Fund |
Ticker |
Strategic
Advisers® Tax-Sensitive Short Duration Fund |
FGNSX |
Fund of Fidelity Rutland Square Trust II
STATEMENT OF ADDITIONAL INFORMATION
July 29, 2023
Offered
exclusively to certain clients of Strategic Advisers LLC (Strategic Advisers) or
its affiliates - not available for sale to the general public.
This
Statement of Additional Information (SAI) is not a prospectus. Portions of the
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 July 29, 2023, or an annual
report, please call Fidelity at 1-800-544-3455 or visit Fidelity's web site at
www.fidelity.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
TSS-PTB-0723
1.9885902.106
TABLE
OF CONTENTS
The
following policies and limitations supplement those set forth in the prospectus.
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of the fund's assets that may be invested in any security or
other 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.
The
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 the fund's fundamental investment limitations set forth in their
entirety.
Diversification
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.
For
purposes of the fund's diversification limitation discussed above, Strategic
Advisers LLC (Strategic Advisers) identifies the issuer of a security depending
on its terms and conditions. In identifying the issuer, Strategic Advisers will
consider the entity or entities responsible for payment of interest and
repayment of principal and the source of such payments; the way in which assets
and revenues of an issuing political subdivision are separated from those of
other political entities; and whether a governmental body is guaranteeing the
security.
For
purposes of the fund's diversification limitation discussed above, Strategic
Advisers does not consider traditional bond insurance to be a separate security
or the insurer to be a separate issuer. Therefore, the diversification
limitation does not limit the percentage of fund assets that may be invested in
securities insured by a single bond insurer.
Senior
Securities
The
fund may not issue senior securities, except in connection with the insurance
program established by the fund pursuant to an exemptive order issued by the
Securities and Exchange Commission or as otherwise permitted under the
Investment Company Act of 1940.
Borrowing
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
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
The
fund may not purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in 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 the fund's concentration limitation discussed above, with respect to
any investment in repurchase agreements collateralized by U.S. Government
securities, Strategic Advisers LLC (Strategic Advisers) looks through to the
U.S. Government securities.
For
purposes of the fund's concentration limitation discussed above, Strategic
Advisers or an affiliate 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 Strategic Advisers does not assign a classification.
Real
Estate
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
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
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
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, options, and
swaps are not deemed to constitute selling securities short.
Margin
Purchases
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
The
fund may borrow money only (a) from a bank or from a registered investment
company or portfolio for which Strategic Advisers 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
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 the 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.
To
the extent that the fund acquires the shares of an underlying fund in accordance
with Section 12(d)(1)(F) of the 1940 Act, the underlying fund is not obligated
to redeem its shares in an amount exceeding 1% of its shares outstanding during
any period of less than 30 days. Those underlying fund shares will not be
treated as illiquid securities for purposes of the fund's illiquid securities
limitation described above to the extent that the fund is able to dispose of
such securities by distributing them in kind to redeeming shareholders. (See
"Investment Policies and Limitations - Securities of Other Investment
Companies.")
Loans
The
fund does not currently intend to engage in repurchase agreements or make loans,
but this limitation does not apply to purchases of debt securities.
In
addition to the 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, the fund currently intends to comply
with certain diversification limits imposed by Subchapter M.
For
the 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 funds in which the fund may
invest have adopted certain investment limitations that may be more or less
restrictive than those listed above, thereby permitting the fund to engage
indirectly in investment strategies that are prohibited under the investment
limitations listed above. The investment limitations of each underlying fund are
set forth in its registration statement.
In
accordance with its investment program as set forth in the prospectus, the fund
may invest more than 25% of its assets in any one underlying Fidelity ® fund.
Although the fund does not intend to concentrate its investments in a particular
industry, the fund may indirectly concentrate in a particular industry or group
of industries through its investments in one or more underlying funds.
The
following pages contain more detailed information about types of instruments in
which the fund may invest, techniques the fund's adviser (or a sub-adviser) may
employ in pursuit of the fund's investment objective, and a summary of related
risks. The fund's adviser (or a sub-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, the fund's adviser (or a sub-adviser)
is not required to buy any particular instrument or use any particular technique
even if to do so might benefit the fund.
Strategic
Advisers® Tax-Sensitive Short Duration 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 may employ the same or other types of techniques.
Strategic Advisers® Tax-Sensitive Short Duration 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," and except as otherwise indicated, references to "a fund" or "the
fund" may relate to Strategic Advisers® Tax-Sensitive Short Duration Fund or an
underlying fund, and references to "an adviser" or "the adviser" may relate to
Strategic Advisers (or its affiliates) or a sub-adviser of Strategic Advisers®
Tax-Sensitive Short Duration Fund, or an adviser of an underlying fund.
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. A municipal
fund's uninvested cash may earn credits that reduce fund expenses.
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 generally 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® fund 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 the
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 fund. 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.
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. When a
municipal bond issuer has committed to call an issue of bonds and has
established an independent escrow account that is sufficient to, and is pledged
to, refund that issue, the number of days to maturity for the prerefunded bond
is considered to be the number of days to the announced call date of the bonds.
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. Assets underlying the ETF
shares may consist of stocks, bonds, commodities, or other instruments,
depending on an ETF's investment objective and strategies. 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.
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.
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.
Strategic
Advisers® Tax-Sensitive Short Duration 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 fund's 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). 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.
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
over-the-counter (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. 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.
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.
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 a fund's investments and monitors the extent of a fund's
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, at times, grown
rapidly. 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.
One
rating service has, in the past, lowered its long-term sovereign credit rating
on the United States. The market prices and yields of securities supported by
the full faith and credit of the U.S. Government may be adversely affected by a
rating service's decision 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.
Indexed
securities may have principal payments as well as coupon payments that depend on
the performance of one or more interest rates. Their coupon rates or principal
payments may change by several percentage points for every 1% interest rate
change.
Inflation-protected
securities, for example, can be indexed to a measure of inflation, such as the
Consumer Price Index (CPI).
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
Securities and Exchange Commission (SEC), a Fidelity ® fund may lend money to,
and borrow money from, other funds advised by Fidelity Management & Research
Company LLC (FMR) or its affiliates. Municipal funds currently intend to
participate in this program only as borrowers. A Fidelity ® fund will borrow
through the program only when the costs are equal to or lower than the costs of
bank loans. Interfund 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.
Inverse
Floaters have variable interest rates that typically move in the opposite
direction from movements in prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and falling when short-term
interest rates rise. The prices of inverse floaters can be considerably more
volatile than the prices of other investments with comparable maturities and/or
credit quality.
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.
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.
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.
Money
Market Securities are high-quality, short-term obligations. Money market
securities may be structured to be, or may employ a trust or other form so that
they are, eligible investments for money market funds. For example, put features
can be used to modify the maturity of a security or interest rate adjustment
features can be used to enhance price stability. If a structure fails to
function as intended, adverse tax or investment consequences may result. Neither
the Internal Revenue Service (IRS) nor any other regulatory authority has ruled
definitively on certain legal issues presented by certain structured securities.
Future tax or other regulatory determinations could adversely affect the value,
liquidity, or tax treatment of the income received from these securities or the
nature and timing of distributions made by a fund.
Municipal
Insurance. A municipal bond may be covered by insurance that guarantees the
bond's scheduled payment of interest and repayment of principal. This type of
insurance may be obtained by either (i) the issuer at the time the bond is
issued (primary market insurance), or (ii) another party after the bond has been
issued (secondary market insurance).
Both
primary and secondary market insurance guarantee timely and scheduled repayment
of all principal and payment of all interest on a municipal bond in the event of
default by the issuer, and cover a municipal bond to its maturity, typically
enhancing its credit quality and value.
Municipal
bond insurance does not insure against market fluctuations or fluctuations in a
fund's share price. In addition, a municipal bond insurance policy will not
cover: (i) repayment of a municipal bond before maturity (redemption), (ii)
prepayment or payment of an acceleration premium (except for a mandatory sinking
fund redemption) or any other provision of a bond indenture that advances the
maturity of the bond, or (iii) nonpayment of principal or interest caused by
negligence or bankruptcy of the paying agent. A mandatory sinking fund
redemption may be a provision of a municipal bond issue whereby part of the
municipal bond issue may be retired before maturity.
Because
a significant portion of the municipal securities issued and outstanding is
insured by a small number of insurance companies, not all of which have the
highest credit rating, an event involving one or more of these insurance
companies could have a significant adverse effect on the value of the securities
insured by that insurance company and on the municipal markets as a whole.
Ratings of insured bonds reflect the credit rating of the insurer, based on the
rating agency's assessment of the creditworthiness of the insurer and its
ability to pay claims on its insurance policies at the time of the assessment.
While the obligation of a municipal bond insurance company to pay a claim
extends over the life of an insured bond, there is no assurance that municipal
bond insurers will meet their claims. A higher-than-anticipated default rate on
municipal bonds or in connection with other insurance the insurer provides could
strain the insurer's loss reserves and adversely affect its ability to pay
claims to bondholders.
Strategic
Advisers may decide to retain an insured municipal bond that is in default, or,
in Strategic Advisers' view, in significant risk of default. While a fund holds
a defaulted, insured municipal bond, the fund collects interest payments from
the insurer and retains the right to collect principal from the insurer when the
municipal bond matures, or in connection with a mandatory sinking fund
redemption.
Municipal
Leases and participation interests therein may take the form of a lease, an
installment purchase, or a conditional sale contract and are issued by state and
local governments and authorities to acquire land or a wide variety of equipment
and facilities. Generally, a fund will not hold these obligations directly as a
lessor of the property, but will purchase a participation interest in a
municipal obligation from a bank or other third party. A participation interest
gives the purchaser a specified, undivided interest in the obligation in
proportion to its purchased interest in the total amount of the issue.
Municipal
leases frequently have risks distinct from those associated with general
obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses" providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations. If a
municipality stops making payments or transfers its obligations to a private
entity, the obligation could lose value or become taxable.
Municipal
Market Disruption Risk. The value of municipal securities may be affected by
uncertainties in the municipal market related to legislation or litigation
involving the taxation of municipal securities or the rights of municipal
securities holders in the event of a bankruptcy. Proposals to restrict or
eliminate the federal income tax exemption for interest on municipal securities
are introduced before Congress from time to time. Proposals also may be
introduced before state legislatures that would affect the state tax treatment
of a municipal fund's distributions. If such proposals were enacted, the
availability of municipal securities and the value of a municipal fund's
holdings would be affected, and the Trustees would reevaluate the fund's
investment objectives and policies. Municipal bankruptcies are relatively rare,
and certain provisions of the U.S. Bankruptcy Code governing such bankruptcies
are unclear and remain untested. Further, the application of state law to
municipal issuers could produce varying results among the states or among
municipal securities issuers within a state. These legal uncertainties could
affect the municipal securities market generally, certain specific segments of
the market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all of
the municipal securities held by a fund.
Municipal
securities may be susceptible to downgrade, default, and bankruptcy,
particularly during economic downturns. Factors affecting municipal securities
include the budgetary constraints of local, state, and federal governments upon
which the municipalities issuing municipal securities may be relying for
funding, as well as lower tax collections, fluctuations in interest rates, and
increasing construction costs. Municipal securities are also subject to the risk
that the perceived likelihood of difficulties in the municipal securities
markets could result in increased illiquidity, volatility, and credit risk.
Certain municipal issuers may be unable to obtain additional financing through,
or be required to pay higher interest rates on, new issues, which may reduce
revenues available for these municipal issuers to pay existing obligations. In
addition, certain municipal issuers may be unable to issue or market securities,
resulting in fewer investment opportunities for funds investing in municipal
securities.
Education.
In general, there are two types of education-related bonds: those issued to
finance projects for public and private colleges and universities, and those
representing pooled interests in student loans. Bonds issued to supply
educational institutions with funds are subject to the risk of unanticipated
revenue decline, primarily the result of decreasing student enrollment or
decreasing state and federal funding. Among the factors that may lead to
declining or insufficient revenues are restrictions on students' ability to pay
tuition, availability of state and federal funding, and general economic
conditions. Student loan revenue bonds are generally offered by state (or
substate) authorities or commissions and are backed by pools of student loans.
Underlying student loans may be guaranteed by state guarantee agencies and may
be subject to reimbursement by the United States Department of Education through
its guaranteed student loan program. Others may be private, uninsured loans made
to parents or students which are supported by reserves or other forms of credit
enhancement. Recoveries of principal due to loan defaults may be applied to
redemption of bonds or may be used to re-lend, depending on program latitude and
demand for loans. Cash flows supporting student loan revenue bonds are impacted
by numerous factors, including the rate of student loan defaults, seasoning of
the loan portfolio, and student repayment deferral periods of forbearance. Other
risks associated with student loan revenue bonds include potential changes in
federal legislation regarding student loan revenue bonds, state guarantee agency
reimbursement and continued federal interest and other program subsidies
currently in effect.
Electric
Utilities. The electric utilities industry has been experiencing, and will
continue to experience, increased competitive pressures. Federal legislation in
the last two years will open transmission access to any electricity supplier,
although it is not presently known to what extent competition will evolve. Other
risks include: (a) the availability and cost of fuel, (b) the availability and
cost of capital, (c) the effects of conservation on energy demand, (d) the
effects of rapidly changing environmental, safety, and licensing requirements,
and other federal, state, and local regulations, (e) timely and sufficient rate
increases, and (f) opposition to nuclear power.
Health
Care. The health care industry is subject to regulatory action by a number of
private and governmental agencies, including federal, state, and local
governmental agencies. A major source of revenues for the health care industry
is payments from the Medicare and Medicaid programs. As a result, the industry
is sensitive to legislative changes and reductions in governmental spending for
such programs. Numerous other factors may affect the industry, such as general
and local economic conditions; demand for services; expenses (including
malpractice insurance premiums); and competition among health care providers. In
the future, the following elements may adversely affect health care facility
operations: adoption of legislation proposing a national health insurance
program; other state or local health care reform measures; medical and
technological advances which dramatically alter the need for health services or
the way in which such services are delivered; changes in medical coverage which
alter the traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance and
health care services.
Housing.
Housing revenue bonds are generally issued by a state, county, city, local
housing authority, or other public agency. They generally are secured by the
revenues derived from mortgages purchased with the proceeds of the bond issue.
It is extremely difficult to predict the supply of available mortgages to be
purchased with the proceeds of an issue or the future cash flow from the
underlying mortgages. Consequently, there are risks that proceeds will exceed
supply, resulting in early retirement of bonds, or that homeowner repayments
will create an irregular cash flow. Many factors may affect the financing of
multi-family housing projects, including acceptable completion of construction,
proper management, occupancy and rent levels, economic conditions, and changes
to current laws and regulations.
Transportation.
Transportation debt may be issued to finance the construction of airports, toll
roads, highways, or other transit facilities. Airport bonds are dependent on the
general stability of the airline industry and on the stability of a specific
carrier who uses the airport as a hub. Air traffic generally follows broader
economic trends and is also affected by the price and availability of fuel. Toll
road bonds are also affected by the cost and availability of fuel as well as
toll levels, the presence of competing roads and the general economic health of
an area. Fuel costs and availability also affect other transportation-related
securities, as do the presence of alternate forms of transportation, such as
public transportation.
Water
and Sewer. Water and sewer revenue bonds are often considered to have relatively
secure credit as a result of their issuer's importance, monopoly status, and
generally unimpeded ability to raise rates. Despite this, lack of water supply
due to insufficient rain, run-off, or snow pack is a concern that has led to
past defaults. Further, public resistance to rate increases, costly
environmental litigation, and Federal environmental mandates are challenges
faced by issuers of water and sewer bonds.
Put
Features entitle the holder to sell a security back to the issuer or a third
party at any time or at specified intervals. In exchange for this benefit, a
fund may accept a lower interest rate. Securities with put features are subject
to the risk that the put provider is unable to honor the put feature (purchase
the security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other entities.
Demand features, standby commitments, and tender options are types of put
features.
Real
Estate Investment Trusts (REITs). 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.
Refunding
Contracts. Securities may be purchased on a when-issued basis in connection with
the refinancing of an issuer's outstanding indebtedness. Refunding contracts
require the issuer to sell and a purchaser to buy refunded municipal obligations
at a stated price and yield on a settlement date that may be several months or
several years in the future. A purchaser generally will not be obligated to pay
the full purchase price if the issuer fails to perform under a refunding
contract. Instead, refunding contracts generally provide for payment of
liquidated damages to the issuer. A purchaser may secure its obligations under a
refunding contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract.
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
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 such as mutual funds and ETFs,
represent interests in professionally managed portfolios that may invest in any
type of instrument. Investing in other investment companies (including
investment companies managed by affiliates of Strategic Advisers) 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, unless
such fees have been waived by Strategic Advisers. 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.
Similarly, ETFs trade on a securities exchange and may trade at a premium or a
discount to their NAV.
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, Strategic 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.
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.
Standby
Commitments are puts that entitle holders to same-day settlement at an exercise
price equal to the amortized cost of the underlying security plus accrued
interest, if any, at the time of exercise. A fund may acquire standby
commitments to enhance the liquidity of portfolio securities.
Ordinarily
a fund will not transfer a standby commitment to a third party, although it
could sell the underlying municipal security to a third party at any time. A
fund may purchase standby commitments separate from or in conjunction with the
purchase of securities subject to such commitments. In the latter case, the fund
would pay a higher price for the securities acquired, thus reducing their yield
to maturity.
Issuers
or financial intermediaries may obtain letters of credit or other guarantees to
support their ability to buy securities on demand. An adviser may rely upon its
evaluation of a bank's credit in determining whether to purchase an instrument
supported by a letter of credit. In evaluating a foreign bank's credit, an
adviser will consider whether adequate public information about the bank is
available and whether the bank may be subject to unfavorable political or
economic developments, currency controls, or other governmental restrictions
that might affect the bank's ability to honor its credit commitment.
Standby
commitments are subject to certain risks, including the ability of issuers of
standby commitments to pay for securities at the time the commitments are
exercised; the fact that standby commitments are not generally marketable; and
the possibility that the maturities of the underlying securities may be
different from those of the commitments.
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.
Strategic
Advisers® Tax-Sensitive Short Duration Fund reserves the right to invest without
limitation in investment-grade money market or short-term debt instruments, to
hold a substantial amount of uninvested cash, or to invest in federally taxable
obligations to a greater extent than normally contemplated by the fund's
"tax-sensitive" strategy for temporary, defensive purposes.
Tender
Option Bonds are created by depositing intermediate- or long-term, fixed-rate or
variable rate, municipal bonds into a trust and issuing two classes of trust
interests (or "certificates") with varying economic interests to investors.
Holders of the first class of trust interests, or floating rate certificates,
receive tax-exempt interest based on short-term rates and may tender the
certificate to the trust at par. As consideration for providing the tender
option, the trust sponsor (typically a bank, broker-dealer, or other financial
institution) receives periodic fees. The trust pays the holders of the floating
rate certificates from proceeds of a remarketing of the certificates or from a
draw on a liquidity facility provided by the sponsor. A fund investing in a
floating rate certificate effectively holds a demand obligation that bears
interest at the prevailing short-term tax-exempt rate. The floating rate
certificate is typically an eligible security for money market funds. Holders of
the second class of interests, sometimes called the residual income
certificates, are entitled to any tax-exempt interest received by the trust that
is not payable to floating rate certificate holders, and bear the risk that the
underlying municipal bonds decline in value. In selecting tender option bonds,
FMR will consider the creditworthiness of the issuer of the underlying bond
deposited in the trust, the experience of the custodian, and the quality of the
sponsor providing the tender option. In certain instances, the tender option may
be terminated if, for example, the issuer of the underlying bond defaults on
interest payments.
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 fund 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 fund. The 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 London Interbank Offered Rate (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). At the end of 2021, certain LIBORs were discontinued, but the
most widely used LIBORs may continue to be provided on a representative basis
until at least mid-2023. In addition, the United Kingdom Financial Conduct
Authority (FCA) has announced that it will require the publication of synthetic
LIBOR for the one-month, three-month and six-month U.S. Dollar LIBOR settings
after June 30, 2023 through at least September 30, 2024. Although the transition
process away from IBORs has become increasingly well-defined, any potential
effects of a transition away from the IBORs on a fund and the financial
instruments in which it invests can be difficult to ascertain, 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. Moreover, certain aspects of the transition from IBORs will rely on
the actions of third-party market participants, such as clearing houses,
trustees, administrative agents, asset servicers and certain service providers;
the Adviser cannot guarantee the performance of such market participants and any
failure on the part of such market participants to manage their part of the IBOR
transition could impact a fund. 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.
In
many instances bonds and participation interests have tender options or demand
features that permit the holder to tender (or put) the bonds to an institution
at periodic intervals and to receive the principal amount thereof. Variable rate
instruments structured in this fashion are considered to be essentially
equivalent to other variable rate securities. The IRS has not ruled whether the
interest on these instruments is tax-exempt. Fixed-rate bonds that are subject
to third-party puts and participation interests in such bonds held by a bank in
trust or otherwise may have similar features.
When-Issued
and Forward Purchase or Sale Transactions involve a commitment to purchase or
sell specific securities at a predetermined price or yield in which payment and
delivery take place after the customary settlement period for that type of
security. Typically, no interest accrues to the purchaser until the security is
delivered.
When
purchasing securities pursuant to one of these transactions, the purchaser
assumes the rights and risks of ownership, including the risks of price and
yield fluctuations and the risk that the security will not be issued as
anticipated. Because payment for the securities is not required until the
delivery date, these risks are in addition to the risks associated with a fund's
investments. If a fund remains substantially fully invested at a time when a
purchase is outstanding, the purchases may result in a form of leverage. When a
fund has sold a security pursuant to one of these transactions, the fund does
not participate in further gains or losses with respect to the security. If the
other party to a delayed-delivery transaction fails to deliver or pay for the
securities, a fund could miss a favorable price or yield opportunity or suffer a
loss.
A
fund may renegotiate a when-issued or forward transaction and may sell the
underlying securities before delivery, which may result in capital gains or
losses for the fund.
Zero
Coupon Bonds do not make interest payments; instead, they are sold at a discount
from their face value and are redeemed at face value when they mature. Because
zero coupon bonds do not pay current income, their prices can be more volatile
than other types of fixed-income securities when interest rates change. In
calculating a fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
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.
To
the extent that Strategic Advisers grants investment management authority over
an allocated portion of the fund's assets to a sub-adviser (see the section
entitled "Management Contract"), 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.
Orders
for the purchase or sale of portfolio securities are placed on behalf of the
fund by Strategic Advisers (either directly or through its affiliates) or a
sub-adviser, pursuant to authority contained in the management contract and the
respective sub-advisory agreement.
Strategic
Advisers 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.
The
fund will not incur any commissions or sales charges when it invests in
affiliated mutual funds, but it may incur such costs when it invests in
non-affiliated funds and when it invests directly in other types of securities,
including ETFs.
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 the fund for any fixed-income security, the price paid by the
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 the fund periodically review Strategic Advisers' and its
affiliates' and each sub-adviser's performance of their respective
responsibilities in connection with the placement of portfolio securities
transactions on behalf of the fund. The Trustees also review the compensation
paid by the fund over representative periods of time to determine if it was
reasonable in relation to the benefits to the fund.
Strategic
Advisers.
The
Selection of Securities Brokers and Dealers
Strategic
Advisers or its affiliates generally have authority to select brokers (whether
acting as a broker or a dealer) to place or execute the fund's portfolio
securities transactions. In selecting brokers, including affiliates of Strategic
Advisers, to execute the fund's portfolio securities transactions, Strategic
Advisers or its affiliates consider the factors they deem relevant in the
context of a particular trade and in regard to Strategic Advisers' 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, Strategic Advisers or its affiliates
may choose to execute an order using ECNs including broker-sponsored
algorithmics, 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 order; the speed of
executions; 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; 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.
The
trading desks through which Strategic Advisers or its affiliates may execute
trades are instructed to execute portfolio transactions on behalf of the fund
based on the quality of execution without any consideration of brokerage and
research products and services the broker or dealer may provide. The
administration of brokerage and research products and services is managed
separately from the trading desks, which means that traders have no
responsibility for administering soft dollar activities.
In
seeking best execution for portfolio securities transactions, Strategic Advisers
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. Strategic Advisers or its
affiliates also may select a broker that charges more than the lowest commission
rate available from another broker. Occasionally, Strategic Advisers 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 Strategic
Advisers 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. Strategic Advisers
or its affiliates execute futures transactions electronically.
The
Acquisition of Brokerage and Research Products and Services
Strategic
Advisers does not maintain a soft dollar program. Some sub-advisers to the fund
use soft dollar or other commission-sharing arrangements in connection with
transactions effected for the fund. In those cases, sub-advisers could, pursuant
to their policies and procedures, allocate brokerage transactions of the fund to
brokers in exchange for research-related or brokerage-related goods or services,
provided that such arrangements meet the requirements of Section 28(e) of the
Securities Exchange Act of 1934. Strategic Advisers does not obtain products,
research, or services in connection with directing brokerage business to any
broker or dealer.
Commission
Recapture
Strategic
Advisers does not consider, in selecting or recommending brokers, whether
Strategic Advisers or a related person to Strategic Advisers receives client
referrals from a broker or third party. Strategic Advisers and its affiliates
are authorized to allocate brokerage transactions to brokers who are not
affiliates of Strategic Advisers who have entered into arrangements with
Strategic Advisers or its affiliates under which the broker, using predetermined
methodology, rebates a portion of the compensation paid by the fund to offset
that fund's expenses, which is paid to Strategic Advisers or its affiliates. Not
all brokers with whom the fund trades have agreed to participate in brokerage
commission recapture. Strategic Advisers expects that brokers from whom
Strategic Advisers or its affiliates purchase research products and services
with their own resources (referred to as "hard dollars") are unlikely to
participate in commission recapture.
Affiliated
Transactions
In
certain cases, Strategic Advisers and its delegates are authorized to place
portfolio transactions with affiliated registered brokers or transfer agents. In
particular, Strategic Advisers can place trades with National Financial Services
LLC (NFS), through its Fidelity Capital Markets (FCM) division, and Luminex
Trading & Analytics LLC (Luminex). Strategic Advisers will arrange for the
execution of transactions through those brokers or dealers if Strategic Advisers
reasonably believes that the quality of the execution of the transaction is
comparable to what could be obtained through other qualified brokers or dealers.
In determining the ability of a broker or dealer to obtain best execution,
Strategic Advisers will consider a number of factors, including the broker's or
dealer's execution capabilities, reputation, and access to the markets for the
securities being traded. Sub-advisers of the fund are authorized to place
portfolio transactions with Strategic Advisers' affiliated brokers in accordance
with regulatory guidelines. For certain funds trades are facilitated through
FMR's trading desk and then allocated to affiliated or unaffiliated executing
brokers. In addition, from time to time, Strategic Advisers or its affiliates
may 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.
The
Trustees of the 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 fund could purchase in the underwritings.
Non-U.S.
Transactions
To
facilitate trade settlement and related activities in non-United States
securities transactions, Strategic Advisers or its affiliates may 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 may be
effected on behalf of funds by parties other than Strategic Advisers 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 the fund are substantially the same as those of
certain other funds managed by Strategic Advisers or its affiliates, investment
decisions for the fund are made independently from those of other funds or
investment accounts (including proprietary accounts) managed by Strategic
Advisers or its affiliates. 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 Strategic Advisers 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 the fund is concerned. In other cases, however, the ability
of the fund to participate in volume transactions will produce better executions
and prices for the fund.
Allspring
Global Investments, LLC (Allspring Investments)
Summary:
Best
execution in the context of fixed income securities is appropriately defined as
a portfolio manager's duty to determine and evaluate the circumstances under
which the overall value of investment decisions for his or her clients will be
maximized. Our firm interprets its duty to seek best execution of trades as a
requirement to make well informed execution decisions with the intention of
maximizing the value of client portfolios under the particular circumstances at
the time. Therefore, the best execution process implemented by Allspring
Investments is, by necessity, specifically tailored to reflect the unique
characteristics of each trading group and markets in which they trade.
In
light of the special characteristics of the fixed-income markets, best execution
must be evaluated on an overall basis over an extended period of time, not on a
transaction-by- transaction basis. The firm has developed process and policies
reflecting a number of core elements to follow:
•
Determining and documenting these trade execution policies and procedures;
•
Developing a defined system of controls and risk management regarding fixed
income executions;
•
Providing regular supervision and rigorous review of the fixed-income best
execution process; and
•
Testing and monitoring compliance with these policies and procedures.
The
firm has developed the following best execution policies and procedures with
principles-based rules that allow portfolio managers to tailor their analysis
based upon the types of fixed-income securities they trade.
These
policies:
1.
Specify factors to decide counterparty and timing of trades;
2.
Establish and maintain an approved counterparty list and monitor use;
3.
Evaluate potential pricing services or programs (proprietary and non-
proprietary) and other data available to assess market information and assist
portfolio management and/or trading with best execution;
4.
Delineate responsibilities of personnel: the firm's compliance and legal
departments, portfolio managers, traders and analysts, and any best execution
review committee established by the firm to oversee the process; and
5.
Specify controls (and risk management procedures), including management of
conflicts of interest (affecting incentives, dealers, counterparties, pricing
services and other parties providing services to the firm).
Measurement:
A
key element in the firm's fixed-income best execution process is the use of
quantitative and qualitative information in evaluating particular transactions.
The firm's traders evaluate reliable market data for the types of fixed-income
securities in which they will primarily transact. This research is tantamount to
pre-trade evaluation of data and execution decisions and/or post-trade analysis
of transactions where possible.
Bloomberg
has been adopted as Allspring Investment's trade order management tool for fixed
income securities and Bloomberg's BTCA system has been implemented to provide
effective TCA and surveillance capabilities to assist the business in meeting
its regulatory obligations across a number of areas. The BTCA system is an
automated tool used to identify exceptions when certain tolerances have been
breached; BTCA allows users to document exception rationale, resolve exception
alerts, and archive exception alerts. The Exceptions Dashboard retains a full
audit trail of all historic exceptions including an audit trail of the
exceptions and how they were acknowledged and resolved. Each investment team
reviews their exceptions on the dashboard, provides rationale, and has a second
level reviewing manager review them. Compliance will monitor and provide
oversight to this process, and will report on the exception findings at the
quarterly Fixed Income Trade Management Committee ("FITMC") meeting.
To
meet its oversight and governance responsibilities, Allspring established
oversight committees that meet on a quarterly basis to govern all trading
practices, including various situations related to best execution, of Allspring
Investments. Equity best execution is governed by the Equity Commission Trade
Management Committee ("ECTMC"). The ECTMC oversees the firm's equity, futures
and FX trade execution quality, commission management, Section 28(e) compliance,
and equity investment research costs. Allspring Investments established the
Fixed Income Trade Management Committee ("FITMC") to oversee the firm's global
fixed income policy and ensure that Allspring Investments maintains an effective
governance program that complies with all stated policies, including best
execution as well as MiFID II provisions for those accounts deemed to be in
scope. Further, an Investment Oversight Committee was established, in which
escalated items coming out of the ECTMC and FITMC are reviewed and discussed.
For certain clients, domiciled in the European Union ("EU") region or the UK,
Allspring Investments is required to manage those assets in accordance with
MiFID II.
Reporting
to the FITMC includes exception trend monitoring by investment team showing
percentage of exceptions relative to total trade volume. The average range of
exceptions by team is less than 1% to 10% on average depending on asset class
traded, liquidity, pricing sources and delays in pricing relative to execution
time. In addition to exception trend monitoring, portfolio compliance reports
include details on all exceptions by team as well as the rationale for the trade
exception. The Committee and CIO monitor the exceptions by team to ensure all
trade exceptions are documented and reviewed in accordance with policy.
Allspring
established a Trade Surveillance and Monitoring Program to assess how
effectively policies and procedures are adhered to and designed to identify any
potential gaps, weaknesses, and/or inefficiencies in the Compliance Program. For
the Best Execution review for Fixed Income, Compliance will utilize BTCA to
monitor and provide oversight to the tolerance rule exceptions identified for
the Allspring Investments teams, and will report the findings for the BTCA
compliance reports to the FITMC. Bloomberg TCA thresholds are set up by asset
class and duration. Each asset class has a predefined threshold for expected
trading. If a trade occurs outside threshold, it's flagged as a potential
exception. The trade flags on the trader's Bloomberg dashboard and requires the
trader to document that rationale supporting why the trade was executed outside
threshold. The trading manager, Compliance and the FITMC oversight Committee are
reviewing all exceptions in accordance with stated policies.
Trading
Process and Allocation:
The
municipal fixed-income marketplace is an "over-the-counter" market and
securities are marked-to-market daily, which makes good trade execution
extremely important. Therefore, seasoned and efficient traders are important to
adding value to the portfolio. Although Allspring Investments' Municipal Fixed
Income team employs an active management philosophy, they trade primarily for
fundamental value, based on a long-view investment horizon. Thus they do not
focus on generating alpha through actively trading in and out of positions.
Rather, they trade for value by seeking to add attractively priced cash flows
and holding them in the portfolio. Getting these cash flows requires good
execution but not excessive trading.
The
team employs dedicated traders, who execute municipal fixed-income trades. The
portfolio managers are involved in trading for the portfolios for which they are
responsible and have ultimate oversight on trades. Bloomberg AIM is the trading
system used by portfolio management.
A
portfolio manager is authorized to make buy and sell decisions for the clients
invested in their strategies and generated trades are communicated
electronically to the traders. Traders execute these decisions uniformly across
all accounts managed in the same investment strategy except for accounts with
client restrictions. Each account participates proportionately in all executed
levels, subject to minimum size lots.
The
Municipal Fixed Income trading desk is not able to originate trades and can only
accept portfolio manager-originated trades. Traders are responsible for
assessing volatility and liquidity characteristics of each name, in addition to
communicating with the portfolio manager specific directions per trade (price
limits, directed broker, etc.). The traders have the flexibility to pursue
various sources of liquidity, ranging from traditional broker dealer
relationships to low cost electronic platforms, thus ensuring best execution.
Traders use the resources of over 100 brokerage contacts as well as electronic
trading venues.
When
a trade is executed, the order is entered into the trading system. Through an
automated data feed from the trading system, all purchases and sales are posted
to the portfolio accounting system. The settlements team then verifies the
characteristics of the trade with the executing broker. Verification includes
trade and settlement date, shares/par, execution price, net proceeds, and
settlement instructions. Trades are then communicated to the client's custodian.
Transactions and cash between the accounting and trading systems are reconciled
on a daily basis. Positions are reconciled on a weekly basis. Any discrepancies
are researched and communicated prior to the next business day.
All
portfolios employing the same strategy are managed using a team approach. This
minimizes dispersion between accounts, except for client-specific requirements
and cash flows. Moreover, while the team tries to place similar mandates in the
same composite, subtle differences in each mandate's parameters may also
influence portfolio dispersion. Dispersion among accounts within a composite and
strategy are monitored by the team and Allspring Performance to assess
dispersion as an affirmation of prudent allocation for GIPS compliance.
Trade
allocations are based on account needs given the characteristic of the bond
being purchased. Allocations are done pro-rata if possible, but in many cases
trades will not be allocated pro-rata in an effort to keep the bond block at an
institutional size. Should a security block be too small to allocate pro-rata,
the portfolio with greater need for the specific security characteristics will
be allocated that bond. No client, affiliated or non-affiliated, has a status
for preferential allocations.
Portfolios
are in consideration for the same names, but the team does not believe that this
will have a material effect on any one client portfolio. All client portfolios
are actively monitored by both relationship and portfolio managers for
compliance with stated objectives and to ensure consistency of strategy
implementation. Client investment objectives, guidelines and constraints (if
any) are reviewed prior to making portfolio purchase and sale decisions. In
addition, Allspring Compliance, aided by automated compliance systems, monitors
portfolios for compliance of internal policies and complete general risk
analysis.
In addition, the investment team conducts continual risk attribution and
performance analysis on the strategies they manage. Reporting is generated on a
daily, weekly, and monthly basis regarding performance dispersion and risk
relative to stated benchmarks and categories. Additionally, these reports serve
as the foundation for quarterly reviews between portfolio management and the
office of the CIO. This reporting highlights current investment decisions being
made and functions as a complement to team-level and prospectus level risk
management policies. Risk reporting is not designed to drive the investment
process, but rather to serve as a tool to better understand active risks. Risk
and attribution reports serve as the foundation for potential strategy or risk
management enhancements.
Counterparty
Risk Oversight:
Prospective
brokers selected for use by the firm's traders and/or portfolio management teams
must be formally approved by the Counterparty Risk Analytics team, embedded
within the Investment Analytics team, before being added to the Approved
Counterparty List and activated for trading.
The
firm maintains an approved counterparty list of approximately 300-330
counterparties. Portfolio managers or traders submit a request to have a new
counterparty added to the Approved Counterparty List which requires the
completion of a request form and a subjective assessment of the counterparty's
financial health, trading expertise, and infrastructure. Upon receipt of the
request, the team collects general information and financial data from the
counterparty's website, FINRA Report, Focus Report (SEC Form X-17A-5), and
audited financial statements, a regulatory screening is completed , and an
internet and Bloomberg search is conducted to identify news articles related to
the counterparty's creditworthiness and financial health.
This
collection of financial, regulatory, and public data is used to identify
significant risks or deficiencies that may warrant denial of a new counterparty
approval request or modification of existing risk exposure thresholds.
All
approved counterparties are continuously monitored and formally reviewed on an
annual basis in order to identify significant changes in creditworthiness or
regulatory compliance that may warrant removal from the approved counterparty
list and deactivation in trading systems. A counterparty not on the approved
counterparty list can be used on an exception basis if the Counterparty Risk
Analytics team determines that, under specific circumstances, a trade with the
counterparty may be in a client's best interest. Firm- and portfolio- level
counterparty exposures are monitored daily relative to established exposure
thresholds.
Soft
Dollars:
The
firm does not engage in "soft dollar" transactions or directed order flow in
exchange for research for fixed income transactions under the "safe harbor"
provisions of Section 28(e) of the Securities Exchange Act of 1934.
The
fixed income teams may receive research from brokers even where the broker may
act as a counterparty to the trade. In many instances, a research provider may
be the only available counterparty for trading a specific security, or due to
their research acumen, the counterparty may provide the best quotes or execution
capabilities in the market for the particular security. In situations where
multiple dealers are quoting the same security, fixed income traders may take
into consideration the provision of research in determining at their discretion
whether to grant the research provider with a "last look" opportunity to match
better quotes of another dealer, whose identity shall not be disclosed to the
research firm. This practice is acceptable provided that the research is of a
form that is generally available generically or publicly to all clients of the
research provider, or alternatively, in the event that the research is
specifically directed to the firm, its use has first been properly disclosed to
the applicable portfolio manager for review (and consideration with Compliance
if necessary).
In
no circumstances shall the provision of research be a sole determining factor in
deciding whether a transaction satisfies the best execution criteria and it
shall not serve to ignore a better price available through another counterparty.
Conflicts
of interest:
Allspring
Investments' Portfolio Managers often provide investment management for separate
accounts advised in the same or similar investment style as that provided to
mutual funds. While management of multiple accounts could potentially lead to
conflicts of interest over various issues such as trade allocation, fee
disparities and research acquisition, Allspring Investments has implemented
policies and procedures for the express purpose of ensuring that clients are
treated fairly and that potential conflicts of interest are minimized.
The
Portfolio Managers face inherent conflicts of interest in their day-to-day
management of Funds and other accounts because they may have different
investment objectives, strategies and risk profiles than the other accounts
managed by the Portfolio Managers. For instance, to the extent that the
Portfolio Managers manage accounts with different investment strategies than the
Funds, they may from time to time be inclined to purchase securities, including
initial public offerings, for one account but not for a Fund. Additionally, some
of the accounts managed by the Portfolio Managers may have different fee
structures, including performance fees, which are or have the potential to be
higher or lower, in some cases significantly higher or lower, than the fees paid
by the Funds. The differences in fee structures may provide an incentive to the
Portfolio Managers to allocate more favorable trades to the higher-paying
accounts.
To
minimize the effects of these inherent conflicts of interest, Allspring
Investments has adopted and implemented policies and procedures, including best
execution and trade allocation policies and procedures, that they believe
address the potential conflicts associated with managing portfolios for multiple
clients and are designed to ensure that all clients are treated fairly and
equitably. Accordingly, security block purchases are allocated to all accounts
with similar objectives in a fair and equitable manner. Furthermore, Allspring
Investments has adopted a Code of Ethics under Rule 17j-1 under the 1940 Act and
Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act") to
address potential conflicts associated with managing the Funds and any personal
accounts the Portfolio Managers may maintain.
FIAM
LLC (FIAM).
The
Selection of Securities Brokers and Dealers
FIAM
or its affiliates generally have authority to select brokers (whether acting as
a broker or a dealer) with which to place the fund's portfolio securities
transactions. In selecting brokers, including affiliates of FIAM, to execute the
fund's portfolio securities transactions, FIAM or its affiliates consider the
factors they deem relevant in the context of a particular trade and in regard to
FIAM'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 or use of specific
brokers over other factors. Based on the factors considered, FIAM or its
affiliates may choose to execute an order using electronic channels, including
broker-sponsored algorithms, internal crossing, or by verbally working an order
with one or more brokers. Other possibly relevant factors may include, but are
not limited to the following: price; costs; the size, nature and type of the
order; 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 of existence of post-trade clearing, settlement, custody and
currency convertibility mechanisms; and the provision of brokerage and research
products and services, if applicable and where allowed by law.
In
seeking best execution for portfolio securities transactions, FIAM and/or its
affiliates 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. FIAM and/or its affiliates may also
select brokers that charge more than the lowest commission rate available from
another broker. Occasionally FIAM and/or its affiliates execute an entire
securities transaction with a broker and allocate ("step out") 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 FIAM 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. FIAM and/or its affiliates execute futures transactions
verbally and electronically.
The
Acquisition of Brokerage and Research Products and Services
To
the extent permitted by applicable law, brokers (who are not affiliates of FIAM)
that execute transactions for the 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 FIAM or its affiliates.
Research
Products and Services. Products and services that FIAM or its affiliates
have received during the last fiscal year 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, video and in-person meetings with securities
analysts, corporate and industry spokespersons, economists, academicians and
government representatives and others with relevant professional expertise.
Brokers also provide brokerage and research products and services in the form of
a specific proprietary or third-party product or service, upon request by FIAM
or its affiliates. Some of these brokerage and research products and services
supplement FIAM's or its affiliates' own research activities in providing
investment advice to the fund.
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 FIAM 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 may
use commission dollars to obtain certain products or services that are not used
exclusively in their investment decision-making process (mixed-use products or
services). In those circumstances, FIAM or its affiliates will make a good faith
effort 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").
Benefits
to FIAM. FIAM'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 products or
services with their own resources. Therefore, an economic incentive exists for
FIAM and/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 FIAM's or its affiliates' clients interest in receiving most favorable
execution. FIAM and its affiliates manage the receipt of brokerage and research
products and services and the potential conflicts through their 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 FIAM and its
affiliates (each of those brokers is referred to as CCA brokers). In selecting
brokers for executing transactions on behalf of the fund, the trading desks
through which FIAM or its affiliates may execute trades are instructed to
execute portfolio transactions on behalf of the fund based on the brokers'
quality of execution and 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 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, FIAM or its affiliates 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 the traders have no
responsibility for administering the research program, including the payment for
research. FIAM and/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 ("segregated
account") and use those credits to pay research providers as instructed by FIAM
or its affiliates. Furthermore, where permissible under applicable law, certain
of the brokerage and research products and services that FIAM 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 are provided at no additional
cost to FIAM or its affiliates or might not have an explicit cost associated
with them.
FIAM's
Decision-Making Process. In connection with the allocation of fund brokerage,
FIAM and/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 FIAM and/or its
affiliates, viewed in terms of the particular transaction for the fund or FIAM's
and/or its affiliates' overall responsibilities to that fund or other clients
for which FIAM or its affiliates have investment discretion; however, each
brokerage and research product or service received in connection with the fund's
brokerage does not benefit the fund and certain clients will receive the benefit
of the brokerage and research product or service obtained with other clients'
commissions. As required under applicable laws or client policy, commissions
generated by certain clients may only be used to obtain certain brokerage and
research products and services. As a result, certain client accounts will pay
more proportionately for 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 client continues to be allocated equitably.
Certain non-equity accounts that on rare occasion may receive an equity security
through an issuer restructuring or other event and are required or determine to
dispose of such equity security, subject to applicable law and client policy,
may trade at execution only rates outside of the Commission Usage Program. While
FIAM and 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 FIAM, its affiliates, nor the fund 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, these brokerage and research products
and services assist FIAM or its affiliates in terms of their overall investment
responsibilities to the fund or any other client accounts for which FIAM or its
affiliates may have investment discretion. Certain client accounts use brokerage
commissions to acquire brokerage and research products and services that also
benefit other client accounts managed by FIAM or its affiliates, and not every
client account uses the brokerage and research products and services that have
been acquired through that account's commissions.
Research
Contracts. FIAM and/or its affiliates have arrangements with certain third-party
research providers and brokers through whom FIAM and/or its affiliates effect
fund trades, whereby FIAM and/or its affiliates 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, FIAM and/or its affiliates, at times, will cause the fund to pay more for
execution than the lowest commission rate available from the broker providing
research products and services to FIAM and/or its affiliates, or that may be
available from another broker. FIAM's or its affiliates' potential determination
to pay for research products and services separately (e.g., with hard dollars)
is wholly voluntary on FIAM's and 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. FIAM 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.
For
accounts that are managed within the United Kingdom, FIAM's affiliate FMR
Investment Management (UK) Limited (FMRIM (UK)) uses research payment accounts
(RPAs) to cover costs associated with equity and high income external research
that is consumed by those accounts in accordance with MiFID II and FCA
regulations. With RPAs, clients pay for external research through a separate
research charge that is generally assessed and collected alongside the execution
commission1. For clients that use an RPA, FMRIM (UK) establishes a research
budget. The budget is set by first grouping 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 account. For clients where
portions are managed both within and outside of the United Kingdom, external
research is paid using both a CCA and an RPA. Determinations of what is eligible
research and how costs are allocated are made in accordance with FIAM's and its
affiliates' policies and procedures. Costs for research consumed by accounts
that use an RPA are allocated among the accounts within defined strategies pro
rata based on the assets under management for each account. While the research
charge paid on behalf of any one client that uses an RPA varies over time, the
overall research charge determined at the client level on an annual basis will
not be exceeded.
FMRIM
(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 are maintained in
accounts at a third-party depository institution, held in the name of FMRIM
(UK). FMRIM (UK) provides to client accounts, 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 FMRIM (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
accounts, like those accounts 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 accounts.
If
the costs of paying for external research exceed the amount initially agreed in
relation to accounts in a given strategy, FIAM or its affiliates may continue to
charge those accounts beyond the initially agreed amount in accordance with
MiFID II, continue to acquire external research for the accounts using its own
resources, or cease to purchase external research for those accounts until the
next annual research budget. If assets for specific accounts 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 accounts or rebated to those accounts.
Accounts
managed by FIAM or its affiliates 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, FIAM and its affiliates have
established policies and procedures to ensure that external research that is
paid for through RPAs is not made available to FMRIM (UK) portfolio managers
that manage fixed income 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 brokerage and research 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, FIAM or its affiliates engage in brokerage transactions with
brokers who are not affiliates of FIAM who have entered into arrangements with
FIAM 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 the fund trades have been asked to participate in brokerage commission
recapture.
Affiliated
Transactions
FIAM
or its affiliates place trades with certain brokers, including NFS, through its
Fidelity Capital Markets (FCM) division, and Luminex, with whom they are under
common control or otherwise affiliated, provided FIAM 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 fund and subject to other
applicable law. In addition, from time to time, FIAM 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. Similarly,
equity trades may be executed through national securities exchanges in which
FIAM or its affiliates have an interest. Any decision to execute a trade through
an alternative trading system or exchange in which FIAM or its affiliates have
an interest are made in accordance with applicable law, including their
obligation to seek best execution. For trades placed on such a system or
exchange, FIAM or its affiliates may benefit in the form of increased
valuations(s) of its equity interest, or other renumeration, but it is not
possible to predict the likelihood of that occurring or quantify the amount of
any such benefit in advance.
The
Trustees of the 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 fund could purchase in the underwritings.
Non-U.S.
Securities Transactions
To
facilitate trade settlement and related activities in non-U.S. securities
transactions, FIAM or its affiliates effect spot foreign currency transactions
with foreign currency dealers or may engage a third party to do so. 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 FIAM 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 the fund are substantially the same as those of
certain other Fidelity® funds, investment decisions for the 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 FIAM 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
the fund is concerned. In other cases, however, the ability of the fund to
participate in volume transactions will produce better executions and prices for
the fund.
T.
Rowe Price Associates, Inc. (T. Rowe Price).
Investment
or Brokerage Discretion
Decisions
with respect to the selection, purchase, and sale of portfolio securities on
behalf of all or a portion of the fund's assets (the sub-fund) are made by T.
Rowe Price. T. Rowe Price is responsible for implementing these decisions for
the funds, including, where applicable, the negotiation of commissions, the
allocation of portfolio brokerage and principal business, and the use of
affiliates to assist in routing orders for execution. T. Rowe Price and its
affiliated advisers entity (the "T. Rowe Price Advisers") may delegate actual
trade execution to the trading desks of other T. Rowe Price Advisers and may use
these other T. Rowe Price Advisers for certain other trading-related services.
Broker-Dealer
Selection
With
respect to equity, fixed income, and derivative transactions, and subject to the
investment limitations of each fund, T. Rowe Price may effect principal
transactions on behalf of a fund with a broker-dealer that furnishes brokerage
and, in certain cases, research services; designate a broker-dealer to receive
selling concessions, discounts, or other allowances; and otherwise deal with a
broker-dealer in the acquisition of securities in underwritings.
Fixed
Income Securities
In
purchasing and selling fixed income securities, T. Rowe Price ordinarily place
transactions with the issuer or a broker-dealer acting as principal for the
securities on a net basis, with no stated brokerage commission being paid by the
client, although the price usually reflects undisclosed compensation to the
broker-dealer. Fixed income transactions may also be placed with underwriters at
prices that include underwriting fees. Fixed income transactions through
broker-dealers reflect the spread between the bid and asked prices.
Foreign
Currency Transactions
Subject
to the investment limitations of each fund, T. Rowe Price may engage in foreign
currency transactions ( FX ) to facilitate trading in or settlement of trades in
foreign securities. T. Rowe Price may use FX, including forward currency
contracts, when seeking to manage exposure to or profit from changes in interest
or exchange rates; to protect the value of portfolio securities; or to
facilitate cash management. T. Rowe Price selects broker-dealers that they
believe will provide best execution on behalf of the funds and other investment
accounts that they manage, frequently via electronic platforms. To minimize
transaction costs, certain FX trading activity may be aggregated across
accounts, including the funds, but each account's trade is individually settled
with the counterparty.
Equity
Securities
Subject
to the investment limitations of each fund, in purchasing and selling equity
securities, T. Rowe Price seeks to obtain best execution at favorable security
prices through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates. However, under certain
conditions, higher brokerage commissions may be paid to broker-dealers providing
brokerage and research services to T. Rowe Price than might be paid to other
broker-dealers in accordance with Section 28(e) of the 1934 Act ( Section 28(e)
) and subsequent guidance from regulators.
In
selecting broker-dealers to execute the funds' portfolio transactions,
consideration is given to such factors as the (i) liquidity of the security;
(ii) the size and difficulty of the order; (iii) the speed and likelihood of
execution and settlement; (iv) the reliability, integrity and creditworthiness,
general execution and operational capabilities of competing broker-dealers and
services provided; and (v) expertise in particular markets. It is not the policy
of T. Rowe Price to seek the lowest available commission rate where it is
believed that a broker-dealer charging a higher commission rate would offer
greater reliability or provide better pricing or more efficient execution.
Therefore, T. Rowe Price pays higher commission rates to broker-dealers that are
believed to offer greater reliability, better pricing, or more efficient
execution.
Best
Execution
T.
Rowe Price's Global Trading Committee ( GTC ) oversees the brokerage allocation
and trade execution policies for T. Rowe Price. The GTC is supported by the
equity and fixed income best execution subcommittees in T. Rowe Price's
compliance with the execution policy. The execution policy requires T. Rowe
Price to execute trades consistent with the principles of best execution which
requires an adviser to take all sufficient steps to obtain the best possible
result for the funds taking into account various factors.
Research
Benefits
T.
Rowe Price believes that original in-house research is the primary driver of
value-added active management. Although research created or developed by a
broker-dealer or its affiliate and research created or developed by an
independent third party is an important component of T. Rowe Price's investment
approach, T. Rowe Price relies primarily upon their own research and subject any
outside research to internal analysis before incorporating it into the
investment process.
T.
Rowe Price may use equity brokerage commissions in connection with securities
transactions consistent with Section 28(e) and other relevant regulatory
guidance to acquire brokerage services from broker-dealers. Section 28(e)
permits an investment adviser to cause an account to pay a higher commission to
a broker-dealer that provides research services than the commission another
broker-dealer would charge, provided the adviser determines in good faith that
the commission paid is reasonable in relation to the value of the brokerage
services provided. An adviser may make this good faith determination based upon
either the particular transaction involved or the overall responsibilities of
the adviser with respect to the accounts over which it exercises investment
discretion.
T.
Rowe Price bears the cost of research services for all client accounts advised
or subadvised by T. Rowe Price. Client accounts only pay execution commissions
in connection with equity securities transactions. For certain T. Rowe Price
funds, T. Rowe Price continues to use equity brokerage commissions from those
funds' transactions through commission-sharing arrangements (consistent with
Section 28(e)) to compensate certain U.S. broker-dealers for research services.
T. Rowe Price, however, voluntarily reimburses those T. Rowe Price funds for any
amount collected into the commission-sharing arrangements.
T.
Rowe Price acquires proprietary research from broker-dealers who also provide
trade execution, clearing settlement, and/or other services. Research received
from broker-dealers or independent third-party research providers generally
includes information on the economy; industries; groups of securities;
individual companies; statistical information; accounting and tax law
interpretations; political developments; legal developments affecting portfolio
securities; technical market action; pricing and appraisal services; credit
analysis; currency and commodity market analysis; risk measurement analysis;
performance analysis; and analysis of corporate, environmental, social, and
governance responsibility issues.
Research
services are received in the form of written reports; computer-generated data;
telephone contacts; investment conferences; bespoke services; financial models;
and personal meetings with security analysts, market specialists, corporate and
industry executives, and other persons. Research may also include access to
unaffiliated individuals with expertise in various industries, businesses, or
other related areas, including use of expert referral networks that provide
access to industry consultants, vendors, and suppliers. T. Rowe Price may use a
limited number of expert networks.
T.
Rowe Price generally pays for data subscriptions, investment technology tools,
and other specialized services to assist with the investment process directly
from its own resources. T. Rowe Price also pays for fixed income research and
services directly from its own resources where feasible or required.
Allocation
of Brokerage Business *
T.
Rowe Price has a policy of not pre-committing a specific amount of business to
any broker-dealer over any specific period. T. Rowe Price makes brokerage
placement determinations, as appropriate, based on the needs of a specific
transaction such as market-making, availability of a buyer for or seller of a
particular security, or specialized execution skills. T. Rowe Price may choose
to allocate brokerage among several broker-dealers able to meet the needs of the
transaction. Allocation of brokerage business is monitored on a regularly
scheduled basis by appropriate personnel and the GTC.
T.
Rowe Price may have brokerage relationships with broker-dealers that are, or are
an affiliate of, clients that have appointed T. Rowe Price or an affiliate to
serve as investment adviser, trustee, or recordkeeper. T. Rowe Price also has
other relationships with or may own positions in the publicly traded securities
of the broker-dealers with which they transact with or on behalf of our clients.
Evaluating
the Overall Reasonableness of Brokerage Commissions Paid
On
a continuing basis, T. Rowe Price seeks to determine what levels of commission
rates are reasonable in the marketplace for transactions executed on behalf of
funds and other institutional clients. In evaluating the reasonableness of
commission rates, T. Rowe Price may consider any or all of the following: (a)
rates quoted by broker-dealers; (b) the size of a particular transaction, in
terms of the number of shares, dollar amount, and number of clients involved;
(c) the complexity of a particular transaction in terms of both execution and
settlement; (d) the level and type of business conducted with a particular firm
over a period of time; (e) the extent to which the broker-dealer has capital at
risk in the transaction; (f) historical commission rates; (g) rates paid by
other institutional investors based on available public information; and (h)
research provided by the broker-dealer.
Commission
Recapture
Currently,
T. Rowe Price does not recapture commissions, underwriting discounts, or
selling-group concessions for equity or fixed income securities acquired in
underwritten offerings. T. Rowe Price may, however, designate a portion of the
underwriting spread to broker-dealers that participate in the offering.
Block
Trading/Aggregated Orders/Order Sequencing *
Because
certain investment vehicles (including the funds) managed by T. Rowe Price and
other affiliated investment advisers have similar investment objectives and
programs, investment decisions may be made that result in the simultaneous
purchase or sale of securities. As a result, the demand for, or supply of,
securities may increase or decrease, which could have an adverse effect on
prices. Aggregation of orders may be a collaborative process between trading and
portfolio management staff. T. Rowe Price's policy is not to favor one client
over another in grouping orders for various clients.
The
grouping of orders could at times result in more or less favorable prices. In
certain cases, where the aggregated order is executed in a series of
transactions at various prices on a given day, each participating investment
vehicle's proportionate share of grouped orders reflects the average price paid
or received. T. Rowe Price may include orders on behalf of T. Rowe Price Funds
and other clients and products advised by T. Rowe Price and their affiliates,
including the not-for-profit entities T. Rowe Price Foundation, Inc., the T.
Rowe Price Program for Charitable Giving, Inc., employee stock for certain
Retirement Plan Services relationships, and T. Rowe Price and its affiliates'
proprietary investments, in its aggregated orders.
T.
Rowe Price and other affiliated investment advisers have developed written trade
allocation guidelines for their trading desks. Generally, when the amount of
securities available in a public or initial offering or the secondary markets is
insufficient to satisfy the volume for participating clients, T. Rowe Price will
make pro-rata allocations based upon the relative sizes of the participating
client orders or the relative sizes of the participating client portfolios
depending upon the market involved, subject to portfolio manager and trader
input. For example, a portfolio manager may choose to receive a non-pro-rata
allocation to comply with certain client guidelines, manage anticipated cash
flows, or achieve the portfolio manager's long-term vision for the portfolio.
Each investment vehicle (including the T. Rowe Price funds) receives the same
average share price of the securities for each aggregated order. Because a
pro-rata allocation may not always accommodate all facts and circumstances, the
guidelines provide for adjustments to allocation amounts in certain cases. For
example, adjustments may be made: (i) to eliminate de minimis positions or to
satisfy minimum denomination requirements; (ii) to give priority to accounts
with specialized investment policies and objectives; and (iii) to allocate in
light of a participating portfolio's characteristics, such as available cash,
industry or issuer concentration, duration, and credit exposure. Such allocation
processes may result in a partial execution of a proposed purchase or sale
order.
T.
Rowe Price employs certain guidelines in an effort to ensure equitable
distribution of investment opportunities among clients of the firm, which may
occasionally serve to limit the participation of certain clients in a particular
security, based on factors such as client mandate or a sector- or
industry-specific investment strategy or focus. For example, accounts that
maintain a broad investment mandate may have less access than targeted
investment mandates to certain securities (e.g., sector-specific securities)
where the relevant adviser does not receive a fully filled order (e.g., certain
IPO transactions) or where aggregate ownership of such securities is approaching
firm limits. Also, for certain types of investments, most commonly private
placement transactions, conditions imposed by the issuer may limit the number or
type of clients allowed to participate or number of shares offered to T. Rowe
Price.
T.
Rowe Price has developed written trade sequencing and execution guidelines that
they believe are reasonably designed to provide the fair and equitable
allocation of trades, both long and short, to minimize the impact of trading
activity across client accounts. The policies and procedures are intended to
mitigate conflicts of interest when: (i) trading both long and short in the same
security; and (ii) shorting a security that is held by other accounts managed by
T. Rowe Price that are not simultaneously transacting in the security.
Notwithstanding the application of T. Rowe Price's policies and procedures, it
may not be possible to mitigate all conflicts of interest when transacting both
long and short in the same security; therefore, there is a risk that one
transaction will be completed ahead of the other transaction, that the pricing
may not be consistent between long and short transactions, or that a long or
short transaction may have an adverse impact on the market price of the security
being traded.
Miscellaneous
The
brokerage allocation policies for T. Rowe Price are generally applied to all of
their fully discretionary accounts, which represent a substantial majority of
all assets under management. Research services furnished by broker-dealers
through which T. Rowe Price effects securities transactions may be used in
servicing all accounts (including client accounts) managed by T. Rowe Price.
Therefore, research services received from broker-dealers that execute
transactions for a particular fund will not necessarily be used by T. Rowe Price
in connection with the management of that fund.
The
T. Rowe Price funds do not allocate business to any broker-dealer on the basis
of its sales of the funds' shares. However, this does not mean that
broker-dealers that purchase fund shares for their clients will not receive
business from the fund. T. Rowe Price may give advice and take action for
clients, including the funds, that differs from advice given or the timing or
nature of action taken for other clients. T. Rowe Price is not obligated to
initiate transactions for clients in any security that their principals,
affiliates, or employees may purchase or sell for their own accounts or for
other clients.
Purchase
and sale transactions may be effected directly among and between non-ERISA
client accounts (including affiliated mutual funds), provided no commission is
paid to any broker-dealer, the security traded has readily available market
quotations, and the transaction is effected at the independent current market
price.
The
GTC is responsible for developing brokerage policies, monitoring their
implementation, and resolving any questions that arise in connection with these
policies for T. Rowe Price.
T.
Rowe Price has established a general investment policy that they will ordinarily
not make additional purchases of a common stock for their clients (including the
funds) if, as a result of such purchases, 10% or more of the outstanding common
stock of the issuer would be held by clients in the aggregate. Approval may be
given for aggregate ownership up to 20%, and in certain instances, higher
amounts. All aggregate ownership decisions are reviewed by the appropriate
oversight committee. For purposes of monitoring both of these limits, securities
held by clients and clients of affiliated advisers are included.
Conflicts
of Interest
Portfolio
managers at T. Rowe Price and its affiliates may manage multiple accounts. These
accounts may include, among others, mutual funds, exchange-traded funds,
separate accounts (assets managed on behalf of institutions such as pension
funds, colleges and universities, and foundations), offshore funds, and common
trust funds. T. Rowe Price also provides non-discretionary advice to
institutional investors in the form of delivery of model portfolios. Portfolio
managers make investment decisions for each portfolio based on the investment
objectives, policies, practices, and other relevant investment considerations
that they believe are applicable to that portfolio. Consequently, portfolio
managers may purchase (or sell) securities for one portfolio and not another
portfolio. T. Rowe Price and its affiliates have adopted brokerage and trade
allocation policies and procedures that they believe are reasonably designed to
address any potential conflicts associated with managing multiple accounts.
The
T. Rowe Price funds may, from time to time, own shares of Morningstar, Inc.
Morningstar is a provider of investment research to individual and institutional
investors, and publishes ratings on funds, including the T. Rowe Price funds. T.
Rowe Price acts as subadviser to two mutual funds offered by Morningstar. T.
Rowe Price and its affiliates pay Morningstar for a variety of products and
services. Morningstar may provide investment consulting and investment
management services to clients of T. Rowe Price or its affiliates. The T. Rowe
Price funds may generally not purchase shares of stock issued by T. Rowe Price
Group, Inc. However, a T. Rowe Price Index fund is permitted to make such
purchases to the extent T. Rowe Price Group, Inc. is represented in the
benchmark index the fund is designed to track.
Additional
potential conflicts may be inherent in our use of multiple strategies. For
example, conflicts will arise in cases where different clients invest in
different parts of an issuer's capital structure, including circumstances in
which one or more clients may own private securities or obligations of an issuer
and other clients may own or seek to acquire securities of the same issuer. For
example, a client may acquire a loan, loan participation or a loan assignment of
a particular borrower in which one or more other clients have an equity
investment or may invest in senior debt obligations of an issuer for one client
and junior debt obligations or equity of the same issuer for another client.
Similarly, if an issuer in which a client and one or more other clients directly
or indirectly hold different classes of securities (or other assets, instruments
or obligations issued by such issuer or underlying investments of such issuer)
encounters financial problems, is involved in a merger or acquisition or a going
private transaction, decisions over the terms of any workout or transaction will
raise conflicts of interests. While it is appropriate for different clients to
hold investments in different parts of the same issuer's capital structure under
normal circumstances, the interests of stockholders and debt holders may
conflict, as the securities they hold will likely have different voting rights,
dividend or repayment priorities or other features that could be in conflict
with one another. Clients should be aware that conflicts will not necessarily be
resolved in favor of their interests.
In
some cases, T. Rowe Price or its affiliates may refrain from taking certain
actions or making certain investments on behalf of clients in order to avoid or
mitigate certain conflicts of interest or to prevent adverse regulatory actions
or other implications for T. Rowe Price or its affiliates, or may sell
investments for certain clients, in such case potentially disadvantaging the
clients on whose behalf the actions are not taken, investments not made, or
investments sold. In other cases, T. Rowe Price or its affiliates may take
actions in order to mitigate legal risks to T. Rowe Price or its affiliates,
even if disadvantageous to a client.
Conflicts
such as those described above may also occur between clients on the one hand,
and T. Rowe Price or its affiliates, on the other. These conflicts will not
always be resolved in the favor of the client. In addition, conflicts may exist
between different clients of T. Rowe Price or its affiliates. T. Rowe Price and
one or more of its affiliates may operate autonomously from each other and may
take actions that are adverse to other clients managed by an affiliate. In some
cases, T. Rowe Price or its affiliates will have limited or no ability to
mitigate those actions or address those conflicts, which could adversely affect
T. Rowe Price or its affiliates' clients. In addition, certain regulatory
restrictions may prohibit clients of T. Rowe Price or its affiliates from
investing in certain companies because of the applicability of certain laws and
regulations to T. Rowe Price, its affiliates, or the T. Rowe Price funds. T.
Rowe Price or its affiliates' willingness to negotiate terms or take actions
with respect to an investment for its clients may be directly or indirectly,
constrained or impacted to the extent that an affiliate or the T. Rowe Price
funds and/or their respective directors, partners, managers, members, officers
or personnel are also invested therein or otherwise have a connection to the
subject investments.
Investment
personnel are mindful of potentially conflicting interests of our clients with
investments in different parts of an Issuer's capital structure and take
appropriate measures to ensure that the interests of all clients are fairly
represented.
*
For a fund where T. Rowe Price International Ltd. (TRPIL), T. Rowe Singapore
Private Ltd. (T. Rowe Singapore), or T. Rowe Price Hong Kong Limited (TRPHK)
serves as a sub-subadviser the above disclosure also applies to TRPIL, T. Rowe
Singapore, and TRPHK.
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.
The
following table shows the fund's portfolio turnover rate for the fiscal
period(s) ended May 31, 2023 and 2022. Variations in turnover rate may be due to
a fluctuating volume of shareholder purchase and redemption orders, market
conditions, and/or changes in Strategic Advisers' investment outlook.
Turnover Rates |
2023 |
2022 |
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
80% |
53% |
|
|
|
The
following table shows the total amount of brokerage commissions paid by the
following fund(s), comprising commissions paid on securities and/or futures
transactions, as applicable, for the fiscal year(s) ended May 31, 2023, 2022,
and 2021. The total amount of brokerage commissions paid is stated as a dollar
amount and a percentage of the fund's average net assets.
Fund
|
Fiscal Year
Ended |
|
Dollar
Amount |
Percentage
of
Average
Net Assets |
Strategic
Advisers® Tax-Sensitive Short Duration Fund |
2023 |
$ |
41,167 |
0.00% |
|
2022 |
$ |
0 |
0.00% |
|
2021 |
$ |
0 |
0.00% |
During
the fiscal year ended May 31, 2023, Strategic Advisers® Tax-Sensitive Short
Duration Fund paid no brokerage commissions to firms for providing research or
brokerage services.
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. The Committee may rely on information and
recommendations provided by affiliates of Strategic Advisers in fulfilling its
responsibilities, including the fair valuation of securities.
Shares
of underlying funds (other than ETFs) held by a fund are valued at their
respective NAVs. If an underlying fund's NAV is unavailable, shares of that
underlying fund will be fair valued in good faith by the Committee in accordance
with applicable fair value pricing policies. 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 (including securities issued by ETFs) 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.
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. Strategic Advisers 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.
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 AND SELLING INFORMATION
Shares
of the fund are offered only to certain clients of Strategic Advisers or its
affiliates that have granted Strategic Advisers discretionary investment
authority. If you are not currently a client in a discretionary investment
program offered by Strategic Advisers or its affiliates, please call
1-800-544-3455 for more information.
Investors
participating in a discretionary investment program are charged an annual
advisory fee based on a percentage of the average market value of assets in
their account. The stated fee is then reduced by a credit reflecting the amount
of fees, if any, received by Strategic Advisers LLC or its affiliates from
mutual funds for investment management or certain other services.
The
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
Strategic Advisers 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.
The
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. The fund will accept for in-kind
purchases only securities or other instruments that are appropriate under its
investment objective and policies. In addition, the 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.
Dividends.
To the extent that the fund's income is reported in a written statement to
shareholders as federally tax-exempt interest, the dividends declared by the
fund will be federally tax-exempt, provided that the fund qualifies to pay
tax-exempt dividends. In order to qualify to pay tax-exempt dividends, at least
50% of the value of the fund's total assets (including uninvested assets) must
consist of tax-exempt municipal securities at the close of each quarter of the
fund's taxable year.
Generally,
the fund purchases municipal securities whose interest, in the opinion of bond
counsel, is free from federal income tax. Neither Strategic Advisers LLC nor the
fund guarantees that this opinion is correct, and there is no assurance that the
IRS will agree with bond counsel's opinion. Issuers or other parties generally
enter into covenants requiring continuing compliance with federal tax
requirements to preserve the tax-free status of interest payments over the life
of the security. If at any time the covenants are not complied with, or if the
IRS otherwise determines that the issuer did not comply with relevant tax
requirements, interest payments from a security could become federally taxable,
possibly retroactively to the date the security was issued and you may need to
file an amended income tax return. For certain types of structured securities,
the tax status of the pass-through of tax-free income may also be based on the
federal tax treatment of the structure.
Interest
on certain "private activity" securities is subject to the federal Alternative
Minimum Tax (AMT) for individuals, although the interest continues to be
excludable from gross income for other tax purposes. Interest from private
activity securities is a tax preference item for the purposes of determining
whether an individual is subject to the AMT and the amount of AMT to be paid, if
any.
A
portion of the gain on municipal bonds purchased at market discount is taxable
to shareholders as ordinary income, not as capital gains.
You
may also receive distributions attributable to interest payments on taxable
money market securities. Such distributions will generally be taxable as
ordinary income at the federal, state, and local levels.
Capital
Gain Distributions. Unless your shares of the fund are held in a tax-advantaged
retirement plan, the fund's long-term capital gain distributions, including
amounts attributable to an underlying fund's long-term capital gain
distributions, are federally taxable to shareholders generally as capital gains.
The
following table shows the fund's aggregate capital loss carryforward as of May
31, 2023, which is available to offset future capital gains. A fund's ability to
utilize its capital loss carryforwards in a given year or in total may be
limited.
Fund
|
|
Capital Loss
Carryforward (CLC) |
Strategic
Advisers® Tax-Sensitive Short Duration Fund |
$
|
13,616,284 |
Returns
of Capital. If the fund's distributions exceed its taxable income and capital
gains realized during a taxable year, all or a portion of the distributions made
in the same taxable year may be recharacterized as a return of capital to
shareholders. A return of capital distribution will generally not be taxable,
but will reduce each shareholder's cost basis in the fund and result in a higher
reported capital gain or lower reported capital loss when those shares on which
the distribution was received are sold in taxable accounts.
Foreign
Taxation. Foreign governments may impose withholding taxes on dividends and
interest earned by the fund with respect to foreign securities held directly by
the fund. Foreign governments may also impose taxes on other payments or gains
with respect to foreign securities held directly by the fund.
Tax
Status of the Fund. The 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, the 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.
Fund
of Funds. Because the fund is expected to invest in underlying funds in a fund
of funds structure, the fund's realized losses on sales of shares of an
underlying fund may be indefinitely or permanently deferred as "wash sales."
Distributions of short-term capital gains by an underlying fund will be
recognized as ordinary income by the upper-tier fund and would not be offset by
the upper-tier fund's capital loss carryforwards, if any. Capital loss
carryforwards of an underlying fund, if any, would not offset net capital gains
of the upper-tier fund or of any other underlying fund.
Other
Tax Information. The information above is only a summary of some of the tax
consequences generally affecting the fund and its shareholders, and no attempt
has been made to discuss individual tax consequences. It is up to you or your
tax preparer to determine whether the sale of shares of the fund resulted in a
capital gain or loss or other tax consequence to you. In addition to federal
income taxes, shareholders may be subject to state and local taxes on fund
distributions, and shares may be subject to state and local personal property
taxes. Investors should consult their tax advisers to determine whether the fund
is suitable to their particular tax situation.
The
Trustees, Members of the Advisory Board (if any), and officers of the trust and
fund, as applicable, are listed below. The Board of Trustees governs the fund
and is responsible for protecting the interests of shareholders. The Trustees
are experienced executives who meet periodically throughout the year to oversee
the fund's activities, review contractual arrangements with companies that
provide services to the fund, oversee management of the risks associated with
such activities and contractual arrangements, and review the fund's performance.
If the interests of the 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.
Strategic Advisers has structured the fund to avoid these potential conflicts,
although there may be situations where a conflict of interest is unavoidable. In
such instances, Strategic Advisers, 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 14 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 fund 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 may also engage professional search firms to help identify potential
Independent Trustee candidates with experience, qualifications, attributes, and
skills consistent with the Statement of Policy. 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, may be
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 the 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 fund, is provided below.
Board
Structure and Oversight Function. Kathleen Murphy is an interested person
and currently serves as Chair. The Trustees have determined that an interested
Chair is appropriate and benefits shareholders because an interested Chair has a
personal and professional stake in the quality and continuity of services
provided to the fund. Independent Trustees exercise their informed business
judgment to appoint an individual of their choosing to serve as Chair,
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
Chair 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. Mary C. Farrell serves as the lead Independent Trustee 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 fund's Board oversees
asset allocation funds. Other Boards oversee Fidelity's alternative investment,
investment-grade bond, money market, and asset allocation funds, and Fidelity's
equity and high income funds. The fund may invest in Fidelity®; funds 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.
The
Trustees primarily operate as a full Board, but also operate in committees, to
facilitate the timely and efficient consideration of all matters of importance
to the Trustees, the fund, and fund shareholders and to facilitate compliance
with legal and regulatory requirements and oversight of the fund's activities
and associated risks. The Board has charged Strategic Advisers and its
affiliates with (i) identifying events or circumstances the occurrence of which
could have demonstrably adverse effects on the fund's 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 fund
are carried out by or through Strategic Advisers, its affiliates and other
service providers, the fund's exposure to risks is mitigated but not eliminated
by the processes overseen by the Trustees. Board oversight of different aspects
of the fund's activities is exercised primarily through the full Board, but also
through the Audit and Compliance Committee. Appropriate personnel, including but
not limited to the fund's Chief Compliance Officer (CCO), FMR's internal
auditor, the independent accountants, the fund's Treasurer and portfolio
management personnel, make periodic reports to the Board's committees, as
appropriate. 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+
Charles
S. Morrison (1960)
Year of Election or
Appointment: 2020
Trustee
Mr. Morrison also serves
as Trustee of other funds. Previously, Mr. Morrison served as President
(2017-2018) and Director (2014-2018) of Fidelity SelectCo, LLC (investment
adviser firm), President of Fidelity Management & Research Company (FMR)
(investment adviser firm, 2016-2018), a Director of Fidelity Investments Money
Management, Inc. (investment adviser firm, 2014-2018), President, Asset
Management (2014-2018), Trustee of the Fidelity Equity and High Income Funds
(283 funds as of December 2018) (2014-2018), and was an employee of Fidelity
Investments. Mr. Morrison also previously served as Vice President of Fidelity's
Fixed Income and Asset Allocation Funds (2012-2014), President, Fixed Income
(2011-2014), Vice President of Fidelity's Money Market Funds (2005-2009),
President, Money Market Group Leader of FMR (2009), and Senior Vice President,
Money Market Group of FMR (2004-2009). Mr. Morrison also served as Vice
President of Fidelity's Bond Funds (2002-2005), certain Balanced Funds
(2002-2005), and certain Asset Allocation Funds (2002-2007), and as Senior Vice
President (2002-2005) of Fidelity's Bond Division.
Kathleen
Murphy (1963)
Year of Election or
Appointment: 2022
Trustee
Chair of the Board of
Trustees
Ms. Murphy also serves
as Trustee of other funds. Ms. Murphy serves as a Senior Adviser to the Chief
Executive Officer of Fidelity Investments (2022-present), member of the Board of
Directors of Snyk Technologies (cybersecurity technology, 2022-present), member
of the Advisory Board of FliptRX (pharmacy benefits manager, 2022-present),
member of the Board of Directors of Fidelity Investments Life Insurance Company
(2009-present)), and member of the Board of Directors of Empire Fidelity
Investments Life Insurance Company (2009-present). Previously, Ms. Murphy served
as President of Personal Investing at Fidelity Investments (2009-2021), Chief
Executive Officer of ING U.S. Wealth Management (2003-2008), and Deputy General
Counsel, General Counsel and Chief Compliance Officer (1997-2003) of Aetna. Ms.
Murphy also serves as Vice Chairman of the Board of Directors of the National
Football Foundation (2013-present).
*
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
Strategic Advisers.
+
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 the 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+
Peter
C. Aldrich (1944)
Year of Election or
Appointment: 2006
Trustee
Mr. Aldrich also serves
as Trustee of other funds. Mr. Aldrich is an independent Director of BLPF GP LLC
(general partner of a private fund, 2006-present) and BlackRock US Core Property
Fund, Inc. (real estate investment trust, 2006-present). Previously, Mr. Aldrich
served as a Managing Member of Poseidon, LLC (foreign private investment,
1998-2004), and Chairman and Managing Member of AEGIS, LLC (foreign private
investment, 1997-2004). Mr. Aldrich previously was a founder, Chief Executive
Officer, and Chairman of AEW Capital Management, L.P. (then, Aldrich, Eastman
and Waltch, L.P.). Mr. Aldrich also served as a Director of LivelyHood, Inc.
(private corporation, 2013-2020), a Trustee for the Fidelity Rutland Square
Trust (2005-2010), a Director of Zipcar, Inc. (car sharing services, 2001-2009)
and as Faculty Chairman of The Research Council on Global Investment of The
Conference Board (business and professional education non-profit, 1999-2004).
Mr. Aldrich is a Member Emeritus of the Board of Directors of the National
Bureau of Economic Research and the Board of Trustees of the Museum of Fine Arts
Boston.
Mary
C. Farrell (1949)
Year of Election or
Appointment: 2013
Trustee
Ms. Farrell also serves
as Trustee of other funds. Ms. Farrell is a Director of the W.R. Berkley
Corporation (insurance provider) and Director (2006-present) and Chair
(2021-present) of the Howard Gilman Foundation (charitable organization).
Previously, Ms. Farrell was Managing Director and Chief Investment Strategist at
UBS Wealth Management USA and Co-Head of UBS Wealth Management Investment
Strategy & Research Group (2003-2005) and President (2009-2021) of the
Howard Gilman Foundation (charitable organization). Ms. Farrell also served as
Investment Strategist at PaineWebber (1982-2000) and UBS PaineWebber
(2000-2002). Ms. Farrell serves as Chairman of the Board of Trustees of Yale-New
Haven Hospital and Vice Chairman of the Yale New Haven Health System Board and
previously served as Trustee on the Board of Overseers of the New York
University Stern School of Business.
Karen
Kaplan (1960)
Year of Election or
Appointment: 2006
Trustee
Ms. Kaplan also serves
as Trustee of other funds. Ms. Kaplan is Chair (2014-present) and Chief
Executive Officer (2013-present) of Hill Holliday (advertising and specialized
marketing). Ms. Kaplan is a Member of the Board of Governors of the Chief
Executives' Club of Boston (2010-present), Member of the Executive Committee and
past Chair of the Greater Boston Chamber of Commerce (2006-present), Advisory
Board Member of the National Association of Corporate Directors Chapter
(2012-present), Member of the Board of Trustees of the Post Office Square Trust
(2012-present), Trustee of the Brigham and Women's Hospital (2016-present),
Overseer of the Boston Symphony Orchestra (2014-present), Member of the Board of
Directors of The Advertising Council, Inc. (2016-present), Member of the Ron
Burton Training Village Executive Board of Advisors (2017-present), Member of
the Executive Committee of The Ad Council, Inc. (2019-present), Secretary of the
Ad Council, Inc. (2022-present), and Member of the Board of Directors of The Ad
Club of Boston (2020-present). Previously, Ms. Kaplan served as an Advisory
Board Member of Fidelity Rutland Square Trust (2006-2010), Director of The
Michaels Companies, Inc. (specialty retailer, 2015-2021), a member of the
Clinton Global Initiative (2010-2015), Director of DSM (dba Delta Dental and
DentaQuest) (2004-2014), Formal Appointee of the 2015 Baker-Polito Economic
Development Council, Director of Vera Bradley Inc. (designer of women's
accessories, 2012-2015), Member of the Board of Directors of the Massachusetts
Conference for Women (2008-2015), Member of the Board of Directors of Jobs for
Massachusetts (2012-2015), President of the Massachusetts Women's Forum
(2008-2010), Treasurer of the Massachusetts Women's Forum (2002-2006), and Vice
Chair of the Board of the Massachusetts Society for the Prevention of Cruelty to
Children (2003-2010).
Christine
Marcks (1955)
Year of Election or
Appointment: 2020
Trustee
Ms. Marcks also serves
as Trustee of other Funds. Prior to her retirement, Ms. Marcks served as Chief
Executive Officer and President - Prudential Retirement (2007-2017) and Vice
President for Rollover and Retirement Income Strategies (2005-2007), Prudential
Financial, Inc. (financial services). Previously, Ms. Marcks served as a Member
of the Advisory Board of certain Fidelity ® funds (2019-2020), was Senior Vice
President and Head of Financial Horizons (2002-2004) and Vice President,
Strategic Marketing (2000-2002) of Voya Financial (formerly ING U.S.) (financial
services), held numerous positions at Aetna Financial Services (financial
services, 1987-2000) and served as an International Economist for the United
States Department of the Treasury (1980-1987). Ms. Marcks also serves as a
member of the Board of Trustees, Audit Committee and Benefits & Operations
Committee of the YMCA Retirement Fund (2018-present), a non-profit organization
providing retirement plan benefits to YMCA staff members, and as a member of the
Board of Trustees of Assumption University (2019-present).
Heidi
L. Steiger (1953)
Year of Election or
Appointment: 2017
Trustee
Ms. Steiger also serves
as Trustee of other funds. Ms. Steiger serves as Managing Partner of Topridge
Associates, LLC (consulting, 2005-present) and Chair of the Board of Directors
and Chair of the Compensation Committee of Live Current Media, Inc.
(2022-present). Previously, Ms. Steiger served as a member of the Board of
Directors (2013-2021) and member of the Membership and Executive Committee
(2017-2021) of Business Executives for National Security (nonprofit), a member
of the Board of Directors Chair of the Remuneration Committee of Imagine
Intelligent Materials Limited (2019-2021) (technology company), a member of the
Advisory Board of the joint degree program in Global Luxury Management at North
Carolina State University (Raleigh, NC) and Skema (Paris) (2018-2021), a
Non-Executive Director of CrowdBureau Corporation (financial technology company
and index provider, 2018-2021), a member of the Global Advisory Board and Of
Counsel to Signum Global Advisors (international policy and strategy,
2018-2020), Eastern Region President of The Private Client Reserve of U.S.
Bancorp (banking and financial services, 2010-2015), Advisory Director of
Berkshire Capital Securities, LLC (financial services, 2009-2010), President and
Senior Advisor of Lowenhaupt Global Advisors, LLC (financial services,
2005-2007), and President and Contributing Editor of Worth Magazine (2004-2005)
and held a variety of positions at Neuberger Berman Group, LLC (financial
services, 1986-2004), including Partner and Executive Vice President and Global
Head of Private Asset Management at Neuberger Berman (1999-2004). Ms. Steiger
also served as a member of the Board of Directors of Nuclear Electric Insurance
Ltd (insurer of nuclear utilities, 2006-2017), a member of the Board of Trustees
and Audit Committee of the Eaton Vance Funds (2007-2010), a member of the Board
of Directors of Aviva USA (formerly AmerUs) (insurance, 2004-2014), and a member
of the Board of Trustees and Audit Committee and Chair of the Investment
Committee of CIFG (financial guaranty insurance, 2009-2012), and a member of the
Board of Directors of Kin Group Plc (formerly, Fitbug Holdings) (health and
technology, 2016-2017).
+
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 the fund.
Advisory
Board Members and Officers:
Correspondence
intended for a Member of the Advisory Board (if any) may be sent to Fidelity
Investments, P.O. Box 55235, Boston, Massachusetts 02205-5235. Correspondence
intended for an officer or Howard E. Cox, Jr. may be sent to Fidelity
Investments, 245 Summer Street, Boston, Massachusetts 02210. Officers appear
below in alphabetical order.
Name,
Year of Birth; Principal Occupation
Howard
E. Cox, Jr. (1944)
Year of Election or
Appointment: 2009
Member of the Advisory
Board
Mr. Cox also serves as a
Member of the Advisory Board of other funds. Mr. Cox is a Partner of Greylock
(venture capital, 1971-present) and a Director of Stryker Corporation (medical
products and services, 1974-present). Previously, Mr. Cox served as an Advisory
Board Member of Fidelity Rutland Square Trust (2006-2010). Mr. Cox also serves
as a Member of the Secretary of Defense's Business Board of Directors
(2008-present), a Director of Business Executives for National Security
(1997-present), a Director of the Brookings Institution (2010-present), a
Director of the World Economic Forum's Young Global Leaders Foundation
(2009-present), and is a Member of the Harvard Medical School Board of Fellows
(2002-present).
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).
Previously, Mr. Brown served as Assistant Treasurer of certain Fidelity ® funds
(2019-2022).
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).
Margaret
Carey (1973)
Year of Election or
Appointment: 2023
Assistant Secretary
Ms. Carey also serves as
an officer of other funds and as CLO of certain other Fidelity entities. 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.
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 Vice President Assistant
Treasurer and is an employee of Fidelity Investments. Mr. Davis serves as
Assistant Treasurer of certain Fidelity entities.
Laura
M. Del Prato (1964)
Year of Election or
Appointment: 2018
Assistant 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).
James
D. Gryglewicz (1972)
Year of Election or
Appointment: 2015
Chief Compliance
Officer
Mr. Gryglewicz also
serves as Chief Compliance Officer of other funds. Mr. Gryglewicz serves as
Compliance Officer of Strategic Advisers LLC (investment adviser firm,
2015-present), Senior Vice President of Asset Management Compliance
(2009-present), and is an employee of Fidelity Investments (2004-present).
Previously, Mr. Gryglewicz served as Compliance Officer of Fidelity SelectCo,
LLC (investment adviser firm, 2014-2019), and as Chief Compliance Officer of
certain Fidelity® funds (2014-2018).
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).
Christina
H. Lee (1975)
Year of Election or
Appointment: 2020
Secretary and Chief
Legal Officer
Ms. Lee also serves as
Secretary and CLO of other funds. Ms. Lee serves as Vice President, Associate
General Counsel (2014-present) and is an employee of Fidelity Investments
(2007-present). Previously, Ms. Lee served as Assistant Secretary of certain
funds (2018-2019).
Chris
Maher (1972)
Year of Election or
Appointment: 2016
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).
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: 2020
President and 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: 2019
Assistant 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 two committees
to supplement the work of the Board as a whole. The members of each committee
are Independent Trustees.
The
Audit and Compliance Committee is composed of all of the Independent Trustees,
with Ms. Steiger currently serving as Chair. All committee members must be able
to read and understand fundamental financial statements, including a company's
balance sheet, income statement, and cash flow statement. The committee
determines whether at least one member of the committee is an "audit committee
financial expert" as defined in rules promulgated by the SEC under the
Sarbanes-Oxley Act of 2002. The committee normally meets in conjunction with in
person meetings of the Board of Trustees, or more frequently as called by the
Chair or a majority of committee members. The committee meets separately
periodically with the fund's Treasurer, the fund's Chief Financial Officer, the
fund's CCO, personnel responsible for the internal audit function of FMR LLC,
and the fund's outside auditors. The committee has direct responsibility for the
appointment, compensation, and oversight of the work of the outside auditors
employed by the fund for the purpose of preparing or issuing an audit report or
related work. The committee assists the Trustees in overseeing and monitoring:
(i) the systems of internal accounting and financial controls of the fund and
the fund's service providers, (ii) the financial reporting processes of the fund
, (iii) the independence, objectivity and qualification of the auditors to the
fund, (iv) the annual audits of the fund's financial statements, and (v) the
accounting policies and disclosures of the fund. 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 (auditor independence regulations) of the SEC. It is responsible for
approving all audit engagement fees and terms for the fund and for resolving
disagreements between the fund and any outside auditor regarding any fund's
financial reporting, and has sole authority to hire and fire any auditor.
Auditors of the fund 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 fund and any service providers consistent with Public Company Accounting
Oversight Board (PCAOB) Ethics and Independence Rule 3526, Communication with
Audit Committees Concerning Independence. The committee will discuss with the
outside auditors any such disclosed relationships and their impact on the
auditor's independence and objectivity. The committee will receive reports of
compliance with provisions of the auditor independence regulations relating to
the hiring of employees or former employees of the outside auditors. It oversees
and receives reports on the fund's service providers' internal controls and
reviews with management, internal audit personnel of FMR LLC, and outside
auditors the adequacy and effectiveness of the fund's and 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 fund's
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 fund's or service provider's internal controls over financial reporting.
The committee will review with counsel any legal matters that may have a
material impact on the fund's financial statements and any material reports or
inquiries received from regulators or governmental agencies. The committee
reviews at least annually a report from the outside auditor describing (i) any
material issues raised by the most recent internal quality control review, peer
review, or PCAOB examination of the auditing firm and (ii) any material issues
raised by any inquiry or investigation by governmental or professional
authorities of the auditing firm since the most recent report and in each case
any steps taken to deal with such issues. The committee will oversee and receive
reports on the fund's financial reporting process from the fund's Treasurer and
outside auditors and will receive reports from any outside auditor relating to
(i) critical accounting policies and practices used by the fund, (ii)
alternative accounting treatments that the auditor has discussed with Strategic
Advisers, and (iii) other material written communications between the auditor
and Strategic Advisers (as determined by the auditor). The committee will
discuss with Strategic Advisers, the fund's 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 fund. The
committee will review with Strategic Advisers, the fund's Treasurer, outside
auditors, and internal audit personnel of FMR LLC (to the extent relevant) the
results of audits of the fund's financial statements. The committee will discuss
regularly and oversee the review of the fund's major internal controls
exposures, the steps that have been taken to monitor and control such exposures,
and any risk management programs relating to the fund. The committee also
oversees the administration and operation of the compliance policies and
procedures of the fund and fund's service providers as required by Rule 38a-1 of
the 1940 Act. The committee is responsible for the review and approval of
policies and procedures relating to (i) provisions of the Code of Ethics, (ii)
anti-money laundering requirements, (iii) compliance with investment
restrictions and limitations, (iv) privacy, (v) recordkeeping, and (vi) other
compliance policies and procedures which are not otherwise delegated to another
committee of the Board of Trustees or reserved to the Board itself. The
committee has responsibility for recommending to the Board the designation of a
CCO of the fund. The committee serves as the primary point of contact between
the CCO and the Board, it oversees the annual performance review and
compensation of the CCO and, if required, makes recommendations to the Board
with respect to the removal of the appointed CCO. The committee receives reports
on significant correspondence with regulators or governmental agencies, employee
complaints or published reports which raise concerns regarding compliance
matters, and copies of significant non-routine correspondence with the SEC. The
committee receives reports from the CCO including the annual report concerning
the fund's compliance policies as required by Rule 38a-1 and quarterly reports
in respect of any breaches of fiduciary duty or violations of federal securities
laws.
The
Governance and Nominating Committee is composed of all of the Independent
Trustees, with Ms. Farrell currently serving as Chair. 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 reviews the performance of legal counsel employed by the
funds and the Independent Trustees. On behalf of the Independent Trustees, the
committee will make such findings and determinations as to the independence of
counsel for the Independent Trustees as may be necessary or appropriate under
applicable regulations or otherwise. The committee is also responsible for Board
administrative matters applicable to Independent Trustees, such as expense
reimbursement policies and compensation for attendance at meetings, conferences
and other events. The committee monitors compliance with, acts as the
administrator of, and makes determinations in respect of, the provisions of the
Statement of Policy Relating to Personal Investing by the Independent Trustees
and Independent Advisory Board Members. The committee monitors 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 "best practices" in
corporate governance and other developments in mutual 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 fund's 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 for
membership on committees. The committee shall have 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 fund's 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 fund, 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.
During
the fiscal year ended May 31, 2023, each committee held the number of meetings
shown in the table below:
COMMITTEE |
NUMBER OF MEETINGS HELD |
Audit and Compliance Committee |
5 |
Governance and Nominating Committee
|
4 |
The
following table sets forth information describing the dollar range of equity
securities beneficially owned by each Trustee in the fund and in all funds in
the aggregate within the same fund family overseen by the Trustee for the
calendar year ended December 31, 2022.
Interested Trustees
DOLLAR RANGE OF
FUND SHARES |
Charles S Morrison |
Kathleen Murphy |
|
|
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
over $100,000 |
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 |
Peter C Aldrich |
Mary C Farrell |
Karen Kaplan |
Christine Marcks |
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
over $100,000 |
none |
$1-$10,000 |
none |
AGGREGATE DOLLAR RANGE OF
FUND SHARES IN ALL FUNDS
OVERSEEN WITHIN FUND FAMILY |
over $100,000 |
none |
over $100,000 |
none |
DOLLAR RANGE OF
FUND SHARES |
Heidi L Steiger |
|
|
|
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
none |
|
|
|
AGGREGATE DOLLAR RANGE OF
FUND SHARES IN ALL FUNDS
OVERSEEN WITHIN FUND FAMILY |
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 May 31, 2023, or calendar year ended December 31, 2022, as
applicable.
Compensation Table (A)
AGGREGATE
COMPENSATION
FROM A FUND |
|
Peter C Aldrich
|
|
Mary C Farrell
|
|
Karen Kaplan
|
|
Christine Marcks
|
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
$ |
4,215 |
$ |
4,846 |
$ |
4,215 |
$ |
4,215 |
TOTAL COMPENSATION
FROM THE FUND COMPLEX (B) |
$ |
297,500 |
$ |
342,500 |
$ |
297,500 |
$ |
297,500 |
AGGREGATE
COMPENSATION
FROM A FUND |
|
Heidi L Steiger
|
|
|
|
|
|
|
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
$ |
4,915 |
|
|
|
|
|
|
TOTAL COMPENSATION
FROM THE FUND COMPLEX (B) |
$ |
347,500 |
|
|
|
|
|
|
(A) Charles S.
Morrison, Kathleen Murphy, and Howard E. Cox, Jr. are interested persons
and are compensated by Strategic Advisers or an affiliate (including FMR).
|
|
(B) Reflects
compensation received for the calendar year ended December 31, 2022, for
14 funds of one trust. Compensation figures include cash and may include
amounts elected to be deferred.
|
|
As
of May 31, 2023, the Trustees, Members of the Advisory Board (if any), and
officers of the fund owned, in the aggregate, less than 1% of each class's total
outstanding shares, with respect to the fund.
CONTROL OF INVESTMENT ADVISERS
FMR
LLC, as successor by merger to FMR Corp., is the ultimate parent company of
Strategic Advisers, FIAM, FMR Investment Management (UK) Limited (FMR UK),
Fidelity Management & Research (Hong Kong) Limited (FMR H.K.), and Fidelity
Management & Research (Japan) Limited (FMR Japan). 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.
Allspring
Investments is a registered investment adviser. Allspring Investments is a
wholly-owned subsidiary of Allspring Global Investments Holdings, LLC, a holding
company indirectly owned by certain private funds of GTCR LLC and Reverence
Capital Partners, L.P.
FIAM
is a registered investment adviser. FMR LLC is the ultimate parent company of
FIAM. Information regarding the ownership of FMR LLC is disclosed above.
T.
Rowe Price is a registered investment adviser. T. Rowe Price Group, Inc., a
publicly-traded financial services holding company (NASDAQ: TROW), owns 100% of
the stock of T. Rowe Price and all of its subsidiaries.
Strategic
Advisers, the sub-adviser(s), the sub-subadviser(s) (if any), (the Investment
Advisers), Fidelity Distributors Company LLC (FDC), and the fund have adopted
codes of ethics under Rule 17j-1 of the 1940 Act that set forth employees'
fiduciary responsibilities regarding the fund, establish procedures for personal
investing, and restrict certain transactions. Employees subject to the codes of
ethics, including the Investment Advisers' investment personnel, may invest in
securities for their own investment accounts, including securities that may be
purchased or held by the fund.
The
fund has entered into a management contract with Strategic Advisers, pursuant to
which Strategic Advisers furnishes investment advisory and other services.
The
fund's initial shareholder approved a proposal permitting Strategic Advisers to
enter into new or amended sub-advisory agreements with one or more unaffiliated
sub-advisers without obtaining shareholder approval of such agreements, subject
to conditions of an exemptive order that has been granted by the SEC (Exemptive
Order). One of the conditions of the Exemptive Order requires the Board of
Trustees to approve any such agreement. Subject to oversight by the Board of
Trustees, Strategic Advisers has the ultimate responsibility to oversee the
fund's sub-advisers and recommend their hiring, termination, and replacement. In
the event the Board of Trustees approves a sub-advisory agreement with a new
unaffiliated sub-adviser, shareholders will be provided with information about
the new sub-adviser and sub-advisory agreement within ninety days of
appointment.
Strategic
Advisers has retained Allspring Global Investments, LLC, FIAM LLC, and T. Rowe
Price Associates, Inc. to serve as sub-advisers for the fund.
FIAM,
in turn, has retained FMR UK, FMR H.K., and FMR Japan to serve as
sub-subadvisers for the fund.
The
sub-advisers do not sponsor the fund.
It
is not possible to predict the extent to which the fund's assets will be
invested by a particular sub-adviser at any given time and one or more
sub-advisers may not be managing any assets for the fund at any given time.
Management
and Sub-Advisory Services. Under the terms of its management contract with the
fund, Strategic Advisers acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the fund in
accordance with its investment objective, policies and limitations. Strategic
Advisers is authorized, in its discretion, to allocate the fund's assets
pursuant to its investment strategy. Strategic Advisers or its affiliates
provide the fund with all necessary office facilities and personnel for
servicing the fund's investments, compensate all officers of the fund and all
Trustees who are interested persons of the trust or of Strategic Advisers, and
compensate all personnel of the fund or Strategic Advisers performing services
relating to research, statistical and investment activities.
In
addition, Strategic Advisers or its affiliates, subject to the supervision of
the Board of Trustees, provide the management and administrative services
necessary for the operation of the fund. These services include providing
facilities for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters and other
persons dealing with the fund; preparing all general shareholder communications
and conducting shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws and making
necessary filings under state securities laws; developing management and
shareholder services for the fund; and furnishing reports, evaluations and
analyses on a variety of subjects to the Trustees.
Under
its respective sub-advisory agreement, and subject to the supervision of the
Board of Trustees, each sub-adviser directs the investment of its allocated
portion of the fund's assets in accordance with the fund's investment objective,
policies and limitations.
Management-Related
Expenses. In addition to the management fee payable to Strategic Advisers, the
fund pays all of its expenses that are not assumed by Strategic Advisers or its
affiliates. Under the terms of separate agreements between Strategic Advisers
and the fund's transfer agent and service agent, Strategic Advisers or an
affiliate is responsible for the payment of any fees associated with the
transfer agent and service agent agreements. The fund pays for the typesetting,
printing, and mailing of its proxy materials to shareholders, legal expenses,
and the fees of the custodian, auditor, and Independent Trustees. The fund's
management contract further provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statements of additional information,
notices, and reports to shareholders. Other expenses paid by the fund include
interest, taxes, brokerage commissions, fees and expenses associated with the
fund's securities lending program, if applicable, the fund's proportionate share
of insurance premiums and Investment Company Institute dues, and the costs of
registering shares under federal securities laws and making necessary filings
under state securities laws. The fund is also liable for such non-recurring
expenses as may arise, including costs of any litigation to which the fund may
be a party, and any obligation it may have to indemnify its officers and
Trustees with respect to litigation.
Management
Fee.
For
the services of Strategic Advisers under the management contract, the fund pays
Strategic Advisers a monthly management fee calculated by adding the annual rate
of 0.25% of the fund's average daily net assets throughout the month plus the
total fees payable monthly to the fund's sub-advisers, if any, pursuant to the
applicable investment sub-advisory agreement(s); provided, however, that the
fund's maximum aggregate annual management fee will not exceed 0.55% of the
fund's average daily net assets.
In
addition, Strategic Advisers has contractually agreed to waive a portion of the
fund's management fee in an amount equal to 0.25% of the average daily net
assets of the fund until September 30, 2025. The fee waiver will increase
returns.
The
following table shows the amount of management fees paid by the fund to
Strategic Advisers for the fiscal year(s) ended May 31, 2023, 2022, and 2021. In
addition, the table shows the amount of waivers reducing management fees.
Fund(s) |
Fiscal
Years
Ended |
|
Amount of Waivers Reducing Management Fees
|
|
Management Fees Paid to
Investment Adviser |
Management Fees Paid as a % of Average Net
Assets of the Fund |
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
2023 |
$ |
10,539,419
|
$ |
2,829,232 |
0.07%
|
|
2022 |
$ |
13,584,011
|
$ |
3,339,074 |
0.06%
|
|
2021 |
$ |
10,860,554
|
$ |
3,072,757 |
0.07%
|
Strategic
Advisers 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.
Strategic Advisers retains the ability to be repaid for these expense
reimbursements in the amount that expenses fall below the limit prior to the end
of the fiscal year.
Expense
reimbursements will increase returns, and repayment of the reimbursement will
decrease returns.
Sub-Adviser
- Allspring Investments. The fund and Strategic Advisers have entered into
a sub-advisory agreement with Allspring Investments pursuant to which Allspring
Investments may provide investment advisory services for the fund. Under the
terms of the sub-advisory agreement, for providing investment management
services to the fund, Strategic Advisers pays Allspring Investments fees based
on the net assets of the portion of the fund managed by Allspring Investments
pursuant to a separately negotiated investment mandate (a "Strategy"). The fees
are calculated using the effective rate applicable to Aggregated Assets managed
by Allspring Investments under a particular Strategy. Aggregated Assets for a
particular Strategy means the assets of all registered investment companies
managed by Strategic Advisers that are managed by Allspring Investments pursuant
to that Strategy.
Sub-Adviser
- FIAM. The fund and Strategic Advisers have entered into a sub-advisory
agreement with FIAM pursuant to which FIAM may provide investment advisory
services for the fund. Under the terms of the sub-advisory agreement, for
providing investment management services to the fund, Strategic Advisers pays
FIAM fees based on the net assets of the portion of the fund managed by FIAM
pursuant to a separately negotiated Strategy. The fees are calculated using the
effective rate applicable to Aggregated Assets managed by FIAM under a
particular Strategy. Aggregated Assets for a particular Strategy means the
assets of all registered investment companies managed by Strategic Advisers that
are managed by FIAM pursuant to that Strategy.
The
following fee rate schedules apply to the mandates below.
Conservative
Income Municipal Bond: 0.10% on the first $250 million in assets; 0.09% on
the next $250 million in assets; and 0.07% on any amount in excess of $500
million in assets.
Limited
Term Municipal Income: 0.22% on the first $250 million in assets; 0.20% on the
next $250 million in assets; and 0.18% on any assets in excess of $500 million.
Limited
Term Municipal Income (1-4 Year): 0.10% on the first $250 million in
assets; 0.09% on the next $250 million in assets; and 0.07% on any amount in
excess of $500 million in assets.
On
behalf of the fund, FIAM, in turn, has entered
into sub-subadvisory agreement(s) with FMR UK, FMR H.K., and FMR
Japan. Pursuant to the sub-subadvisory agreement, FIAM may receive from the
sub-subadviser investment research and advice on issuers outside the United
States (non-discretionary services) and FIAM may grant the
sub-subadviser investment management authority and the authority to buy and
sell securities if FIAM believes it would be beneficial to the fund
(discretionary services). FIAM, not the fund, pays
the sub-subadviser(s).
Sub-Adviser
- T. Rowe Price. The fund and Strategic Advisers have entered into a
sub-advisory agreement with T. Rowe Price pursuant to which T. Rowe Price may
provide investment advisory services for the fund. Under the terms of the
sub-advisory agreement, for providing investment management services to the
fund, Strategic Advisers pays T. Rowe Price fees based on the net assets of the
portion of the fund managed by T. Rowe Price pursuant to a separately negotiated
Strategy. The fees are calculated using the effective rate applicable to
Aggregated Assets managed by T. Rowe Price under a particular Strategy.
Aggregated Assets for a particular Strategy means the assets of all registered
investment companies managed by Strategic Advisers that are managed by T. Rowe
Price pursuant to that Strategy.
The
following table shows the amount of sub-advisory fees paid by Strategic
Advisers, on behalf of the fund, to FIAM for the fiscal year(s) ended
May 31, 2023, 2022, and 2021.
Fund |
Fiscal Years
Ended |
|
Sub-Advisory
Fees Paid to
FIAM |
Sub-Advisory
Fees
Paid to
FIAM
as a % of
Average Net
Assets of the
Fund |
Strategic Advisers® Tax-Sensitive Short
Duration Fund |
2023 |
$ |
1,465,878 |
0.03% |
|
2022 |
$ |
1,844,896 |
0.03% |
|
2021 |
$ |
1,701,805 |
0.04% |
The
following table shows the aggregate amount of sub-advisory fees paid by
Strategic Advisers, on behalf of the fund, to sub-adviser(s) other than
FIAM LLC for the fiscal year(s) ended May 31, 2023, 2022, and 2021.
Fund
|
Fiscal
Years
Ended
|
|
Aggregate
Sub-Advisory
Fees
Paid to
Unaffiliated
Sub-Adviser(s)
|
Aggregate
Sub-Advisory
Fees
Paid
to
Unaffiliated
Sub-Adviser(s)
as
a % of
Average
Net
Assets
of the
Fund
|
Strategic
Advisers® Tax-Sensitive Short Duration Fund |
2023
|
$
|
1,392,512
|
0.03%
|
|
2022
|
$
|
1,498,237
|
0.03%
|
|
2021
|
$
|
1,363,113
|
0.03%
|
Expense
estimates, which are accrued in the period to which they relate and adjusted
when actual amounts are known, will cause differences between the amount of the
management fees paid by the fund to Strategic Advisers and the aggregate amount
of the sub-advisory fees paid by Strategic Advisers, on behalf of the fund, to
the sub-adviser(s).
Chris
Heavey and Jonathan Duggan are employees of Strategic Advisers, a subsidiary of
FMR LLC and an affiliate of FMR. Strategic Advisers is the adviser to the fund.
Mr.
Heavey is Lead Portfolio Manager of the fund and Mr. Duggan is Co-Portfolio
Manager of the fund, and each receives compensation for those services. As of
May 31, 2023, 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 Strategic Advisers or at the election of the portfolio
manager.
Each
portfolio manager's base salary is determined by level of responsibility and
tenure at Strategic Advisers or its affiliates. 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 Strategic Advisers® funds and
accounts, including the fund. 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 Strategic Advisers. The portion of each portfolio
manager's bonus that is linked to the investment performance of the portfolio
manager's fund is based on the pre-tax investment performance of the fund
measured against a composite index, the components of which are 75% iMoneyNet
Tax Free National Retail Money Market Index and 25% Bloomberg Municipal Bond 1
Year (1-2 Y) Index, and the pre-tax investment performance of the fund measured
against the Custom Lipper℠ Muni Short Duration Funds. 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, Strategic Advisers'
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 Strategic Advisers 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.
The
following table provides information relating to other accounts managed by
Jonathan Duggan as of May 31, 2023:
|
Registered Investment Companies *
|
|
Other Pooled
Investment
Vehicles |
|
Other
Accounts** |
Number
of Accounts Managed |
5
|
|
none
|
|
25
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
|
none
|
|
none
|
Assets
Managed (in millions) |
$123,724
|
|
none
|
|
$127,297
|
Assets
Managed with Performance-Based Advisory Fees (in millions) |
none
|
|
none
|
|
none
|
*
Includes Strategic Advisers ® Tax-Sensitive Short Duration Fund ($4,112 (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.
**
Includes assets invested in registered investment companies managed by the
portfolio manager.
As
of May 31, 2023, the dollar range of shares of Strategic Advisers ®
Tax-Sensitive Short Duration Fund beneficially owned by Mr. Duggan was none.
The
following table provides information relating to other accounts managed by Chris
Heavey as of May 31, 2023:
|
Registered Investment Companies *
|
|
Other Pooled
Investment
Vehicles |
|
Other
Accounts** |
Number
of Accounts Managed |
3
|
|
none
|
|
none
|
Number
of Accounts Managed with Performance-Based Advisory Fees |
none
|
|
none
|
|
none
|
Assets
Managed (in millions) |
$21,419
|
|
none
|
|
none
|
Assets
Managed with Performance-Based Advisory Fees (in millions) |
none
|
|
none
|
|
none
|
*
Includes Strategic Advisers ® Tax-Sensitive Short Duration Fund ($4,112 (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.
**
Includes assets invested in registered investment companies managed by the
portfolio manager.
As
of May 31, 2023, the dollar range of shares of Strategic Advisers ®
Tax-Sensitive Short Duration Fund beneficially owned by Mr. Heavey was $10,001 -
$50,000.
Proxy
Voting - Strategic Advisers.
On
behalf of the fund, the Board of Trustees of the trust has delegated proxy
voting authority to Strategic Advisers. Strategic Advisers has established
the following Proxy Voting Guidelines.
I.
General Principles
A.
Strategic Advisers generally intends to vote shares of underlying funds
held by a fund using echo voting procedures (that is, in the same
proportion as the holders of all other shares of the particular underlying
fund).
B.
Any proposals not covered by paragraph A above or other special
circumstances will be voted pursuant to the Proxy Voting Guidelines
included as Attachment A.
Attachment
A
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 75 years. Our core
principles sit at the heart of our voting philosophy; putting our
customers' and fund shareholders' long-term interests first and investing
in companies that share our approach to creating value over the long-term
guides everything we do. 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, Fidelity considers factors that are financially
material to individual companies and investing funds' investment
objectives and strategies in support of maximizing long-term shareholder
value. This includes considering the company's approach to financial and
operational, human, and natural capital and the impact of that approach on
the potential future value of the business.
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.
There are no racially or ethnically diverse directors.
4.
The director is a public company CEO who sits on more than two
unaffiliated public company boards.
5.
The director, other than a CEO, sits on more than five 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 committee if:
1.The
compensation appears misaligned with shareholder interests or is otherwise
problematic and results in concerns with:
a)The
alignment of executive compensation and company performance relative to
peers; and
b)The
structure of the compensation program, including factors outlined above
under the section entitled Advisory Vote on Executive Compensation (Say on
Pay) and Frequency of Say on Pay Vote.
2.
The company has not adequately addressed concerns communicated by Fidelity
in the process of discussing executive compensation.
3.
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 consideration of human and natural
capital 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 human and natural capital
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. Fidelity evaluates shareholder proposals concerning natural
and human capital topics. To engage and vote more effectively on the
growing number of submitted proposals on these topics, we developed a
four-point decision-making framework. In general, Fidelity will more
likely support proposals that:
•Address
a topic that our research has identified as financially material;
•Provide
disclosure of new or additional information to investors, improving
transparency;
•Provide
value to the business or investors by improving the landscape of
investment-decision relevant information or contributing to our
understanding of a company's processes and governance of the topic in
question; and
•Are
realistic or practical for the company to comply with.
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 or other non-Fidelity Funds
When
a Fidelity fund invests in an underlying Fidelity fund with public
shareholders or a non-Fidelity investment company or business development
company, Fidelity will generally 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, except where not
permitted under applicable laws and regulations.
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 75 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
- Burn
rate means the total number of stock option and full value equity awards
granted as compensation in a given year divided by the weighted average
common stock outstanding for that same year.
-
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%.
- Golden
parachute means employment contracts, agreements, or policies that
include 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.
- Large-capitalization
company means a company included in the Russell 1000® Index or the
Russell Global ex-U.S. Large Cap Index.
- Micro-capitalization
company means a company with market capitalization under US $300
million.
- Poison
pill refers to a strategy employed by a potential takeover / target
company to make its stock less attractive to an acquirer. Poison pills
are
- generally
designed to dilute the acquirer's ownership and value in the event of a
takeover.
- Small-capitalization
company means a company not included in the Russell 1000® Index or the
Russell Global ex-U.S. Large Cap Index that is not a
Micro-Capitalization Company.
Sub-Adviser(s):
Proxy
voting policies and procedures are used by a sub-adviser to determine how
to vote proxies relating to the securities held by its allocated portion
of the fund's assets. The proxy voting policies and procedures used by a
sub-adviser are described below. |
Proxy
Voting - Allspring Global Investments.
Allspring
Global Investments (Allspring) Stewardship
As
fiduciaries, we are committed to effective stewardship of the assets we
manage on behalf of our clients. To us, good stewardship reflects
responsible, active ownership and includes both engaging with investee
companies and voting proxies in a manner that we believe will maximize the
long-term value of our investments.
Scope
of Policies and Procedures
In
conjunction with the Allspring Engagement Policy, these Proxy Voting
Policies and Procedures ("Policies and Procedures") set out how Allspring
complies with applicable regulatory requirements in respect of how we
exercise voting rights when we invest in shares traded on a regulated
market on behalf of a client.
With
respect to client accounts of Allspring Funds Management, LLC ("Allspring
Funds Management")this includes, among others, Allspring Funds Trust,
Allspring Master Trust, Allspring Variable Trust, Allspring Global
Dividend Opportunity Fund, Allspring Income Opportunities Fund, Allspring
Multi-Sector Income Fund, Allspring Utilities and High Income Fund (the
"Trusts"). It also includes Allspring (Lux) Worldwide Fund and Allspring
Worldwide Alternative Fund SICAV-SIF, both domiciled in Luxembourg (the
"Luxembourg Funds"). Aside from the investment funds managed by Funds
Management, Allspring also offers medium term note programs, managed for
issuers of such notes domiciled in Luxembourg. Hereafter, all series of
the Trusts, and all such Trusts not having separate series, and all
sub-funds of the Luxembourg Funds, as well as the MTN issuers, are
referred to as the "Investment Products". In addition, these Policies and
Procedures are used to determine how to vote proxies for the assets
managed on behalf of Allspring's other clients. Not all clients delegate
proxy voting authority to Allspring. Allspring will not vote proxies, or
provide advice to clients on how to vote proxies in the absence of
specific delegation of authority, a pre-existing contractual agreement, or
an obligation under applicable law (e.g., securities that are held in an
investment advisory account for which Allspring exercises no investment
discretion are not voted by Allspring).
Luxembourg
Products
Allspring
Global Investments Luxembourg S.A. ("Allspring Luxembourg") has delegated
the portfolio management of the Luxembourg Funds it manages to Allspring
and the responsibility for exercising voting rights in conjunction with
such delegation; as such, these Policies and Procedures shall apply to the
portfolio management of the Allspring (Lux) Worldwide Fund. The respective
portfolio management may also delegate the responsibility for exercising
voting rights to the Proxy Voting Vendor, with the prior consent of
Allspring Luxembourg. Responsibility for exercising voting rights has also
been delegated to Allspring with respect to the Allspring Worldwide
Alternative Fund SICAV-SIF and to the MTN issuers.
Voting
Philosophy
Allspring
has adopted these Policies and Procedures to ensure that proxies are voted
in the best interests of clients and Investment Product investors, without
regard to any relationship that any affiliated person of Allspring or the
Investment Product (or an affiliated person of such affiliated person) may
have with the issuer. Allspring exercises its voting responsibility
as a fiduciary with the goal of maximizing value to clients consistent
with governing laws and the investment policies of each client. While
securities are not purchased to exercise control or to seek to effect
corporate change through share ownership activism, Allspring supports
sound corporate governance practices at companies in which client assets
are invested. Allspring has established an appropriate strategy
determining when and how the voting rights related to the instruments held
in portfolios managed are exercised, so that these rights are exclusively
reserved to the relevant Investment Product and its investors.
Proxy
Administration
Allspring's
Stewardship Team ("Stewardship") administers the proxy voting process. The
Stewardship Team is part of the Allspring Sustainability Team. Stewardship
is responsible for administering and overseeing the proxy voting process
to ensure the implementation of the Policies and Procedures, including
regular operational reviews, typically conducted on a weekly basis.
Stewardship monitors third party voting of proxies to ensure it is being
done in a timely and responsible manner, including review of scheduled
vendor reports. Stewardship, in conjunction with the Allspring Proxy
Governance Committee, reviews the continuing appropriateness of the
Policies and Procedures set forth herein, and recommends revisions as
necessary.
Third
Party Proxy Voting Vendor
Allspring
has retained a third-party proxy voting service, Institutional Shareholder
Services Inc. ("ISS"), to assist in the implementation of certain proxy
voting-related functions including: 1.) Providing research on proxy
matters 2.) Providing technology to facilitate the sharing of research and
discussions related to proxy votes 3.) Vote proxies in accordance with
Allspring's guidelines 4.) Handle administrative and reporting items 5.)
Maintain records of proxy statements received in connection with proxy
votes and provide copies/analyses upon request. Except in instances where
clients have retained voting authority, Allspring retains the
responsibility for proxy voting decisions.
Proxy
Committee
Allspring
Proxy Governance Committee
The
Allspring Proxy Governance Committee shall be responsible for overseeing
the proxy voting process to ensure its implementation in conformance with
these Policies and Procedures. The Allspring Proxy Governance
Committee shall coordinate with Allspring Compliance to monitor ISS, the
proxy voting agent currently retained by Allspring, to determine that ISS
is accurately applying the Policies and Procedures as set forth herein and
operates as an independent proxy voting agent. Allspring's ISS Vendor
Oversight process includes an assessment of ISS' Policy and Procedures
("P&P"), including conflict controls and monitoring, receipt and
review of routine performance-related reporting by ISS to Allspring and
periodic onsite due diligence meetings. Due diligence meetings typically
include: meetings with key staff, P&P related presentations and
discussions, technology-related demonstrations and assessments, and some
sample testing, if appropriate. The Allspring Proxy Governance
Committee shall review the continuing appropriateness of the Policies and
Procedures set forth herein. The Allspring Proxy Governance Committee may
delegate certain powers and responsibilities to proxy voting working
groups. The Allspring Proxy Governance Committee reviews and, in
accordance with these Policies and Procedures, votes on issues that have
been escalated from proxy voting working groups. Members of the Allspring
Proxy Governance Committee also oversee the implementation of Allspring
Proxy Governance Committee recommendations for the respective functional
areas in Allspring that they represent.
Proxy
Voting Due Diligence Working Group
Among
other delegated matters, the proxy voting Due Diligence Working Group
('DDWG') in accordance with these Policies and Procedures, reviews and
votes on routine proxy proposals that it considers under these Policies
and Procedures in a timely manner. If necessary, the DDWG escalates issues
to the Allspring Proxy Governance Committee that are determined to be
material by the DDWG or otherwise in accordance with these Policies and
Procedures. The DDWG coordinates with Allspring's Compliance teams to
review the performance and independence of ISS in exercising its proxy
voting responsibilities.
Meetings;
Committee Actions
The
Allspring Proxy Governance Committee shall convene or act through written
consent, including through the use of electronic systems of record, of a
majority of Allspring Proxy Governance Committee members as needed and
when discretionary voting determinations need to be considered. Any
working group of the Allspring Proxy Governance Committee shall have the
authority on matters delegated to it to act by vote or written consent,
including through the use of electronic systems of record, of a majority
of the working group members available at that time. The Allspring Proxy
Governance Committee shall also meet quarterly to review the Policies and
Procedures.
Membership
Members
are selected based on subject matter expertise for the specific
deliverables the committee is required to complete. The voting members of
the Allspring Proxy Governance Committee are identified in the Allspring
Proxy Charter. Changes to the membership of the Allspring Proxy
Governance Committee will be made only with approval of the Allspring
Proxy Governance Committee. Upon departure from Allspring Global
Investments, a member's position on the Allspring Proxy Governance
Committee will automatically terminate.
Voting
Procedures
Unless
otherwise required by applicable law, 1 proxies will be voted in
accordance with the following steps and in the following order of
consideration:
1.
First, any voting items related to Allspring "Top-of-House" voting
principles (as described below under the heading "Allspring Proxy Voting
Principles/Guidelines") will generally be voted in accordance with a
custom voting policy with ISS ("Custom Policy") designed to implement the
Allspring's Top-of-House voting principles. 2
2.
Second, any voting items for meetings deemed of "high importance" 3 (e.g.,
proxy contests, mergers and acquisitions,) where ISS opposes management
recommendations will be referred to the Portfolio Management teams for
recommendation or the DDWG (or escalated to the Allspring Proxy Governance
-Committee) for case-by-case review and vote determination.
3.
Third, with respect to any voting items where ISS Sustainability Voting
Guidelines 4 provide a different recommendation than ISS Standard Voting
Guidelines, the following steps are taken:
a.
Stewardship 5 evaluates the matter for
materiality and any other relevant considerations.
b.
If Stewardship recommends further
review, the voting item is then referred to the Portfolio Management teams
for recommendation or the DDWG (or escalated to the Allspring Proxy
Governance Committee) for case-by-case review and vote determination.
c.
If Stewardship does not recommend
further review, the matter is voted in accordance with ISS Standard Voting
Guidelines.
4.
Fourth, any remaining proposals are voted in accordance with ISS Standard
Voting Guidelines. 6
Commitment
to the Principles of Responsible Investment
As
a signatory to the Principles for Responsible Investment, Allspring has
integrated certain environmental, social, and governance factors into its
investment processes, which includes the proxy process. As described under
Voting Procedures above, Allspring considers ISS's Sustainability Voting
Guidelines as a point of reference in certain cases deemed to be material
to a company's long-term shareholder value.
Voting
Discretion
In
all cases, the Allspring Proxy Governance Committee (and any working group
thereof) will exercise its voting discretion in accordance with the voting
philosophy of these Policies and Procedures. In cases where a proxy item
is forwarded by ISS to the Allspring Proxy Governance Committee or a
working group thereof, the Allspring Proxy Governance Committee or its
working group may be assisted in its voting decision through receipt of:
(i) independent research and voting recommendations provided by ISS or
other independent sources; (ii) input from the investment sub-adviser
responsible for purchasing the security; and (iii) information provided by
company management and shareholder groups.
Portfolio
Manager and Sub-Adviser Input
The
Allspring Proxy Governance Committee (and any working group thereof) may
consult with portfolio management teams and Fund sub-advisers on specific
proxy voting issues as it deems appropriate. In addition, portfolio
management teams or Fund sub-advisers may proactively make recommendations
to the Allspring Proxy Governance Committee regarding any proxy voting
issue. In this regard, the process takes into consideration expressed
views of portfolio management teams and Fund sub-advisers given their deep
knowledge of investee companies. For any proxy vote, portfolio management
teams and Investment Product advisers and sub-advisers may make a case to
vote against the ISS or Allspring Proxy Governance Committee's
recommendation (which is described under Voting Procedures above). Any
portfolio management team's or Investment Product adviser's or
sub-adviser's opinion should be documented in a brief write-up for
consideration by the DDWG who will determine, or escalate to the Allspring
Proxy Governance Committee, the final voting decision.
Consistent
Voting
The
Allspring Proxy Policy and Procedures is consistently applied on the same
matter when securities of an issuer are held by multiple client accounts
unless there are 1) special circumstances such as, for example, proposals
concerning corporate actions such as mergers, tender offers, and
acquisitions or as reasonably necessary to implement specified proxy
voting guidelines as established by a client (e.g. Taft Hartley ISS
Guidelines or custom proxy guidelines) or 2) the expressed views of
different portfolio management teams and Fund sub-advisers is different on
particular proposals. In the latter case, the Proxy Governance Committee
will work with the investment teams to gauge whether alignment can be
achieved.
Governance
and Oversight
Allspring
Top-of-House Proxy Voting Principles/Guidelines.
The
following reflects Allspring's Top-of-House Voting Principles in effect as
of the date of these Policies and Procedures. Allspring has put in place a
custom voting policy with ISS to implement these voting principles.
We
believe that Boards of Directors of investee companies should have strong,
independent leadership and should adopt structures and practices that
enhance their effectiveness. We recognize that the optimal board size and
governance structure can vary by company size, industry, region of
operations, and circumstances specific to the company.
- We
generally vote for the election of Directors in uncontested elections.
We reserve the right to vote on a case-by-case basis when directors fail
to meet their duties as a board member, such as failing to act in the
best economic interest of shareholders; failing to maintain independent
audit, compensation, nominating committees; and failing to attend at
least 75% of meetings, etc.
- We
generally vote for an independent board that has a majority of outside
directors who are not affiliated with the top executives and have
minimal or no business dealings with the company to avoid potential
conflicts of interests.
- Generally
speaking, we believe Directors serving on an excessive number of boards
could result in time constraints and an inability to fulfill their
duties.
- We
generally support adopting a declassified board structure for public
operating and holding companies. We reserve the right to vote on a
case-by-case basis when companies have certain long-term business
commitments.
- We
generally support annual election of directors of public operating and
holding companies. We reserve the right to vote on a case-by-case
basis when companies have certain long-term business commitments.
- We
believe a well-composed board should embody multiple dimensions of
diversity in order to bring personal and professional experiences to
bear and create a constructive debate of competing perspectives and
opinions in the boardroom. Diversity should consider factors such as
gender, ethnicity, and age as well as professional factors such as area
of expertise, industry experience and geographic location.
We
believe it is the responsibility of the Board of Directors to create,
enhance, and protect shareholder value and that companies should strive to
maximize shareholder rights and representation.
- We
believe that companies should adopt a one-share, one-vote standard and
avoid adopting share structures that create unequal voting rights among
their shareholders. We will normally support proposals seeking to
establish that shareholders are entitled to voting rights in proportion
to their economic interests.
- We
believe that directors of public operating and holding companies be
elected by a majority of the shares voted. We reserve the right to vote
on a case-by-case basis when companies have certain long-term business
commitments. This ensures that directors of public operating and
holding companies who are not broadly supported by shareholders are not
elected to serve as their representatives. We will normally support
proposals seeking to introduce bylaws requiring a majority vote standard
for director elections.
- We
believe a simple majority voting standard should be required to pass
proposals. We will normally support proposals seeking to introduce
bylaws requiring a simple majority vote.
- We
believe that shareholders who own a meaningful stake in the company and
have owned such stake for a sufficient period of time should have, in
the form of proxy access, the ability to nominate directors to appear on
the management ballot at shareholder meetings. In general we support
market-standardized proxy access proposals and we will analyze them
based on various criteria such as threshold ownership levels, a minimum
holding period, and the % and/or number of directors that are subject to
nomination.
- We
believe that shareholders should have the right to call a special
meeting and not wait for company management to schedule a meeting if
there is sufficiently high shareholder support for doing so on issues of
substantial importance. In general we support the right to call a
special meeting if there is balance between a reasonable threshold of
shareholders and a hurdle high enough to also avoid the waste of
corporate resources for narrowly supported interests. We will evaluate
the issues of importance on the basis of serving all shareholders well
and not structured for the benefit of a dominant shareholder over
others.
Practical
Limitations to Proxy Voting
While
Allspring uses its reasonable best efforts to vote proxies, in certain
circumstances, it may be impractical or impossible for Allspring to vote
proxies (e.g., limited value or unjustifiable costs).
Securities
on Loan
As
a general matter, securities on loan will not be recalled to facilitate
proxy voting (in which case the borrower of the security shall be entitled
to vote the proxy). However, as it relates to portfolio holdings of the
Investment Products, if the Allspring Proxy Governance Committee is aware
of an item in time to recall the security and has determined in good faith
that the importance of the matter to be voted upon outweighs the loss in
lending revenue that would result from recalling the security (e.g., if
there is a controversial upcoming merger or acquisition, or some other
significant matter), the security will be recalled for voting.
Share
Blocking
Proxy
voting in certain countries requires 'share blocking'. Shareholders
wishing to vote their proxies must deposit their shares with a designated
depository before the date of the meeting. Consequently, the shares may
not be sold in the period preceding the proxy vote. Absent compelling
reasons, Allspring believes that the benefit derived from voting these
shares is outweighed by the burden of limited trading. Therefore, if share
blocking is required in certain markets, Allspring will not participate
and will refrain from voting proxies for those clients impacted by share
blocking.
Conflicts
of Interest
We
always seek to place the interests of our clients first and to identify
and manage any conflicts of interest, including those that arise from
proxy voting or engagement. Allspring acts as a fiduciary with respect to
its asset management activities and therefore we must act in the best
interest of our clients and address conflicts that arise.
Conflicts
of interest are identified and managed through a strict and objective
application of our voting policy and procedures. Allspring may have a
conflict of interest regarding a proxy to be voted upon if, for example,
Allspring or its may have other relationships with the issuer of the proxy
(e.g. the issuer may be a corporate pension fund client of Allspring).
This type of conflict is generally mitigated by the information barriers
between Allspring and its affiliates and our commitment as a fiduciary to
independent judgement. However, when the Allspring Proxy Governance
Committee becomes aware of a conflict of interest (that gets uncovered
through the Allspring Proxy Voting Policy and Procedures), it takes
additional steps to mitigate the conflict, by using any of the following
methods:
1.
Instructing ISS to vote in accordance
with its recommendation;
2.
Disclosing the conflict to the
relevant Board and obtaining its consent before voting;
3.
Submitting the matter to the relevant
Board to exercise its authority to vote on such matter;
4.
Engaging an independent fiduciary who
will direct the vote on such matter,
5.
Consulting with Legal and Compliance
and, if necessary, outside legal counsel for guidance on resolving the
conflict of interest,
6.
Voting in proportion to other
shareholders ("mirror voting") following consultation with the Board of
the Funds if the conflict pertains to a matter involving a portfolio
holding of the Funds; or
7.
Voting in other ways that are
consistent with Allspring's obligation to vote in the best interests of
its clients.
Finally,
Allspring is a privately-owned company and one of our owners is GTCR which
owns other companies as well known as Affiliates. The Allspring
Regulatory Compliance team maintains the GTCR Affiliates list and
publishes an updated list quarterly. Since the Affiliates may issue
publicly traded stock and hold regular proxy meetings, Allspring manages
this potential conflict of interest by defaulting all proxy voting in the
affiliates to the ISS recommendations. Allspring has no influence
attributed to the decisions or the voting elections.
Vendor
Oversight The Stewardship Team monitors the ISS proxy process against
specific criteria in order to identify potential issues relating to
account reconciliation, unknown and rejected ballot reviews, upcoming
proxy reviews, share reconciliation oversight, etc. With respect to ISS's
management of its potential conflicts of interest with corporate issuers,
ISS provides institutional clients such as Allspring with its "Policy and
disclosure of Significant ISS Relationships" and tools to provide
transparency of those relationships.
Other
Provisions
Policy
Review and Ad Hoc Meetings
The
Allspring Proxy Governance Committee meets at least annually to review
this Policy and consider any appropriate changes. Meetings may be
convened more frequently (for example, to discuss a specific proxy agenda
or proposal) as requested by the Head of Stewardship, any member of the
Allspring Proxy Governance Committee, or Chief Compliance
Officer. The Allspring Proxy Governance Committee includes
representation from Portfolio Management, Stewardship, Investment
Analytics, Legal and Compliance.
Records
Retention
The
Stewardship Team will maintain the following records relating to the
implementation of the Policies and Procedures:
- A
copy of these proxy voting policies and procedures;
- Proxy
statements received for client securities (which will be satisfied by
relying on ISS);
- Records
of votes cast on behalf of Investment Products and separate account
clients (which ISS maintains on behalf of Allspring);
- Records
of each written client request for proxy voting records and Allspring's
written response to any client request (written or oral) for such
records; and
- Any
documents prepared by Allspring or ISS that were material to making a
proxy voting decision.
Such
proxy voting books and records shall be maintained at an office of
Allspring in an easily accessible place for a period of six years.
Compliance
with Regional Regulations and Client Delegation Arrangements
U.S.
Regulation
These
Policies and Procedures have been written in compliance with Rule 206(4)-6
of the Investment Advisers Act of 1940. Proxy voting records for
Allspring's mutual funds are disclosed on Form N-PX annually, as required
by Section 30 and Rule 30b1-4 of the Investment Company Act of 1940, to
the Securities and Exchange Commission ("SEC").
E.U.
Regulation
These
Policies and Procedures have been established, implemented and maintained,
as they apply to Allspring Luxembourg and Allspring Global Investments
(UK) Limited, in accordance the EU Shareholder Rights Directive II (EU
2017/828) (SEF II). Specific to Allspring Luxembourg, the Policies and
Procedures also comply with Article 23 of CSSF Regulation No. 10-4, and
the CSSF Circular 18/698.
Disclosure
of policies and procedures
A
summary of the proxy voting policy and procedures are disclosed on
Allspring's website.
In
addition, Allspring will disclose to its separate clients (i.e. proxy
votes for assets managed on behalf of Allspring's other clients as per a
delegation arrangement) a summary description of its proxy voting policy
and procedures via mail.
Disclosure
of proxy voting results
Allspring
will provide to clients proxy statements and any records as to how
Allspring voted proxies on behalf of clients, quarterly or upon request.
For assistance, clients may contact their relationship manager, call
Allspring at 1-866-259-3305 or
e-mail: [email protected] to
request a record of proxies voted on their behalf.
Allspring
will publish high-level proxy voting statistics in periodic reports.
However, except as otherwise required by law, Allspring has a general
policy of not disclosing to any issuer specific or third party how its
separate account client proxies are voted.
1
Where provisions of the Investment Company Act of 1940 (the "1940 Act")
specify the manner in which items for any third party registered
investment companies (e.g., mutual funds, exchange-traded funds and
closed-end funds) and business development companies (as defined in
Section 2(a)(48) of the 1940 Act) ("Third Party Fund Holding Voting
Matters") held by the Trusts or series thereof, Allspring shall vote the
Third Party Fund Holding Voting Matter on behalf of the Trusts or series
thereof accordingly.
2
The Allspring Proxy Governance Committee may determine that additional
review of a Top-of-House voting matter is warranted. For example, voting
matters for declassified boards or annual election of directors of public
operating and holding companies that have certain long-term business
commitments (e.g., developing proprietary technology; or having an
important strategic alliance in place) may warrant referral to the DDWG
(or escalation to the Proxy Governance Committee) for case-by-case review
and vote determination.
3
The term "high importance" is defined as those items designated Proxy
Level 6 or 5 by ISS, which include proxy contests, mergers, and other
reorganizations.
4
ISS's Sustainability Voting Guidelines seeks to promote support for
recognized global governing bodies encouraging sustainable business
practices advocating for stewardship of environment, fair labor practices,
non-discrimination, and the protection of human rights.
5
The Allspring Stewardship Team is part of the Sustainability Team, led by
Henrietta Pacquement who reports into the Allspring Chief Investment
Officer(s).
6
The voting of proxies for Taft Hartley clients may incorporate the use of
ISS's Taft Hartley voting guidelines. |
Proxy Voting - FIAM
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 75 years. Our core
principles sit at the heart of our voting philosophy; putting our
customers' and fund shareholders' long-term interests first and investing
in companies that share our approach to creating value over the long-term
guides everything we do. 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, Fidelity considers factors that are financially
material to individual companies and investing funds' investment
objectives and strategies in support of maximizing long-term shareholder
value. This includes considering the company's approach to financial and
operational, human, and natural capital and the impact of that approach on
the potential future value of the business.
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.
There are no racially or ethnically diverse directors.
4.
The director is a public company CEO who sits on more than two
unaffiliated public company boards.
5.
The director, other than a CEO, sits on more than five 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 committee if:
1.The
compensation appears misaligned with shareholder interests or is otherwise
problematic and results in concerns with:
a)The
alignment of executive compensation and company performance relative to
peers; and
b)The
structure of the compensation program, including factors outlined above
under the section entitled Advisory Vote on Executive Compensation (Say on
Pay) and Frequency of Say on Pay Vote.
2.
The company has not adequately addressed concerns communicated by Fidelity
in the process of discussing executive compensation.
3.
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 consideration of human and natural
capital 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 human and natural capital
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. Fidelity evaluates shareholder proposals concerning natural
and human capital topics. To engage and vote more effectively on the
growing number of submitted proposals on these topics, we developed a
four-point decision-making framework. In general, Fidelity will more
likely support proposals that:
•Address
a topic that our research has identified as financially material;
•Provide
disclosure of new or additional information to investors, improving
transparency;
•Provide
value to the business or investors by improving the landscape of
investment-decision relevant information or contributing to our
understanding of a company's processes and governance of the topic in
question; and
•Are
realistic or practical for the company to comply with.
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 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 or other non-Fidelity Funds
When
a Fidelity fund invests in an underlying Fidelity fund with public
shareholders or a non-Fidelity investment company or business development
company, Fidelity will generally 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, except where not
permitted under applicable laws and regulations.
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 75 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
- Burn
rate means the total number of stock option and full value equity awards
granted as compensation in a given year divided by the weighted average
common stock outstanding for that same year.
-
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%.
- Golden
parachute means employment contracts, agreements, or policies that
include 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.
- Large-capitalization
company means a company included in the Russell 1000® Index or the
Russell Global ex-U.S. Large Cap Index.
- Micro-capitalization
company means a company with market capitalization under US $300
million.
- Poison
pill refers to a strategy employed by a potential takeover / target
company to make its stock less attractive to an acquirer. Poison pills
are generally designed to dilute the acquirer's ownership and value in
the event of a takeover.
- Small-capitalization
company means a company not included in the Russell 1000® Index or the
Russell Global ex-U.S. Large Cap Index that is not a
Micro-Capitalization Company.
|
T.
ROWE PRICE ASSOCIATES, INC. AND CERTAIN OF ITS INVESTMENT ADVISER
AFFILIATES
PROXY
VOTING POLICIES AND PROCEDURES
RESPONSIBILITY
TO VOTE PROXIES
T.
Rowe Price Associates, Inc. and certain of its investment adviser
affiliates 1 (collectively, "T. Rowe Price") have adopted these Proxy
Voting Policies and Procedures ("Policies and Procedures") for the purpose
of establishing formal policies and procedures for performing and
documenting their fiduciary duty with regard to the voting of client
proxies. This document is reviewed at least annually and updated as
necessary.
T.
Rowe Price recognizes and adheres to the principle that one of the
privileges of owning stock in a company is the right to vote in the
election of the company's directors and on matters affecting certain
important aspects of the company's structure and operations that are
submitted to shareholder vote. The U.S.-registered investment companies
which T. Rowe Price sponsors and serves as investment adviser (the "Price
Funds") as well as other investment advisory clients have delegated to T.
Rowe Price certain proxy voting powers. As an investment adviser, T. Rowe
Price has a fiduciary responsibility to such clients when exercising its
voting authority with respect to securities held in their portfolios. T.
Rowe Price reserves the right to decline to vote proxies in accordance
with client-specific voting guidelines.
Fiduciary
Considerations. It is the policy of T. Rowe Price that decisions with
respect to proxy issues will be made in light of the anticipated impact of
the issue on the desirability of investing in the portfolio company from
the viewpoint of the particular advisory client or Price Fund. Proxies are
voted solely in the interests of the client, Price Fund shareholders or,
where employee benefit plan assets are involved, in the interests of plan
participants and beneficiaries. Our intent has always been to vote
proxies, where possible to do so, in a manner consistent with our
fiduciary obligations and responsibilities.
One
of the primary factors T. Rowe Price considers when determining the
desirability of investing in a particular company is the quality and depth
of its management. We recognize that a company's management is entrusted
with the day-to-day operations of the company, as well as its long-term
direction and strategic planning, subject to the oversight of the
company's board of directors. Accordingly, our proxy voting guidelines are
not intended to substitute our judgment for management's with respect to
the company's day-to-day operations. Rather, our proxy voting guidelines
are designed to promote accountability of a company's management and board
of directors to its shareholders; to align the interests of management
with those of shareholders; and to encourage companies to adopt best
practices in terms of their corporate governance and disclosure. In
addition to our proxy voting guidelines, we rely on a company's public
filings, its board recommendations, its track record, country-specific
best practices codes, our research providers and - most importantly - our
investment professionals' views in making voting decisions. T. Rowe
Price investment personnel do not coordinate with investment personnel of
its affiliated investment adviser, TRPIM, with respect to proxy voting
decisions.
T.
Rowe Price seeks to vote all of its clients' proxies. In certain
circumstances, T. Rowe Price may determine that refraining from voting a
proxy is in a client's best interest, such as when the cost of voting
outweighs the expected benefit to the client. For example, the
practicalities and costs involved with international investing may make it
impossible at times, and at other times disadvantageous, to vote proxies
in every instance.
ADMINISTRATION
OF POLICIES AND PROCEDURES
Environmental,
Social and Governance Investing Committee. T. Rowe Price's Environmental,
Social and Governance Investing Committee ("TRPA ESG Investing Committee"
or the "Committee) is responsible for establishing positions with respect
to corporate governance and other proxy issues. Certain delegated members
of the Committee also review questions and respond to inquiries from
clients and mutual fund shareholders pertaining to proxy issues. While the
Committee sets voting guidelines and serves as a resource for T. Rowe
Price portfolio management, it does not have proxy voting authority for
any Price Fund or advisory client. Rather, voting authority and
responsibility is held by the Chairperson of the Price Fund's Investment
Advisory Committee or the advisory client's portfolio manager. The
Committee is also responsible for the oversight of third-party proxy
services firms that T. Rowe Price engages to facilitate the proxy voting
process.
Global Proxy Operations Team . The Global Proxy Operations team is
responsible for administering the proxy voting process as set forth in the
Policies and Procedures.
Governance
Team . Our Governance team is responsible for reviewing the proxy agendas
for all upcoming meetings and making company-specific recommendations to
our global industry analysts and portfolio managers with regard to the
voting decisions in their portfolios.
Responsible
Investment Team . Our Responsible Investment team oversees the integration
of environmental and social factors into our investment processes across
asset classes. In formulating vote recommendations for matters of an
environmental or social nature, the Governance team frequently consults
with the appropriate sector analyst from the Responsible Investment team.
HOW
PROXIES ARE REVIEWED, PROCESSED AND VOTED
In
order to facilitate the proxy voting process, T. Rowe Price has retained
Institutional Shareholder Services ("ISS") as an expert in the proxy
voting and corporate governance area. ISS specializes in providing a
variety of fiduciary-level proxy advisory and voting services. These
services include custom vote recommendations, research, vote execution,
and reporting. Services provided by ISS do not include automated
processing of votes on our behalf using the ISS Benchmark Policy
recommendations. Instead, in order to reflect T. Rowe Price's
issue-by-issue voting guidelines as approved each year by the TRPA ESG
Investing Committee, ISS maintains and implements custom voting policies
for the Price Funds and other advisory client accounts.
Meeting
Notification
T.
Rowe Price utilizes ISS' voting agent services to notify us of upcoming
shareholder meetings for portfolio companies held in client accounts and
to transmit votes to the various custodian banks of our clients. ISS
tracks and reconciles our clients' holdings against incoming proxy
ballots. If ballots do not arrive on time, ISS procures them from the
appropriate custodian or proxy distribution agent. Meeting and record date
information is updated daily and transmitted to T. Rowe Price through
ProxyExchange, an ISS application.
Vote
Determination
Each
day, ISS delivers into T. Rowe Price's customized ProxyExchange
environment a comprehensive summary of upcoming meetings, proxy proposals,
publications discussing key proxy voting issues, and custom vote
recommendations to assist us with proxy research and processing. The final
authority and responsibility for proxy voting decisions remains with T.
Rowe Price. Decisions with respect to proxy matters are made primarily in
light of the anticipated impact of the issue on the desirability of
investing in the company from the perspective of our clients.
Portfolio
managers execute their responsibility to vote proxies in different ways.
Some have decided to vote their proxies generally in line with the
guidelines as set by the TRPA ESG Investing Committee. Others review the
customized vote recommendations and approve them before the votes are
cast. Portfolio managers have access to current reports summarizing all
proxy votes in their client accounts. Portfolio managers who vote their
proxies inconsistent with T. Rowe Price guidelines are required to
document the rationale for their votes. The Global Proxy Operations team
is responsible for maintaining this documentation and assuring that it
adequately reflects the basis for any vote which is contrary to our proxy
voting guidelines.
T.
Rowe Price Voting Guidelines
Specific
proxy voting guidelines have been adopted by the TRPA ESG Investing
Committee for all regularly occurring categories of management and
shareholder proposals. A detailed set of proxy voting guidelines is
available on the T. Rowe Price website, www.troweprice.com/esgpolicy.
Global
Portfolio Companies
The
TRPA ESG Investing Committee has developed custom international proxy
voting guidelines based on our proxy advisor's general global policies,
regional codes of corporate governance, and our own views as investors in
these markets. We apply a two-tier approach to determining and
applying global proxy voting policies. The first tier establishes baseline
policy guidelines for the most fundamental issues, which span the
corporate governance spectrum without regard to a company's domicile. The
second tier takes into account various idiosyncrasies of different
countries, making allowances for standard market practices, as long as
they do not violate the fundamental goals of good corporate governance.
The goal is to enhance shareholder value through effective use of the
shareholder franchise, recognizing that application of a single set of
policies is not appropriate for all markets.
Fixed
Income and Passively Managed Strategies
Proxy
voting for our fixed income and indexed portfolios is administered by the
Global Proxy Operations team using T. Rowe Price's guidelines as set
by the TRPA ESG Investing Committee. Indexed strategies generally vote in
line with the T. Rowe Price guidelines. Fixed income strategies generally
follow the proxy vote determinations on security holdings held by our
equity accounts unless the matter is specific to a particular fixed income
security such as consents, restructurings, or reorganization proposals.
Shareblocking
Shareblocking
is the practice in certain countries of "freezing" shares for trading
purposes in order to vote proxies relating to those shares. In markets
where shareblocking applies, the custodian or sub-custodian automatically
freezes shares prior to a shareholder meeting once a proxy has been voted.
T. Rowe Price's policy is generally to refrain from voting shares in
shareblocking countries unless the matter has compelling economic
consequences that outweigh the loss of liquidity in the blocked shares.
Securities
on Loan
The
Price Funds and our institutional clients may participate in securities
lending programs to generate income for their portfolios. Generally, the
voting rights pass with the securities on loan; however, lending
agreements give the lender the right to terminate the loan and pull back
the loaned shares provided sufficient notice is given to the custodian
bank in advance of the applicable deadline. T. Rowe Price's policy is
generally not to vote securities on loan unless we determine there is a
material voting event that could affect the value of the loaned
securities. In this event, we have the discretion to pull back the loaned
securities in order to cast a vote at an upcoming shareholder meeting. A
monthly monitoring process is in place to review securities on loan and
how they may affect proxy voting.
Monitoring
and Resolving Conflicts of Interest
The
TRPA ESG Investing Committee is also responsible for monitoring and
resolving potential material conflicts between the interests of T. Rowe
Price and those of its clients with respect to proxy voting. We have
adopted safeguards to ensure that our proxy voting is not influenced by
interests other than those of our fund shareholders and other investment
advisory clients. While membership on the Committee is diverse, it does
not include individuals whose primary duties relate to client relationship
management, marketing, or sales. Since T. Rowe Price's voting guidelines
are predetermined by the Committee, application of the guidelines by
portfolio managers to vote client proxies should in most instances
adequately address any potential conflicts of interest. However,
consistent with the terms of the Policies and Procedures, which allow
portfolio managers to vote proxies opposite our general voting guidelines,
the Committee regularly reviews all such proxy votes that are inconsistent
with the proxy voting guidelines to determine whether the portfolio
manager's voting rationale appears reasonable. The Committee also assesses
whether any business or other material relationships between T. Rowe Price
and a portfolio company (unrelated to the ownership of the portfolio
company's securities) could have influenced an inconsistent vote on that
company's proxy. Issues raising potential conflicts of interest are
referred to designated members of the Committee for immediate resolution
prior to the time T. Rowe Price casts its vote.
With
respect to personal conflicts of interest, T. Rowe Price's Code of Ethics
and Conduct requires all employees to avoid placing themselves in a
"compromising position" in which their interests may conflict with those
of our clients and restrict their ability to engage in certain outside
business activities. Portfolio managers or Committee members with a
personal conflict of interest regarding a particular proxy vote must
recuse themselves and not participate in the voting decisions with respect
to that proxy.
Specific
Conflict of Interest Situations - Voting of T. Rowe Price Group, Inc.
common stock (sym: TROW) by certain T. Rowe Price Index Funds will be done
in all instances in accordance with T. Rowe Price voting guidelines and
votes inconsistent with the guidelines will not be permitted. In the event
that there is no previously established guideline for a specific voting
issue appearing on the T. Rowe Price Group proxy, the Price Funds will
abstain on that voting item. In addition, T. Rowe Price has voting
authority for proxies of the holdings of certain Price Funds that invest
in other Price Funds. In cases where the underlying fund of an investing
Price Fund, including a fund-of-funds, holds a proxy vote, T. Rowe Price
will mirror vote the fund shares held by the upper-tier fund in the same
proportion as the votes cast by the shareholders of the underlying funds
(other than the T. Rowe Price Reserve Investment Fund).
Limitations
on Voting Proxies of Banks
T.
Rowe Price has obtained relief from the U.S. Federal Reserve Board (the
"FRB Relief") which permits, subject to a number of conditions, T. Rowe
Price to acquire in the aggregate on behalf of its clients, 10% or more of
the total voting stock of a bank, bank holding company, savings and loan
holding company or savings association (each a "Bank"), not to exceed a
15% aggregate beneficial ownership maximum in such Bank. One such
condition affects the manner in which T. Rowe Price will vote its clients'
shares of a Bank in excess of 10% of the Bank's total voting stock
("Excess Shares"). The FRB Relief requires that T. Rowe Price use
its best efforts to vote the Excess Shares in the same proportion as all
other shares voted, a practice generally referred to as "mirror voting,"
or in the event that such efforts to mirror vote are unsuccessful, Excess
Shares will not be voted. With respect to a shareholder vote for a
Bank of which T. Rowe Price has aggregate beneficial ownership of greater
than 10% on behalf of its clients, T. Rowe Price will determine which of
its clients' shares are Excess Shares on a pro rata basis across all of
its clients' portfolios for which T. Rowe Price has the power to vote
proxies. 2
REPORTING,
RECORD RETENTION AND OVERSIGHT
The
TRPA ESG Investing Committee, and certain personnel under the direction of
the Committee, perform the following oversight and assurance functions,
among others, over T. Rowe Price's proxy voting: (1) periodically
samples proxy votes to ensure that they were cast in compliance with
T. Rowe Price's proxy voting guidelines; (2) reviews, no less
frequently than annually, the adequacy of the Policies and Procedures to
make sure that they have been implemented effectively, including whether
they continue to be reasonably designed to ensure that proxies are voted
in the best interests of our clients; (3) performs due diligence on
whether a retained proxy advisory firm has the capacity and competency to
adequately analyze proxy issues, including the adequacy and quality of the
proxy advisory firm's staffing and personnel and its policies; and (4)
oversees any retained proxy advisory firms and their procedures regarding
their capabilities to (i) produce proxy research that is based on current
and accurate information and (ii) identify and address any conflicts of
interest and any other considerations that we believe would be appropriate
in considering the nature and quality of the services provided by the
proxy advisory firm.
T.
Rowe Price will furnish Vote Summary Reports, upon request, to its
institutional clients that have delegated proxy voting authority. The
report specifies the portfolio companies, meeting dates, proxy proposals,
and votes which have been cast for the client during the period and the
position taken with respect to each issue. Reports normally cover
quarterly or annual periods and are provided to such clients upon request.
T.
Rowe Price retains proxy solicitation materials, memoranda regarding votes
cast in opposition to the position of a company's management, and
documentation on shares voted differently. In addition, any document which
is material to a proxy voting decision such as the T. Rowe Price
proxy voting guidelines, Committee meeting materials, and other internal
research relating to voting decisions are maintained in accordance with
applicable requirements.
1
This document is not applicable to T. Rowe Price Investment Management,
Inc. ("TRPIM"). TRPIM votes proxies independently from the other T.
Rowe Price-related investment advisers and has adopted its own proxy
voting policy.
2
The FRB Relief and the process for voting of Excess Shares described
herein apply to the aggregate beneficial ownership of T. Rowe Price and
TRPIM. |
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. |
The
fund has entered into a distribution agreement with Fidelity Distributors
Company LLC (FDC), an affiliate of Strategic Advisers. 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.
The
fund's distribution agreement calls for FDC to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of the fund,
which are continuously offered.
Promotional
and administrative expenses in connection with the offer and sale of shares are
paid by Strategic Advisers.
The
Trustees have approved a Distribution and Service Plan with respect to shares of
the fund (the Plan) 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
Plan, as approved by the Trustees, allows shares of the fund and/or Strategic
Advisers to incur certain expenses that might be considered to constitute
indirect payment by the fund of distribution expenses.
The
Plan adopted for the fund or class, as applicable, is described in the
prospectus.
Under
the Plan, if the payment of management fees by the fund to Strategic Advisers is
deemed to be indirect financing by the fund of the distribution of its shares,
such payment is authorized by the Plan.
The
Plan specifically recognizes that Strategic Advisers 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,
the Plan provides that Strategic Advisers, 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 the fund.
Prior
to approving the 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 the Plan does not authorize payments by
shares of the fund other than those made to Strategic Advisers under its
management contract with the fund.
To
the extent that the Plan gives Strategic Advisers 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
Plan by local entities with whom shareholders have other relationships.
TRANSFER AND SERVICE AGENT AGREEMENTS
The
fund has entered into a transfer agent agreement with Fidelity Investments
Institutional Operations Company LLC (FIIOC), an affiliate of Strategic
Advisers, which is located at 245 Summer Street, Boston, Massachusetts 02210.
Under the terms of the agreement, FIIOC (or an agent, including an affiliate)
performs transfer agency services.
For
providing transfer agency services, FIIOC receives no fees from the fund;
however, each underlying Fidelity® fund pays its respective transfer agent
(either FIIOC or an affiliate of FIIOC) fees based, in part, on the number of
positions in and/or assets of the fund invested in such underlying Fidelity®
fund. Strategic Advisers or an affiliate of Strategic Advisers will bear the
costs of the transfer agency services with respect to assets managed by one or
more sub-advisers and assets invested in non-affiliated ETFs under the terms of
an agreement between Strategic Advisers and FIIOC.
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.
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.
The
fund has entered into a service agent agreement with Fidelity Service Company,
Inc. (FSC), an affiliate of Strategic Advisers (or an agent, including an
affiliate). Under the terms of the agreement, FSC calculates the NAV and
dividends for shares, maintains the fund's portfolio and general accounting
records, and administers the fund's securities lending program.
For
providing pricing and bookkeeping services, FSC receives a monthly fee based on
the fund's average daily net assets throughout the month.
Strategic
Advisers or its affiliate bears the cost of pricing and bookkeeping services
under the terms of an agreement between Strategic Advisers and FSC.
Trust
Organization.
Strategic
Advisers® Tax-Sensitive Short Duration Fund is a fund of Fidelity Rutland Square
Trust II, an open-end management investment company created under an initial
trust instrument dated March 8, 2006.
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 a statutory trust organized under Delaware law. Delaware
law provides that, except to the extent otherwise provided in the Trust
Instrument, shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit organized
under the general corporation law of Delaware. The courts of some states,
however, may decline to apply Delaware law on this point. The Trust Instrument
contains an express disclaimer of shareholder liability for the debts,
liabilities, obligations, and expenses of the trust. The Trust Instrument
provides that the trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the trust or the Trustees
relating to the trust or to a fund shall include a provision limiting the
obligations created thereby to the trust or to one or more funds and its or
their assets. The Trust Instrument further provides that shareholders of a fund
shall not have a claim on or right to any assets belonging to any other fund.
The
Trust Instrument provides for indemnification out of 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 Trust
Instrument 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 Delaware law does not apply, no contractual limitation of liability was
in effect, and a fund is unable to meet its obligations. Strategic Advisers LLC
believes that, in view of the above, the risk of personal liability to
shareholders is extremely remote.
Voting
Rights. The 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.
Custodian.
State
Street Bank and Trust Company, 1 Lincoln Street, Boston, Massachusetts, is
custodian of the assets of the fund.
The
custodian is responsible for the safekeeping of the 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.
Strategic
Advisers, 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 Strategic Advisers. Transactions that
have occurred to date include mortgages and personal and general business loans.
In the judgment of the 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 the fund and provides other
audit, tax, and related services.
FUND HOLDINGS INFORMATION
The
fund views holdings information as sensitive and limits its dissemination. The
Board authorized Strategic Advisers, in consultation with 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 the fund's best interests by striking an appropriate
balance between providing information about the fund's portfolio and protecting
the fund from potentially harmful disclosure. The Board reviews the
administration and modification of these guidelines and receives reports from
the fund's chief compliance officer periodically.
Other
registered investment companies that are advised or sub-advised by Strategic
Advisers or a sub-adviser may be subject to different portfolio holdings
disclosure policies, and neither Strategic Advisers nor the Board exercises
control over such policies or disclosure. In addition, separate account clients
of Strategic Advisers and the sub-advisers have access to their portfolio
holdings and are not subject to the fund's portfolio holdings disclosure
policies. Some of the funds that are advised or sub-advised by Strategic
Advisers or a sub-adviser and some of the separate accounts managed by Strategic
Advisers or a sub-adviser have investment objectives and strategies that are
substantially similar or identical to the fund's and, therefore, potentially
substantially similar, and in certain cases nearly identical, portfolio holdings
as the fund.
The
fund will provide a full list of holdings monthly on www.fidelity.com 30 days
after the month-end (excluding high income security holdings, which generally
will be presented collectively monthly and included in a list of full holdings
60 days after month-end).
The
fund will provide its top mutual fund positions (if any) on Fidelity's web site
(i) monthly, 30 days after month-end, and (ii) quarterly, 15 or more days after
the quarter-end.
Unless
otherwise indicated, this information will be available on the web site until
updated for the next applicable period.
The
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 the 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 the
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 the 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
Strategic Advisers believes will not misuse the disclosed information. These
entities, parties, and persons include, but are not limited to: the fund's
trustees; the 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; the fund's auditors; the 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 the 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 the fund and in connection with redemptions in kind.
Other
Uses Of Holdings Information. In addition, the fund may provide material
non-public holdings information to (i) third parties that calculate information
derived from holdings for use by Strategic Advisers, 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 the 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 the 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. Strategic Advisers
relies primarily on the existence of non-disclosure agreements and/or control
mechanisms when determining that disclosure is not likely to be harmful to the
fund.
At
this time, the entities receiving information described in the preceding
paragraph are: Factset Research Systems Inc. (full or partial holdings daily, on
the next business day) and MSCI Inc. and certain affiliates (full or partial
fund holdings daily, on the next business day).
Strategic
Advisers, its affiliates, or the fund 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 fund's SAI.
There
can be no assurance that the fund's 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.
The
fund's financial statements and financial highlights for the fiscal year ended
May 31, 2023, 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 in which the 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.
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.
© 2023 FMR LLC. All rights reserved.