rather than free-floating exchange rates determined by market forces.
Although intended to stabilize the currencies, these pegs, if abandoned, may
cause sudden and significant currency adjustments, which may adversely impact
investment returns. There is no significant foreign exchange market for certain
currencies, and it would, as a result, be difficult for a fund to engage in
foreign currency transactions designed to protect the value of a fund's
interests in securities denominated in such currencies.
PORTFOLIO
TRANSACTIONS
Orders
for the purchase or sale of portfolio securities (normally, shares of underlying
Fidelity ®
funds)
are placed on behalf of a fund by Fidelity Management & Research Company LLC
(FMR or the Adviser) (either itself or through its affiliates) pursuant to
authority contained in the management contract.
To
the extent that the Adviser grants investment management authority to a
sub-adviser (see the section entitled "Management Contracts"), that sub-adviser
is authorized to provide the services described in the respective sub-advisory
agreement, and in accordance with the policies described in this section.
Furthermore, the sub-adviser's trading and associated policies, which may differ
from the Adviser's policies, may apply to that fund, subject to applicable
law.
The
Adviser or a sub-adviser may be responsible for the placement of portfolio
securities transactions for other investment companies and investment accounts
for which it has or its affiliates have investment discretion.
A
fund will not incur any commissions or sales charges when it invests in
underlying Fidelity ®
funds,
but it may incur such costs if it invests directly in other types of
securities.
Purchases
and sales of equity securities on a securities exchange or OTC are effected
through brokers who receive compensation for their services. Generally,
compensation relating to securities traded on foreign exchanges will be higher
than compensation relating to securities traded on U.S. exchanges and may not be
subject to negotiation. Compensation may also be paid in connection with
principal transactions (in both OTC securities and securities listed on an
exchange) and agency OTC transactions executed with an electronic communications
network (ECN) or an alternative trading system. Equity securities may be
purchased from underwriters at prices that include underwriting fees.
Purchases
and sales of fixed-income securities are generally made with an issuer or a
primary market-maker acting as principal. Although there is no stated brokerage
commission paid by a fund for any fixed-income security, the price paid by a
fund to an underwriter includes the disclosed underwriting fee and prices in
secondary trades usually include an undisclosed dealer commission or markup
reflecting the spread between the bid and ask prices of the fixed-income
security. New issues of equity and fixed-income securities may also be purchased
in underwritten fixed price offerings.
The
Trustees of each fund periodically review the Adviser's performance of its
responsibilities in connection with the placement of portfolio securities
transactions on behalf of each fund. The Trustees also review the compensation
paid by each fund over representative periods of time to determine if it was
reasonable in relation to the benefits to the fund.
The
Selection of Securities Brokers and Dealers
The
Adviser or its affiliates generally have authority to select brokers (whether
acting as a broker or a dealer) to place or execute a fund's portfolio
securities transactions. In selecting brokers, including affiliates of the
Adviser, to execute a fund's portfolio securities transactions, the Adviser or
its affiliates consider the factors they deem relevant in the context of a
particular trade and in regard to the Adviser's or its affiliates' overall
responsibilities with respect to the fund and other investment accounts,
including any instructions from the fund's portfolio manager, which may
emphasize, for example, speed of execution over other factors. Based on the
factors considered, the Adviser or its affiliates may choose to execute an order
using ECNs, including broker-sponsored algorithms, internal crossing, or by
verbally working an order with one or more brokers. Other possibly relevant
factors include, but are not limited to, the following: price; costs; the size,
nature and type of the order; the speed of execution; financial condition and
reputation of the broker; broker specific considerations (e.g., not all brokers
are able to execute all types of trades); broker willingness to commit capital;
the nature and characteristics of the markets in which the security is traded;
the trader's assessment of whether and how closely the broker likely will follow
the trader's instructions to the broker; confidentiality and the potential for
information leakage; the nature or existence of post-trade clearing, settlement,
custody and currency convertibility mechanisms; and the provision of additional
brokerage and research products and services, if applicable and where allowed by
law.
In
seeking best execution for portfolio securities transactions, the Adviser or its
affiliates may from time to time select a broker that uses a trading method,
including algorithmic trading, for which the broker charges a higher commission
than its lowest available commission rate. The Adviser or its affiliates also
may select a broker that charges more than the lowest commission rate available
from another broker. Occasionally the Adviser or its affiliates execute an
entire securities transaction with a broker and allocate all or a portion of the
transaction and/or related commissions to a second broker where a client does
not permit trading with an affiliate of the Adviser or in other limited
situations. In those situations, the commission rate paid to the second broker
may be higher than the commission rate paid to the executing broker. For futures
transactions, the selection of a futures commission merchant is generally based
on the overall quality of execution and other services provided by the futures
commission merchant. The Adviser or its affiliates execute futures transactions
verbally and electronically.
The
Acquisition of Brokerage and Research Products and Services
Brokers
(who are not affiliates of the Adviser) that execute transactions for a fund
managed outside of the European Union may receive higher compensation from the
fund than other brokers might have charged the fund, in recognition of the value
of the brokerage or research products and services they provide to the Adviser
or its affiliates.
Research
Products and Services. These
products and services may include, when permissible under applicable law, but
are not limited to: economic, industry, company, municipal, sovereign (U.S. and
non-U.S.), legal, or political research reports; market color; company meeting
facilitation; compilation of securities prices, earnings, dividends and similar
data; quotation services, data, information and other services; analytical
computer software and services; and investment recommendations. In addition to
receiving brokerage and research products and services via written reports and
computer-delivered services, such reports may also be provided by telephone and
in video and in-person meetings with securities analysts, corporate and industry
spokespersons, economists, academicians and government representatives and
others with relevant professional expertise. The Adviser or its affiliates may
request that a broker provide a specific proprietary or third-party product or
service. Some of these brokerage and research products and services supplement
the Adviser's or its affiliates' own research activities in providing investment
advice to the funds.
Execution
Services. In
addition, when permissible under applicable law, brokerage and research products
and services include those that assist in the execution, clearing, and
settlement of securities transactions, as well as other incidental functions
(including, but not limited to, communication services related to trade
execution, order routing and algorithmic trading, post-trade matching, exchange
of messages among brokers or dealers, custodians and institutions, and the use
of electronic confirmation and affirmation of institutional trades).
Mixed-Use
Products and Services. Although
the Adviser or its affiliates do not use fund commissions to pay for products or
services that do not qualify as brokerage and research products and services or
eligible external research under MiFID II and FCA regulations (as defined
below), where allowed by applicable law, they, at times, will use commission
dollars to obtain certain products or services that are not used exclusively in
the Adviser's or its affiliates' investment decision-making process (mixed-use
products or services). In those circumstances, the Adviser or its affiliates
will make a good faith judgment to evaluate the various benefits and uses to
which they intend to put the mixed-use product or service, and will pay for that
portion of the mixed-use product or service that does not qualify as brokerage
and research products and services or eligible external research with their own
resources (referred to as "hard dollars").
Benefit
to the Adviser. The
Adviser's or its affiliates' expenses likely would be increased if they
attempted to generate these additional brokerage and research products and
services through their own efforts, or if they paid for these brokerage and
research products or services with their own resources. Therefore, an economic
incentive exists for the Adviser or its affiliates to select or recommend a
broker-dealer based on its interest in receiving the brokerage and research
products and services, rather than on the Adviser's or its affiliates' funds
interest in receiving most favorable execution. The Adviser and its affiliates
manage the receipt of brokerage and research products and services and the
potential for conflicts through its Commission Uses Program. The Commission Uses
Program effectively "unbundles" commissions paid to brokers who provide
brokerage and research products and services, i.e., commissions consist of an
execution commission, which covers the execution of the trade (including
clearance and settlement), and a research charge, which is used to cover
brokerage and research products and services. Those brokers have client
commission arrangements (each a CCA) in place with the Adviser and its
affiliates (each of those brokers referred to as CCA brokers). In selecting
brokers for executing transactions on behalf of the fund, the trading desks
through which the Adviser or its affiliates may execute trades are instructed to
execute portfolio transactions on behalf of the funds based on the quality of
execution without any consideration of brokerage and research products and
services the CCA broker provides. Commissions paid to a CCA broker include both
an execution commission and a research charge, and while the CCA broker receives
the entire commission, it retains the execution commission and either credits or
transmits the research portion (also known as "soft dollars") to a CCA pool
maintained by each CCA broker. Soft dollar credits (credits) accumulated in CCA
pools are used to pay research expenses. In some cases, the Adviser or its
affiliates may request that a broker that is not a party to any particular
transaction provide a specific proprietary or third-party product or service,
which would be paid with credits from the CCA pool. The administration of
brokerage and research products and services is managed separately from the
trading desks, and traders have no responsibility for administering the research
program, including the payment for research. The Adviser or its affiliates, at
times, use a third-party aggregator to facilitate payments to research
providers. Where an aggregator is involved, the aggregator would maintain
credits in an account that is segregated from the aggregator's proprietary
assets and the assets of its other clients and use those credits to pay research
providers as instructed by the Adviser or its affiliates. Furthermore, where
permissible under applicable law, certain of the brokerage and research products
and services that the Adviser or its affiliates receive are furnished by brokers
on their own initiative, either in connection with a particular transaction or
as part of their overall services. Some of these brokerage and research products
or services may be provided at no additional cost to the Adviser or its
affiliates or have no explicit cost associated with them. In addition, the
Adviser or its affiliates may request that a broker provide a specific
proprietary or third-party product or service, certain of which third-party
products or services may be provided by a broker that is not a party to a
particular transaction and is not connected with the transacting broker's
overall services.
The
Adviser's Decision-Making Process. In
connection with the allocation of fund brokerage, the Adviser or its affiliates
make a good faith determination that the compensation paid to brokers and
dealers is reasonable in relation to the value of the brokerage and/or research
products and services provided to the Adviser or its affiliates, viewed in terms
of the particular transaction for a fund or the Adviser's or its affiliates'
overall responsibilities to that fund or other investment companies and
investment accounts for which the Adviser or its affiliates have investment
discretion; however, each brokerage and research product or service received in
connection with a fund's brokerage does not benefit all funds and certain funds
will receive the benefit of the brokerage and research product or services
obtained with other funds' commissions. As required under applicable laws or
fund policy, commissions generated by certain funds may only be used to obtain
certain brokerage and research products and services. As a result, certain funds
will pay more proportionately of certain types of brokerage and research
products and services than others, while the overall amount of brokerage and
research products and services paid by each fund continues to be allocated
equitably. While the Adviser or its affiliates take into account the brokerage
and/or research products and services provided by a broker or dealer in
determining whether compensation paid is reasonable, neither the Adviser, its
affiliates, nor the funds incur an obligation to any broker, dealer, or third
party to pay for any brokerage and research product or service (or portion
thereof) by generating a specific amount of compensation or otherwise.
Typically, for funds managed by the Adviser or its affiliates outside of the
European Union or the United Kingdom, these brokerage and research products and
services assist the Adviser or its affiliates in terms of their overall
investment responsibilities to a fund or any other investment companies and
investment accounts for which the Adviser or its affiliates may have investment
discretion. Certain funds or investment accounts may use brokerage commissions
to acquire brokerage and research products and services that also benefit other
funds or accounts managed by the Adviser or its affiliates, and not every fund
or investment account uses the brokerage and research products and services that
may have been acquired through that fund's commissions.
Research
Contracts. The
Adviser or its affiliates have arrangements with certain third-party research
providers and brokers through whom the Adviser or its affiliates effect fund
trades, whereby the Adviser or its affiliates may pay with fund commissions or
hard dollars for all or a portion of the cost of research products and services
purchased from such research providers or brokers. If hard dollar payments are
used, the Adviser or its affiliates, at times, will cause a fund to pay more for
execution than the lowest commission rate available from the broker providing
research products and services to the Adviser or its affiliates, or that may be
available from another broker. The Adviser's or its affiliates' determination to
pay for research products and services separately is wholly voluntary on the
Adviser's or its affiliates' part and may be extended to additional brokers or
discontinued with any broker participating in this arrangement.
Funds
Managed within the European Union. The
Adviser and its affiliates have established policies and procedures relating to
brokerage commission uses in compliance with the revised Markets in Financial
Instruments Directive in the European Union, commonly referred to as "MiFID II",
as implemented in the United Kingdom through the Conduct of Business Sourcebook
Rules of the UK Financial Conduct Authority (the FCA), where applicable.
Funds,
or portions thereof, that are managed within the United Kingdom by FMR
Investment Management (UK) Limited (FMR UK) use research payment accounts (RPAs)
to cover costs associated with equity and high income external research that is
consumed by those funds or investment accounts in accordance with MiFID II and
FCA regulations. With RPAs, funds pay for external research through a separate
research charge that is generally assessed and collected alongside the execution
commission 1
.
For funds that use an RPA, FMR UK establishes a research budget. The budget is
set by first grouping funds or investment accounts by strategy (e.g., asset
allocation, blend, growth, etc.), and then determining what external research is
consumed to support the strategies and portfolio management services provided
within the European Union or the United Kingdom. In this regard, research
budgets are set by research needs and are not otherwise linked to the volume or
value of transactions executed on behalf of the fund or investment account. For
funds where portions are managed both within and outside of the United Kingdom,
external research may be paid using both a CCA and an RPA. Determinations of
what is eligible research and how costs are allocated are made in accordance
with the Adviser's and its affiliates' policies and procedures. Costs for
research consumed by funds that use an RPA will be allocated among the funds or
investment accounts within defined strategies pro rata based on the assets under
management for each fund or investment account. While the research charge paid
on behalf of any one fund that uses an RPA varies over time, the overall
research charge determined at the fund level on an annual basis will not be
exceeded.
FMR
UK is responsible for managing the RPA and may delegate its administration to a
third-party administrator for the facilitation of the purchase of external
research and payments to research providers. RPA assets will be maintained in
accounts at a third-party depository institution, held in the name of FMR UK.
FMR UK provides on request, a summary of: (i) the providers paid from the RPA;
(ii) the total amount they were paid over a defined period; (iii) the benefits
and services received by FMR UK; and (iv) how the total amount spent from the
RPA compares to the research budget set for that period, noting any rebate or
carryover if residual funds remain in the RPA.
Impacted
funds, like those funds that participate in CCA pools, at times, will make
payments to a broker that include both an execution commission and a research
charge, but unlike CCAs (for which research charges may be retained by the CCA
broker and credited to the CCA, as described above), the broker will receive
separate payments for the execution commission and the research charge and will
promptly remit the research charge to the RPA. Assets in the RPA are used to
satisfy external research costs consumed by the funds.
If
the costs of paying for external research exceed the amount initially agreed in
relation to funds in a given strategy, the Adviser or its affiliates may
continue to charge those funds or investment accounts beyond the initially
agreed amount in accordance with MiFID II, continue to acquire external research
for the funds or investment accounts using its own resources, or cease to
purchase external research for those funds or investment accounts until the next
annual research budget. If assets for specific funds remain in the RPA at the
end of a period, they may be rolled over to the next period to offset next
year's research charges for those funds or rebated to those funds.
Funds
managed by FMR UK that trade only fixed income securities will not participate
in RPAs because fixed income securities trade based on spreads rather than
commissions, and thus unbundling the execution commission and research charge is
impractical. Therefore, FMR UK and its affiliates have established policies and
procedures to ensure that external research that is paid for through RPAs is not
made available to FMR UK portfolio managers that manage fixed income funds or
investment accounts in any manner inconsistent with MiFID II and FCA
regulations.
1
The
staff of the SEC addressed concerns that reliance on an RPA mechanism to pay for
research would be permissible under Section 28(e) of the Securities Exchange Act
of 1934 by indicating that they would not recommend enforcement against
investment advisers who used an RPA to pay for research and brokerage products
and services so long as certain conditions were met. Therefore, references to
"research charges" as part of the RPA mechanism to satisfy MiFID II requirements
can be considered "commissions" for Section 28(e) purposes.
Commission
Recapture
From
time to time, the Adviser or its affiliates engages in brokerage transactions
with brokers (who are not affiliates of the Adviser) who have entered into
arrangements with the Adviser or its affiliates under which the broker will, at
times, rebate a portion of the compensation paid by a fund (commission
recapture). Not all brokers with whom a fund trades have been asked to
participate in brokerage commission recapture.
Affiliated
Transactions
The
Adviser or its affiliates place trades with certain brokers, including NFS,
through its Fidelity Capital Markets (FCM) division, and Luminex Trading &
Analytics LLC (Luminex), with whom they are under common control or otherwise
affiliated, provided the Adviser or its affiliates determine that these
affiliates' trade-execution abilities and costs are comparable to those of
non-affiliated, qualified brokerage firms, and that such transactions be
executed in accordance with applicable rules under the 1940 Act and procedures
adopted by the Board of Trustees of the funds and subject to other applicable
law. In addition, from time to time, the Adviser or its affiliates place trades
with brokers that use NFS or Fidelity Clearing Canada ULC (FCC) as a clearing
agent and/or use Level ATS, an alternative trading system that is deemed to be
affiliated with the Adviser, for execution services.
In
certain circumstances, trades are executed through alternative trading systems
or national securities exchanges in which the Adviser or its affiliates have an
interest. Any decision to execute a trade through an alternative trading system
or exchange in which the Adviser or its affiliates have an interest would be
made in accordance with applicable law, including best execution obligations.
For trades placed on such a system or exchange, not limited to ones in which the
Adviser or its affiliates have an ownership interest, the Adviser or its
affiliates derive benefit in the form of increased valuation(s) of its equity
interest, where it has an ownership interest, or other remuneration, including
rebates.
The
Trustees of each fund have approved procedures whereby a fund is permitted to
purchase securities that are offered in underwritings in which an affiliate of
the adviser or certain other affiliates participate. In addition, for
underwritings where such an affiliate participates as a principal underwriter,
certain restrictions may apply that could, among other things, limit the amount
of securities that the funds could purchase in the underwritings.
Non-U.S.
Securities Transactions
To
facilitate trade settlement and related activities in non-U.S. securities
transactions, the Adviser or its affiliates effect spot foreign currency
transactions with foreign currency dealers. In certain circumstances, due to
local law and regulation, logistical or operational challenges, or the process
for settling securities transactions in certain markets (e.g., short settlement
periods), spot currency transactions are effected on behalf of funds by parties
other than the Adviser or its affiliates, including funds' custodian banks
(working through sub-custodians or agents in the relevant non-U.S. jurisdiction)
or broker-dealers that executed the related securities transaction.
Trade
Allocation
Although
the Trustees and officers of each fund are substantially the same as those of
certain other Fidelity ®
funds,
investment decisions for each fund are made independently from those of other
Fidelity ®
funds
or investment accounts (including proprietary accounts). The same security is
often held in the portfolio of more than one of these funds or investment
accounts. Simultaneous transactions are inevitable when several funds and
investment accounts are managed by the same investment adviser, or an affiliate
thereof, particularly when the same security is suitable for the investment
objective of more than one fund or investment account.
When
two or more funds or investment accounts are simultaneously engaged in the
purchase or sale of the same security or instrument, the prices and amounts are
allocated in accordance with procedures believed by the Adviser to be
appropriate and equitable to each fund or investment account. In some cases this
could have a detrimental effect on the price or value of the security or
instrument as far as a fund is concerned. In other cases, however, the ability
of the funds to participate in volume transactions will produce better
executions and prices for the funds.
Commissions
Paid
A
fund may pay compensation including both commissions and spreads in connection
with the placement of portfolio transactions. The amount of brokerage
commissions paid by a fund may change from year to year because of, among other
things, changing asset levels, shareholder activity, and/or portfolio
turnover.
For
each of Moderate with Income Allocation Fund, Balanced Allocation Fund, Growth
Allocation Fund, and Aggressive Growth Allocation Fund, the following table
shows the fund's portfolio turnover rate for the fiscal period(s) ended
September 30, 2022. Variations in turnover rate may be due to a fluctuating
volume of shareholder purchase and redemption orders, market conditions, and/or
changes in the Adviser's investment outlook.
|
Turnover
Rates |
2022
|
|
Moderate
with Income Allocation Fund (A)
|
11%
(B)
|
|
Balanced
Allocation Fund (A)
|
12%
(B)
|
|
Growth
Allocation Fund (A)
|
34%
(B)
|
|
Aggressive
Growth Allocation Fund (A)
|
14%
(B)
|
|
(A)Fund
commenced operations on February 9, 2022.
|
|
(B)Annualized.
|
For
the fiscal year(s) ended September 30, 2022, Moderate with Income Allocation
Fund, Balanced Allocation Fund, Growth Allocation Fund, and Aggressive Growth
Allocation Fund paid no brokerage commissions.
During
the fiscal year ended September 30, 2022, Moderate with Income Allocation Fund,
Balanced Allocation Fund, Growth Allocation Fund, and Aggressive Growth
Allocation Fund paid no brokerage commissions to firms for providing research or
brokerage services.
During
the twelve-month period ended June 30, 2022, Moderate with Income Allocation
Fund, Balanced Allocation Fund, Growth Allocation Fund, and Aggressive Growth
Allocation Fund did not allocate brokerage commissions to firms for providing
research or brokerage services.
VALUATION
The
NAV is the value of a single share. NAV is computed by adding the value of a
fund's investments, cash, and other assets, subtracting its liabilities, and
dividing the result by the number of shares outstanding.
The
Board of Trustees has designated the fund's investment adviser as the valuation
designee responsible for the fair valuation function and performing fair value
determinations as needed. The adviser has established a Fair Value Committee
(the Committee) to carry out the day-to-day fair valuation responsibilities and
has adopted policies and procedures to govern the fair valuation process and the
activities of the Committee.
Shares
of underlying Fidelity ®
funds
held by a fund are valued at their respective NAVs. The Board of Trustees of
each underlying Fidelity ®
fund
has designated the underlying fund's investment adviser as the valuation
designee responsible for that fund's fair valuation function and performing fair
value determinations as needed. References below to the Committee refer to the
Fair Value Committee of the fund's adviser or an underlying Fidelity
®
fund's
adviser, as applicable.
Generally,
other portfolio securities and assets held by a fund, as well as portfolio
securities and assets held by an underlying Fidelity ®
non-money
market fund, are valued as follows:
Most
equity securities are valued at the official closing price or the last reported
sale price or, if no sale has occurred, at the last quoted bid price on the
primary market or exchange on which they are traded.
Debt
securities and other assets for which market quotations are readily available
may be valued at market values in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or assets. Or,
debt securities and convertible securities may be valued on the basis of
information furnished by a pricing service that uses a valuation matrix which
incorporates both dealer-supplied valuations and electronic data processing
techniques.
Short-term
securities with remaining maturities of sixty days or less for which market
quotations and information furnished by a pricing service are not readily
available may be valued at amortized cost, which approximates current
value.
Futures
contracts are valued at the settlement or closing price. Options are valued at
their market quotations, if available. Swaps are valued daily using quotations
received from independent pricing services or recognized dealers.
Prices
described above are obtained from pricing services that have been approved by
the Committee. A number of pricing services are available and a fund may use
more than one of these services. A fund may also discontinue the use of any
pricing service at any time. A fund's adviser through the Committee engages
in oversight activities with respect to the fund's pricing services, which
includes, among other things, testing the prices provided by pricing services
prior to calculation of a fund's NAV, conducting periodic due diligence
meetings, and periodically reviewing the methodologies and inputs used by these
services.
Foreign
securities and instruments are valued in their local currency following the
methodologies described above. Foreign securities, instruments and currencies
are translated to U.S. dollars, based on foreign currency exchange rate
quotations supplied by a pricing service as of the close of the New York Stock
Exchange (NYSE), which uses a proprietary model to determine the exchange rate.
Forward foreign currency exchange contracts are valued at an interpolated rate
based on days to maturity between the closest preceding and subsequent
settlement period reported by the third party pricing service.
Other
portfolio securities and assets for which market quotations, official closing
prices, or information furnished by a pricing service are not readily available
or, in the opinion of the Committee, are deemed unreliable will be fair valued
in good faith by the Committee in accordance with applicable fair value pricing
policies. For example, if, in the opinion of the Committee, a security's value
has been materially affected by events occurring before a fund's pricing time
but after the close of the exchange or market on which the security is
principally traded, that security will be fair valued in good faith by the
Committee in accordance with applicable fair value pricing policies. In fair
valuing a security, the Committee may consider factors including, but not
limited to, price movements in futures contracts and American Depositary
Receipts (ADRs), market and trading trends, the bid/ask quotes of brokers, and
off-exchange institutional trading. The frequency that portfolio securities or
assets are fair valued cannot be predicted and may be significant.
Portfolio
securities and assets held by an underlying Fidelity ®
money
market fund are valued on the basis of amortized cost. This technique involves
initially valuing an instrument at its cost as adjusted for amortization of
premium or accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the price a
money market fund would receive if it sold the instrument.
At
such intervals as they deem appropriate, the Trustees of an underlying
Fidelity ®
money
market fund consider the extent to which NAV calculated using market valuations
would deviate from the $1.00 per share calculated using amortized cost
valuation. If the Trustees believe that a deviation from a money market fund's
amortized cost per share may result in material dilution or other unfair results
to shareholders, the Trustees have agreed to take such corrective action, if
any, as they deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action could
include selling portfolio instruments prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; establishing NAV by using available market quotations;
and such other measures as the Trustees may deem appropriate.
In
determining the fair value of a private placement security for which market
quotations are not available, the Committee generally applies one or more
valuation methods including the market approach, income approach and cost
approach. The market approach considers factors including the price of recent
investments in the same or a similar security or financial metrics of comparable
securities. The income approach considers factors including expected future cash
flows, security specific risks and corresponding discount rates. The cost
approach considers factors including the value of the security's underlying
assets and liabilities.
The
fund's adviser reports to the Board information regarding the fair valuation
process and related material matters.
BUYING,
SELLING, AND EXCHANGING INFORMATION
A
fund may make redemption payments in whole or in part in readily marketable
securities or other property pursuant to procedures approved by the Trustees if
FMR determines it is in the best interests of the fund. Such securities or other
property will be valued for this purpose as they are valued in computing the NAV
of a fund or class, as applicable. Shareholders that receive securities or other
property will realize, upon receipt, a gain or loss for tax purposes, and will
incur additional costs and be exposed to market risk prior to and upon the sale
of such securities or other property.
Each
fund, in its discretion, may determine to issue its shares in kind in exchange
for securities held by the purchaser having a value, determined in accordance
with the fund's policies for valuation of portfolio securities, equal to the
purchase price of the fund shares issued. A fund will accept for in-kind
purchases only securities or other instruments that are appropriate under its
investment objective and policies. In addition, a fund generally will not accept
securities of any issuer unless they are liquid, have a readily ascertainable
market value, and are not subject to restrictions on resale. All dividends,
distributions, and subscription or other rights associated with the securities
become the property of the fund, along with the securities. Shares purchased in
exchange for securities in kind generally cannot be redeemed for fifteen days
following the exchange to allow time for the transfer to settle.
DISTRIBUTIONS
AND TAXES
Dividends.
Distributions
by a fund to tax-advantaged accounts are not taxable currently (but you may be
taxed later, upon withdrawal of your investment from such account).
Foreign
Taxation. Foreign
governments may impose withholding taxes on dividends and interest earned by a
fund with respect to foreign securities held directly by a fund. Foreign
governments may also impose taxes on other payments or gains with respect to
foreign securities held directly by a fund.
Tax
Status of the Funds. Each
fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code so that it will not be liable for
federal tax on income and capital gains distributed to shareholders. In order to
qualify as a regulated investment company, and avoid being subject to federal
income or excise taxes at the fund level, each fund intends to distribute
substantially all of its net investment income and net realized capital gains
within each calendar year as well as on a fiscal year basis (if the fiscal year
is other than the calendar year), and intends to comply with other tax rules
applicable to regulated investment companies.
Other
Tax Information. The
information above is only a summary of some of the tax consequences generally
affecting each fund and its tax-advantaged plan shareholders, and no attempt has
been made to discuss individual tax consequences. Shares may be subject to state
and local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax
situation.
TRUSTEES
AND OFFICERS
The
Trustees, Members of the Advisory Board (if any), and officers of the trust and
funds, as applicable, are listed below. The Board of Trustees governs each fund
and is responsible for protecting the interests of shareholders. The Trustees
are experienced executives who meet periodically throughout the year to oversee
each fund's activities, review contractual arrangements with companies that
provide services to each fund, oversee management of the risks associated with
such activities and contractual arrangements, and review each fund's
performance. If the interests of a fund and an underlying Fidelity ®
fund
were to diverge, a conflict of interest could arise and affect how the Trustees
and Members of the Advisory Board fulfill their fiduciary duties to the affected
funds. FMR has structured the funds to avoid these potential conflicts, although
there may be situations where a conflict of interest is unavoidable. In such
instances, FMR, the Trustees, and Members of the Advisory Board would take
reasonable steps to minimize and, if possible, eliminate the conflict. Each of
the Trustees oversees 293 funds.
The
Trustees 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) any Trustee may be removed at any special meeting of shareholders by a
two-thirds vote of the outstanding voting securities of the trust. Each Trustee
who is not an interested person (as defined in the 1940 Act) of the trust and
the funds is referred to herein as an Independent Trustee. Each Independent
Trustee shall retire not later than the last day of the calendar year in which
his or her 75th birthday occurs. The Independent Trustees may waive this
mandatory retirement age policy with respect to individual Trustees. Officers
and Advisory Board Members hold office without limit in time, except that any
officer or Advisory Board Member may resign or may be removed by a vote of a
majority of the Trustees at any regular meeting or any special meeting of the
Trustees. Except as indicated, each individual has held the office shown or
other offices in the same company for the past five years.
Experience,
Skills, Attributes, and Qualifications of the Trustees. The
Governance and Nominating Committee has adopted a statement of policy that
describes the experience, qualifications, attributes, and skills that are
necessary and desirable for potential Independent Trustee candidates (Statement
of Policy). The Board believes that each Trustee satisfied at the time he or she
was initially elected or appointed a Trustee, and continues to satisfy, the
standards contemplated by the Statement of Policy. The Governance and Nominating
Committee also engages professional search firms to help identify potential
Independent Trustee candidates who have the experience, qualifications,
attributes, and skills consistent with the Statement of Policy. From time to
time, additional criteria based on the composition and skills of the current
Independent Trustees, as well as experience or skills that may be appropriate in
light of future changes to board composition, business conditions, and
regulatory or other developments, have also been considered by the professional
search firms and the Governance and Nominating Committee. In addition, the Board
takes into account the Trustees' commitment and participation in Board and
committee meetings, as well as their leadership of standing and ad hoc
committees throughout their tenure.
In
determining that a particular Trustee was and continues to be qualified to serve
as a Trustee, the Board has considered a variety of criteria, none of which, in
isolation, was controlling. The Board believes that, collectively, the Trustees
have balanced and diverse experience, qualifications, attributes, and skills,
which allow the Board to operate effectively in governing each fund and
protecting the interests of shareholders. Information about the specific
experience, skills, attributes, and qualifications of each Trustee, which in
each case led to the Board's conclusion that the Trustee should serve (or
continue to serve) as a trustee of the funds, is provided below.
Board
Structure and Oversight Function. Abigail
P. Johnson is an interested person and currently serves as Chairman. The
Trustees have determined that an interested Chairman is appropriate and benefits
shareholders because an interested Chairman has a personal and professional
stake in the quality and continuity of services provided to the funds.
Independent Trustees exercise their informed business judgment to appoint an
individual of their choosing to serve as Chairman, regardless of whether the
Trustee happens to be independent or a member of management. The Independent
Trustees have determined that they can act independently and effectively without
having an Independent Trustee serve as Chairman and that a key structural
component for assuring that they are in a position to do so is for the
Independent Trustees to constitute a substantial majority for the Board. The
Independent Trustees also regularly meet in executive session. Michael E.
Kenneally serves as Chairman of the Independent Trustees and as such (i) acts as
a liaison between the Independent Trustees and management with respect to
matters important to the Independent Trustees and (ii) with management prepares
agendas for Board meetings.
Fidelity
®
funds
are overseen by different Boards of Trustees. The funds' Board oversees
Fidelity's investment-grade bond, money market, asset allocation and certain
equity funds, and other Boards oversee Fidelity's high income and other equity
funds. The asset allocation funds may invest in Fidelity ®
funds
that are overseen by such other Boards. The use of separate Boards, each with
its own committee structure, allows the Trustees of each group of
Fidelity ®
funds
to focus on the unique issues of the funds they oversee, including common
research, investment, and operational issues. On occasion, the separate Boards
establish joint committees to address issues of overlapping consequences for the
Fidelity ®
funds
overseen by each Board.
The
Trustees operate using a system of committees to facilitate the timely and
efficient consideration of all matters of importance to the Trustees, each fund,
and fund shareholders and to facilitate compliance with legal and regulatory
requirements and oversight of the funds' activities and associated risks. The
Board, acting through its committees, has charged FMR and its affiliates with
(i) identifying events or circumstances the occurrence of which could have
demonstrably adverse effects on the funds' business and/or reputation; (ii)
implementing processes and controls to lessen the possibility that such events
or circumstances occur or to mitigate the effects of such events or
circumstances if they do occur; and (iii) creating and maintaining a system
designed to evaluate continuously business and market conditions in order to
facilitate the identification and implementation processes described in (i) and
(ii) above. Because the day-to-day operations and activities of the funds are
carried out by or through FMR, its affiliates, and other service providers, the
funds' exposure to risks is mitigated but not eliminated by the processes
overseen by the Trustees. While each of the Board's committees has
responsibility for overseeing different aspects of the funds' activities,
oversight is exercised primarily through the Operations and Audit Committees. In
addition, an ad hoc Board committee of Independent Trustees has worked with FMR
to enhance the Board's oversight of investment and financial risks, legal and
regulatory risks, technology risks, and operational risks, including the
development of additional risk reporting to the Board. Appropriate personnel,
including but not limited to the funds' Chief Compliance Officer (CCO), FMR's
internal auditor, the independent accountants, the funds' Treasurer and
portfolio management personnel, make periodic reports to the Board's committees,
as appropriate, including an annual review of Fidelity's risk management program
for the Fidelity ®
funds.
The responsibilities of each standing committee, including their oversight
responsibilities, are described further under "Standing Committees of the
Trustees."
Interested
Trustees*:
Correspondence
intended for a Trustee who is an interested person may be sent to Fidelity
Investments, 245 Summer Street, Boston, Massachusetts 02210.
Name,
Year of Birth; Principal Occupations and Other Relevant Experience+
Abigail
P. Johnson (1961)
Year
of Election or Appointment: 2009
Trustee
Chairman
of the Board of Trustees
Ms.
Johnson also serves as Trustee of other Fidelity ®
funds.
Ms. Johnson serves as Chairman (2016-present), Chief Executive Officer
(2014-present), and Director (2007-present) of FMR LLC (diversified financial
services company), President of Fidelity Financial Services (2012-present) and
President of Personal, Workplace and Institutional Services (2005-present). Ms.
Johnson is Chairman and Director of Fidelity Management & Research Company
LLC (investment adviser firm, 2011-present). Previously, Ms. Johnson served as
Chairman and Director of FMR Co., Inc. (investment adviser firm, 2011-2019),
Vice Chairman (2007-2016) and President (2013-2016) of FMR LLC, President and a
Director of Fidelity Management & Research Company (2001-2005), a Trustee of
other investment companies advised by Fidelity Management & Research
Company, Fidelity Investments Money Management, Inc. (investment adviser firm),
and FMR Co., Inc. (2001-2005), Senior Vice President of the Fidelity
®
funds
(2001-2005), and managed a number of Fidelity ®
funds.
Ms. Abigail P. Johnson and Mr. Arthur E. Johnson are not related.
Jennifer
Toolin McAuliffe (1959)
Year
of Election or Appointment: 2016
Trustee
Ms.
McAuliffe also serves as Trustee of other Fidelity ®
funds
and as Trustee of Fidelity Charitable (2020-present). Previously, Ms. McAuliffe
served as Co-Head of Fixed Income of Fidelity Investments Limited (now known as
FIL Limited (FIL)) (diversified financial services company), Director of
Research for FIL's credit and quantitative teams in London, Hong Kong and Tokyo
and Director of Research for taxable and municipal bonds at Fidelity Investments
Money Management, Inc. Ms. McAuliffe previously served as a member of the
Advisory Board of certain Fidelity ®
funds
(2016). Ms. McAuliffe was previously a lawyer at Ropes & Gray LLP and
currently serves as director or trustee of several not-for-profit
entities.
*
Determined to be an "Interested Trustee" by virtue of, among other things, his
or her affiliation with the trust or various entities under common control with
FMR.
+
The information includes the Trustee's principal occupation during the last five
years and other information relating to the experience, attributes, and skills
relevant to the Trustee's qualifications to serve as a Trustee, which led to the
conclusion that the Trustee should serve as a Trustee for each fund.
Independent
Trustees:
Correspondence
intended for an Independent Trustee may be sent to Fidelity Investments, P.O.
Box 55235, Boston, Massachusetts 02205-5235.
Name,
Year of Birth; Principal Occupations and Other Relevant Experience+
Elizabeth
S. Acton (1951)
Year
of Election or Appointment: 2013
Trustee
Ms.
Acton also serves as Trustee of other Fidelity ®
funds.
Prior to her retirement, Ms. Acton served as Executive Vice President, Finance
(2011-2012), Executive Vice President, Chief Financial Officer (2002-2011) and
Treasurer (2004-2005) of Comerica Incorporated (financial services). Prior to
joining Comerica, Ms. Acton held a variety of positions at Ford Motor Company
(1983-2002), including Vice President and Treasurer (2000-2002) and Executive
Vice President and Chief Financial Officer of Ford Motor Credit Company
(1998-2000). Ms. Acton currently serves as a member of the Board and Audit and
Finance Committees of Beazer Homes USA, Inc. (homebuilding, 2012-present). Ms.
Acton previously served as a member of the Advisory Board of certain
Fidelity ®
funds
(2013-2016).
Ann
E. Dunwoody (1953)
Year
of Election or Appointment: 2018
Trustee
General
Dunwoody also serves as Trustee of other Fidelity ®
funds.
General Dunwoody (United States Army, Retired) was the first woman in U.S.
military history to achieve the rank of four-star general and prior to her
retirement in 2012 held a variety of positions within the U.S. Army, including
Commanding General, U.S. Army Material Command (2008-2012). General Dunwoody
currently serves as President of First to Four LLC (leadership and mentoring
services, 2012-present), a member of the Board and Nomination and Corporate
Governance Committees of Kforce Inc. (professional staffing services,
2016-present) and a member of the Board of Automattic Inc. (software
engineering, 2018-present). Previously, General Dunwoody served as a member of
the Advisory Board and Nominating and Corporate Governance Committee of L3
Technologies, Inc. (communication, electronic, sensor and aerospace systems,
2013-2019) and a member of the Board and Audit and Sustainability and Corporate
Responsibility Committees of Republic Services, Inc. (waste collection, disposal
and recycling, 2013-2016). Ms. Dunwoody also serves on several boards for
non-profit organizations, including as a member of the Board, Chair of the
Nomination and Governance Committee and a member of the Audit Committee of
Logistics Management Institute (consulting non-profit, 2012-present), a member
of the Council of Trustees for the Association of the United States Army
(advocacy non-profit, 2013-present), a member of the Board of Florida Institute
of Technology (2015-present) and a member of the Board of ThanksUSA (military
family education non-profit, 2014-present). General Dunwoody previously served
as a member of the Advisory Board of certain Fidelity ®
funds
(2018).
John
Engler (1948)
Year
of Election or Appointment: 2014
Trustee
Mr.
Engler also serves as Trustee of other Fidelity ®
funds.
Previously, Mr. Engler served as Governor of Michigan (1991-2003), President of
the Business Roundtable (2011-2017) and interim President of Michigan State
University (2018-2019). Mr. Engler currently serves as a member of the Board of
Stride, Inc. (formerly K12 Inc.) (technology-based education company,
2012-present). Previously, Mr. Engler served as a member of the Board of
Universal Forest Products (manufacturer and distributor of wood and
wood-alternative products, 2003-2019) and Trustee of The Munder Funds
(2003-2014). Mr. Engler previously served as a member of the Advisory Board of
certain Fidelity ®
funds
(2014-2016).
Robert
F. Gartland (1951)
Year
of Election or Appointment: 2010
Trustee
Mr.
Gartland also serves as Trustee of other Fidelity ®
funds.
Prior to his retirement, Mr. Gartland held a variety of positions at Morgan
Stanley (financial services, 1979-2007), including Managing Director (1987-2007)
and Chase Manhattan Bank (1975-1978). Mr. Gartland previously served as Chairman
and an investor in Gartland & Mellina Group Corp. (consulting, 2009-2019),
as a member of the Board of National Securities Clearing Corporation (1993-1996)
and as Chairman of TradeWeb (2003-2004).
Arthur
E. Johnson (1947)
Year
of Election or Appointment: 2008
Trustee
Mr.
Johnson also serves as Trustee of other Fidelity ®
funds.
Prior to his retirement, Mr. Johnson served as Senior Vice President of
Corporate Strategic Development of Lockheed Martin Corporation (defense
contractor, 1999-2009). Mr. Johnson currently serves as a member of the Board of
Booz Allen Hamilton (management consulting, 2011-present). Mr. Johnson
previously served as a member of the Board of Eaton Corporation plc (diversified
power management, 2009-2019) and a member of the Board of AGL Resources, Inc.
(holding company, 2002-2016). Mr. Johnson previously served as Chairman
(2018-2021) and Vice Chairman (2015-2018) of the Independent Trustees of certain
Fidelity® funds. Mr. Arthur E. Johnson is not related to Ms. Abigail P.
Johnson.
Michael
E. Kenneally (1954)
Year
of Election or Appointment: 2009
Trustee
Chairman
of the Independent Trustees
Mr.
Kenneally also serves as Trustee of other Fidelity ®
funds
and was Vice Chairman (2018-2021) of the Independent Trustees of certain
Fidelity ®
funds.
Prior to retirement in 2005, he was Chairman and Global Chief Executive Officer
of Credit Suisse Asset Management, the worldwide fund management and
institutional investment business of Credit Suisse Group. Previously, Mr.
Kenneally was an Executive Vice President and the Chief Investment Officer for
Bank of America. In this role, he was responsible for the investment management,
strategy and products delivered to the bank's institutional, high-net-worth and
retail clients. Earlier, Mr. Kenneally directed the organization's equity and
quantitative research groups. He began his career as a research analyst and then
spent more than a dozen years as a portfolio manager for endowments, pension
plans and mutual funds. He earned the Chartered Financial Analyst (CFA)
designation in 1991.
Marie
L. Knowles (1946)
Year
of Election or Appointment: 2001
Trustee
Ms.
Knowles also serves as Trustee of other Fidelity ®
funds.
Prior to her retirement, Ms. Knowles held several positions at Atlantic
Richfield Company (diversified energy), including Executive Vice President and
Chief Financial Officer (1996-2000), Senior Vice President (1993-1996) and
President of ARCO Transportation Company (pipeline and tanker operations,
1993-1996). Ms. Knowles currently serves as a member of the Board of the Santa
Catalina Island Company (real estate, 2009-present), a member of the Investment
Company Institute Board of Governors and a member of the Governing Council of
the Independent Directors Council (2014-present). Ms. Knowles also serves as a
member of the Advisory Board for the School of Engineering of the University of
Southern California. Ms. Knowles previously served as a member of the Board of
McKesson Corporation (healthcare service, 2002-2021). In addition, Ms. Knowles
previously served as Chairman (2015-2018) and Vice Chairman (2012-2015) of the
Independent Trustees of certain Fidelity ®
funds.
Mark
A. Murray (1954)
Year
of Election or Appointment: 2016
Trustee
Mr.
Murray also serves as Trustee of other Fidelity ®
funds.
Previously, Mr. Murray served as Co-Chief Executive Officer (2013-2016),
President (2006-2013) and Vice Chairman (2013-2020) of Meijer, Inc. Mr. Murray
serves as a member of the Board (2009-present) and Public Policy and
Responsibility Committee (2009-present) and Chair of the Nuclear Review
Committee (2019-present) of DTE Energy Company (diversified energy company). Mr.
Murray previously served as a member of the Board of Spectrum Health
(not-for-profit health system, 2015-2019) and as a member of the Board and Audit
Committee and Chairman of the Nominating and Corporate Governance Committee of
Universal Forest Products, Inc. (manufacturer and distributor of wood and
wood-alternative products, 2004-2016). Mr. Murray also serves as a member of the
Board of many community and professional organizations. Mr. Murray previously
served as a member of the Advisory Board of certain Fidelity ®
funds
(2016).
+
The information includes the Trustee's principal occupation during the last five
years and other information relating to the experience, attributes, and skills
relevant to the Trustee's qualifications to serve as a Trustee, which led to the
conclusion that the Trustee should serve as a Trustee for each fund.
Advisory
Board Members and Officers:
Correspondence
intended for an officer may be sent to Fidelity Investments, 245 Summer Street,
Boston, Massachusetts 02210. Officers appear below in alphabetical order.
Name,
Year of Birth; Principal Occupation
Laura
M. Bishop (1961)
Year
of Election or Appointment: 2022
Member
of the Advisory Board
Ms.
Bishop also serves as a Member of the Advisory Board of other funds. Prior to
her retirement, Ms. Bishop held a variety of positions at United Services
Automobile Association (2001-2020), including Executive Vice President and Chief
Financial Officer (2014-2020) and Senior Vice President and Deputy Chief
Financial Officer (2012-2014). Ms. Bishop currently serves as a member of the
Audit Committee and Compensation and Personnel Committee (2021-present) of the
Board of Directors of Korn Ferry (global organizational consulting).
Robert
W. Helm (1957)
Year
of Election or Appointment: 2021
Member
of the Advisory Board
Mr.
Helm also serves as a Member of the Advisory Board of other Fidelity® funds. Mr.
Helm was formerly Deputy Chairman (2003-2020), partner (1991-2020) and an
associate (1984-1991) of Dechert LLP (formerly Dechert Price & Rhoads). Mr.
Helm currently serves on boards and committees of several not-for-profit
organizations.
Craig
S. Brown (1977)
Year
of Election or Appointment: 2019
Assistant
Treasurer
Mr.
Brown also serves as an officer of other funds. Mr. Brown serves as Assistant
Treasurer of FIMM, LLC (2021-present) and is an employee of Fidelity Investments
(2013-present).
John
J. Burke III (1964)
Year
of Election or Appointment: 2018
Chief
Financial Officer
Mr.
Burke also serves as Chief Financial Officer of other funds. Mr. Burke serves as
Head of Investment Operations for Fidelity Fund and Investment Operations
(2018-present) and is an employee of Fidelity Investments (1998-present).
Previously Mr. Burke served as head of Asset Management Investment Operations
(2012-2018).
David
J. Carter (1973)
Year
of Election or Appointment: 2020
Assistant
Secretary
Mr.
Carter also serves as Assistant Secretary of other funds. Mr. Carter serves as
Senior Vice President, Deputy General Counsel (2022-present) and is an employee
of Fidelity Investments (2005-present).
Jonathan
Davis (1968)
Year
of Election or Appointment: 2010
Assistant
Treasurer
Mr.
Davis also serves as an officer of other funds. Mr. Davis serves as Assistant
Treasurer of FIMM, LLC (2021-present), FMR Capital, Inc. (2017-present), FD
Funds GP LLC (2021-present), FD Funds Holding LLC (2021-present), and FD Funds
Management LLC (2021-present); and is an employee of Fidelity Investments.
Previously, Mr. Davis served as Vice President and Associate General Counsel of
FMR LLC (diversified financial services company, 2003-2010).
Laura
M. Del Prato (1964)
Year
of Election or Appointment: 2018
President
and Treasurer
Ms.
Del Prato also serves as an officer of other funds. Ms. Del Prato serves as
Assistant Treasurer of FIMM, LLC (2021-present) and is an employee of Fidelity
Investments (2017-present). Previously, Ms. Del Prato served as President and
Treasurer of The North Carolina Capital Management Trust: Cash Portfolio and
Term Portfolio (2018-2020). Prior to joining Fidelity Investments, Ms. Del Prato
served as a Managing Director and Treasurer of the JPMorgan Mutual Funds
(2014-2017). Prior to JPMorgan, Ms. Del Prato served as a partner at Cohen Fund
Audit Services (accounting firm, 2012-2013) and KPMG LLP (accounting firm,
2004-2012).
Colm
A. Hogan (1973)
Year
of Election or Appointment: 2016
Assistant
Treasurer
Mr.
Hogan also serves as an officer of other funds. Mr. Hogan serves as Assistant
Treasurer of FIMM, LLC (2021-present) and FMR Capital, Inc. (2017-present) and
is an employee of Fidelity Investments (2005-present). Previously, Mr. Hogan
served as Deputy Treasurer of certain Fidelity ®
funds
(2016-2020) and Assistant Treasurer of certain Fidelity ®
funds
(2016-2018).
Cynthia
Lo Bessette (1969)
Year
of Election or Appointment: 2019
Secretary
and Chief Legal Officer (CLO)
Ms.
Lo Bessette also serves as an officer of other funds. Ms. Lo Bessette serves as
CLO, Secretary, and Senior Vice President of Fidelity Management & Research
Company LLC (investment adviser firm, 2019-present); CLO of Fidelity Management
& Research (Hong Kong) Limited, FMR Investment Management (UK) Limited, and
Fidelity Management & Research (Japan) Limited (investment adviser firms,
2019-present); Secretary of FD Funds GP LLC (2021-present), FD Funds Holding LLC
(2021-present), and FD Funds Management LLC (2021-present); and Assistant
Secretary of FIMM, LLC (2019-present). She is a Senior Vice President and Deputy
General Counsel of FMR LLC (diversified financial services company,
2019-present), and is an employee of Fidelity Investments. Previously, Ms. Lo
Bessette served as CLO, Secretary, and Senior Vice President of FMR Co., Inc.
(investment adviser firm, 2019); Secretary of Fidelity SelectCo, LLC and
Fidelity Investments Money Management, Inc. (investment adviser firms, 2019).
Prior to joining Fidelity Investments, Ms. Lo Bessette was Executive Vice
President, General Counsel (2016-2019) and Senior Vice President, Deputy General
Counsel (2015-2016) of OppenheimerFunds (investment management company) and
Deputy Chief Legal Officer (2013-2015) of Jennison Associates LLC (investment
adviser firm).
Chris
Maher (1972)
Year
of Election or Appointment: 2013
Assistant
Treasurer
Mr.
Maher also serves as an officer of other funds. Mr. Maher serves as
Assistant Treasurer of FIMM, LLC (2021-present) and FMR Capital, Inc.
(2017-present), and is an employee of Fidelity Investments (2008-present).
Previously, Mr. Maher served as Assistant Treasurer of certain funds
(2013-2020); Vice President of Asset Management Compliance (2013), Vice
President of the Program Management Group of FMR (investment adviser firm,
2010-2013), and Vice President of Valuation Oversight (2008-2010).
Kenneth
B. Robins (1969)
Year
of Election or Appointment: 2020
Chief
Compliance Officer
Mr.
Robins also serves as an officer of other funds. Mr. Robins serves as Compliance
Officer of Fidelity Management & Research Company LLC (investment adviser
firm, 2016-present) and is an employee of Fidelity Investments (2004-present).
Previously, Mr. Robins served as Compliance Officer of FMR Co., Inc. (investment
adviser firm, 2016-2019), as Executive Vice President of Fidelity Investments
Money Management, Inc. (investment adviser firm, 2013-2016) and served in other
fund officer roles.
Brett
Segaloff (1972)
Year
of Election or Appointment: 2021
Anti-Money
Laundering (AML) Officer
Mr.
Segaloff also serves as an AML Officer of other funds and other related
entities. He is Director, Anti-Money Laundering (2007-present) of FMR LLC
(diversified financial services company) and is an employee of Fidelity
Investments (1996-present).
Stacie
M. Smith (1974)
Year
of Election or Appointment: 2013
Assistant
Treasurer
Ms.
Smith also serves as an officer of other funds. Ms. Smith serves as Assistant
Treasurer of FIMM, LLC (2021-present) and FMR Capital, Inc. (2017-present), is
an employee of Fidelity Investments (2009-present), and has served in other fund
officer roles. Prior to joining Fidelity Investments, Ms. Smith served as Senior
Audit Manager of Ernst & Young LLP (accounting firm, 1996-2009). Previously,
Ms. Smith served as Assistant Treasurer (2013-2019) and Deputy Treasurer
(2013-2016) of certain Fidelity ®
funds.
Jim
Wegmann (1979)
Year
of Election or Appointment: 2021
Deputy
Treasurer
Mr.
Wegmann also serves as an officer of other funds. Mr. Wegmann serves as
Assistant Treasurer of FIMM, LLC (2021-present) and is an employee of Fidelity
Investments (2011-present). Previously, Mr. Wegmann served as Assistant
Treasurer of certain Fidelity ®
funds
(2019-2021).
Standing
Committees of the Trustees. The
Board of Trustees has established various committees to support the Independent
Trustees in acting independently in pursuing the best interests of the funds and
their shareholders. Currently, the Board of Trustees has four standing
committees. The members of each committee are Independent Trustees.
The
Operations Committee is composed of all of the Independent Trustees, with Mr.
Kenneally currently serving as Chair. The committee normally meets at least six
times a year, or more frequently as called by the Chair, and serves as a forum
for consideration of issues of importance to, or calling for particular
determinations by, the Independent Trustees. The committee considers matters
involving potential conflicts of interest between the funds and FMR and its
affiliates, including matters involving potential claims of one or more funds
(e.g., for reimbursements of expenses or losses) against FMR, and reviews
proposed contracts and the proposed continuation of contracts between the funds
and FMR and its affiliates, and annually reviews and makes recommendations
regarding contracts with third parties unaffiliated with FMR, including
insurance coverage and custody agreements. The committee has oversight of
compliance issues not specifically within the scope of any other committee.
These matters include, but are not limited to, significant non-conformance with
contract requirements and other significant regulatory matters and recommending
to the Board of Trustees the designation of a person to serve as the funds' CCO.
The committee (i) serves as a primary point of contact (generally after the
Independent Trustee who serves as a liaison for the CCO) for the CCO with regard
to Board-related functions; (ii) oversees the annual performance review of the
CCO; (iii) makes recommendations concerning the CCO's compensation; and (iv)
makes recommendations as needed in respect of the removal of the CCO.
The
Audit Committee is composed of all of the Independent Trustees, with Ms. Acton
currently serving as Chair. At least one committee member will be an "audit
committee financial expert" as defined by the SEC. The committee normally meets
four times a year, or more frequently as called by the Chair or a majority of
committee members. The committee meets separately, at least annually, with the
funds' Treasurer, with the funds' Chief Financial Officer, with personnel
responsible for the internal audit function of FMR LLC, with the funds' outside
auditors, and with the funds' CCO. The committee has direct responsibility for
the appointment, compensation, and oversight of the work of the outside auditors
employed by the funds. The committee assists the Trustees in overseeing and
monitoring: (i) the systems of internal accounting and financial controls of the
funds and the funds' service providers (to the extent such controls impact the
funds' financial statements); (ii) the funds' auditors and the annual audits of
the funds' financial statements; (iii) the financial reporting processes of the
funds; (iv) whistleblower reports; and (v) the accounting policies and
disclosures of the funds. The committee considers and acts upon (i) the
provision by any outside auditor of any non-audit services for any fund, and
(ii) the provision by any outside auditor of certain non-audit services to fund
service providers and their affiliates to the extent that such approval (in the
case of this clause (ii)) is required under applicable regulations of the SEC.
It is responsible for approving all audit engagement fees and terms for the
funds and for resolving disagreements between a fund and any outside auditor
regarding any fund's financial reporting. Auditors of the funds report directly
to the committee. The committee will obtain assurance of independence and
objectivity from the outside auditors, including a formal written statement
delineating all relationships between the auditor and the funds and any service
providers consistent with the rules of the Public Company Accounting Oversight
Board. It oversees and receives reports on the funds' service providers'
internal controls and reviews the adequacy and effectiveness of the service
providers' accounting and financial controls, including: (i) any significant
deficiencies or material weaknesses in the design or operation of internal
controls over financial reporting that are reasonably likely to adversely affect
the funds' ability to record, process, summarize, and report financial data;
(ii) any change in the fund's internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the fund's
internal control over financial reporting; and (iii) any fraud, whether material
or not, that involves management or other employees who have a significant role
in the funds' or service providers internal controls over financial reporting.
The committee will also review any correspondence with regulators or
governmental agencies or published reports that raise material issues regarding
the funds' financial statements or accounting policies. These matters may also
be reviewed by the Operations Committee. The committee reviews at least annually
a report from each outside auditor describing any material issues raised by the
most recent internal quality control, peer review, or Public Company Accounting
Oversight Board examination of the auditing firm and any material issues raised
by any inquiry or investigation by governmental or professional authorities of
the auditing firm and in each case any steps taken to deal with such issues. The
committee will oversee and receive reports on the funds' financial reporting
process from the funds' Treasurer and outside auditors and will oversee the
resolution of any disagreements concerning financial reporting among applicable
parties. The committee will discuss with FMR, the funds' Treasurer, outside
auditors and, if appropriate, internal audit personnel of FMR LLC their
qualitative judgments about the appropriateness and acceptability of accounting
principles and financial disclosure practices used or proposed for adoption by
the funds. The committee will review with FMR, the funds' outside auditor,
internal audit personnel of FMR LLC and legal counsel, as appropriate, matters
related to the audits of the funds' financial statements. The committee will
discuss regularly and oversee the review of the internal controls of the funds
and their service providers with respect to accounting, financial matters and
risk management programs related to the funds. The committee will review
periodically the funds' major internal controls exposures and the steps that
have been taken to monitor and control such exposures.
The
Fair Valuation Committee is composed of all of the Independent Trustees, with
Mr. Murray currently serving as Chair. The Committee normally meets quarterly,
or more frequently as called by the Chair. The Fair Valuation Committee oversees
the valuation of securities held by the funds, including the fair valuation of
securities by the funds' valuation designee. The Committee receives and reviews
related reports and information consistent with its oversight
obligations.
The
Governance and Nominating Committee is composed of Messrs. Kenneally (Chair) and
Gartland (Vice Chair), and Ms. Acton. The committee meets as called by the
Chair. With respect to fund governance and board administration matters, the
committee periodically reviews procedures of the Board of Trustees and its
committees (including committee charters) and periodically reviews compensation
of Independent Trustees. The committee monitors corporate governance matters and
makes recommendations to the Board of Trustees on the frequency and structure of
the Board of Trustee meetings and on any other aspect of Board procedures. It
acts as the administrative committee under the retirement plan for Independent
Trustees who retired prior to December 30, 1996 and under the fee deferral plan
for Independent Trustees. It monitors the performance of legal counsel employed
by both the funds and the Independent Trustees. The committee will engage and
oversee any counsel utilized by the Independent Trustees as may be necessary or
appropriate under applicable regulations or otherwise. The committee also
approves Board administrative matters applicable to Independent Trustees, such
as expense reimbursement policies and compensation for attendance at meetings,
conferences and other events. The committee oversees compliance with the
provisions of the code of ethics and any supplemental policies regarding
personal securities transactions applicable to the Independent Trustees. The
committee reviews the functioning of each Board committee and makes
recommendations for any changes, including the creation or elimination of
standing or ad hoc Board committees. The committee monitors regulatory and other
developments to determine whether to recommend modifications to the committee's
responsibilities or other Trustee policies and procedures in light of rule
changes, reports concerning "recommended practices" in corporate governance and
other developments in mutual fund governance. The committee meets with
Independent Trustees at least once a year to discuss matters relating to fund
governance. The committee recommends that the Board establish such special or ad
hoc Board committees as may be desirable or necessary from time to time in order
to address ethical, legal, or other matters that may arise. The committee also
oversees the annual self-evaluation of the Board of Trustees and establishes
procedures to allow it to exercise this oversight function. In conducting this
oversight, the committee shall address all matters that it considers relevant to
the performance of the Board of Trustees and shall report the results of its
evaluation to the Board of Trustees, including any recommended amendments to the
principles of governance, and any recommended changes to the funds' or the Board
of Trustees' policies, procedures, and structures. The committee reviews
periodically the size and composition of the Board of Trustees as a whole and
recommends, if necessary, measures to be taken so that the Board of Trustees
reflects the appropriate balance of knowledge, experience, skills, expertise,
and diversity required for the Board as a whole and contains at least the
minimum number of Independent Trustees required by law. The committee makes
nominations for the election or appointment of Independent Trustees and
non-management Members of any Advisory Board, and for membership on committees.
The committee has the authority to retain and terminate any third-party
advisers, including authority to approve fees and other retention terms. Such
advisers may include search firms to identify Independent Trustee candidates and
board compensation consultants. The committee may conduct or authorize
investigations into or studies of matters within the committee's scope of
responsibilities, and may retain, at the funds' expense, such independent
counsel or other advisers as it deems necessary. The committee will consider
nominees to the Board of Trustees recommended by shareholders based upon the
criteria applied to candidates presented to the committee by a search firm or
other source. Recommendations, along with appropriate background material
concerning the candidate that demonstrates his or her ability to serve as an
Independent Trustee of the funds, should be submitted to the Chair of the
committee at the address maintained for communications with Independent
Trustees. If the committee retains a search firm, the Chair will generally
forward all such submissions to the search firm for evaluation. With respect to
the criteria for selecting Independent Trustees, it is expected that all
candidates will possess the following minimum qualifications: (i) unquestioned
personal integrity; (ii) not an interested person of the funds within the
meaning of the 1940 Act; (iii) does not have a material relationship (e.g.,
commercial, banking, consulting, legal, or accounting) with the adviser, any
sub-adviser or their affiliates that could create an appearance of lack of
independence in respect of the funds; (iv) has the disposition to act
independently in respect of FMR and its affiliates and others in order to
protect the interests of the funds and all shareholders; (v) ability to attend
regularly scheduled Board meetings during the year; (vi) demonstrates sound
business judgment gained through broad experience in significant positions where
the candidate has dealt with management, technical, financial, or regulatory
issues; (vii) sufficient financial or accounting knowledge to add value in the
complex financial environment of the funds; (viii) experience on corporate or
other institutional oversight bodies having similar responsibilities, but which
board memberships or other relationships could not result in business or
regulatory conflicts with the funds; and (ix) capacity for the hard work and
attention to detail that is required to be an effective Independent Trustee in
light of the funds' complex regulatory, operational, and marketing setting. The
Governance and Nominating Committee may determine that a candidate who does not
have the type of previous experience or knowledge referred to above should
nevertheless be considered as a nominee if the Governance and Nominating
Committee finds that the candidate has additional qualifications such that his
or her qualifications, taken as a whole, demonstrate the same level of fitness
to serve as an Independent Trustee.
During
the fiscal year ended September 30, 2022, each committee held the number of
meetings shown in the table below:
|
COMMITTEE
|
NUMBER
OF MEETINGS HELD |
|
Operations
Committee |
8
|
|
Audit
Committee |
5
|
|
Fair
Valuation Committee |
4
|
|
Governance
and Nominating Committee |
12
|
The
following table sets forth information describing the dollar range of equity
securities beneficially owned by each Trustee in each fund and in all funds in
the aggregate within the same fund family overseen by the Trustee for the
calendar year ended December 31, 2021.
Interested
Trustees
|
DOLLAR
RANGE OF
FUND
SHARES |
Abigail
P Johnson |
Jennifer
Toolin McAuliffe |
||
|
Moderate
with Income Allocation Fund |
none
|
none
|
||
|
Balanced
Allocation Fund |
none
|
none
|
||
|
Growth
Allocation Fund |
none
|
none
|
||
|
Aggressive
Growth Allocation Fund |
none
|
none
|
||
|
AGGREGATE
DOLLAR RANGE OF
FUND
SHARES IN ALL FUNDS
OVERSEEN
WITHIN FUND FAMILY |
over
$100,000 |
over
$100,000 |
Independent
Trustees
|
DOLLAR
RANGE OF
FUND
SHARES |
Elizabeth
Acton |
Ann
Dunwoody |
John
Engler |
Robert
Gartland |
|
Moderate
with Income Allocation Fund |
none
|
none
|
none
|
none
|
|
Balanced
Allocation Fund |
none
|
none
|
none
|
none
|
|
Growth
Allocation Fund |
none
|
none
|
none
|
none
|
|
Aggressive
Growth Allocation Fund |
none
|
none
|
none
|
none
|
|
AGGREGATE
DOLLAR RANGE OF
FUND
SHARES IN ALL FUNDS
OVERSEEN
WITHIN FUND FAMILY |
over
$100,000 |
over
$100,000 |
over
$100,000 |
over
$100,000 |
|
DOLLAR
RANGE OF
FUND
SHARES |
Arthur
Johnson |
Michael
Kenneally |
Marie
Knowles |
Mark
Murray |
|
Moderate
with Income Allocation Fund |
none
|
none
|
none
|
none
|
|
Balanced
Allocation Fund |
none
|
none
|
none
|
none
|
|
Growth
Allocation Fund |
none
|
none
|
none
|
none
|
|
Aggressive
Growth Allocation Fund |
none
|
none
|
none
|
none
|
|
AGGREGATE
DOLLAR RANGE OF
FUND
SHARES IN ALL FUNDS
OVERSEEN
WITHIN FUND FAMILY |
over
$100,000 |
over
$100,000 |
over
$100,000 |
over
$100,000 |
The
following table sets forth information describing the compensation of each
Trustee and Member of the Advisory Board (if any) for his or her services for
the fiscal year ended September 30, 2022, or calendar year ended December 31,
2021, as applicable.
Compensation
Table (A)
|
AGGREGATE
COMPENSATION
FROM
A FUND |
Elizabeth
Acton
|
Laura
Bishop (B)
|
Ann
Dunwoody
|
John
Engler
| ||||
|
Moderate
with Income Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Balanced
Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Growth
Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Aggressive
Growth Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
TOTAL
COMPENSATION
FROM
THE FUND COMPLEX (C)
|
$
|
517,500
|
-
|
$
|
472,500
|
$
|
472,500
|
|
AGGREGATE
COMPENSATION
FROM
A FUND |
Robert
Gartland
|
Robert
Helm (D)
|
Arthur
Johnson
|
Michael
Kenneally
| ||||
|
Moderate
with Income Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Balanced
Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Growth
Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Aggressive
Growth Allocation Fund |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
TOTAL
COMPENSATION
FROM
THE FUND COMPLEX (C)
|
$
|
502,500
|
$
|
275,333
|
$
|
560,000
|
$
|
552,500
|
|
AGGREGATE
COMPENSATION
FROM
A FUND |
Marie
Knowles
|
Mark
Murray
|
||||||
|
Moderate
with Income Allocation Fund |
$
|
0
|
$
|
0
|
||||
|
Balanced
Allocation Fund |
$
|
0
|
$
|
0
|
||||
|
Growth
Allocation Fund |
$
|
0
|
$
|
0
|
||||
|
Aggressive
Growth Allocation Fund |
$
|
0
|
$
|
0
|
||||
|
TOTAL
COMPENSATION
FROM
THE FUND COMPLEX (C)
|
$
|
490,500
|
$
|
472,500
|
|
(A)
Abigail P. Johnson and Jennifer Toolin McAuliffe are interested persons
and are compensated by Fidelity.
|
|
(B)
Ms. Bishop serves as a Member of the Advisory Board of Fidelity Charles
Street Trust effective September 1, 2022.
|
|
(C)
Reflects compensation received for the calendar year ended December 31,
2021 for 286 funds of 31 trusts (including Fidelity Central Investment
Portfolios II LLC). Compensation figures include cash and may include
amounts elected to be deferred. Certain individuals elected voluntarily to
defer a portion of their compensation as follows: Elizabeth S. Acton,
$108,000; Ann E. Dunwoody, $260,875; Robert F. Gartland, $180,000; Robert
W. Helm, $149,126; and Mark A. Murray, $260,875.
|
|
(D)
Mr. Helm serves as a Member of the Advisory Board of Fidelity Charles
Street Trust effective June 1, 2021.
|
As
of September 30, 2022, approximately 54.55%, 33.05%, 23.78%, and 22.34% of
Moderate with Income Allocation Fund's, Balanced Allocation Fund's, Growth
Allocation Fund's, and Aggressive Growth Allocation Fund's total outstanding
shares, respectively, was held by FMR and/or another entity or entities of which
FMR LLC is the ultimate parent. By virtue of her ownership interest in FMR LLC,
as described in the "Control of Investment Adviser" section, Ms. Abigail P.
Johnson may be deemed to be a beneficial owner of these shares. As of the above
date, with the exception of Ms. Johnson's deemed ownership of each fund's
shares, the Trustees, Members of the Advisory Board (if any), and officers of
the funds owned, in the aggregate, less than 1% of each class's total
outstanding shares, with respect to each fund.
As
of September 30, 2022, the following owned of record and/or beneficially 5% or
more of the outstanding shares:
|
Fund
or Class Name |
Owner
Name |
City
|
State
|
Ownership
% |
|
Moderate
with Income Allocation Fund |
FMR
CAPITAL |
BOSTON
|
MA
|
54.55%
|
|
Moderate
with Income Allocation Fund |
RAYTHEON
COMPANY |
ELLINGTON
|
CT
|
17.57%
|
|
Moderate
with Income Allocation Fund |
RAYTHEON
COMPANY |
BUENA
PARK |
CA
|
6.06%
|
|
Moderate
with Income Allocation Fund |
RAYTHEON
COMPANY |
COVENTRY
|
CT
|
5.57%
|
|
Balanced
Allocation Fund |
FMR
CAPITAL |
BOSTON
|
MA
|
33.05%
|
|
Balanced
Allocation Fund |
RAYTHEON
COMPANY |
MARION
|
IA
|
8.78%
|
|
Balanced
Allocation Fund |
RAYTHEON
COMPANY |
SALT
LAKE CTY |
UT
|
6.82%
|
|
Balanced
Allocation Fund |
RAYTHEON
COMPANY |
ELLINGTON
|
CT
|
5.57%
|
|
Growth
Allocation Fund |
FMR
CAPITAL |
BOSTON
|
MA
|
23.78%
|
|
Growth
Allocation Fund |
RAYTHEON
COMPANY |
MANCHESTER
|
CT
|
6.08%
|
|
Aggressive
Growth Allocation Fund |
FMR
CAPITAL |
BOSTON
|
MA
|
22.34%
|
|
Aggressive
Growth Allocation Fund |
RAYTHEON
COMPANY |
HIAWATHA
|
IA
|
10.27%
|
|
Aggressive
Growth Allocation Fund |
RAYTHEON
COMPANY |
MARION
|
IA
|
6.70%
|
|
Aggressive
Growth Allocation Fund |
RAYTHEON
COMPANY |
CENTRAL
CITY |
IA
|
5.16%
|
As
of September 30, 2022, the following owned of record and/or beneficially 25% or
more of the outstanding shares:
|
Fund
Name |
Owner
Name |
City
|
State
|
Ownership
% |
|
Moderate
with Income Allocation Fund |
FMR
CAPITAL |
BOSTON
|
MA
|
54.55%
|
|
Balanced
Allocation Fund |
FMR
CAPITAL |
BOSTON
|
MA
|
33.05%
|
A
shareholder owning of record or beneficially more than 25% of a fund's
outstanding shares may be considered a controlling person. That shareholder's
vote could have a more significant effect on matters presented at a
shareholders' meeting than votes of other shareholders.
CONTROL
OF INVESTMENT ADVISER
FMR
LLC, as successor by merger to FMR Corp., is the ultimate parent company of FMR.
The voting common shares of FMR LLC are divided into two series. Series B is
held predominantly by members of the Johnson family, including Abigail P.
Johnson, directly or through trusts, and is entitled to 49% of the vote on any
matter acted upon by the voting common shares. Series A is held predominantly by
non-Johnson family member employees of FMR LLC and its affiliates and is
entitled to 51% of the vote on any such matter. The Johnson family group and all
other Series B shareholders have entered into a shareholders' voting agreement
under which all Series B shares will be voted in accordance with the majority
vote of Series B shares. Under the 1940 Act, control of a company is presumed
where one individual or group of individuals owns more than 25% of the voting
securities of that company. Therefore, through their ownership of voting common
shares and the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the 1940 Act, to form a controlling group
with respect to FMR LLC.
At
present, the primary business activities of FMR LLC and its subsidiaries are:
(i) the provision of investment advisory, management, shareholder, investment
information and assistance and certain fiduciary services for individual and
institutional investors; (ii) the provision of securities brokerage services;
(iii) the management and development of real estate; and (iv) the investment in
and operation of a number of emerging businesses.
FMR,
Fidelity Distributors Company LLC (FDC), and the funds have
adopted a code of ethics under Rule 17j-1 of the 1940 Act that sets forth
employees' fiduciary responsibilities regarding the funds, establishes
procedures for personal investing, and restricts certain transactions. Employees
subject to the code of ethics, including Fidelity investment personnel, may
invest in securities for their own investment accounts, including securities
that may be purchased or held by the funds.
MANAGEMENT
CONTRACTS
Each
fund has entered into a management contract with FMR, pursuant to which FMR
furnishes investment advisory and other services.
Management
Services. Under
the terms of its management contract with each 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 is authorized, in its discretion, to allocate each fund's
assets among the underlying Fidelity® funds in which the fund may invest. FMR
also provides each fund with all necessary office facilities and personnel for
servicing the fund's investments, compensates all officers of each fund and all
Trustees who are interested persons of the trust or of FMR, and compensates all
personnel of each 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 each fund. These services include providing facilities for
maintaining each fund's organization; supervising relations with custodians,
transfer and pricing agents, accountants, underwriters and other persons dealing
with each fund; preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the registration of
each fund's shares under federal securities laws and making necessary filings
under state securities laws; developing management and shareholder services for
each fund; and furnishing reports, evaluations and analyses on a variety of
subjects to the Trustees.
Management-Related
Expenses. Under
the terms of each fund's management contract, FMR undertakes to pay, either
itself or through an affiliated company, all expenses involved in the operation
of the fund, except the following, which shall be paid by the fund: (i) taxes;
(ii) the fees and expenses of all Trustees who are not "interested persons" of
the trust or of FMR; (iii) interest expenses with respect to borrowings by the
fund; (iv) Rule 12b-1 fees, if any; (v) expenses of printing and mailing proxy
materials to shareholders of the fund; (vi) all other expenses incidental to
holding meetings of the fund's shareholders, including proxy solicitations
therefor; and (vii) such non-recurring and/or extraordinary expenses as may
arise, including actions, suits or proceedings to which the fund is or is
threatened to be a party and the legal obligation that the fund may have to
indemnify the trust's Trustees and officers with respect thereto. Each fund
shall pay its non-operating expenses, including brokerage commissions and fees
and expenses associated with the fund's securities lending program, if
applicable. Specific expenses payable by FMR include legal expenses, fees of the
custodian and auditor, and each fund's proportionate share of insurance premiums
and Investment Company Institute dues. FMR also is responsible for the payment
of any costs associated with the transfer agency services and pricing and
bookkeeping services agreements.
Management
Fees.
For
the services of FMR under each management contract, each fund pays FMR a monthly
management fee at the annual rate of 0.10% of the fund's average daily net
assets throughout the month.
FMR
has contractually agreed to waive 0.10% of each fund's management fee until
January 31, 2026. The fee waiver will increase returns.
The
following table shows the amount of management fees paid by a fund for the
fiscal year(s) ended September 30, 2022 to its current manager and prior
affiliated manager(s), if any, and the amount of waivers reducing management
fees.
|
Fund(s)
|
Fiscal
Years
Ended
|
Amount
of
Waivers
Reducing
Management
Fees
|
Management
Fees
Paid
to
Investment
Adviser | ||
|
Moderate
with Income Allocation Fund |
2022
(A)
|
$
|
89
|
$
|
89
|
|
Balanced
Allocation Fund |
2022
(A)
|
$
|
135
|
$
|
135
|
|
Growth
Allocation Fund |
2022
(A)
|
$
|
184
|
$
|
184
|
|
Aggressive
Growth Allocation Fund |
2022
(A)
|
$
|
191
|
$
|
191
|
|
(A)Fund
commenced operations on February 9, 2022.
|
FMR
may, from time to time, voluntarily reimburse all or a portion of a fund's or,
in the case of a multiple class fund, a class's operating expenses. FMR retains
the ability to be repaid for these expense reimbursements in the amount that
expenses fall below the limit prior to the end of the fiscal year.
Expense
reimbursements will increase returns, and repayment of the reimbursement will
decrease returns.
Sharon
Delia Dolan is Co-Portfolio Manager of Moderate with Income Allocation Fund,
Balanced Allocation Fund, Growth Allocation Fund, and Aggressive Growth
Allocation Fund, and does not receive compensation for those services to these
funds. Kristina Stookey is Co-Portfolio Manager of Moderate with Income
Allocation Fund, Balanced Allocation Fund, Growth Allocation Fund, and
Aggressive Growth Allocation Fund, and does not receive compensation for those
services to these funds. As of September 30, 2022, portfolio manager
compensation generally consists of a fixed base salary determined periodically
(typically annually), a bonus, and in certain cases, participation in several
types of equity-based compensation plans. A portion of each portfolio manager's
compensation may be deferred based on criteria established by Fidelity or at the
election of the portfolio manager.
Each
portfolio manager's base salary is determined by level of responsibility and
tenure at Fidelity. The primary components of each portfolio manager's bonus are
based on (i) the pre-tax investment performance of the portfolio manager's
fund(s) and account(s) measured against a benchmark index and a defined peer
group assigned to each fund or account, and (ii) the investment performance of a
broad range of Fidelity® funds and accounts. Accounts may include model
portfolios designed for asset allocation, retirement planning, or tax-sensitive
goals. The pre-tax investment performance of each portfolio manager's fund(s)
and account(s) is weighted according to the portfolio manager's tenure on those
fund(s) and account(s), and the average asset size of those fund(s) and
account(s) over the portfolio manager's tenure. Each component is calculated
separately over a measurement period that initially is contemporaneous with the
portfolio manager's tenure, but that eventually encompasses rolling periods of
up to five years for the comparison to a benchmark index and peer group. A
smaller, subjective component of the bonus is based on each portfolio manager's
overall contribution to management of Fidelity. Each portfolio manager may be
compensated under equity-based compensation plans linked to increases or
decreases in the net asset value of the stock of FMR LLC, FMR's parent company.
FMR LLC is a diverse financial services company engaged in various activities
that include fund management, brokerage, retirement, and employer administrative
services.
A
portfolio manager's compensation plan may give rise to potential conflicts of
interest. Although investors in the fund may invest through either tax-deferred
accounts or taxable accounts, a portfolio manager's compensation is linked to
the pre-tax performance of the fund, rather than its after-tax performance. A
portfolio manager's base pay tends to increase with additional and more complex
responsibilities that include increased assets under management and a portion of
the bonus relates to marketing efforts, which together indirectly link
compensation to sales. When a portfolio manager takes over a fund or an account,
the time period over which performance is measured may be adjusted to provide a
transition period in which to assess the portfolio. The management of multiple
funds and accounts (including proprietary accounts) may give rise to potential
conflicts of interest if the funds and accounts have different objectives,
benchmarks, time horizons, and fees as a portfolio manager must allocate time
and investment ideas across multiple funds and accounts. In addition, a fund's
trade allocation policies and procedures may give rise to conflicts of interest
if the fund's orders do not get fully executed due to being aggregated with
those of other accounts managed by FMR or an affiliate. A portfolio manager may
execute transactions for another fund or account that may adversely impact the
value of securities held by a fund. Securities selected for other funds or
accounts may outperform the securities selected for the fund. Portfolio managers
may be permitted to invest in the funds they manage, even if a fund is closed to
new investors. Trading in personal accounts, which may give rise to potential
conflicts of interest, is restricted by a fund's Code of Ethics.
Portfolio
managers may receive interests in certain funds or accounts managed by FMR or
one of its affiliated advisers (collectively, "Proprietary Accounts"). A
conflict of interest situation is presented where a portfolio manager considers
investing a client account in securities of an issuer in which FMR, its
affiliates or their (or their fund clients') respective directors, officers or
employees already hold a significant position for their own account, including
positions held indirectly through Proprietary Accounts. Because the 1940 Act, as
well as other applicable laws and regulations, restricts certain transactions
between affiliated entities or between an advisor and its clients, client
accounts managed by FMR or its affiliates, including accounts sub-advised by
third parties, are, in certain circumstances, prohibited from participating in
offerings of such securities (including initial public offerings and other
offerings occurring before or after an issuer's initial public offering) or
acquiring such securities in the secondary market. For example, ownership of a
company by Proprietary Accounts has, in certain situations, resulted in
restrictions on FMR's and its affiliates' client accounts' ability to acquire
securities in the company's initial public offering and subsequent public
offerings, private offerings, and in the secondary market, and additional
restrictions could arise in the future; to the extent such client accounts
acquire the relevant securities after such restrictions are subsequently lifted,
the delay could affect the price at which the securities are acquired.
A
conflict of interest situation is presented when FMR or its affiliates acquire,
on behalf of their client accounts, securities of the same issuers whose
securities are already held in Proprietary Accounts, because such investments
could have the effect of increasing or supporting the value of the Proprietary
Accounts. A conflict of interest situation also arises when FMR investment
advisory personnel consider whether client accounts they manage should invest in
an investment opportunity that they know is also being considered by an
affiliate of FMR for a Proprietary Account, to the extent that not investing on
behalf of such client accounts improves the ability of the Proprietary Account
to take advantage of the opportunity. FMR has adopted policies and procedures
and maintains a compliance program designed to help manage such actual and
potential conflicts of interest.
The
following table provides information relating to other accounts managed by
Sharon delia Dolan as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
15
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$8,404
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Moderate with Income Allocation Fund ($0 (in millions) assets managed).
The amount of assets managed of the fund reflects trades and other assets as of
the close of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Moderate with Income
Allocation Fund beneficially owned by Ms. Dolan was none.
The
following table provides information relating to other accounts managed by
Kristina Stookey as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
101
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$79,313
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Moderate with Income Allocation Fund ($0 (in millions) assets managed).
The amount of assets managed of the fund reflects trades and other assets as of
the close of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Moderate with Income
Allocation Fund beneficially owned by
Ms.
Stookey was none.
The
following table provides information relating to other accounts managed by
Sharon delia Dolan as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
15
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$8,404
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Balanced Allocation Fund ($0 (in millions) assets managed). The amount
of assets managed of the fund reflects trades and other assets as of
the close of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Balanced Allocation Fund
beneficially owned by Ms. Dolan was none.
The
following table provides information relating to other accounts managed by
Kristina Stookey as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
101
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$79,313
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Balanced Allocation Fund ($0 (in millions) assets managed). The amount
of assets managed of the fund reflects trades and other assets as of
the close of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Balanced Allocation Fund
beneficially owned by Ms. Stookey was none.
The
following table provides information relating to other accounts managed by
Sharon delia Dolan as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
15
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$8,404
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Growth Allocation Fund ($0 (in millions) assets managed). The amount of
assets managed of the fund reflects trades and other assets as of the close
of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Growth Allocation Fund
beneficially owned by Ms. Dolan was none.
The
following table provides information relating to other accounts managed by
Kristina Stookey as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
101
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$79,313
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Growth Allocation Fund ($0 (in millions) assets managed). The amount of
assets managed of the fund reflects trades and other assets as of the close
of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Growth Allocation Fund
beneficially owned by Ms. Stookey was none.
The
following table provides information relating to other accounts managed by
Sharon delia Dolan as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
15
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$8,404
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Aggressive Growth Allocation Fund ($0 (in millions) assets managed).
The amount of assets managed of the fund reflects trades and other assets as of
the close of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Aggressive Growth
Allocation Fund beneficially owned by Ms. Dolan was none.
The
following table provides information relating to other accounts managed by
Kristina Stookey as of September 30, 2022:
|
Registered
Investment Companies
*
|
Other
Pooled
Investment
Vehicles
|
Other
Accounts
| |||
|
Number
of Accounts Managed |
4
|
none
|
101
| ||
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
none
|
none
| ||
|
Assets
Managed (in millions) |
$1
|
none
|
$79,313
| ||
|
Assets
Managed with Performance-Based Advisory Fees (in millions)
|
none
|
none
|
none
|
*
Includes Aggressive Growth Allocation Fund ($0 (in millions) assets managed).
The amount of assets managed of the fund reflects trades and other assets as of
the close of the business day prior to the fund's fiscal year-end.
As
of September 30, 2022, the dollar range of shares of Aggressive Growth
Allocation Fund beneficially owned by Ms. Stookey was none.
PROXY
VOTING GUIDELINES
|
Fidelity
®
Funds'
Proxy Voting Guidelines
I.
Introduction
These
guidelines are intended to help Fidelity's customers and the companies in
which Fidelity invests understand how Fidelity votes proxies to further
the values that have sustained Fidelity for over 70 years. In particular,
these guidelines are animated by two fundamental principles: 1) putting
first the long-term interests of our customers and fund shareholders; and
2) investing in companies that share our approach to creating value over
the long-term. Fidelity generally adheres to these guidelines in voting
proxies and our Stewardship
Principles serve
as the foundation for these guidelines. Our evaluation of proxies reflects
information from many sources, including management or shareholders of a
company presenting a proposal and proxy voting advisory firms. Fidelity
maintains the flexibility to vote individual proxies based on our
assessment of each situation.
In
evaluating proxies, we recognize that companies can conduct themselves in
ways that have important environmental and social consequences. While
Fidelity always remains focused on maximizing long-term shareholder value,
we also consider potential environmental, social and governance (ESG)
impacts that we believe are material to individual companies and investing
funds' investment objectives and strategies.
Fidelity
will vote on proposals not specifically addressed by these guidelines
based on an evaluation of a proposal's likelihood to enhance the long-term
economic returns or profitability of the company or to maximize long-term
shareholder value. Fidelity will not be influenced by business
relationships or outside perspectives that may conflict with the interests
of the funds and their shareholders.
II.
Board
of Directors and Corporate Governance
Directors
of public companies play a critical role in ensuring that a company and
its management team serve the interests of its shareholders. Fidelity
believes that through proxy voting, it can help ensure accountability of
management teams and boards of directors, align management and shareholder
interests, and monitor and assess the degree of transparency and
disclosure with respect to executive compensation and board actions
affecting shareholders' rights. The following general guidelines are
intended to reflect these proxy voting principles.
A.
Election of Directors
Fidelity
will generally support director nominees in elections where all directors
are unopposed (uncontested elections), except where board composition
raises concerns, and/or where a director clearly appears to have failed to
exercise reasonable judgment or otherwise failed to sufficiently protect
the interests of shareholders.
Fidelity
will evaluate board composition and generally will oppose the election of
certain or all directors if, by way of example:
1.
Inside or affiliated directors serve on boards that are not composed of a
majority of independent directors.
2.
There are no women on the board or if a board of ten or more members has
fewer than two women directors.
3.
The director is a public company CEO who sits on more than two
unaffiliated public company boards.
Fidelity
will evaluate board actions and generally will oppose the election of
certain or all directors if, by way of example:
1.
The director attended fewer than 75% of the total number of meetings of
the board and its committees on which the director served during the
company's prior fiscal year, absent extenuating circumstances.
2.
The company made a commitment to modify a proposal or practice to conform
to these guidelines, and failed to act on that commitment.
3.
For reasons described below under the sections entitled Compensation and
Anti-Takeover Provisions and Director Elections.
B.
Contested Director Elections
On
occasion, directors are forced to compete for election against outside
director nominees (contested elections). Fidelity believes that strong
management creates long-term shareholder value. As a result, Fidelity
generally will vote in support of management of companies in which the
funds' assets are invested. Fidelity will vote its proxy on a case-by-case
basis in a contested election, taking into consideration a number of
factors, amongst others:
1.
Management's track record and strategic plan for enhancing shareholder
value;
2.
The long-term performance of the company compared to its industry peers;
and
3.
The qualifications of the shareholder's and management's nominees.
Fidelity
will vote for the outcome it believes has the best prospects for
maximizing shareholder value over the long-term.
C.
Cumulative Voting Rights
Under
cumulative voting, each shareholder may exercise the number of votes equal
to the number of shares owned multiplied by the number of directors up for
election. Shareholders may cast all of their votes for a single nominee
(or multiple nominees in varying amounts). With regular (non-cumulative)
voting, by contrast, shareholders cannot allocate more than one vote per
share to any one director nominee. Fidelity believes that cumulative
voting can be detrimental to the overall strength of a board. Generally,
therefore, Fidelity will oppose the introduction of, and support the
elimination of, cumulative voting rights.
D.
Classified Boards
A
classified board is one that elects only a percentage of its members each
year (usually one-third of directors are elected to serve a three-year
term). This means that at each annual meeting only a subset of directors
is up for re-election. Fidelity believes that, in general, classified
boards are not as accountable to shareholders as declassified boards. For
this and other reasons, Fidelity generally will oppose a board's adoption
of a classified board structure and support declassification of existing
boards.
E.
Independent Chairperson
In
general, Fidelity believes that boards should have a process and criteria
for selecting the board chair, and will oppose shareholder proposals
calling for, or recommending the appointment of, a non-executive or
independent chairperson. If, however, based on particular facts and
circumstances, Fidelity believes that appointment of a non-executive or
independent chairperson appears likely to further the interests of
shareholders and promote effective oversight of management by the board of
directors, Fidelity will consider voting to support a proposal for an
independent chairperson under such circumstances.
F.
Majority Voting in Director Elections
In
general, Fidelity supports proposals calling for directors to be elected
by a majority of votes cast if the proposal permits election by a
plurality in the case of contested elections (where, for example, there
are more nominees than board seats). Fidelity may oppose a majority voting
shareholder proposal where a company's board has adopted a policy
requiring the resignation of an incumbent director who fails to receive
the support of a majority of the votes cast in an uncontested election.
G.
Proxy Access
Proxy
access proposals generally require a company to amend its by-laws to allow
a qualifying shareholder or group of shareholders to nominate directors on
a company's proxy ballot. Fidelity believes that certain safeguards as to
ownership threshold and duration of ownership are important to assure that
proxy access is not misused by those without a significant economic
interest in the company or those driven by short term goals. Fidelity will
evaluate proxy access proposals on a case-by-case basis, but generally
will support proposals that include ownership of at least 3% (5% in the
case of small-cap companies) of the company's shares outstanding for at
least three years; limit the number of directors that eligible
shareholders may nominate to 20% of the board; and limit to 20 the number
of shareholders that may form a nominating group.
H.
Indemnification of Directors and Officers
In
many instances there are sound reasons to indemnify officers and
directors, so that they may perform their duties without the distraction
of unwarranted litigation or other legal process. Fidelity generally
supports charter and by-law amendments expanding the indemnification of
officers or directors, or limiting their liability for breaches of care
unless Fidelity is dissatisfied with their performance or the proposal is
accompanied by anti-takeover provisions (see Anti-Takeover Provisions and
Shareholders Rights Plans below).
III.
Compensation
Incentive
compensation plans can be complicated and many factors are considered when
evaluating such plans. Fidelity evaluates such plans based on protecting
shareholder interests and our historical knowledge of the company and its
management.
A.
Equity Compensation Plans
Fidelity
encourages the use of reasonably designed equity compensation plans that
align the interest of management with those of shareholders by providing
officers and employees with incentives to increase long-term shareholder
value. Fidelity considers whether such plans are too dilutive to existing
shareholders because dilution reduces the voting power or economic
interest of existing shareholders as a result of an increase in shares
available for distribution to employees in lieu of cash compensation.
Fidelity will generally oppose equity compensation plans or amendments to
authorize additional shares under such plans if:
1.
The company grants stock options and equity awards in a given year at a
rate higher than a benchmark rate ("burn rate") considered appropriate by
Fidelity and there were no circumstances specific to the company or the
compensation plans that leads Fidelity to conclude that the rate of awards
is otherwise acceptable.
2.
The plan includes an evergreen provision, which is a feature that provides
for an automatic increase in the shares available for grant under an
equity compensation plan on a regular basis.
3.
The plan provides for the acceleration of vesting of equity compensation
even though an actual change in control may not occur.
As
to stock option plans, considerations include the following:
1.
Pricing: We believe that options should be priced at 100% of fair market
value on the date they are granted. We generally oppose options priced at
a discount to the market, although the price may be as low as 85% of fair
market value if the discount is expressly granted in lieu of salary or
cash bonus.
2.
Re-pricing: An "out-of-the-money" (or underwater) option has an exercise
price that is higher than the current price of the stock. We generally
oppose the re-pricing of underwater options because it is not consistent
with a policy of offering options as a form of long-term compensation.
Fidelity also generally opposes a stock option plan if the board or
compensation committee has re-priced options outstanding in the past two
years without shareholder approval.
Fidelity
generally will support a management proposal to exchange, re-price or
tender for cash, outstanding options if the proposed exchange, re-pricing,
or tender offer is consistent with the interests of shareholders, taking
into account a variety of factors such as:
1.
Whether the proposal excludes senior management and directors;
2.
Whether the exchange or re-pricing proposal is value neutral to
shareholders based upon an acceptable pricing model;
3.
The company's relative performance compared to other companies within the
relevant industry or industries;
4.
Economic and other conditions affecting the relevant industry or
industries in which the company competes; and
5.
Any other facts or circumstances relevant to determining whether an
exchange or re-pricing proposal is consistent with the interests of
shareholders.
B.
Employee Stock Purchase Plans
These
plans are designed to allow employees to purchase company stock at a
discounted price and receive favorable tax treatment when the stock is
sold. Fidelity generally will support employee stock purchase plans if the
minimum stock purchase price is equal to or greater than 85% (or at least
75% in the case of non-U.S. companies where a lower minimum stock purchase
price is equal to the prevailing "best practices" in that market) of the
stock's fair market value and the plan constitutes a reasonable effort to
encourage broad based participation in the company's stock.
IV.
Advisory
Vote on Executive Compensation (Say on Pay) and Frequency of Say on Pay
Vote
Current
law requires companies to allow shareholders to cast non-binding votes on
the compensation for named executive officers, as well as the frequency of
such votes. Fidelity generally will support proposals to ratify executive
compensation unless the compensation appears misaligned with shareholder
interests or is otherwise problematic, taking into account:
-
The actions taken by the board or compensation committee in the previous
year, including whether the company re-priced or exchanged outstanding
stock options without shareholder approval; adopted or extended a golden
parachute without shareholder approval; or adequately addressed concerns
communicated by Fidelity in the process of discussing executive
compensation;
-
The alignment of executive compensation and company performance relative
to peers; and
-
The structure of the compensation program, including factors such as
whether incentive plan metrics are appropriate, rigorous and transparent;
whether the long-term element of the compensation program is evaluated
over at least a three-year period; the sensitivity of pay to below median
performance; the amount and nature of non-performance-based compensation;
the justification and rationale behind paying discretionary bonuses; the
use of stock ownership guidelines and amount of executive stock ownership;
and how well elements of compensation are disclosed.
When
presented with a frequency of Say on Pay vote, Fidelity generally will
support holding an annual advisory vote on Say on Pay.
A.
Compensation Committee
Directors
serving on the compensation committee of the Board have a special
responsibility to ensure that management is appropriately compensated and
that compensation, among other things, fairly reflects the performance of
the company. Fidelity believes that compensation should align with company
performance as measured by key business metrics. Compensation policies
should align the interests of executives with those of shareholders.
Further, the compensation program should be disclosed in a transparent and
timely manner.
Fidelity
will oppose the election of directors on the compensation committees if:
1.
The company has not adequately addressed concerns communicated by Fidelity
in the process of discussing executive compensation.
2.
Within the last year, and without shareholder approval, a company's board
of directors or compensation committee has either:
a)
Re-priced outstanding options, exchanged outstanding options for equity,
or tendered cash for outstanding options; or
b)
Adopted or extended a golden parachute.
B.
Executive Severance Agreements
Executive
severance compensation and benefit arrangements resulting from a
termination following a change in control are known as "golden
parachutes." Fidelity generally will oppose proposals to ratify golden
parachutes where the arrangement includes an excise tax gross-up
provision; single trigger for cash incentives; or may result in a lump sum
payment of cash and acceleration of equity that may total more than three
times annual compensation (salary and bonus) in the event of a termination
following a change in control.
V.
Environmental
and Social Issues
Grounded
in our Stewardship Principles, these guidelines outline our views on
corporate governance. As part of our efforts to maximize long-term
shareholder value, we incorporate environmental and social issues into our
evaluation of a company, particularly if we believe an issue is material
to that company and the investing fund's investment objective and
strategies.
Fidelity
generally considers management's recommendation and current practice when
voting on shareholder proposals concerning environmental or social issues
because it generally believes that management and the board are in the
best position to determine how to address these matters. Fidelity,
however, also believes that transparency is critical to sound corporate
governance. Therefore, Fidelity may support shareholder proposals that
request additional disclosures from companies regarding environmental or
social issues, including where it believes that the proposed disclosures
could provide meaningful information to the investment management process
without unduly burdening the company. This means that Fidelity may support
shareholder proposals calling for reports on sustainability, renewable
energy, and environmental impact issues. Fidelity also may support
proposals on issues in other areas, including but not limited to equal
employment, board diversity and workforce diversity.
VI.
Anti-Takeover
Provisions and Shareholders Rights Plans
Fidelity
generally will oppose a proposal to adopt an anti-takeover provision.
Anti-takeover
provisions include:
-
classified boards;
-
"blank check" preferred stock (whose terms and conditions may be expressly
determined by the company's board, for example, with differential voting
rights);
-
golden parachutes;
-
supermajority provisions (that require a large majority (generally between
67-90%) of shareholders to approve corporate changes as compared to a
majority provision that simply requires more than 50% of shareholders to
approve those changes);
-
poison pills;
-
restricting the right to call special meetings;
-
provisions restricting the right of shareholders to set board size; and
-
any other provision that eliminates or limits shareholder rights.
A.
Shareholders Rights Plans ("poison pills")
Poison
pills allow shareholders opposed to a takeover offer to purchase stock at
discounted prices under certain circumstances and effectively give boards
veto power over any takeover offer. While there are advantages and
disadvantages to poison pills, they can be detrimental to the creation of
shareholder value and can help entrench management by deterring
acquisition offers not favored by the board, but that may, in fact, be
beneficial to shareholders.
Fidelity
generally will support a proposal to adopt or extend a poison pill if the
proposal:
1.
Includes a condition in the charter or plan that specifies an expiration
date (sunset provision) of no greater than five years;
2.
Is integral to a business strategy that is expected to result in greater
value for the shareholders;
3.
Requires shareholder approval to be reinstated upon expiration or if
amended;
4.
Contains a mechanism to allow shareholders to consider a bona fide
takeover offer for all outstanding shares without triggering the poison
pill; and
5.
Allows the Fidelity funds to hold an aggregate position of up to 20% of a
company's total voting securities, where permissible.
Fidelity
generally also will support a proposal that is crafted only for the
purpose of protecting a specific tax benefit if it also believes the
proposal is likely to enhance long-term economic returns or maximize
long-term shareholder value.
B.
Shareholder Ability to Call a Special Meeting
Fidelity
generally will support shareholder proposals regarding shareholders' right
to call special meetings if the threshold required to call the special
meeting is no less than 25% of the outstanding stock.
C.
Shareholder Ability to Act by Written Consent
Fidelity
generally will support proposals regarding shareholders' right to act by
written consent if the proposals include appropriate mechanisms for
implementation. This means that proposals must include record date
requests from at least 25% of the outstanding stockholders and consents
must be solicited from all shareholders.
D.
Supermajority Shareholder Vote Requirement
Fidelity
generally will support proposals regarding supermajority provisions if
Fidelity believes that the provisions protect minority shareholder
interests in companies where there is a substantial or dominant
shareholder.
VII.
Anti-Takeover
Provisions and Director Elections
Fidelity
will oppose the election of all directors or directors on responsible
committees if the board adopted or extended an anti-takeover provision
without shareholder approval.
Fidelity
will consider supporting the election of directors with respect to poison
pills if:
-
All of the poison pill's features outlined under the Anti-Takeover
Provisions and Shareholders Rights section above are met when a poison
pill is adopted or extended.
-
A board is willing to consider seeking shareholder ratification of, or
adding the features outlined under the Anti-Takeover Provisions and
Shareholders Rights Plans section above to, an existing poison pill. If,
however, the company does not take appropriate action prior to the next
annual shareholder meeting, Fidelity will oppose the election of all
directors at that meeting.
-
It determines that the poison pill was narrowly tailored to protect a
specific tax benefit, and subject to an evaluation of its likelihood to
enhance long-term economic returns or maximize long-term shareholder
value.
VIII.
Capital
Structure and Incorporation
These
guidelines are designed to protect shareholders' value in the companies in
which the Fidelity funds invest. To the extent a company's management is
committed and incentivized to maximize shareholder value, Fidelity
generally votes in favor of management proposals; Fidelity may vote
contrary to management where a proposal is overly dilutive to shareholders
and/or compromises shareholder value or other interests. The guidelines
that follow are meant to protect shareholders in these respects.
A.
Increases in Common Stock
Fidelity
may support reasonable increases in authorized shares for a specific
purpose (a stock split or re-capitalization, for example). Fidelity
generally will oppose a provision to increase a company's authorized
common stock if such increase will result in a total number of authorized
shares greater than three times the current number of outstanding and
scheduled to be issued shares, including stock options.
In
the case of real estate investment trusts (REITs), however, Fidelity will
oppose a provision to increase the REIT's authorized common stock if the
increase will result in a total number of authorized shares greater than
five times the current number of outstanding and scheduled to be issued
shares.
B.
Multi-Class Share Structures
Fidelity
generally will support proposals to recapitalize multi-class share
structures into structures that provide equal voting rights for all
shareholders, and generally will oppose proposals to introduce or increase
classes of stock with differential voting rights. However, Fidelity will
evaluate all such proposals in the context of their likelihood to enhance
long-term economic returns or maximize long-term shareholder value.
C.
Incorporation or Reincorporation in another State or Country
Fidelity
generally will support management proposals calling for, or recommending
that, a company reincorporate in another state or country if, on balance,
the economic and corporate governance factors in the proposed jurisdiction
appear reasonably likely to be better aligned with shareholder interests,
taking into account the corporate laws of the current and proposed
jurisdictions and any changes to the company's current and proposed
governing documents. Fidelity will consider supporting these shareholder
proposals in limited cases if, based upon particular facts and
circumstances, remaining incorporated in the current jurisdiction appears
misaligned with shareholder interests.
IX.
Shares
of Fidelity Funds, ETFs, or other non-Fidelity Mutual Funds and
ETFs
When
a Fidelity fund invests in an underlying Fidelity fund with public
shareholders, an exchange traded fund (ETF), or fund that is not
affiliated, Fidelity will vote in the same proportion as all other voting
shareholders of the underlying fund (this is known as "echo voting").
Fidelity may not vote if "echo voting" is not operationally practical or
not permitted under applicable laws and regulations. For Fidelity fund
investments in a Fidelity Series Fund, Fidelity generally will vote in a
manner consistent with the recommendation of the Fidelity Series Fund's
Board of Trustees on all proposals.
X.
Foreign
Markets
Many
Fidelity funds invest in voting securities issued by companies that are
domiciled outside the United States and are not listed on a U.S.
securities exchange. Corporate governance standards, legal or regulatory
requirements and disclosure practices in foreign countries can differ from
those in the United States. When voting proxies relating to non-U.S.
securities, Fidelity generally will evaluate proposals under these
guidelines and where applicable and feasible, take into consideration
differing laws, regulations and practices in the relevant foreign market
in determining how to vote shares.
In
certain non-U.S. jurisdictions, shareholders voting shares of a company
may be restricted from trading the shares for a period of time around the
shareholder meeting date. Because these trading restrictions can hinder
portfolio management and could result in a loss of liquidity for a fund,
Fidelity generally will not vote proxies in circumstances where such
restrictions apply. In addition, certain non-U.S. jurisdictions require
voting shareholders to disclose current share ownership on a fund-by-fund
basis. When such disclosure requirements apply, Fidelity generally will
not vote proxies in order to safeguard fund holdings information.
XI.
Securities
on Loan
Securities
on loan as of a record date cannot be voted. In certain circumstances,
Fidelity may recall a security on loan before record date (for example, in
a particular contested director election or a noteworthy merger or
acquisition). Generally, however, securities out on loan remain on loan
and are not voted because, for example, the income a fund derives from the
loan outweighs the benefit the fund receives from voting the security. In
addition, Fidelity may not be able to recall and vote loaned securities if
Fidelity is unaware of relevant information before record date, or is
otherwise unable to timely recall securities on loan.
XII.
Avoiding
Conflicts of Interest
Voting
of shares is conducted in a manner consistent with the best interests of
the Fidelity funds. In other words, securities of a company generally will
be voted in a manner consistent with these guidelines and without regard
to any other Fidelity companies' business relationships.
Fidelity
takes its responsibility to vote shares in the best interests of the funds
seriously and has implemented policies and procedures to address actual
and potential conflicts of interest.
XIII.
Conclusion
Since
its founding more than 70 years ago, Fidelity has been driven by two
fundamental values: 1) putting the long-term interests of our customers
and fund shareholders first; and 2) investing in companies that share our
approach to creating value over the long-term. With these fundamental
principles as guideposts, the funds are managed to provide the greatest
possible return to shareholders consistent with governing laws and the
investment guidelines and objectives of each fund.
Fidelity
believes that there is a strong correlation between sound corporate
governance and enhancing shareholder value. Fidelity, through the
implementation of these guidelines, puts this belief into action through
consistent engagement with portfolio companies on matters contained in
these guidelines, and, ultimately, through the exercise of voting rights
by the funds.
Glossary
-
For a large-capitalization company, burn rate higher than 1.5%.
-
For a small-capitalization company, burn rate higher than 2.5%.
-
For a micro-capitalization company, burn rate higher than 3.5%.
|
|
To
view a fund's proxy voting record for the most recent 12-month period
ended June 30, if applicable, visit www.fidelity.com/proxyvotingresults or
visit the SEC's web site at www.sec.gov. |
DISTRIBUTION
SERVICES
Each
fund has entered into a distribution agreement with Fidelity Distributors
Company LLC (FDC), an affiliate of FMR. The principal business address of FDC is
900 Salem Street, Smithfield, Rhode Island 02917. FDC is a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
Financial Industry Regulatory Authority, Inc.
A
fund's distribution agreement calls for FDC to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of the
funds, which are continuously offered.
Promotional
and administrative expenses in connection with the offer and sale of shares are
paid by FMR.
The
Trustees have approved Distribution and Service Plans with
respect to shares of each fund (the Plans) pursuant to Rule 12b-1 under the 1940
Act (the Rule).
The
Rule provides in substance that a fund may not engage directly or indirectly in
financing any activity that is primarily intended to result in the sale of
shares of the fund except pursuant to a plan approved on behalf of the fund
under the Rule.
The
Plans, as approved by the Trustees, allow shares of the funds and/or FMR to
incur certain expenses that might be considered to constitute indirect payment
by the funds of distribution expenses.
The
Plan adopted for each fund or class, as applicable, is described in the
prospectus.
Under
each Plan, if the payment of management fees by the fund to FMR is deemed to be
indirect financing by the fund of the distribution of its shares, such payment
is authorized by the Plan.
Each
Plan specifically recognizes that FMR may use its management fee revenue, as
well as its past profits or its other resources, to pay FDC for expenses
incurred in connection with providing services intended to result in the sale of
shares of the fund and/or shareholder support services. In addition, each Plan
provides that FMR, directly or through FDC, may pay significant amounts to
intermediaries that provide those services.
Currently,
the Board of Trustees has authorized such payments for shares of each
fund.
Prior
to approving each Plan, the Trustees carefully considered all pertinent factors
relating to the implementation of the Plan, and determined that there is a
reasonable likelihood that the Plan will benefit the fund or class, as
applicable, and its shareholders.
In
particular, the Trustees noted that each Plan does not authorize payments by
shares of a fund other than those made to FMR under its management contract with
the fund.
To
the extent that each Plan gives FMR and FDC greater flexibility in connection
with the distribution of shares, additional sales of shares or stabilization of
cash flows may result.
Furthermore,
certain shareholder support services may be provided more effectively under the
Plans by local entities with whom shareholders have other relationships.
FDC
or an affiliate may compensate, or upon direction make payments for certain
retirement plan expenses to intermediaries. A number of factors are considered
in determining whether to pay these additional amounts. Such factors may
include, without limitation, the level or type of services provided by the
intermediary, the level or expected level of assets or sales of shares, and
other factors. In addition to such payments, FDC or an affiliate may offer other
incentives such as sponsorship of educational or client seminars relating to
current products and issues, payments or reimbursements for travel and related
expenses associated with due diligence trips that an intermediary may undertake
in order to explore possible business relationships with affiliates of FDC,
and/or payments of costs and expenses associated with attendance at seminars,
including travel, lodging, entertainment, and meals. Certain of the payments
described above may be significant to an intermediary. As permitted by SEC and
Financial Industry Regulatory Authority rules and other applicable laws and
regulations, FDC or an affiliate may pay or allow other incentives or payments
to intermediaries.
A
fund's transfer agent or an affiliate may also make payments and reimbursements
from its own resources to certain intermediaries (who may be affiliated with the
transfer agent) for performing recordkeeping and other services. Please see
"Transfer and Service Agent Agreements" in this SAI for more information.
Any
of the payments described in this section may represent a premium over payments
made by other fund families. Retirement plan sponsors may take these payments
into account when deciding whether to include a fund as a plan investment
option.
TRANSFER
AND SERVICE AGENT AGREEMENTS
Each
fund has entered into a transfer agent agreement with Fidelity Investments
Institutional Operations Company LLC (FIIOC), an affiliate of FMR, which is
located at 245 Summer Street, Boston, Massachusetts 02210. Under the terms of
each agreement, FIIOC (or an agent, including an affiliate) performs transfer
agency services.
For
providing transfer agency services, FIIOC receives no fees from each
fund.
FIIOC
may collect fees charged in connection with providing certain types of services
such as exchanges, closing out fund balances, maintaining fund positions with
low balances, checkwriting, wire transactions, and providing historical account
research, as applicable.
In
addition, FIIOC receives the pro rata portion of the transfer agency fees
applicable to shareholder accounts in a qualified tuition program (QTP), as
defined under the Small Business Job Protection Act of 1996, managed by FMR or
an affiliate and in certain funds of funds managed by FMR, according to the
percentage of the QTP's, or a fund of funds' assets that is invested in a
fund.
FIIOC
bears the expense of typesetting, printing, and mailing prospectuses, statements
of additional information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Fund
shares may be owned by intermediaries for the benefit of their customers. In
those instances, a fund may not maintain an account for shareholders, and some
or all of the recordkeeping services for these accounts may be performed by
third parties. FIIOC or an affiliate may make payments to intermediaries
(including affiliates of FIIOC) for recordkeeping and other services.
FIIOC
or an affiliate may make payments out of its own resources to intermediaries
(including affiliates of FIIOC) for recordkeeping services. Payments may also be
made, upon direction, for other plan expenses. FIIOC may also pay an affiliate
for providing services that otherwise would have been performed by FIIOC.
In
certain situations where FIIOC or an affiliate provides recordkeeping services
to a retirement plan, payments may be made to pay for plan expenses. The amount
of such payments may be based on investments in particular Fidelity® funds, or
may be fixed for a given period of time. Upon direction, payments may be made to
plan sponsors, or at the direction of plan sponsors, third parties, for expenses
incurred in connection with the plan. FIIOC may also pay an affiliate for
providing services that otherwise would have been performed by FIIOC.
Each
fund has entered into a service agent agreement with Fidelity Service Company,
Inc. (FSC), an affiliate of FMR (or an agent, including an affiliate). Under the
terms of the agreement, FSC calculates the NAV and dividends for shares,
maintains each fund's portfolio and general accounting records, and administers
each fund's securities lending program.
For
providing pricing and bookkeeping services, FSC receives no fee from each
fund.
FMR
bears the cost of transfer agency services and pricing and bookkeeping services
for each fund.
SECURITIES
LENDING
During
the fiscal year, the securities lending agent, or the investment adviser (where
the fund does not use a securities lending agent) monitors loan opportunities
for each fund, negotiates the terms of the loans with borrowers, monitors the
value of securities on loan and the value of the corresponding collateral,
communicates with borrowers and the fund's custodian regarding marking to market
the collateral, selects securities to be loaned and allocates those loan
opportunities among lenders, and arranges for the return of the loaned
securities upon the termination of the loan. Income and fees from securities
lending activities for the fiscal year ended September 30, 2022, are shown in
the following table:
|
Security
Lending Activities |
Fund(s)
|
|||||||
|
Moderate
with Income Allocation Fund (A),(B)
|
Balanced
Allocation Fund (A),(B)
|
Growth
Allocation Fund (A),(B)
|
Aggressive
Growth Allocation Fund (A),(B)
| |||||
|
Gross
income from securities lending activities |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Fees
paid to securities lending agent from a revenue split |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Administrative
fees |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Rebate
(paid to borrower) |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Other
fees not included in the revenue split (lending agent fees to NFS)
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Aggregate
fees/compensation for securities lending activities |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
Net
income from securities lending activities |
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
|
(A)
The fund did not lend securities during the year.
|
|
(B)
Fund commenced operations on February 9, 2022.
|
A
fund does not pay cash collateral management fees, separate indemnification
fees, or other fees not reflected above.
DESCRIPTION
OF THE TRUST
Trust
Organization.
Moderate
with Income Allocation Fund is a fund of Fidelity Charles Street Trust, an
open-end management investment company created under an initial declaration of
trust dated July 7, 1981.
Balanced
Allocation Fund is a fund of Fidelity Charles Street Trust, an open-end
management investment company created under an initial declaration of trust
dated July 7, 1981.
Growth
Allocation Fund is a fund of Fidelity Charles Street Trust, an open-end
management investment company created under an initial declaration of trust
dated July 7, 1981.
Aggressive
Growth Allocation Fund is a fund of Fidelity Charles Street Trust, an open-end
management investment company created under an initial declaration of trust
dated July 7, 1981.
The
Trustees are permitted to create additional funds in the trust and to create
additional classes of a fund.
The
assets of the trust received for the issue or sale of shares of each fund and
all income, earnings, profits, and proceeds thereof, subject to the rights of
creditors, are allocated to such fund, and constitute the underlying assets of
such fund. The underlying assets of each fund in the trust shall be charged with
the liabilities and expenses attributable to such fund. Any general expenses of
the trust shall be allocated between or among any one or more of the
funds.
Shareholder
Liability. The
trust is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the
trust.
The
Declaration of Trust contains an express disclaimer of shareholder liability for
the debts, liabilities, obligations, and expenses of the trust or fund. The
Declaration of Trust provides that the trust shall not have any claim against
shareholders except for the payment of the purchase price of shares and requires
that each agreement, obligation, or instrument entered into or executed by the
trust or the Trustees relating to the trust or to a fund shall include a
provision limiting the obligations created thereby to the trust or to one or
more funds and its or their assets. The Declaration of Trust further provides
that shareholders of a fund shall not have a claim on or right to any assets
belonging to any other fund.
The
Declaration of Trust provides for indemnification out of a fund's property of
any shareholder or former shareholder held personally liable for the obligations
of the fund solely by reason of his or her being or having been a shareholder
and not because of his or her acts or omissions or for some other reason. The
Declaration of Trust also provides that a fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation of
the fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which a fund itself would be unable to meet its obligations.
Fidelity Management & Research Company LLC believes that, in view of the
above, the risk of personal liability to shareholders is remote.
Voting
Rights. Each
fund's capital consists of shares of beneficial interest. Shareholders are
entitled to one vote for each dollar of net asset value they own. The voting
rights of shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund, and by class.
The
shares have no preemptive or conversion rights. Shares are fully paid and
nonassessable, except as set forth under the heading "Shareholder Liability"
above.
The
trust or a fund or a class may be terminated upon the sale of its assets to, or
merger with, another open-end management investment company, series, or class
thereof, or upon liquidation and distribution of its assets. The Trustees may
reorganize, terminate, merge, or sell all or a portion of the assets of a trust
or a fund or a class without prior shareholder approval. In the event of the
dissolution or liquidation of a trust, shareholders of each of its funds are
entitled to receive the underlying assets of such fund available for
distribution. In the event of the dissolution or liquidation of a fund or a
class, shareholders of that fund or that class are entitled to receive the
underlying assets of the fund or class available for distribution.
Custodians.
The
Bank of New York Mellon, 1 Wall Street, New York, New York, is custodian of the
assets of each fund.
The
custodian is responsible for the safekeeping of a fund's assets and the
appointment of any subcustodian banks and clearing agencies.
From
time to time, subject to approval by a fund's Treasurer, a Fidelity® fund may
enter into escrow arrangements with other banks if necessary to participate in
certain investment offerings.
FMR,
its officers and directors, its affiliated companies, Members of the Advisory
Board (if any), and Members of the Board of Trustees may, from time to time,
conduct transactions with various banks, including banks serving as custodians
for certain funds advised by FMR or an affiliate. Transactions that have
occurred to date include mortgages and personal and general business loans. In
the judgment of each fund's adviser, the terms and conditions of those
transactions were not influenced by existing or potential custodial or other
fund relationships.
Independent
Registered Public Accounting Firm.
PricewaterhouseCoopers
LLP, 101 Seaport Boulevard, Boston, Massachusetts, independent registered public
accounting firm, audits financial statements for each fund and provides other
audit, tax, and related services.
FUND
HOLDINGS INFORMATION
Each
fund views holdings information as sensitive and limits its dissemination. The
Board authorized FMR to establish and administer guidelines for the
dissemination of fund holdings information, which may be amended at any time
without prior notice. FMR's Disclosure Policy Committee (comprising executive
officers of FMR) evaluates disclosure policy with the goal of serving a fund's
best interests by striking an appropriate balance between providing information
about a fund's portfolio and protecting a fund from potentially harmful
disclosure. The Board reviews the administration and modification of these
guidelines and receives reports from the funds' chief compliance officer
periodically.
Each
fund will provide a full list of holdings on www.fidelity.com monthly, 15 days
after the month-end.
Unless
otherwise indicated, this information will be available on the web site until
updated for the next applicable period.
A
fund may also from time to time provide or make available to the Board or third
parties upon request specific fund level performance attribution information and
statistics. Third parties may include fund shareholders or prospective fund
shareholders, members of the press, consultants, and ratings and ranking
organizations. Nonexclusive examples of performance attribution information and
statistics may include (i) the allocation of a fund's portfolio holdings and
other investment positions among various asset classes, sectors, industries, and
countries, (ii) the characteristics of the stock and bond components of a fund's
portfolio holdings and other investment positions, (iii) the attribution of fund
returns by asset class, sector, industry, and country and (iv) the volatility
characteristics of a fund.
FMR's
Disclosure Policy Committee may approve a request for fund level performance
attribution and statistics as long as (i) such disclosure does not enable the
receiving party to recreate the complete or partial portfolio holdings of any
Fidelity fund prior to such fund's public disclosure of its portfolio holdings
and (ii) Fidelity has made a good faith determination that the requested
information is not material given the particular facts and circumstances.
Fidelity may deny any request for performance attribution information and other
statistical information about a fund made by any person, and may do so for any
reason or for no reason.
Disclosure
of non-public portfolio holdings information for a Fidelity fund's portfolio may
only be provided pursuant to the guidelines below.
The
Use of Holdings In Connection With Fund Operations. Material
non-public holdings information may be provided as part of the activities
associated with managing Fidelity ®
funds
to: entities which, by explicit agreement or by virtue of their respective
duties to the fund, are required to maintain the confidentiality of the
information disclosed; other parties if legally required; or persons FMR
believes will not misuse the disclosed information. These entities, parties, and
persons include, but are not limited to: a fund's trustees; a fund's manager,
its sub-advisers, if any, and their affiliates whose access persons are subject
to a code of ethics (including portfolio managers of affiliated funds of funds);
contractors who are subject to a confidentiality agreement; a fund's auditors; a
fund's custodians; proxy voting service providers; financial printers; pricing
service vendors; broker-dealers in connection with the purchase or sale of
securities or requests for price quotations or bids on one or more securities;
securities lending agents; counsel to a fund or its Independent Trustees;
regulatory authorities; stock exchanges and other listing organizations; parties
to litigation; third parties in connection with a bankruptcy proceeding relating
to a fund holding; and third parties who have submitted a standing request to a
money market fund for daily holdings information. Non-public holdings
information may also be provided to an issuer regarding the number or percentage
of its shares that are owned by a fund and in connection with redemptions in
kind.
Other
Uses Of Holdings Information. In
addition, each fund may provide material non-public holdings information to (i)
third parties that calculate information derived from holdings for use by FMR, a
sub-adviser, or their affiliates, (ii) ratings and rankings organizations, and
(iii) an investment adviser, trustee, or their agents to whom holdings are
disclosed for due diligence purposes or in anticipation of a merger involving a
fund. Each individual request is reviewed by the Disclosure Policy Committee
which must find, in its sole discretion that, based on the specific facts and
circumstances, the disclosure appears unlikely to be harmful to a fund. Entities
receiving this information must have in place control mechanisms to reasonably
ensure or otherwise agree that, (a) the holdings information will be kept
confidential, (b) no employee shall use the information to effect trading or for
their personal benefit, and (c) the nature and type of information that they, in
turn, may disclose to third parties is limited. FMR relies primarily on the
existence of non-disclosure agreements and/or control mechanisms when
determining that disclosure is not likely to be harmful to a fund.
At
this time, the entities receiving information described in the preceding
paragraph are: Factset Research Systems Inc. (full or partial fund holdings
daily, on the next business day); Standard & Poor's Ratings Services (full
holdings weekly (generally as of the previous Friday), generally 5 business days
thereafter); MSCI Inc. and certain affiliates (full or partial fund holdings
daily, on the next business day); and Bloomberg, L.P. (full holdings daily, on
the next business day).
FMR,
its affiliates, or the funds will not enter into any arrangements with third
parties from which they derive consideration for the disclosure of material
non-public holdings information. If, in the future, such an arrangement is
desired, prior Board approval would be sought and any such arrangements would be
disclosed in the funds' SAI.
There
can be no assurance that the funds' policies and procedures with respect to
disclosure of fund portfolio holdings will prevent the misuse of such
information by individuals and firms that receive such information.
FINANCIAL
STATEMENTS
Each
fund's financial statements and financial highlights for the fiscal year ended
September 30, 2022, and report of the independent registered public accounting
firm, are included in the fund's annual
report and
are incorporated herein by reference.
Total
annual operating expenses as shown in the prospectus fee table may differ from
the ratios of expenses to average net assets in the financial highlights because
total annual operating expenses as shown in the prospectus fee table include any
acquired fund fees and expenses, whereas the ratios of expenses in the financial
highlights do not, except to the extent any acquired fund fees and expenses
relate to an entity, such as a wholly-owned subsidiary, with which a fund's
financial statements are consolidated. Acquired funds include other investment
companies (such as central funds or other underlying funds) in which a fund has
invested, if and to the extent it is permitted to do so.
Total
annual operating expenses in the prospectus fee table and the financial
highlights do not include any expenses associated with investments in certain
structured or synthetic products that may rely on the exception from the
definition of "investment company" provided by section 3(c)(1) or 3(c)(7) of the
1940 Act.
APPENDIX
Fidelity,
the Fidelity Investments Logo and all other Fidelity trademarks or service marks
used herein are trademarks or service marks of FMR LLC. Any third-party marks
that are
used herein are trademarks or service marks of their respective owners. © 2022
FMR LLC. All rights reserved.