Pyramis US Large Cap Core 130/30

INVESTMENT STRATEGY

We believe that equity markets are semi-efficient and that through in-depth fundamental research we can identify securities that outperform (and under-perform) the market. Our portfolios are constructed to leverage our greatest investment strength stock selection. The key driver of returns for our Large Cap Core 130/30 strategy therefore, is our stock-picking skill based upon our in-depth proprietary research.

The Large Cap Core 130/30 portfolio is designed to deliver the Pyramis Sector Portfolio Managers' best ideas. Each Sector Portfolio Manager runs an independent long/short portfolio, while neutral sector exposure vs. the S&P 500 Index ensures that stock selection is the primary driver of active returns. While each stock in the long and short portfolios has a sound fundamental investment thesis behind its inclusion in the portfolio, signals from our complementary research resources, like quantitative or technical research, help to build conviction in each trade and may influence ultimate position size.

The Portfolio Team Leader is responsible for monitoring the portfolio, implementing trades, and ensuring that the strategy adheres to the stated investment guidelines. All buy, sell, short, cover and timing decisions are those of the Sector Portfolio Managers only.

The Large Cap Core 130/30 team follows a bottom-up, fundamental strategy designed to deliver the Pyramis Sector Portfolio Managers' best ideas. Neutral sector exposure (+/-1.0% vs. S&P 500 Index) and other portfolio parameters ensure that stock selection is the primary driver of value-added. Our approach is unique in three key ways:

1. We use a bottom-up, fundamental investment strategy.

2. We use a team-based "best ideas" approach. The specialized role of the Sector Portfolio Manager ensures focus and proficiency in identifying long and short positions consistent with respective areas of expertise. This approach is similar to our long-only Large Cap Core strategy, which is managed by the same team and has generated almost 8.0% of annualized alpha since its inception in February 2004.

3. Pyramis offers expansive, proprietary fundamental research for the benefit of the Sector Portfolio Managers and ultimately our clients. Seventeen Pyramis fundamental analysts are aligned by industry and are organizationally integrated with the Sector Portfolio Managers in sector teams. Additionally, the Sector Portfolio Managers and Pyramis fundamental analysts collaborate with the nearly 360 global research analysts within the broader Fidelity organization.

We are confident in our fundamentally-based 130/30 strategy for the following 3 reasons:

1. Experience: We have over 15 years of experience in fundamentally-based shorting as demonstrated through our U.S. Market Neutral strategy. Additionally, Fidelity analysts have a long history of forming both buy and sell opinions.

2. Commitment: We continue to invest heavily in our risk management and trading infrastructures to allow us to short effectively and efficiently. Additionally, we compensate our analysts based in part on their ability to identify short opportunities and manage long/short model portfolios.

3. Performance: The performances of our Large Cap Core 130/30 strategy and our U.S. Market Neutral strategy are both compelling, as is the performance of our team-managed Large Cap Core strategy.

Investment Process

SCREENING PROCESS

The Large Cap Core 130/30 team follows a bottom-up, fundamental strategy designed to deliver the Pyramis Sector Portfolio Managers' best ideas. Sector portfolio managers have the flexibility to buy (typically 130%) and sell short (typically 30%) while maintaining 100% net market exposure. While exposures may fluctuate due to changing market valuations, they are monitored on an ongoing basis and rebalanced as necessary. Typical fluctuations in market value fall within a 5% variation either positive or negative with hard collars of +/-10% imposed by strategy guidelines. Pyramis uses proprietary real time risk management systems that instantaneously quantify both the amount of leverage in a portfolio as well as potential impact to the portfolio. It is expected that the Portfolio will be invested in about 110 - 140 long and 20 - 40 short positions. Turnover ranges from 100-200%. Each Sector Portfolio Manager runs an independent long/short portfolio and receives a number of inputs prior to making the decision to buy/sell/short/cover. With 195 analysts and associates covering the U.S. equity market, Fidelity's central research organization covers more companies than most other investment management firms. Currently, buy and sell opinions are actively maintained on over 3,200 U.S. companies, including 95% of companies in the Russell 3000 Index. For each company, the appropriate analyst performs fundamental, bottom-up research to determine its value. Pyramis' fundamental research team is additive and complementary to Fidelity's central research team. The fundamental analysts at Pyramis target a limited set of stocks- those they believe have the greatest upside or downside potential, typically focusing on sectors and companies where there is the greatest dispersion of returns. Additionally, all fundamental research analysts at Pyramis manage their own Analyst Model Portfolio (AMP). This is an industry or sector specific long/short paper portfolio meant to capture the analysts' best ideas. Rather than just ranking stocks "buy" or "sell" these portfolios also convey a measure of conviction based on individual stock weights and shorts. Having two separate fundamental research teams (Fidelity and Pyramis) brings multiple perspectives to our coverage of stocks and increases our commitment to the stocks we select for our portfolios. Our approach also results in a natural diversification of ideas (and alpha) in the portfolio with low correlation amongst holdings. The Sector Portfolio Managers also have access to Fidelity's quantitative and technical research, which may be used to build conviction in a position. The Portfolio Team Leader is responsible for Trading and Risk Management. However, all buy, sell, short and cover decisions, as well as timing decisions, are those of the Sector Portfolio Managers only.

PORTFOLIO CONSTRUCTION METHODOLOGY

The Large Cap Core 130/30 portfolio is constructed to ensure that the active return is being generated by stock selection. It is fully invested, sectorneutral (+/-1% versus the S&P 500 Index), and well-diversified in terms of industry, fundamental characteristics, and other statistical measures of risk. Individual holdings are limited to +3.5%/-2.5% versus the S&P 500 Index and the maximum short position is 2.5%.

BUY/SELL DISCIPLINE

Buy Discipline: The Large Cap Core 130/30 portfolio is a bottom-up, fundamental strategy. Each stock in the long and short portfolios has a sound fundamental investment thesis behind its inclusion in the portfolio. We generally focus on strong, company-level "catalysts" that can be translated into either a long or short position. Examples of catalysts include new product cycles, changes in management, and changing competitive position. From a valuation perspective, we look for stocks that are trading at reasonable valuations relative to growth prospects, and relative to peers. Stocks are sold when the investment thesis behind the stock's inclusion in the portfolio has played out; if there is a change to the investment thesis given new information; or if we simply see better opportunity elsewhere. Short Discipline: Short ideas are generally decided upon in much the same manner as long positions, through fundamental research and analysis. When implementing our short positions we are cognizant of factors such as the costs to short, potential takeover risk, and net short exposure, and reflect these in our short views. Importantly, the process of identifying underperforming securities is nothing new for Pyramis and Fidelity Analysts, as each has always communicated their negative views (the former through Analyst Model Portfolios and the latter through ratings). Having two separate fundamental research teams (Fidelity and Pyramis) brings multiple perspectives to our coverage of stocks and increases our commitment to the stocks we select for our portfolios. Our approach also results in a natural diversification of ideas (and alpha) in the portfolio with low correlation amongst holdings.

 

Fees

Minimums

Commingled Pool:
·Annual Fee - $33,750
·Account Size - $7.5 million
.Annual Base Fee is 0.45%
.Performance Fee - 20% of net excess performance

HNW Fees

Information not provided by fund manager.

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