Page 1 of 4 | Morningstar Research Report

Fidelity Funds - European High Yield Fund A Euro

Morningstar Category Benchmark BarCap Pan Euro HY Euro TR EUR

Morningstar Qualitative Rating Elite Superior Standard Inferior Impaired

25.0 22.5 20.0 17.5 15.0 12.5

Growth of 10,000 (EUR) Fund Benchmark Category

Alexander Prineas Morningstar Analyst

10.0

2002

2003

2004

2005

2006

2007

2008

2009

2010

YTD Performance 31/07/11

&
Executive Summary 3.44 3.94 7.94 14

&
22.04 -7.65 4.38 23

*
10.64 -3.33 0.44 43

*
4.68 -1.16 -0.56 43

*
7.46 -3.84 1.45 33

*
-1.06 0.91 0.72 41

(
-32.80 1.41 -2.92 59

&
67.84 -8.26 14.04 15

*
13.18 -0.97 -0.04 47

( Cat Perf Quartile

3.88 Total Return 0.30 +/- Benchmark -0.17 +/- Category 55 Percentile Rank

People: Ian Spreadbury is a highly experienced bond manager. He knows the wellresourced Fidelity team's strengths and weaknesses thoroughly because he helped build the team in the 1990s. Parent: Fidelity International Limited (FIL) is one of the largest fund management companies globally with over GBP 140 billion AUM. Process: Fidelity emphasises diversification and risk management, which we like to see in bond funds. The large team achieves this by unearthing ideas around the world. Performance: strong.
Long-term returns have been

Morningstar Opinion
23 Feb 2011 | Fidelity European High Yield continues to show why we have so much confidence in it. Since Ian Spreadbury took the fund's reins in 2002, performance has been in the first or second quartile every year, except for a glitch in 2008 when it was almost 3% behind the benchmark. Admittedly investors suffered that year, with the fund falling more than 30%, but the fund has more than made up for the loss since then. Spreadbury joined Fidelity in 1995 and his presence underpins our conviction. His 15 years at Fidelity, 10 years at L&G, and an earlier actuarial and underwriting career give him an advantage in understanding bond markets and assessing risk. Spreadbury is responsible for six Fidelity bond funds, but we think his depth of experience and high level of research support enable him to handle this heavy workload. He continues to delegate high-yield responsibilities to senior analyst Andrei Gorodilov, which should help to lighten the workload as Gorodilov develops portfolio management skills. Spreadburys long tenure with Fidelity, including building the team in the 1990s, also means he knows how to get the most out of the analysts. Moreover, he designed Fidelitys investment process; although it has been enhanced over the years, the core remains in place today. The approach hinges on diversification, using ideas unearthed by the analysts. Spreadbury matches these
Morningstar Category Manager's Benchmark Inception Date 12 Month Yield % EUR High Yield Bond 100% BofAML Gbl HY Eur Isur Constd TR HEUR 26/06/2000 5.31

with his top-down view, but he includes as many uncorrelated ideas as possible. Because it's focused primarily on high yield, this fund has less scope to add value from Spreadburys asset allocation views, but it includes a small amount of foreign currency and emergingmarkets exposure. This diversification is crucial to risk management in Spreadbury's funds. For example, although he was favourably disposed toward owning Tier 1 financials in 2009, the fund's exposure remained below the benchmark because he did not want the fund to be too concentrated in a single sector. Tier 1 financials made a significant contribution to performance in 2009, but he also sought performance from other areas. In 2010 he focused on moving up the capital structure to more-senior bonds. Other more bond-specific activity in 2010 included taking profits in names that had performed well since as far back as 2009, such as Enterprise Inns, and recycling cash into new issues such as Care UK (health services) and Continental (auto parts maker). Some concerns here include the funds above-average TER, Fidelitys large book of assets, and the risk that Spreadbury will get one of his top-down bets wrong. Still, his track record suggests he can add value despite these headwinds, and his risk management should limit downside more than competing funds. Performance remains strong, and the factors we like about this fund-the manager, his team, and his process--remain in place. The fund thus retains our Superior rating.
ISIN Domicile Legal Status/UCITS Currency Total Net Assets LU0110060430 Luxembourg SICAV EUR EUR 2419.17 Mil

Price: The TER is slightly above the category median, which is mildly disappointing, as a large fund from a house such as Fidelity should benefit from economies of scale.

Role in Portfolio: Niche. This fund is a solid choice for investors wanting exposure to European high-yield bonds. Investors outside the eurozone also need to consider currency risk as the fund is denominated in euros.

Morningstar Style Box

Credit Quality High Med Low

Ltd Mod Interest Rate Sensitivity

Ext

Copyright 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (Information) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserve its rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein.

Page 2 of 4 | Morningstar Research Report

Fidelity Funds - European High Yield Fund A Euro

Morningstar Category Benchmark BarCap Pan Euro HY Euro TR EUR

Manager Manager Start Date Average Tenure Avg Yrs Experience Longest Tenure

Ian Spreadbury 01/07/02 9.16 7 9.16

People
Ian Spreadbury has managed this fund since July 2002, and he built Fidelitys fixed-income team and capabilities in the 1990s. Prior to that, Spreadbury spent a decade running bond portfolios at Legal & General--another house with sizeable assets in fixed income--so hes used to running large funds. He also has actuarial and underwriting experience. We think this diverse base, combined with many years in fixed income, gives him a thorough understanding of fixed-income markets and, importantly, a good perspective on risk management. He is supported by Fidelitys large team of analysts who undertake detailed bottom-up research. Spreadbury is responsible for several funds in Fidelitys range, covering UK and European investment-grade and high-yield bonds.

Other Funds Managed Six Fidelity funds including Sterling Bond, Extra Income, and MoneyBuilder Income Number of Analysts More than 40

In our view his experience and knowledge of Fidelitys team enable him to cope with this workload, and he is increasingly delegating portfolio management responsibilities to senior analyst Andrei Gorodilov who covers telecoms, technology, and the emerging Europe region. Fidelitys quant team also helps with trades through input on market-timing and technical indicators.

Management Company Fidelity (FIL (Luxembourg) S.A.) Total Assets Under Mgt Total Assets in Strategy GBP 140 Bil GBP 1.773 Bil

Parent
Fidelity International Ltd (FIL) is one of the largest fund management companies globally with AUM of over GBP 140 billion. The firm was a majority-owned subsidiary of US-based Fidelity (FMR) until 30 June 1980, when its shares were distributed as a dividend to shareholders of FMR, making it independent. It clearly retains the research heritage of its former parent. FIL is chaired by Edward Johnson, chair and principal owner of FMR; he and his family also own a large percentage of FILs outstanding stock. The firms broad lineup features both equity and fixed-income funds and spans markets globally. Fidelity is known for its tendency to spend liberally in an effort to be the best. Its considerable investment in its research teams backs this: Nearly 70 analysts work in the European Equity

Research team. This team was subject to a number of reorganisations prior to the arrival of CIO Nicky Richards from Schroders in 2006, who devised a more workable team structure. Although Richards left the firm in March 2010, were still confident in the teams abilities and David Allen as co-head of pan-European equities. The firm tends to promote from within and fund managers usually rise through the analyst ranks. A downside is one manager change at a fund can set off changes at other offerings as managers are shifted to fill the vacated role.

No Holdings (Range) Sector Constraints

Typically 150 - 200 Max 30% outside index. No levered loans. Regional Constraints Max 10% in unhedged forex exposure. Tactical Use of Cash No Hedging Policy Selectively Hedged Manager's Benchmark 100% BofAML Gbl HY Eur Isur Constd TR HEUR

Process: Investment Approach

The fund has an index based on issuer (not currency), so the fund buys only bonds issued by European companies, irrespective of which currency they are issued in. Forex is hedged to a minimum of 90% as Spreadbury doesnt consider the team to be currency experts. However, a small amount of unhedged emerging-markets currency exposure is allowed for investment and diversification purposes. The fund can hold up to 30% outside the index but cannot invest in levered loans, unlike some high-yield peers. The process rests on three key areas: fundamental

credit research, quant research, and technical analysis. As portfolio manager, Spreadbury uses his judgment to combine input from all areas, in line with his top-down view. He aims for diversified and uncorrelated investment positions unearthed by Fidelitys large analyst team and typically holds 150-200 names. The process makes good sense for a bond fund because diversification limits the risk of negative surprises. This is a purer asset-class play than many other Fidelity bond funds. We expect the main drivers of performance to be bond selection within high yield and Spreadburys interpretation of macro events.

Copyright 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (Information) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserve its rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein.

Page 3 of 4 | Morningstar Research Report | All Portfolio data as of 30/06/11

Fidelity Funds - European High Yield Fund A Euro

Morningstar Category Benchmark BarCap Pan Euro HY Euro TR EUR

Effective Duration Effective Maturity (Y) Avg Credit Quality Avg Wtd Coupon Avg Wtd Price
Top 5 Country Exposures

3.30 9.40 B 7.63 94.90

%

Process: Portfolio Positioning

Spreadbury gradually reduced the funds beta (market sensitivity) at the start of 2005, well ahead of the ensuing credit crunch. He increased the weighting in gilts at the expense of high-yield names. When the credit crunch intensified, numerous investment-grade financial names received credit rating downgrades and thus entered the high-yield universe (these downgraded entrants are known as fallen angels). Spreadbury eventually bought selectively when he saw compelling value. But with financials increasing to around 25% of the index, he remained underweight, not wanting to become concentrated in one sector. 2010 activity included some names such as Enterprise Inns, which had performed strongly since as far back as 2009. Spare cash was often
Asset Allocation % Assets long % short % net %

United Kingdom Netherlands Luxembourg United States Germany

23.13 18.24 14.90 11.10 7.90

recycled into new issues where Spreadbury was able to find numerous attractively priced deals including Care UK (health services), International Personal Finance (Eastern European consumer finance), and Continental (auto parts maker). An overweight in the defensive telco sector was reduced through trimming names like Liberty Global and Virgin Media. Another broad theme included moving up the capital structure, as Spreadbury saw little price incentive to justify holding lower-ranked bonds. He has also been looking for bonds in foreign currencies trading at cheaper prices than the euro equivalent.

Credit Rating Breakdown

Stocks Bonds Cash Other

0 25 50 75 100

0.30 91.46 13.76 9.30

0.00 12.57 2.25 0.00

0.30 78.89 11.51 9.30

AAA AA A BBB BB B and below Not Rated

11.72 0.00 0.18 5.77 35.80 38.79 7.75

%

Top Holdings

% Assets 30-06-11

Maturity Breakdown

Germany (Federal Republic Of) 3.75%... Jpsw 20f993941 6/20/16 2016-06-20 Wind Acquisition F 7.375% 2018-02-15 Boats Invest Ltd (Jersey) FRN... Ubln 20f993941 6/20/16 2016-06-20 Mlsw Cds 84699ack1 12/20/15 2015-12-20 Heidelberg Cement 8% 2017-01-31 Ing Groep Nv 5.14% 2049-12-31 Wind Acquisition F 12.25% 2017-07-15 Germany (Federal Republic Of) 2%... Asset Repackaging Tr Five Bv, Amster... Fiat Indust Emtn 6.25% 3/09/18... Citi Cds 467991ft7 6/20/15 2015-06-20 Rbsd Cds 351996fq1 12/21/15 2015-12-21 Fiat Fin & Trade 7.625% 2014-09-15 Fce Bk 5.125% 2015-11-16 Intl Pers 11.5% 2015-08-06 Signum Luxembourg I Sa, Luxembourg... Ziggo Fin Bv 6.125% 2017-11-15 Conti Gummi Financ 6.5% 2016-01-15 Total Equity/Bond Holdings Assets in Top 10 Holdings %

2.30 1.90 1.83 1.75 1.69 1.51 1.46 1.46 1.38 1.36 1.17 1.12 1.08 1.05 1.01 0.95 0.90 0.88 0.88 0.88 14/772 16.65

1 to 3 3 to 5 5 to 7 7 to 10 10 to 15 15 to 20 20 to 30 Over 30
Coupon Range %

7.82 28.67 36.60 11.34 1.36 1.07 1.14 12.01

Rel Cat

0% to 4% 4% to 6% 6% to 8% 8% to 10% 10% to 12% Over 12%

7.21 15.12 40.76 20.74 10.83 5.33

3.19 1.09 0.99 0.67 1.56 1.14

Copyright 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (Information) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserve its rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein.

Page 4 of 4 | Morningstar Research Report | Performance data as of 31/07/11

Fidelity Funds - European High Yield Fund A Euro

Morningstar Category Benchmark BarCap Pan Euro HY Euro TR EUR

Trailing (EUR) 3 Mo 6 Mo 1 Yr 3 Yr Annualised 5 Yr Annualised

Total +/- +/- %Rnk Rtn % Bmark Cat in Cat -0.72 2.50 8.70 12.00 6.49 1.11 1.35 1.14 -1.76 -0.72 -0.18 0.47 -0.87 2.52 1.29 59 41 61 20 22

Performance Analysis
Performance was hampered by inflows earlier in the decade: Bid pricing allowed investors in at a discount to achievable market prices. This is disappointing, but Fidelity has since switched to a dual-priced system that solved the problem. Despite this, the funds track record is impressive: Since Spreadbury took over the fund in 2002 it has achieved first- or second-quartile returns every calendar year apart from 2008. From 1 Aug 2002 to 31 Jan 2011, annual performance has averaged 81 basis points above the Morningstar Euro High Yield Bond category. Performance has been driven by the teams bond selection and Spreadburys macro views. He kept enough risk in the
Monthly Return vs Morningstar Category (EUR)

MPT Stats R-Squared Beta Alpha

3 Yr

Rel Cat

5 Yr

Rel Cat

90.13 1.04 90.72 1.05 0.89 1.13 0.88 1.13 -0.26 0.18 -0.15 0.16

fund to stay in the second quartile from 2002-07. Despite scaling risk back gradually from 2005, it wasnt reduced enough to prevent him from slipping into the third quartile for the calendar year 2008. But performance rebounded strongly in 2009. Performance in 2010 was strong in absolute terms and reasonable in relative terms. This was a reasonable outcome and adds to our conviction that Spreadbury is able to generate performance from a variety of areas.

Volatility & Risk Adj Returns

3 Yr

Rel Cat

5 Yr

Rel Cat

Std Deviation 17.71 1.10 14.44 1.10 Mean 1.08 1.24 0.62 1.23 Sharpe Ratio 0.65 1.12 0.34 1.21 Information Ratio -0.29 0.51 -0.15 0.44 Treynor Ratio 11.95 1.10 4.57 1.18

Fund
4 3 2 1 0 -1 -2 -3

2009

2010

2011

-4

Risk & Return

Spreadburys macro calls carry risk here, but this is offset to a degree by the funds diversification and Spreadburys focus on risk. The fund has an above-average Morningstar Risk rating over three and five years, and it has also displayed a higher standard deviation. This is partly explained by the fund using a different index than many
Risk Return Analysis Fund Category Peers Category Average 3 Yr Return 30.00 20.00 10.00 0.00 -10.00 -20.00

of its peers. The fund has also compensated investors for the volatility by achieving higher returns.

Morningstar Rating (Rel Cat)

Morningstar Return

Morningstar Risk

Morningstar Rating

3 Year 5 Year 10 Year Overall

Abv avg Abv avg High High

Abv avg Abv avg Avg Abv avg

QQQ QQQ QQQQ QQQQ

0.00

5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00

3 Yr Standard Deviation

Price
The TER is above the category median of 1.27%, which is disappointing; a large fund like this should benefit from economies of scale. Max. Initial Sales Charge % Max. Annual Management Fee % Total Expense Ratio % 5.25 1.00 1.43

Copyright 2011 Morningstar. All Rights Reserved. The information, data and opinions expressed (Information) and contained herein: (1) are proprietary to Morningstar and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; (2) may not be copied or distributed without express license to do so; and (3) are not warranted to be accurate, complete or timely. Morningstar reserve its rights to charge for access to these Ratings and/or Rating report. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein.