As filed with the Securities and Exchange Commission
on March 3, 1999
Registration No. 33
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
Fidelity Fixed-Income Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Offices)
Registrant's Telephone Number (617) 563-7000
Eric D. Roiter, Secretary
82 Devonshire Street
Boston, MA 02109
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the
Securities Act of 1933.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the
Investment Company Act of 1940; accordingly, no fee is payable
herewith because of reliance upon Section 24(f). Pursuant to Rule
429, this Registration Statement relates to shares previously
registered on Form N-1A.
It is proposed that this filing will become effective on April 2,
1999, pursuant to Rule 488.
FIDELITY SHORT-TERM BOND FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and
documents:
Facing Page
Contents of Registration Statement
Solicitation Letter to Shareholders
Form of Proxy Card
Notice of Special Meeting
Part A - Proxy Statement and Prospectus
Part B- Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
IMPORTANT PROXY MATERIALS
PLEASE CAST YOUR VOTE NOW!
Dear Shareholder:
I am writing to ask you for your vote on an important proposal to
merge Spartan(Registered trademark) Short-Term Bond Fund into Fidelity
Short-Term Bond Fund. A shareholder meeting is scheduled for June 16,
1999. Votes received in time to be counted at the meeting will decide
whether the merger takes place. This package contains information
about the proposal and includes all the materials you will need to
vote by mail.
The fund's Board of Trustees has reviewed the proposed merger and has
recommended that the proposed merger be presented to shareholders.
The Trustees, most of whom are not affiliated with Fidelity, are
responsible for protecting your interests as a shareholder. The
Trustees have determined that the proposed merger is in shareholders'
best interest. However, the final decision is up to you.
The proposed merger would give shareholders of Spartan Short-Term Bond
Fund the opportunity to participate in a larger fund with similar
investment policies. The combined fund would also have lower expenses
guaranteed through June 30, 2001. We have attached a Q&A to assist
you in understanding the proposal. The enclosed proxy statement
includes a detailed description of the proposed merger.
Please read the enclosed materials and promptly cast your vote on the
proxy card. You are entitled to one vote for each dollar of net asset
value you own of the fund on the record date (April 19, 1999). Your
vote is extremely important, no matter how large or small your
holdings may be.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED.
To cast your vote, simply complete the proxy card enclosed in this
package. Be sure to sign the card before mailing it in the
postage-paid envelope provided.
If you have any questions before you vote, please call us at
1-800-544-8888. We will be glad to help you get your vote in quickly.
Thank you for your participation in this important initiative for your
fund.
Sincerely,
Edward C. Johnson 3d
Chairman and Chief Executive Officer
Important information to help you understand and vote on the proposal
Please read the full text of the enclosed proxy statement. Below is a
brief overview of the proposal to be voted upon. Your vote is
important. We appreciate you placing your trust in Fidelity and look
forward to helping you achieve your financial goals.
WHAT PROPOSAL AM I BEING ASKED TO VOTE ON?
You are being asked to approve a merger of Spartan Short-Term Bond
Fund into Fidelity Short-Term Bond Fund.
WHAT IS THE REASON FOR AND ADVANTAGES OF THIS MERGER?
The proposed merger is part of a wider strategy by Fidelity to reduce
the number of similar bond funds it manages. The combined fund would
have lower expenses guaranteed through June 30, 2001, and similar
investment policies.
DO THE FUNDS BEING MERGED HAVE SIMILAR INVESTMENT POLICIES?
Both funds are bond funds that seek high current income by investing
in U.S. dollar-denominated investment-grade bonds, including
corporate, government, and mortgage securities. In addition, both
funds have similar portfolios in terms of holdings, interest rate
risk, and average maturity.
WHO IS THE FUND MANAGER FOR THESE FUNDS?
Andrew Dudley currently manages both funds and is expected to manage
the combined fund.
HOW DO THE EXPENSE STRUCTURES OF THE FUNDS COMPARE?
Spartan Short-Term Bond Fund and Fidelity Short-Term Bond Fund have
different contractual expense structures. Spartan Short-Term Bond Fund
pays an all-inclusive management fee to Fidelity Management & Research
Company (FMR) while Fidelity Short-Term Bond Fund pays its management
fees and other expenses separately. If the merger is approved the
combined fund will retain Fidelity Short-Term Bond Fund's current
expense structure. However, FMR has agreed to limit the combined
fund's total operating expenses to 0.63% of average net assets through
June 30, 2001. After that date, the combined fund's expenses could
increase or decrease, as permitted by the Fidelity Short-Term Bond
Fund management contract.
WHAT WILL BE THE NAME OF THE COMBINED FUND AFTER THE MERGER IS
COMPLETED?
If shareholders of Spartan Short-Term Bond Fund approve the merger of
their fund into Fidelity Short-Term Bond Fund, the combined fund's
name will remain Fidelity Short-Term Bond Fund.
IS THE MERGER A TAXABLE EVENT FOR FEDERAL INCOME TAX PURPOSES?
Typically, the exchange of shares pursuant to a merger does not result
in a gain or loss for federal income tax purposes.
WHAT WILL BE THE SIZE OF FIDELITY SHORT-TERM BOND FUND AFTER THE
MERGER AND HOW HAS THE FUND PERFORMED?
If the proposal is approved, the combined fund is anticipated to have
over $1.1 billion in assets.
The table below shows average annual total returns for both Fidelity
Short-Term Bond Fund and its Lipper peer group over the last 1, 3, 5,
and 10 year periods. Please keep in mind that past performance is no
guarantee of future results and you may have a gain or loss when you
sell your shares.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Fidelity Short-Term Bond Fund 6.15% 5.71% 4.47% 6.87%
Lipper Short Investment Grade
Debt Funds Average** 5.78% 5.54% 5.41% 7.02%
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF FIDELITY SHORT-TERM
BOND FUND THAT I WILL RECEIVE?
As of the close of business of the New York Stock Exchange on the
Closing Date of the merger, shareholders will receive the number of
full and fractional shares of Fidelity Short-Term Bond Fund that is
equal in value to the net asset value of their shares of Spartan
Short-Term Bond Fund on that date. The anticipated closing date is
June 24, 1999.
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM BY THE SCHEDULED
SHAREHOLDER MEETING DATE?
To facilitate receiving sufficient votes, we will need to take further
action. We or D.F. King & Co., Inc., a proxy solicitation firm, may
contact you by mail or telephone. Therefore, we encourage
shareholders to vote as soon as they review the enclosed proxy
materials to avoid additional mailings or telephone calls.
If there are not sufficient votes to approve the proposal by the time
of the Shareholder Meeting (June 16, 1999), the meeting may be
adjourned to permit further solicitation of proxy votes.
HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSAL?
Yes. The Board of Trustees has unanimously approved the proposal and
recommends that you vote to approve it.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder, you are entitled to one vote for each dollar of net
asset value you own of Spartan Short-Term Bond Fund on the record
date. The record date is April 19, 1999.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy
card, and mailing it in the enclosed postage paid envelope. If you
need any assistance, or have any questions regarding the proposal or
how to vote your shares, please call Fidelity at 800-544-8888.
HOW DO I SIGN THE PROXY CARD?
INDIVIDUAL ACCOUNTS: Shareholders should sign exactly as their names
appear on the account registration shown on the card.
JOINT ACCOUNTS: Either owner may sign, but the name of the person
signing should conform exactly to a name shown in the registration.
ALL OTHER ACCOUNTS: The person signing must indicate his or her
capacity. For example, a trustee for a trust or other entity should
sign, "Ann B. Collins, Trustee."
* Average annual total returns are historical and include changes in
share price, reinvestment of dividends and capital gains, if any.
Share price, yield and return will vary.
** Lipper, Inc. is a nationally recognized organization that reports
on mutual fund total return performance and calculates fund rankings.
Lipper averages are based on universes of funds with the same
investment objective. Peer group averages include reinvested dividends
and capital gains, if any, and exclude sales charges.
Fidelity Distributors Corporation
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- ----------------------------------------------------------------------
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT-TERM BOND FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward
C. Johnson 3d, Eric D. Roiter, and Thomas R. Williams, or any one or
more of them, attorneys, with full power of substitution, to vote all
shares of FIDELITY CHARLES STREET TRUST: SPARTAN SHORT-TERM BOND FUND,
which the undersigned is entitled to vote at the Special Meeting of
Shareholders of the fund to be held at the office of the trust at 82
Devonshire St., Boston, MA 02109, on June 16, 1999 at 9:00 a.m.
Eastern time and at any adjournments thereof. All powers may be
exercised by a majority of said proxy holders or substitutes voting or
acting or, if only one votes and acts, then by that one. This Proxy
shall be voted on the proposals described in the Proxy Statement as
specified on the reverse side. Receipt of the Notice of the Meeting
and the accompanying Proxy Statement is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When
signing in a fiduciary capacity, such as executor, administrator,
trustee, attorney, guardian, etc., please so indicate. Corporate and
partnership proxies should be signed by an authorized person
indicating the person's title.
Date , 1999
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316069509/fund# 449
Please refer to the Proxy Statement discussion of this matter.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE
PROPOSAL.
As to any other matter, said attorneys shall vote in accordance with
their best judgment.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
PLEASE DETACH AT PERFORATION BEFORE MAILING.
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW.
- -------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. To approve an Agreement and FOR [ ] AGAINST [ ] ABSTAIN [ ] 1.
Plan of Reorganization
between Spartan Short-Term
Bond Fund and Fidelity
Short-Term Bond Fund
providing for the transfer
of all of the assets of
Spartan Short-Term Bond Fund
to Fidelity Short-Term Bond
Fund in exchange solely for
shares of beneficial
interest of Fidelity
Short-Term Bond Fund and the
assumption by Fidelity
Short-Term Bond Fund of
Spartan Short-Term Bond
Fund's liabilities, followed
by the distribution of
Fidelity Short-Term Bond
Fund's shares to
shareholders of Spartan
Short-Term Bond Fund in
liquidation of Spartan
Short-Term Bond Fund.
</TABLE>
SST-PXC-499 cusip # 316069509/fund# 449
SPARTAN(Registered trademark) SHORT-TERM BOND FUND
A FUND OF
FIDELITY CHARLES STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Spartan Short-Term Bond Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
Meeting) of Spartan Short-Term Bond Fund (Spartan Short-Term) will be
held at the office of Fidelity Charles Street Trust (the trust), 82
Devonshire Street, Boston, Massachusetts 02109 on June 16, 1999, at
9:00 a.m. Eastern time. The purpose of the Meeting is to consider and
act upon the following proposal, and to transact such other business
as may properly come before the Meeting or any adjournments thereof.
(1) To approve an Agreement and Plan of Reorganization between
Spartan Short-Term and Fidelity Short-Term Bond Fund (Fidelity
Short-Term) providing for the transfer of all of the assets of Spartan
Short-Term to Fidelity Short-Term in exchange solely for shares of
beneficial interest of Fidelity Short-Term and the assumption by
Fidelity Short-Term of Spartan Short-Term's liabilities, followed by
the distribution of Fidelity Short-Term shares to shareholders of
Spartan Short-Term in liquidation of Spartan Short-Term.
The Board of Trustees has fixed the close of business on April 19,
1999 as the record date for the determination of the shareholders of
Spartan Short-Term entitled to notice of, and to vote at, such Meeting
and any adjournments thereof.
By order of the Board of Trustees,
ERIC D. ROITER, Secretary
April 19, 1999
YOUR VOTE IS IMPORTANT -
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY
SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO
INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN
IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE
ASK YOUR COOPERATION IN MAILING YOUR PROXY CARD PROMPTLY, NO MATTER
HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of
assistance to you and help avoid the time and expense involved in
validating your vote if you fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it
appears in the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual
signing. This can be shown either in the form of the account
registration itself or by the individual executing the proxy card. For
example:
REGISTRATION VALID SIGNATURE
A. 1) ABC Corp. John Smith, Treasurer
2) ABC Corp. c/o John Smith, John Smith, Treasurer
Treasurer
B. 1) ABC Corp. Profit Sharing Plan Ann B. Collins, Trustee
2) ABC Trust Ann B. Collins, Trustee
3) Ann B. Collins, Trustee u/t/d Ann B. Collins, Trustee
12/28/78
C. 1) Anthony B. Craft, Cust. f/b/o Anthony B. Craft
Anthony B. Craft, Jr.
UGMA
SPARTAN(Registered trademark) SHORT-TERM BOND FUND
A FUND OF
FIDELITY CHARLES STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
PROXY STATEMENT AND PROSPECTUS
APRIL 19, 1999
This Proxy Statement and Prospectus (Proxy Statement) is being
furnished to shareholders of Spartan Short-Term Bond Fund (Spartan
Short-Term), a fund of Fidelity Charles Street Trust (the trust), in
connection with the solicitation of proxies by the trust's Board of
Trustees for use at the Special Meeting of Shareholders of Spartan
Short-Term and at any adjournments thereof (the Meeting). The Meeting
will be held on Wednesday, June 16, 1999, at 9:00 a.m. Eastern time at
82 Devonshire Street, Boston, Massachusetts 02109, the principal
executive office of the trust.
As more fully described in the Proxy Statement, the purpose of the
Meeting is to vote on a proposed reorganization (Reorganization).
Pursuant to an Agreement and Plan of Reorganization (the Agreement),
Spartan Short-Term would transfer all of its assets to Fidelity
Short-Term Bond Fund (Fidelity Short-Term), a fund of Fidelity
Fixed-Income Trust, in exchange solely for shares of beneficial
interest of Fidelity Short-Term and the assumption by Fidelity
Short-Term of Spartan Short-Term's liabilities. The number of shares
to be issued in the proposed Reorganization will be based upon the
relative net asset values of the funds at the time of the exchange. As
provided in the Agreement, Spartan Short-Term will distribute shares
of Fidelity Short-Term to its shareholders in liquidation of Spartan
Short-Term on June 24, 1999, or such other date as the parties may
agree (the Closing Date).
Fidelity Short-Term, a taxable bond fund, is a diversified fund of
Fidelity Fixed-Income Trust, an open-end management investment company
organized as a Massachusetts business trust on September 5, 1984.
Fidelity Short-Term's investment objective is to seek as high a level
of current income as is consistent with preservation of capital.
Fidelity Short-Term seeks to achieve its investment objective by
investing principally in investment-grade debt securities while
normally maintaining an average maturity of three years or less.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT BEEN APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY
STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the Reorganization and
Fidelity Short-Term that a shareholder should know before voting on
the proposed Reorganization. The Statement of Additional Information
dated April 19, 1999 relating to this Proxy Statement has been filed
with the Securities and Exchange Commission (SEC) and is incorporated
herein by reference. This Proxy Statement is accompanied by the
Prospectus, dated June 26, 1998, which offers shares of Fidelity
Short-Term. The Statement of Additional Information for Fidelity
Short-Term, dated June 26, 1998, is available upon request. Attachment
1 contains excerpts from the Annual Report of Fidelity Short-Term
dated April 30, 1998. The Prospectus and Statement of Additional
Information for Fidelity Short-Term have been filed with the SEC and
are incorporated herein by reference. A Prospectus and Statement of
Additional Information for Spartan Short-Term, both dated November 24,
1998, and a supplement to the Prospectus dated January 1, 1999, have
been filed with the SEC and are incorporated herein by reference.
Copies of these documents may be obtained without charge by contacting
the trust or Fidelity Fixed-Income Trust at Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, Massachusetts 02109 or by
calling 1-800-544-8888.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Voting Information 5
Synopsis 7
Comparison of Other Policies of the Funds 12
Comparison of Principal Risk Factors 14
The Proposed Transaction 15
Additional Information about Fidelity Short-Term Bond Fund 18
Miscellaneous 19
Attachment 1. Excerpts from the Annual Report of
Fidelity Short-Term Bond Fund dated April 30, 1998 21
Exhibit 1. Form of Agreement and Plan of Reorganization between
Fidelity Short-Term Bond Fund and Spartan Short-Term Bond Fund
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF
SPARTAN(Registered trademark) SHORT-TERM BOND FUND
A FUND OF
FIDELITY CHARLES STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
TO BE HELD ON JUNE 16, 1999
_________________________________
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of,
the Board of Trustees of Fidelity Charles Street Trust (the trust) to
be used at the Special Meeting of Shareholders of Spartan Short-Term
Bond Fund (Spartan Short-Term) and at any adjournments thereof (the
Meeting), to be held on Wednesday, June 16, 1999 at 9:00 a.m. at 82
Devonshire Street, Boston, Massachusetts 02109, the principal
executive office of the trust and Fidelity Management & Research
Company (FMR), the fund's investment adviser.
The purpose of the Meeting is set forth in the accompanying Notice.
The solicitation is made primarily by the mailing of this Proxy
Statement and the accompanying proxy card on or about April 19, 1999.
Supplementary solicitations may be made by mail, telephone, telegraph,
facsimile, electronic means or by personal interview by
representatives of the trust. In addition, D.F. King & Co., Inc.
and/or Management Information Services Corp. may be paid on a per-call
basis to solicit shareholders on behalf of the fund at an anticipated
cost of approximately $1,000. The expenses in connection with
preparing this Proxy Statement and its enclosures and of all
solicitations will be borne by FMR. FMR will reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation
material to the beneficial owners of shares.
If the enclosed proxy card is executed and returned, it may
nevertheless be revoked at any time prior to its use by written
notification received by the trust, by the execution of a later-dated
proxy card, or by attending the Meeting and voting in person.
All proxy cards solicited by the Board of Trustees that are properly
executed and received by the Secretary prior to the Meeting, and which
are not revoked, will be voted at the Meeting. Shares represented by
such proxies will be voted in accordance with the instructions
thereon. If no specification is made on a proxy card, it will be voted
FOR the matters specified on the proxy card. Only proxies that are
voted will be counted toward establishing a quorum. Broker non-votes
are not considered voted for this purpose. Shareholders should note
that while votes to ABSTAIN will count toward establishing a quorum,
passage of any proposal being considered at the Meeting will occur
only if a sufficient number of votes are cast FOR the proposal.
Accordingly, votes to ABSTAIN and votes AGAINST will have the same
effect in determining whether the proposal is approved.
Spartan Short-Term also may arrange to have votes recorded by
telephone. D.F. King & Co., Inc. may be paid on a per-call basis for
vote-by-phone solicitations on behalf of the fund at an anticipated
cost of approximately $2,000. The expenses in connection with
telephone voting will be borne by FMR. If the fund records votes by
telephone, it will use procedures designed to authenticate
shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to
confirm that their instructions have been properly recorded. Proxies
given by telephone may be revoked at any time before they are voted in
the same manner that proxies voted by mail may be revoked.
If a quorum is not present at the Meeting, or if a quorum is present
at the Meeting but sufficient votes to approve the proposed item are
not received, or if other matters arise requiring shareholder
attention, the persons named as proxy agents may propose one or more
adjournments of the Meeting to permit further solicitation of proxies.
Any such adjournment will require the affirmative vote of a majority
of those shares present at the Meeting or represented by proxy. When
voting on a proposed adjournment, the persons named as proxy agents
will vote FOR the proposed adjournment all shares that they are
entitled to vote with respect to each item, unless directed to vote
AGAINST the item, in which case such shares will be voted against the
proposed adjournment with respect to that item. A shareholder vote may
be taken on the item in this Proxy Statement or on any other business
properly presented at the Meeting prior to such adjournment if
sufficient votes have been received and it is otherwise appropriate.
On January 31, 1999, there were 33,237,490 and 99,761,849 shares
issued and outstanding for Spartan Short-Term and Fidelity Short-Term
Bond Fund (Fidelity Short-Term), respectively. Shareholders of record
at the close of business on April 19, 1999 will be entitled to vote at
the Meeting. Each such shareholder will be entitled to one vote for
each dollar of net asset value held on that date.
As of January 31, 1999, the Trustees, Members of the Advisory Board,
and officers of each fund owned, in the aggregate, less than 1% of
each fund's total outstanding shares.
VOTE REQUIRED: APPROVAL OF THE REORGANIZATION REQUIRES THE AFFIRMATIVE
VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF SPARTAN
SHORT-TERM. UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE 1940 ACT),
THE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" MEANS
THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE VOTING
SECURITIES PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE
HOLDERS OF MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE
PRESENT OR REPRESENTED BY PROXY OR (B) MORE THAN 50% OF THE
OUTSTANDING VOTING SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED
"PRESENT" FOR THIS PURPOSE.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, in the Agreement, and in the Prospectuses of
Spartan Short-Term and Fidelity Short-Term, which are incorporated
herein by this reference. Shareholders should read the entire Proxy
Statement and the Prospectus of Fidelity Short-Term for more complete
information.
The proposed reorganization (the Reorganization) would merge Spartan
Short-Term into Fidelity Short-Term, a larger bond fund also managed
by FMR. If the Reorganization is approved, Spartan Short-Term will
cease to exist and current shareholders of the fund will become
shareholders of Fidelity Short-Term instead.
INVESTMENT OBJECTIVES AND POLICIES
Spartan Short-Term and Fidelity Short-Term have substantially similar
investment objectives and policies. Fidelity Short-Term seeks high
current income, consistent with preservation of capital, by investing
in U.S. dollar-denominated investment-grade debt securities. Spartan
Short-Term seeks high current income by investing in U.S.
dollar-denominated investment-grade debt securities. The funds have
the same manager.
The benchmark index for each fund is the Lehman Brothers 1-3 Year
Government/Corporate Bond Index (the Index), a market value weighted
benchmark of government and investment-grade corporate fixed-rate debt
issues with maturities between one and three years. FMR manages each
fund to have similar overall interest rate risk to the index. In
addition, each fund normally maintains a dollar-weighted average
maturity of three years or less. As of January 31, 1999, the average
maturities of Spartan Short-Term and Fidelity Short-Term and the Index
were approximately 2.5 years, 2.5 years and 1.9 years, respectively.
EXPENSE STRUCTURES
Spartan Short-Term and Fidelity Short-Term have different contractual
expense structures. Both funds pay a monthly management fee to FMR.
Spartan Short-Term pays an all-inclusive management fee to FMR (at an
annual rate of 0.65% of average net assets) which covers substantially
all of the fund's expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses). Fidelity Short-Term, by
contrast, pays its management fee and other expenses separately. Its
management fee and other expenses, as a percentage of its average net
assets, vary from year to year. Fidelity Short-Term's total operating
expenses for the 12 months ended October 31, 1998 were 0.68% before
reimbursement. In anticipation of the merger, effective June 27,
1998, FMR voluntarily capped Fidelity Short-Term's total operating
expenses (the sum of its management fee and other expenses) at 0.65%
of its average net assets.
If the Reorganization is approved, FMR has agreed to limit the
combined fund's expenses to 0.63% of average net assets through June
30, 2001 (excluding interest, taxes, brokerage commissions and
extraordinary expenses). After that date, the combined fund's
expenses could increase.
In sum, the proposed Reorganization would provide Spartan Short-Term
shareholders with the opportunity to participate in a larger fund with
an investment objective and policies similar to Spartan Short-Term's
and expenses guaranteed to be lower than Spartan Short-Term's for two
years.
The Board of Trustees believes that the Reorganization would benefit
Spartan Short-Term shareholders and recommends that shareholders vote
in favor of the Reorganization.
THE PROPOSED REORGANIZATION
Shareholders of Spartan Short-Term will be asked at the Meeting to
vote upon and approve the Reorganization and the Agreement, which
provide for the acquisition by Fidelity Short-Term of all of the
assets of Spartan Short-Term in exchange solely for shares of Fidelity
Short-Term and the assumption by Fidelity Short-Term of the
liabilities of Spartan Short-Term. Spartan Short-Term will then
distribute the shares of Fidelity Short-Term to its shareholders, so
that each shareholder will receive the number of full and fractional
shares of Fidelity Short-Term equal in value to the aggregate net
asset value of the shareholder's shares of Spartan Short-Term on the
Closing Date (defined below). The exchange of Spartan Short-Term's
assets for Fidelity Short-Term's shares will occur as of the close of
business of the New York Stock Exchange (NYSE) on June 24, 1999 or
such other time and date as the parties may agree (the Closing Date).
Spartan Short-Term will then be liquidated as soon as practicable
thereafter. Approval of the Reorganization will be determined solely
by approval of the shareholders of Spartan Short-Term.
The funds have received an opinion of counsel that the
Reorganization will not result in any gain or loss for federal income
tax purposes to either Spartan Short-Term, Fidelity Short-Term, or the
shareholders of each fund. The rights and privileges of the former
shareholders of Spartan Short-Term will be effectively unchanged by
the Reorganization (except as described on page 14 under the heading
"Forms of Organization").
COMPARATIVE FEE TABLES
Each fund pays a management fee to FMR for managing its investments
and business affairs which is calculated and paid to FMR every month.
Spartan Short-Term pays FMR a management fee at an annual rate of
0.65% of its average net assets. FMR not only provides the fund with
investment advisory and research services, but also pays all of the
fund's expenses, with the exception of fees and expenses of the
non-interested Trustees, interest, taxes, brokerage commissions (if
any), and such nonrecurring expenses as may arise, including costs of
any litigation to which a fund may be a party, and any obligation it
may have to indemnify its officers and Trustees with respect to
litigation. The management fee that Spartan Short-Term pays FMR is
reduced by an amount equal to the fees and expenses paid by the fund
to the non-interested Trustees.
In contrast, Fidelity Short-Term pays a management fee and other
expenses separately. Fidelity Short-Term's management fee is
calculated by adding a monthly group fee rate to a monthly individual
fund fee rate, and multiplying the result by the fund's monthly
average net assets. The group fee rate is based on the monthly average
net assets of all mutual funds advised by FMR. The individual fund
fee rate is 0.30% of the fund's average net assets. In addition to
the management fee payable by the fund, Fidelity Short-Term also
incurs other expenses for services such as maintaining shareholder
records and furnishing shareholder statements and financial reports.
For the 12 months ended October 31, 1998, Fidelity Short-Term's total
management fee rate and total operating expense ratio were 0.43% and
0.68% (after reimbursement), respectively. Effective June 27, 1998,
FMR has voluntarily agreed to limit the total operating expenses of
Fidelity Short-Term to 0.65% of average net assets (excluding
interest, taxes, brokerage commissions and extraordinary expenses).
If shareholders approve the Reorganization, the combined fund will
retain Fidelity Short-Term's expense structure, requiring payment of a
management fee and other expenses separately. FMR has agreed to limit
the combined fund's expense ratio to 0.63% of its average net assets
through June 30, 2001 (excluding interest, taxes, brokerage
commissions and extraordinary expenses). This expense limitation would
lower Spartan Short-Term's total operating expenses from 0.65% to
0.63% of its average net assets beginning on the first business day
after the Closing Date of the Reorganization. After June 30, 2001, the
combined fund's expenses could increase. If the proposed
Reorganization is not approved, Spartan Short-Term will maintain its
current fee structure. For more information about the funds' current
fees, refer to their Prospectuses.
The following table shows the fees and expenses of Spartan Short-Term
and Fidelity Short-Term for the 12 months ended October 31, 1998,
adjusted to reflect current fees, and pro forma fees for the combined
fund based on the same time period after giving effect to the
Reorganization, including the effect of FMR's guaranteed expense
limitation of 0.63% of average net assets through June 30, 2001
(excluding interest, taxes, brokerage commissions and extraordinary
expenses).
FUND OPERATING EXPENSES
Fund operating expenses are paid out of each fund's assets. Expenses
are factored into each fund's share price or dividends and are not
charged directly to shareholder accounts. The following figures are
based on historical expenses, adjusted to reflect current fees, of
each fund for the 12-month period ending October 31, 1998 and are
calculated as a percentage of average net assets of each fund.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Spartan Short-Term Fidelity Short-Term* Pro Forma Expenses** -
Combined Fund
Management Fee 0.65% 0.40% 0.40%
12b-1 Fee None None None
Other Expenses 0.00% 0.25% 0.23%
Total Operating Expenses 0.65% 0.65% 0.63%
</TABLE>
* Effective June 27, 1998, FMR voluntarily agreed to reimburse
Fidelity Short-Term to the extent that the management fee, other
expenses and total operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) exceed 0.65% of its
average net assets. If this agreement were not in effect, the
management fee, other expenses and total operating expenses, as a
percentage of average net assets, of Fidelity Short-Term would have
been 0.43%, 0.25% and 0.68%, respectively.
** If the Reorganization is approved, FMR has agreed to limit the
total operating expenses of the combined fund to 0.63% of its average
net assets (excluding interest, taxes, brokerage commissions, and
extraordinary expenses) through June 30, 2001. If this agreement were
not in effect, the combined fund's pro forma management fee, other
expenses, and total operating expenses would be 0.43%, 0.23% and
0.66%, respectively.
EXAMPLES OF EFFECT OF FUND EXPENSES
The following table illustrates the expenses on a hypothetical $1,000
investment in each fund under the current and pro forma (combined
fund) expenses calculated at the rates stated above, assuming a 5%
annual return.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Spartan Short-Term Fidelity Short-Term*** Combined Fund (Pro Forma)***
1 year $7 $7 $6
3 years $21 $21 $20
5 years $36 $36 $35
10 years $81 $81 $79
</TABLE>
*** After FMR Reimbursement
These examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. These examples
illustrate the effect of expenses, but are not meant to suggest actual
or expected expenses, which may vary. The assumed return of 5% is not
a prediction of, and does not represent, actual or expected
performance of any fund.
FORMS OF ORGANIZATION
Spartan Short-Term is a diversified fund of Fidelity Charles Street
Trust, an open-end management investment company organized as a
Massachusetts business trust on July 7, 1981. Fidelity Short-Term is a
diversified fund of Fidelity Fixed-Income Trust, an open-end
management investment company organized as a Massachusetts business
trust on September 5, 1984. Each trust is authorized to issue an
unlimited number of shares of beneficial interest.
Except as discussed below, because the funds are series of
Massachusetts business trusts that are organized under substantially
similar Declarations of Trust, the rights of security holders of each
fund under state law and the governing documents would be expected to
remain unchanged after the Reorganization. However, on April 14,
1999, shareholders of Fidelity Fixed-Income Trust (Fixed-Income
Trust), of which Fidelity Short-Term is a series, will vote at a
Special Meeting of Shareholders. Among the proposals to be considered
at that meeting is a proposal to adopt an amended and restated
Declaration of Trust (Amended Declaration of Trust). If shareholders
approve the proposal, Fixed-Income Trust's Amended Declaration of
Trust will permit Trustees, subject to the 1940 Act and applicable
state law, to reorganize or terminate Fixed-Income Trust or any of its
series without shareholder approval. Fixed-Income Trust's Amended
Declaration of Trust also would permit the Trustees, with certain
exceptions, to amend the Amended Declaration of Trust without
shareholder approval. The Declarations of Trust under which both
funds currently are organized require shareholder approval to
reorganize or terminate the trusts or any of their series and to amend
the Declarations of Trust. Therefore, if the Reorganization is
approved, and if shareholders of Fixed-Income Trust vote to approve
the Amended Declaration of Trust, the former shareholders of Spartan
Short-Term would become shareholders of a fund organized under a
Declaration of Trust that would give Trustees broader powers, subject
to the limitations of the 1940 Act and applicable state law. For more
information regarding shareholder rights, refer to the section of each
fund's Statement of Additional Information called "Description of the
Trust."
INVESTMENT OBJECTIVES AND POLICIES
Spartan Short-Term and Fidelity Short-Term have substantially similar
investment objectives. Spartan Short-Term seeks high current income
by investing in U.S. dollar-denominated investment-grade debt
securities. Fidelity Short-Term seeks high current income, consistent
with the preservation of capital, by investing in U.S.
dollar-denominated investment-grade debt securities. The funds have
the same manager.
The Index for each fund is a market value weighted benchmark of
government and investment-grade corporate fixed-rate debt issues with
maturities between one and three years. FMR manages each fund to have
similar overall interest rate risk to the Index. In addition, each
fund normally maintains a dollar-weighted average maturity of three
years or less. As of January 31, 1999, the average maturities of
Spartan Short-Term, Fidelity Short-Term and the Index were
approximately 2.5 years, 2.5 years and 1.9 years, respectively.
The investment objective of each fund is fundamental and may not be
changed without the approval of a vote of at least a majority of the
outstanding voting securities of the fund. There can be no assurance
that any fund will achieve its objective. With the exception of
fundamental policies, investment policies of the funds can be changed
without shareholder approval.
PERFORMANCE COMPARISONS OF THE FUNDS
The following table compares the funds' annual total returns for the
periods indicated. Please note that total returns are based on past
results and are not an indication of future performance.
ANNUAL TOTAL RETURNS
(PERIODS ENDED DECEMBER 31)
1995 1996 1997 1998
Spartan Short-Term* 9.94% 5.03% 6.54% 6.58%
Fidelity Short-Term 9.82% 4.78% 6.21% 6.15%*
*If the fund had not been in reimbursement during the periods shown,
total returns would have been lower.
The following table compares the individual cumulative returns of
Spartan Short-Term and Fidelity Short-Term for the periods indicated.
Please note that total returns are based on past results and are not
an indication of future performance.
CUMULATIVE TOTAL RETURNS
(PERIODS ENDED DECEMBER 31, 1998)
1 YEAR 3 YEAR
Spartan Short-Term* 6.58% 19.27%
Fidelity Short-Term* 6.15% 18.12%
*If the fund had not been in reimbursement during the periods shown,
total returns would have been lower.
The total return tables above show that the funds have experienced
generally similar performance over the time periods shown, with
Spartan Short-Term outperforming Fidelity Short-Term. Differences in
performance may be attributed to the funds' different expense
structures, reimbursement arrangements and asset size.
The following graph shows the value of a hypothetical $10,000
investment in each fund made on December 30, 1994 assuming all
distributions are reinvested. The graph compares the cumulative
returns of the funds from December 30, 1994 to December 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
Spartan Short-Term Bond Fund (00449) Fidelity Short-Term Bond Fund (00450)
Period Ending Spartan Short-Term Bond Fund Fidelity Short-Term Bond Fund
December 31, 1994 $10,000.00 $10,000.00
January 31, 1995 $10,079.57 $10,076.34
February 28, 1995 $10,177.16 $10,182.59
March 31, 1995 $10,233.97 $10,247.39
April 30, 1995 $10,335.13 $10,346.34
May 31, 1995 $10,507.63 $10,530.72
June 30, 1995 $10,573.80 $10,594.01
July 31, 1995 $10,616.79 $10,623.66
August 31, 1995 $10,683.84 $10,690.99
September 30, 1995 $10,738.05 $10,746.07
October 31, 1995 $10,832.16 $10,816.65
November 30, 1995 $10,922.60 $10,910.12
December 31, 1995 $10,994.42 $10,982.00
January 31, 1996 $11,090.09 $11,066.22
February 29, 1996 $11,050.65 $11,035.24
March 31, 1996 $11,027.94 $11,010.22
April 30, 1996 $11,040.17 $11,021.00
May 31, 1996 $11,066.03 $11,044.05
June 30, 1996 $11,151.69 $11,115.69
July 31, 1996 $11,189.29 $11,163.01
August 31, 1996 $11,227.00 $11,198.00
September 30, 1996 $11,325.11 $11,296.24
October 31, 1996 $11,450.81 $11,410.41
November 30, 1996 $11,536.56 $11,496.89
December 31, 1996 $11,547.86 $11,506.43
January 31, 1997 $11,596.08 $11,554.55
February 28, 1997 $11,625.46 $11,584.32
March 31, 1997 $11,624.79 $11,566.09
April 30, 1997 $11,712.88 $11,666.46
May 31, 1997 $11,790.33 $11,742.68
June 30, 1997 $11,880.54 $11,816.92
July 31, 1997 $12,013.05 $11,948.38
August 31, 1997 $12,026.74 $11,957.47
September 30, 1997 $12,117.83 $12,046.55
October 31, 1997 $12,198.69 $12,124.47
November 30, 1997 $12,222.93 $12,143.61
December 31, 1997 $12,303.50 $12,220.63
January 31, 1998 $12,425.43 $12,339.76
February 28, 1998 $12,445.98 $12,355.46
March 31, 1998 $12,499.79 $12,405.87
April 30, 1998 $12,552.43 $12,467.34
May 31, 1998 $12,632.68 $12,530.56
June 30, 1998 $12,697.75 $12,592.12
July 31, 1998 $12,750.42 $12,655.27
August 31, 1998 $12,857.80 $12,745.92
September 30, 1998 $13,006.26 $12,908.38
October 31, 1998 $13,028.24 $12,910.73
November 30, 1998 $13,048.21 $12,910.85
December 31, 1998 $13,113.15 $12,971.96
</TABLE>
COMPARISON OF OTHER POLICIES OF THE FUNDS
DIVERSIFICATION. Spartan Short-Term and Fidelity Short-Term are
diversified funds. As a matter of fundamental policy, with respect to
75% of each fund's total assets, the fund may not invest more than 5%
of its total assets in the securities of a single issuer, and the fund
may not hold more than 10% of the outstanding voting securities of a
single issuer. These limitations do not apply to U.S. Government
securities.
BORROWING. Each fund may borrow money from banks or from other funds
advised by FMR, or through reverse repurchase agreements. As a matter
of fundamental policy, each fund may borrow money for temporary or
emergency purposes, but not in an amount exceeding 33 1/3% of its
total assets.
LENDING. Each fund does not currently intend to lend assets, other
than securities, to other parties, except by lending money (up to 7.5%
of the fund's net assets) to other funds or portfolios advised by FMR
or an affiliate, or by acquiring loans, loan participations, or other
forms of direct debt instruments. As a matter of fundamental policy,
each fund may not lend more than 33-1/3% of its total assets to other
parties, but this limitation does not apply to purchases of debt
securities or to repurchase agreements.
TEMPORARY DEFENSIVE POLICIES. FMR normally invests each fund's
assets according to the fund's investment strategy. Each fund also
reserves the right to invest without limitation in investment-grade
money market instruments or short-term debt instruments for temporary
defensive purposes.
For more information about the risks and restrictions associated with
these policies, see each fund's Prospectus, and for a more detailed
discussion of the funds' investments, see their Statements of
Additional Information, which are incorporated herein by reference.
OPERATIONS OF FIDELITY SHORT-TERM FOLLOWING THE REORGANIZATION
FMR does not expect Fidelity Short-Term to revise its investment
policies as a result of the Reorganization. In addition, FMR does not
anticipate significant changes to the fund's management or to agents
that provide the fund with services. Specifically, the Trustees and
officers, the investment adviser, distributor, and other agents will
continue to serve Fidelity Short-Term in their current capacities.
Andrew Dudley, who is currently the Portfolio Manager of Fidelity
Short-Term and Spartan Short-Term, is expected to continue to be
responsible for portfolio management of Fidelity Short-Term after the
Reorganization.
All of the current investments of Spartan Short-Term are permissible
investments for Fidelity Short-Term. Nevertheless, FMR may sell
securities held by Spartan Short-Term or Fidelity Short-Term between
shareholder approval and the Closing Date of the Reorganization.
Transaction costs associated with such adjustments that occur between
shareholder approval and the Closing Date will be borne by the fund
that incurred them. Transaction costs associated with such adjustments
that occur after the Closing Date will be borne by Fidelity
Short-Term.
PURCHASES AND REDEMPTIONS
The price to buy one share of each fund is each fund's net asset
value per share (NAV). Each fund's shares are sold without a sales
charge. Your shares are purchased at the next NAV calculated after
your investment is received and accepted. Each fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
The redemption policies for each fund are identical. The price to
sell one share of each fund is the fund's NAV. Your shares will be
sold at the next NAV calculated after your order is received and
accepted. Each fund's NAV is normally calculated each business day at
4:00 p.m. Eastern time. Refer to each fund's Prospectus for more
information regarding how to buy and sell shares.
For Spartan Short-Term, the minimum initial investment amount is
$10,000, the minimum additional investment amount is $1,000, and the
minimum account balance is $5,000. For Fidelity Short-Term, the
minimum initial investment amount is $2,500, the minimum additional
investment amount is $250, and the minimum account balance is $2,000.
If shareholders of Spartan Short-Term approve the Reorganization, they
would be shareholders of a fund with lower minimum investment and
balance requirements than Spartan Short-Term.
On June 26, 1998, Spartan Short-Term closed to new accounts pending
the Reorganization. Spartan Short-Term shareholders on or prior to
that date may continue to purchase shares in accounts existing on that
date. Shareholders of Spartan Short-Term may redeem shares through the
Closing Date of the Reorganization. If the Reorganization is approved,
the purchase and redemption policies of the combined fund will be the
same as the current policies of Fidelity Short-Term.
EXCHANGES
The exchange privilege currently offered by each fund is the same and
is not expected to change after the Reorganization. Shareholders of
the funds may exchange their shares for shares of any other Fidelity
fund available in a shareholder's state. Refer to each fund's
Prospectus for restrictions governing exchanges.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each fund distributes substantially all of its net investment income
and capital gains to shareholders each year. Each fund declares income
dividends daily and pays them monthly. Capital gains for Spartan
Short-Term are normally distributed in December. Capital gains for
Fidelity Short-Term are normally distributed in June and December. On
or before the Closing Date, Spartan Short-Term may declare additional
dividends or other distributions in order to distribute substantially
all of its investment company taxable income and net realized capital
gain. A portion of these distributions may be non-taxable.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Each fund has received an opinion of its counsel, Kirkpatrick &
Lockhart LLP, that the Reorganization will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the Code). Accordingly, no
gain or loss will be recognized to the funds or their shareholders as
a result of the Reorganization. Please see the section entitled
"Federal Income Tax Considerations" for more information.
As of October 31, 1998, Spartan Short-Term and Fidelity Short-Term
had net unrealized gains of approximately $1,482,000 and $3,600,000,
respectively. During the period between shareholder approval and the
Closing Date, FMR may sell certain securities to make portfolio
adjustments in connection with the Reorganization. Selling these
securities may result in realization of capital gains, which, when
distributed, would be taxable to the selling fund's shareholders.
As of September 30, 1998, Spartan Short-Term had capital loss
carryforwards for federal income tax purposes of approximately
$81,724,000. As of April 30, 1998, Fidelity Short-Term had capital
loss carryforwards for federal income tax purposes of approximately
$166,788,000. Under current federal tax law, Fidelity Short-Term may
be limited to using only a portion, if any, of its capital loss
carryforwards or the capital loss carryforwards transferred by Spartan
Short-Term at the time of the Reorganization. There is no assurance
that Fidelity Short-Term will be able to realize sufficient capital
gains to use the capital loss carryforwards before they expire. The
capital loss carryforwards attributable to Spartan Short-Term will
expire between April 30, 2002 and April 30, 2005. The capital loss
carryforwards attributable to Fidelity Short-Term will expire between
April 30, 1999 and April 30, 2006.
COMPARISON OF PRINCIPAL RISK FACTORS
Each fund is subject to the risks normally associated with bond
funds. As described more fully above, each fund has substantially the
same investment objective, policies and permissible investments. The
yield and share price of a bond fund change daily based on changes in
interest rates and market conditions, and in response to other
economic, political or financial events. The types and maturities of
the securities a bond fund purchases and the credit quality of their
issuers will impact a bond fund's reaction to these events.
Because each fund normally invests in investment-grade debt
securities while maintaining an average maturity of three years or
less, the funds have substantially similar levels of risk. As of
January 31, 1999, the average maturities of Spartan Short-Term and
Fidelity Short-Term were approximately 2.5 years and 2.5 years,
respectively. A slightly longer average maturity may present a
slightly higher risk.
For a more complete discussion of the risk associated with bond
funds, please refer to the Investment Principles and Risks section of
each fund's Prospectus.
THE PROPOSED TRANSACTION
TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN
SHORT-TERM AND FIDELITY SHORT-TERM.
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Agreement. Significant provisions of
the Agreement are summarized below; however, this summary is qualified
in its entirety by reference to the Agreement, a copy of which is
attached at Exhibit 1 to this Proxy Statement.
The Agreement contemplates (a) Fidelity Short-Term acquiring as of
the Closing Date all of the assets of Spartan Short-Term in exchange
solely for shares of Fidelity Short-Term and the assumption by
Fidelity Short-Term of Spartan Short-Term's liabilities; and (b) the
distribution of shares of Fidelity Short-Term to the shareholders of
Spartan Short-Term as provided for in the Agreement.
The assets of Spartan Short-Term to be acquired by Fidelity
Short-Term include all cash, cash equivalents, securities, receivables
(including interest or dividends receivables), claims, choses in
action, and other property owned by Spartan Short-Term, and any
deferred or prepaid expenses shown as an asset on the books of Spartan
Short-Term on the Closing Date. Fidelity Short-Term will assume from
Spartan Short-Term all liabilities, debts, obligations, and duties of
Spartan Short-Term of whatever kind or nature, whether absolute,
accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable on the
Closing Date, and whether or not specifically referred to in the
Agreement; provided, however, that Spartan Short-Term will use its
best efforts, to the extent practicable, to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred
in the ordinary course of business. Fidelity Short-Term also will
deliver to Spartan Short-Term the number of full and fractional shares
of Fidelity Short-Term having an aggregate net asset value equal to
the value of the assets of Spartan Short-Term less the liabilities of
Spartan Short-Term as of the Closing Date. Spartan Short-Term shall
then distribute the Fidelity Short-Term shares PRO RATA to its
shareholders.
The value of Spartan Short-Term's assets to be acquired by Fidelity
Short-Term and the amount of its liabilities to be assumed by Fidelity
Short-Term will be determined as of the close of business of the NYSE
on the Closing Date, using the valuation procedures set forth in
Spartan Short-Term's then-current Prospectus and Statement of
Additional Information. The net asset value of a share of Fidelity
Short-Term will be determined as of the same time using the valuation
procedures set forth in its then-current Prospectus and Statement of
Additional Information.
As of the Closing Date, Spartan Short-Term will distribute to its
shareholders of record the shares of Fidelity Short-Term it received,
so that each Spartan Short-Term shareholder will receive the number of
full and fractional shares of Fidelity Short-Term equal in value to
the aggregate net asset value of shares of Spartan Short-Term held by
such shareholder on the Closing Date; Spartan Short-Term will be
liquidated as soon as practicable thereafter. Such distribution will
be accomplished by opening accounts on the books of Fidelity
Short-Term in the names of the Spartan Short-Term shareholders and by
transferring thereto shares of Fidelity Short-Term. Each Spartan
Short-Term shareholder's account shall be credited with the respective
PRO RATA number of full and fractional shares (rounded to the third
decimal place) of Fidelity Short-Term due that shareholder. Fidelity
Short-Term shall not issue certificates representing its shares in
connection with such exchange.
Accordingly, immediately after the Reorganization, each former
Spartan Short-Term shareholder will own shares of Fidelity Short-Term
equal to the aggregate net asset value of that shareholder's shares of
Spartan Short-Term immediately prior to the Reorganization. The net
asset value per share of Fidelity Short-Term will be unchanged by the
transaction. Thus, the Reorganization will not result in a dilution of
any shareholder interest.
Any transfer taxes payable upon issuance of shares of Fidelity
Short-Term in a name other than that of the registered holder of the
shares on the books of Spartan Short-Term as of that time shall be
paid by the person to whom such shares are to be issued as a condition
of such transfer. Any reporting responsibility of Spartan Short-Term
is and will continue to be its responsibility up to and including the
Closing Date and such later date on which Spartan Short-Term is
terminated.
Pursuant to its all-inclusive management contract with Spartan
Short-Term, FMR will bear the cost of the Reorganization.
Reorganization costs include professional fees, expenses associated
with the filing of registration statements, and the cost of soliciting
proxies for the Meeting, which will consist principally of printing
and mailing prospectuses and proxy statements, together with the cost
of any supplementary solicitation. However, there may be some
transaction costs associated with portfolio adjustments to Spartan
Short-Term due to the Reorganization prior to the Closing Date that
will be borne by Spartan Short-Term. Any transaction costs associated
with portfolio adjustments due to the Reorganization which occur after
the Closing Date and any additional merger-related costs attributable
to Fidelity Short-Term which occur after the Closing Date will be
borne by Fidelity Short-Term. The funds may recognize a taxable gain
or loss on the disposition of securities pursuant to these portfolio
adjustments. See the section entitled "Reasons for the
Reorganization."
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by
a fund. In addition, the Agreement may be amended in any mutually
agreeable manner, except that no amendment that may have a materially
adverse effect on the shareholders' interests may be made subsequent
to the Meeting.
REASONS FOR THE REORGANIZATION
The Boards of Trustees (the Boards) of the funds have determined that
the Reorganization is in the best interests of the shareholders of
both funds and that the Reorganization will not result in a dilution
of the interests of shareholders of either fund.
In considering the Reorganization, the Boards considered a number of
factors, including the following:
(1) the compatibility of the funds' investment objectives and policies;
(2) the historical performance of the funds;
(3) the relative expense ratios of the funds;
(4) the costs to be incurred by each fund as a result of the Reorganization;
(5) the tax consequences of the Reorganization;
(6) the relative size of the funds;
(7) the elimination of duplicative funds;
(8) the impact of changes to the taxable bond product line on the funds and
their shareholders; and
(9) the benefit to FMR and to the shareholders of the funds.
FMR recommended the Reorganization to the Boards at a meeting of the
Boards on December 17, 1998. In recommending the Reorganization, FMR
advised the Boards that the funds have similar investment objectives,
policies, and investment portfolios. In particular, FMR informed the
Boards that the funds differed primarily with respect to their expense
structures and their initial and additional investment and account
balance minimums.
The Boards considered that the proposed merger would provide
shareholders of Spartan Short-Term with a fund that has generally
comparable historical performance on a year-to-year and cumulative
basis.
In addition, the Boards also considered that if the Reorganization is
approved, FMR would voluntarily limit the combined fund's total
operating expenses to 0.63% of its average net assets (excluding
interest, taxes, brokerage commissions, and extraordinary expenses)
through June 30, 2001. This expense limitation would lower the total
operating expenses of Spartan Short-Term from 0.65% to 0.63% of its
average net assets.
Finally, the Boards considered the proposed Reorganization in the
context of a general goal of reducing the number of duplicative funds
managed by FMR. While the reduction of similar funds and funds with
lower assets potentially would benefit FMR, it also should benefit
shareholders by facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fixed-Income Trust is registered with the SEC as an open-end
management investment company. Fixed-Income Trust's Trustees are
authorized to issue an unlimited number of shares of beneficial
interest of separate series. Fidelity Short-Term is one of five funds
of the trust. Each share of Fidelity Short-Term represents an equal
proportionate interest with each other share of the fund, and each
such share of Fidelity Short-Term is entitled to equal voting,
dividend, liquidation, and redemption rights. Each shareholder of the
fund is entitled to one vote for each dollar value of net asset value
of the fund that shareholder owns. Shares of Fidelity Short-Term have
no preemptive or conversion rights. The voting and dividend rights,
the right of redemption, and the privilege of exchange are described
in the fund's Prospectus. Shares are fully paid and nonassessable,
except as set forth in the fund's Statement of Additional Information
under the heading "Shareholder and Trustee Liability."
Fixed-Income Trust does not hold annual meetings of shareholders.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees
then in office will call a shareholder meeting for the election of
Trustees. Under the 1940 Act, shareholders of record of at least
two-thirds of the outstanding shares of an investment company may
remove a Trustee by votes cast in person or by proxy at a meeting
called for that purpose. The Trustees are required to call a meeting
of shareholders for the purpose of voting upon the question of removal
of any Trustee when requested in writing to do so by the shareholders
of record holding at least 10% of the trust's outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Spartan Short-Term's assets for Fidelity Short-Term's
shares and the assumption of the liabilities of Spartan Short-Term by
Fidelity Short-Term is intended to qualify for federal income tax
purposes as a tax-free reorganization under the Code. With respect to
the Reorganization, the participating funds have received an opinion
from Kirkpatrick & Lockhart LLP, counsel to Spartan Short-Term and
Fidelity Short-Term, substantially to the effect that:
(i) The acquisition by Fidelity Short-Term of all of the assets of
Spartan Short-Term solely in exchange for Fidelity Short-Term shares
and the assumption by Fidelity Short-Term of Spartan Short-Term's
liabilities, followed by the distribution by Spartan Short-Term of
Fidelity Short-Term shares to the shareholders of Spartan Short-Term
pursuant to the liquidation of Spartan Short-Term and constructively
in exchange for their Spartan Short-Term shares, will constitute a
reorganization within the meaning of section 368(a)(1)(C) of the Code,
and Spartan Short-Term and Fidelity Short-Term will each be "a party
to a reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized by Spartan Short-Term upon
the transfer of all of its assets to Fidelity Short-Term in exchange
solely for Fidelity Short-Term shares and Fidelity Short-Term's
assumption of Spartan Short-Term's liabilities, followed by Spartan
Short-Term's subsequent distribution of those shares to shareholders
in liquidation of Spartan Short-Term;
(iii) No gain or loss will be recognized by Fidelity Short-Term upon
the receipt of the assets of Spartan Short-Term in exchange solely for
Fidelity Short-Term shares and its assumption of Spartan Short-Term's
liabilities;
(iv) The shareholders of Spartan Short-Term will recognize no gain or
loss upon the exchange of their Spartan Short-Term shares solely for
Fidelity Short-Term shares;
(v) The basis of Spartan Short-Term's assets in the hands of
Fidelity Short-Term will be the same as the basis of those assets in
the hands of Spartan Short-Term immediately prior to the
Reorganization, and the holding period of those assets in the hands of
Fidelity Short-Term will include the holding period of those assets in
the hands of Spartan Short-Term;
(vi) The basis of Spartan Short-Term shareholders in Fidelity
Short-Term shares will be the same as their basis in Spartan
Short-Term shares to be surrendered in exchange therefor; and
(vii) The holding period of the Fidelity Short-Term shares to be
received by the Spartan Short-Term shareholders will include the
period during which the Spartan Short-Term shares to be surrendered in
exchange therefor were held, provided such Spartan Short-Term shares
were held as capital assets by those shareholders on the date of the
Reorganization.
Shareholders of Spartan Short-Term should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light
of their individual circumstances. Because the foregoing discussion
relates only to the federal income tax consequences of the
Reorganization, those shareholders also should consult their tax
advisers as to state and local tax consequences, if any, of the
Reorganization.
CAPITALIZATION
The following table shows the capitalization of the funds as of
October 31, 1998 and on a pro forma combined basis (unaudited) as of
that date giving effect to the Reorganization.
Amounts in thousands, except per share amounts
Net Net Asset Shares
Assets Value Per Share Outstanding
Spartan Short-Term $358,705 $9.09 39,469
Fidelity Short-Term $876,140 $8.75 100,126
Pro Forma Combined Fund $1,234,845 $8.75 141,121
CONCLUSION
The Agreement and Plan of Reorganization and the transactions
provided for therein were approved by the Board at a meeting held on
December 17, 1998. The Boards of Trustees of Fidelity Charles Street
Trust and Fidelity Fixed-Income Trust determined that the proposed
Reorganization is in the best interests of shareholders of each fund
and that the interests of existing shareholders of Spartan Short-Term
and Fidelity Short-Term would not be diluted as a result of the
Reorganization. In the event that the Reorganization is not
consummated, Spartan Short-Term will continue to engage in business as
a fund of a registered investment company and the Board of Fidelity
Charles Street Trust will consider other proposals for the
reorganization or liquidation of the fund.
ADDITIONAL INFORMATION ABOUT FIDELITY SHORT-TERM
Fidelity Short-Term's Prospectus dated June 26, 1998, is enclosed
with this Proxy Statement and is incorporated herein by reference. The
Prospectus contains additional information about the fund including
its investment objective and policies, investment adviser, advisory
fees and expenses, organization, and procedures for purchasing and
redeeming shares. The prospectus also contains Fidelity Short-Term's
financial highlights for the fiscal year ended April 30, 1998, which
have been updated to include the semiannual unaudited data for the six
months ended October 31, 1998, as shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SHORT-TERM BOND FUND
Selected Per-Share Data and
Ratios
Six months Years ended April 30,
ended
October 31,
1998 E 1998 1997 1996 1995 1994 1993 1992
Net asset value, beginning $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510 $ 9.430 $ 9.180
of period
Income from Investment .130B .546B .558B .579 .344 .588 .744 .810
Operations
Net investment income
Net realized and .176 .033 (.061) (.020) (.156) (.392) .063 .251
unrealized gain (loss)
Total from investment .306 .579 .497 .559 .188 .196 .807 1.061
operations
Less Distributions From (.256) (.539) (.552) (.504) (.430) (.592) (.727) (.811)
net investment income
In excess of net -- -- -- -- -- (.034) -- --
investment income
Return of capital -- -- (.005) (.055) (.118) -- -- --
Total distributions (.256) (.539) (.557) (.559) (.548) (.626) (.727) (.811)
Net asset value, $ 8.750 $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510 $ 9.430
end of period
Total return A,H 3.56% 6.86% 5.86% 6.52% 2.17% 1.99% 8.85% 12.00%
Net assets, end of period $ 876 $ 809 $ 922 $ 1,048 $ 1,304 $ 1,962 $ 1,990 $ 984
(In millions)
Ratio of expenses to .67% F,G .70% .70% .69% .69% .80% .77% .86%
average net assets
Ratio of expenses to .66% C,F .70% .70% .68%C .69% .80% .77% .86%
average net assets after
expense reductions
Ratio of net investment 5.92% F 6.26% 6.41% 6.37% 6.37% 6.70% 7.68% 8.23%
income to average net assets
Portfolio turnover rate 103% F 117% 104%D 151% 113% 73% 63% 87%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SHORT-TERM BOND FUND
Selected Per-Share Data and
Ratios
Years ended April 30,
1991 1990 1989
Net asset value, beginning $ 9.170 $ 9.180 $ 9.470
of period
Income from Investment .792 .778 .809
Operations
Net investment income
Net realized and .040 (.010) (.290)
unrealized gain (loss)
Total from investment .832 .768 .519
operations
Less Distributions From (.822) (.778) (.809)
net investment income
In excess of net -- -- --
investment income
Return of capital -- -- --
Total distributions (.822) (.778) (.809)
Net asset value, $ 9.180 $ 9.170 $ 9.180
end of period
Total return A,H 9.49% 8.58% 5.74%
Net assets, end of period $ 235 $ 197 $ 237
(In millions)
Ratio of expenses to .83% .83% .89%
average net assets
Ratio of expenses to .83% .83% .89%
average net assets after
expense reductions
Ratio of net investment 8.65% 8.28% 8.77%
income to average net assets
Portfolio turnover rate 164% 148% 171%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
D THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER.
E UNAUDITED
F ANNUALIZED
G FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
H TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
MISCELLANEOUS
LEGAL MATTERS. Certain legal matters in connection with the issuance
of Fidelity Short-Term shares have been passed upon by Kirkpatrick &
Lockhart LLP, counsel to the trust.
EXPERTS. The audited financial statements of Spartan Short-Term and
Fidelity Short-Term incorporated by reference into the Statements of
Additional Information, have been examined by PricewaterhouseCoopers
LLP, independent accountants, whose reports thereon are included in
the Annual Report to Shareholders for the fiscal year ended September
30, 1998 and April 30, 1998, respectively. Unaudited financial
statements for Fidelity Short-Term for the six-month period ended
October 31, 1998 are also incorporated by reference into the Statement
of Additional Information that relates to this Proxy Statement and
Prospectus. The financial statements audited by PricewaterhouseCoopers
LLP have been incorporated by reference in reliance on their reports
given on their authority as experts in auditing and accounting.
AVAILABLE INFORMATION. Fidelity Charles Street Trust and Fidelity
Fixed-Income Trust are each subject to the informational requirements
of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports, proxy material, and other
information with the SEC. Such reports, proxy material, and other
information can be inspected and copied at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington D.C. 20549
and 7 World Trade Center, New York, NY 10048. Copies of such material
can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington D.C. 20549, at prescribed rates.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES. Please advise Fidelity Charles Street Trust, in care of
Fidelity Services Company, Inc., P.O. Box 789, Boston, Massachusetts
02102, whether other persons are beneficial owners of shares for which
proxies are being solicited and, if so, the number of copies of the
Proxy Statement you wish to receive in order to supply copies to the
beneficial owners of the respective shares.
ATTACHMENT 1
EXCERPTS FROM ANNUAL REPORT OF FIDELITY SHORT-TERM BOND FUND DATED
APRIL 30, 1998
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Fidelity Short-Term Bond 6.86% 4.66% 6.76%
Lehman Brothers 1-3 Year 7.17% 5.53% 7.27%
Govt/Corp Bond Index
Lipper Short Investment Grade 6.67% 5.24% 6.95%
Debt Funds Average
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual
total returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
<TABLE>
<CAPTION>
<S> <C> <C>
$10,000 OVER 10 YEARS
Fidelity Short-Term Bond Fund (00450) Lehman Brothers 1-3 Year Government/Corpo-
rate Bond Index (LB013)
Period Ending Fidelity Short-Term Bond Fund Lehman Brother 1 3 Govt/Corp
April 30, 1988 $10,000.00 $10,000.00
May 31, 1988 $9,976.83 $9,996.00
June 30, 1988 $10,080.03 $10,096.12
July 31, 1988 $10,088.44 $10,103.20
August 31, 1988 $10,106.19 $10,128.77
September 30, 1988 $10,200.21 $10,246.14
October 31, 1988 $10,305.26 $10,349.34
November 30, 1988 $10,270.03 $10,324.70
December 31, 1988 $10,301.74 $10,348.42
January 31, 1989 $10,390.56 $10,431.59
February 28, 1989 $10,409.48 $10,434.06
March 31, 1989 $10,441.21 $10,476.26
April 30, 1989 $10,574.21 $10,646.31
May 31, 1989 $10,734.99 $10,797.57
June 30, 1989 $10,915.28 $10,996.89
July 31, 1989 $11,052.13 $11,160.78
August 31, 1989 $11,024.48 $11,097.62
September 30, 1989 $11,070.11 $11,162.93
October 31, 1989 $11,253.00 $11,336.99
November 30, 1989 $11,329.88 $11,438.34
December 31, 1989 $11,385.01 $11,483.63
January 31, 1990 $11,363.02 $11,495.64
February 28, 1990 $11,414.57 $11,556.64
March 31, 1990 $11,456.98 $11,593.30
April 30, 1990 $11,481.30 $11,622.25
May 31, 1990 $11,673.32 $11,801.85
June 30, 1990 $11,757.32 $11,926.62
July 31, 1990 $11,893.67 $12,071.10
August 31, 1990 $11,875.62 $12,113.92
September 30, 1990 $11,896.13 $12,204.80
October 31, 1990 $11,866.57 $12,330.80
November 30, 1990 $11,928.58 $12,451.25
December 31, 1990 $12,043.46 $12,596.96
January 31, 1991 $12,026.80 $12,710.95
February 28, 1991 $12,165.14 $12,802.75
March 31, 1991 $12,402.22 $12,895.78
April 30, 1991 $12,571.38 $13,022.09
May 31, 1991 $12,699.59 $13,103.42
June 30, 1991 $12,746.17 $13,152.09
July 31, 1991 $12,847.67 $13,267.61
August 31, 1991 $13,063.44 $13,447.52
September 30, 1991 $13,198.54 $13,592.31
October 31, 1991 $13,351.46 $13,738.64
November 30, 1991 $13,489.61 $13,877.58
December 31, 1991 $13,732.58 $14,087.37
January 31, 1992 $13,788.94 $14,072.89
February 29, 1992 $13,908.57 $14,117.56
March 31, 1992 $14,003.97 $14,114.48
April 30, 1992 $14,080.13 $14,243.55
May 31, 1992 $14,215.71 $14,376.94
June 30, 1992 $14,348.35 $14,523.89
July 31, 1992 $14,518.33 $14,694.25
August 31, 1992 $14,645.38 $14,812.85
September 30, 1992 $14,766.40 $14,953.02
October 31, 1992 $14,661.92 $14,863.07
November 30, 1992 $14,648.04 $14,842.12
December 31, 1992 $14,747.07 $14,982.29
January 31, 1993 $14,990.18 $15,142.17
February 28, 1993 $15,157.49 $15,265.70
March 31, 1993 $15,251.35 $15,315.30
April 30, 1993 $15,326.27 $15,411.42
May 31, 1993 $15,352.58 $15,376.30
June 30, 1993 $15,519.63 $15,492.75
July 31, 1993 $15,609.45 $15,528.17
August 31, 1993 $15,781.02 $15,658.17
September 30, 1993 $15,839.44 $15,708.70
October 31, 1993 $15,940.61 $15,745.36
November 30, 1993 $15,972.68 $15,749.98
December 31, 1993 $16,093.47 $15,813.75
January 31, 1994 $16,198.32 $15,914.48
February 28, 1994 $16,057.43 $15,818.06
March 31, 1994 $15,751.53 $15,736.73
April 30, 1994 $15,630.68 $15,676.97
May 31, 1994 $15,717.12 $15,698.22
June 30, 1994 $15,572.34 $15,739.50
July 31, 1994 $15,689.54 $15,882.75
August 31, 1994 $15,753.91 $15,936.35
September 30, 1994 $15,779.49 $15,900.93
October 31, 1994 $15,771.59 $15,937.28
November 30, 1994 $15,795.89 $15,870.43
December 31, 1994 $15,434.74 $15,900.62
January 31, 1995 $15,552.58 $16,119.04
February 28, 1995 $15,716.57 $16,342.07
March 31, 1995 $15,816.58 $16,434.80
April 30, 1995 $15,969.31 $16,583.59
May 31, 1995 $16,253.90 $16,870.71
June 30, 1995 $16,351.58 $16,962.51
July 31, 1995 $16,397.35 $17,030.28
August 31, 1995 $16,501.27 $17,133.48
September 30, 1995 $16,586.28 $17,218.20
October 31, 1995 $16,695.22 $17,361.14
November 30, 1995 $16,839.49 $17,510.55
December 31, 1995 $16,950.44 $17,643.33
January 31, 1996 $17,080.42 $17,794.28
February 29, 1996 $17,032.61 $17,726.50
March 31, 1996 $16,993.99 $17,713.56
April 30, 1996 $17,010.62 $17,731.43
May 31, 1996 $17,046.21 $17,772.40
June 30, 1996 $17,156.78 $17,902.41
July 31, 1996 $17,229.82 $17,972.03
August 31, 1996 $17,283.83 $18,038.26
September 30, 1996 $17,435.46 $18,203.38
October 31, 1996 $17,611.67 $18,408.86
November 30, 1996 $17,745.15 $18,546.87
December 31, 1996 $17,759.88 $18,549.95
January 31, 1997 $17,834.15 $18,639.60
February 28, 1997 $17,880.09 $18,685.81
March 31, 1997 $17,851.96 $18,671.33
April 30, 1997 $18,006.87 $18,824.44
May 31, 1997 $18,124.52 $18,955.98
June 30, 1997 $18,239.11 $19,087.83
July 31, 1997 $18,442.02 $19,299.78
August 31, 1997 $18,456.05 $19,317.95
September 30, 1997 $18,593.53 $19,466.74
October 31, 1997 $18,713.80 $19,606.91
November 30, 1997 $18,743.35 $19,656.20
December 31, 1997 $18,862.22 $19,785.90
January 31, 1998 $19,046.10 $19,976.90
February 28, 1998 $19,070.33 $19,996.92
March 31, 1998 $19,148.14 $20,074.86
April 30, 1998 $19,243.02 $20,174.36
</TABLE>
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Term Bond Fund on April 30, 1988. As the
chart shows, by April 30, 1998, the value of the investment would have
grown to $19,243 -- a 92.43% increase on the initial investment. For
comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index, which reflects the performance of
U.S. Government and corporate fixed-rate debt securities with
maturities between one and three years, did over the same period.
With dividends reinvested, the same $10,000 would have grown to
$20,174 -- a 101.74% increase.
MARKET RECAP
A continued lack of inflationary
pressure resulted in a favorable
investing climate for bonds during
the 12 months that ended April 30,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
gauge of the U.S. taxable bond
market - returned 10.91% during
this period. Bonds enjoyed a
strong rally from May through
September 1997 on the heels of
encouraging economic data, as
well as the Federal Reserve
Board's reluctance to raise
short-term interest rates. In the
fourth quarter of 1997, global
market volatility and historically
low interest rates were the main
stories. When financial problems
erupted in Asia in late October, the
bond market attracted wary stock
investors in search of investments
offering lower volatility. Interest
rates also plummeted, with the
30-year Treasury bond going below
the 6% mark in November. The
Lehman Brothers Corporate Bond
Index returned 12.07% during the
period, as corporate bonds
benefited from continued economic
growth and high demand for
yield. Despite increased
prepayment activity in early 1998
due to lower rates,
mortgage-backed bonds also fared
relatively well. The Lehman
Brothers Mortgage-Backed
Securities Index returned 10.02%
during the period. The period ended
on a positive note as the
Commerce Department reported
that gross domestic product grew
at a stronger-than-expected rate of
4.2% in the first quarter of 1998 and
employment costs grew at a
slower-than-expected pace -
signs of continued strong
economic growth and benign inflation.
However, the Fed tempered this
news slightly with warnings about
the rising prices of stocks and real
estate.
An interview with Andrew Dudley, Portfolio Manager of Fidelity
Short-Term Bond Fund
HOW DID THE FUND PERFORM, ANDY?
For the 12 months that ended April 30, 1998, the fund had a total
return of 6.86%. That outperformed the 6.67% return of the short
investment grade debt funds average tracked by Lipper Analytical
Services. For the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 7.17%.
WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG PERFORMANCE?
The fund benefited from maintaining overweighted positions, relative
to the index, in corporate bonds, asset-backed securities and
mortgage-backed securities. Generally, these so-called spread products
offered attractive yield spreads - or yield advantages - over
comparable Treasuries during the period.
HOW WERE THE FUND'S INVESTMENTS ALLOCATED?
Corporate bonds, including asset-backed securities - bonds backed by a
pool of loans such as credit cards - accounted for about 66% of the
fund's investments at the end of the period. Corporate bonds offered
only neutral returns during the 12-month period after weakening in the
fourth quarter of 1997 during the economic slowdown in Asia, and then
stabilizing in the first quarter of 1998. The fund was able to
generate modest returns from its corporate position by emphasizing its
cable, media and telecommunications holdings. Growth in these
industries is much more dependent on the health of the U.S. economy
than on Asian markets. In addition, asset-backed securities were a
very stable component of the portfolio because of their high credit
quality. In fact, a majority of the fund's asset-backed position was
rated Aaa. These securities offered the fund a way to get additional
yield without taking on the credit risks associated with many
corporate bonds.
WHAT ABOUT MORTGAGE-BACKED SECURITIES?
More than half of the fund's mortgage-backed holdings were invested in
commercial mortgage-backed securities (CMBS) - bonds that are backed
by loans on commercial property, such as office buildings or retail
malls. The market for these securities has gained considerable
acceptance among investors, leading to better returns for the issues.
HOW MUCH OVERALL IMPACT DID THE ASIAN SITUATION HAVE ON THE FUND'S
PERFORMANCE?
Not much. The Asian situation definitely weakened the corporate bond
market, but as I said, I shielded the portfolio from many of these ill
effects by buying securities in sectors that were more dependent on
the domestic economy. In fact, the fund sold many of the fund's
corporate positions that did have exposure to Asia in October, helping
its performance versus the peer group. Longer term, I see Asia as an
opportunity. The Asian turmoil has caused volatility in the bond
market, which allows me to apply Fidelity's strong research to find
attractive securities that have been unfairly repriced in the past few
months.
WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
The yield curve was very flat at the end of the period, meaning
longer-term bonds were not offering much of a yield advantage over
short-term issues. As a result, many buyers of fixed-income securities
will try to get additional yield by buying non-Treasury securities.
Consequently, I think increased demand for these spread products will
benefit their pricing. In addition, the equity markets generated
healthy gains in the first quarter of 1998, which bodes well for
high-grade corporate bonds in the next few months. I also expect
asset-backed securities, which have high credit quality, to continue
to perform well as investors seek out defensive instruments in periods
of turmoil. Finally, opportunities in the mortgage-backed sector will
depend on the level of interest rates. These securities may
underperform other fixed-income securities in the short term if the
market rallies and prepayment - or refinancing - levels remain high.
If that's the case, I may increase the fund's position in
mortgage-backed bonds in anticipation of a rebound and outperformance
in the long term.
The views expressed in this report reflect those of the portfolio
manager only through April 30, 1998. The manager's views are subject
to change at any time based on market and other conditions. Andrew
Dudley is the fund's portfolio manager.
EXHIBIT 1
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as
of April 19, 1999, by and between Fidelity Charles Street Trust, a
Massachusetts business trust, on behalf of its series Spartan
Short-Term Bond Fund (Acquired Fund), and Fidelity Fixed-Income Trust,
a Massachusetts business trust, on behalf of its series Fidelity
Short-Term Bond Fund (Acquiring Fund). Fidelity Charles Street Trust
and Fidelity Fixed-Income Trust may be referred to herein collectively
as the "Trusts" or each individually as a "Trust." The Trusts are duly
organized business trusts under the laws of the Commonwealth of
Massachusetts with their principal place of business at 82 Devonshire
Street, Boston, Massachusetts 02109. Fidelity Short-Term Bond Fund and
Spartan Short-Term Bond Fund may be referred to herein collectively as
the "Funds" or each individually as the "Fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the Code). The
reorganization will comprise: (a) the transfer of all of the assets of
Spartan Short-Term Bond Fund to Fidelity Short-Term Bond Fund solely
in exchange for shares of beneficial interest in Fidelity Short-Term
Bond Fund (the Fidelity Short-Term Bond Fund Shares) and the
assumption by Fidelity Short-Term Bond Fund of Spartan Short-Term Bond
Fund's liabilities; and (b) the constructive distribution of such
shares by Spartan Short-Term Bond Fund PRO RATA to its shareholders in
complete liquidation and termination of Spartan Short-Term Bond Fund
in exchange for all of Spartan Short-Term Bond Fund's outstanding
shares. Spartan Short-Term Bond Fund shall receive shares of Fidelity
Short-Term Bond Fund having an aggregate net asset value equal to the
value of the assets of Spartan Short-Term Bond Fund on the Closing
Date (as defined in Section 6), which Spartan Short-Term Bond Fund
shall then distribute PRO RATA to its shareholders. The foregoing
transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SPARTAN SHORT-TERM BOND FUND.
Spartan Short-Term Bond Fund represents and warrants to and agrees
with Fidelity Short-Term Bond Fund that:
(a) Spartan Short-Term Bond Fund is a series of Fidelity Charles
Street Trust, a business trust duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts,
and has the power to own all of its properties and assets and to carry
out its obligations under this Agreement. It has all necessary
federal, state, and local authorizations to carry on its business as
now being conducted and to carry out this Agreement;
(b) Fidelity Charles Street Trust is an open-end, management
investment company duly registered under the Investment Company Act of
1940, as amended (the 1940 Act), and such registration is in full
force and effect;
(c) The Prospectus and Statement of Additional Information of Spartan
Short-Term Bond Fund dated November 24, 1998, previously furnished to
Fidelity Short-Term Bond Fund, did not and do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Spartan Short-Term Bond Fund,
threatened against Spartan Short-Term Bond Fund which assert liability
on the part of Spartan Short-Term Bond Fund. Spartan Short-Term Bond
Fund knows of no facts which might form the basis for the institution
of such proceedings;
(e) Spartan Short-Term Bond Fund is not in, and the execution,
delivery, and performance of this Agreement will not result in,
violation of any provision of its Amended and Restated Declaration of
Trust or By-laws, or, to the knowledge of Spartan Short-Term Bond
Fund, of any agreement, indenture, instrument, contract, lease, or
other undertaking to which Spartan Short-Term Bond Fund is a party or
by which Spartan Short Bond Fund is bound or result in the
acceleration of any obligation or the imposition of any penalty under
any agreement, judgment or decree to which Spartan Short-Term Bond
Fund is a party or is bound;
(f) The Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, Financial
Highlights, and the Schedule of Investments (including market values)
of Spartan Short-Term Bond Fund at September 30, 1998, have been
audited by PricewaterhouseCoopers LLP, independent accountants, and
have been furnished to Fidelity Short-Term Bond Fund. Said Statement
of Assets and Liabilities and Schedule of Investments fairly present
the Fund's financial position as of such date and said Statement of
Operations, Statement of Changes in Net Assets, and Financial
Highlights fairly reflect its results of operations, changes in
financial position, and financial highlights for the periods covered
thereby in conformity with generally accepted accounting principles
consistently applied;
(g) Spartan Short-Term Bond Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown as
belonging to it on its statement of assets and liabilities as of
September 30, 1998 and those incurred in the ordinary course of
Spartan Short-Term Bond Fund's business as an investment company since
September 30, 1998;
(h) The registration statement (Registration Statement) filed with
the Securities and Exchange Commission (Commission) by Fidelity
Short-Term Bond Fund on Form N-14 relating to the shares of Fidelity
Short-Term Bond Fund issuable hereunder and the proxy statement of
Spartan Short-Term Bond Fund included therein (Proxy Statement), on
the effective date of the Registration Statement and insofar as they
relate to Spartan Short-Term Bond Fund (i) comply in all material
respects with the provisions of the Securities Act of 1933, as amended
(the 1933 Act), the Securities Exchange Act of 1934, as amended (the
1934 Act), and the 1940 Act, and the rules and regulations thereunder,
and (ii) do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the
time of the shareholders' meeting referred to in Section 7 and on the
Closing Date, the prospectus contained in the Registration Statement
of which the Proxy Statement is a part (the Prospectus), as amended or
supplemented, insofar as it relates to Spartan Short-Term Bond Fund,
does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(i) All material contracts and commitments of Spartan Short-Term Bond
Fund (other than this Agreement) will be terminated without liability
to Spartan Short-Term Bond Fund prior to the Closing Date (other than
those made in connection with redemptions of shares and the purchase
and sale of portfolio securities made in the ordinary course of
business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Spartan
Short-Term Bond Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, and state securities or blue sky laws (which
term as used herein shall include the District of Columbia and Puerto
Rico);
(k) Spartan Short-Term Bond Fund has filed or will file all federal
and state tax returns which, to the knowledge of Spartan Short-Term
Bond Fund's officers, are required to be filed by Spartan Short-Term
Bond Fund and has paid or will pay all federal and state taxes shown
to be due on said returns or provision shall have been made for the
payment thereof, and, to the best of Spartan Short-Term Bond Fund's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(l) Spartan Short-Term Bond Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company for all prior taxable years and intends
to meet such requirements for its current taxable year ending on the
Closing Date;
(m) All of the issued and outstanding shares of Spartan Short-Term
Bond Fund are, and at the Closing Date will be, duly and validly
issued and outstanding and fully paid and nonassessable as a matter of
Massachusetts law (except as disclosed in the Fund's Statement of
Additional Information), and have been offered for sale and in
conformity with all applicable federal securities laws. All of the
issued and outstanding shares of Spartan Short-Term Bond Fund will, at
the Closing Date, be held by the persons and in the amounts set forth
in the list of shareholders submitted to Fidelity Short-Term Bond Fund
in accordance with this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Spartan Short-Term Bond Fund will have the full right,
power, and authority to sell, assign, transfer, and deliver its
portfolio securities and any other assets of Spartan Short-Term Bond
Fund to be transferred to Fidelity Short-Term Bond Fund pursuant to
this Agreement. As of the Closing Date, subject only to the delivery
of Spartan Short-Term Bond Fund's portfolio securities and any such
other assets as contemplated by this Agreement, Fidelity Short-Term
Bond Fund will acquire Spartan Short-Term Bond Fund's portfolio
securities and any such other assets subject to no encumbrances,
liens, or security interests (except for those that may arise in the
ordinary course and are disclosed to Fidelity Short-Term Bond Fund and
without any restrictions upon the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Spartan Short-Term Bond Fund, and this
Agreement constitutes a valid and binding obligation of Spartan
Short-Term Bond Fund enforceable in accordance with its terms, subject
to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF FIDELITY SHORT-TERM BOND FUND.
Fidelity Short-Term Bond Fund represents and warrants to and agrees
with Spartan Short-Term Bond Fund that:
(a) Fidelity Short-Term Bond Fund is a series of Fidelity
Fixed-Income Trust, a business trust duly organized, validly existing,
and in good standing under the laws of the Commonwealth of
Massachusetts, and has the power to own all of its properties and
assets and to carry out its obligations under this Agreement. It has
all necessary federal, state, and local authorizations to carry on its
business as now being conducted and to carry out this Agreement;
(b) Fidelity Fixed-Income Trust is an open-end, management investment
company duly registered under the 1940 Act, and such registration is
in full force and effect;
(c) The Prospectus and Statement of Additional Information of
Fidelity Short-Term Bond Fund, dated June 26, 1998, previously
furnished to Spartan Short-Term Bond Fund did not and do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Fidelity Short-Term Bond Fund,
threatened against Fidelity Short-Term Bond Fund which assert
liability on the part of Fidelity Short-Term Bond Fund. Fidelity
Short-Term Bond Fund knows of no facts which might form the basis for
the institution of such proceedings;
(e) Fidelity Short-Term Bond Fund is not in, and the execution,
delivery, and performance of this Agreement will not result in,
violation of any provision of its Amended and Restated Declaration of
Trust or By-laws, or, to the knowledge of Fidelity Short-Term Bond
Fund, of any agreement, indenture, instrument, contract, lease, or
other undertaking to which Fidelity Short-Term Bond Fund is a party or
by which Fidelity Short-Term Bond Fund is bound or result in the
acceleration of any obligation or the imposition of any penalty under
any agreement, judgment, or decree to which Fidelity Short-Term Bond
Fund is a party or is bound;
(f) The Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, Financial
Highlights, and the Schedule of Investments (including market values)
of Fidelity Short-Term Bond Fund at April 30, 1998, have been audited
by PricewaterhouseCoopers LLP, independent accountants, and have been
furnished to Spartan Short-Term Bond Fund together with such unaudited
financial statements and schedule of investments (including market
values) for the six month period ended October 31, 1998. Said
Statements of Assets and Liabilities and Schedule of Investments
fairly present its financial position as of such date and said
Statement of Operations, Statement of Changes in Net Assets, and
Financial Highlights fairly reflect its results of operations, changes
in financial position, and financial highlights for the periods
covered thereby in conformity with generally accepted accounting
principles consistently applied;
(g) Fidelity Short-Term Bond Fund has no known liabilities of a
material nature, contingent or otherwise, other than those shown as
belonging to it on its statement of assets and liabilities as of April
30, 1998, and those incurred in the ordinary course of Fidelity
Short-Term Bond Fund's business as an investment company since April
30, 1998;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Fidelity
Short-Term Bond Fund of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, and state securities or blue sky laws (which
term as used herein shall include the District of Columbia and Puerto
Rico);
(i) Fidelity Short-Term Bond Fund has filed or will file all federal
and state tax returns which, to the knowledge of Fidelity Short-Term
Bond Fund's officers, are required to be filed by Fidelity Short-Term
Bond Fund and has paid or will pay all federal and state taxes shown
to be due on said returns or provision shall have been made for the
payment thereof, and, to the best of Fidelity Short-Term Bond Fund's
knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(j) Fidelity Short-Term Bond Fund has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company for all prior taxable years and intends
to meet such requirements for its current taxable year ending on April
30, 2000;
(k) As of the Closing Date, the shares of beneficial interest of
Fidelity Short-Term Bond Fund to be issued to Spartan Short-Term Bond
Fund will have been duly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and
will be fully paid and nonassessable (except as disclosed in the
Fund's Statement of Additional Information) by Fidelity Short-Term
Bond Fund, and no shareholder of Fidelity Short-Term Bond Fund will
have any preemptive right of subscription or purchase in respect
thereof;
(l) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Fidelity Short-Term Bond Fund, and
this Agreement constitutes a valid and binding obligation of Fidelity
Short-Term Bond Fund enforceable in accordance with its terms, subject
to approval by the shareholders of Spartan Short-Term Bond Fund;
(m) The Registration Statement and the Proxy Statement, on the
effective date of the Registration Statement and insofar as they
relate to Fidelity Short-Term Bond Fund, (i) will comply in all
material respects with the provisions of the 1933 Act, the 1934 Act,
and the 1940 Act, and the rules and regulations thereunder, and (ii)
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and on the Closing
Date, the Prospectus, as amended or supplemented, insofar as it
relates to Fidelity Short-Term Bond Fund, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(n) The issuance of the Fidelity Short-Term Bond Fund Shares pursuant
to this Agreement will be in compliance with all applicable federal
securities laws; and
(o) All of the issued and outstanding shares of beneficial interest
of Fidelity Short-Term Bond Fund have been offered for sale and sold
in conformity with the federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Spartan
Short-Term Bond Fund and to the other terms and conditions contained
herein, Spartan Short-Term Bond Fund agrees to assign, sell, convey,
transfer, and deliver to Fidelity Short-Term Bond Fund as of the
Closing Date all of the assets of Spartan Short-Term Bond Fund of
every kind and nature existing on the Closing Date. Fidelity
Short-Term Bond Fund agrees in exchange therefor: (i) to assume all of
Spartan Short-Term Bond Fund's liabilities existing on or after the
Closing Date, whether or not determinable on the Closing Date, and
(ii) to issue and deliver to Spartan Short-Term Bond Fund the number
of full and fractional shares of Fidelity Short-Term Bond Fund having
an aggregate net asset value equal to the value of the assets of
Spartan Short-Term Bond Fund transferred hereunder, less the value of
the liabilities of Spartan Short-Term Bond Fund, determined as
provided for under Section 4.
(b) The assets of Spartan Short-Term Bond Fund to be acquired by
Fidelity Short-Term Bond Fund shall include, without limitation, all
cash, cash equivalents, securities, receivables (including interest or
dividends receivables), claims, choses in action, and other property
owned by Spartan Short-Term Bond Fund, and any deferred or prepaid
expenses shown as an asset on the books of Spartan Short-Term Bond
Fund on the Closing Date. Spartan Short-Term Bond Fund will pay or
cause to be paid to Fidelity Short-Term Bond Fund any dividend or
interest payments received by it on or after the Closing Date with
respect to the assets transferred to Fidelity Short-Term Bond Fund
hereunder, and Fidelity Short-Term Bond Fund will retain any dividend
or interest payments received by it after the Valuation Time with
respect to the assets transferred hereunder without regard to the
payment date thereof.
(c) The liabilities of Spartan Short-Term Bond Fund to be assumed by
Fidelity Short-Term Bond Fund shall include (except as otherwise
provided for herein) all of Spartan Short-Term Bond Fund's
liabilities, debts, obligations, and duties, of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether
or not arising in the ordinary course of business, whether or not
determinable on the Closing Date, and whether or not specifically
referred to in this Agreement. Notwithstanding the foregoing, Spartan
Short-Term Bond Fund agrees to use its best efforts to discharge all
of its known liabilities prior to the Closing Date, other than
liabilities incurred in the ordinary course of business.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable, Spartan Short-Term Bond Fund will
constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the Fidelity
Short-Term Bond Fund Shares in exchange for such shareholders' shares
of beneficial interest in Spartan Short-Term Bond Fund and Spartan
Short-Term Bond Fund will be liquidated in accordance with Spartan
Short-Term Bond Fund's Amended and Restated Declaration of Trust. Such
distribution shall be accomplished by the Funds' transfer agent
opening accounts on Fidelity Short-Term Bond Fund's share transfer
books in the names of the Spartan Short-Term Bond Fund shareholders
and transferring the Fidelity Short-Term Bond Fund Shares thereto.
Each Spartan Short-Term Bond Fund shareholder's account shall be
credited with the respective PRO RATA number of full and fractional
(rounded to the third decimal place) Fidelity Short-Term Bond Fund
Shares due that shareholder. All outstanding Spartan Short-Term Bond
Fund shares, including any represented by certificates, shall
simultaneously be canceled on Spartan Short-Term Bond Fund's share
transfer records. Fidelity Short-Term Bond Fund shall not issue
certificates representing the Fidelity Short-Term Bond Fund Shares in
connection with the Reorganization.
(e) Any reporting responsibility of Spartan Short-Term Bond Fund is
and shall remain its responsibility up to and including the date on
which it is terminated.
(f) Any transfer taxes payable upon issuance of the Fidelity
Short-Term Bond Fund Shares in a name other than that of the
registered holder on Spartan Short-Term Bond Fund's books of the
Spartan Short-Term Bond Fund shares constructively exchanged for the
Fidelity Short-Term Bond Fund Shares shall be paid by the person to
whom such Fidelity Short-Term Bond Fund Shares are to be issued, as a
condition of such transfer.
4. VALUATION.
(a) The Valuation Time shall be as of the close of business of the
New York Stock Exchange on the Closing Date, or such other date as may
be mutually agreed upon in writing by the parties hereto (the
Valuation Time).
(b) As of the Closing Date, Fidelity Short-Term Bond Fund will
deliver to Spartan Short-Term Bond Fund the number of Fidelity
Short-Term Bond Fund Shares having an aggregate net asset value equal
to the value of the assets of Spartan Short-Term Bond Fund transferred
hereunder less the liabilities of Spartan Short-Term Bond Fund,
determined as provided in this Section 4.
(c) The net asset value per share of the Fidelity Short-Term Bond
Fund Shares to be delivered to Spartan Short-Term Bond Fund, the value
of the assets of Spartan Short-Term Bond Fund transferred hereunder,
and the value of the liabilities of Spartan Short-Term Bond Fund to be
assumed hereunder shall in each case be determined as of the Valuation
Time.
(d) The net asset value per share of the Fidelity Short-Term Bond
Fund Shares shall be computed in the manner set forth in the
then-current Fidelity Short-Term Bond Fund Prospectus and Statement of
Additional Information, and the value of the assets and liabilities of
Spartan Short-Term Bond Fund shall be computed in the manner set forth
in the then-current Spartan Short-Term Bond Fund Prospectus and
Statement of Additional Information.
(e) All computations pursuant to this Section shall be made by or
under the direction of Fidelity Service Company, Inc., a wholly-owned
subsidiary of FMR Corp., in accordance with its regular practice as
pricing agent for Spartan Short-Term Bond Fund and Fidelity Short-Term
Bond Fund.
5. FEES; EXPENSES.
(a) Pursuant to Spartan Short-Term Bond Fund's all-inclusive
management contract with Fidelity Management & Research Company (FMR),
FMR will pay all fees and expenses, including legal, accounting,
printing, filing, and proxy solicitation expenses, portfolio transfer
taxes (if any), or other similar expenses incurred in connection with
the transactions contemplated by this Agreement (but not including
costs incurred in connection with the purchase or sale of portfolio
securities).
Any expenses incurred in connection with the transactions contemplated
by this Agreement which may be attributable to Fidelity Short-Term
Bond Fund will be borne by Fidelity Short-Term Bond Fund provided that
they do not exceed the fund's 0.65% expense cap in effect since June
27, 1998. Expenses exceeding the fund's expense cap will be paid by
FMR (but not including costs incurred in connection with the purchase
or sale of portfolio securities).
(b) Each of Fidelity Short-Term Bond Fund and Spartan Short-Term Bond
Fund represents that there is no person who has dealt with it who by
reason of such dealings is entitled to any broker's or finder's or
other similar fee or commission arising out of the transactions
contemplated by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to
consummate the same (the Closing), unless otherwise provided herein,
shall occur at the principal office of the Trusts, 82 Devonshire
Street, Boston, Massachusetts, as of the Valuation Time on June 24,
1999, or at some other time, date, and place agreed to by Spartan
Short-Term Bond Fund and Fidelity Short-Term Bond Fund (the Closing
Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the Funds is closed to trading, or (ii) trading
thereon is restricted, or (iii) trading or the reporting of trading on
said market or elsewhere is disrupted, all so that accurate appraisal
of the total net asset value of Spartan Short-Term Bond Fund and the
net asset value per share of Fidelity Short-Term Bond Fund is
impracticable, the Valuation Time and the Closing Date shall be
postponed until the first business day after the day when such trading
shall have been fully resumed and such reporting shall have been
restored, or such other date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF SPARTAN SHORT-TERM BOND
FUND.
(a) Spartan Short-Term Bond Fund agrees to call a meeting of its
shareholders after the effective date of the Registration Statement,
to consider transferring its assets to Fidelity Short-Term Bond Fund
as herein provided, adopting this Agreement, and authorizing the
liquidation of Spartan Short-Term Bond Fund.
(b) Spartan Short-Term Bond Fund agrees that as soon as reasonably
practicable after distribution of the Fidelity Short-Term Bond Fund
Shares, Spartan Short-Term Bond Fund shall be terminated as a series
of Fidelity Charles Street Trust pursuant to its Amended and Restated
Declaration of Trust, any further actions shall be taken in connection
therewith as required by applicable law, and on and after the Closing
Date Spartan Short-Term Bond Fund shall not conduct any business
except in connection with its liquidation and termination.
8. CONDITIONS TO OBLIGATIONS OF FIDELITY SHORT-TERM BOND FUND.
(a) That Spartan Short-Term Bond Fund furnishes to Fidelity
Short-Term Bond Fund a statement, dated as of the Closing Date, signed
by an officer of Fidelity Charles Street Trust, certifying that as of
the Valuation Time and the Closing Date all representations and
warranties of Spartan Short-Term Bond Fund made in this Agreement are
true and correct in all material respects and that Spartan Short-Term
Bond Fund has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such dates;
(b) That Spartan Short-Term Bond Fund furnishes Fidelity Short-Term
Bond Fund with copies of the resolutions, certified by an officer of
Fidelity Charles Street Trust, evidencing the adoption of this
Agreement and the approval of the transactions contemplated herein by
the requisite vote of the holders of the outstanding shares of
beneficial interest of Spartan Short-Term Bond Fund;
(c) That, on or prior to the Closing Date, Spartan Short-Term Bond
Fund will declare one or more dividends or distributions which,
together with all previous such dividends or distributions
attributable to its current taxable year, shall have the effect of
distributing to the shareholders of Spartan Short-Term Bond Fund
substantially all of Spartan Short-Term Bond Fund's investment company
taxable income and all of its net realized capital gain, if any, as of
the Closing Date;
(d) That Spartan Short-Term Bond Fund shall deliver to Fidelity
Short-Term Bond Fund at the Closing a statement of its assets and
liabilities, together with a list of its portfolio securities showing
each such security's adjusted tax basis and holding period by lot,
with values determined as provided in Section 4 of this Agreement, all
as of the Valuation Time, certified on Spartan Short-Term Bond Fund's
behalf by its Treasurer or Assistant Treasurer;
(e) That Spartan Short-Term Bond Fund's custodian shall deliver to
Fidelity Short-Term Bond Fund a certificate identifying the assets of
Spartan Short-Term Bond Fund held by such custodian as of the
Valuation Time on the Closing Date and stating that as of the
Valuation Time: (i) the assets held by the custodian will be
transferred to Fidelity Short-Term Bond Fund; (ii) Spartan Short-Term
Bond Fund's assets have been duly endorsed in proper form for transfer
in such condition as to constitute good delivery thereof; and (iii) to
the best of the custodian's knowledge, all necessary taxes in
conjunction with the delivery of the assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or
provision for payment has been made;
(f) That Spartan Short-Term Bond Fund's transfer agent shall deliver
to Fidelity Short-Term Bond Fund at the Closing a certificate setting
forth the number of shares of Spartan Short-Term Bond Fund outstanding
as of the Valuation Time and the name and address of each holder of
record of any such shares and the number of shares held of record by
each such shareholder;
(g) That Spartan Short-Term Bond Fund calls a meeting of its
shareholders to be held after the effective date of the Registration
Statement, to consider transferring its assets to Fidelity Short-Term
Bond Fund as herein provided, adopting this Agreement, and authorizing
the liquidation and termination of Spartan Short-Term Bond Fund;
(h) That Spartan Short-Term Bond Fund delivers to Fidelity Short-Term
Bond Fund a certificate of an officer of Fidelity Charles Street
Trust, dated as of the Closing Date, that there has been no material
adverse change in Spartan Short-Term Bond Fund's financial position
since September 30, 1998, other than changes in the market value of
its portfolio securities, or changes due to net redemptions of its
shares, dividends paid, or losses from operations; and
(i) That all of the issued and outstanding shares of beneficial
interest of Spartan Short-Term Bond Fund shall have been offered for
sale and sold in conformity with all applicable state securities laws
and, to the extent that any audit of the records of Spartan Short-Term
Bond Fund or its transfer agent by Fidelity Short-Term Bond Fund or
its agents shall have revealed otherwise, Spartan Short-Term Bond Fund
shall have taken all actions that in the opinion of Fidelity
Short-Term Bond Fund are necessary to remedy any prior failure on the
part of Spartan Short-Term Bond Fund to have offered for sale and sold
such shares in conformity with such laws.
9. CONDITIONS TO OBLIGATIONS OF SPARTAN SHORT-TERM BOND FUND.
(a) That Fidelity Short-Term Bond Fund shall have executed and
delivered to Spartan Short-Term Bond Fund an Assumption of
Liabilities, certified by an officer of Fidelity Fixed-Income Trust,
dated as of the Closing Date pursuant to which Fidelity Short-Term
Bond Fund will assume all of the liabilities of Spartan Short-Term
Bond Fund existing at the Valuation Time in connection with the
transactions contemplated by this Agreement;
(b) That Fidelity Short-Term Bond Fund furnishes to Spartan
Short-Term Bond Fund a statement, dated as of the Closing Date, signed
by an officer of Fidelity Fixed-Income Trust, certifying that as of
the Valuation Time and the Closing Date all representations and
warranties of Fidelity Short-Term Bond Fund made in this Agreement are
true and correct in all material respects, and Fidelity Short-Term
Bond Fund has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such dates; and
(c) That Spartan Short-Term Bond Fund shall have received an opinion
of Kirkpatrick & Lockhart LLP, counsel to Spartan Short-Term Bond Fund
and Fidelity Short-Term Bond Fund, to the effect that the Fidelity
Short-Term Bond Fund Shares are duly authorized and upon delivery to
Spartan Short-Term Bond Fund as provided in this Agreement will be
validly issued and will be fully paid and nonassessable by Fidelity
Short-Term Bond Fund (except as disclosed in Fidelity Short-Term Bond
Fund's Statement of Additional Information) and no shareholder of
Fidelity Short-Term Bond Fund has any preemptive right of subscription
or purchase in respect thereof.
10. CONDITIONS TO OBLIGATIONS OF FIDELITY SHORT-TERM BOND FUND AND
SPARTAN SHORT-TERM BOND FUND.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of
the holders of the outstanding shares of beneficial interest of
Spartan Short-Term Bond Fund;
(b) That all consents of other parties and all other consents,
orders, and permits of federal, state, and local regulatory
authorities (including those of the Commission and of state Blue Sky
and securities authorities, which term as used herein shall include
the District of Columbia and Puerto Rico, and including "no action"
positions of such federal or state authorities) deemed necessary by
Fidelity Short-Term Bond Fund or Spartan Short-Term Bond Fund to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order, or permit would not involve a risk of
a material adverse effect on the assets or properties of Fidelity
Short-Term Bond Fund or Spartan Short-Term Bond Fund, provided that
either party hereto may for itself waive any of such conditions;
(c) That all proceedings taken by either Fund in connection with the
transactions contemplated by this Agreement and all documents
incidental thereto shall be satisfactory in form and substance to it
and its counsel, Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Fidelity Short-Term Bond
Fund and Spartan Short-Term Bond Fund, threatened by the Commission;
and
(f) That Fidelity Short-Term Bond Fund and Spartan Short-Term Bond
Fund shall have received an opinion of Kirkpatrick & Lockhart LLP
satisfactory to Fidelity Short-Term Bond Fund and Spartan Short-Term
Bond Fund that for federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Spartan Short-Term Bond Fund and
Fidelity Short-Term Bond Fund will each be parties to the
Reorganization under section 368(b) of the Code;
(ii) No gain or loss will be recognized by Spartan Short-Term Bond
Fund upon the transfer of all of its assets to Fidelity Short-Term
Bond Fund in exchange solely for the Fidelity Short-Term Bond Fund
Shares and the assumption of Spartan Short-Term Bond Fund's
liabilities followed by the distribution of those Fidelity Short-Term
Bond Fund Shares to the shareholders of Spartan Short-Term Bond Fund
in liquidation of Spartan Short-Term Bond Fund;
(iii) No gain or loss will be recognized by Fidelity Short-Term Bond
Fund on the receipt of Spartan Short-Term Bond Fund's assets in
exchange solely for the Fidelity Short-Term Bond Fund shares and the
assumption of Spartan Short-Term Bond Fund's liabilities;
(iv) The basis of Spartan Short-Term Bond Fund's assets in the hands
of Fidelity Short-Term Bond Fund will be the same as the basis of such
assets in Spartan Short-Term Bond Fund's hands immediately prior to
the Reorganization;
(v) Fidelity Short-Term Bond Fund's holding period in the assets to
be received from Spartan Short-Term Bond Fund will include Spartan
Short-Term Bond Fund's holding period in such assets;
(vi) A Spartan Short-Term Bond Fund shareholder will recognize no
gain or loss on the exchange of his or her shares of beneficial
interest in Spartan Short-Term Bond Fund for the Fidelity Short-Term
Bond Fund shares in the Reorganization;
(vii) A Spartan Short-Term Bond Fund shareholder's basis in the
Fidelity Short-Term Bond Fund Shares to be received by him or her will
be the same as his or her basis in the Spartan Short-Term Bond Fund
shares exchanged therefor;
(viii) A Spartan Short-Term Bond Fund shareholder's holding period
for his or her Fidelity Short-Term Bond Fund Shares will include the
holding period of Spartan Short-Term Bond Fund shares exchanged,
provided that those Spartan Short-Term Bond Fund shares were held as
capital assets on the date of the Reorganization.
Notwithstanding anything herein to the contrary, neither Spartan
Short-Term Bond Fund nor Fidelity Short-Term Bond Fund may waive the
conditions set forth in this subsection 10(f).
11. COVENANTS OF FIDELITY SHORT-TERM BOND FUND AND SPARTAN SHORT-TERM
BOND FUND.
(a) Fidelity Short-Term Bond Fund and Spartan Short-Term Bond Fund
each covenants to operate its respective business in the ordinary
course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the
payment of customary dividends and distributions;
(b) Spartan Short-Term Bond Fund covenants that it is not acquiring
the Fidelity Short-Term Bond Fund Shares for the purpose of making any
distribution other than in accordance with the terms of this
Agreement;
(c) Spartan Short-Term Bond Fund covenants that it will assist
Fidelity Short-Term Bond Fund in obtaining such information as
Fidelity Short-Term Bond Fund reasonably requests concerning the
beneficial ownership of Spartan Short-Term Bond Fund's shares; and
(d) Spartan Short-Term Bond Fund covenants that its liquidation and
termination will be effected in the manner provided in its Amended and
Restated Declaration of Trust in accordance with applicable law and
after the Closing Date, Spartan Short-Term Bond Fund will not conduct
any business except in connection with its liquidation and
termination.
12. TERMINATION; WAIVER.
Fidelity Short-Term Bond Fund and Spartan Short-Term Bond Fund may
terminate this Agreement by mutual agreement. In addition, either
Fidelity Short-Term Bond Fund or Spartan Short-Term Bond Fund may at
its option terminate this Agreement at or prior to the Closing Date
because:
(i) of a material breach by the other of any representation,
warranty, or agreement contained herein to be performed at or prior to
the Closing Date; or
(ii) a condition herein expressed to be precedent to the obligations
of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Spartan Short-Term Bond Fund or Fidelity
Short-Term Bond Fund, or their respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter
hereof, constitutes the only understanding with respect to such
subject matter, may not be changed except by a letter of agreement
signed by each party hereto and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Fidelity Short-Term
Bond Fund or Spartan Short-Term Bond Fund; provided, however, that
following the shareholders' meeting called by Spartan Short-Term Bond
Fund pursuant to Section 7 of this Agreement, no such amendment may
have the effect of changing the provisions for determining the number
of Fidelity Short-Term Bond Fund Shares to be paid to Spartan
Short-Term Bond Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval.
(c) Either Fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on
the interests of such Fund's shareholders.
The representations, warranties, and covenants contained in the
Agreement, or in any document delivered pursuant hereto or in
connection herewith, shall survive the consummation of the
transactions contemplated hereunder.
14. DECLARATIONS OF TRUST.
A copy of each Fund's Declaration of Trust, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed on behalf of the Trustees of each Fund as trustees and not
individually and that the obligations of each Fund under this
instrument are not binding upon any of such Fund's Trustees, officers,
or shareholders individually but are binding only upon the assets and
property of such Fund. Each Fund agrees that its obligations hereunder
apply only to such Fund and not to its shareholders individually or to
the Trustees of such Fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer of any rights or obligations hereunder shall be made by
any party without the written consent of the other parties. Nothing
herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation other than the
parties hereto and their respective successors and assigns any rights
or remedies under or by reason of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by an appropriate officer.
[SIGNATURE LINES OMITTED]
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how
each fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a
copy of each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated June 26, 1998. The SAI has been filed with the Securities and
Exchange Commission (SEC) and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov). The SAI
is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call
Fidelity(registered trademark) at 1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
BON-pro-0698
704235
FIDELITY
SHORT-TERM
BOND
FUND
(fund number 450, trading symbol FSHBX)
and
FIDELITY
INVESTMENT
GRADE BOND
FUND
(fund number 026, trading symbol FBNDX)
Each fund invests normally in investment-grade debt securities.
Short-Term Bond seeks high current income with preservation of
capital. Investment Grade Bond seeks high current income from
securities with longer maturities.
PROSPECTUS
JUNE 26, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
KEY FACTS 2 THE FUNDS AT A GLANCE
2 WHO MAY WANT TO INVEST
4 EXPENSES Each fund's yearly
operating expenses.
6 FINANCIAL HIGHLIGHTS A
summary of each fund's
financial data.
9 PERFORMANCE How each fund has
done over time.
THE FUNDS IN DETAIL 12 CHARTER How each fund is
organized.
12 INVESTMENT PRINCIPLES AND
RISKS Each fund's overall
approach to investing.
14 BREAKDOWN OF EXPENSES How
operating costs are
calculated and what they
include.
YOUR ACCOUNT 15 DOING BUSINESS WITH FIDELITY
15 TYPES OF ACCOUNTS Different
ways to set up your account,
including tax-advantaged
retirement plans.
17 HOW TO BUY SHARES Opening an
account and making
additional investments.
21 HOW TO SELL SHARES Taking
money out and closing your
account.
25 INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND ACCOUNT 26 DIVIDENDS, CAPITAL GAINS, AND
POLICIES TAXES
27 TRANSACTION DETAILS Share
price calculations and the
timing of purchases and
redemptions.
28 EXCHANGE RESTRICTIONS
KEY FACTS
THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments(registered trademark), which
was established in 1946 and is now America's largest mutual fund
manager.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, will choose investments for the funds.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
SHORT-TERM BOND
GOAL: High current income with preservation of capital.
STRATEGY: Normally invests in investment-grade debt securities while
maintaining an average maturity of three years or less. FMR uses the
Lehman Brothers 1-3 Year Government/Corporate Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of April 30, 1998, the fund had over $808 million in assets.
INVESTMENT GRADE BOND
GOAL: High current income.
STRATEGY: Normally invests in investment-grade debt securities. FMR
uses the Lehman Brothers Aggregate Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of April 30, 1998, the fund had over $1.9 billion in assets.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who seek high current
income with a focus on investment-grade debt securities. A fund's
level of risk and potential reward depend on the quality and maturity
of its investments. Short-Term Bond is designed to offer greater share
price stability by investing in shorter-term securities. Investment
Grade Bond, because it can invest in securities with any maturity, has
potential for higher yields and capital appreciation, but also carries
more risk.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other economic and political news. When you sell your
shares they may be worth more or less than what you paid for them. By
themselves, the funds do not constitute a balanced investment plan.
(checkmark)THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The funds
in this prospectus are in the
INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME Seeks
long-term growth and income
by investing in stocks and
bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of a fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page 28, for an explanation of how and when
these charges apply.
Sales charge on purchases and None
reinvested distributions
Deferred sales charge on None
redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets.
Each fund pays a management fee to FMR. It also incurs other expenses
for services such as maintaining shareholder records and furnishing
shareholder statements and financial reports. A fund's expenses are
factored into its share price or dividends and are not charged
directly to shareholder accounts (see "Breakdown of Expenses," page
15).
The following figures are based on historical expenses, adjusted to
reflect current fees, of each fund and are calculated as a percentage
of average net assets of each fund. A portion of the brokerage
commissions that a fund pays is used to reduce that fund's expenses.
In addition, each fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances are used to reduce custodian and transfer
agent expenses. Including these reductions, the total fund operating
expenses presented in the table would have been 0.71% for Investment
Grade Bond.
SHORT-TERM BOND
Management fee (after 0.39%
reimbursement)
12b-1 fee None
Other expenses 0.26%
Total fund operating expenses 0.65%
INVESTMENT GRADE BOND
Management fee 0.44%
12b-1 fee None
Other expenses 0.28%
Total fund operating expenses 0.72%
EXAMPLES: Let's say, hypothetically, that each fund's annual return is
5% and that your shareholder transaction expenses and each fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
(checkmark)UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of expenses
for portfolio management,
shareholder statements, tax
reporting, and other services.
These expenses are paid from
each fund's assets, and their
effect is already factored into
any quoted share price or
return. Also, as an investor,
you may pay certain
expenses directly.
SHORT-TERM BOND
1 year $ 7
3 years $ 21
5 years $ 36
10 years $ 81
INVESTMENT GRADE BOND
1 year $ 7
3 years $ 23
5 years $ 40
10 years $ 89
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
FMR has voluntarily agreed to reimburse Short-Term Bond to the extent
that total operating expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) exceed 0.65% of its average
net assets. If this agreement were not in effect, the management fee,
other expenses and total operating expenses, as a percentage of
average net assets, of the fund would have been 0.44%, 0.26% and
0.70%, respectively.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow for Short-Term Bond and
Investment Grade Bond have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The funds' financial highlights, financial
statements, and reports of the auditor are included in each fund's
Annual Report, and are incorporated by reference into (are legally a
part of) the funds' SAI. Contact Fidelity for a free copy of an Annual
Report or the SAI.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM BOND FUND
Selected Per-Share Data and
Ratios
Years ended April 30 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net asset value, beginning $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510 $ 9.430 $ 9.180 $ 9.170 $ 9.180 $ 9.470
of period
Income from Investment .546B .558B .579 .344 .588 .744 .810 .792 .778 .809
Operations Net investment
income
Net realized and .033 (.061) (.020) (.156) (.392) .063 .251 .040 (.010) (.290)
unrealized gain (loss)
Total from investment .579 .497 .559 .188 .196 .807 1.061 .832 .768 .519
operations
Less Distributions From (.539) (.552) (.504) (.430) (.592) (.727) (.811) (.822) (.778) (.809)
net investment income
In excess of net -- -- -- -- (.034) -- -- -- -- --
investment income
Return of capital -- (.005) (.055) (.118) -- -- -- -- -- --
Total distributions (.539) (.557) (.559) (.548) (.626) (.727) (.811) (.822) (.778) (.809)
Net asset value, end of $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510 $ 9.430 $ 9.180 $ 9.170 $ 9.180
period
Total returnA 6.86% 5.86% 6.52% 2.17% 1.99% 8.85% 12.00% 9.49% 8.58% 5.74%
Net assets, end of period $ 809 $ 922 $ 1,048 $ 1,304 $ 1,962 $ 1,990 $ 984 $ 235 $ 197 $ 237
(In millions)
Ratio of expenses to .70% .70% .69% .69% .80% .77% .86% .83% .83% .89%
average net assets
Ratio of expenses to .70% .70% .68%C .69% .80% .77% .86% .83% .83% .89%
average net assets after
expense reductions
Ratio of net investment 6.26% 6.41% 6.37% 6.37% 6.70% 7.68% 8.23% 8.65% 8.28% 8.77%
income to average net assets
Portfolio turnover rate 117% 104%D 151% 113% 73% 63% 87% 164% 148% 171%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
D THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT GRADE BOND
Selected Per-Share Data
and Ratios
Years ended April 30 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
Net asset value, $ 7.020 $ 7.040 $ 7.010 $ 7.300 $ 7.570 $ 7.070 $ 6.830 $ 6.560 $ 6.670 $ 6.770
beginning of period
Income from Investment .441C .460C .484 .464 .522 .570 .591 .592 .597 .595
Operations Net investment
income
Net realized and .282 (.020) .047 (.147) (.254) .499 .244 .277 (.110) (.095)
unrealized gain (loss)
Total from investment .723 .440 .531 .317 .268 1.069 .835 .869 .487 .500
operations
Less Distributions From (.443) (.460) (.471) (.487) (.525) (.569) (.595) (.599) (.597) (.600)
net investment income
In excess of net -- -- -- -- (.013) -- -- -- -- --
investment income
From net realized gain -- -- -- (.120) -- -- -- -- -- --
In excess of net realized -- -- (.030) -- -- -- -- -- -- --
gain
Total distributions (.443) (.460) (.501) (.607) (.538) (.569) (.595) (.599) (.597) (.600)
Net asset value, end of $ 7.300 $ 7.020 $ 7.040 $ 7.010 $ 7.300 $ 7.570 $ 7.070 $ 6.830 $ 6.560 $ 6.670
period
Total returnA 10.54% 6.42% 7.62% 4.63% 3.35% 15.63% 12.63% 13.82% 7.31% 7.74%
Net assets, end of period $ 1,909 $ 1,442 $ 1,358 $ 1,087 $ 943 $ 1,018 $ 943 $ 455 $ 360 $ 334
(In millions)
Ratio of expenses to .72% .76% .77% .75% .74% .68% .70% .67% .70% .66%
average net assets
Ratio of expenses to .71%B .75%B .76%B .75% .74% .68% .70% .67% .70% .66%
average net assets after
expense reductions
Ratio of net investment 6.12% 6.53% 6.58% 7.00% 6.94% 7.74% 8.29% 8.84% 8.76% 8.91%
income to average net assets
Portfolio turnover rate 207% 120% 134% 90% 61% 74% 77% 101% 103% 128%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do
not reflect the effect of taxes.
Each fund's fiscal year runs from May 1 through April 30. The tables
below show each fund's performance over past fiscal years compared to
different measures, including a comparative index and a competitive
funds average. The charts on page present calendar year performance.
(checkmark)UNDERSTANDING
PERFORMANCE
Because these funds invest in
fixed-income securities, their
performance is related to
changes in interest rates.
Funds that hold short-term
bonds are usually less
affected by changes in
interest rates than long-term
bond funds. For that reason,
long-term bond funds typically
offer higher yields and carry
more risk than short-term bond
funds.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended April Past 1 year Past 5 years Past 10 years
30, 1998
Short-Term Bond 6.86% 4.66% 6.76%
Lehman Bros. 1-3 Yr. 7.17% 5.53% 7.27%
Gov't./Corp. Bond Index
Lipper Sht. Inv. Gr. Debt 6.67% 5.24% 6.95%
Funds Avg.
Investment Grade Bond 10.54% 6.48% 8.90%
Lehman Bros. Aggregate Bond 10.91% 6.91% 9.06%
Index
Lipper Int. Inv. Grade Debt 9.84% 6.17% 8.35%
Funds Avg.
CUMULATIVE TOTAL RETURNS
Fiscal periods ended April Past 1 year Past 5 years Past 10 years
30, 1998
Short-Term Bond 6.86% 25.56% 92.43%
Lehman Bros. 1-3 Yr. 7.17% 30.91% 101.74 %
Gov't./Corp. Bond Index
Lipper Sht. Inv. Gr. Debt 6.67% 29.13% 96.16%
Funds Avg.
Investment Grade Bond 10.54% 36.91% 134.62%
Lehman Bros. Aggregate Bond 10.91% 39.65% 138.01%
Index
Lipper Int. Inv. Grade Debt 9.84% 34.98% 123.58%
Funds Avg.
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
INVESTMENT GRADE BOND 7.92% 13.00% 6.07% 18.91% 8.31% 16.23% -5.35% 15.51% 3.02% 8.91%
Lehman Bond Aggregate
Bond Index 7.89% 14.53% 8.96% 16.00% 7.40% 9.75% -2.92% 18.47% 3.63% 9.65%
Lipper Int. Inv. Grade
Debt Funds Avg. 7.11% 11.54% 7.22% 15.70% 6.94% 9.77% -3.46% 16.59% 3.12% 8.57%
Consumer Price Index 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 7.92
Row: 2, Col: 1, Value: 13.0
Row: 3, Col: 1, Value: 6.07
Row: 4, Col: 1, Value: 18.91
Row: 5, Col: 1, Value: 8.310000000000001
Row: 6, Col: 1, Value: 16.23
Row: 7, Col: 1, Value: -5.35
Row: 8, Col: 1, Value: 15.51
Row: 9, Col: 1, Value: 3.02
Row: 10, Col: 1, Value: 8.91
(LARGE SOLID BOX) Investment
Grade Bond
YEAR-BY-YEAR TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
SHORT-TERM BOND 5.71% 10.52% 5.78% 14.03% 7.39% 9.13% -4.09% 9.82% 4.78% 6.21%
Lehman Bros. 1-3 Yr.
Gov't/Corp.
Bond Index 6.34% 10.97% 9.69% 11.83% 6.35% 5.55% 0.55% 10.96% 5.14% 6.66%
Lipper Sht. Inv. Gr.
Debt Funds Avg. 6.86% 10.22% 7.87% 12.88% 5.97% 6.45% -0.44% 10.84% 4.64% 6.19%
Consumer Price Index 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 5.71
Row: 2, Col: 1, Value: 10.52
Row: 3, Col: 1, Value: 5.78
Row: 4, Col: 1, Value: 14.03
Row: 5, Col: 1, Value: 7.39
Row: 6, Col: 1, Value: 9.130000000000001
Row: 7, Col: 1, Value: -4.09
Row: 8, Col: 1, Value: 9.82
Row: 9, Col: 1, Value: 4.78
Row: 10, Col: 1, Value: 6.21
(LARGE SOLID BOX) Short-Term
Bond
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields
are calculated according to a standard that is required for all stock
and bond funds. Because this differs from other accounting methods,
the quoted yield may not equal the income actually paid to
shareholders.
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT/CORPORATE BOND INDEX is a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues with maturities between one and three years.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a market value weighted
performance benchmark for investment-grade fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities, with maturities of at least one year.
Unlike each fund's returns, the total returns of each comparative
index do not include the effect of any brokerage commissions,
transaction fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper Short Investment Grade
Debt Funds Average and the Lipper Intermediate Investment Grade Debt
Funds Average for Short-Term Bond and Investment Grade Bond,
respectively. As of April 30, 1998, the averages reflected the
performance of 103 and 209 mutual funds with similar investment
objectives, respectively. These averages, published by Lipper
Analytical Services, Inc., exclude the effect of sales loads.
The funds' recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all shareholders.
For current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. Each fund is a
diversified fund of Fidelity Fixed-Income Trust, an open-end
management investment company organized as a Massachusetts business
trust on September 5, 1984.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses their investments and
handles their business affairs. Fidelity Management & Research (U.K.)
Inc. (FMR U.K.), in London, England, and Fidelity Management &
Research (Far East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR
with foreign investments.
Beginning January 1, 1999, FIMM, located in Merrimack, New Hampshire,
will have primary responsibility for providing investment management
services for each fund.
Andrew Dudley is manager of Short-Term Bond, which he has managed
since February 1997. He also manages other Fidelity funds. Prior to
joining Fidelity in 1996, Mr. Dudley was a portfolio manager for
Putnam Investments from 1991 to 1996.
Kevin Grant is Vice President and manager of Investment Grade Bond,
which he has managed since February 1997. He also manages several
other Fidelity funds. Prior to joining Fidelity as a manager in 1993,
Mr. Grant was a vice president and chief mortgage strategist at Morgan
Stanley for three years.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Service Company, Inc. (FSC) performs transfer agent servicing
functions for each fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., FMR Far
East and FIMM. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the
Investment Company Act of 1940 (the 1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
PREPAYMENT RISK. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment risk occurs
when the issuer of a security can prepay principal prior to the
security's maturity. Securities subject to prepayment risk generally
offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising
interest rate environment. In addition, the potential impact of
prepayment features on the price of a debt security may be difficult
to predict and result in greater volatility.
FIDELITY'S APPROACH TO BOND FUNDS. In managing bond funds, FMR selects
a benchmark index that is representative of the universe of securities
in which a fund invests. FMR uses this benchmark as a guide in
structuring the fund and selecting its investments.
FMR allocates assets among different market sectors (for example,
corporate or government securities) and different maturities based on
its view of the relative value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which a fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
SHORT-TERM BOND seeks high current income, consistent with
preservation of capital, by investing in U.S. dollar-denominated
investment-grade debt securities under normal conditions. The
benchmark index for the fund is the Lehman Brothers 1-3 Year
Government/Corporate Bond Index, a market value weighted benchmark of
government and investment-grade corporate fixed-rate debt issues with
maturities between one and three years. FMR manages the fund to have
similar overall interest rate risk to the index. As of April 30, 1998,
the dollar-weighted average maturity of the fund and the index was
approximately 2.4 and 1.9 years, respectively. In addition, the fund
normally maintains a dollar-weighted average maturity of three years
or less.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
INVESTMENT GRADE BOND seeks high current income, consistent with
reasonable risk, by investing in U.S. dollar-denominated
investment-grade debt securities under normal conditions. The fund
also considers capital preservation and, where appropriate, takes
advantage of opportunities to realize capital appreciation. The
benchmark index for the fund is the Lehman Brothers Aggregate Bond
Index, a market value weighted benchmark of investment-grade
fixed-rate debt issues with maturities of one year or more. FMR
manages the fund to have similar overall interest rate risk to the
index. As of April 30, 1998, the dollar-weighted average maturity of
the fund and the index was approximately 8.8 and 8.8 years,
respectively.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
Each fund normally invests in U.S. dollar-denominated investment-grade
debt securities. The funds differ primarily with respect to the
maturity of their investments and therefore their sensitivity to
interest rate changes. Although each fund can invest in securities of
any maturity, Investment Grade Bond generally maintains a longer
average maturity. As a result, Investment Grade Bond will tend to have
greater share price fluctuation.
FMR may use various techniques to hedge a portion of a fund's risks,
but there is no guarantee that these strategies will work as FMR
intends. When you sell your shares of a fund, they may be worth more
or less than what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. Each fund also reserves the right to invest without
limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in
the funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. Investment-grade debt securities are medium- and
high-quality securities. Some, however, may possess speculative
characteristics, and may be more sensitive to economic changes and to
changes in the financial condition of issuers.
RESTRICTIONS: Each fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service, Standard & Poor's, Duff
& Phelps Credit Rating Co., or Fitch IBCA, Inc., or is unrated but
judged to be of equivalent quality by FMR.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by Fannie Mae are supported
by the instrumentality's right to borrow money from the U.S. Treasury
under certain circumstances. Other U.S. Government securities, such as
those issued by the Federal Farm Credit Banks Funding Corporation, are
supported only by the credit of the entity that issued them.
FOREIGN EXPOSURE. Securities issued by foreign entities, including
foreign governments, corporations, and banks, and securities issued by
U.S. entities with substantial foreign operations may involve
additional risks and considerations. Extensive public information
about the foreign entity may not be available, and unfavorable
political, economic, or governmental developments in the foreign
country involved could affect the repayment of principal or payment of
interest.
ASSET-BACKED SECURITIES include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the market's
perception of the servicer of the pool, and any credit enhancement
provided. In addition, these securities may be subject to prepayment
risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, currency exchange rates, commodity prices, or other
factors that affect security values. These techniques may involve
derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange contracts or swap
agreements, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities, and some
other securities, may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not invest more than 10% of its assets in
illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
OTHER INSTRUMENTS may include real estate-related instruments.
CASH MANAGEMENT. A fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry. Economic, business, or political changes can affect all
securities of a similar type.
RESTRICTIONS: With respect to 75% of its total assets, Short-Term Bond
and Investment Grade Bond may not invest more than 5% in the
securities of any one issuer. This limitation does not apply to U.S.
Government securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, or through reverse repurchase agreements. 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.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering a fund's securities. A fund may also lend money to
other funds advised by FMR or its affiliates.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a
fund's total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
SHORT-TERM BOND seeks to obtain a high level of current income,
consistent with preservation of capital, by investing primarily in a
broad range of fixed-income securities.
INVESTMENT GRADE BOND seeks to provide a high rate of income,
consistent with reasonable risk, by investing in a broad range of
fixed-income securities. In addition, the fund seeks to protect your
capital. Where appropriate, the fund will take advantage of
opportunities to realize capital appreciation.
With respect to 75% of its total assets, each fund may not invest more
than 5% in the securities of any one issuer. This limitation does not
apply to U.S. Government securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 33% of its total assets.
Loans, in the aggregate, may not exceed 33% of each fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its
share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services. Each fund also pays OTHER EXPENSES,
which are explained on page 18.
FMR may, from time to time, agree to reimburse the funds for
management fees and other expenses above a specified limit. FMR
retains the ability to be repaid by a fund if expenses fall below the
specified limit prior to the end of the fiscal year. Reimbursement
arrangements, which may be terminated at any time without notice, can
decrease a fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee
is calculated by adding a group fee rate to an individual fund fee
rate, multiplying the result by the fund's monthly average net assets
and dividing by twelve.
(checkmark)UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in
FMR's total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will
pay a lower rate as FMR's
assets under management
increase.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
For April 1998, the group fee rate was 0.1339%. The individual fund
fee rate is 0.30% for both Short-Term Bond and Investment Grade Bond.
The total management fee, as a percentage of each fund's average net
assets, for the fiscal year ended April 1998 was 0.44% for both
Short-Term Bond and Investment Grade Bond.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on
issuers based outside the United States. Under the sub-advisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing each fund's investments. FMR will pay FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
OTHER EXPENSES
While the management fee is a significant component of the funds'
annual operating costs, the funds have other expenses as well.
The funds contract with FSC to perform transfer agency, dividend
disbursing, shareholder servicing, and accounting functions. These
services include processing shareholder transactions, valuing each
fund's investments, handling securities loans for each fund, and
calculating each fund's share price and dividends.
For the fiscal year ended April 1998, transfer agency and pricing and
bookkeeping fees paid (as a percentage of average net assets) amounted
to the following. These amounts are before expense reductions, if any.
Transfer Agency and Pricing
and Bookkeeping Fees Paid by
Fund
Short-Term Bond 0.25%
Investment Grade Bond 0.26%
Each fund also pays other expenses, such as legal, audit, and
custodian fees; in some instances, proxy solicitation costs; and the
compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by a fund to
reduce that fund's custodian or transfer agent fees.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees of each fund has authorized such
payments.
For the fiscal year ended April 1998, the portfolio turnover rates for
Short-Term Bond and Investment Grade Bond were 117% and 207%,
respectively. These rates vary from year to year. High turnover rates
increase transaction costs and may increase taxable capital gains. FMR
considers these effects when evaluating the anticipated benefits of
short-term investing.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of
America's first mutual funds. Today, Fidelity is the largest mutual
fund company in the country, and is known as an innovative provider of
high-quality financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, FBSI. Fidelity is also a
leader in providing tax-advantaged retirement plans for individuals
investing on their own or through their employer.
Fidelity is committed to providing investors with practical
information to make investment decisions. Based in Boston, Fidelity
provides customers with complete service 24 hours a day, 365 days a
year, through a network of telephone service centers around the
country and Fidelity's Web site.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity
has over 75 walk-in Investor Centers across the country.
If you would prefer to access information on-line, you can visit
Fidelity's Web site at www.fidelity.com.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend
to purchase individual securities as part of your total investment
portfolio, you may consider investing in a fund through a brokerage
account.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in a fund. Certain features of
the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
The account guidelines that follow may not apply to certain retirement
accounts. If you are investing through a retirement account or if your
employer offers the funds through a retirement program, you may be
subject to additional fees. For more information, please refer to your
program materials, contact your employer, call your retirement
benefits number, visit Fidelity's Web site at www.fidelity.com, or
contact Fidelity directly, as appropriate.
(checkmark)FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 225
(solid bullet) Assets in Fidelity mutual
funds: over $595 billion
(solid bullet) Number of shareholder
accounts: over 37 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 250
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
Retirement plans provide individuals with tax-advantaged ways to save
for retirement, either with tax-deductible contributions or tax-free
growth. Retirement accounts require special applications and typically
have lower minimums.
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow
individuals under age 70 with compensation to contribute up to $2,000
per tax year. Married couples can contribute up to $4,000 per tax
year, provided no more than $2,000 is contributed on behalf of either
spouse. (These limits are aggregate for Traditional and Roth IRAs.)
Contributions may be tax-deductible, subject to certain income limits.
(solid bullet) ROTH IRAS allow individuals to make non-deductible
contributions of up to $2,000 per tax year. Married couples can
contribute up to $4,000 per tax year, provided no more than $2,000 is
contributed on behalf of either spouse. (These limits are aggregate
for Traditional and Roth IRAs.) Eligibility is subject to certain
income limits. Qualified distributions are tax-free.
(solid bullet) ROTH CONVERSION IRAS allow individuals with assets held
in a Traditional IRA or Rollover IRA to convert those assets to a Roth
Conversion IRA. Eligibility is subject to certain income limits.
Qualified distributions are tax-free.
(solid bullet) ROLLOVER IRAS help retain special tax advantages for
certain eligible rollover distributions from employer-sponsored
retirement plans.
(solid bullet) 401(K) PLANS, and certain other 401(a)-qualified plans,
are employer-sponsored retirement plans that allow employer
contributions and may allow employee after-tax contributions. In
addition, 401(k) plans allow employee pre-tax (tax-deferred)
contributions. Contributions to these plans may be tax-deductible to
the employer.
(solid bullet) KEOGH PLANS are generally profit sharing or money
purchase pension plans that allow self-employed individuals or small
business owners to make tax-deductible contributions for themselves
and any eligible employees.
(solid bullet) SIMPLE IRAS provide small business owners and those
with self-employment income (and their eligible employees) with many
of the advantages of a 401(k) plan, but with fewer administrative
requirements.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide
small business owners or those with self-employment income (and their
eligible employees) with many of the same advantages as a Keogh, but
with fewer administrative requirements.
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS) allow employees of
businesses with 25 or fewer employees to contribute a percentage of
their wages on a tax-deferred basis. These plans must have been
established by the employer prior to January 1, 1997.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of
501(c)(3) tax-exempt institutions, including schools, hospitals, and
other charitable organizations.
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS) are available
to employees of most state and local governments and their agencies
and to employees of tax-exempt institutions.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset value
per share (NAV). Each fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received in proper form. Each fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
Each fund reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions"
on page 34. Purchase orders may be refused if, in FMR's opinion, they
would disrupt management of a fund.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888 or visit Fidelity's
Web site at www.fidelity.com for an application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
IF YOU ARE INVESTING THROUGH A TAX-ADVANTAGED RETIREMENT PLAN, such as
an IRA, for the first time, you will need a special application.
Retirement investing also involves its own investment procedures. Call
1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com for
more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For certain Fidelity retirement accountsA $500
TO ADD TO AN ACCOUNT $250
For certain Fidelity retirement accountsA $250
Through regular investment plansB $100
MINIMUM BALANCE $2,000
For certain Fidelity retirement accountsA $500
A THESE LOWER MINIMUMS APPLY TO FIDELITY TRADITIONAL IRA, ROTH IRA,
ROTH CONVERSION IRA, ROLLOVER IRA, SEP-IRA, AND KEOGH ACCOUNTS.
B FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE 31.
These minimums may be lower for investments through a Fidelity
GoalPlannerSM account. There is no minimum account balance or initial
or subsequent investment minimum for investments through Fidelity
Portfolio Advisory ServicesSM, a qualified state tuition program,
certain Fidelity retirement accounts funded through salary deduction,
or accounts opened with the proceeds of distributions from such
retirement accounts. Refer to the program materials for details. In
addition, each fund reserves the right to waive or lower investment
minimums in other circumstances.
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TO OPEN AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
Mail (mail_graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
In Person (hand_graphic) (small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
Wire (wire_graphic) (small solid bullet) Call
1-800-544-7777 to set up
your account and to arrange
a wire transaction. Not
available for retirement
accounts.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
#021001033, Account
#00163053. Specify the
complete name of the fund
and include your new account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Not
available.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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TO ADD TO AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Call before your
first use to verify that
this service is in place on
your account. Maximum Money
Line: up to $100,000.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Visit Fidelity's
Web site before your first
use to verify that this
service is in place on your
account. Maximum Money Line:
up to $100,000.
Mail (mail_graphic) (small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address printed
on your account statement.
(small solid bullet) Exchange
by mail: call 1-800-544-6666
for instructions.
In Person (hand_graphic) (small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
Wire (wire_graphic) (small solid bullet) Not
available for retirement
accounts.
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing #021001033, Account
#00163053. Specify the
complete name of the fund
and include your account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Use
Fidelity Automatic Account
Builder. Sign up for this
service when opening your
account, visit Fidelity's
Web site at www.fidelity.com
to obtain the form to add
the service, or call
1-800-544-6666 to add the
service.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. Each fund's NAV is normally calculated
each business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone, in writing, or through Fidelity's Web site.
Call 1-800-544-6666 for a retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$2,000 worth of shares in the account to keep it open ($500 for
retirement accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited
number of checks. Do not, however, try to close out your account by
check.
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ACCOUNT TYPE
Phone 1-800-544-7777 (phone_graphic) All account types except
retirement
All account types
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint Tenant,
Sole Proprietorship, UGMA,
UTMA
Retirement account
Trust
Business or Organization
Executor, Administrator,
Conservator, Guardian
Wire (wire_graphic) All account types except
retirement
Check (check_graphic) All account types
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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SPECIAL REQUIREMENTS
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Maximum
check request: $100,000.
(small solid bullet) For
Money Line transfers to your
bank account; minimum: $10;
maximum: up to $100,000.
(small solid bullet) You may
exchange to other Fidelity
funds if both accounts are
registered with the same
name(s), address, and
taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) (small solid bullet) The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
(small solid bullet) The
account owner should
complete a retirement
distribution form. Call
1-800-544-6666 to request one.
(small solid bullet) The
trustee must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
(small solid bullet) At least
one person authorized by
corporate resolution to act
on the account must sign the
letter.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
(small solid bullet) Call
1-800-544-6666 for
instructions.
Wire (wire_graphic) (small solid bullet) You must
sign up for the wire feature
before using it. To verify
that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your
wire redemption request must
be received in proper form
by Fidelity before 4:00 p.m.
Eastern time for money to be
wired on the next business
day.
Check (check_graphic) (small solid bullet) Minimum
check: $500.
(small solid bullet) All
account owners must sign a
signature card to receive a
checkbook.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
FIDELITY'S WEB SITE at www.fidelity.com offers product and servicing
information, customer education, planning tools, and the ability to
make certain transactions in your account.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
(checkmark)24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESS(registered trademark)
1-800-544-5555
WEB SITE
www.fidelity.com
AUTOMATED SERVICE
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in our electronic
delivery program, call 1-800-544-6666 or visit Fidelity's Web site at
www.fidelity.com for more information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone, in writing, or through Fidelity's
Web site.
Note that exchanges out of a fund are limited to four per calendar
year, and that they may have tax consequences for you. For details on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or
revoked, see page 34.
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDER(registered trademark)
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly or quarterly (small solid bullet) For a
new account, complete the
appropriate section on the
fund application.
(small solid bullet) For
existing accounts, call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
application.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666 at least
three business days prior to
your next scheduled
investment date.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Every pay period (small solid bullet) Check
the appropriate box on the
fund application, or call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
authorization form.
(small solid bullet) Changes
require a new authorization
form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, bimonthly, (small solid bullet) To
quarterly, or annually establish, call
1-800-544-6666 after both
accounts are opened.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666.
A BECAUSE THEIR SHARE PRICES FLUCTUATE, THESE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income
and capital gains to shareholders each year. For each fund, income
dividends are declared daily and paid monthly. Capital gains are
normally distributed in June and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on
the application, call 1-800-544-6666 for instructions. Each fund
offers four options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions
will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned
this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each
dividend distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital
gain distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
If you select distribution option 2 or 3 and the U.S. Postal Service
does not deliver your checks, your election may be converted to the
Reinvestment Option. You will not receive interest on amounts
represented by uncashed distribution checks. To change your
distribution option, call Fidelity at 1-800-544-6666.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of
the date the fund deducts the distribution from its NAV. The mailing
of distribution checks will begin within seven days.
TAXES
As with any investment, you should consider how your investment in a
fund will be taxed. If your account is not a tax-advantaged retirement
account, you should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax, and may also be subject to state or local taxes. If you live
outside the United States, your distributions could also be taxed by
the country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are
taxable as if they were paid on December 31.
(checkmark)UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings along
to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
For federal tax purposes, each fund's income and short-term capital
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but
not yet distributed capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on a
fund and its investments, and these taxes generally will reduce the
fund's distributions.
There are tax requirements that all funds must follow in order to
avoid federal taxation. In its effort to adhere to these requirements,
a fund may have to limit its investment activity in some types of
instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
Each fund's assets are valued on the basis of information furnished by
a pricing service or market quotations, if available, or by another
method that the Board of Trustees believes accurately reflects fair
value. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value. Foreign securities are valued on the basis of quotations
from the primary market in which they are traded, and are translated
from the local currency into U.S. dollars using current exchange
rates. If the values have been materially affected by events occurring
after the closing of a foreign market, assets may be valued by another
method that the Board of Trustees believes accurately reflects fair
value.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify
that your social security or taxpayer identification number is correct
and that you are not subject to 31% backup withholding for failing to
report income to the IRS. If you violate IRS regulations, the IRS can
require a fund to withhold 31% of your taxable distributions and
redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to redeem and
exchange by telephone, call Fidelity for instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during
periods of unusual market activity), consider placing your order by
mail or by visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased
at the next NAV calculated after your investment is received in proper
form. Note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number
of checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees a fund or
its transfer agent has incurred.
(small solid bullet) Shares begin to earn dividends on the first
business day following the day of purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money
order, U.S. Treasury check, Federal Reserve check, or direct deposit
instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements
with FDC may enter confirmed purchase orders on behalf of customers by
phone, with payment to follow no later than the time when a fund is
priced on the following business day. If payment is not received by
that time, the financial institution could be held liable for
resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at
the next NAV calculated after your order is received in proper form.
Note the following:
(small solid bullet) Normally, redemption proceeds will be mailed to
you on the next business day, but if making immediate payment could
adversely affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares earn dividends through the day of
redemption; however, shares redeemed on a Friday or prior to a holiday
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day
after your phone call.
(small solid bullet) Each fund may hold payment on redemptions until
it is reasonably satisfied that investments made by check or Fidelity
Money Line have been collected, which can take up to seven business
days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays),
when trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the
amount of the check is greater than the value of your account, your
check will be returned to you and you may be subject to additional
charges.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for
that year. The fee, which is payable to the transfer agent, is
designed to offset in part the relatively higher costs of servicing
smaller accounts. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $2,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send
the proceeds to you. Your shares will be redeemed at the NAV on the
day your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the funds
without reimbursement from the funds. Qualified recipients are
securities dealers who have sold fund shares or others, including
banks and other financial institutions, under special arrangements in
connection with FDC's sales activities. In some instances, these
incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or
expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a
fund for shares of other Fidelity funds. However, you should note the
following:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) If you exchange into a fund with a sales charge,
you pay the percentage-point difference between that fund's sales
charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already
paid a sales charge of 2% on your shares and you exchange them into a
fund with a 3% sales charge, you would pay an additional 1% sales
charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund
performance and shareholders, each fund reserves the right to
temporarily or permanently terminate the exchange privilege of any
investor who makes more than four exchanges out of the fund per
calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, will be counted
together for purposes of the four exchange limit.
(small solid bullet) The exchange limit may be modified for accounts
in certain institutional retirement plans to conform to plan exchange
limits and Department of Labor regulations. See your plan materials
for further information.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would
be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
(small solid bullet) Your exchanges may be restricted or refused if a
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to a
fund.
Although the funds will attempt to give you prior notice whenever they
are reasonably able to do so, they may impose these restrictions at
any time. The funds reserve the right to terminate or modify the
exchange privilege in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to 1.00% and trading fees of up to 3.00% of
the amount exchanged. Check each fund's prospectus for details.
Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, TouchTone Xpress, Fidelity Automatic
Account Builder, and Directed Dividends are registered trademarks of
FMR Corp.
Portfolio Advisory Services and Fidelity GoalPlanner are servicemarks
of FMR Corp.
This prospectus is printed on recycled paper using soy-based inks.
FIDELITY SHORT-TERM BOND FUND
FIDELITY INVESTMENT GRADE BOND FUND
FUNDS OF FIDELITY FIXED-INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
JUNE 26, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus
(dated June 26, 1998). Please retain this document for future
reference. The funds' Annual Reports are separate documents supplied
with this SAI. To obtain a free additional copy of a Prospectus or an
Annual Report, please call Fidelity(registered trademark) at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and 24
Limitations
Portfolio Transactions 29
Valuation 29
Performance 30
Additional Purchase, Exchange 36
and Redemption Information
Distributions and Taxes 37
FMR 37
Trustees and Officers 37
Management Contracts 40
Distribution and Service Plans 43
Contracts with FMR Affiliates 43
Description of the Trust 44
Financial Statements 45
Appendix 45
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
BON-ptb-0698
475969
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with the fund's investment policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF FIDELITY SHORT-TERM BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) 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)
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;
(2) issue senior securities except as permitted under the Investment
Company Act of 1940;
(3) 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;
(4) underwrite securities issued by others, except to the extent that
the sale of restricted securities or the purchase of bonds in
accordance with the fund's investment objective, policies, and
limitations, either directly from the issuer, or from an underwriter
for an issuer, may be deemed to be underwriting;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities) if, as a result, more than 25% of the value of its
total assets would be invested in securities of companies having their
principal business activities in the same industry;
(6) 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);
(7) 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); or
(8) 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.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) 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.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
With respect to limitation (iv), 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 was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 43.
INVESTMENT LIMITATIONS OF FIDELITY INVESTMENT GRADE BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) 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)
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;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) 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);
(7) 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);
(8) 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
(9) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) 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.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
With respect to limitation (iv), 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 was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 44.
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help a fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds, or other credit enhancements.
Asset-backed security values may also be affected by 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.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
funds may receive fees or price concessions for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, 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 delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form
of leverage. When delayed-delivery purchases are outstanding, a fund
will set aside appropriate liquid assets in a segregated custodial
account to cover the purchase obligations. When a fund has sold a
security on a delayed-delivery basis, 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 delayed delivery transaction and may sell the
underlying securities before delivery, which may result in capital
gains or losses for the fund.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks
inherent in U.S. investments.
Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments, and may be affected by
actions of foreign governments adverse to the interests of U.S.
investors. Such actions may include expropriation or nationalization
of assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There is no assurance that
FMR will be able to anticipate these potential events or counter their
effects. In addition, the value of securities denominated in foreign
currencies and of dividends and interest paid with respect to such
securities will fluctuate based on the relative strength of the U.S.
dollar.
The risks of foreign investing may be magnified for investments in
emerging markets, which may have relatively unstable governments,
economies based on only a few industries, and securities markets that
trade a small number of securities.
FOREIGN CURRENCY TRANSACTIONS. A fund may conduct foreign currency
transactions on a spot (i.e., cash) or forward basis (i.e., by
entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange. A fund may use currency
forward contracts for any purpose consistent with its investment
objective.
Successful use of currency management strategies will depend on FMR's
skill in analyzing currency values. Currency management strategies may
substantially change a fund's investment exposure to changes in
currency exchange rates and could result in losses to a fund if
currencies do not perform as FMR anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR hedges currency exposure through
proxy hedges, a fund could realize currency losses from both the hedge
and the security position if the two currencies do not move in tandem.
Similarly, if FMR increases a fund's exposure to a foreign currency
and that currency's value declines, a fund will realize a loss. There
is no assurance that FMR's use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FUNDS' RIGHTS AS SHAREHOLDERS. The funds do not intend to direct or
administer the day-to-day operations of any company. A fund, however,
may exercise its rights as a shareholder and may communicate its views
on important matters of policy to management, the Board of Directors,
and shareholders of a company when FMR determines that such matters
could have a significant effect on the value of the fund's investment
in the company. The activities in which a fund may engage, either
individually or in conjunction with others, may include, among others,
supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's
directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of the company or a
portion of its assets; or supporting or opposing third-party takeover
efforts. This area of corporate activity is increasingly prone to
litigation and it is possible that a fund could be involved in
lawsuits related to such activities. FMR will monitor such activities
with a view to mitigating, to the extent possible, the risk of
litigation against a fund and the risk of actual liability if a fund
is involved in litigation. No guarantee can be made, however, that
litigation against a fund will not be undertaken or liabilities
incurred.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, Options and Futures
Relating to Foreign Currencies, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will
comply with guidelines established by the SEC with respect to coverage
of options and futures strategies by mutual funds and, if the
guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held
in a segregated account cannot be sold while the futures or option
strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a
large percentage of a fund's assets could impede portfolio management
or the fund's ability to meet redemption requests or other current
obligations.
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.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and 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
options and 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
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and 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 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 and 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 options or 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.
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 future date. 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, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices.
Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
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. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument 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 (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. 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. The party that has a gain may be 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. In the event of the bankruptcy of an
FCM 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 FCM's other customers, potentially resulting in losses to the
fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading
Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The funds intend to comply with Rule
4.5 under the Commodity Exchange Act, which limits the extent to which
the funds can commit assets to initial margin deposits and option
premiums.
In addition, each 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; 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
securities that incorporate features similar to options.
The above limitations on the funds' investments in futures contracts
and options, and the funds' policies regarding futures contracts and
options discussed elsewhere in this SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures 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 options and 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. If the secondary 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. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and
are standardized as to contract size and delivery date. Most currency
futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency
call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. A fund may purchase and sell currency futures and may purchase
and write currency options to increase or decrease its exposure to
different foreign currencies. Currency options may also be purchased
or written in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected
to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in
the Yen, but will not protect a fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value
of a fund's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to
match the amount of currency options and futures to the value of the
fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (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 involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL 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 securities, indices of
securities prices, and futures contracts. 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. 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
security prices fall 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
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 security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. 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 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, and must continue to set
aside assets to cover its position. When writing an option on a
futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain 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 security prices fall, 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, 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 mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by FMR to be illiquid include
repurchase agreements not entitling the holder to repayment of
principal and payment of interest within seven days, non-government
stripped fixed-rate mortgage-backed securities, and over-the-counter
options. Also, FMR may determine some restricted securities,
government-stripped fixed-rate mortgage-backed securities, loans and
other direct debt instruments, emerging market securities, and swap
agreements to be illiquid. However, with respect to over-the-counter
options a fund writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the
option and the nature and terms of any agreement the fund may have to
close out the option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by
the Board of Trustees.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a
specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument 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. 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.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will lend
through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the
cost of bank loans. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
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. In addition, loan participations
involve a risk of insolvency of the lending bank or other financial
intermediary. Direct debt instruments may also include standby
financing commitments that obligate the purchaser to supply additional
cash to the borrower on demand.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal. 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.
While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication
of the future performance of the high-yield bond market, especially
during periods of economic recession.
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. If market
quotations are not available, lower-quality debt securities will be
valued in accordance with procedures established by the Board of
Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing high-yield debt securities than is the
case for securities for which more external sources for quotations and
last-sale information are available. 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.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type. FMR will attempt to identify those
issuers of high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to
improve in the future. FMR's analysis focuses on relative values based
on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the
issuer.
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.
MORTGAGE-BACKED SECURITIES. are issued by government and
non-government entities such as banks, mortgage lenders, or other
institutions. A mortgage-backed security is an obligation of the
issuer backed by a mortgage or pool of mortgages or a direct interest
in an underlying pool of mortgages. Some mortgage-backed securities,
such as collateralized mortgage obligations (or "CMOs"), make payments
of both principal and interest at a range of specified intervals;
others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage-backed securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject
to prepayment risk, which is the risk that early principal payments
made on the underlying mortgages, usually in response to a reduction
in interest rates, will result in the return of principal to the
investor, causing it to be invested subsequently at a lower current
interest rate. Alternatively, in a rising interest rate environment,
mortgage-backed security values may be adversely affected when
prepayments on underlying mortgages do not occur as anticipated,
resulting in the extension of the security's effective maturity and
the related increase in interest rate sensitivity of a longer-term
instrument. The prices of stripped mortgage-backed securities tend to
be more volatile in response to changes in interest rates than those
of non-stripped mortgage-backed securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits 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. While it does
not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as
delays and costs to a fund in connection with bankruptcy proceedings),
the funds will engage in repurchase agreement transactions with
parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund 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, a fund 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. While a reverse repurchase
agreement is outstanding, a fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. The funds will enter into reverse repurchase agreements
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR. Such transactions may increase fluctuations in
the market value of fund assets and may be viewed as a form of
leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider 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.
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are
created by separating the income and principal components of a U.S.
Government security and selling them separately. STRIPS (Separate
Trading of Registered Interest and Principal of Securities) are
created when the coupon payments and the principal payment are
stripped from an outstanding U.S. Treasury security by a Federal
Reserve Bank.
Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security
with a custodian for safekeeping. The custodian issues separate
receipts for the coupon payments and the principal payment, which the
dealer then sells.
SWAP AGREEMENTS can be individually negotiated and structured to
include exposure to a variety of different types of investments or
market factors. Depending on their structure, swap agreements may
increase or decrease a fund's exposure to long- or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such
as security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if the fund agreed to
exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and
interest rates. Caps and floors have an effect similar to buying or
writing options. 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 yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors
that determine the amounts of payments due to and from a fund. If a
swap agreement calls for payments by the fund, the fund must be
prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of a swap
agreement would be likely to decline, potentially resulting in losses.
A fund may be able to eliminate its exposure under a swap agreement
either by assignment or other disposition, or by entering into an
offsetting swap agreement with the same party or a similarly
creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
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. 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.
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.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR considers various relevant factors, including,
but not limited to: the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold;
the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions; and, if applicable, arrangements for payment of fund
expenses.
Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and
effect securities transactions and perform functions incidental
thereto (such as clearance and settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to a fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher commissions, FMR
must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided
by such executing broker-dealers, viewed in terms of a particular
transaction or FMR's overall responsibilities to that fund or its
other clients. In reaching this determination, FMR will not attempt to
place a specific dollar value on the brokerage and research services
provided, or to determine what portion of the compensation should be
related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services Japan LLC (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar
services. Prior to December 9, 1997, FMR used research services
provided by and placed agency transactions with Fidelity Brokerage
Services (FBS), an indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealer (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
The Trustees of each fund periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended April 30, 1998 and 1997, the portfolio
turnover rates were 117% and 104%, respectively, for Short-Term Bond
and 207% and 120%, respectively, for Investment Grade Bond. Because a
high turnover rate increases transaction costs and may increase
taxable gains, FMR carefully weighs the anticipated benefits of
short-term investing against these consequences. Variations in
turnover rate may be due to a fluctuating volume of shareholder
purchase and redemption orders, market conditions, or changes in FMR's
investment outlook.
For the fiscal years ended April 1998, 1997, and 1996, Short-Term Bond
paid no brokerage commissions. For the fiscal years ended April 1998,
1997, and 1996, Investment Grade Bond paid brokerage commissions of
$0, $0, and $6,000, respectively. Significant changes in brokerage
commissions paid by the fund from year to year may result from
changing asset levels throughout the year. Investment Grade Bond pays
both commissions and spreads in connection with the placement of
portfolio transactions.
For the fiscal year ended April 1998, the funds paid no brokerage
commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR or its affiliates,
investment decisions for each fund are made independently from those
of other funds managed by FMR or accounts managed by FMR affiliates.
It sometimes happens that the same security is held in the portfolio
of more than one of these funds or accounts. Simultaneous transactions
are inevitable when several funds and accounts are managed by the same
investment adviser, particularly when the same security is suitable
for the investment objective of more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to each fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
FSC normally determines each fund's net asset value per share (NAV) as
of the close of the New York Stock Exchange (NYSE) (normally 4:00 p.m.
Eastern time). The valuation of portfolio securities is determined as
of this time for the purpose of computing each fund's NAV.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income 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. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services or
discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAV's.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. FSC gathers all exchange rates daily at the
close of the NYSE using the last quoted price on the local currency
and then translates the value of foreign securities from their local
currencies into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange on which that security is traded, then
that security will be valued as determined in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
A fund may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. Each fund's share price,
yield, and total return fluctuate in response to market conditions and
other factors, and the value of fund shares when redeemed may be more
or less than their original cost.
YIELD CALCULATIONS. Yields for a fund are computed by dividing a
fund's interest and income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the fund's
NAV at the end of the period, and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage
rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond
funds. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of
the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the
discount to daily income. For a fund's investments denominated in
foreign currencies, income and expenses are calculated first in their
respective currencies, and are then converted to U.S. dollars, either
when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Income is adjusted to reflect
gains and losses from principal repayments received by a fund with
respect to mortgage-related securities and other asset-backed
securities. Other capital gains and losses generally are excluded from
the calculation as are gains and losses from currency exchange rate
fluctuations.
Income calculated for the purposes of calculating a fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a fund's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
In calculating a fund's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing a fund's yield.
Yield information may be useful in reviewing a fund's performance and
in providing a basis for comparison with other investment
alternatives. However, a fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing the fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of a fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in a fund's
NAV over a stated period. Average annual total returns are calculated
by determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative total return
of 100% over ten years would produce an average annual total return of
7.18%, which is the steady annual rate of return that would equal 100%
growth on a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment alternatives,
investors should realize that a fund's performance is not constant
over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of a fund.
In addition to average annual total returns, a fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to
exhibit performance. An adjusted NAV includes any distributions paid
by a fund and reflects all elements of its return. Unless otherwise
indicated, a fund's adjusted NAVs are not adjusted for sales charges,
if any.
CALCULATING HISTORICAL FUND RESULTS. The following table shows
performance for each fund calculated including certain fund expenses.
HISTORICAL FUND RESULTS. The following table shows each fund's yield
and total return for the period ended April 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
Thirty-Day Yield One Year Five Years Ten Years One Year
Short-Term Bond 5.54% 6.86% 4.66% 6.76% 6.86%
Investment Grade Bond 5.64% 10.54% 6.48% 8.90% 10.54%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cumulative Total Returns
Five Years Ten Years
Short-Term Bond 25.56% 92.43%
Investment Grade Bond 36.91% 134.62%
</TABLE>
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each fund's return
to the record of the Standard & Poor's 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (CPI), over the same period. The CPI
information is as of the month-end closest to the initial investment
date for each fund. The S&P 500 and DJIA comparisons are provided to
show how each fund's total return compared to the record of a broad
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because each
fund invests in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investments such as the funds. The S&P 500 and DJIA
returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended April
30, 1998, assuming all distributions were reinvested. Total returns
are based on past results and are not an indication of future
performance. Tax consequences of different investments have not been
factored into the figures on page 62.
During the 10-year period ended April 30, 1998, a hypothetical $10,000
investment in Short-Term Bond would have grown to $19,243.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SHORT-TERM BOND INDICES
Year Ended
April 30 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1998 $ 9,187 $ 10,056 $ 0 $ 19,243 $ 56,624
1997 $ 9,145 $ 8,862 $ 0 $ 18,007 $ 40,140
1996 $ 9,208 $ 7,803 $ 0 $ 17,011 $ 32,078
1995 $ 9,208 $ 6,761 $ 0 $ 15,969 $ 24,635
1994 $ 9,588 $ 6,043 $ 0 $ 15,631 $ 20,973
1993 $ 10,042 $ 5,284 $ 0 $ 15,326 $ 19,913
1992 $ 9,958 $ 4,122 $ 0 $ 14,080 $ 18,227
1991 $ 9,694 $ 2,877 $ 0 $ 12,571 $ 15,981
1990 $ 9,683 $ 1,798 $ 0 $ 11,481 $ 13,589
1989 $ 9,694 $ 880 $ 0 $ 10,574 $ 12,291
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SHORT-TERM BOND INDICES
Year Ended April 30 DJIA Cost of Living
1998 $ 59,400 $ 13,877
1997 $ 45,177 $ 13,681
1996 $ 35,167 $ 13,348
1995 $ 26,672 $ 12,972
1994 $ 22,124 $ 12,588
1993 $ 20,035 $ 12,297
1992 $ 19,060 $ 11,913
1991 $ 15,888 $ 11,546
1990 $ 14,073 $ 11,008
1989 $ 12,340 $ 10,512
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Short-Term
Bond on May 1, 1988, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amounted to $20,506. If distributions had not
been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would
have amounted to $7,153 for dividends and $0 for capital gain
distributions.
During the 10-year period ended April 30, 1998, a hypothetical $10,000
investment in Investment Grade Bond would have grown to $23,462.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
INVESTMENT GRADE BOND INDICES
Year Ended
April 30 Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1998 $ 10,783 $ 12,301 $ 378 $ 23,462 $ 56,624
1997 $ 10,369 $ 10,492 $ 363 $ 21,224 $ 40,140
1996 $ 10,399 $ 9,180 $ 364 $ 19,943 $ 32,078
1995 $ 10,355 $ 7,890 $ 286 $ 18,531 $ 24,635
1994 $ 10,783 $ 6,928 $ 0 $ 17,711 $ 20,973
1993 $ 11,182 $ 5,955 $ 0 $ 17,137 $ 19,913
1992 $ 10,443 $ 4,379 $ 0 $ 14,822 $ 18,227
1991 $ 10,089 $ 3,071 $ 0 $ 13,160 $ 15,981
1990 $ 9,690 $ 1,872 $ 0 $ 11,562 $ 13,589
1989 $ 9,852 $ 922 $ 0 $ 10,774 $ 12,291
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT GRADE BOND INDICES
Year Ended April 30 DJIA Cost of Living
1998 $ 59,400 $ 13,877
1997 $ 45,177 $ 13,681
1996 $ 35,167 $ 13,348
1995 $ 26,672 $ 12,972
1994 $ 22,124 $ 12,588
1993 $ 20,035 $ 12,297
1992 $ 19,060 $ 11,913
1991 $ 15,888 $ 11,546
1990 $ 14,073 $ 11,008
1989 $ 12,340 $ 10,512
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Investment
Grade Bond on May 1, 1988, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amounted to $22,331. If distributions had not
been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would
have amounted to $7,914 for dividends and $222 for capital gain
distributions.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
based on yield. In addition to the mutual fund rankings, a fund's
performance may be compared to stock, bond, and money market mutual
fund performance indices prepared by Lipper or other organizations.
When comparing these indices, it is important to remember the risk and
return characteristics of each type of investment. For example, while
stock mutual funds may offer higher potential returns, they also carry
the highest degree of share price volatility. Likewise, money market
funds may offer greater stability of principal, but generally do not
offer the higher potential returns available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A fund may advertise risk ratings,
including symbols or numbers, prepared by independent rating agencies.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest.
The total return of a benchmark index reflects reinvestment of all
dividends and capital gains paid by securities included in the index.
Unlike a fund's returns, however, the index returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
Short-Term Bond may compare its performance to that of the Lehman
Brothers 1-3 Year Government/Corporate Bond Index, a market value
weighted performance benchmark for government and corporate fixed-rate
debt issues. Issues included in the index have an outstanding par
value of at least $100 million and maturities between one and three
years. Government and corporate issues include all public obligations
of the U.S. Treasury (excluding flower bonds and foreign-targeted
issues) and U.S. government agencies, as well as nonconvertible
investment-grade, SEC-registered corporate debt.
Investment Grade Bond may compare its performance to the Lehman
Brothers Aggregate Bond Index, a market value weighted performance
benchmark for investment-grade fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities.
Issues included in the index have an outstanding par value of at least
$100 million and maturities of at least one year. Government and
corporate issues include all public obligations of the U.S. Treasury
(excluding flower bonds and foreign-targeted issues) and U.S.
government agencies, as well as nonconvertible investment-grade,
SEC-registered corporate debt. Mortgage-backed securities include 15-
and 30-year fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Fannie Mae. Asset-backed securities
include credit card, auto, and home equity loans.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
A fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a fund's historical share price fluctuations or total
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, a fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific
periods of time. Each point on the momentum indicator represents a
fund's percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
A fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which
may produce superior after-tax returns over time. For example, a
$1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of April 30, 1998, FMR advised over $30 billion in municipal fund
assets, $103 billion in money market fund assets, $454 billion in
equity fund assets, $73 billion in international fund assets, and $29
billion in Spartan fund assets. The funds may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management
figure represents the largest amount of equity fund assets under
management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, a fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. A fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV)
is calculated each day the New York Stock Exchange (NYSE) is open for
trading. The NYSE has designated the following holiday closings for
1998: New Year's Day, Martin Luther King's Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Day. Although FMR expects the same
holiday schedule to be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, on days when the Federal
Reserve Wire System is closed, federal funds wires cannot be sent.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
SEC. To the extent that portfolio securities are traded in other
markets on days when the NYSE is closed, a fund's NAV may be affected
on days when investors do not have access to the fund to purchase or
redeem shares. In addition, trading in some of a fund's portfolio
securities may not occur on days when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing each fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each fund is required to
give shareholders at least 60 days' notice prior to terminating or
modifying its exchange privilege. Under the Rule, the 60-day
notification requirement may be waived if (i) the only effect of a
modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the
time of an exchange, or (ii) the fund suspends the redemption of the
shares to be exchanged as permitted under the 1940 Act or the rules
and regulations thereunder, or the fund to be acquired suspends the
sale of its shares because it is unable to invest amounts effectively
in accordance with its investment objective and policies.
In the Prospectus, each fund has notified shareholders that it
reserves the right at any time, without prior notice, to refuse
exchange purchases by any person or group if, in FMR's judgment, the
fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
DISTRIBUTIONS AND TAXES
DIVIDENDS. Because each fund's income is primarily derived from
interest, dividends from the fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do
not qualify for the dividends-received deduction. A portion of each
fund's dividends derived from certain U.S. Government securities may
be exempt from state and local taxation. Gains (losses) attributable
to foreign currency fluctuations are generally taxable as ordinary
income, and therefore will increase (decrease) dividend distributions.
If a fund's distributions exceed its net investment company taxable
income during a taxable year, all or a portion of the distributions
made in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing each shareholder's cost
basis in the fund. Mortgage security paydown gains (losses) on
mortgage securities purchased by a fund on or prior to June 8, 1997
are generally taxable as ordinary income and, therefore, increase
(decrease) taxable dividend distributions. Each fund will send each
shareholder a notice in January describing the tax status of dividend
and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each
fund on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains, regardless of the length
of time shareholders have held their shares. If a shareholder receives
a capital gain distribution on shares of a fund, and such shares are
held six months or less and are sold at a loss, the portion of the
loss equal to the amount of the capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by each fund are taxable to shareholders as dividends, not
as capital gains.
As of April 30, 1998, Investment Grade Bond hereby designates
approximately $2,148,000 as a capital gain dividend for the purpose of
the dividend-paid deduction.
As of April 30, 1998, Short-Term Bond had a capital loss carryforward
aggregating approximately $166,788,000. This loss carryforward, of
which $2,771,000, $2,248,000, $18,091,000, $55,095,000, $74,079,000,
$6,241,000 and $8,263,000 will expire on April 30, 1999, 2000, 2002,
2003, 2004, 20005, and 2006, respectively, is available to offset
future capital gains.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Foreign governments
may also impose taxes on other payments or gains with respect to
foreign securities. Because each fund does not currently anticipate
that securities of foreign issuers will constitute more than 50% of
its total assets at the end of its fiscal year, shareholders should
not expect to claim a foreign tax credit or deduction on their federal
income tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company
and avoid being subject to federal income or excise taxes at the fund
level, each fund intends to distribute substantially all of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds, if
any, of its trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. 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 a fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class 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 stock of that
company. Therefore, through their ownership of voting common stock 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 Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the 1940 Act) is 82 Devonshire Street, Boston, Massachusetts 02109,
which is also the address of FMR. The business address of all the
other Trustees is Fidelity Investments, P.O. Box 9235, Boston,
Massachusetts 02205-9235. Those Trustees who are "interested persons"
by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (67), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES (70), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Fund, Chairman
of the Board of Trustees of the Greenwich Hospital Association,
Director of the Yale-New Haven Health Services Corp. (1998), a Member
of the Public Oversight Board of the American Institute of Certified
Public Accountants' SEC Practice Section (1995), and as a Public
Governor of the National Association of Securities Dealers, Inc.
(1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (69), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993), Imation Corp. (imaging and information storage, 1997), and
Infomart (marketing services, 1991), a Trammell Crow Co. In addition,
he serves as the Campaign Vice Chairman of the Tri-State United Way
(1993) and is a member of the University of Alabama President's
Cabinet.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
KEVIN E. GRANT (38), is Vice President of Fidelity Investment Grade
Bond Fund (1997) and other funds advised by FMR. Since joining
Fidelity in 1993, Mr. Grant has managed a variety of Fidelity funds.
Prior to joining Fidelity, Mr. Grant was vice president and chief
mortgage strategist at Morgan Stanley for three years.
ERIC D. ROITER (49), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER (51), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (52), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended April 30, 1998, or calendar
year ended December 31, 1997, as applicable.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Short-Term BondB,C,D Investment Grade BondB Fund Complex*,A
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox $ 348 $ 614 $ 214,500
Phyllis Burke Davis $ 348 $ 614 $ 210,000
Robert M. Gates $ 356 $ 626 $ 176,000
Edward C. Johnson 3d** $ 0 $ 0 $ 0
E. Bradley Jones $ 348 $ 614 $ 211,500
Donald J. Kirk $ 348 $ 614 $ 211,500
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 356 $ 626 $ 214,500
Gerald C. McDonough $ 435 $ 766 $ 264,500
Marvin L. Mann $ 344 $ 606 $ 214,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 348 $ 614 $ 214,500
</TABLE>
* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $62,500; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,699; Marvin L. Mann, $53,699; and Thomas R.
Williams, $62,462.
B Compensation figures include cash, and may include amounts required
to be deferred and amounts deferred at the election of Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $164; Phyllis Burke Davis, $164;
Robert M. Gates, $166; E. Bradley Jones, $164; Donald J. Kirk, $164;
William O. McCoy, $166; Gerald C. McDonough, $192; Marvin L. Mann,
$164; and Thomas R. Williams, $164.
D Certain of the non-interested Trustees' aggregate compensation from
a fund includes accrued voluntary deferred compensation as follows:
Marvin L. Mann, $138; Ralph F. Cox, $138; Thomas R. Williams, $138;
and William O. McCoy, $41.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of April 30, 1998, the Trustees, Members of the Advisory Board, and
officers of each fund owned, in the aggregate, less than 1% of each
fund's total outstanding shares.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
each fund, FMR acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the
fund in accordance with its investment objective, policies, and
limitations. FMR also provides each fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of each fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of each
fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, pricing and bookkeeping agent, and
securities lending agent, each fund pays all of its expenses that are
not assumed by those parties. Each fund pays for the typesetting,
printing, and mailing of its proxy materials to shareholders, legal
expenses, and the fees of the custodian, auditor and non-interested
Trustees. Each 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; however, under the terms of each fund's transfer agent
agreement, the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by each fund
include interest, taxes, brokerage commissions, 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. Each 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 FEES. For the services of FMR under the management
contract, each fund pays FMR a monthly management fee which has two
components: a group fee rate and an individual fund fee rate.
On January 1, 1996 and August 1, 1994, FMR voluntarily modified the
breakpoints in the group fee rate schedules. The revised group fee
rate schedules, depicted on page 79, provide for lower management fee
rates as FMR's assets under management increase.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1690
24 - 30 .1800 200 .1652
30 - 36 .1750 225 .1618
36 - 42 .1700 250 .1587
42 - 48 .1650 275 .1560
48 - 66 .1600 300 .1536
66 - 84 .1550 325 .1514
84 - 120 .1500 350 .1494
120 - 156 .1450 375 .1476
156 - 192 .1400 400 .1459
192 - 228 .1350 425 .1443
228 - 264 .1300 450 .1427
264 - 300 .1275 475 .1413
300 - 336 .1250 500 .1399
336 - 372 .1225 525 .1385
372 - 408 .1200 550 .1372
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over 516 .1100
</TABLE>
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $626 billion of group net assets - the approximate level for
April 1998 - was 0.1339%, which is the weighted average of the
respective fee rates for each level of group net assets up to $626
billion.
Each fund's individual fund fee rate is 0.30%. Based on the average
group net assets of the funds advised by FMR for April 1998, each
fund's annual management fee rate would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fund Group Fee Rate Individual Fund Fee Rate Management Fee Rate
Short-Term Bond 0.1339% + 0.30% = 0.4339%
Investment Grade Bond 0.1339% + 0.30% = 0.4339%
</TABLE>
One-twelfth of this annual management fee rate is applied to each
fund's net assets averaged for the most recent month, giving a dollar
amount, which is the fee for that month.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years.
<TABLE>
<CAPTION>
<S> <C> <C>
Fund Fiscal Years Ended April 30 Management Fees Paid to FMR
Short-Term Bond 1998 $ 3,862,000
1997 $ 4,374,000
1996 $ 5,483,000
Investment Grade Bond 1998 $ 7,079,000
1997 $ 6,290,000
1996 $ 5,469,000
</TABLE>
FMR may, from time to time, voluntarily reimburse all or a portion of
a fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to
be repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
SUB-ADVISERS. On behalf of each fund, FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. Pursuant to
the sub-advisory agreements, FMR may receive investment advice and
research services outside the United States from the sub-advisers.
Currently, FMR U.K. and FMR Far East each focus on issuers in
countries other than the United States such as those in Europe, Asia,
and the Pacific Basin.
FMR U.K. and FMR Far East, which were organized in 1986, are wholly
owned subsidiaries of FMR. Under the sub-advisory agreements FMR pays
the fees of FMR U.K. and FMR Far East. For providing non-discretionary
investment advice and research services, FMR pays FMR U.K. and FMR Far
East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR
Far East's costs incurred in connection with providing investment
advice and research services.
No fees were paid to FMR U.K. and FMR Far East by FMR on behalf of the
funds for the past three fiscal years.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, each Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has authorized such
payments for Short-Term Bond and Investment Grade Bond shares.
FMR made no payments either directly or through FDC to third parties
for the fiscal year ended 1998.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each Plan does not authorize payments by the fund other
than those made to FMR under its management contract with the fund. To
the extent that each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares may result. Furthermore, certain shareholder support
services may be provided more effectively under the Plans by local
entities with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
Each fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreements, FSC performs
transfer agency, dividend disbursing, and shareholder services for
each fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state tuition
program (QSTP), as defined under the Small Business Job Protection Act
of 1996, managed by FMR or an affiliate and each Fidelity Freedom
Fund, a fund of funds managed by an FMR affiliate, according to the
percentage of the QSTP's or Freedom Fund's assets that is invested in
a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC 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.
Each fund has also entered into a service agent agreement with FSC.
Under the terms of the agreements, FSC calculates the NAV and
dividends for each fund, maintains each fund's portfolio and general
accounting records, and administers each fund's securities lending
program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month. The annual fee rates for pricing and bookkeeping services are
0.0400% of the first $500 million of average net assets and 0.0200% of
average net assets in excess of $500 million. The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 and a maximum of $800,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
Fund 1998 1997 1996
Short-Term Bond $ 283,000 $ 309,000 $ 346,000
Investment Grade Bond $ 435,000 $ 397,000 $ 349,000
For administering each fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
For the fiscal years ended April 30, 1998, 1997, and 1996, the funds
paid no securities lending fees.
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call for FDC to use all
reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered at
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Short-Term Bond Fund and Fidelity
Investment Grade Bond Fund are funds of Fidelity Fixed-Income Trust,
an open-end management investment company originally organized as a
Massachusetts Corporation on June 25, 1970. On September 5, 1984, the
Corporation was reorganized as a Massachusetts Business Trust, at
which time its name was changed from Fidelity Corporate Bond Fund,
Inc. to Fidelity Corporate Bond Fund. On October 25, 1985, the trust's
name was changed to Fidelity Flexible Bond Fund and on August 31,
1986, the trust's name was changed to Fidelity Fixed-Income Trust.
Currently, there are five funds of the trust: Fidelity Short-Term Bond
Fund, Fidelity Investment Grade Bond Fund, Spartan Government Income
Fund, Spartan High Income Fund, and Spartan Short-Intermediate
Government Fund. The Declaration of Trust permits the Trustees to
create additional funds.
In the event that FMR ceases to be the investment adviser to the trust
or a fund, the right of the trust or fund to use the identifying name
"Fidelity" may be withdrawn. There is a remote possibility that one
fund might become liable for any misstatement in its prospectus or
statement of additional information about another 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 only to the rights of creditors, are especially allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund are segregated on the books of account,
and are to be charged with the liabilities with respect to such fund
and with a share of the general expenses of the trust. Expenses with
respect to the trust are to be allocated in proportion to the asset
value of the respective funds, except where allocations of direct
expense can otherwise be fairly made. The officers of the trust,
subject to the general supervision of the Board of Trustees, have the
power to determine which expenses are allocable to a given fund, or
which are general or allocable to all of the funds. In the event of
the dissolution or liquidation of the trust, shareholders of each fund
are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be
held personally liable for the obligations of the trust. The
Declaration of Trust 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 shall include a
provision limiting the obligations created thereby to the trust and
its assets. The Declaration of Trust provides for indemnification out
of each fund's property of any shareholder held personally liable for
the obligations of the fund. The Declaration of Trust also provides
that each 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 the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the
risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value
of net asset value you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the trust or a
fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of the entire trust, the purpose
of voting on removal of one or more Trustees. The trust or any fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
trust or the fund, as determined by the current value of each
shareholder's investment in the fund or trust. If not so terminated,
the trust and the funds will continue indefinitely.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, New
York, is custodian of the assets of each fund. The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any subcustodian banks and clearing agencies. The custodian takes
no part in determining the investment policies of a fund or in
deciding which securities are purchased or sold by a fund. However, a
fund may invest in obligations of the custodian and may purchase
securities from or sell securities to the custodian. The Chase
Manhattan Bank, headquartered in New York, also may serve as special
purpose custodian of certain assets in connection with repurchase
agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts serves as the trust's independent accountant. The
auditor examines financial statements for the funds and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended April 30, 1998, and reports of the auditor, are
included in each fund's Annual Report, which are separate reports
supplied with this SAI. The funds' financial statements, including the
financial highlights, and reports of the auditor are incorporated
herein by reference. For a free additional copy of a fund's Annual
Report, contact Fidelity at 1-800-544-8888, 82 Devonshire Street,
Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, 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. Also, the maturities of mortgage-backed securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF CORPORATE BONDS
Moody's ratings for obligations with an original remaining maturity in
excess of one year fall within nine categories. They range from Aaa
(highest quality) to C (lowest quality). Moody applies numerical
modifiers of 1, 2, or 3 to each generic rating classification from Aa
through B. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
on the lower end of its generic rating category.
AAA - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect
to principal or interest.
CA - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest-rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF CORPORATE BONDS
Debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA to CCC may be modified by the addition of a plus sign (+) or minus
sign (-) to show relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating will also be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
Fidelity and Fidelity Focus are registered trademarks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
FIDELITY
SHORT-TERM BOND
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 7 The manager's review of fund
performance, strategy and
outlook.
INVESTMENT CHANGES 10 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 11 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 24 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 28 Notes to the financial
statements.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY SHORT-TERM BOND 3.56% 6.48% 25.01% 93.37%
LB 1-3 Year Govt/Corp Bond 4.53% 7.56% 33.94% 103.77%
Short Investment Grade Debt 3.27% 6.02% 29.85% 96.80%
Funds Average
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the Lehman Brothers 1-3 Year Government/Corporate Bond Index - a
market value weighted performance benchmark for government and
corporate fixed-rate debt issues with maturities between one and three
years. To measure how the fund's performance stacked up against its
peers, you can compare it to the short investment grade debt funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six
months average represents a peer group of 104 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY SHORT-TERM BOND 6.48% 4.57% 6.82%
LB 1-3 Year Govt/Corp Bond 7.56% 6.02% 7.38%
Short Investment Grade Debt 6.02% 5.36% 6.99%
Funds Average
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Short-Term Bond LB 1-3 Year Govt/Corp
00450 LB013
1988/10/31 10000.00 10000.00
1988/11/30 9965.82 9976.19
1988/12/31 9996.59 9999.11
1989/01/31 10082.78 10079.48
1989/02/28 10101.14 10081.86
1989/03/31 10131.93 10122.64
1989/04/30 10260.99 10286.95
1989/05/31 10417.00 10433.10
1989/06/30 10591.96 10625.69
1989/07/31 10724.76 10784.05
1989/08/31 10697.92 10723.02
1989/09/30 10742.20 10786.13
1989/10/31 10919.67 10954.31
1989/11/30 10994.27 11052.24
1989/12/31 11047.77 11096.00
1990/01/31 11026.43 11107.61
1990/02/28 11076.46 11166.54
1990/03/31 11117.61 11201.96
1990/04/30 11141.21 11229.94
1990/05/31 11327.54 11403.48
1990/06/30 11409.05 11524.04
1990/07/31 11541.36 11663.64
1990/08/31 11523.84 11705.02
1990/09/30 11543.75 11792.83
1990/10/31 11515.07 11914.57
1990/11/30 11575.24 12030.96
1990/12/31 11686.71 12171.75
1991/01/31 11670.55 12281.89
1991/02/28 11804.79 12370.59
1991/03/31 12034.85 12460.49
1991/04/30 12199.00 12582.53
1991/05/31 12323.41 12661.11
1991/06/30 12368.61 12708.14
1991/07/31 12467.11 12819.76
1991/08/31 12676.48 12993.60
1991/09/30 12807.58 13133.50
1991/10/31 12955.97 13274.89
1991/11/30 13090.03 13409.14
1991/12/31 13325.80 13611.85
1992/01/31 13380.50 13597.86
1992/02/29 13496.58 13641.02
1992/03/31 13589.15 13638.04
1992/04/30 13663.05 13762.76
1992/05/31 13794.62 13891.65
1992/06/30 13923.33 14033.64
1992/07/31 14088.28 14198.24
1992/08/31 14211.56 14312.84
1992/09/30 14329.00 14448.28
1992/10/31 14227.61 14361.36
1992/11/30 14214.15 14341.12
1992/12/31 14310.24 14476.56
1993/01/31 14546.15 14631.05
1993/02/28 14708.50 14750.41
1993/03/31 14799.58 14798.33
1993/04/30 14872.28 14891.20
1993/05/31 14897.81 14857.27
1993/06/30 15059.92 14969.79
1993/07/31 15147.08 15004.02
1993/08/31 15313.57 15129.63
1993/09/30 15370.25 15178.45
1993/10/31 15468.43 15213.87
1993/11/30 15499.55 15218.34
1993/12/31 15616.76 15279.95
1994/01/31 15718.50 15377.29
1994/02/28 15581.79 15284.12
1994/03/31 15284.95 15205.54
1994/04/30 15167.67 15147.79
1994/05/31 15251.56 15168.33
1994/06/30 15111.06 15208.22
1994/07/31 15224.79 15346.63
1994/08/31 15287.26 15398.42
1994/09/30 15312.08 15364.19
1994/10/31 15304.41 15399.32
1994/11/30 15327.99 15334.72
1994/12/31 14977.54 15363.89
1995/01/31 15091.89 15574.94
1995/02/28 15251.02 15790.45
1995/03/31 15348.07 15880.04
1995/04/30 15496.28 16023.81
1995/05/31 15772.44 16301.24
1995/06/30 15867.22 16389.94
1995/07/31 15911.64 16455.42
1995/08/31 16012.48 16555.14
1995/09/30 16094.97 16637.00
1995/10/31 16200.68 16775.12
1995/11/30 16340.68 16919.48
1995/12/31 16448.34 17047.77
1996/01/31 16574.48 17193.63
1996/02/29 16528.08 17128.14
1996/03/31 16490.60 17115.64
1996/04/30 16506.75 17132.91
1996/05/31 16541.28 17172.50
1996/06/30 16648.57 17298.11
1996/07/31 16719.45 17365.38
1996/08/31 16771.86 17429.38
1996/09/30 16919.00 17588.93
1996/10/31 17089.99 17787.47
1996/11/30 17219.52 17920.82
1996/12/31 17233.81 17923.80
1997/01/31 17305.87 18010.42
1997/02/28 17350.46 18055.07
1997/03/31 17323.16 18041.08
1997/04/30 17473.49 18189.02
1997/05/31 17587.65 18316.12
1997/06/30 17698.84 18443.52
1997/07/31 17895.74 18648.31
1997/08/31 17909.35 18665.87
1997/09/30 18042.77 18809.64
1997/10/31 18159.47 18945.08
1997/11/30 18188.15 18992.71
1997/12/31 18303.50 19118.02
1998/01/31 18481.93 19302.57
1998/02/28 18505.44 19321.92
1998/03/31 18580.94 19397.23
1998/04/30 18673.01 19493.38
1998/05/31 18767.70 19599.35
1998/06/30 18859.90 19700.55
1998/07/31 18954.48 19792.23
1998/08/31 19090.26 20019.94
1998/09/30 19333.59 20289.33
1998/10/30 19337.10 20289.33
IMATRL PRASUN SHR__CHT 19981031 19981104 152700 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Term Bond Fund on October 31, 1988. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $19,337 - a 93.37% increase on the initial investment.
For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index, did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $20,377 - a 103.77% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TOTAL RETURN COMPONENTS
SIX MONTHS ENDED OCTOBER 31, YEARS ENDED APRIL 30,
1998 1998 1997 1996 1995 1994
Dividend returns 2.99% 6.40% 6.55% 6.52% 6.13% 6.51%
Capital returns 0.57% 0.46% -0.69% 0.00% -3.96% -4.52%
Total returns 3.56% 6.86% 5.86% 6.52% 2.17% 1.99%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 4.16(cents) 25.56(cents) 51.90(cents)
Annualized dividend rate 5.59% 5.81% 5.95%
30-day annualized yield 4.96% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $8.77
over the past one month, $8.72 over the past six months and $8.72 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses the yield would have been 4.95%
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Volatility in overseas markets,
combined with two interest-rate cuts
by the Federal Reserve Board,
provided the backdrop for solid
gains in the bond market during the
six months that ended October 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable
investment-grade bond market -
returned 5.55% during the period.
Global market volatility, low interest
rates and a sharp decline in stock
prices sent U.S. Treasury yields -
which move in the opposite
direction of bond prices - to their
lowest levels in 30 years. Investors'
fears resulted in an extreme flight to
quality that helped Treasuries
outperform all other sectors of the
bond market. Despite signs of
strength in the U.S. economy and
the lack of inflationary pressures,
corporate and mortgage-bond
investors did not fare as well.
During the six-month period, the
Lehman Brothers Corporate Bond
Index returned 4.00%, while the
Lehman Brothers Mortgage Backed
Securities Index returned 3.68%.
Late in the period, the Group of
Seven leading industrial nations
eased global market concerns with
announcements that the
International Monetary Fund would
establish a precautionary line of
credit to help certain countries avert
financial crises. In response, equity
markets rallied and a reduced
demand for safety caused the bond
market to stumble. Despite
weakness during October, the yield
on the benchmark 30-year Treasury
closed at 5.15%.
(photograph of Andrew Dudley)
An interview with Andrew Dudley, Portfolio Manager of Fidelity
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six months that ended October 31, 1998, the fund had a
total return of 3.56%. That outperformed the 3.27% return of the short
investment grade debt funds average tracked by Lipper Analytical
Services. For the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 4.53%. For the 12 months that
ended October 31, 1998, the fund had a total return of 6.48%, while
the Lipper funds average returned 6.02% and the Lehman Brothers index
returned 7.56%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE? WHY DID THE
FUND UNDERPERFORM THE LEHMAN BROTHERS INDEX?
A. During most of the period, the performance of the Treasury market
was solid due to a widespread flight to quality from stocks and
riskier bond investments. At the same time, the broader bond market
was stricken by growing concerns of economic slowdown and a subsequent
extremely negative supply/demand environment. Essentially, rumors
began that a number of highly leveraged hedge funds were already, or
were going to be, forced sellers of certain bonds. This potential
deluge of supply created a huge dislocation in bond markets - creating
a collapse in liquidity in both corporate and mortgage securities -
pushing the yield spreads relative to Treasuries to much wider levels.
In the pursuit of high current income, the fund has historically taken
on a higher level of exposure to the non-Treasury sectors than the
Lehman Brothers 1-3 Year Government/Corporate Bond Index. Since the
fund was underweighted in government securities relative to the index,
the extreme flight to quality into Treasuries caused the fund to
underperform the Lehman Brothers index. The recent performance of much
of the short-term bond fund universe - as represented by the Lipper
peer group - suggests that many managers faced similar issues.
Q. HOW DID THE FEDERAL RESERVE BOARD'S RECENT BIAS TO EASE INTEREST
RATES AFFECT THE MARKETS?
A. The extreme flight to quality we saw earlier in the period
subsided, and investors were starting to look more closely at
valuations and credit quality. Following two interest-rate cuts by the
Fed, the market seemed to feel much better. Moreover, the Fed can now
move a bit slower as the markets have returned to more normal
liquidity conditions. Clearly, a central bank that is biased toward
easing rates is positive for bonds. While prices for corporate bonds
didn't rebound overnight, it had the effect of reassuring the markets,
allowing for new issues, improving liquidity and helping corporate
bonds to recover relative to Treasuries. While the corporate bond
market did not respond to the interest-rate cuts as dramatically as
the equity markets, corporate bonds may experience similar enthusiasm
over the longer term, which can create opportunities and benefit the
fund.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED DURING THE PERIOD?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards - accounted for
approximately 40% and 18%, respectively of the fund's investments, on
average, during the period. Asset-backed securities performed better
on average than their corporate counterparts. Most of the fund's
holdings in asset-backed securities were rated Aaa, the highest
quality, and thus suffered to a lesser extent relative to corporate
bonds. By comparison, corporate bonds suffered more severely relative
to Treasuries. There were some bright spots within our corporate
holdings that outperformed the general corporate market; namely, the
cable, telecommunications and media holdings. Mortgage securities
accounted for roughly another 17% of the fund's allocation. Similar to
corporate bonds, mortgage securities were hurt relative to U.S.
government bonds during the extreme flight to quality along with the
increasing fear of a new refinancing and prepayment wave.
Q. WHAT OTHER SECTORS CONTRIBUTED TO PERFORMANCE?
A. The remaining investments in the fund - around 25% - were mostly in
U.S. government and agency obligations. U.S. Treasuries and agency
bonds performed the best of all the bond sectors. Unfortunately, the
fund suffered relative to the index due to its underweighted position
in this sector.
Q. WHAT'S YOUR OUTLOOK?
A. I remain comfortable with our current holdings and feel that there
will be more opportunities over time. In the short term, I'm somewhat
cautious. Over the longer term, however, the non-Treasury sectors
should stabilize or rebound to the fund's benefit. Within the
corporate bond sector, I feel the best issues are going to be
less-cyclical, domestically focused businesses that have improving
credit profiles as the market will continue to focus on high-quality,
non-cyclical corporate debt in the face of global market turmoil. The
commodity-related industries like energy, precious metals and paper
most likely will continue to suffer in this volatile environment. Over
the longer term, solid companies in the media, telecommunications and
domestic regional-banking sectors could be rewarded for improving
business and credit fundamentals. There are also opportunities within
the mortgage sector.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: high current income,
consistent with preservation of
capital, by investing primarily
in investment-grade,
fixed-income securities while
maintaining an average
maturity of three years or less
FUND NUMBER: 450
TRADING SYMBOL: FSHBX
START DATE: September 15,
1986
SIZE: as of October 31, 1998,
more than $876 million
MANAGER: Andrew Dudley,
since 1997; manager, Spartan
Short-Term Bond Fund and
Fidelity Advisor Short
Fixed-Income Fund, since
1997; joined Fidelity in
1996
ANDREW DUDLEY ON THE FUND'S
BENCHMARK INDEX - THE
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX - AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"The Lehman Brothers 1-3 Year
Government/Corporate Bond
Index plays an important role in
the management of the fund. It's
the fund's benchmark index and
includes most of the universe of
investment-grade bonds with
maturities between one and three
years. I use the index as a
guideline about the structure of
the overall bond market, and
manage the fund to be generally as
sensitive to changes in interest
rates as the index. In addition, I
refer to the index when deciding
how to allocate assets among
different maturities and market
sectors - such as corporate or
government securities - based
on my view of the relative value of
each maturity or sector."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF
OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa 41.9 39.1
Aa 8.4 8.8
A 14.5 14.4
Baa 28.8 28.8
Ba and Below 1.6 4.7
Not Rated 0.9 1.4
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS.
AVERAGE YEARS TO MATURITY AS
OF OCTOBER 31, 1998
6 MONTHS AGO
Years 2.4 2.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
Years 1.8 1.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF OCTOBER 31, 1998 *
Corporate bonds 58.7%
U.S. government
and agency
obligations 16.5%
Mortgage securities 17.4%
Short-term
investments 3.9%
Other 3.5%
* FOREIGN INVESTMENTS 6.8%
Row: 1, Col: 1, Value: 58.7
Row: 1, Col: 2, Value: 16.5
Row: 1, Col: 3, Value: 17.4
Row: 1, Col: 4, Value: 3.9
Row: 1, Col: 5, Value: 3.5
AS OF APRIL 30, 1998 * *
Corporate bonds 66.0%
U.S. government
and agency
obligations 15.0%
Mortgage securities 12.0%
Short-term
investments 2.8%
Other 4.2%
* * FOREIGN INVESTMENTS 6.7%
Row: 1, Col: 1, Value: 66.0
Row: 1, Col: 2, Value: 15.0
Row: 1, Col: 3, Value: 12.0
Row: 1, Col: 4, Value: 2.8
Row: 1, Col: 5, Value: 4.2
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 40.9%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
BASIC INDUSTRIES - 1.3%
CHEMICALS & PLASTICS - 0.9%
Methanex Corp. yankee 8.875% A2 $ 8,440 $ 8,704
11/15/01
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. 7.15% Ba1 3,430 3,412
5/15/05
TOTAL BASIC INDUSTRIES 12,116
CONSTRUCTION & REAL ESTATE -
1.7%
REAL ESTATE INVESTMENT TRUSTS
- - 1.7%
Camden Property Trust 6.625% Baa2 6,600 6,521
2/15/01
CenterPoint Properties Trust Baa2 1,100 1,053
6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 Baa1 2,920 2,869
6.376% 2/15/02 Baa1 2,200 2,173
Weeks Realty LP 6.875% 3/15/05 Baa2 3,000 2,796
15,412
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp. Baa3 1,570 1,587
6.09% 11/29/99
Oryx Energy Co.:
8.125% 10/15/05 Ba1 370 397
8.375% 7/15/04 Ba1 950 1,011
2,995
FINANCE - 17.5%
BANKS - 6.9%
Banc One Corp. 6.7% 3/24/00 Aa3 3,700 3,764
Banco Latinoamericano
Exportaciones SA euro:
6.45% 9/13/99 (b) Baa2 2,880 2,938
6.9% 12/4/99 (b) Baa2 1,700 1,712
BanPonce Corp. 6.488% 3/3/00 A3 3,450 3,509
BanPonce Financial Corp.:
6.88% 6/16/00 A3 1,450 1,486
7.65% 5/3/00 A3 3,750 3,889
Barclays Bank PLC yankee A1 5,600 5,658
5.875% 7/15/00
Capital One Bank:
6.42% 11/12/99 Baa3 6,000 6,037
7.35% 6/20/00 Baa3 6,150 6,246
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
First USA Bank 6.5% 12/23/99 Aa2 $ 5,400 $ 5,468
KeyCorp. 7.45% 4/5/00 A1 3,250 3,360
NationsBank Corp. 5.75% Aa2 7,700 7,818
3/15/01
Popular, Inc. 6.4% 8/25/00 A3 2,270 2,276
Providian National Bank:
6.25% 5/7/01 Baa3 3,200 3,231
6.7% 3/15/03 Baa3 5,000 5,013
62,405
CREDIT & OTHER FINANCE - 9.5%
Abbey National PLC 6.69% Aa3 5,400 5,563
10/17/05
Aristar, Inc. 6% 8/1/01 A3 4,500 4,518
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 5,690 5,769
6.25% 5/15/01 Baa3 7,310 7,253
Chrysler Financial Corp.:
5.25% 5/4/01 A2 6,400 6,394
8.42% 2/1/99 A3 2,500 2,517
Chrysler Financial LLC 6.375% A2 5,460 5,527
1/28/00
Edison Mission Energy Funding Baa1 5,117 5,300
Corp. 6.77% 9/15/03 (b)
ERP Operating LP 6.55% A3 800 800
11/15/01
Finova Capital Corp. 6.27% Baa1 1,650 1,655
9/29/00
Ford Motor Credit Co. 5.125% A1 3,400 3,378
10/15/01
General Electric Capital Aaa 2,600 2,672
Corp. 6.01% 4/30/01
General Motors Acceptance A2 14,820 14,966
Corp. 5.85% 4/20/00
GS Escrow Corp. 6.75% 8/1/01 Ba1 5,400 5,286
(b)
Heller Financial, Inc. 6.25% A3 4,000 4,024
3/1/01
MCN Investment Corp. 5.84% Baa3 3,640 3,642
2/1/99
Money Store, Inc. 7.3% 12/1/02 A2 1,870 1,983
North American Mortgage Co. Baa2 2,250 2,247
5.8% 11/2/98
Salton Sea Funding Corp. Baa2 2,121 2,141
7.02% 5/30/00
85,635
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
SAVINGS & LOANS - 0.8%
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 $ 3,500 $ 3,496
7% 6/13/02 Baa3 3,080 3,155
6,651
SECURITIES INDUSTRY - 0.3%
Amvescap PLC yankee 6.375% A3 2,800 2,868
5/15/03
TOTAL FINANCE 157,559
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.1%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.6%
Tyco International Group SA Baa1 5,500 5,611
yankee 6.125% 6/15/01
POLLUTION CONTROL - 0.5%
WMX Technologies, Inc. 6.25% Baa3 4,435 4,481
10/15/00
TOTAL INDUSTRIAL MACHINERY & 10,092
EQUIPMENT
MEDIA & LEISURE - 6.3%
BROADCASTING - 3.4%
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 820 899
8.5% 9/15/01 Baa3 5,755 6,109
TCI Communications, Inc.:
6.375% 9/15/99 Baa3 9,675 9,761
8.25% 1/15/03 Baa3 725 801
9% 1/2/02 Ba1 2,300 2,544
Time Warner, Inc.:
7.95% 2/1/00 Baa3 8,775 9,018
7.975% 8/15/04 Baa3 1,650 1,825
30,957
ENTERTAINMENT - 2.1%
Paramount Communications, Baa3 2,620 2,741
Inc. 7.5% 1/15/02
Viacom, Inc.:
6.75% 1/15/03 Baa3 11,320 11,671
7.75% 6/1/05 Baa3 4,300 4,635
19,047
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.8%
News America Holdings, Inc. Baa3 $ 4,300 $ 4,723
8.5% 2/15/05
Time Warner Entertainment Co. Baa2 1,900 2,130
LP 9.625% 5/1/02
6,853
TOTAL MEDIA & LEISURE 56,857
NONDURABLES - 1.8%
FOODS - 0.7%
Dole Food, Inc. 6.75% 7/15/00 Baa2 6,300 6,343
TOBACCO - 1.1%
Philip Morris Companies, Inc.:
7.125% 12/1/99 A2 7,000 7,130
7.25% 9/15/01 A2 2,545 2,654
9,784
TOTAL NONDURABLES 16,127
RETAIL & WHOLESALE - 1.7%
GENERAL MERCHANDISE STORES -
1.7%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 4,870 5,043
9.75% 7/1/02 A3 2,980 3,388
10% 12/1/00 A3 2,380 2,594
Federated Department Stores, Baa2 4,380 4,679
Inc. 8.125% 10/15/02
15,704
TECHNOLOGY - 3.8%
COMPUTER SERVICES & SOFTWARE
- - 0.2%
Computer Associates Baa1 1,760 1,756
International, Inc. 6.25%
4/15/03
COMPUTERS & OFFICE EQUIPMENT
- - 3.6%
Comdisco, Inc.:
5.86% 4/7/00 Baa1 1,090 1,100
6.1% 6/5/01 Baa1 14,210 14,532
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT
- - CONTINUED
Comdisco, Inc.:
6.55% 2/4/00 Baa1 $ 12,400 $ 12,645
7.75% 9/1/99 Baa1 4,000 4,048
32,325
TOTAL TECHNOLOGY 34,081
TRANSPORTATION - 1.5%
AIR TRANSPORTATION - 0.4%
Continental Airlines, Inc. Baa1 2,500 2,506
Pass Through Trust
Certificates 7.08% 11/1/04
Delta Air Lines, Inc. 9.875% Baa3 1,150 1,218
5/15/00
3,724
RAILROADS - 1.1%
CSX Corp.:
7.05% 5/1/02 Baa2 3,850 4,007
9.5% 8/1/00 Baa2 3,200 3,407
Norfolk Southern Corp. 6.95% Baa1 2,300 2,402
5/1/02
9,816
TOTAL TRANSPORTATION 13,540
UTILITIES - 3.9%
ELECTRIC UTILITY - 2.2%
Avon Energy Partners Holdings Baa2 2,800 2,901
yankee 6.73% 12/11/02 (b)
Indiana Michigan Power Co. Baa1 5,500 5,604
6.4% 3/1/00
Niagara Mohawk Power Corp. Ba1 2,000 2,056
6.875% 3/1/01
Ohio Edison Co. 7.375% 9/15/02 Baa2 2,900 3,051
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 2,200 2,211
6.5% 5/1/03 Baa1 1,550 1,614
Texas Utilities Electric Co. Baa1 2,700 2,757
7.375% 11/1/99
20,194
GAS - 0.3%
Arkla, Inc. 8.875% 7/15/99 Baa1 2,500 2,572
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 1.4%
MCI WorldCom, Inc.:
6.125% 8/15/01 Baa2 $ 6,765 $ 6,917
8.875% 1/15/06 Baa2 1,881 2,061
9.375% 1/15/04 Baa2 3,333 3,468
12,446
TOTAL UTILITIES 35,212
TOTAL NONCONVERTIBLE BONDS 369,695
(Cost $367,511)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 16.5%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 0.9%
Government Trust Certificates Aaa 898 952
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency) Class T-3, 9.625%
5/15/02
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994-C, 6.61% 9/15/99 Aaa 142 143
Series 1995-A, 6.28% 6/15/04 Aaa 4,235 4,380
Israel Export Trust Aaa 1,398 1,455
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994-1, 6.88% 1/26/03
Private Export Funding Corp. Aaa 1,029 1,081
secured 6.86% 4/30/04
8,011
U.S. TREASURY OBLIGATIONS -
15.6%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 30,110 30,787
5.5% 3/31/00 Aaa 63,500 64,447
5.625% 11/30/99 Aaa 4,270 4,324
5.75% 10/31/00 Aaa 3,000 3,081
5.875% 2/15/00 Aaa 3,190 3,248
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. TREASURY OBLIGATIONS -
CONTINUED
U.S. Treasury Notes: -
continued
5.875% 7/31/99 Aaa $ 3,430 $ 3,465
6.25% 2/28/02 Aaa 8,220 8,685
6.875% 3/31/00 Aaa 22,600 23,359
141,396
TOTAL U.S. GOVERNMENT AND 149,407
GOVERNMENT AGENCY OBLIGATIONS
(Cost $149,339)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 8.7%
FANNIE MAE - 4.9%
6.5% 1/1/13 to 2/1/13 Aaa 16,108 16,345
6.5% 11/1/28 (c) Aaa 13,500 13,605
7% 11/1/28 (c) Aaa 12,500 12,773
11.5% 11/1/15 Aaa 1,085 1,208
43,931
FREDDIE MAC - 0.7%
7% 5/1/01 to 8/1/01 Aaa 1,874 1,893
8.5% 6/1/24 to 7/1/28 Aaa 4,480 4,670
12% 11/1/19 Aaa 273 313
6,876
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 3.1%
7.5% 9/15/22 to 8/15/28 (d) Aaa 13,542 13,946
9.5% 3/15/16 to 12/15/20 Aaa 4,316 4,658
11% 12/15/09 to 8/15/20 Aaa 5,028 5,533
11.5% 4/15/13 to 8/15/13 Aaa 1,726 1,923
12% 2/15/16 Aaa 1,597 1,795
27,855
TOTAL U.S. GOVERNMENT AGENCY 78,662
- - MORTGAGE SECURITIES
(Cost $78,732)
ASSET-BACKED SECURITIES - 17.8%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Aesop Funding II LLC 6.22% Aaa $ 4,500 $ 4,582
10/20/01 (b)
Arcadia Automobile Aaa 3,700 3,715
Receivables Trust 5.67%
1/15/04
Boatmens Auto Trust 6.35% A2 1,375 1,377
10/15/01
Capital Equipment Receivables
Trust:
6.45% 8/15/02 Aa3 5,100 5,259
6.57% 3/15/01 Aa3 2,230 2,272
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 1,770 1,765
6.15% 9/15/02 Aaa 3,907 3,931
6.45% 11/10/02 Aaa 3,000 3,081
Caterpillar Financial Asset A3 1,080 1,085
Trust 6.55% 5/25/02
Chase Manhattan Marine Owner Aaa 4,400 4,489
Trust 6.25% 4/16/07
Chevy Chase Auto Receivables
Trust:
5.97% 10/20/04 Aaa 4,620 4,654
6.2% 3/20/04 Aaa 1,929 1,946
Citibank Credit Card Master Aaa 4,100 4,158
Trust I 5.75% 1/15/03
Contimortgage Home Equity
Loan Trust:
6.26% 7/15/12 Aaa 8,800 8,800
6.3% 7/15/12 Aaa 3,300 3,321
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 2,515 2,519
6.7% 2/15/02 Aaa 836 841
CS First Boston Mortgage Aaa 2,200 2,234
Securities Corp. 7% 3/15/27
Discover Card Master Trust I A2 12,199 12,104
6.0006% 7/18/05 (e)
Fidelity Funding Auto Trust Aaa 1,024 1,043
6.99% 11/15/02 (b)
Ford Credit Auto Owner Trust A2 4,900 4,912
6.15% 9/15/02
Ford Credit Grantor Trust Aaa 2,191 2,197
5.9% 10/15/00
General Motors Acceptance Aaa 988 988
Corp. Grantor Trust 7.15%
3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 Aaa 116 116
5.8% 2/15/27 Aaa 538 538
6.1% 4/15/27 Aaa 1,956 1,957
6.45% 5/15/27 Aaa 1,388 1,391
6.5% 6/15/27 Aaa 915 915
Key Auto Finance Trust 6.65% Baa3 814 826
10/15/03
KeyCorp Auto Grantor Trust A3 87 87
5.8% 7/15/00
ASSET-BACKED SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Newcourt Equipment Trust Aaa $ 5,000 $ 4,994
Securities sequential pay
Series 1998-1 Class A3,
5.24% 12/20/02
Norwest Automobile Trust 6.3% A2 3,375 3,406
5/15/03
Olympic Automobile
Receivables Trust:
6.125% 11/15/04 Aaa 1,696 1,731
6.4% 9/15/01 Aaa 3,800 3,861
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 Aaa 5,194 5,237
6.2% 6/15/03 Aaa 2,899 2,922
Petroleum Enhanced Trust Baa2 4,923 4,917
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (b)(e)
Premier Auto Trust:
5.7% 10/6/02 Aaa 9,500 9,601
6% 5/6/00 Aaa 1,031 1,032
6.35% 7/6/00 A3 4,610 4,623
Reliance Auto Receivables Aaa 1,222 1,222
Corp., Inc. 6.1% 7/15/02 (b)
SCFC Recreational Vehicle Aaa 223 221
Loan Trust 7.25% 9/15/06
Sears Credit Account Master Aaa 3,800 3,870
Trust II 6.2% 2/16/06
TMS Auto Grantor Trust 5.9% Aaa 479 481
9/15/02
Tranex Auto Receivables Owner Aaa 2,550 2,586
Trust 6.334% 8/15/03 (b)
UFSB Grantor Trust 8.2% Baa2 221 221
1/10/01
Union Acceptance Corp. 7.075% Baa2 354 355
7/10/02
Western Financial Grantor Aaa 1,899 1,928
Trust 5.875% 3/1/02
WFS Financial Owner Trust:
6.4% 7/20/02 Aaa 6,840 7,069
6.9% 12/20/03 Aaa 5,020 5,227
7.05% 11/20/03 Aaa 7,410 7,716
TOTAL ASSET-BACKED SECURITIES 160,323
(Cost $158,542)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.7%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
PRIVATE SPONSOR - 1.0%
GE Capital Mortgage Services, Aaa $ 2,155 $ 2,163
Inc. planned amortization
class Series 1994-2 Class
A-4, 6% 1/25/09
Residential Funding Mortgage Aa1 6,730 6,797
Securities I, Inc. planned
amortization class Series
1994-S12 Class A-2, 6.5%
4/25/09
8,960
U.S. GOVERNMENT AGENCY - 0.7%
Fannie Mae ACES sequential Aaa 5,852 5,973
pay Series 1995 - M1 Class
A, 6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE 14,933
OBLIGATIONS
(Cost $14,778)
COMMERCIAL MORTGAGE
SECURITIES - 7.0%
Allied Capital Commercial Aaa 4,141 4,134
Mortgage Trust sequential
pay Series 1998-1 Class A,
6.31% 1/25/28 (b)
Bankers Trust Remic Trust Baa2 6,715 6,558
1988-1 floater Series
1998-S1A Class D, 6.5023%
11/28/02 (b)(e)
BKB Commercial Mortgage Trust AA 1,516 1,512
Series 1997 C1, Class B,
7.218% 2/25/43 (b)(e)
CBM Funding Corp. sequential
pay Series 1996-1:
Class A 1, 7.55% 7/1/99 AA 144 144
Class A-2, 6.88% 7/1/02 AA 2,170 2,227
CS First Boston Mortgage
Securities Corp.:
sequential pay Series - 6,604 6,612
1997-SPICE Class A, 6.653%
8/20/36 (b)
Series 1998 FLI Class E, Baa2 6,500 6,319
6.1938% 1/10/13 (b)(e)
DLJ Commercial Mortgage Corp. A2 2,740 2,726
floater Series 1998-STFA
Class A-3, 6.0075% 1/8/11
(b)(e)
Equitable Life Assurance
Society of the United States
(The):
floater Series 174 Class D-2, Baa2 2,300 2,258
6.7063% 5/15/03 (b)(e)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Equitable Life Assurance
Society of the United States
(The): - continued
sequential pay Series 174 Aaa $ 2,500 $ 2,673
Class A1, 7.24% 5/15/06 (b)
Federal Deposit Insurance
Corp. Remic Trust:
sequential pay Series 1994-C1 Aaa 1,060 1,061
Class II-A2, 7.85% 9/25/25
sequential pay Series 1996-C1 Aaa 4,335 4,347
Class 1A, 6.75% 7/25/26
FMAC Loan Receivables Trust Aaa 1,308 1,322
1998-C sequential pay Series
1998-C Class A1 Notes, 5.99%
9/15/20 (b)
Franchise Loan Trust 1998-1 Aaa 3,812 3,854
sequential pay Series 1998-I
Class A1 Notes, 6.24%
7/15/20 (b)
Kidder Peabody Acceptance Aa2 940 938
Corp. I sequential pay
Series 1993-M1 Class A-2,
7.15% 4/25/25
Nomura Asset Securities Corp. - 2,006 2,007
floater Series 1994-MD-II
Class A-6, 6.9095% 7/7/03 (e)
Nomura Depositor Trust Baa2 5,400 5,076
floater Series 1998-ST1A
Class A-4, 6.4898% 2/15/34
(b)(e)
Resolution Trust Corp.:
floater Series 1994-C1 Class AAA 434 434
A-3, 5.8625% 6/25/26 (e)
sequential pay Series 1995 Aaa 2,925 2,921
C-1 Class A2C, 6.9% 2/25/27
Structured Asset Securities
Corp.:
floater Series 1998-C2A Class A3 5,218 5,205
C, 5.6494% 1/25/13 (b)(e)
Series 1996-C3 Class A, 6.75% AAA 1,078 1,073
6/25/30 (b)(e)
TOTAL COMMERCIAL MORTGAGE 63,401
SECURITIES
(Cost $64,052)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 0.9%
Ontario Province:
euro:
global 6.125% 6/28/00 (f) Aa3 2,700 2,760
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Ontario Province: - continued
8.5% 2/28/01 (f) Aa3 $ 2,500 $ 2,675
5.75% 11/7/00 (f) Aa3 2,740 2,770
TOTAL FOREIGN GOVERNMENT AND 8,205
GOVERNMENT AGENCY OBLIGATIONS
(Cost $8,126)
SUPRANATIONAL OBLIGATIONS -
1.8%
African Development Bank:
7.75% 12/15/01 Aa1 5,090 5,437
9.3% 7/1/00 Aa1 10,270 10,896
TOTAL SUPRANATIONAL OBLIGATIONS 16,333
(Cost $16,396)
CERTIFICATES OF DEPOSIT - 0.8%
Canadian Imperial Bank of Aa3 6,885 6,997
Commerce, New York yankee
6.2% 8/1/00 (Cost $6,900)
CASH EQUIVALENTS - 3.9%
MATURITY AMOUNT (000S)
Investments in repurchase $ 34,873,000 34,873
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.64%,
dated 10/30/98 due 11/2/98
(Cost $34,873)
TOTAL INVESTMENT IN $ 902,829
SECURITIES - 100%
(Cost $899,249)
</TABLE>
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $81,809,000 or 9.3% of net assets.
(c) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(d) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 64.2% AAA, AA, A 60.2%
Baa 28.8% BBB 29.3%
Ba 1.6% BB 1.1%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 1%.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost
of investment securities for income tax purposes was $899,255,000. Net
unrealized appreciation aggregated $3,574,000, of which $7,184,000
related to appreciated investment securities and $3,610,000 related to
depreciated investment securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $166,788,000 of which $2,771,000, $2,248,000,
$18,091,000, $55,095,000, $74,079,000, $6,241,000 and $8,263,000 will
expire on April 30, 1999, 2000, 2002, 2003, 2004, 2005 and 2006,
respectively. Of the loss carryforwards expiring in 2000, 2002 and
2003, $2,248,000, $13,718,000, and $15,805,000, respectively, were
acquired in a merger and are available to offset future capital gains
of the fund to the extent provided by regulations.
The fund intends to elect to defer to its fiscal year ending April 30,
1999 approximately $308,000 of losses recognized during the period
November 1, 1997 to April 30, 1998.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) OCTOBER
31, 1998 (UNAUDITED)
ASSETS
Investment in securities, at $ 902,829
value (including repurchase
agreements of $34,873) (cost
$899,249) - See
accompanying schedule
Commitment to sell securities $ (13,901)
on a delayed delivery basis
Receivable for securities 13,926 25
sold on a delayed delivery
basis
Receivable for investments 8,477
sold, regular delivery
Receivable for fund shares 490
sold
Interest receivable 9,797
Other receivables 3
TOTAL ASSETS 921,621
LIABILITIES
Payable for investments 16,002
purchased Regular delivery
Delayed delivery 26,267
Payable for fund shares 2,197
redeemed
Distributions payable 465
Accrued management fee 317
Other payables and accrued 233
expenses
TOTAL LIABILITIES 45,481
NET ASSETS $ 876,140
Net Assets consist of:
Paid in capital $ 1,042,828
Distributions in excess of (3,570)
net investment income
Accumulated undistributed net (166,723)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,605
(depreciation) on investments
NET ASSETS, for 100,126 $ 876,140
shares outstanding
NET ASSET VALUE, offering $8.75
price and redemption price
per share ($876,140 (divided
by) 100,126 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED OCTOBER 31,
1998 (UNAUDITED)
INVESTMENT INCOME $ 27,473
Interest
EXPENSES
Management fee $ 1,799
Transfer agent fees 830
Accounting fees and expenses 134
Custodian fees and expenses 23
Registration fees 8
Audit 24
Legal 1
Miscellaneous 2
Total expenses before 2,821
reductions
Expense reductions (57) 2,764
NET INVESTMENT INCOME 24,709
REALIZED AND UNREALIZED GAIN 426
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 3,933
Delayed delivery commitments 25 3,958
NET GAIN (LOSS) 4,384
NET INCREASE (DECREASE) IN $ 29,093
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, YEAR ENDED APRIL 30, 1998
1998 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 24,709 $ 55,294
income
Net realized gain (loss) 426 (2,546)
Change in net unrealized 3,958 6,400
appreciation (depreciation)
NET INCREASE (DECREASE) IN 29,093 59,148
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (24,252) (54,671)
from net investment income
Share transactions Net 224,528 337,273
proceeds from sales of shares
Reinvestment of distributions 21,688 49,278
Cost of shares redeemed (183,705) (504,130)
NET INCREASE (DECREASE) IN 62,511 (117,579)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 67,352 (113,102)
IN NET ASSETS
NET ASSETS
Beginning of period 808,788 921,890
End of period (including $ 876,140 $ 808,788
distributions in excess of
net investment income of
$3,570 and $4,027,
respectively)
OTHER INFORMATION
Shares
Sold 25,696 38,753
Issued in reinvestment of 2,485 5,662
distributions
Redeemed (21,039) (57,922)
Net increase (decrease) 7,142 (13,507)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED OCTOBER 31, YEARS ENDED APRIL 30,
1998
(UNAUDITED) 1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510
period
Income from Investment .130 D .546 D .558 D .579 .344 .588
Operations Net investment
income
Net realized and un- .176 .033 (.061) (.020) (.156) (.392)
realized gain (loss)
Total from investment .306 .579 .497 .559 .188 .196
operations
Less Distributions
From net investment income (.256) (.539) (.552) (.504) (.430) (.592)
In excess of net - - - - - (.034)
investment income
Return of capital - - (.005) (.055) (.118) -
Total distributions (.256) (.539) (.557) (.559) (.548) (.626)
Net asset value, end of period $ 8.750 $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080
TOTAL RETURN B, C 3.56% 6.86% 5.86% 6.52% 2.17% 1.99%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 876 $ 809 $ 922 $ 1,048 $ 1,304 $ 1,962
millions)
Ratio of expenses to average .67% A, E .70% .70% .69% .69% .80%
net assets
Ratio of expenses to average .66% A, F .70% .70% .68% F .69% .80%
net assets after expense
reductions
Ratio of net investment 5.92% A 6.26% 6.41% 6.37% 6.37% 6.70%
income to average net assets
Portfolio turnover rate 103% A 117% 104% 151% 113% 73%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Short-Term Bond Fund (the fund) is a fund of Fidelity
Fixed-Income Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards, expiring capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal
2. OPERATING POLICIES -
CONTINUED
REPURCHASE AGREEMENTS -
CONTINUED
amount of the repurchase agreement (including accrued interest). FMR,
the fund's investment adviser, is responsible for determining that the
value of the underlying securities remains in accordance with the
market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS.
The fund may purchase or sell securities on a delayed delivery basis.
Payment and delivery may take place a month or more after the date of
the transaction. The price of the underlying securities and the date
when the securities will be delivered and paid for are fixed at the
time the transaction is negotiated. The market values of the
securities purchased or sold on a delayed delivery basis are
identified as such in the fund's schedule of investments. The fund may
receive compensation for interest forgone in the purchase of a delayed
delivery security. With respect to purchase commitments, the fund
identifies securities as segregated in its custodial records with a
value at least equal to the amount of the commitment. Losses may arise
due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $485,845,000 and $417,440,000, respectively, of which U.S.
government and government agency obligations aggregated $302,171,000
and $221,648,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus
a fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .43% of average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .20% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
Effective June 27, 1998, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of .65% of the funds
average net assets. For the period, the reimbursement reduced expenses
by $38,000.
In addition, the fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. During the period, the fund's custodian and transfer agent
fees were reduced by $7,000 and $12,000, respectively, under these
arrangements.
INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Andrew J. Dudley, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
STP-SANN-1298 66846
1.538290.101
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target TimelineSM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
FIDELITY
SHORT-TERM BOND
FUND
ANNUAL REPORT
APRIL 30, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 7 The manager's review of fund
performance, strategy and
outlook.
INVESTMENT CHANGES 10 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 11 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 22 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 26 Notes to the financial
statements.
REPORT OF INDEPENDENT 30 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 31
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
Low interest rates and subdued inflation were two main factors that
bolstered stock and bond markets in the U.S. during the first four
months of 1998. The stock market continued to soar to record heights
as corporate earnings proved to be stronger than expected and
investors shrugged off concerns about the effects of economic
difficulties in Asia. The Federal Reserve Board continued its steady
interest rate policy, which boosted the performance of bonds.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Fidelity Short-Term Bond 6.86% 25.56% 92.43%
LB 1-3 Year Govt/Corp Bond 7.17% 30.91% 101.74%
Short Investment Grade Debt 6.67% 29.13% 96.16%
Funds Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index - a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues with maturities between one and three years. To
measure how the fund's performance stacked up against its peers, you
can compare it to the short investment grade debt funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past one year average
represents a peer group of 103 mutual funds. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Fidelity Short-Term Bond 6.86% 4.66% 6.76%
LB 1-3 Year Govt/Corp Bond 7.17% 5.53% 7.27%
Short Investment Grade Debt 6.67% 5.24% 6.95%
Funds Average
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Short-Term Bond LB 1-3 Year Govt/Corp
00450 LB013
1988/04/30 10000.00 10000.00
1988/05/31 9976.83 9996.00
1988/06/30 10080.03 10096.12
1988/07/31 10088.44 10103.20
1988/08/31 10106.19 10128.77
1988/09/30 10200.21 10246.14
1988/10/31 10305.26 10349.34
1988/11/30 10270.03 10324.70
1988/12/31 10301.74 10348.42
1989/01/31 10390.56 10431.59
1989/02/28 10409.48 10434.06
1989/03/31 10441.21 10476.26
1989/04/30 10574.21 10646.31
1989/05/31 10734.99 10797.57
1989/06/30 10915.28 10996.89
1989/07/31 11052.13 11160.78
1989/08/31 11024.48 11097.62
1989/09/30 11070.11 11162.93
1989/10/31 11253.00 11336.99
1989/11/30 11329.88 11438.34
1989/12/31 11385.01 11483.63
1990/01/31 11363.02 11495.64
1990/02/28 11414.57 11556.64
1990/03/31 11456.98 11593.30
1990/04/30 11481.30 11622.25
1990/05/31 11673.32 11801.85
1990/06/30 11757.32 11926.62
1990/07/31 11893.67 12071.10
1990/08/31 11875.62 12113.92
1990/09/30 11896.13 12204.80
1990/10/31 11866.57 12330.80
1990/11/30 11928.58 12451.25
1990/12/31 12043.46 12596.96
1991/01/31 12026.80 12710.95
1991/02/28 12165.14 12802.75
1991/03/31 12402.22 12895.78
1991/04/30 12571.38 13022.09
1991/05/31 12699.59 13103.42
1991/06/30 12746.17 13152.09
1991/07/31 12847.67 13267.61
1991/08/31 13063.44 13447.52
1991/09/30 13198.54 13592.31
1991/10/31 13351.46 13738.64
1991/11/30 13489.61 13877.58
1991/12/31 13732.58 14087.37
1992/01/31 13788.94 14072.89
1992/02/29 13908.57 14117.56
1992/03/31 14003.97 14114.48
1992/04/30 14080.13 14243.55
1992/05/31 14215.71 14376.94
1992/06/30 14348.35 14523.89
1992/07/31 14518.33 14694.25
1992/08/31 14645.38 14812.85
1992/09/30 14766.40 14953.02
1992/10/31 14661.92 14863.07
1992/11/30 14648.04 14842.12
1992/12/31 14747.07 14982.29
1993/01/31 14990.18 15142.17
1993/02/28 15157.49 15265.70
1993/03/31 15251.35 15315.30
1993/04/30 15326.27 15411.42
1993/05/31 15352.58 15376.30
1993/06/30 15519.63 15492.75
1993/07/31 15609.45 15528.17
1993/08/31 15781.02 15658.17
1993/09/30 15839.44 15708.70
1993/10/31 15940.61 15745.36
1993/11/30 15972.68 15749.98
1993/12/31 16093.47 15813.75
1994/01/31 16198.32 15914.48
1994/02/28 16057.43 15818.06
1994/03/31 15751.53 15736.73
1994/04/30 15630.68 15676.97
1994/05/31 15717.12 15698.22
1994/06/30 15572.34 15739.50
1994/07/31 15689.54 15882.75
1994/08/31 15753.91 15936.35
1994/09/30 15779.49 15900.93
1994/10/31 15771.59 15937.28
1994/11/30 15795.89 15870.43
1994/12/31 15434.74 15900.62
1995/01/31 15552.58 16119.04
1995/02/28 15716.57 16342.07
1995/03/31 15816.58 16434.80
1995/04/30 15969.31 16583.59
1995/05/31 16253.90 16870.71
1995/06/30 16351.58 16962.51
1995/07/31 16397.35 17030.28
1995/08/31 16501.27 17133.48
1995/09/30 16586.28 17218.20
1995/10/31 16695.22 17361.14
1995/11/30 16839.49 17510.55
1995/12/31 16950.44 17643.33
1996/01/31 17080.42 17794.28
1996/02/29 17032.61 17726.50
1996/03/31 16993.99 17713.56
1996/04/30 17010.62 17731.43
1996/05/31 17046.21 17772.40
1996/06/30 17156.78 17902.41
1996/07/31 17229.82 17972.03
1996/08/31 17283.83 18038.26
1996/09/30 17435.46 18203.38
1996/10/31 17611.67 18408.86
1996/11/30 17745.15 18546.87
1996/12/31 17759.88 18549.95
1997/01/31 17834.15 18639.60
1997/02/28 17880.09 18685.81
1997/03/31 17851.96 18671.33
1997/04/30 18006.87 18824.44
1997/05/31 18124.52 18955.98
1997/06/30 18239.11 19087.83
1997/07/31 18442.02 19299.78
1997/08/31 18456.05 19317.95
1997/09/30 18593.53 19466.74
1997/10/31 18713.80 19606.91
1997/11/30 18743.35 19656.20
1997/12/31 18862.22 19785.90
1998/01/31 19046.10 19976.90
1998/02/28 19070.33 19996.92
1998/03/31 19148.14 20074.86
1998/04/30 19243.02 20174.36
IMATRL PRASUN SHR__CHT 19980430 19980506 133244 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Term Bond Fund on April 30, 1988. As the
chart shows, by April 30, 1998, the value of the investment would have
grown to $19,243 - a 92.43% increase on the initial investment. For
comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $20,174 - a 101.74% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
TOTAL RETURN COMPONENTS
YEARS ENDED APRIL 30,
1998 1997 1996 1995 1994
Dividend return 6.40% 6.55% 6.52% 6.13% 6.51%
Capital return 0.46% -0.69% 0.00% -3.96% -4.52%
Total return 6.86% 5.86% 6.52% 2.17% 1.99%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains paid
by the fund are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 4.31(cents) 26.34(cents) 53.91(cents)
Annualized dividend rate 6.03% 6.10% 6.20%
30-day annualized yield 5.54% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $8.70
over the past one month, $8.71 over the past six months and $8.70 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A continued lack of inflationary
pressure resulted in a favorable
investing climate for bonds during
the 12 months that ended April 30,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
gauge of the U.S. taxable bond
market - returned 10.91% during
this period. Bonds enjoyed a
strong rally from May through
September 1997 on the heels of
encouraging economic data, as
well as the Federal Reserve
Board's reluctance to raise
short-term interest rates. In the
fourth quarter of 1997, global
market volatility and historically
low interest rates were the main
stories. When financial problems
erupted in Asia in late October, the
bond market attracted wary stock
investors in search of investments
offering lower volatility. Interest
rates also plummeted, with the
30-year Treasury bond going below
the 6% mark in November. The
Lehman Brothers Corporate Bond
Index returned 12.07% during the
period, as corporate bonds
benefited from continued economic
growth and high demand for
yield. Despite increased
prepayment activity in early 1998
due to lower rates,
mortgage-backed bonds also fared
relatively well. The Lehman
Brothers Mortgage-Backed
Securities Index returned 10.02%
during the period. The period ended
on a positive note as the
Commerce Department reported
that gross domestic product grew
at a stronger-than-expected rate of
4.2% in the first quarter of 1998 and
employment costs grew at a
slower-than-expected pace -
signs of continued strong
economic growth and benign inflation.
However, the Fed tempered this
news slightly with warnings about
the rising prices of stocks and real
estate.
(photograph of Andrew Dudley)
An interview with Andrew Dudley, Portfolio Manager of Fidelity
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the 12 months that ended April 30, 1998, the fund had a total
return of 6.86%. That outperformed the 6.67% return of the short
investment grade debt funds average tracked by Lipper Analytical
Services. For the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 7.17%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG PERFORMANCE?
A. The fund benefited from maintaining overweighted positions,
relative to the index, in corporate bonds, asset-backed securities and
mortgage-backed securities. Generally, these so-called spread products
offered attractive yield spreads - or yield advantages - over
comparable Treasuries during the period.
Q. HOW WERE THE FUND'S INVESTMENTS ALLOCATED?
A. Corporate bonds, including asset-backed securities - bonds backed
by a pool of loans such as credit cards - accounted for about 66% of
the fund's investments at the end of the period. Corporate bonds
offered only neutral returns during the 12-month period after
weakening in the fourth quarter of 1997 during the economic slowdown
in Asia, and then stabilizing in the first quarter of 1998. The fund
was able to generate modest returns from its corporate position by
emphasizing its cable, media and telecommunications holdings. Growth
in these industries is much more dependent on the health of the U.S.
economy than on Asian markets. In addition, asset-backed securities
were a very stable component of the portfolio because of their high
credit quality. In fact, a majority of the fund's asset-backed
position was rated Aaa. These securities offered the fund a way to get
additional yield without taking on the credit risks associated with
many corporate bonds.
Q. WHAT ABOUT MORTGAGE-BACKED SECURITIES?
A. More than half of the fund's mortgage-backed holdings were invested
in commercial mortgage-backed securities (CMBS) - bonds that are
backed by loans on commercial property, such as office buildings or
retail malls. The market for these securities has gained considerable
acceptance among investors, leading to better returns for the issues.
Q. HOW MUCH OVERALL IMPACT DID THE ASIAN SITUATION HAVE ON THE FUND'S
PERFORMANCE?
A. Not much. The Asian situation definitely weakened the corporate
bond market, but as I said, I shielded the portfolio from many of
these ill effects by buying securities in sectors that were more
dependent on the domestic economy. In fact, the fund sold many of the
fund's corporate positions that did have exposure to Asia in October,
helping its performance versus the peer group. Longer term, I see Asia
as an opportunity. The Asian turmoil has caused volatility in the bond
market, which allows me to apply Fidelity's strong research to find
attractive securities that have been unfairly repriced in the past few
months.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
A. The yield curve was very flat at the end of the period, meaning
longer-term bonds were not offering much of a yield advantage over
short-term issues. As a result, many buyers of fixed-income securities
will try to get additional yield by buying non-Treasury securities.
Consequently, I think increased demand for these spread products will
benefit their pricing. In addition, the equity markets generated
healthy gains in the first quarter of 1998, which bodes well for
high-grade corporate bonds in the next few months. I also expect
asset-backed securities, which have high credit quality, to continue
to perform well as investors seek out defensive instruments in periods
of turmoil. Finally, opportunities in the mortgage-backed sector will
depend on the level of interest rates. These securities may
underperform other fixed-income securities in the short term if the
market rallies and prepayment - or refinancing - levels remain high.
If that's the case, I may increase the fund's position in
mortgage-backed bonds in anticipation of a rebound and outperformance
in the long term.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: high current income,
consistent with preservation
of capital, by investing
primarily in investment-grade,
fixed-income securities while
maintaining an average
maturity of three years or less
FUND NUMBER: 450
TRADING SYMBOL: FSHBX
START DATE: September 15,
1986
SIZE: as of April 30, 1998,
more than $808 million
MANAGER: Andrew Dudley,
since 1997; manager, Spartan
Short-Term Bond Fund and
Fidelity Advisor Short
Fixed-Income Fund, since
1997; joined Fidelity in
1996
ANDREW DUDLEY ON THE FLAT
YIELD CURVE:
"The yield curve is defined as the
yield difference between shorter-
and longer-maturity Treasuries.
Historically, the yield curve has
been positive - or upward
sloping - with shorter-maturity
Treasuries yielding less than
longer-maturity Treasuries. While
the curve remained positive at the
end of the period, the difference
between the yields offered by
short- and long-term Treasuries
has fallen - or flattened - to a
level that is low by historical
standards. At the end of April, the
difference in yield between the
two-year and the 30-year Treasury
was about 0.39%. The strength of
the economy, current and future
expected levels of inflation and
near-term expectations regarding
the Federal Reserve Board's
monetary policy can all affect the
shape of the yield curve. Over the
past six months, Fed policy was
expected to remain neutral and
long-term inflation was pegged at
about 1.5% to 2.0% - the perfect
environment for longer rates to
decline relative to shorter rates.
Consequently, the yield curve has
flattened."
(solid bullet) Effective June 27, 1998, FMR
has voluntarily agreed to
reimburse the fund if total
operating expenses (excluding
interest, taxes, brokerage
commissions and extraordinary
expenses) exceed 0.65% of its
average net assets.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF APRIL 30, 1998
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa 39.1 41.5
Aa 8.8 7.6
A 14.4 15.8
Baa 28.8 25.2
Ba 4.7 7.8
Not Rated 1.4 0.8
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING
AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF
ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS OF APRIL 30, 1998
6 MONTHS AGO
Years 2.4 2.2
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF APRIL 30, 1998
6 MONTHS AGO
Years 1.8 1.7
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1998 *
Corporate bonds 66.0%
U.S. government
and agency
obligations 15.0%
Mortgage-backed
securities 12.0%
Short-term
investments 2.8%
Other 4.2%
* FOREIGN
INVESTMENTS 6.7%
Row: 1, Col: 5, Value: 66.0
Row: 1, Col: 4, Value: 15.0
Row: 1, Col: 3, Value: 12.0
Row: 1, Col: 2, Value: 2.8
Row: 1, Col: 1, Value: 4.2
AS OF OCTOBER 31, 1997 **
Corporate bonds 67.9%
U.S. government
and agency
obligations 21.5%
Mortgage-backed
securities 6.6%
Short-term
investments 1.3%
Other 2.7%
** FOREIGN
INVESTMENTS 1.6%
Row: 1, Col: 5, Value: 67.90000000000001
Row: 1, Col: 4, Value: 21.5
Row: 1, Col: 3, Value: 6.6
Row: 1, Col: 2, Value: 1.3
Row: 1, Col: 1, Value: 2.7
INVESTMENTS APRIL 30, 1998
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCONVERTIBLE BONDS - 66.0%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 8,440 $ 8,821
CONSTRUCTION & REAL ESTATE - 0.9%
REAL ESTATE INVESTMENT TRUSTS - 0.9%
Centerpoint Properties Trust 6 3/4%, 4/1/05 Baa 1,100 1,090
EOP Operating LP 6 3/8%, 2/15/03 (c) Baa 3,550 3,533
Weeks Realty LP 6 7/8%, 3/15/05 Baa 3,000 2,980
7,603
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A2 2,990 3,237
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa 1,570 1,572
USX Corp. 6 3/8%, 7/15/98 Baa 490 491
2,063
FINANCE - 39.5%
ASSET-BACKED SECURITIES - 20.3%
Aesop Funding II LLC 6.22%, 10/20/01 (c) Aaa 4,500 4,517
Associates Manufactured Housing Contract
Pass-Through Certificates 7%, 3/15/27 Aaa 2,200 2,239
Capital Equipment Receivables Trust:
6.57%, 3/15/01 Aa3 2,230 2,259
6.45%, 8/15/02 Aa3 5,100 5,121
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 6,743 6,756
6.45%, 9/15/02 A3 3,000 3,014
5.85%, 2/15/03 A3 1,770 1,770
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 1,246 1,257
Chase Manhattan Corp. 6.45%, 3/29/01 Aaa 4,400 4,428
Chevy Chase Auto Receivables Trust:
6.20%, 3/20/04 Aaa 2,429 2,434
5.97%,10/20/04 Aaa 5,475 5,463
Citibank Credit Card Master Trust I
5 3/4%, 1/15/03 Aaa 4,100 4,079
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Contimortgage Home Equity Loan Trust:
6.26%, 7/15/12 Aaa $ 8,800 $ 8,808
6.30%, 7/15/12 Aaa 3,300 3,302
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 1,131 1,140
Discover Card Trust 7 1/2%, 6/16/00 A2 1,650 1,650
Fidelity Funding Auto Trust 6.99%,
11/15/02 (c) Aaa 1,258 1,267
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 3,388 3,391
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 1,837 1,841
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 391 390
5.80%, 2/15/27 Aaa 3,083 3,083
6.10%, 4/15/27 Aaa 3,546 3,549
6.45%, 5/15/27 Aaa 2,780 2,786
6 1/2%, 6/15/27 Aaa 2,170 2,175
6.65%, 7/15/27 Aaa 1,726 1,728
Key Auto Finance Trust Class C 6.65%,
10/15/03 Baa 940 941
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 166 166
Norwest Automobile Trust 6.30%, 5/15/03 A2 3,375 3,386
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 3,800 3,793
6 1/8%, 11/15/04 Aaa 2,131 2,162
Onyx Acceptance Grantor Trust:
6.20%, 6/15/03 Aaa 3,888 3,902
5.95%, 7/15/04 Aaa 6,251 6,249
Petroleum Enhanced Trust
Receivables Offering
Petroleum Trust 6.1875%, 2/5/03 (c) Baa 5,648 5,648
Premier Auto Trust:
4.95%, 2/2/99 A2 42 42
6%, 5/6/00 Aaa 2,584 2,586
6.35%, 7/6/00 A3 4,610 4,624
5.70%, 10/6/02 Aaa 9,500 9,438
Reliance Auto Receivables Corp., Inc.
6.10%, 7/15/02 (c) Aaa 1,971 1,971
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 271 271
Standard Credit Card Master Trust I
6 3/4%, 6/7/00 Aaa 10,700 10,710
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa $ 717 $ 717
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa 339 339
Tranex Auto Receivables Owner Trust
6.33%, 8/15/03 (c) Aaa 3,056 3,067
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa 280 281
7.275%, 10/10/00 Baa 313 313
8.20%, 1/10/01 Baa 322 322
Western Financial Grantor Trust
5 7/8%, 3/1/02 Aaa 2,697 2,735
WFS Financial Owner Trust:
6.40%, 10/20/00 Aaa 8,380 8,419
7.05%, 11/20/03 Aaa 7,410 7,621
6.90%, 12/20/03 Aaa 5,020 5,163
163,313
BANKS - 8.0%
Banc One Corp. 6.70%, 3/24/00 Aa3 3,700 3,741
Banco Latinoamericano Exportaciones SA euro:
6.45%, 09/13/99 (c) Baa 2,880 2,876
6.90%, 12/6/99 (c) Baa 1,700 1,721
BanPonce Financial Corp.:
7.65%, 5/3/00 A3 2,790 2,850
6.88%, 6/16/00 A3 1,450 1,469
BanPonce Corp.:
6.378%, 4/8/99 A3 2,580 2,584
6.488%, 3/3/00 A3 2,300 2,314
Capital One Bank:
6.42%, 11/12/99 Baa 6,000 6,020
6 3/8%, 2/15/03 Baa 3,720 3,693
First Chicago Corp. 9 7/8%, 7/1/99 A2 1,526 1,591
First Fidelity Bancorp. 9 5/8%, 8/15/99 A2 2,200 2,294
First USA Bank 6 1/2%, 12/23/99 Aa2 5,400 5,440
Kansallis-Osake-Pankki (NY Branch) yankee
9 3/4%, 12/15/98 A3 2,220 2,267
KeyCorp. 7.45%, 4/5/00 A1 3,250 3,324
Mellon Financial Co. 6.30%, 6/1/00 A2 1,000 1,004
NationsBank Corp. 5 3/4%, 3/15/01 Aa3 7,700 7,650
Popular, Inc. 6.40%, 8/25/00 A3 2,270 2,279
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Providian National Bank 6.70%, 3/15/03 Baa $ 5,000 $ 4,979
Union Planters National Bank 6.53%, 8/20/99 A3 5,820 5,855
63,951
CREDIT & OTHER FINANCE - 10.4%
Aristar, Inc. 7 1/2%, 7/1/99 Baa 5,730 5,826
Associates Corp. of North America
6 3/8%, 8/15/99 Aa3 3,300 3,317
AT&T Capital Corp.:
6.65%, 4/30/99 Baa 7,310 7,336
6.16%, 12/3/99 Baa 5,690 5,690
Boatmens Auto Trust 6.35%, 10/15/01 A2 1,375 1,380
Chrysler Financial Corp.:
8.42%, 2/1/99 A3 2,500 2,542
6 3/8%, 1/28/00 A2 5,460 5,493
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa 5,539 5,605
Finova Capital Corp. 6.27%, 9/29/00 Baa 1,650 1,651
General Electric Capital Corp.
6.01%, 4/30/01 Aaa 2,600 2,603
General Motors Acceptance Corp.
5.85%, 4/20/00 A2 21,880 21,739
Heller Financial, Inc. 6 1/4%, 3/1/01 A3 4,000 3,996
MCN Investment Corp. 5.84%, 2/1/99 Baa 3,640 3,630
Money Store, Inc. 7.30%, 12/1/02 Ba2 1,870 1,941
North American Mortgage Co. 5.80%, 11/2/98 Baa 2,250 2,246
Salton Sea Funding Corp. 7.02%, 5/30/00 Baa 3,327 3,355
Union Acceptance Corp. 7.075%, 7/10/02 Baa 489 492
U.S. West Capital Funding, Inc.
6.85%, 1/15/02 Baa 4,785 4,875
83,717
SAVINGS & LOANS - 0.6%
Long Island Savings Bank:
6.20%, 4/2/01 Baa 1,900 1,892
7%, 6/13/02 Baa 3,080 3,157
5,049
SECURITIES INDUSTRY - 0.2%
Amvescap PLC yankee 6 3/8%, 5/15/03 (c) A3 1,500 1,497
TOTAL FINANCE 317,527
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
HOLDING COMPANIES - 0.3%
Norfolk Southern Corp. 6.95%, 5/1/02 Baa $ 2,300 $ 2,363
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
POLLUTION CONTROL - 0.6%
WMX Technologies, Inc. 6 1/4%, 10/15/00 Baa 4,435 4,430
MEDIA & LEISURE - 7.9%
BROADCASTING - 5.7%
Continental Cablevision, Inc.:
8 1/2%, 9/15/01 Baa 5,755 6,112
8.30%, 5/15/06 Baa 820 903
TCI Communications, Inc.:
6 3/8%, 9/15/99 Baa 9,675 9,704
7 3/8%, 2/15/00 Baa 6,005 6,127
Tele Communications, Inc. 9%, 1/2/02 Ba1 2,300 2,484
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 13,775 14,152
7 3/4%, 6/15/05 Ba1 6,100 6,468
45,950
ENTERTAINMENT - 1.5%
Paramount Communications, Inc.:
5 7/8%, 7/15/00 Ba2 3,420 3,360
7 1/2%, 1/15/02 Ba2 1,570 1,608
Viacom, Inc.:
6 3/4%, 1/15/03 Ba2 4,595 4,606
7 3/4%, 6/1/05 Ba2 2,265 2,388
11,962
PUBLISHING - 0.7%
News America Holdings, Inc. 8 5/8%, 2/1/03 Baa 5,450 5,930
TOTAL MEDIA & LEISURE 63,842
NONDURABLES - 2.2%
FOODS - 0.8%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa 6,300 6,348
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
NONDURABLES - CONTINUED
TOBACCO - 1.4%
Philip Morris Companies, Inc.:
7 1/8%, 12/1/99 A2 $ 7,000 $ 7,107
7 1/4%, 9/15/01 A2 4,300 4,418
11,525
TOTAL NONDURABLES 17,873
RETAIL & WHOLESALE - 3.3%
GENERAL MERCHANDISE STORES - 3.3%
Dayton Hudson Corp.:
10%, 12/1/00 Baa 2,380 2,596
6.80%, 10/1/01 Baa 4,870 4,957
9 3/4%, 7/1/02 Baa 2,980 3,347
Federated Department Stores, Inc.:
10%, 2/15/01 Baa 6,530 7,130
8 1/8%, 10/15/02 Baa 4,380 4,654
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 3,400 3,455
26,139
TECHNOLOGY - 4.2%
COMPUTER SERVICES & SOFTWARE - 0.2%
Computer Associates International, Inc.
6 1/4%, 4/15/03 (c) Baa 1,760 1,754
COMPUTERS & OFFICE EQUIPMENT - 4.0%
Comdisco, Inc.:
6 1/2%, 4/30/99 Baa 6,000 6,027
6.86%, 7/29/99 Baa 8,210 8,288
7 3/4%, 9/1/99 Baa 4,000 4,086
6.55%, 2/4/00 Baa 12,400 12,510
5.86%, 4/7/00 Baa 1,090 1,081
31,992
TOTAL TECHNOLOGY 33,746
TRANSPORTATION - 0.5%
RAILROADS - 0.5%
CSX Corp. 7.05%, 5/1/02 Baa 3,850 3,937
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
UTILITIES - 4.8%
CELLULAR - 0.1%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 $ 650 $ 671
ELECTRIC UTILITY - 2.0%
Avon Energy Partners Holdings
6.73%, 12/11/02 (c) Baa 2,800 2,833
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa 5,500 5,525
Ohio Edison Co. 7 3/8%, 9/15/02 Baa 2,900 3,002
Philadelphia Electric Co. 5 5/8%, 11/1/01 Baa 2,200 2,160
Texas Utilities Electric Co. 7 3/8%, 11/1/99 Baa 2,700 2,749
16,269
GAS - 0.3%
Arkla, Inc. 8 7/8%, 7/15/99 Baa 2,500 2,583
TELEPHONE SERVICES - 2.4%
Cable & Wireless Communications PLC
6 3/8%, 3/6/03 Baa 3,760 3,761
MCI Communications Corp. 7 1/2%, 8/20/04 Baa 4,300 4,536
Teleport Communications Group, Inc.:
9 7/8%, 7/1/06 Baa 1,800 2,048
0%, 7/1/07 (b) Baa 3,340 2,872
WorldCom, Inc.:
9 3/8%, 1/15/04 Baa 3,333 3,538
8 7/8%, 1/15/06 Baa 1,881 2,050
18,805
TOTAL UTILITIES 38,328
TOTAL NONCONVERTIBLE BONDS
(Cost $526,991) 529,909
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 15.0%
U.S. TREASURY OBLIGATIONS - 11.7%
6 3/8%, 7/15/99 Aaa 80,735 81,482
5 5/8%, 11/30/99 Aaa 8,270 8,274
6 7/8%, 3/31/00 Aaa 4,200 4,296
94,052
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.3%
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class T-3, 9 5/8%, 5/15/02 Aaa $ 1,055 $ 1,111
Class 1-C, 9 1/4%, 11/15/01 Aaa 16,878 17,850
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994-C, 6.61%, 9/15/99 Aaa 245 246
Series 1995-A, 6.28%, 6/15/04 Aaa 4,588 4,631
Israel Export Trust Certificates
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank) Series 1994-1,
6.88%, 1/26/03 Aaa 1,553 1,587
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,029 1,057
26,482
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $120,749) 120,534
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 4.8%
FANNIE MAE - 2.3%
6 1/2%, 1/1/13 to 2/1/13 Aaa 17,054 17,113
11 1/2%, 11/1/15 Aaa 1,222 1,376
18,489
FREDDIE MAC - 0.4%
7%, 5/1/01 to 8/1/01 Aaa 2,544 2,575
12%, 11/1/19 Aaa 317 365
2,940
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.1%
9 1/2%, 3/15/16 to 12/15/20 Aaa 5,382 5,844
11%, 12/15/09 to 8/15/20 Aaa 5,949 6,654
11 1/2%, 4/15/13 to 8/15/13 Aaa 1,952 2,221
12%, 2/15/16 Aaa 1,929 2,231
16,950
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $41,268) 38,379
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
PRIVATE SPONSOR - 0.3%
GE Capital Mortgage Services, Inc. planned
mortization class Series 1994-2 Class A-4,
6%, 1/25/09 (Cost $2,269) Aaa $ 2,320 $ 2,309
COMMERCIAL MORTGAGE SECURITIES - 6.9%
Allied Capital Commercial Mortgage Trust
sequential pay Series 1998-1 Class A, 6.31%,
5/25/03 (c) Aaa 5,619 5,559
Bankers Trust Remic Trust 1988-1 floater
Series 1998-S1A Class D, 6.5375%,
11/28/02 (c)(d) Baa 6,715 6,689
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 2/25/43 (c)(d) AA 5,090 5,081
Blackrock Capital Funding LLC Series 1996
Class C2, 6.5375%, 11/16/26 (c)(d) Aaa 216 216
CBM Funding Corp. sequential pay Series 1996-1:
Class A-1, 7.55%, 7/1/99 AA 244 247
Class A-2, 6.88%, 7/1/02 AA 2,170 2,202
CS First Boston Mortgage Securities Corp.
sequential pay Series 1997-SPICE Class A,
6.653%, 6/20/03 (c) - 8,766 8,790
DLJ Commercial Mortgage Corp. floater
Series 1998-STFA Class A-3, 7.2263%,
12/8/00 (c)(d) A2 2,740 2,740
Equitable Life Assurance Society of the United
States floater Series 174 Class D-2, 6.7063%,
5/15/03 (c)(d) Baa 2,300 2,299
Federal Deposit Insurance Corp. Series 1996-C1:
Class 1A, 6.75%, 5/25/26 Aaa 5,711 5,720
Class II-A2, 7.85%, 9/25/25 Aaa 1,830 1,842
Kidder Peabody Acceptance Corp. sequential
pay, Series 1993-M1 Class A-2, 7.15%,
4/25/25 Aa2 1,441 1,426
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6, 6.9175%
7/4/03 (d) - 2,808 2,815
Oregon Commercial Mortgage, Inc.
Series 1995-1 Class A, 7.15%, 6/25/26 (c)(d) AAA 1,084 1,082
Resolution Trust Corp. floater:
Series 1993-C2 Class A-2, 6.2375%
3/25/25 (d) Aaa 303 303
Series 1994-C1 Class A-3, 6.2375%,
6/25/26 (d) Aaa 1,558 1,560
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
Structured Asset Securities Corp.:
Series 1996-C3 Class A, 6 3/4%,
6/25/30 (c) AAA $ 1,838 $ 1,846
Series 1998-C2A Class C, 6.0865%,
1/25/13 (d) AAA 5,400 5,398
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $55,893) 55,815
FOREIGN GOVERNMENT OBLIGATIONS (E) - 1.0%
Ontario Province:
6 1/8%, 6/28/00 Aa3 2,700 2,705
5 3/4%, 11/7/00 Aa3 2,740 2,724
8 1/2%, 2/28/01 Aa3 2,500 2,653
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $8,125) 8,082
SUPRANATIONAL OBLIGATIONS - 2.0%
African Development Bank:
9.30%, 7/1/00 Aa1 10,270 10,939
7 3/4%, 12/15/01 Aa1 5,090 5,355
TOTAL SUPRANATIONAL OBLIGATIONS
(Cost $16,396) 16,294
CERTIFICATES OF DEPOSIT - 1.2%
Canadian Imperial Bank of Commerce
NY Branch yankee 6.20%, 8/1/00
(Cost $9,821) Aa3 9,800 9,837
CASH EQUIVALENTS - 2.8%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.50%, dated
4/30/98 due 5/1/98 (Cost $22,717) $ 22,720 22,717
TOTAL INVESTMENT IN SECURITIES - 100.0%
(Cost $804,229) $ 803,876
</TABLE>
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(c) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$70,591,000 or 8.7% of net assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows (ratings are
unaudited):
<TABLE>
<CAPTION>
<S> <C>
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 60.7% AAA, AA, A 58.2%
Baa 28.8% BBB 32.5%
Ba 4.7% BB 1.5%
B 0.0% B 0.6%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
</TABLE>
For some foreign government obligations, FMR has assigned the ratings
of the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 1.4%.
INCOME TAX INFORMATION
At April 30, 1998, the aggregate cost of investment securities for
income tax purposes was $804,254,000. Net unrealized depreciation
aggregated $378,000, of which $2,521,000 related to appreciated
investment securities and $2,899,000 related to depreciated investment
securities.
The fund intends to elect to defer to its fiscal year ending April 30,
1999 approximately $308,000 of losses recognized during the period
November 1, 1997 to April 30, 1998.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $166,788,000 of which $2,771,000, $2,248,000,
$18,091,000, $55,095,000, $74,079,000, $6,241,000, and $8,263,000 will
expire on April 30, 1999, 2000, 2002, 2003, 2004, 2005, and 2006,
respectively. Of the loss carryforwards expiring in 2000, 2002, and
2003, $2,248,000, $13,718,000, and $15,805,000, respectively, were
acquired in the merger and are available to offset future capital
gains of the fund to the extent provided by regulations (see Note 6 of
Notes to Financial Statements).
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) APRIL 30,
1998
ASSETS
Investment in securities, at $ 803,876
value (including repurchase
agreements of $22,717) (cost
$804,229) - See
accompanying schedule
Cash 2,597
Receivable for investments 83,046
sold
Receivable for fund shares 408
sold
Interest receivable 10,541
Other receivables 12
TOTAL ASSETS 900,480
LIABILITIES
Payable for investments $ 89,326
purchased
Payable for fund shares 1,429
redeemed
Distributions payable 388
Accrued management fee 294
Other payables and accrued 255
expenses
TOTAL LIABILITIES 91,692
NET ASSETS $ 808,788
Net Assets consist of:
Paid in capital $ 980,317
Distributions in excess of (4,027)
net investment income
Accumulated undistributed net (167,149)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (353)
(depreciation) on investments
NET ASSETS, for 92,984 shares $ 808,788
outstanding
NET ASSET VALUE, offering $8.70
price and redemption price
per share ($808,788 (divided
by) 92,984 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR
ENDED
APRIL 30, 1998
INVESTMENT INCOME $ 61,470
Interest
EXPENSES
Management fee $ 3,862
Transfer agent fees 1,885
Accounting fees and expenses 283
Non-interested trustees' 18
compensation
Custodian fees and expenses 44
Registration fees 37
Audit 69
Legal 12
Miscellaneous 6
Total expenses before 6,216
reductions
Expense reductions (40) 6,176
NET INVESTMENT INCOME 55,294
REALIZED AND UNREALIZED GAIN (2,546)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized 6,400
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 3,854
NET INCREASE (DECREASE) IN $ 59,148
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED APRIL 30, 1998 YEAR ENDED APRIL 30, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 55,294 $ 63,210
income
Net realized gain (loss) (2,546) (10,878)
Change in net unrealized 6,400 3,881
appreciation (depreciation)
NET INCREASE (DECREASE) IN 59,148 56,213
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (54,671) (62,498)
From net investment income
Return of capital - (536)
TOTAL DISTRIBUTIONS (54,671) (63,034)
Share transactions Net 337,273 305,603
proceeds from sales of shares
Net asset value of shares - 86,310
issued in exchange for the
net assets of Fidelity
Short-Term World Bond Fund
Reinvestment of distributions 49,278 56,510
Cost of shares redeemed (504,130) (568,209)
NET INCREASE (DECREASE) IN (117,579) (119,786)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) (113,102) (126,607)
IN NET ASSETS
NET ASSETS
Beginning of period 921,890 1,048,497
End of period (including $ 808,788 $ 921,890
distributions in excess of
net investment income of
$4,027 and $4,781,
respectively)
OTHER INFORMATION
Shares
Sold 38,753 35,124
Issued in exchange for the - 9,875
shares of Fidelity
Short-Term World Bond Fund
Issued in reinvestment of 5,662 6,498
distributions
Redeemed (57,922) (65,293)
Net increase (decrease) (13,507) (13,796)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED APRIL 30,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510
of period
Income from Investment .546 B .558 B .579 .344 .588
Operations Net investment
income
Net realized and .033 (.061) (.020) (.156) (.392)
unrealized gain (loss)
Total from investment .579 .497 .559 .188 .196
operations
Less Distributions
From net investment income (.539) (.552) (.504) (.430) (.592)
In excess of net investment - - - - (.034)
income
Return of capital - (.005) (.055) (.118) -
Total distributions (.539) (.557) (.559) (.548) (.626)
Net asset value, end of period $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080
TOTAL RETURN A 6.86% 5.86% 6.52% 2.17% 1.99%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 809 $ 922 $ 1,048 $ 1,304 $ 1,962
(in millions)
Ratio of expenses to average .70% .70% .69% .69% .80%
net assets
Ratio of expenses to average .70% .70% .68% C .69% .80%
net assets after expense
reductions
Ratio of net investment 6.26% 6.41% 6.37% 6.37% 6.70%
income to average net assets
Portfolio turnover rate 117% 104% D 151% 113% 73%
</TABLE>
G THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
I FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
J THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Short-Term Bond Fund (the fund) is a fund of Fidelity
Fixed-Income Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
monthly from net investment income. Distributions from realized gains,
if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards, expiring capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
For the period ended April 30, 1997 the fund's distributions exceeded
the aggregate amount of taxable income and net realized gains
resulting in a return of capital. This was due to certain foreign
currency losses which decreased taxable income available for
distribution after certain distributions had been made.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
remains in accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $995,740,000 and $1,118,388,000, respectively, of which
U.S. government and government agency obligations aggregated
$538,854,000 and $605,330,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .21% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$9,000 and $31,000, respectively, under these arrangements.
Effective June 27, 1998, FMR voluntarily agrees to reimburse the
fund's operating
5. EXPENSE REDUCTIONS -
CONTINUED
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of .65% of average net
assets.
6. MERGER INFORMATION.
On October 31, 1996, the fund acquired all of the assets and assumed
all of the liabilities of Fidelity Short-Term World Bond Fund. The
acquisition, which was approved by the shareholders of Fidelity
Short-Term World Bond Fund on October 11, 1996, was accomplished by an
exchange of 9,875,000 shares of the fund for the 9,626,000 shares then
outstanding (each valued at $8.97) of Fidelity Short-Term World Bond
Fund. Based on the opinion of fund counsel, the reorganization
qualified as a tax-free reorganization for federal income tax purposes
with no gain or loss recognized to the funds or their shareholders.
Fidelity Short-Term World Bond Fund's net assets, including $190,000
of unrealized depreciation, were combined with the fund for total net
assets after the acquisition of $1,009,513,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Fixed-Income Trust and the Shareholders of
Fidelity Short-Term Bond Fund:
We have audited the accompanying statement of assets and liabilities
of Fidelity Fixed-Income Trust: Fidelity Short-Term Bond Fund,
including the schedule of portfolio investments, as of April 30, 1998,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five
years in the period then ended. These financial statements and
financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of April 30, 1998 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Fixed-Income Trust: Fidelity Short-Term
Bond Fund as of April 30, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 18, 1998
DISTRIBUTIONS
A total of 17.54% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
STP-ANN-0698 55623
703606
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Securities
Intermediate Bond
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity Government
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline(trademark) 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
SUPPLEMENT TO THE SPARTAN(registered trademark) SHORT-TERM BOND FUND
AND SPARTAN INVESTMENT GRADE BOND FUND NOVEMBER 24,1998 PROSPECTUS
The following information replaces the first sentence in the "Who May
Want to Invest" section on page 4.
PROPOSED REORGANIZATION. The Board of Trustees of Spartan Short-Term
Bond Fund has unanimously approved an Agreement and Plan of
Reorganization ("Agreement") between Spartan Short-Term Bond Fund and
Fidelity Short-Term Bond Fund.
The Agreement provides for the transfer of all of the assets and the
assumption of all of the liabilities of Spartan Short-Term Bond Fund
solely in exchange for the number of shares of Fidelity Short-Term
Bond Fund equal in value to the relative net asset value of the
outstanding shares of Spartan Short-Term Bond Fund. Following such
exchange, Spartan Short-Term Bond Fund will distribute the Fidelity
Short-Term Bond Fund shares to its shareholders pro rata, in
liquidation of Spartan Short-Term Bond Fund as provided in the
Agreement (the transactions contemplated by the Agreement referred to
as the "Reorganization"). The Reorganization can be consummated only
if, among other things, it is approved by a majority vote of
shareholders. A Special Meeting (the "Meeting") of the Shareholders of
Spartan Short-Term Bond Fund will be held on June 16, 1999, and
approval of the Agreement will be voted on at that time. In connection
with the Meeting, Spartan Short-Term Bond Fund will be filing with the
Securities and Exchange Commission and delivering to its shareholders
of record a Proxy Statement describing the Reorganization and a
Prospectus for Fidelity Short-Term Bond Fund.
If the Agreement is approved at the Meeting and certain conditions
required by the Agreement are satisfied, the Reorganization is
expected to become effective on or about June 24, 1999. If shareholder
approval of the Agreement is delayed due to failure to meet a quorum
or otherwise, the Reorganization will become effective, if approved,
as soon as practicable thereafter.
In the event Spartan Short-Term Bond Fund shareholders fail to approve
the Agreement, Spartan Short-Term Bond Fund will continue to engage in
business as a registered investment company and the Board of Trustees
will consider other proposals for the reorganization or liquidation of
Spartan Short-Term Bond Fund.
The following information replaces similar information found in the
"Expenses" section on page 6.
SPARTAN SHORT-TERM BOND
Management fee 0.65%
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.65%
SPARTAN INVESTMENT GRADE BOND
Management fee (after 0.50%
reimbursement)
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.50%
(after reimbursement)
EXAMPLES: Let's say, hypothetically, that each fund's annual return is
5% and that your shareholder transaction expenses and each fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
SPARTAN SHORT-TERM BOND
1 year $ 7
3 years $ 21
5 years $ 36
10 years $ 81
SPARTAN INVESTMENT GRADE BOND
1 year $ 5
3 years $ 16
5 years $ 28
10 years $ 63
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
Effective January 1, 1999, FMR has voluntarily agreed to reimburse
Spartan Investment Grade Bond to the extent that total operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) exceed 0.50% of its average net assets. If
this agreement were not in effect, the management fee, other expenses
and total operating expenses, as a percentage of average net assets,
would have been 0.65%, 0.00% and 0.65%, respectively for Spartan
Investment Grade Bond.
The following information replaces similar information found in the
"How to Buy Shares" section on page 24.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT
For Spartan Short-Term Bond $10,000
For Spartan Investment Grade Bond $25,000
TO ADD TO AN ACCOUNT
For Spartan Short-Term Bond $1,000
Through regular investment plansB $500
For Spartan Investment Grade Bond $1,000
For certain Fidelity retirement accountsA $1,000
Through regular investment plansB $500
MINIMUM BALANCE
For Spartan Short-Term Bond $5,000
For Spartan Investment Grade Bond $10,000
A FIDELITY TRADITIONAL IRA, ROTH IRA, ROTH CONVERSION IRA, ROLLOVER
IRA, SEP-IRA, AND KEOGH ACCOUNTS.
B FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE 28.
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a
copy of each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated November 24, 1998. The SAI has been filed with the Securities
and Exchange Commission (SEC) and is available along with other
related materials on the SEC's Internet Web site (http://www.sec.gov).
The SAI is incorporated herein by reference (legally forms a part of
the prospectus). For a free copy of either document, call
Fidelity(registered trademark) at 1-800-544-8888.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES
HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SST/SIG-pro-1198
1.701517.10
SPARTAN(REGISTERED TRADEMARK)
SHORT-TERM
BOND
FUND
(FUND NUMBER 449, TRADING SYMBOL FTBDX)
AND
SPARTAN
INVESTMENT
GRADE BOND
FUND
(FUND NUMBER 448, TRADING SYMBOL FSIBX)
Each fund invests mainly in investment-grade debt securities. Spartan
Short-Term Bond seeks high current income with preservation of
capital. Spartan Investment Grade Bond seeks high current income from
securities with longer maturities.
PROSPECTUS
NOVEMBER 24, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
KEY FACTS 4 THE FUNDS AT A GLANCE
5 WHO MAY WANT TO INVEST
6 EXPENSES Each fund's yearly
operating expenses.
9 FINANCIAL HIGHLIGHTS A
summary of each fund's
financial data.
12 PERFORMANCE How each fund has
done over time.
THE FUNDS IN DETAIL 15 CHARTER How each fund is
organized.
15 INVESTMENT PRINCIPLES AND
RISKS Each fund's overall
approach to investing.
17 BREAKDOWN OF EXPENSES How
operating costs are
calculated and what they
include.
YOUR ACCOUNT 18 DOING BUSINESS WITH FIDELITY
18 TYPES OF ACCOUNTS Different
ways to set up your account,
including tax-advantaged
retirement plans.
20 HOW TO BUY SHARES Opening an
account and making
additional investments.
24 HOW TO SELL SHARES Taking
money out and closing your
account.
28 INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND ACCOUNT 29 DIVIDENDS, CAPITAL GAINS, AND
POLICIES TAXES
31 TRANSACTION DETAILS Share
price calculations and the
timing of purchases and
redemptions.
32 EXCHANGE RESTRICTIONS
KEY FACTS
THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments(registered trademark), which
was established in 1946 and is now America's largest mutual fund
manager. Foreign affiliates of FMR may help choose investments for the
funds.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, will choose investments for the funds.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
SPARTAN SHORT-TERM BOND
GOAL: High current income with preservation of capital.
STRATEGY: Normally invests in investment-grade debt securities while
maintaining an average maturity of three years or less. FMR uses the
Lehman Brothers 1-3 Year Government/Corporate Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of September 30, 1998, the fund had over $357 million in
assets.
SPARTAN INVESTMENT GRADE BOND
GOAL: High current income.
STRATEGY: Normally invests in investment-grade debt securities. FMR
uses the Lehman Brothers Aggregate Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of September 30, 1998, the fund had over $1 billion in
assets.
WHO MAY WANT TO INVEST
FMR anticipates presenting a proposal to the Board of Trustees of
Spartan Short-Term Bond Fund requesting their approval to present
shareholders of the fund a proposal to merge the fund into Fidelity
Short-Term Bond fund. Effective the close of business on June 26,
1998, the fund's shares will no longer be available to new accounts.
Shareholders of the fund on that date may continue to purchase shares
in accounts existing on that date. Investors who did not own shares of
the fund on June 26, 1998, generally will not be allowed to purchase
shares of the fund except that new accounts may be established: 1) by
participants in most group employer retirement plans (and their
successor plans) in which the fund had been established as an
investment option by June 26, 1998, and 2) for accounts managed on a
discretionary basis by certain registered investment advisors that
have discretionary assets of at least $1 billion invested in mutual
funds and have included the fund in their discretionary account
program since June 26, 1998. These restrictions generally will apply
to investments made directly with Fidelity and investments made
through intermediaries. Investors may be required to demonstrate
eligibility to purchase shares of the fund before an investment is
accepted.
These funds may be appropriate for investors who seek high current
income with a focus on investment-grade debt securities. A fund's
level of risk and potential reward depend on the quality and maturity
of its investments. Spartan Short-Term Bond is designed to offer
greater share price stability by investing in shorter-term securities.
Spartan Investment Grade Bond, because it can invest in securities
with any maturity, has the potential for higher yields, but also
carries more risk.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other economic and political news. The funds'
investments are also subject to prepayment risk, which can lower the
funds' yield, particularly in periods of declining interest rates.
When you sell your shares, they may be worth more or less than what
you paid for them. By themselves, the funds do not constitute a
balanced investment plan.
(checkmark)THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The funds
in this prospectus are in the
INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME Seeks
long-term growth and income
by investing in stocks and
bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of a fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page 33, for an explanation of how and when
these charges apply.
Sales charge on purchases and None
reinvested distributions
Deferred sales charge on None
redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets.
Each fund pays a management fee to FMR. FMR is responsible for the
payment of all other expenses for each fund with certain limited
exceptions. Expenses are factored into each fund's share price or
dividends and are not charged directly to shareholder accounts (see
"Breakdown of Expenses" page 18).
The following figures are based on historical expenses, adjusted to
reflect current fees, of each fund and are calculated as a percentage
of average net assets of each fund.
SPARTAN SHORT-TERM BOND
Management fee (after 0.38%
reimbursement)
12b-1 fee None
Other expenses None
Total fund operating expenses 0.38%
SPARTAN INVESTMENT GRADE BOND
Management fee (after 0.38%
reimbursement)
12b-1 fee None
Other expenses None
Total fund operating expenses 0.38%
(checkmark)UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of expenses
for portfolio management,
shareholder statements, tax
reporting, and other services.
Each fund's management fee
is paid from the fund's assets,
and its effect is already
factored into any quoted
share price or return. Other
expenses are paid by FMR
out of the fund's management
fee. Also, as an investor, you
may pay certain expenses
directly.
EXAMPLES: Let's say, hypothetically, that each fund's annual return is
5% and that your shareholder transaction expenses and each fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
SPARTAN SHORT-TERM BOND
1 year $ 4
3 years $ 12
5 years $ 21
10 years $ 48
SPARTAN INVESTMENT GRADE BOND
1 year $ 4
3 years $ 12
5 years $ 21
10 years $ 48
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
Effective March 1, 1997, FMR has voluntarily agreed to reimburse each
fund to the extent that total operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) exceed 0.38%
of its average net assets through December 31, 1998. If these
agreements were not in effect, the management fee, other expenses and
total operating expenses, as a percentage of average net assets, would
have been 0.65%, 0.00%, and 0.65%, respectively for Spartan Short-Term
Bond and 0.60%, 0.00% and 0.60%, respectively for Spartan Investment
Grade Bond.
Effective January 1, 1999, FMR has voluntarily agreed to reimburse
Spartan Investment Grade Bond to the extent that total operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) exceed 0.50% of its average net assets.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by
PricewaterhouseCoopers LLP, independent accountants. The funds'
financial highlights, financial statements, and reports of the auditor
are included in each fund's Annual Report, and are incorporated by
reference into (are legally a part of) the funds' SAI. Contact
Fidelity for a free copy of an Annual Report or the SAI.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SPARTAN SHORT-TERM BOND
Selected Per-Share Data and
Ratios
Years ended September 30 1998 1997 1996 1995 1994 1993E
Net asset value, beginning $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990 $ 10.000
of period
Income from Investment .579B .588B .598 .584 .574 .747
Operations Net investment
income
Net realized and .063 .025 (.112) (.199) (.604) (.009)
unrealized gain (loss)
Total from investment .642 .613 .486 .385 (.030) .738
operations
Less Distributions From (.572) (.583) (.596) (.443) (.477) (.747)
net investment income
In excess of net -- -- -- -- (.033) (.001)
investment income
In excess of net realized -- -- -- -- (.010) --
gain
Return of capital -- -- -- (.142) (.110) --
Total distributions (.572) (.583) (.596) (.585) (.630) (.748)
Net asset value, end of $ 9.120 $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990
period
Total returnA 7.33% 7.00% 5.47% 4.35% (.32)% 7.69%
Net assets, end of period $ 358 $ 287 $ 344 $ 522 $ 798 $ 1,471
(In millions)
Ratio of expenses to .38%C .50%C .65% .65% .54%C .20%C
average net assets
Ratio of expenses to .38% .50% .64%D .65% .54% .20%
average net assets after
expense reductions
Ratio of net investment 6.40% 6.50% 6.52% 6.45% 6.42% 7.32%
income to average net assets
Portfolio turnover rate 117% 105% 134% 159% 97% 112%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
E FOR THE PERIOD OCTOBER 1, 1992 (COMMENCEMENT OF OPERATIONS) TO
SEPTEMBER 30, 1993.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SPARTAN INVESTMENT GRADE BOND
Selected Per-Share Data
and Ratios
Years ended September 30 1998 1997 1996 1995 1994 1993D
Net asset value, beginning $ 10.250 $ 9.980 $ 10.170 $ 9.510 $ 10.940 $ 10.000
of period
Income from Investment .634B .640B .655 .693 .668 .799
Operations Net investment
income
Net realized and .453 .273 (.211) .673 (1.384) .940
unrealized gain (loss)
Total from investment 1.087 .913 .444 1.366 (.716) 1.739
operations
Less Distributions From (.637) (.643) (.634) (.686) (.704) (.798)
net investment income
In excess of net -- -- -- -- -- (.001)
investment income
In excess of net realized -- -- -- (.020) (.010) --
gain
Total distributions (.637) (.643) (.634) (.706) (.714) (.799)
Net asset value, end of $ 10.700 $ 10.250 $ 9.980 $ 10.170 $ 9.510 $ 10.940
period
Total returnA 10.95% 9.43% 4.46% 14.94% (6.75)% 18.17%
Net assets, end of period $ 1,220 $ 551 $ 344 $ 148 $ 106 $ 129
(In millions)
Ratio of expenses to .38%C .48%C .65% .65% .65% .65%
average net assets
Ratio of net investment 6.11% 6.36% 6.35% 6.92% 6.90% 7.58%
income to average net assets
Portfolio turnover rate 222% 194% 169% 147% 44% 55%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
D FOR THE PERIOD OCTOBER 1, 1998 (COMMENCEMENT OF OPERATIONS) TO
SEPTEMBER 30, 1993.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do
not reflect the effect of taxes or any transaction fees you may have
paid. The figures would be lower if fees were taken into account.
Each fund's fiscal year runs from October 1 through September 30. The
tables below show each fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average. The charts on page present calendar year
performance.
(checkmark)UNDERSTANDING
PERFORMANCE
Because these funds invest in
fixed-income securities, their
performance is related to
changes in interest rates.
Funds that hold short-term
bonds are usually less
affected by changes in
interest rates than long-term
bond funds. For that reason,
long-term bond funds typically
offer higher yields and carry
more risk than short-term bond
funds.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 year Past 5 years Life of fundA
September 30, 1998
Spartan Short-Term Bond 7.33% 4.73% 5.22%
Lehman Bros. 1-3 Yr. 7.87% 5.98% n/a
Gov't/Corp. Bond Index
Lipper Sht. Inv. Gr. Debt 6.68% 5.43% n/a
Funds Avg.
Spartan Investment Grade Bond 10.95% 6.33% 8.22%
Lehman Bros. Aggregate Bond 11.51% 7.21% 7.58%
Index
Lipper Intermediate 10.02% 6.31% n/a
Investment Grade Debt Funds
Average
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 year Past 5 years Life of fundA
September 30, 1998
Spartan Short-Term Bond 7.33% 25.98% 35.67%
Lehman Bros. 1-3 Yr. 7.87% 33.67% n/a
Gov't/Corp. Bond Index
Lipper Sht. Inv. Gr. Debt 6.68% 30.31% n/a
Funds Avg.
Spartan Investment Grade Bond 10.95% 35.94% 60.64%
Lehman Bros. Aggregate Bond 11.51% 41.66% 54.99%
Index
Lipper Intermediate 10.02% 35.84% n/a
Investment Grade Debt Funds
Average
A FROM OCTOBER 1, 1992 (COMMENCEMENT OF OPERATIONS)
If FMR had not reimbursed certain fund expenses during these periods,
total returns would have been lower.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
EXPLANATION OF TERMS
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1993 1994 1995 1996 1997
SPARTAN INVESTMENT GRADE BOND 15.76% -5.17% 18.61% 3.12% 9.28%
Lehman Brothers Aggregate
Bond Index 9.75% -2.92% 18.47% 3.63% 9.65%
Lipper Intermediate
Investment Grade
Debt Funds Average 13.67% -4.69% 20.24% 3.19% 8.57%
Consumer Price Index Percentage (%) 2.75% 2.67% 2.54% 3.32% 1.70%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: 15.76
Row: 7, Col: 1, Value: -5.17
Row: 8, Col: 1, Value: 18.61
Row: 9, Col: 1, Value: 3.12
Row: 10, Col: 1, Value: 9.279999999999999
Spartan Investment
Grade Bond
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1993 1994 1995 1996 1997
SPARTAN SHORT-TERM BOND 9.01% -4.62% 9.94% 5.03% 6.54%
Lehman Brothers 1-3 year
Government Corporate Bond Index 5.55% 0.55% 10.96% 5.14% 6.66%
Lipper Short Investment Grade Debt
Funds Average 6.45% -0.44% 9.83% 4.64% 6.19%
Consumer Price Index Percentage (%) 2.75% 2.67% 2.54% 3.32% 1.70%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: nil
Row: 3, Col: 1, Value: nil
Row: 4, Col: 1, Value: nil
Row: 5, Col: 1, Value: nil
Row: 6, Col: 1, Value: 9.01
Row: 7, Col: 1, Value: -4.62
Row: 8, Col: 1, Value: 9.94
Row: 9, Col: 1, Value: 6.03
Row: 10, Col: 1, Value: 6.54
Spartan Short-Term
Bond
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields
are calculated according to a standard that is required for all stock
and bond funds. Because this differs from other accounting methods,
the quoted yield may not equal the income actually paid to
shareholders.
LEHMAN BROTHERS 1-3 YEAR GOVERNMENT/CORPORATE BOND INDEX is a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues with maturities between one and three years.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a market value weighted
performance benchmark for investment-grade fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities, with maturities of at least one year.
Unlike each fund's returns, the total returns of each comparative
index do not include the effect of any brokerage commissions,
transaction fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper Short Investment Grade
Debt Funds Average and Lipper Intermediate Investment Grade Debt Funds
Average for Spartan Short-Term Bond and Spartan Investment Grade Bond,
respectively. As of September 30, 1998, the averages reflected the
performance of 100 and 218 mutual funds with similar investment
objectives, respectively. These averages, published by Lipper
Analytical Services, Inc., exclude the effect of sales loads.
The funds' recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all shareholders.
For current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. Each fund is a
diversified fund of Fidelity Charles Street Trust, an open-end
management investment company organized as a Massachusetts business
trust on July 7, 1981.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses the funds' investments and
handles their business affairs.
Affiliates assist FMR with foreign investments:
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for each fund.
(small solid bullet) Fidelity Management & Research Far East Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for each fund.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), located in Merrimack, New Hampshire, will have primary
responsibility for providing investment management services for the
funds.
Andrew Dudley is Vice President and manager of Spartan Short-Term
Bond, which he has managed since February 1997. He also manages other
Fidelity funds. Prior to joining Fidelity in 1996, Mr. Dudley was a
portfolio manager for Putnam Investments from 1991 to 1996.
Kevin Grant is Vice President and manager of Spartan Investment Grade
Bond, which he has managed since February 1997. He also manages
several other Fidelity funds. Mr. Grant joined Fidelity in 1993 as a
portfolio manager.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Service Company, Inc. (FSC) performs transfer agent servicing
functions for each fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., FMR Far
East and FIMM. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the
Investment Company Act of 1940 (the 1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
PREPAYMENT RISK. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment risk occurs
when the issuer of a security can prepay principal prior to the
security's maturity. Securities subject to prepayment risk generally
offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising
interest rate environment. In addition, the potential impact of
prepayment features on the price of a debt security may be difficult
to predict and result in greater volatility.
FIDELITY'S APPROACH TO BOND FUNDS. In managing bond funds, FMR selects
a benchmark index that is representative of the universe of securities
in which a fund invests. FMR uses this benchmark as a guide in
structuring the fund and selecting its investments.
FMR allocates assets among different market sectors (for example,
corporate or government securities) and different maturities based on
its view of the relative value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which a fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
SPARTAN SHORT-TERM BOND seeks high current income by investing in U.S.
dollar-denominated investment-grade debt securities under normal
conditions. The benchmark index for the fund is the Lehman Brothers
1-3 Year Government/Corporate Bond Index, a market value weighted
benchmark of government and investment-grade corporate fixed-rate debt
issues with maturities between one and three years. FMR manages the
fund to have similar overall interest rate risk to the index. As of
September 30, 1998, the dollar-weighted average maturity of the fund
and the index was approximately 2.4 and 1.9 years, respectively. In
addition, the fund normally maintains a dollar-weighted average
maturity of three years or less.
SPARTAN INVESTMENT GRADE BOND seeks high current income by investing
in U.S. dollar-denominated investment-grade debt securities under
normal conditions. The benchmark index for the fund is the Lehman
Brothers Aggregate Bond Index, a market value weighted benchmark of
investment-grade fixed-rate debt issues with maturities of one year or
more. FMR manages the fund to have similar overall interest rate risk
to the index. As of September 30, 1998, the dollar-weighted average
maturity of the fund and the index was approximately 7.8 and 8.5
years, respectively.
In determining a security's maturity for purposes of calculating a
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
Each fund normally invests in U.S. dollar-denominated investment-grade
debt securities. The funds differ primarily with respect to the
maturity of their investments and therefore their sensitivity to
interest rate changes. Although each fund can invest in securities of
any maturity, Spartan Investment Grade Bond generally maintains a
longer average maturity. As a result, Spartan Investment Grade Bond
will tend to have greater share price fluctuation.
FMR may use various investment techniques to hedge a portion of a
fund's risks, but there is no guarantee that these strategies will
work as FMR intends. When you sell your shares of a fund, they may be
worth more or less than what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. Each fund also reserves the right to invest without
limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in
the funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. Investment-grade debt securities are medium- and
high-quality securities. Some, however, may possess speculative
characteristics, and may be more sensitive to economic changes and to
changes in the financial condition of issuers.
RESTRICTIONS: Each fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service, Standard & Poor's, Duff
& Phelps Credit Rating Co., or Fitch IBCA, Inc., or is unrated but
judged to be of equivalent quality by FMR.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by Fannie Mae are supported
by the instrumentality's right to borrow money from the U.S. Treasury
under certain circumstances. Other U.S. Government securities, such as
those issued by the Federal Farm Credit Banks Funding Corporation, are
supported only by the credit of the entity that issued them.
FOREIGN EXPOSURE. Securities issued by foreign entities, including
foreign governments, corporations, and banks, and securities issued by
U.S. entities with substantial foreign operations may involve
additional risks and considerations. Extensive public information
about the foreign entity may not be available, and unfavorable
political, economic, or governmental developments in the foreign
country involved could affect the repayment of principal or payment of
interest.
ASSET-BACKED SECURITIES include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the market's
perception of the servicer of the pool, and any credit enhancement
provided. In addition, these securities may be subject to prepayment
risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, commodity prices, or other factors that affect
security values. These techniques may involve derivative transactions
such as buying and selling options and futures contracts, entering
into currency exchange contracts or swap agreements, purchasing
indexed securities, and selling securities short.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities, and some
other securities, may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not invest more than 10% of its assets in
illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
OTHER INSTRUMENTS may include real estate-related instruments.
CASH MANAGEMENT. A fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one
industry. Economic, business, or political changes can affect all
securities of a similar type.
RESTRICTIONS: With respect to 75% of its total assets, each fund may
not invest more than 5% of the securities of any one issuer. This
limitation does not apply to U.S. Government securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, or through reverse repurchase agreements. 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.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering a fund's securities. A fund may also lend money to
other funds advised by FMR or its affiliates.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a
fund's total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
SPARTAN INVESTMENT GRADE BOND seeks a high level of current income.
SPARTAN SHORT-TERM BOND seeks a high level of current income.
With respect to 75% of total assets, each fund may not invest more
than 5% in the securities of any one issuer. This limitation does not
apply to U.S. Government securities.
Each fund may not invest more than 25% of its total assets in any one
industry. This limitation does not apply to U.S. Government
securities.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 331/3% of each fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, each fund pays fees related to its daily
operations. Expenses paid out of each fund's assets are reflected in
its share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs.
FMR in turn pays fees to affiliates who provide assistance with these
services.
FMR may, from time to time, agree to reimburse the funds for
management fees above a specified limit. FMR retains the ability to be
repaid by a fund if expenses fall below the specified limit prior to
the end of the fiscal year. Reimbursement arrangements can decrease a
fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. FMR pays
all of the other expenses of each fund with limited exceptions.
Spartan Short-Term Bond's and Spartan Investment Grade Bond's annual
management fee rate is 0.65% and 0.60%, respectively, of its average
net assets.
For the fiscal year ended September 30, 1998, each fund paid a
management fee of 0.38% of the fund's average net assets, after
reimbursement.
On June 27, 1998, FMR reduced the management fee rate for Spartan
Investment Grade Bond from 0.65% to 0.60%.
Effective March 1, 1997, FMR has voluntarily agreed to limit each
fund's total operating expenses to an annual rate of 0.38% of average
net assets. This agreement will continue until December 31, 1998.
Effective January 1, 1999, FMR has voluntarily agreed to limit Spartan
Investment Grade Bond's total operating expenses to an annual rate of
0.50% of average net assets.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on
issuers based outside the United States. Under the sub-advisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to a fund's investments that the
sub-adviser manages on a discretionary basis.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing each fund's investments. FMR will pay FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
FSC is the transfer and service agent for the funds. FSC performs
transfer agency, dividend disbursing, shareholder servicing, and
accounting functions for the funds. These services include processing
shareholder transactions, valuing each fund's investments, handling
securities loans for each fund, and calculating each fund's share
price and dividends. FMR, not the funds, pays for these services.
Each fund also pays other expenses, such as brokerage fees and
commissions, interest on borrowings, taxes, and the compensation of
trustees who are not affiliated with Fidelity.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the funds' shares.
Currently, the Board of Trustees has authorized such payments.
For the fiscal year ended September 30, 1998 the portfolio turnover
rates for Spartan Short-Term Bond and Spartan Investment Grade Bond
were 117% and 222%, respectively. These rates vary from year to year.
High turnover rates increase transaction costs and may increase
taxable capital gains. FMR considers these effects when evaluating the
anticipated benefits of short-term investing.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of
America's first mutual funds. Today, Fidelity is the largest mutual
fund company in the country, and is known as an innovative provider of
high-quality financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, FBSI. Fidelity is also a
leader in providing tax-advantaged retirement plans for individuals
investing on their own or through their employer.
Fidelity is committed to providing investors with practical
information to make investment decisions. Based in Boston, Fidelity
provides customers with complete service 24 hours a day, 365 days a
year, through a network of telephone service centers around the
country and Fidelity's Web site.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity
has over 75 walk-in Investor Centers across the country.
If you would prefer to access information on-line, you can visit
Fidelity's Web site at www.fidelity.com.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend
to purchase individual securities as part of your total investment
portfolio, you may consider investing in a fund through a brokerage
account.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in a fund. Certain features of
the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
(checkmark)FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 223
(solid bullet) Assets in Fidelity mutual
funds: over $572 billion
(solid bullet) Number of shareholder
accounts: over 38 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 260
The account guidelines that follow may not apply to certain retirement
accounts. If you are investing through a retirement account or if your
employer offers the funds through a retirement program, you may be
subject to additional fees. For more information, please refer to your
program materials, contact your employer, call your retirement
benefits number, visit Fidelity's Web site at www.fidelity.com, or
contact Fidelity directly, as appropriate.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
Retirement plans provide individuals with tax-advantaged ways to save
for retirement, either with tax-deductible contributions or tax-free
growth. Retirement accounts require special applications and typically
have lower minimums.
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow
individuals under age 70 with compensation to contribute up to $2,000
per tax year. Married couples can contribute up to $4,000 per tax
year, provided no more than $2,000 is contributed on behalf of either
spouse. (These limits are aggregate for Traditional and Roth IRAs.)
Contributions may be tax-deductible, subject to certain income limits.
(solid bullet) ROTH IRAS allow individuals to make non-deductible
contributions of up to $2,000 per tax year. Married couples can
contribute up to $4,000 per tax year, provided no more than $2,000 is
contributed on behalf of either spouse. (These limits are aggregate
for Traditional and Roth IRAs.) Eligibility is subject to certain
income limits. Qualified distributions are tax-free.
(solid bullet) ROTH CONVERSION IRAS allow individuals with assets held
in a Traditional IRA or Rollover IRA to convert those assets to a Roth
Conversion IRA. Eligibility is subject to certain income limits.
Qualified distributions are tax-free.
(solid bullet) ROLLOVER IRAS help retain special tax advantages for
certain eligible rollover distributions from employer-sponsored
retirement plans.
(solid bullet) KEOGH PLANS are generally profit sharing or money
purchase pension plans that allow self-employed individuals or small
business owners to make tax-deductible contributions for themselves
and any eligible employees.
(solid bullet) SIMPLE IRAS provide small business owners and those
with self-employment income (and their eligible employees) with many
of the advantages of a 401(k) plan, but with fewer administrative
requirements.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide
small business owners or those with self-employment income (and their
eligible employees) with many of the same advantages as a Keogh, but
with fewer administrative requirements.
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS) allow employees of
businesses with 25 or fewer employees to contribute a percentage of
their wages on a tax-deferred basis. These plans must have been
established by the employer prior to January 1, 1997.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of
501(c)(3) tax-exempt institutions, including schools, hospitals, and
other charitable organizations.
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS) are available
to employees of most state and local governments and their agencies
and to employees of tax-exempt institutions.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset value
per share (NAV). Each fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received in proper form. Each fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
Each fund reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions"
on page 37. Purchase orders may be refused if, in FMR's opinion, they
would disrupt management of a fund.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888 or visit Fidelity's
Web site at www.fidelity.com for an application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
IF YOU ARE INVESTING THROUGH A TAX-ADVANTAGED RETIREMENT PLAN, such as
an IRA, for the first time, you will need a special application.
Retirement investing also involves its own investment procedures. Call
1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com for
more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT
For Spartan Short-Term Bond $10,000
For Spartan Investment Grade Bond $25,000
TO ADD TO AN ACCOUNT
For Spartan Short-Term Bond $1,000
Through regular investment plansB $500
For Spartan Investment Grade Bond $1,000
For certain Fidelity retirement accountsA $25,000
Through regular investment plansB $500
MINIMUM BALANCE
For Spartan Short-Term Bond $5,000
For Spartan Investment Grade Bond $10,000
C FIDELITY TRADITIONAL IRA, ROTH IRA, ROTH CONVERSION IRA, ROLLOVER
IRA, SEP-IRA, AND KEOGH ACCOUNTS.
D FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE 33.
There is no minimum account balance or initial or subsequent
investment minimum for investments through Fidelity Portfolio Advisory
ServicesSM, a qualified state tuition program, certain Fidelity
retirement accounts funded through salary deduction, or accounts
opened with the proceeds of distributions from such retirement
accounts. Refer to the program materials for details. In addition,
each fund reserves the right to waive or lower investment minimums in
other circumstances.
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TO OPEN AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
Mail (mail_graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
In Person (hand_graphic) (small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
Wire (wire_graphic) (small solid bullet) Call
1-800-544-7777 to set up
your account and to arrange
a wire transaction. Not
available for retirement
accounts.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
#021001033, Account
#00163053. Specify the
complete name of the fund
and include your new account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Not
available.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
<TABLE>
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<S> <C>
TO ADD TO AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Call before your
first use to verify that
this service is in place on
your account. Maximum Money
Line: up to $100,000.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Visit Fidelity's
Web site before your first
use to verify that this
service is in place on your
account. Maximum Money Line:
up to $100,000.
Mail (mail_graphic) (small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address printed
on your account statement.
(small solid bullet) Exchange
by mail: call 1-800-544-6666
for instructions.
In Person (hand_graphic) (small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
Wire (wire_graphic) (small solid bullet) Not
available for retirement
accounts.
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing #021001033, Account
#00163053. Specify the
complete name of the fund
and include your account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Use
Fidelity Automatic Account
Builder. Sign up for this
service when opening your
account, visit Fidelity's
Web site at www.fidelity.com
to obtain the form to add
the service, or call
1-800-544-6666 to add the
service.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. Each fund's NAV is normally calculated
each business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone, in writing, or through Fidelity's Web site.
Call 1-800-544-6666 for a retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$5,000 worth of shares in the account for Spartan Short-Term Bond and
$10,000 for Spartan Investment Grade Bond to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited
number of checks. Do not, however, try to close out your account by
check.
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ACCOUNT TYPE
Phone 1-800-544-7777 (phone_graphic) All account types except
retirement
All account types
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint Tenant,
Sole Proprietorship, UGMA,
UTMA
Retirement account
Trust
Business or Organization
Executor, Administrator,
Conservator, Guardian
Wire (wire_graphic) All account types except
retirement
Check (check_graphic) All account types
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
<TABLE>
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SPECIAL REQUIREMENTS
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Maximum
check request: $100,000.
(small solid bullet) For
Money Line transfers to your
bank account; minimum: $10;
maximum: up to $100,000.
(small solid bullet) You may
exchange to other Fidelity
funds if both accounts are
registered with the same
name(s), address, and
taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) (small solid bullet) The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
(small solid bullet) The
account owner should
complete a retirement
distribution form. Call
1-800-544-6666 to request one.
(small solid bullet) The
trustee must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
(small solid bullet) At least
one person authorized by
corporate resolution to act
on the account must sign the
letter.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
(small solid bullet) Call
1-800-544-6666 for
instructions.
Wire (wire_graphic) (small solid bullet) You must
sign up for the wire feature
before using it. To verify
that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your
wire redemption request must
be received in proper form
by Fidelity before 4:00 p.m.
Eastern time for money to be
wired on the next business
day.
Check (check_graphic) (small solid bullet) Minimum
check: $1,000.
(small solid bullet) All
account owners must sign a
signature card to receive a
checkbook.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
(checkmark)24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESS(registered trademark)
1-800-544-5555
WEB SITE
www.fidelity.com
AUTOMATED SERVICE
FIDELITY'S WEB SITE at www.fidelity.com offers product and servicing
information, customer education, planning tools, and the ability to
make certain transactions in your account.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in our electronic
delivery program, call 1-800-544-6666 or visit Fidelity's Web site at
www.fidelity.com for more information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone, in writing, or through Fidelity's
Web site.
Note that exchanges out of a fund are limited to four per calendar
year, and that they may have tax consequences for you. For details on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or
revoked, see page 37.
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDER(registered trademark)
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or quarterly (small solid bullet) For a
new account, complete the
appropriate section on the
fund application.
(small solid bullet) For
existing accounts, call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
application.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666 at least
three business days prior to
your next scheduled
investment date.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay period (small solid bullet) Check
the appropriate box on the
fund application, or call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
authorization form.
(small solid bullet) Changes
require a new authorization
form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, bimonthly, (small solid bullet) To
quarterly, or annually establish, call
1-800-544-6666 after both
accounts are opened.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666.
A BECAUSE THEIR SHARE PRICES FLUCTUATE, THESE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income
and capital gains to shareholders each year. For each fund, income
dividends are declared daily and paid monthly. Capital gains are
normally distributed in November and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on
the application, call 1-800-544-6666 for instructions. Each fund
offers four options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions
will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned
this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each
dividend distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital
gain distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
If you select distribution option 2 or 3 and the U.S. Postal Service
does not deliver your checks, your election may be converted to the
Reinvestment Option. You will not receive interest on amounts
represented by uncashed distribution checks. To change your
distribution option, call Fidelity at 1-800-544-6666.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of
the date the fund deducts the distribution from its NAV. The mailing
of distribution checks will begin within seven days.
(checkmark)UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings along
to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
TAXES
As with any investment, you should consider how your investment in a
fund will be taxed. If your account is not a tax-advantaged retirement
account, you should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax, and may also be subject to state or local taxes. If you live
outside the United States, your distributions could also be taxed by
the country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are
taxable as if they were paid on December 31.
For federal tax purposes, each fund's income and short-term capital
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price
you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but
not yet distributed capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on a
fund and its investments, and these taxes generally will reduce a
fund's distributions. However, if you meet certain holding period
requirements with respect to your fund shares, an offsetting tax
credit may be available to you. If you do not meet such holding period
requirements, you may still be entitled to a deduction for certain
foreign taxes. In either case, your tax statement will show more
taxable income or capital gains than were actually distributed by the
fund, but will also show the amount of the available offsetting credit
or deduction.
There are tax requirements that all funds must follow in order to
avoid federal taxation. In its effort to adhere to these requirements,
a fund may have to limit its investment activity in some types of
instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
Each fund's assets are valued on the basis of information furnished by
a pricing service or market quotations, if available, or by another
method that the Board of Trustees believes accurately reflects fair
value. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value. Foreign securities are valued on the basis of quotations
from the primary market in which they are traded, and are translated
from the local currency into U.S. dollars using current exchange
rates. If the values have been materially affected by events occurring
after the closing of a foreign market, assets may be valued by another
method that the Board of Trustees believes accurately reflects fair
value.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify
that your social security or taxpayer identification number is correct
and that you are not subject to 31% backup withholding for failing to
report income to the IRS. If you violate IRS regulations, the IRS can
require a fund to withhold 31% of your taxable distributions and
redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to redeem and
exchange by telephone, call Fidelity for instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during
periods of unusual market activity), consider placing your order by
mail or by visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased
at the next NAV calculated after your investment is received in proper
form. Note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number
of checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees a fund or
its transfer agent has incurred.
(small solid bullet) Shares begin to earn dividends on the first
business day following the day of purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money
order, U.S. Treasury check, Federal Reserve check, or direct deposit
instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements
with FDC may enter confirmed purchase orders on behalf of customers by
phone, with payment to follow no later than the time when a fund is
priced on the following business day. If payment is not received by
that time, the financial institution could be held liable for
resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at
the next NAV calculated after your order is received in proper form.
Note the following:
(small solid bullet) Normally, redemption proceeds will be mailed to
you on the next business day, but if making immediate payment could
adversely affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares earn dividends through the day of
redemption; however, shares redeemed on a Friday or prior to a holiday
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day
after your phone call.
(small solid bullet) Each fund may hold payment on redemptions until
it is reasonably satisfied that investments made by check or Fidelity
Money Line have been collected, which can take up to seven business
days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays),
when trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the
amount of the check is greater than the value of your account, your
check will be returned to you and you may be subject to additional
charges.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for
that year. The fee, which is payable to the transfer agent, is
designed to offset in part the relatively higher costs of servicing
smaller accounts. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 FOR SPARTAN SHORT-TERM BOND
AND $10,000 FOR SPARTAN INVESTMENT GRADE BOND, you will be given 30
days' notice to reestablish the minimum balance. If you do not
increase your balance, Fidelity reserves the right to close your
account and send the proceeds to you. Your shares will be redeemed at
the NAV on the day your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the funds
without reimbursement from the funds. Qualified recipients are
securities dealers who have sold fund shares or others, including
banks and other financial institutions, under special arrangements in
connection with FDC's sales activities. In some instances, these
incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or
expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a
fund for shares of other Fidelity funds. However, you should note the
following:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) If you exchange into a fund with a sales charge,
you pay the percentage-point difference between that fund's sales
charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already
paid a sales charge of 2% on your shares and you exchange them into a
fund with a 3% sales charge, you would pay an additional 1% sales
charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund
performance and shareholders, each fund reserves the right to
temporarily or permanently terminate the exchange privilege of any
investor who makes more than four exchanges out of the fund per
calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, will be counted
together for purposes of the four exchange limit.
(small solid bullet) The exchange limit may be modified for accounts
in certain institutional retirement plans to conform to plan exchange
limits and Department of Labor regulations. See your plan materials
for further information.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would
be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
(small solid bullet) Your exchanges may be restricted or refused if a
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to a
fund.
Although the funds will attempt to give you prior notice whenever they
are reasonably able to do so, they may impose these restrictions at
any time. The funds reserve the right to terminate or modify the
exchange privilege in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to 1.00% and trading fees of up to 3.00% of
the amount exchanged. Check each fund's prospectus for details.
Fidelity, Spartan, Fidelity Investments and (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, TouchTone Xpress, Fidelity Automatic
Account Builder, and Directed Dividends are registered trademarks of
FMR Corp.
Portfolio Advisory Services is a service mark of FMR Corp.
This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(registered trademark) SHORT-TERM BOND FUND
SPARTAN INVESTMENT GRADE BOND FUND
FUNDS OF FIDELITY CHARLES STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 24, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus
(dated November 24, 1998). Please retain this document for future
reference. The funds' Annual Reports are separate documents supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity(registered trademark) at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and 29
Limitations
Portfolio Transactions 34
Valuation 34
Performance 35
Additional Purchase, Exchange 41
and Redemption Information
Distributions and Taxes 41
FMR 42
Trustees and Officers 42
Management Contracts 44
Distribution and Service Plans 47
Contracts with FMR Affiliates 47
Description of the Trust 47
Financial Statements 48
Appendix 48
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
DISTRIBUTOR
Fidelity Distributors Corp. (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
SST/SIG-ptb-1198
1.463700.101
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with the fund's investment policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN SHORT-TERM BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) 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)
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;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) 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);
(7) 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); or
(8) 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.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objective, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) 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.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
With respect to limitation (iv), 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 was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 45.
INVESTMENT LIMITATIONS OF SPARTAN INVESTMENT GRADE BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) 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)
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;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) 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;
(4) 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;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) 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);
(7) 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); or
(8) 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.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objective, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) 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.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) 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.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
With respect to limitation (iv), 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 was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
beginning on page 46.
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help a fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds, or other credit enhancements.
Asset-backed security values may also be affected by 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.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
funds may receive fees or price concessions for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, 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 delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form
of leverage. When delayed-delivery purchases are outstanding, a fund
will set aside appropriate liquid assets in a segregated custodial
account to cover the purchase obligations. When a fund has sold a
security on a delayed-delivery basis, 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 delayed delivery transaction and may sell the
underlying securities before delivery, which may result in capital
gains or losses for the fund.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign
operations may involve significant risks in addition to the risks
inherent in U.S. investments.
Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments, and may be affected by
actions of foreign governments adverse to the interests of U.S.
investors. Such actions may include expropriation or nationalization
of assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There is no assurance that
FMR will be able to anticipate these potential events or counter their
effects. In addition, the value of securities denominated in foreign
currencies and of dividends and interest paid with respect to such
securities will fluctuate based on the relative strength of the U.S.
dollar.
The risks of foreign investing may be magnified for investments in
emerging markets, which may have relatively unstable governments,
economies based on only a few industries, and securities markets that
trade a small number of securities.
FOREIGN CURRENCY TRANSACTIONS. A fund may conduct foreign currency
transactions on a spot (i.e., cash) or forward basis (i.e., by
entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange.
Successful use of currency management strategies will depend on FMR's
skill in analyzing currency values. Currency management strategies may
substantially change a fund's investment exposure to changes in
currency exchange rates and could result in losses to a fund if
currencies do not perform as FMR anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR hedges currency exposure through
proxy hedges, a fund could realize currency losses from both the hedge
and the security position if the two currencies do not move in tandem.
Similarly, if FMR increases a fund's exposure to a foreign currency
and that currency's value declines, a fund will realize a loss. There
is no assurance that FMR's use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FUNDS' RIGHTS AS A SHAREHOLDER. The funds do not intend to direct or
administer the day-to-day operations of any company. A fund, however,
may exercise its rights as a shareholder and may communicate its views
on important matters of policy to management, the Board of Directors,
and shareholders of a company when FMR determines that such matters
could have a significant effect on the value of the fund's investment
in the company. The activities in which a fund may engage, either
individually or in conjunction with others, may include, among others,
supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's
directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of the company or a
portion of its assets; or supporting or opposing third-party takeover
efforts. This area of corporate activity is increasingly prone to
litigation and it is possible that a fund could be involved in
lawsuits related to such activities. FMR will monitor such activities
with a view to mitigating, to the extent possible, the risk of
litigation against a fund and the risk of actual liability if a fund
is involved in litigation. No guarantee can be made, however, that
litigation against a fund will not be undertaken or liabilities
incurred.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, Options and Futures
Relating to Foreign Currencies, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will
comply with guidelines established by the SEC with respect to coverage
of options and futures strategies by mutual funds and, if the
guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held
in a segregated account cannot be sold while the futures or option
strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a
large percentage of a fund's assets could impede portfolio management
or the fund's ability to meet redemption requests or other current
obligations.
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.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and 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
options and 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
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and 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 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 and 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 options or 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.
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 future date. 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, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices.
Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
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. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument 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 (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. 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. The party that has a gain may be 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. In the event of the bankruptcy of an
FCM 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 FCM's other customers, potentially resulting in losses to the
fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading
Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The funds intend to comply with Rule
4.5 under the Commodity Exchange Act, which limits the extent to which
the funds can commit assets to initial margin deposits and option
premiums.
In addition, each 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 obligation upon settlement or
exercise of purchased futures contracts and written put options would
exceed 25% of its total assets; 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
securities that incorporate features similar to options.
The above limitations on the funds' investments in futures contracts
and options, and the funds' policies regarding futures contracts and
options discussed elsewhere in this SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures 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 options and 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. If the secondary 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. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and
are standardized as to contract size and delivery date. Most currency
futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency
call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. A fund may purchase and sell currency futures and may purchase
and write currency options to increase or decrease its exposure to
different foreign currencies. Currency options may also be purchased
or written in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected
to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in
the Yen, but will not protect a fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value
of a fund's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to
match the amount of currency options and futures to the value of the
fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (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 involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL 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 securities, indices of
securities prices, and futures contracts. 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. 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
security prices fall 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
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 security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. 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 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, and must continue to set
aside assets to cover its position. When writing an option on a
futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain 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 security prices fall, 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, 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 mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by FMR to be illiquid include
repurchase agreements not entitling the holder to repayment of
principal and payment of interest within seven days, non-government
stripped fixed-rate mortgage-backed securities, and over-the-counter
options. Also, FMR may determine some restricted securities,
government-stripped fixed-rate mortgage-backed securities, loans and
other direct debt instruments, emerging market securities, and swap
agreements to be illiquid. However, with respect to over-the-counter
options a fund writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the
option and the nature and terms of any agreement the fund may have to
close out the option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by
the Board of Trustees.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, precious
metals or other commodities or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a
specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument 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. 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.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will lend
through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the
cost of bank loans. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
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. In addition, loan participations
involve a risk of insolvency of the lending bank or other financial
intermediary. Direct debt instruments may also include standby
financing commitments that obligate the purchaser to supply additional
cash to the borrower on demand.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities 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.
While the market for high-yield corporate debt securities has been in
existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication
of the future performance of the high-yield bond market, especially
during periods of economic recession.
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. If market
quotations are not available, lower-quality debt securities will be
valued in accordance with procedures established by the Board of
Trustees, including the use of outside pricing services. Judgment
plays a greater role in valuing high-yield debt securities than is the
case for securities for which more external sources for quotations and
last-sale information are available. 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.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type. FMR will attempt to identify those
issuers of high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to
improve in the future. FMR's analysis focuses on relative values based
on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the
issuer.
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.
MORTGAGE-BACKED SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage-backed security is an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations (or "CMOs"), make payments of both
principal and interest at a range of specified intervals; others make
semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage-backed securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject
to prepayment risk, which is the risk that early principal payments
made on the underlying mortgages, usually in response to a reduction
in interest rates, will result in the return of principal to the
investor, causing it to be invested subsequently at a lower current
interest rate. Alternatively, in a rising interest rate environment,
mortgage-backed security values may be adversely affected when
prepayments on underlying mortgages do not occur as anticipated,
resulting in the extension of the security's effective maturity and
the related increase in interest rate sensitivity of a longer-term
instrument. The prices of stripped mortgage-backed securities tend to
be more volatile in response to changes in interest rates than those
of non-stripped mortgage-backed securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits 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. While it does
not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as
delays and costs to a fund in connection with bankruptcy proceedings),
the funds will engage in repurchase agreement transactions with
parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund 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, a fund 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. While a reverse repurchase
agreement is outstanding, a fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. The funds will enter into reverse repurchase agreements
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR. Such transactions may increase fluctuations in
the market value of fund assets and may be viewed as a form of
leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider 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.
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are
created by separating the income and principal components of a U.S.
Government security and selling them separately. STRIPS (Separate
Trading of Registered Interest and Principal of Securities) are
created when the coupon payments and the principal payment are
stripped from an outstanding U.S. Treasury security by a Federal
Reserve Bank.
Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security
with a custodian for safekeeping. The custodian issues separate
receipts for the coupon payments and the principal payment, which the
dealer then sells.
SWAP AGREEMENTS can be individually negotiated and structured to
include exposure to a variety of different types of investments or
market factors. Depending on their structure, swap agreements may
increase or decrease a fund's exposure to long- or short-term interest
rates (in the United States or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such
as security prices or inflation rates. Swap agreements can take many
different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if the fund agreed to
exchange payments in dollars for payments in foreign currency, the
swap agreement would tend to decrease the fund's exposure to U.S.
interest rates and increase its exposure to foreign currency and
interest rates. Caps and floors have an effect similar to buying or
writing options. 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 yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other factors
that determine the amounts of payments due to and from a fund. If a
swap agreement calls for payments by the fund, the fund must be
prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of a swap
agreement would be likely to decline, potentially resulting in losses.
A fund may be able to eliminate its exposure under a swap agreement
either by assignment or other disposition, or by entering into an
offsetting swap agreement with the same party or a similarly
creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
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. 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.
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.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR considers various relevant factors, including,
but not limited to: the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold;
the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
above.
Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and
effect securities transactions and perform functions incidental
thereto (such as clearance and settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to a fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher commissions, FMR
must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided
by such executing broker-dealers, viewed in terms of a particular
transaction or FMR's overall responsibilities to that fund or its
other clients. In reaching this determination, FMR will not attempt to
place a specific dollar value on the brokerage and research services
provided, or to determine what portion of the compensation should be
related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services Japan LLC (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar
services. Prior to December 9, 1997, FMR used research services
provided by and placed agency transactions with Fidelity Brokerage
Services (FBS), an indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
The Trustees of each fund periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended September 30, 1998 and 1997, the
portfolio turnover rates were 117% and 105%, respectively, for Spartan
Short-Term Bond and 222% and 194% for Spartan Investment Grade Bond.
Because a high turnover rate increases transaction costs and may
increase taxable gains, carefully weighs the anticipated benefits of
short-term investing against these consequences.
For the fiscal years ended September 30, 1998, 1997, and 1996 Spartan
Short-Term Bond and Spartan Investment Grade Bond paid no brokerage
commissions.
For the fiscal year ended September 30, 1998 the funds paid no
brokerage commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR or its affiliates,
investment decisions for each fund are made independently from those
of other funds managed by FMR or accounts managed by FMR affiliates.
It sometimes happens that the same security is held in the portfolio
of more than one of these funds or accounts. Simultaneous transactions
are inevitable when several funds and accounts are managed by the same
investment adviser, particularly when the same security is suitable
for the investment objective of more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining as investment adviser to each fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
Fidelity Service Company, Inc. (FSC) normally determines each fund's
net asset value per share (NAV) as of the close of the New York Stock
Exchange (NYSE) (normally 4:00 p.m. Eastern time). The valuation of
portfolio securities is determined as of this time for the purpose of
computing each fund's NAV.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income 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. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services or
discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in
their local currency. FSC gathers all exchange rates daily at the
close of the NYSE using the last quoted price on the local currency
and then translates the value of foreign securities from their local
currencies into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs
after the close of an exchange on which that security is traded, then
that security will be valued as determined in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. Each fund's share price,
yield, and total return fluctuate in response to market conditions and
other factors, and the value of fund shares when redeemed may be more
or less than their original cost.
YIELD CALCULATIONS. Yields for a fund are computed by dividing the
fund's interest and income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the fund's
net asset value per share (NAV) at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable
to all stock and bond funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For a fund's investments
denominated in foreign currencies, income and expenses are calculated
first in their respective currencies, and then are converted to U.S.
dollars, either when they are actually converted or at the end of the
30-day or one month period, whichever is earlier. Income is adjusted
to reflect gains and losses from principal repayments received by a
fund with respect to mortgage-related securities and other
asset-backed securities. Other capital gains and losses generally are
excluded from the calculation as are gains and losses from currency
exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a fund's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
In calculating a fund's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing a fund's yield.
Yield information may be useful in reviewing a fund's performance and
in providing a basis for comparison with other investment
alternatives. However, a fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing the fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of a fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in a fund's
NAV over a stated period. Average annual total returns are calculated
by determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative total return
of 100% over ten years would produce an average annual total return of
7.18%, which is the steady annual rate of return that would equal 100%
growth on a compounded basis in ten years. Average annual total
returns covering periods of less than one year are calculated by
determining a fund's total return for the period, extending that
return for a full year (assuming that return remains constant over the
year), and quoting the result as an annual return. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a fund's performance is
not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to
the actual year-to-year performance of a fund.
In addition to average annual total returns, the fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to
exhibit performance. An adjusted NAV includes any distributions paid
by a fund and reflects all elements of its return. Unless otherwise
indicated, a fund's adjusted NAVs are not adjusted for sales charges,
if any.
CALCULATING HISTORICAL FUND RESULTS. The following table shows
performance for each fund calculated including certain fund expenses.
HISTORICAL FUND RESULTS. The following tables show each fund's yield
and total return for the periods ended September 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
Thirty-Day Yield One Year Five Years Life of Fund* One Year Five Years Life of Fund*
Spartan Short-Term Bond 5.42% 7.33% 4.73% 5.22% 7.33% 25.98% 35.67%
Spartan Investment Grade Bond 5.69% 10.95% 6.33% 8.22% 10.95% 35.94% 60.64%
</TABLE>
* From October 1, 1992 (commencement of operations).
If FMR had not reimbursed certain fund expenses during these periods,
each fund's total returns would have been lower.
If FMR had not reimbursed certain fund expenses during these periods,
each fund's yield would have been 5.17% and 5.50%, for Spartan
Short-Term Bond and Spartan Investment Grade Bond, respectively.
The following table shows the income and capital elements of each
fund's cumulative total return. The table compares each fund's return
to the record of the Standard & Poor's 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (CPI), over the same period. The CPI
information is as of the month-end closest to the initial investment
date for each fund. The S&P 500 and DJIA comparisons are provided to
show how each fund's total return compared to the record of a broad
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because each
fund invests in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investments such as the funds. The S&P 500 and DJIA
returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the life of each fund, assuming
all distributions were reinvested. Total returns are based on past
results and are not an indication of future performance. Tax
consequences of different investments have not been factored into the
figures below.
During the period from October 1, 1992 (commencement of operations) to
September 30, 1998, a hypothetical $10,000 investment in Spartan
Short-Term Bond Fund would have grown to $13,567.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN SHORT-TERM BOND FUND
Period Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1998 $ 9,120 $ 4,437 $ 10 $ 13,567
1997 $ 9,050 $ 3,581 $ 10 $ 12,641
1996 $ 9,020 $ 2,784 $ 10 $ 11,814
1995 $ 9,130 $ 2,061 $ 10 $ 11,201
1994 $ 9,330 $ 1,395 $ 10 $ 10,735
1993* $ 9,990 $ 779 $ 0 $ 10,769
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN SHORT-TERM BOND FUND INDICES
Period Ended S&P 500 DJIA Cost of Living**
1998 $ 28,119 $ 27,698 $ 11,599
1997 $ 25,786 $ 27,588 $ 11,408
1996 $ 18,360 $ 20,045 $ 11,168
1995 $ 15,258 $ 15,969 $ 10,842
1994 $ 11,759 $ 12,494 $ 10,573
1993* $ 11,342 $ 11,248 $ 10,269
</TABLE>
* From October 1, 1992 (commencement of fund operations)
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Spartan
Short-Term Bond Fund on October 1, 1992, the net amount invested in
fund shares was $10,000. The cost of the initial investment ($10,000),
together with the aggregate cost of reinvested dividends and capital
gain distributions for the period covered (their cash value at the
time they were reinvested), amounted to $14,529. If distributions had
not been reinvested, the amount of distributions earned from the fund
over time would have been smaller, and cash payments for the period
would have amounted to $3,703 for dividends and $10 for capital gain
distributions.
During the period from October 1, 1992 (commencement of operations) to
September 30, 1998, a hypothetical $10,000 investment in Spartan
Investment Grade Bond would have grown to $16,064.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN INVESTMENT GRADE BOND
FUND
Period Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1998 $ 10,700 $ 5,313 $ 51 $ 16,064
1997 $ 10,250 $ 4,180 $ 49 $ 14,479
1996 $ 9,980 $ 3,204 $ 47 $ 13,231
1995 $ 10,170 $ 2,448 $ 48 $ 12,666
1994 $ 9,510 $ 1,499 $ 10 $ 11,019
1993* $ 10,940 $ 877 $ 0 $ 11,817
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN INVESTMENT GRADE BOND INDICES
FUND
Period Ended S&P 500 DJIA Cost of Living**
1998 $ 28,119 $ 27,698 $ 11,599
1997 $ 25,786 $ 27,588 $ 11,408
1996 $ 18,360 $ 20,045 $ 11,168
1995 $ 15,258 $ 15,969 $ 10,842
1994 $ 11,759 $ 12,494 $ 10,573
1993* $ 11,342 $ 11,248 $ 10,269
</TABLE>
* From October 1, 1992 (commencement of fund operations)
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Spartan
Investment Grade Bond Fund on October 1, 1992, the net amount invested
in fund shares was $10,000. The cost of the initial investment
($10,000), together with the aggregate cost of reinvested dividends
and capital gain distributions for the period covered (their cash
value at the time they were reinvested), amounted to $15,087. If
distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash
payments for the period would have amounted to $4,093 for dividends
and $40 for capital gains distributions.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. In addition to the mutual
fund rankings, a fund's performance may be compared to stock, bond,
and money market mutual fund performance indices prepared by Lipper or
other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of
investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability
of principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A fund may advertise risk ratings,
including symbols or numbers, prepared by independent rating agencies.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest.
The total return of a benchmark index reflects reinvestment of all
dividends and capital gains paid by securities included in the index.
Unlike a fund's returns, however, the index returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
Spartan Investment Grade Bond may compare its performance to the
Lehman Brothers Aggregate Bond Index, a market value weighted
performance benchmark for investment-grade fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities. Issues included in the index have an outstanding par value
of at least $100 million and maturities of at least one year.
Government and corporate issues include all public obligations of the
U.S. Treasury (excluding flower bonds and foreign-targeted issues) and
U.S. Government agencies, as well as nonconvertible investment-grade,
SEC-registered corporate debt. Mortgage-backed securities include 15-
and 30-year fixed-rate securities backed by mortgage pools of the
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), and Fannie Mae. Asset-backed securities
include credit card, auto, and home equity loans.
Spartan Short-Term Bond may compare its performance to that of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index, a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues. Issues included in the index have an
outstanding par value of at least $100 million and maturities between
one and three years. Government and corporate issues include all
public obligations of the U.S. Treasury (excluding flower bonds and
foreign-targeted issues) and U.S. Government agencies, as well as
nonconvertible investment-grade, SEC-registered corporate debt.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
A fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a fund's historical share price fluctuations or total
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, a fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific
periods of time. Each point on the momentum indicator represents a
fund's percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
A fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which
may produce superior after-tax returns over time. For example, a
$1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of September 30, 1998, FMR advised over $32 billion in municipal
fund assets, $115 billion in money market fund assets, $411 billion in
equity fund assets, $12 billion in international fund assets, and $27
billion in Spartan fund assets. The funds may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management
figure represents the largest amount of equity fund assets under
management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. A fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV)
is calculated each day the New York Stock Exchange (NYSE) is open for
trading. The NYSE has designated the following holiday closings for
1998: New Year's Day, Martin Luther King's Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Day. Although FMR expects the same
holiday schedule to be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, on days when the Federal
Reserve Wire System is closed, federal funds wires cannot be sent.
FSC normally determines each fund's NAV as of the close o the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
SEC. To the extent that portfolio securities are traded in other
markets on days when the NYSE is closed, a fund's NAV may be affected
on days when investors do not have access to the fund to purchase or
redeem shares. In addition, trading in some of a fund's portfolio
securities may not occur on days when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing each fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each fund is required to
give shareholders at least 60 days' notice prior to terminating or
modifying its exchange privilege. Under the Rule, the 60-day
notification requirement may be waived if (i) the only effect of a
modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the
time of an exchange, or (ii) the fund suspends the redemption of the
shares to be exchanged as permitted under the 1940 Act or the rules
and regulations thereunder, or the fund to be acquired suspends the
sale of its shares because it is unable to invest amounts effectively
in accordance with its investment objective and policies.
In the Prospectus, each fund has notified shareholders that it
reserves the right at any time, without prior notice, to refuse
exchange purchases by any person or group if, in FMR's judgment, the
fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
DISTRIBUTIONS AND TAXES
DIVIDENDS. Because each fund's income is primarily derived from
interest, dividends from the fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do
not qualify for the dividends-received deduction. A portion of each
fund's dividends derived from certain U.S. Government securities may
be exempt from state and local taxation. If a fund's distributions
exceed its net investment company taxable income during a taxable
year, all or a portion of the distributions made in the same taxable
year would be recharacterized as a return of capital to shareholders,
thereby reducing each shareholder's cost basis in the fund. Mortgage
security paydown gains (losses) on mortgage securities purchased by a
fund on or prior to June 8, 1997 are generally taxable as ordinary
income and, therefore, increase (decrease) taxable dividend
distributions. Each fund will send each shareholder a notice in
January describing the tax status of dividend and capital gain
distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each
fund on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains, regardless of the length
of time shareholders have held their shares. If a shareholder receives
a capital gain distribution on shares of a fund, and such shares are
held six months or less and are sold at a loss, the portion of the
loss equal to the amount of the capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by each fund are taxable to shareholders as dividends, not
as capital gains.
As of September 30, 1998, Spartan Investment Grade Bond hereby
designates approximately $1,100,000 as a capital gain dividend for the
purpose of the dividend-paid deduction.
As of September 30, 1998, Spartan Short-Term Bond had a capital loss
carryforward aggregating approximately $81,724,000. This loss
carryforward, of which $39,973,000, $35,409,000, $4,138,000, and
$2,204,000 will expire on September 30, 2003, 2004, 2005, and 2006,
respectively, is available to offset future capital gains.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Foreign governments
may also impose taxes on other payments or gains with respect to
foreign securities. Because each fund does not currently anticipate
that securities of foreign issuers will constitute more than 50% of
its total assets at the end of its fiscal year, shareholders should
not expect to claim a foreign tax credit or deduction on their federal
income tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company
and avoid being subject to federal income or excise taxes at the fund
level, each fund intends to distribute substantially all of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds, if
any, of its trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. 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 a fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the Investment Company Act of 1940 (1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock 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 Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments,
P.O. Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who
are "interested persons" by virtue of their affiliation with either
the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (68), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (57), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (66), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (65), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES (71), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of National Arts Stabilization Inc., Chairman of
the Board of Trustees of the Greenwich Hospital Association, Director
of the Yale-New Haven Health Services Corp. (1998), a Member of the
Public Oversight Board of the American Institute of Certified Public
Accountants' SEC Practice Section (1995), and as a Public Governor of
the National Association of Securities Dealers, Inc. (1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (70), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board of
Lexmark International, Inc. (office machines, 1991). Prior to 1991, he
held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993) and Imation Corp. (imaging and
information storage, 1997).
*ROBERT C. POZEN (52), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (59), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
ANDREW J. DUDLEY (34), is Vice President of Spartan Short-Term Bond
Fund (1998), and other funds advised by FMR. Prior to joining Fidelity
as a portfolio manager in 1996, Mr. Dudley worked as a quantitative
analyst and portfolio manager at Putnam Investments for five years.
KEVIN E. GRANT (38), is Vice President of Spartan Investment Grade
Bond Fund (1997), and other funds advised by FMR. Since joining
Fidelity in 1993, Mr. Grant has managed a variety of Fidelity funds.
Prior to joining Fidelity, Mr. Grant was vice president and chief
mortgage strategist at Morgan Stanley for two years.
ERIC D. ROITER (50), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER (51), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
STANLEY N. GRIFFITH (52), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (52), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
THOMAS J. SIMPSON (39), Assistant Treasurer (1996), is Assistant
Treasurer of Fidelity's Fixed-Income Funds (1998) and an employee of
FMR (1996). Prior to joining FMR, Mr. Simpson was Vice President and
Fund Controller of Liberty Investment Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended September 30, 1998, or
calendar year ended December 31, 1997, as applicable.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Spartan Short-Term BondB Spartan Investment Grade BondB Fund Complex*,A
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox $ 110 $ 271 $ 214,500
Phyllis Burke Davis $ 109 $ 269 $ 210,000
Robert M. Gates $ 111 $ 274 $176,000
Edward C. Johnson 3d** $ 0 $ 0 $ 0
E. Bradley Jones $ 110 $ 271 $ 211,500
Donald J. Kirk $ 112 $ 275 $ 211,500
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 111 $ 274 $ 214,500
Gerald C. McDonough $ 137 $ 337 $ 264,500
Marvin L. Mann $ 110 $ 270 $ 214,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 111 $ 273 $214,500
</TABLE>
* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $62,500; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,699; Marvin L. Mann, $53,699; and Thomas R.
Williams, $62,462.
B Compensation figures include cash.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of September 30, 1998, the Trustees, Members of the Advisory Board,
and officers of each fund owned, in the aggregate, less than 1% of
each fund total outstanding shares.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
each fund, FMR acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the
fund in accordance with its investment objective, policies, and
limitations. FMR also provides each fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of each fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of each
fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. Under the terms of each fund's management
contract, FMR is responsible for payment of all operating expenses of
each fund with certain exceptions. Specific expenses payable by FMR
include expenses for typesetting, printing, and mailing proxy
materials to shareholders, legal expenses, fees of the custodian,
auditor and interested Trustees, each 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. Each fund's management
contract further provides that FMR will pay for typesetting, printing,
and mailing prospectuses, statements of additional information,
notices, and reports to shareholders; however, under the terms of each
fund's transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. FMR also pays all
fees associated with transfer agent, dividend disbursing, and
shareholder services and pricing and bookkeeping services, and
administration of each fund's securities lending program.
FMR pays all other expenses of each fund with the following
exceptions: fees and expenses of the non-interested Trustees,
interest, taxes, brokerage commissions (if any), and such nonrecurring
expenses as may arise, including costs of any litigation to which a
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT FEES. For the services of FMR under each management
contract, Spartan Short-Term Bond and Spartan Investment Grade Bond
pays FMR a monthly management fee at the annual rate of 0.65% and
0.60%, respectively, of its average net assets throughout the month.
The management fee paid to FMR by each fund is reduced by an amount
equal to the fees and expenses paid by the fund to the non-interested
Trustees.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years, and the amount of credits
reducing management fees for each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Fiscal Years Ended September 30 Amount of Credits Reducing Management Fees Paid to FMR
Management Fees
Spartan Short-Term Bond 1998 $ 8,000 $ 2,055,000*
1997 $ 7,000 $ 1,991,000*
1996 $ 62,000 $ 2,790,000*
Spartan Investment Grade 1998(dagger) $ 11,000 $ 5,189,000*
Bond(dagger)
1997 $ 3,000 $ 2,625,000*
1996 $ 11,000 $ 1,988,000*
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
(dagger) On June 27, 1998, FMR reduced the management rate paid by
Spartan Investment Grade Bond from 0.65% to 0.60%.
FMR may, from time to time, voluntarily reimburse all or a portion of
a fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to
be repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
The reimbursement arrangement that is in effect for each fund will
continue through December 31, 1998, after which time FMR may elect to
discontinue it. Effective January 1, 1999, FMR has voluntarily agreed
to limit Spartan Investment Grade Bond's total operating expenses to
an annual rate of 0.50% of average net assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Periods of Expense Limitation Aggregate Operating Expense Fiscal Years Ended September
From To Limitation 30,
Spartan Short-Term Bond 10/1/97 9/30/98 .38% 1998
3/1/97 9/30/97 .38% 1997
10/1/96 2/28/97 .65% --
10/1/95 9/30/96 .65% 1996
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Spartan Short-Term Bond $ 2,055,000* $ 854,000
$ 1,991,000* $ 464,000
-- --
$ 2,790,000 $ 0
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Periods of Expense Limitation Aggregate Operating Expense Fiscal Years Ended September
From To Limitation 30,
Spartan Investment
Grade Bond 10/1/97 9/30/98 .38% 1998
3/1/97 9/30/97 .38% 1997
10/1/96 2/28/97 .65% --
10/1/95 9/30/96 .65% 1996
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Spartan Investment Grade Bond $ 5,189,000* $ 2,075,000
$ 2,625,000* $ 692,000
-- --
$ 1,988,000 $ 0
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
SUB-ADVISERS. On behalf of each fund, FMR has entered into
sub-advisory agreements with FMR U.K. and FMR Far East. Pursuant to
the sub-advisory agreements, FMR may receive investment advice and
research services outside the United States from the sub-advisers.
On behalf of each fund the sub-advisers investment management
authority as well as the authority to buy and sell securities if FMR
believes it would be beneficial to the funds.
Currently, FMR U.K. and FMR Far East each focus on issuers in
countries other than the United States such as those in Europe, Asia,
and the Pacific Basin.
FMR U.K. and FMR Far East, which were organized in 1986, are wholly
owned subsidiaries of FMR. Under the sub-advisory agreements FMR pays
the fees of FMR U.K. and FMR Far East. For providing non-discretionary
investment advice and research services, FMR pays FMR U.K. and FMR Far
East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR
Far East's costs incurred in connection with providing investment
advice and research services.
On behalf of each fund, for providing discretionary investment
management and executing portfolio transactions, FMR pays FMR U.K. and
FMR Far East a fee equal to 50% of its monthly management fee rate
with respect to each fund's average net assets managed by the
sub-adviser on a discretionary basis.
[IF NEITHER NON-DISCRETIONARY NOR DISCRETIONARY SUB-ADVISER FEES WERE
PAID: No fees were paid to the sub-advisers by FMR on behalf of the
funds for the past three fiscal years.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the fund of the
distribution of its shares, such payment is authorized by the Plan.
Each Plan specifically recognizes that FMR may use its management fee
revenue, as well as its past profits or its other resources, to pay
FDC for expenses incurred in connection with the distribution of fund
shares. In addition, the Plan provides that FMR, directly or through
FDC, may make payments to third parties, such as banks or
broker-dealers, that engage in the sale of fund shares, or provide
shareholder support services. Currently, the Board of Trustees has
authorized such payments for each funds shares.
FMR made no payments through FDC to third parties for the fiscal year
ended 1998.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each Plan does not authorize payments by the fund other
than those made to FMR under its management contract with the fund. To
the extent that each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares may result. Furthermore, certain shareholder support
services may be provided more effectively under the Plans by local
entities with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
Each fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreements, FSC performs
transfer agency, dividend disbursing, and shareholder services for
each fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state tuition
program (QSTP), as defined under the Small Business Job Protection Act
of 1996, managed by FMR or an affiliate and each Fidelity Freedom
Fund, a fund of funds managed by an FMR affiliate, according to the
percentage of the QSTP's or Freedom Fund's assets that is invested in
a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC 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.
Each fund has also entered into a service agent agreement with FSC.
Under the terms of the agreements, FSC calculates the NAV and
dividends for each fund, maintains each fund's portfolio and general
accounting records, and administers each fund's securities lending
program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month.
For administering each fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
For each fund, FMR bears the cost of transfer agency, dividend
disbursing, and shareholder services, pricing and bookkeeping
services, and administration of the securities lending program under
the terms of its management contract with each fund.
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call for FDC to use all
reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered at
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUSTS' ORGANIZATION. Spartan Short-Term Bond and Spartan Investment
Grade Bond Fund are funds of Fidelity Charles Street Trust, an
open-end management investment company organized as a Massachusetts
business trust on July 7, 1981. Currently, there are six funds of the
trust: Fidelity Asset Manager, Fidelity Asset Manager: Growth,
Fidelity Asset Manager: Income, Fidelity Short-Intermediate Government
Fund, Spartan Short-Term Bond Fund, and Spartan Investment Grade Bond
Fund. The Declaration of Trust permits the Trustees to create
additional funds.
In the event that FMR ceases to be the investment adviser to a trust
or a fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn. There is a remote
possibility that one fund might become liable for any misstatement in
its prospectus or statement of additional information about another
fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general liabilities of their
respective trusts. Expenses with respect to each trust are to be
allocated in proportion to the asset value of their respective funds,
except where allocations of direct expense can otherwise be fairly
made. The officers of each trust, subject to the general supervision
of the Boards of Trustees, have the power to determine which expenses
are allocable to a given fund, or which are general or allocable to
all of the funds of a certain trust. In the event of the dissolution
or liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be
held personally liable for the obligations of the trust. The
Declaration of Trust 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 its Trustees shall include a
provision limiting the obligations created thereby to the trust and
its assets. The Declaration of Trust provides for indemnification out
of each fund's property of any shareholder held personally liable for
the obligations of the fund. The Declaration of Trust also provides
that each 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 the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the
risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declarations of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value
of net asset value you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the trust or a
fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of the entire trust, the purpose
of voting on removal of one or more Trustees. The trust or any fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
trust or the fund, as determined by the current value of each
shareholder's investment in the fund or trust. If not so terminated,
the trust and the funds will continue indefinitely. Each fund may
invest all of its assets in another investment company.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, New
York custodian is responsible for the safekeeping of a fund's assets
and the appointment of any subcustodian banks and clearing agencies.
The custodian takes no part in determining the investment policies of
a fund or in deciding which securities are purchased or sold by a
fund. However, a fund may invest in obligations of the custodian and
may purchase securities from or sell securities to the custodian. The
Chase Manhattan Bank, headquartered in New York, also may serve as a
special purpose custodian of certain assets in connection with
repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
AUDITOR. PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts serves as the trust's independent accountant. The
auditor examines financial statements for the funds and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended September 30, 1998 and report of the auditors, are
included in each fund's Annual Report, which are separate reports
supplied with this SAI. The funds' financial statements, including the
financial highlights, and reports of the auditors are incorporated
herein by reference. For a free additional copy of a fund's Annual
Report, contact Fidelity at 1-800-544-8888.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, 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. Also, the maturities of mortgage-backed securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF CORPORATE BONDS
Moody's ratings for obligations with an original remaining maturity in
excess of one year fall within nine categories. They range from Aaa
(highest quality) to C (lowest quality). Moody's applies numerical
modifiers of 1, 2, or 3 to each generic rating classification from Aa
through B. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
on the lower end of its generic rating category.
AAA - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect
to principal or interest.
CA - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest-rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF CORPORATE BONDS
Debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA to CCC may be modified by the addition of a plus sign (+) or minus
sign (-) to show relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating will also be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
Spartan, Fidelity, and Fidelity Focus are registered trademarks of FMR
Corp.
The third party marks appearing above are the marks of their
respective owners.
SPARTAN(REGISTERED TRADEMARK)
SHORT-TERM BOND
FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 7 The manager's review of fund
performance, strategy and
outlook.
INVESTMENT CHANGES 10 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 11 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 23 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 27 Notes to the financial
statements.
REPORT OF INDEPENDENT 30 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 31
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND.
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1998
SPARTAN SHORT-TERM BOND 7.33% 25.98% 35.67%
LB 1-3 Year Govt/Corp 7.87% 33.67% n/a
Short Investment Grade Debt 6.68% 30.31% n/a
Funds Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on October 1, 1992. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare the fund's returns to
the performance of the Lehman Brothers 1-3 Year Government/Corporate
Bond Index - a market value weighted performance benchmark for
government and corporate fixed-rate debt issues, with maturities
between one and three years. To measure how the fund's performance
stacked up against its peers, you can compare it to the short
investment grade debt funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
100 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1998
SPARTAN SHORT-TERM BOND 7.33% 4.73% 5.22%
LB 1-3 Year Govt/Corp 7.87% 5.98% n/a
Short Investment Grade Debt 6.68% 5.43% n/a
Funds Average
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
Spartan Short-Term Bond LB 1-3 Year Govt/Corp
00449 LB013
1992/10/31 10000.00 10000.00
1992/11/30 10007.37 9985.91
1992/12/31 10100.06 10080.21
1993/01/31 10245.37 10187.78
1993/02/28 10362.03 10270.90
1993/03/31 10428.83 10304.27
1993/04/30 10491.81 10368.93
1993/05/31 10517.30 10345.31
1993/06/30 10633.77 10423.65
1993/07/31 10696.60 10447.49
1993/08/31 10801.74 10534.96
1993/09/30 10840.89 10568.95
1993/10/31 10900.33 10593.61
1993/11/30 10925.24 10596.72
1993/12/31 11009.87 10639.63
1994/01/31 11082.02 10707.40
1994/02/28 11001.58 10642.53
1994/03/31 10793.58 10587.81
1994/04/30 10672.90 10547.60
1994/05/31 10776.08 10561.90
1994/06/30 10637.30 10589.67
1994/07/31 10716.07 10686.05
1994/08/31 10772.43 10722.12
1994/09/30 10806.21 10698.28
1994/10/31 10793.34 10722.74
1994/11/30 10802.42 10677.76
1994/12/31 10500.90 10698.07
1995/01/31 10584.46 10845.03
1995/02/28 10686.93 10995.09
1995/03/31 10746.59 11057.48
1995/04/30 10852.82 11157.58
1995/05/31 11033.96 11350.76
1995/06/30 11103.44 11412.52
1995/07/31 11148.58 11458.12
1995/08/31 11219.00 11527.56
1995/09/30 11275.92 11584.55
1995/10/31 11374.74 11680.73
1995/11/30 11469.71 11781.25
1995/12/31 11545.13 11870.58
1996/01/31 11645.60 11972.14
1996/02/29 11604.18 11926.54
1996/03/31 11580.33 11917.84
1996/04/30 11593.17 11929.86
1996/05/31 11620.33 11957.43
1996/06/30 11710.28 12044.89
1996/07/31 11749.76 12091.74
1996/08/31 11789.36 12136.30
1996/09/30 11892.38 12247.39
1996/10/31 12024.38 12385.64
1996/11/30 12114.43 12478.50
1996/12/31 12126.29 12480.57
1997/01/31 12176.93 12540.88
1997/02/28 12207.78 12571.97
1997/03/31 12207.08 12562.23
1997/04/30 12299.58 12665.24
1997/05/31 12380.91 12753.75
1997/06/30 12475.64 12842.46
1997/07/31 12614.79 12985.06
1997/08/31 12629.16 12997.28
1997/09/30 12724.82 13097.39
1997/10/31 12809.73 13191.70
1997/11/30 12835.18 13224.86
1997/12/31 12919.79 13312.12
1998/01/31 13047.83 13440.63
1998/02/28 13069.40 13454.10
1998/03/31 13125.91 13506.54
1998/04/30 13181.18 13573.49
1998/05/31 13265.46 13647.27
1998/06/30 13333.78 13717.74
1998/07/31 13389.09 13781.58
1998/08/31 13501.85 13940.14
1998/09/30 13657.74 14127.72
IMATRL PRASUN SHR__CHT 19980930 19981006 115635 R00000000000074
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Short-Term Bond Fund on October 31, 1992, shortly
after the fund started. As the chart shows, by September 30, 1998, the
value of the investment would have grown to $13,658 - a 36.58%
increase on the initial investment. For comparison, look at how the
Lehman Brothers 1-3 Year Government/Corporate Bond Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 would have grown to $14,128 - a 41.28% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
TOTAL RETURN COMPONENTS
YEARS ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
Dividend returns 6.56% 6.67% 6.67% 6.49% 6.20%
Capital returns 0.77% 0.33% -1.20% -2.14% -6.52%
Total returns 7.33% 7.00% 5.47% 4.35% -0.32%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
1998
Dividends per share 4.46(cents) 28.05(cents) 57.21(cents)
Annualized dividend rate 5.97% 6.18% 6.32%
30-day annualized yield 5.42% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $9.09
over the past one month, $9.05 over the past six months and $9.05 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses during the periods shown, the yield
would have been 5.17%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
As a safe haven from turbulent stock
markets worldwide, bond markets
reaped the benefits from the flight to
quality by anxious investors during
the 12-month period ending
September 30, 1998. The Lehman
Brothers Aggregate Bond Index - a
broad measure of the U.S. taxable
investment-grade bond market -
returned 11.51% over the past year,
two and one-half times higher than
the 4.54% return generated for the
six-month period ending March 31,
1998. The buying surge sent
Treasury-bond yields - which move
in the opposite direction of bond
prices - to their lowest level in over
three decades, as the yield on the
benchmark 30-year bond fell to
4.96%. In spite of the global
economic crisis that dominated the
period, the U.S. enjoyed low interest
rates, low inflation and a stable
economy, which aided the
performance of corporate bonds.
The Lehman Brothers Corporate
Bond Index returned 11.07% for the
12-month period. Mortgage-backed
bonds also performed well, although
lower interest rates resulted in higher
refinancing activity. The Lehman
Brothers Mortgage Backed
Securities Index had a 12-month
return of 8.62%. Interest rates fell
even lower late in the period, as the
Federal Reserve lowered the fed
funds rate by 0.25%, the first rate cut
in nearly three years. The period's
biggest losers were shareholders of
emerging-market debt, as the JP
Morgan Emerging Markets Bond
Index lost 20.89% over the past 12
months.
(photograph of Andrew Dudley)
An interview with Andrew Dudley, Portfolio Manager of Spartan
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY ?
A. For the 12 months that ended September 30, 1998, the fund had a
total return of 7.33%. That outperformed the 6.68% return of the short
investment grade debt funds average tracked by Lipper Analytical
Services. For the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 7.87%.
Q. WHAT FACTORS CONTRIBUTED TO FUND'S PERFORMANCE? WHY DID THE FUND
UNDERPERFORM THE LEHMAN BROTHERS INDEX?
A. While the performance of the Treasury market was solid due to a
flight to quality from stocks and riskier bond investments, the
broader bond market was stricken by growing concerns of economic
slowdown and a subsequent extremely negative supply/demand
environment. Essentially, rumors began that a number of highly
leveraged hedge funds were already, or were going to be, forced
sellers of certain bonds. This potential deluge of supply created a
huge dislocation in bond markets - creating a collapse in liquidity in
both corporate and mortgage-backed securities - pushing the yield
spreads relative to Treasuries to much wider levels. In the pursuit of
high current income, the fund has historically taken on a higher level
of exposure to the non-Treasury sectors than the Lehman Brothers 1-3
Year Government/Corporate Index. Since the fund was underweighted in
government securities relative to the index, the extreme flight to
quality into Treasuries caused the fund to underperform the Lehman
Brothers index. The recent performance of much of the short-term bond
fund universe - as represented by the Lipper peer group - suggests
that many managers faced similar issues.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards - accounted for
approximately 65% of the fund's assets during the period. Within these
holdings, asset-backed securities accounted for about 18% of the fund,
and performed better on average than their corporate counterparts.
Most of the fund's holdings in asset-backed securities were rated Aaa,
the highest quality, and thus suffered to a lesser extent. By
comparison, as I've already mentioned, corporate bonds suffered more
severely relative to Treasuries. However, there were some bright spots
within our corporate holdings that outperformed the general corporate
market: namely, our cable, telecommunications, and media exposure.
Mortgage-backed securities accounted for roughly 15% of the fund's
allocation. Similar to corporate bonds, mortgage-backed securities
were hurt relative to U.S. government bonds during the extreme flight
to quality along with the increasing fear of a new refinancing and
prepayment wave.
Q. WHAT OTHER SECTORS CONTRIBUTED TO PERFORMANCE?
A. The remaining assets in the fund - around 20% - were in U.S.
government and agency obligations during the period. U.S. Treasuries
and agency bonds performed the best of all the bond sectors.
Unfortunately, the fund suffered relative to the index due to its
underweighted position in this sector.
Q. THE GLOBAL FLIGHT TO QUALITY INTO U.S. TREASURIES HAS BEEN THE BIG
STORY OVER THE PAST FEW MONTHS. DO YOU SEE THIS TREND CONTINUING?
A. There is very little official data on how much leveraged debt
remains in the system. Consequently, it's impossible to tell how many
troubled hedge funds are still out there. On the global front, while
we can use our research resources to make an educated assessment about
which countries would be next to face credit concerns, political
uncertainties often make this assessment murky. As a result, over the
short-term, it is difficult to determine how long this trend will
continue. What we do know is that much of the liquidation activity has
taken place at severely distressed levels, on some occasions pushing
the yield spread for even strong credits back to very wide levels.
Over the long term, investors should begin to see a focus less on
liquidity and more on relative value. Until that time, though, the
non-Treasury markets may continue to have a tough time.
Q. WHAT'S YOUR OUTLOOK?
A. Within the corporate bond sector, I think the best issues may be
the less-cyclical, domestically focused businesses that have improving
credit profiles. I believe the market will continue to focus on
high-quality, non-cyclical corporate debt in the face of global market
turmoil. The commodity-related industries like energy, precious metals
and paper most likely will continue to suffer in this volatile
environment. Over the longer term, solid companies in the media,
telecommunications and domestic regional-banking sectors could be
rewarded for improving business and credit fundamentals. As a result,
corporate bonds in these sectors should remain defensive positions.
Within the mortgage-backed sector there are also opportunities. As a
result of the volatility, there are segments of the mortgage-backed
securities market that look attractive. I remain comfortable with our
current holdings and feel that there will be more opportunities over
time. In the short term, volatility may continue; but over the longer
term, the non-Treasury sectors should stabilize to the fund's benefit.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 449
TRADING SYMBOL: FTBDX
START DATE: October 1, 1992
SIZE: as of September 30,
1998, more than $357 million
MANAGER: Andrew Dudley,
since 1997; manager,
Fidelity Advisor Short-Fixed
Income Fund, since 1997;
joined Fidelity in 1996
ANDREW DUDLEY ON THE FUND'S
BENCHMARK INDEX - THE
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX - AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"The Lehman Brothers 1-3 Year
Government/Corporate Bond Index
plays an important role in the
management of the fund. It's the
fund's benchmark index and
includes most of the universe of
investment-grade bonds with
maturities between one and three
years. I use the index as a
guideline about the structure of
the overall bond market, managing
the fund to be generally as
sensitive to changes in interest
rates as the index. In addition, I
refer to the index when deciding
how to allocate assets among
different maturities and market
sectors - such as corporate or
government securities - based
on my view of the relative value of
each maturity or sector."
(solid bullet) Effective the close of business on
June 26, 1998, the Spartan
Short-Term Bond Fund's shares
are no longer available to new
accounts. Shareholders of the fund
on that date may continue to
purchase shares in accounts
existing on that date.
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF
SEPTEMBER 30, 1998
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa 41.4 43.3
Aa 7.8 7.5
A 14.3 13.9
Baa 27.3 23.9
Ba and Below 3.8 7.1
Not Rated 0.9 1.3
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS BA OR BELOW
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING
AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF
ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS
OF SEPTEMBER 30, 1998
6 MONTHS AGO
Years 2.4 2.3
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30,
1998
6 MONTHS AGO
Years 1.7 1.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES.
IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS
LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS CAN INFLUENCE A
BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S
ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF SEPTEMBER 30, 1998 *
Corporate bonds 59.3%
U.S. government
and agency
obligations 24.2%
CMOs and other
mortgage-related
securities 8.7%
Other 3.3%
Short-term
investments 4.5%
* FOREIGN INVESTMENTS 6.7%
Row: 1, Col: 1, Value: 59.3
Row: 1, Col: 2, Value: 24.2
Row: 1, Col: 3, Value: 8.699999999999999
Row: 1, Col: 4, Value: 3.3
Row: 1, Col: 5, Value: 4.5
AS OF MARCH 31, 1998 **
Corporate bonds 61.4%
U.S. government
and agency
obligations 26.3%
CMOs and other
mortgage-related
securities 5.7%
Other 3.6%
Short-term
investments 3.0%
** FOREIGN INVESTMENTS 5.8%
Row: 1, Col: 1, Value: 61.4
Row: 1, Col: 2, Value: 26.3
Row: 1, Col: 3, Value: 5.7
Row: 1, Col: 4, Value: 3.6
Row: 1, Col: 5, Value: 3.0
INVESTMENTS SEPTEMBER 30, 1998
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 42.4%
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
BASIC INDUSTRIES - 1.4%
CHEMICALS & PLASTICS - 1.0%
Methanex Corp. yankee 8.875% A2 $ 3,500 $ 3,618
11/15/01
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. 7.15% Ba1 1,390 1,390
5/15/05
TOTAL BASIC INDUSTRIES 5,008
CONSTRUCTION & REAL ESTATE -
1.8%
REAL ESTATE INVESTMENT TRUSTS
- - 1.8%
Camden Property Trust 6.625% Baa2 2,825 2,844
2/15/01
CenterPoint Properties Corp. Baa2 430 427
6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 Baa1 1,250 1,249
6.376% 2/15/02 Baa1 900 904
Weeks Realty LP 6.875% 3/15/05 Baa2 1,100 1,076
6,500
ENERGY - 0.6%
OIL & GAS - 0.6%
Occidental Petroleum Corp.:
6.09% 11/29/99 Baa3 580 586
8.5% 11/9/01 Baa2 800 865
Oryx Energy Co.:
8.125% 10/15/05 Ba1 220 228
8.375% 7/15/04 Ba1 400 428
2,107
FINANCE - 18.3%
BANKS - 7.2%
Banc One Corp. 6.7% 3/24/00 Aa3 1,250 1,275
Banco Latinoamericano
Exportaciones SA euro:
6.45% 9/13/99 (a) Baa2 930 947
6.9% 12/4/99 (a) Baa2 550 553
BanPonce Corp. 6.488% 3/3/00 A3 1,290 1,313
BanPonce Financial Corp.:
6.88% 6/16/00 A3 510 524
7.65% 5/3/00 A3 1,550 1,606
Barclays Bank PLC yankee A1 2,500 2,523
5.875% 7/15/00
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Capital One Bank:
5.95% 2/15/01 Baa3 $ 2,000 $ 1,990
6.42% 11/12/99 Baa3 2,200 2,211
7.35% 6/20/00 Baa3 2,400 2,456
First USA Bank 6.5% 12/23/99 Aa2 1,700 1,728
KeyCorp. 7.45% 4/5/00 A1 1,100 1,137
NationsBank Corp. 5.75% Aa2 3,000 3,036
3/15/01
Popular, Inc. 6.4% 8/25/00 A3 1,410 1,425
Providian National Bank:
6.25% 5/7/01 Baa3 1,300 1,312
6.7% 3/15/03 Baa3 1,800 1,889
25,925
CREDIT & OTHER FINANCE - 9.8%
Abbey National PLC 6.69% Aa3 2,400 2,536
10/17/05
Aristar, Inc. 6% 8/1/01 A3 3,200 3,237
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 1,940 1,964
6.25% 5/15/01 Baa3 2,500 2,540
Chrysler Financial Corp. A2 1,720 1,745
6.375% 1/28/00
Edison Mission Energy Funding Baa1 1,667 1,741
Corp. 6.77% 9/15/03 (a)
ERP Operating LP 6.55% A3 350 355
11/15/01
Finova Capital Corp. 6.27% Baa1 580 589
9/29/00
General Electric Capital Aaa 5,000 5,124
Corp. 6.01% 4/30/01
General Motors Acceptance
Corp.:
5.85% 4/20/00 A2 4,480 4,535
9% 10/15/02 A2 3,000 3,387
GS Escrow Corp. 6.75% 8/1/01 Ba1 2,400 2,386
(a)
Heller Financial, Inc. 6.25% A3 1,500 1,530
3/1/01
MCN Investment Corp. 5.84% Baa3 1,450 1,451
2/1/99
Money Store, Inc. 7.3% 12/1/02 A2 650 694
North American Mortgage Co. Baa2 750 750
5.8% 11/2/98
Salton Sea Funding Corp. Baa3 654 660
7.02% 5/30/00
35,224
SAVINGS & LOANS - 1.0%
Great Western Financial Corp. A3 1,025 1,041
6.375% 7/1/00
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
SAVINGS & LOANS - CONTINUED
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 $ 1,650 $ 1,666
7% 6/13/02 Baa3 970 1,012
3,719
SECURITIES INDUSTRY - 0.3%
Amvescap PLC 6.375% 5/15/03 A3 1,100 1,130
TOTAL FINANCE 65,998
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.9%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Tyco International Group SA Baa1 2,250 2,298
yankee 6.125% 6/15/01
POLLUTION CONTROL - 0.2%
WMX Technologies, Inc. 6.25% Baa3 750 763
10/15/00
TOTAL INDUSTRIAL MACHINERY & 3,061
EQUIPMENT
MEDIA & LEISURE - 5.9%
BROADCASTING - 3.3%
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 320 362
8.5% 9/15/01 Baa3 2,104 2,273
TCI Communications, Inc.:
6.375% 5/1/03 Baa3 630 659
6.375% 9/15/99 Baa3 3,075 3,100
8.25% 1/15/03 Baa3 220 245
9% 1/2/02 Ba1 730 808
Time Warner, Inc. 7.95% 2/1/00 Baa3 4,330 4,472
11,919
ENTERTAINMENT - 2.1%
Paramount Communications, Ba2 992 1,039
Inc. 7.5% 1/15/02
Viacom, Inc.:
6.75% 1/15/03 Ba2 4,455 4,574
7.75% 6/1/05 Ba2 1,950 2,106
7,719
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.5%
News America Holdings, Inc. Baa3 $ 1,440 $ 1,623
8.5% 2/15/05
TOTAL MEDIA & LEISURE 21,261
NONDURABLES - 1.7%
FOODS - 0.6%
Dole Food, Inc. 6.75% 7/15/00 Baa2 2,290 2,308
TOBACCO - 1.1%
Philip Morris Companies, Inc.:
7.125% 12/1/99 A2 2,300 2,341
7.25% 9/15/01 A2 1,400 1,466
3,807
TOTAL NONDURABLES 6,115
RETAIL & WHOLESALE - 1.6%
GENERAL MERCHANDISE STORES -
1.6%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 1,600 1,670
9.75% 7/1/02 A3 930 1,070
10% 12/1/00 A3 1,133 1,244
Federated Department Stores, Baa2 1,595 1,742
Inc. 8.125% 10/15/02
5,726
TECHNOLOGY - 3.3%
COMPUTER SERVICES & SOFTWARE
- - 0.2%
Computer Associates Baa1 700 705
International, Inc. 6.25%
4/15/03
COMPUTERS & OFFICE EQUIPMENT
- - 3.1%
Comdisco, Inc.:
5.86% 4/7/00 Baa1 3,900 3,939
6.1% 6/5/01 Baa1 2,580 2,631
6.55% 2/4/00 Baa1 4,500 4,581
11,151
TOTAL TECHNOLOGY 11,856
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
TRANSPORTATION - 2.0%
AIR TRANSPORTATION - 0.1%
Delta Air Lines, Inc. 9.875% Baa3 $ 475 $ 506
5/15/00
RAILROADS - 1.9%
CSX Corp.:
7.05% 5/1/02 Baa2 1,250 1,313
9.5% 8/1/00 Baa2 2,500 2,675
Norfolk Southern Corp.:
6.7% 5/1/00 Baa1 2,000 2,042
6.95% 5/1/02 Baa1 800 843
6,873
TOTAL TRANSPORTATION 7,379
UTILITIES - 4.9%
ELECTRIC UTILITY - 2.0%
Avon Energy Partners Holdings Baa2 1,000 1,043
6.73% 12/11/02 (a)
Indiana Michigan Power Co. Baa1 2,000 2,034
6.4% 3/1/00
Niagara Mohawk Power Corp. Ba1 700 719
6.875% 3/1/01
Ohio Edison Co. 7.375% 9/15/02 Baa2 900 950
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 840 846
6.5% 5/1/03 Baa1 700 731
Texas Utilities Electric Co. Baa1 1,000 1,021
7.375% 11/1/99
7,344
GAS - 1.6%
Arkla, Inc. 8.875% 7/15/99 Baa1 5,500 5,641
TELEPHONE SERVICES - 1.3%
WorldCom, Inc.:
6.125% 8/15/01 Baa2 2,865 2,931
8.875% 1/15/06 Baa2 627 688
9.375% 1/15/04 Baa2 1,176 1,228
4,847
TOTAL UTILITIES 17,832
TOTAL NONCONVERTIBLE BONDS 152,843
(Cost $151,216)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 17.3%
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 2.4%
Federal Home Loan Bank 5.83% Aaa $ 5,000 $ 5,064
12/24/99
Government Trust Certificates Aaa 312 331
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency) Class T-3, 9.625%
5/15/02
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1995-A, 6.28% 6/15/04 Aaa 1,412 1,462
Series 1994-C, 6.61% 9/15/99 Aaa 120 121
Israel Export Trust Aaa 577 601
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994-1, 6.88% 1/26/03
Private Export Funding Corp. Aaa 993 1,040
secured 6.86% 4/30/04
TOTAL U.S. GOVERNMENT AGENCY 8,619
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
14.9%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 2,475 2,531
5.625% 11/30/99 Aaa 8,275 8,376
5.75% 10/31/00 Aaa 700 719
5.875% 2/15/00 Aaa 965 982
5.875% 7/31/99 Aaa 710 717
6.25% 2/28/02 Aaa 3,495 3,703
6.375% 7/15/99 Aaa 26,475 26,822
6.875% 3/31/00 Aaa 9,604 9,934
TOTAL U.S. TREASURY 53,784
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 62,403
GOVERNMENT AGENCY OBLIGATIONS
(Cost $61,768)
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES -
6.9%
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FANNIE MAE - 3.3%
6.5% 12/1/12 to 1/1/13 Aaa $ 5,423 $ 5,537
7% 10/1/28 (b) Aaa 5,500 5,655
11.5% 11/1/15 Aaa 454 509
TOTAL FANNIE MAE 11,701
FREDDIE MAC - 0.3%
7% 8/1/99 to 7/1/01 Aaa 1,064 1,072
12% 11/1/19 Aaa 112 129
TOTAL FREDDIE MAC 1,201
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 3.3%
7.5% 1/15/26 to 8/15/28 Aaa 6,014 6,234
9.5% 5/15/16 to 11/15/20 Aaa 1,587 1,714
11% 2/15/10 to 9/15/19 Aaa 2,049 2,267
11.5% 5/15/13 to 7/15/15 Aaa 711 797
12% 2/15/16 Aaa 611 696
TOTAL GOVERNMENT NATIONAL 11,708
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 24,610
- - MORTGAGE-BACKED SECURITIES
(Cost $24,542)
ASSET-BACKED SECURITIES - 16.9%
Arcadia Automobile Aaa 1,500 1,515
Receivables Trust 5.67%
1/15/04
Boatmens Auto Trust 6.35% A2 610 612
10/15/01
Capita Equipment Receivables
Trust:
6.45% 8/15/02 Aa3 1,700 1,747
6.57% 3/15/01 Aa3 810 823
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 690 690
6.15% 9/15/02 Aaa 1,844 1,854
6.45% 11/10/02 Aaa 1,330 1,361
Caterpillar Financial Asset A3 336 337
Trust 6.55% 5/25/02
ASSET-BACKED SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Chase Manhattan Marine Owner Aaa $ 1,900 $ 1,932
Trust 6.25% 4/16/07
Chevy Chase Auto Receivables
Trust:
5.97% 10/20/04 Aaa 1,729 1,753
6.2% 3/20/04 Aaa 803 813
Citibank Credit Card Master Aaa 1,300 1,322
Trust I 5.75% 1/15/03
Contimortgage Home Equity
Loan Trust:
6.26% 7/15/12 Aaa 2,450 2,461
6.3% 7/15/12 Aaa 1,100 1,115
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 1,042 1,046
6.7% 2/15/02 Aaa 314 318
CPS Auto Receivables Trust 6% Aaa 2,719 2,749
8/15/03
CS First Boston Mortgage Aaa 1,700 1,739
Securities Corp. 7% 3/15/27
Discover Card Master Trust I A2 4,920 4,922
6.0006% 7/18/05 (c)
Fidelity Funding Auto Trust Aaa 350 356
6.99% 11/15/02 (a)
Ford Credit Auto Owner Trust A2 1,800 1,809
6.15% 9/15/02
Ford Credit Grantor Trust Aaa 989 991
5.9% 10/15/00
General Motors Acceptance Aaa 417 418
Corp. Grantor Trust 7.15%
3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 Aaa 57 57
5.8% 2/15/27 Aaa 77 77
6.1% 4/15/27 Aaa 847 849
6.45% 5/15/27 Aaa 618 620
6.5% 6/15/27 Aaa 439 439
Key Auto Finance Trust 6.65% Baa3 281 284
10/15/03
KeyCorp Auto Grantor Trust A3 43 43
5.8% 7/15/00
Norwest Automobile Trust 6.3% A2 1,130 1,150
5/15/03
Olympic Automobile
Receivables Trust:
6.125% 11/15/04 Aaa 587 597
6.4% 9/15/01 Aaa 1,280 1,298
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 Aaa 2,155 2,179
6.2% 6/15/03 Aaa 1,307 1,321
Petroleum Enhanced Trust Baa2 1,549 1,548
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (a)(c)
Premier Auto Trust:
5.7% 10/6/02 Aaa 3,800 3,850
ASSET-BACKED SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Premier Auto Trust: - continued
5.82% 12/6/02 Aaa $ 3,000 $ 3,071
6% 5/6/00 Aaa 428 428
6.35% 7/6/00 A3 1,690 1,701
Reliance Auto Receivables Aaa 398 399
Corp., Inc. 6.1% 7/15/02 (a)
Sears Credit Account Master Aaa 1,800 1,842
Trust II 6.2% 2/16/06
TMS Auto Grantor Trust 5.9% Aaa 211 212
9/15/02
Tranex Auto Receivables Owner Aaa 864 877
Trust 6.334% 8/15/03 (a)
UACSC 1995-B Grantor Trust Baa2 166 167
7.075% 7/10/02
UFSB Grantor Trust: 7.275% Baa2 92 92
10/10/00
8.2% 1/10/01 Baa2 101 102
Western Financial Grantor Aaa 789 800
Trust 5.875% 3/1/02
WFS Financial Owner Trust:
6.9% 12/20/03 Aaa 1,630 1,687
7.05% 11/20/03 Aaa 2,510 2,597
TOTAL ASSET-BACKED SECURITIES 60,970
(Cost $60,228)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.7%
PRIVATE SPONSOR - 1.0%
GE Capital Mortgage Services, Aaa 722 730
Inc. planned amortization
class Series 1994-2 Class
A-4, 6% 1/25/09
Residential Funding Mortgage Aa1 2,900 2,936
Securities I, Inc. planned
amortization class Series
1994-S12 Class A-2, 6.5%
4/25/09
TOTAL PRIVATE SPONSOR 3,666
U.S. GOVERNMENT AGENCY - 0.7%
Fannie Mae ACES REMIC Aaa 2,474 2,532
sequential pay Series
1995-M1 Class A, 6.65%
7/25/10
TOTAL COLLATERALIZED MORTGAGE 6,198
OBLIGATIONS
(Cost $6,118)
COMMERCIAL MORTGAGE
SECURITIES - 7.0%
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Allied Capital Commercial Aaa $ 1,417 $ 1,424
Mortgage Trust sequential
pay Series 1998-1 Class A,
6.31% 1/25/28 (a)
Bankers Trust Remic Trust Baa2 2,270 2,258
1988-1 floater Series
1998-S1A Class D, 6.4984%
11/28/02 (a)(c)
BKB Commercial Mortgage Trust AA 506 504
Series 1997-C1 Class B,
7.218% 2/25/43 (a)(c)
CBM Funding Corp.:
sequential pay Series 1996-1 AA 870 896
Class A-2, 6.88% 7/1/02
sequential pay Series 1996-1 AA 63 63
Class A1, 7.55% 7/1/99
CS First Boston Mortgage
Securities Corp.:
Series 1998 FLI Class E, Baa2 2,800 2,768
6.5063% 1/10/13 (a)(c)
sequential pay Series - 2,362 2,365
1997-SPICE Class A, 6.653%
8/20/36 (a)
DLJ Commercial Mortgage Corp. A2 1,090 1,089
floater Series 1998-STFA
Class A-3, 6.32% 1/8/11
(a)(c)
Equitable Life Assurance
Society of the United States
(The):
floater Series 174 Class D-2, Baa2 1,000 982
6.7063% 5/15/03 (a)(c)
sequential pay Series 174 Aaa 1,000 1,091
Class A1, 7.24% 5/15/06 (a)
Federal Deposit Insurance
Corp. Remic Trust:
sequential pay Series 1996-C1 Aaa 1,299 1,298
Class 1A, 6.75% 7/25/26
sequential pay Series 1994-C1 Aaa 585 584
Class II-A2, 7.85% 9/25/25
FMAC Loan Receivables Trust Aaa 550 558
1998-C sequential pay Series
1998-C Class A1 Notes, 5.99%
9/15/20 (a)
Franchise Loan Trust 1998-1 Aaa 1,682 1,709
sequential pay Series 1998-I
Class A1 Notes, 6.24%
7/15/20 (a)
Kidder Peabody Acceptance Aa2 312 313
Corp. I sequential pay
Series 1993-M1 Class A-2,
7.15% 4/25/25
Nomura Asset Securities Corp. - 892 892
floater Series 1994-MD-II
Class A-6, 9.9213% 7/7/03 (c)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (D) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Nomura Depositor Trust Baa2 $ 2,210 $ 2,200
floater Series 1998-ST1A
Class A-4, 6.5406% 2/15/34
(a)(c)
Resolution Trust Corp.:
floater Series 1994-C1 Class AAA 268 268
A-3, 6.2375% 6/25/26 (c)
sequential pay Series 1995 Aaa 1,432 1,430
C-1 Class A2C, 6.9% 2/25/27
Structured Asset Securities
Corp.:
floater Series 1998-C2A Class A3 2,227 2,226
C, 6.0238% 1/25/13 (a)(c)
Series 1996-C3 Class A, 6.75% AAA 361 359
6/25/30 (a)(c)
TOTAL COMMERCIAL MORTGAGE 25,277
SECURITIES
(Cost $25,286)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (E) - 0.8%
Ontario Province:
5.75% 11/7/00 Aa3 1,010 1,025
euro:
global 6.125% 6/28/00 Aa3 1,000 1,021
8.5% 2/28/01 Aa3 800 861
TOTAL FOREIGN GOVERNMENT AND 2,907
GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,869)
SUPRANATIONAL OBLIGATIONS -
1.6%
African Development Bank:
7.75% 12/15/01 Aa1 1,670 1,789
9.3% 7/1/00 Aa1 3,540 3,774
TOTAL SUPRANATIONAL OBLIGATIONS 5,563
(Cost $5,563)
CERTIFICATES OF DEPOSIT - 0.9%
Canadian Imperial Bank of Aa3 3,100 3,166
Commerce, New York yankee
6.2% 8/1/00 (Cost $3,107)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 4.5%
MATURITY AMOUNT (000'S) VALUE (NOTE 1) (000S)
Investments in repurchase $ 16,340 $ 16,337
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.77%,
dated 9/30/98 due 10/1/98
(Cost $16,337)
TOTAL INVESTMENT IN $ 360,274
SECURITIES - 100%
(Cost $357,034)
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange
Securities
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $29,383,000 or 8.2% of net assets.
(b) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(c) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due dates on these types of
securities reflects the next interest rate reset date or, when
applicable, the final maturity date.
(d) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(e) Foreign government obligations not individually rated by S&P or
Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 62.9% AAA, AA, A 58.2%
Baa 27.3% BBB 28.4%
Ba 3.8% BB 3.4%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 0.9%.
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $357,035,000. Net unrealized appreciation
aggregated $3,239,000, of which $3,979,000 related to appreciated
investment securities and $740,000 related to depreciated investment
securities.
At September 30, 1998, the fund had a capital loss carryforward of
approximately $81,724,000 of which $39,973,000, $35,409,000,
$4,138,000, and $2,204,000 will expire on September 30, 2003, 2004,
2005, and 2006, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) SEPTEMBER
30, 1998
ASSETS
Investment in securities, at $ 360,274
value (including repurchase
agreements of $16,337) (cost
$357,034) - See
accompanying schedule
Receivable for investments 735
sold
Receivable for fund shares 294
sold
Interest receivable 3,841
TOTAL ASSETS 365,144
LIABILITIES
Payable for investments $ 736
purchased Regular delivery
Delayed delivery 5,615
Payable for fund shares 500
redeemed
Distributions payable 294
Accrued management fee 112
Other payables and accrued 4
expenses
TOTAL LIABILITIES 7,261
NET ASSETS $ 357,883
Net Assets consist of:
Paid in capital $ 437,742
Distributions in excess of (1,312)
net investment income
Accumulated undistributed net (81,787)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 3,240
(depreciation) on investments
NET ASSETS, for 39,220 shares $ 357,883
outstanding
NET ASSET VALUE, offering $9.12
price and redemption price
per share ($357,882.571
(divided by) 39,220.016
shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR
ENDED
SEPTEMBER 30, 1998
INVESTMENT INCOME $ 21,442
Interest
EXPENSES
Management fee $ 2,055
Non-interested trustees' 1
compensation
Total expenses before 2,056
reductions
Expense reductions (862) 1,194
NET INVESTMENT INCOME 20,248
REALIZED AND UNREALIZED GAIN (167)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized 2,855
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 2,688
NET INCREASE (DECREASE) IN $ 22,936
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1998 YEAR ENDED SEPTEMBER 30, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 20,248 $ 19,923
income
Net realized gain (loss) (167) (2,472)
Change in net unrealized 2,855 3,201
appreciation (depreciation)
NET INCREASE (DECREASE) IN 22,936 20,652
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (19,966) (19,752)
from net investment income
Share transactions Net 203,528 115,689
proceeds from sales of shares
Reinvestment of distributions 16,900 16,035
Cost of shares redeemed (152,987) (188,730)
NET INCREASE (DECREASE) IN 67,441 (57,006)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 70,411 (56,106)
IN NET ASSETS
NET ASSETS
Beginning of period 287,472 343,578
End of period (including $ 357,883 $ 287,472
distributions in excess of
net investment income of
$1,312 and $1,512,
respectively)
OTHER INFORMATION
Shares
Sold 22,486 12,804
Issued in reinvestment of 1,867 1,775
distributions
Redeemed (16,902) (20,894)
Net increase (decrease) 7,451 (6,315)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990
of period
Income from Investment .579 B .588 B .598 .584 .574
Operations Net investment
income
Net realized and unrealized .063 .025 (.112) (.199) (.604)
gain (loss)
Total from investment .642 .613 .486 .385 (.030)
operations
Less Distributions
From net investment income (.572) (.583) (.596) (.443) (.477)
In excess of net investment - - - - (.033)
income
In excess of net realized - - - - (.010)
gain
Return of capital - - - (.142) (.110)
Total distributions (.572) (.583) (.596) (.585) (.630)
Net asset value, end of period $ 9.12 $ 9.050 $ 9.020 $ 9.130 $ 9.330
TOTAL RETURN A 7.33% 7.00% 5.47% 4.35% (.32)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 358 $ 287 $ 344 $ 522 $ 798
(in millions)
Ratio of expenses to average .38% C .50% C .65% .65% .54% C
net assets
Ratio of expenses to average .38% .50% .64% D .65% .54%
net assets after expense
reductions
Ratio of net investment 6.40% 6.50% 6.52% 6.45% 6.42%
income to average net assets
Portfolio turnover rate 117% 105% 134% 159% 97%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Term Bond Fund (the fund) is a fund of Fidelity Charles
Street Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include
temporary book and tax basis differences that will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year
end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $416,192,000 and $354,639,000, respectively, of which U.S.
government and government agency obligations aggregated $225,247,000
and $209,735,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $5,000 for the period. Effective June 27, 1998 these
transaction fees were eliminated.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .38% of average net assets through
December 31, 1998. For the period, the reimbursement reduced the
expenses by $854,000.
In addition, FMR has entered into arrangements on behalf of the fund
with the fund's custodian and transfer agent whereby credits realized
as a result of uninvested cash balances were used to reduce a portion
of the fund's expenses. During the period, the fund's expenses were
reduced by $8,000 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Spartan Short-Term Bond Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Spartan Short-Term Bond Fund (a fund of Fidelity Charles Street
Trust) at September 30, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Spartan Short-Term Bond Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at September 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
DISTRIBUTIONS
A total of 17.42% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Andrew J. Dudley, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
SST-ANN-1198 64442
1.537457.101
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target TimelineSM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
Spartan Short-Term Bond Fund
(A Fund of Fidelity Charles Street Trust)
Fidelity Short-Term Bond Fund
(A Fund of Fidelity Fixed-Income Trust)
FORM N-14
STATEMENT OF ADDITIONAL INFORMATION
April 19, 1999
This Statement of Additional Information, relates to the proposed
reorganization whereby Fidelity Short-Term Bond Fund, a fund of
Fidelity Fixed-Income Trust, would acquire all of the assets of
Spartan Short-Term Bond Fund, a fund of Fidelity Charles Street Trust,
and assume all of Spartan Short-Term Bond Fund's liabilities in
exchange solely for shares of beneficial interest in Fidelity
Short-Term Bond Fund.
This Statement of Additional Information consists of this cover page
and the following described documents, each of which is incorporated
herein by reference:
1. The Statement of Additional Information of Fidelity Short-Term
Bond Fund dated June 26, 1998 (File No. 2-41839, which was
previously filed on June 19, 1998 via EDGAR (Accession No.
0000035315-98-000010).
2. The Prospectus and Statement of Additional Information of Spartan
Short-Term Bond Fund dated November 24, 1998 (File No. 2-73133,
which was previously filed on November 20, 1998 via EDGAR
(Accession No. 0000354046-98-000014).
3. The Supplement to the Prospectus of Spartan Short-Term Bond Fund
dated January 1, 1999, which was previously filed on December 31,
1998 via EDGAR (Accession No. 0000718891-98-000020).
4. The audited Financial Statements included in the Annual Report of
Fidelity Short-Term Bond Fund for the fiscal year ended April 30,
1998, which was previously filed on June 19, 1998 via EDGAR
(Accession No. 000035315-98-000009).
5. The audited Financial Statements included in the Annual Report of
Spartan Short-Term Bond Fund for the fiscal year ended September
30, 1998, which was previously filed on November 17, 1998 via
EDGAR (Accession No. 0000354046-98-000013).
6. The unaudited Financial Statements included in the Semiannual
Report of Fidelity Short-Term Bond Fund for the semi-annual period
ended October 31, 1998, which was previously filed on December 18,
1998 via EDGAR (Accession No. 0000729218-98-000028).
7. The Pro Forma Financial Statements for Spartan Short-Term Bond
Fund and Fidelity Short-Term Bond Fund for the 12 month period
ended October 31, 1998.
This Statement of Additional Information is not a prospectus. A Proxy
Statement and Prospectus dated April 19, 1999, relating to the
above-referenced matter may be obtained from Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, Massachusetts, 02109. This
Statement of Additional Information relates to, and should be read in
conjunction with, such Proxy Statement and Prospectus.
PART C. OTHER INFORMATION
Item 15. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Trust shall indemnify any present or past Trustee or officer
to the fullest extent permitted by law against liability, and all
expenses reasonably incurred by him or her in connection with any
claim, action, suit, or proceeding in which he or she is involved by
virtue of his or her service as a trustee or officer and against any
amount incurred in the settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other adjudicatory body to
be liable to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties (collectively, "disabling conduct"), or not to have
acted in good faith in the reasonable belief that his or her action
was in the best interest of the Trust. In the event of a settlement,
no indemnification may be provided unless there has been a
determination, as specified in the Declaration of Trust, that the
officer or trustee did not engage in disabling conduct.
Pursuant to Section 11 of the Distribution Agreement, the Trust
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading
under the 1933 Act, or any other statute or the common law. However,
the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust by or on behalf of the Distributor. In no case is the indemnity
of the Trust in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any
liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("FSC") is appointed transfer agent, the Trust agrees to indemnify and
hold FSC harmless against any losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from:
(1) any claim, demand, action or suit brought by any person other
than the Trust, including by a shareholder, which names FSC and/or the
Trust as a party and is not based on and does not result from FSC's
willful misfeasance, bad faith or negligence or reckless disregard of
duties, and arises out of or in connection with FSC's performance
under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FSC's willful misfeasance, bad faith or negligence
or reckless disregard of its duties) which results from the negligence
of the Trust, or from FSC's acting upon any instruction(s) reasonably
believed by it to have been executed or communicated by any person
duly authorized by the Trust, or as a result of FSC's acting in
reliance upon advice reasonably believed by FSC to have been given by
counsel for the Trust, or as a result of FSC's acting in reliance upon
any instrument or stock certificate reasonably believed by it to have
been genuine and signed, countersigned or executed by the proper
person.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust, dated March 17, 1994,
is incorporated herein by reference to Exhibit 1(a) of Post
Effective Amendment No. 70.
(2) Bylaws of Fidelity Fixed-Income Trust, as amended, are
incorporated herein by reference to Exhibit 2(a) of Fidelity
Union Street Trust's Post-Effective Amendment No. 87 (File No.
2-50318).
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization between Fidelity
Charles Street Trust: Spartan Short-Term Bond Fund and Fidelity
Fixed-Income Trust: Fidelity Short-Term Bond Fund is filed
herein as Exhibit 1 to the Proxy Statement and Prospectus.
(5) Articles VIII and XII of the Amended and Restated Declaration of
Trust, dated March 17, 1994 are incorporated by reference to
Exhibit 1(a) of Post Effective Amendment No. 70.
(6)(a) Management Contract, dated November 1, 1993, between Fidelity
Short-Term Bond Portfolio (currently known as Fidelity
Short-Term Bond Fund) and Fidelity Management & Research
Company is incorporated herein by reference to Exhibit 5(a) of
Post Effective Amendment No.71.
(b) Management Contract, dated November 1, 1993, between Fidelity
Investment Grade Bond Fund and Fidelity Management & Research
Company is incorporated herein by reference to Exhibit 5(b) of
Post-Effective Amendment No. 71.
(c) Management Contract, dated November 1, 1989, between Spartan
Government Fund (currently known as Spartan Government Income
Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(c) of
Post-Effective No. 74.
(d) Management Contract, dated November 1, 1993, between Spartan
High Income Fund (currently known as Fidelity High Income Fund)
and Fidelity Management & Research Company is incorporated
herein by reference to Exhibit 5(d) of Post-Effective Amendment
No. 74.
(e) Management Contract, dated November 19, 1992, between Spartan
Short-Intermediate Government Fund and Fidelity Management &
Research Company is incorporated herein by reference to Exhibit
5(e) of Post-Effective No. 74.
(f) Sub-Advisory Agreement, dated November 1, 1989, between
Fidelity Management & Research Company and Fidelity Management
& Research (U.K.) on behalf of Fidelity Short-Term Bond
Portfolio (currently known as Fidelity Short-Term Bond Fund) is
incorporated herein by reference to Exhibit 5(f) of
Post-Effective No. 74.
(g) Sub-Advisory Agreement, dated November 1, 1989, between
Fidelity Management & Research Company and Fidelity Management
& Research (Far East) on behalf of Fidelity Short-Term Bond
Portfolio (currently known as Fidelity Short-Term Bond Fund) is
incorporated herein by reference to Exhibit 5(g) of
Post-Effective No. 74.
(h) Sub-Advisory Agreement, dated November 1, 1989, between
Fidelity Management & Research Company and Fidelity Management
& Research (U.K.) on behalf of Fidelity Flexible Bond Portfolio
(currently known as Fidelity Investment Grade Bond Fund) is
incorporated herein by reference to Exhibit 5(h) of
Post-Effective No. 74.
(i) Sub-Advisory Agreement, dated November 1, 1989, between
Fidelity Management & Research Company and Fidelity Management
& Research (Far East) on behalf of Fidelity Flexible Bond
Portfolio (currently known as Fidelity Investment Grade Bond
Fund) is incorporated herein by reference to Exhibit 5(i) of
Post-Effective No. 74.
(j) Sub-Advisory Agreement, dated November 1, 1993, between
Fidelity Management & Research Company and Fidelity Management
& Research (U.K.) on behalf of Spartan High Income Fund
(currently known as Fidelity High Income Fund) is incorporated
herein by reference to Exhibit 5(j) of Post-Effective No. 74.
(k) Sub-Advisory Agreement, dated November 1, 1993, between
Fidelity Management & Research Company and Fidelity Management
& Research (Far East) on behalf of Spartan High Income Fund
(currently known as Fidelity High Income Fund) is incorporated
herein by reference to Exhibit 5(k) of Post-Effective No. 74.
(7)(a) General Distribution Agreement, dated April 1, 1987, between
Fidelity Flexible Bond Portfolio (currently known as Fidelity
Investment Grade Bond Fund) and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(a)
of Post-Effective Amendment No. 74.
(b) Amendment, dated January 1, 1988, to the General Distribution
Agreement between Fidelity Flexible Bond Portfolio (currently
known as Fidelity Investment Grade Bond Fund) and Fidelity
Distributors Corporation is incorporated herein by reference to
Exhibit 6(b) of Post-Effective No. 74.
(c) General Distribution Agreement, dated April 1, 1987, between
Fidelity Short-Term Bond Portfolio (currently known as Fidelity
Short-Term Bond Fund) and Fidelity Distributors Corporation is
incorporated herein by reference to Exhibit 6(c) of
Post-Effective Amendment No. 74.
(d) Amendment, dated January 1, 1988, to the General Distribution
Agreement between Fidelity Short-Term Bond Portfolio (currently
known as Fidelity Short-Term Bond Fund), and Fidelity
Distributors Corporation is incorporated herein by reference to
Exhibit 6(d) of Post-Effective Amendment No. 74.
(e) General Distribution Agreement, dated November 7, 1998, between
Spartan Government Fund (currently known as Spartan Government
Income Fund) and Fidelity Distributors Corporation is
incorporated herein by reference to Exhibit 6(e) of
Post-Effective Amendment No. 74.
(f) General Distribution Agreement, dated July 19, 1989, between
Spartan High Income Fund (currently known as Fidelity High
Income Fund) and Fidelity Distributors Corporation is
incorporated herein by reference to Exhibit 6(f) of
Post-Effective Amendment No. 74.
(g) Amendment, dated May 10, 1994, to the General Distribution
Agreement between Spartan High Income Fund (currently known as
Fidelity High Income Fund), and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(g)
of Post-Effective Amendment No. 74.
(h) General Distribution Agreement, dated November 19, 1992,
between Spartan Short-Intermediate Government Fund and Fidelity
Distributors Corporation is incorporated herein by reference to
Exhibit 6(h) of Post-Effective Amendment No. 77.
(i) Amendments to the General Distribution Agreement between
Fidelity Fixed-Income Trust on behalf of the Registrant and
Fidelity Distributors Corporation, dated March 14, 1996 and
July 15, 1996, are incorporated herein by reference to Exhibit
6(a) of Fidelity Court Street Trust's Post-Effective Amendment
No. 61 (File No. 2-58774).
(8)(a) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is
incorporated herein by reference to Exhibit 7(a) of Fidelity
Select Portfolio's Post-Effective Amendment No. 54 (File No.
2-69972).
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14,
1995 and amended through November 14, 1996, is incorporated
herein by reference to Exhibit 7(b) of Fidelity Aberdeen Street
Trust's Post-Effective Amendment No. 19 (File No. 33-43529).
(9)(a) Custodian Agreement and Appendix C, dated December 1, 1994,
between The Bank of New York and the Registrant is incorporated
herein by reference to Exhibit 8(a) of Fidelity Hereford Street
Trust's Post-Effective Amendment No. 4 (File No. 33-52577).
(b) Appendix A, dated September 18, 1997, to the Custodian
Agreement, dated December 1, 1994, between The Bank of New York
and the Registrant is incorporated herein by reference to
Exhibit 8(e) of Fidelity Charles Street Trust's Post-Effective
Amendment No. 62 (File No. 2-73133).
(c) Appendix B, dated September 18, 1997, to the Custodian
Agreement, dated December 1, 1994, between The Bank of New York
and the Registrant is incorporated herein by reference to
Exhibit 8(f) of Fidelity Charles Street Trust's Post-Effective
Amendment No. 62 (File No. 2-73133).
(d) Fidelity Group Repo Custodian Agreement among The Bank of New
York, J. P. Morgan Securities, Inc., and the Registrant, dated
February 12, 1996, is incorporated herein by reference to
Exhibit 8(d) of Fidelity Institutional Cash Portfolios'
Post-Effective Amendment No. 31 (File No. 2-74808).
(e) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between The Bank of New York and the Registrant, dated February
12, 1996, is incorporated herein by reference to Exhibit 8(e)
of Fidelity Institutional Cash Portfolios' Post-Effective
Amendment No. 31 (File No. 2-74808).
(f) Fidelity Group Repo Custodian Agreement among Chemical Bank,
Greenwich Capital Markets, Inc., and the Registrant, dated
November 13, 1995, is incorporated herein by reference to
Exhibit 8(f) of Fidelity Institutional Cash Portfolios'
Post-Effective Amendment No. 31 (File No. 2-74808).
(g) Schedule 1 to the Fidelity Group Repo Custodian Agreement
between Chemical Bank and the Registrant, dated November 13,
1995, is incorporated herein by reference to Exhibit 8(g) of
Fidelity Institutional Cash Portfolios' Post-Effective
Amendment No. 31 (File No. 2-74808).
(h) Joint Trading Account Custody Agreement between The Bank of New
York and the Registrant, dated May 11, 1995, is incorporated
herein by reference to Exhibit 8(h) of Fidelity Institutional
Cash Portfolios' Post-Effective Amendment No. 31 (File No.
2-74808).
(i) First Amendment to Joint Trading Account Custody Agreement
between The Bank of New York and the Registrant, dated July 14,
1995, is incorporated herein by reference to Exhibit 8(i) of
Fidelity Institutional Cash Portfolios' Post-Effective
Amendment No. 31 (File No. 2-74808).
(10)(a) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Short-Term Bond Fund is incorporated herein by
reference to Exhibit 15(a) of Post-Effective Amendment No. 79.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Investment Grade Bond Fund is incorporated herein by
reference to Exhibit 15(b) of Post-Effective Amendment No. 79.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan High Income Fund (currently Fidelity High Income Fund)
is incorporated herein by reference to Exhibit 15(c) of
Post-Effective Amendment No. 79.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Government Income is incorporated herein by reference
to Exhibit 15(d) of Post-Effective Amendment No. 79.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Short-Intermediate Government Fund is incorporated
herein by reference to Exhibit 15(e) of Post-Effective
Amendment No. 79.
(11) Opinion and consent of Kirkpatrick & Lockhart LLP as to the
legality of shares being registered is filed herein as Exhibit
11.
(12) Opinion and consent of Kirkpatrick & Lockhart LLP as to tax
matters in connection with the reorganization of Spartan
Short-Term Bond Fund is filed herein as Exhibit 12.
(13) Not applicable.
(14) Consent of PricewaterhouseCoopers LLP is filed herein as Exhibit
14.
(15) Pro Forma combining financial statements are filed herein as
Exhibit 15.
(16) Powers of Attorney, dated December 19, 1996, March 6, 1997 and
July 17, 1997 are filed herein as Exhibit 16.
(17) Form of Proxy is filed herein as Exhibit 17.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the applicable
registration form for reoffering by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an amendment
to the Registration Statement and will not be used until the amendment
is effective, and that, in determining any liability under the
Securities Act of 1933, each Post-Effective Amendment shall be deemed
to be a new Registration Statement for the securities offered therein,
and the offering of securities at that time shall be deemed to be the
initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of the registrant by
the undersigned, thereunto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 3rd day of March 1999.
Fidelity Fixed-Income Trust
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
(Signature) (Title) (Date)
/s/Edward C. Johnson 3d President and Trustee March 3, 1999
(dagger)
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer March 3, 1999
Richard A. Silver
/s/Robert C. Pozen Trustee March 3, 1999
Robert C. Pozen
/s/Ralph F. Cox Trustee March 3, 1999
*
Ralph F. Cox
/s/Phyllis Burke Davis Trustee March 3, 1999
*
Phyllis Burke Davis
/s/Robert M. Gates Trustee March 3, 1999
**
Robert M. Gates
/s/E. Bradley Jones Trustee March 3, 1999
*
E. Bradley Jones
/s/Donald J. Kirk Trustee March 3, 1999
*
Donald J. Kirk
/s/Peter S. Lynch Trustee March 3, 1999
*
Peter S. Lynch
/s/Marvin L. Mann Trustee March 3, 1999
*
Marvin L. Mann
/s/William O. McCoy Trustee March 3, 1999
*
William O. McCoy
/s/Gerald C. McDonough Trustee March 3, 1999
*
Gerald C. McDonough
/s/Thomas R. Williams Trustee March 3, 1999
*
Thomas R. Williams
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
</TABLE>
Exhibit 11
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone (202) 778-9000
Facsimile (202) 778-9100
February 24, 1999
Fidelity Fixed-Income Trust
82 Devonshire Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
You have requested our opinion regarding certain matters in
connection with the issuance of shares of Fidelity Short-Term Bond
Fund ("Short-Term Bond"), a series of Fidelity Fixed-Income Trust (the
"Trust"), pursuant to a Registration Statement to be filed by the
Trust on Form N-14 ("Registration Statement") under the Securities Act
of 1933 ("1933 Act"). These shares will be issued in connection with
the proposed acquisition by Short-Term Bond of all of the assets of
Spartan Short-Term Bond Fund ("Spartan Short-Term Bond"), a fund of
Fidelity Charles Street Trust and the assumption by Short-Term Bond of
the liabilities of Spartan Short-Term Bond solely in exchange for
shares of Short-Term Bond.
In connection with our services as counsel for the Trust, we have
examined, among other things, originals or copies of such documents,
certificates and corporate and other records as we deemed necessary or
appropriate for purposes of this opinion. We have assumed the
genuineness of all signatures, the authenticity of all documents
submitted to us, the conformity to original documents of all documents
presented to us as copies thereof and the authenticity of the original
documents from which any such copies were made, which assumptions we
have not independently verified. As to various matters of fact
material to this opinion, we have relied upon statements and
certificates of officers of the Trust. Based upon this examination,
we are of the opinion that, except as described herein, the shares to
be issued pursuant to the Registration Statement have been duly
authorized and, when issued upon the terms provided in the
Registration Statement, subject to compliance with the 1933 Act, the
Investment Company Act of 1940, and applicable state law regulating
the offer and sale of securities, will be legally issued, fully paid,
and non-assessable, and no shareholder of Short-Term Bond has any
preemptive right of subscription or purchase in respect thereof.
We note, however, that the Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law,
shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The Declaration of Trust
states that all persons extending credit to, contracting with or
having any claim against the Trust or the Trustees shall look only to
the assets of the appropriate Series for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be
personally liable therefor. The Declaration of Trust also requires
that every note, bond, contract or other undertaking issued by or on
behalf of the Trust or the Trustees relating to the Trust shall
include a recitation limiting the obligation represented thereby to
the Trust and its assets (but the omission of such recitation shall
not operate to bind any Shareholder). The Declaration of Trust further
provides: (1) for indemnification from the assets of the applicable
Series for all loss and expense of any shareholder or former
shareholder held personally liable solely by reason of his being or
having been a shareholder; and (2) for a Series to assume, upon
request by the shareholder, the defense of any claim made against the
shareholder for any act or obligation of the Series 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 the Trust or Series would be unable to meet its obligations.
We hereby consent to the reference to our firm under the caption
"Legal Matters" in the Proxy Statement and Prospectus which
constitutes a part of the Registration Statement. We further consent
to your filing a copy of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 12
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
2nd Floor
Washington, D.C. 20036-1800
Telephone (202) 778-9000
Facsimile (202) 778-9100
February 22, 1999
Fidelity Charles Street Trust
Fidelity Fixed-Income Trust
82 Devonshire Street
Boston, MA 02109
Ladies and Gentlemen:
Fidelity Charles Street Trust ("FCST"), a Massachusetts business
trust, on behalf of Spartan Short-Term Bond Fund ("Acquired"), a
series of FCST, and Fidelity Fixed-Income Trust ("FFIT"), a
Massachusetts business trust, on behalf of Fidelity Short-Term Bond
Fund ("Acquiring"), a series of FFIT, have requested our opinion as to
certain federal income tax consequences of a transaction
("Reorganization") in which Acquiring will acquire all of the assets
and assume all of the liabilities of Acquired in exchange solely for
shares of beneficial interest in Acquiring ("Acquiring Shares")
pursuant to an Agreement and Plan of Reorganization ("Agreement")
expected to be entered into between Acquired and Acquiring as of April
19, 1999.
In rendering this opinion, we have examined a draft of the Agreement
("Draft Agreement"), the prospectus/proxy statement to be filed with
the Securities and Exchange Commission ("SEC") in connection with the
Reorganization, the currently effective prospectuses and statements of
additional information of Acquired and Acquiring, and such other
documents as we have deemed necessary. We have also relied, with your
consent, on certificates of officers of FCST and FFIT.
OPINION
Based solely on the facts and representations set forth in the
reviewed documents and the certificates of officers of FCST and FFIT,
and assuming that (i) those representations are true on the date of
the Reorganization, (ii) the Reorganization is consummated in
accordance with the Agreement, and (iii) the Agreement does not differ
materially from the Draft Agreement, our opinion with respect to the
federal income tax consequences of the Reorganization is as follows.
1. The Reorganization will be a reorganization under section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
("Code"), and Acquired and Acquiring will each be parties to the
Reorganization under section 368(b) of the Code.
2. No gain or loss will be recognized by Acquired upon the transfer
of all of its assets to Acquiring in exchange solely for Acquiring
Shares and Acquiring's assumption of Acquired's liabilities followed
by the distribution of those Acquiring Shares to the Acquired
shareholders in liquidation of Acquired.
3. No gain or loss will be recognized by Acquiring on the receipt of
Acquired's assets in exchange solely for Acquiring Shares and the
assumption of Acquired's liabilities.
4. The basis of Acquired's assets in the hands of Acquiring will be
the same as the basis of such assets in Acquired's hands immediately
prior to the Reorganization.
5. Acquiring's holding period in the assets to be received from
Acquired will include Acquired's holding period in such assets.
6. The Acquired shareholders will recognize no gain or loss on the
exchange of the shares of beneficial interest in Acquired ("Acquired
Shares") solely for the Acquiring Shares in the Reorganization.
7. The Acquired shareholders' basis in the Acquiring Shares to be
received by them will be the same as their basis in the Acquired
Shares to be surrendered in exchange therefor.
8. The holding period of the Acquiring Shares to be received by the
Acquired shareholders will include the holding period of the Acquired
Shares to be surrendered in exchange therefor, provided those Acquired
Shares were held as capital assets on the date of the Reorganization.
The foregoing opinion is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the
regulations thereunder, case law precedent, and the Internal Revenue
Service pronouncements in existence at the date hereof. We express no
opinion as to whether Acquired will recognize gain under Section 1256
of the Code on the transfer of futures, forwards, or options to
Acquiring in the Reorganization. Nor do we express any opinion other
than those contained herein.
We consent to the inclusion of this opinion in the Registration
Statement on Form N-14 filed with the SEC and the inclusion of the
name "Kirkpatrick & Lockhart LLP" in the "Federal Income Tax
Consequences of the Reorganization," "Federal Income Tax
Considerations" and "Legal Matters" sections of that Registration
Statement.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Proxy
Statement and Prospectus (the Proxy/Prospectus) constituting part of
this Registration Statement on Form N-14 (the Registration Statement)
of Fidelity Fixed-Income Trust: Fidelity Short-Term Bond Fund, of our
report dated June 18, 1998 on the financial statements and financial
highlights included in the April 30, 1998 Annual Report to
Shareholders of Fidelity Fixed-Income Trust: Fidelity Short-Term Bond
Fund.
We also consent to the incorporation by reference in the Registration
Statement, of our report dated November 6, 1998 on the financial
statements and financial highlights included in the September 30, 1998
Annual Report to Shareholders of Fidelity Charles Street Trust:
Spartan Short-Term Bond Fund.
We further consent to the references to our Firm under the headings
"Experts" and "Financial Highlights" in the Proxy/Prospectus and to
the references to our Firm under the headings "Financial Highlights"
in the Prospectuses and "Auditor" in the Statements of Additional
Information for Fidelity Fixed-Income Trust: Fidelity Short-Term Bond
Fund and Fidelity Charles Street Trust: Spartan Short-Term Bond Fund,
which also are incorporated by reference into the Proxy/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 1999
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
NONCONVERTIBLE BONDS - 41.3%
BASIC INDUSTRIES
CHEMICALS & PLASTICS
Methanex Corp. yankee 8.875% A2 $ 8,440 $ 8,704 $ 3,500 $ 3,610 $ 11,940
11/15/01
PACKAGING & CONTAINERS
Owens-Illinois, Inc. 7.15% Ba1 3,430 3,412 1,390 1,383 4,820
5/15/05
TOTAL BASIC INDUSTRIES 12,116 4,993
CONSTRUCTION & REAL ESTATE
REAL ESTATE INVESTMENT TRUSTS
Camden Property Trust 6.25% Baa2 6,600 6,521 2,825 2,791 9,425
2/15/01
CenterPoint Properties Trust Baa2 1,100 1,053 430 411 1,530
6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 Baa1 2,920 2,869 1,250 1,228 4,170
6.376% 2/15/02 Baa1 2,200 2,173 900 889 3,100
Weeks Realty LP 6.875% 3/15/05 Baa2 3,000 2,796 1,100 1,025 4,100
15,412 6,344
ENERGY
OIL & GAS
Occidental Petroleum Corp. Baa3 1,570 1,587 580 586 2,150
6.09% 11/29/99
Oryx Energy Co.:
8.125% 10/15/05 Ba1 370 397 160 172 530
8.375% 7/15/04 Ba1 950 1,011 400 426 1,350
2,995 1,184
FINANCE
BANKS
Banc One Corp. 6.7% 3/24/00 Aa3 3,700 3,764 1,250 1,272 4,950
Banco Latinoamericano
Exportaciones SA euro:
6.45% 9/13/99 (a) Baa2 2,880 2,938 930 949 3,810
6.9% 12/4/99 (a) Baa2 1,700 1,712 550 554 2,250
BanPonce Corp. 6.488% 3/3/00 A3 3,450 3,509 1,290 1,312 4,740
BanPonce Financial Corp.
6.88% 6/16/00 A3 1,450 1,486 510 523 1,960
7.65% 5/3/00 A3 3,750 3,889 1,550 1,607 5,300
Barclays Bank PLC yankee A1 5,600 5,658 2,500 2,526 8,100
5.875% 7/15/00
Capital One Bank:
5.95% 2/15/01 2,000 1,982 2,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
NONCONVERTIBLE BONDS - 41.3%
BASIC INDUSTRIES
CHEMICALS & PLASTICS
Methanex Corp. yankee 8.875% $ 12,314
11/15/01
PACKAGING & CONTAINERS
Owens-Illinois, Inc. 7.15% 4,795
5/15/05
TOTAL BASIC INDUSTRIES 17,109
CONSTRUCTION & REAL ESTATE
REAL ESTATE INVESTMENT TRUSTS
Camden Property Trust 6.25% 9,312
2/15/01
CenterPoint Properties Trust 1,464
6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 4,097
6.376% 2/15/02 3,062
Weeks Realty LP 6.875% 3/15/05 3,821
21,756
ENERGY
OIL & GAS
Occidental Petroleum Corp. 2,173
6.09% 11/29/99
Oryx Energy Co.:
8.125% 10/15/05 569
8.375% 7/15/04 1,437
4,179
FINANCE
BANKS
Banc One Corp. 6.7% 3/24/00 5,036
Banco Latinoamericano
Exportaciones SA euro:
6.45% 9/13/99 (a) 3,887
6.9% 12/4/99 (a) 2,266
BanPonce Corp. 6.488% 3/3/00 4,821
BanPonce Financial Corp.
6.88% 6/16/00 2,009
7.65% 5/3/00 5,496
Barclays Bank PLC yankee 8,184
5.875% 7/15/00
Capital One Bank:
5.95% 2/15/01 1,982
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
TECHNOLOGY
6.42% 11/12/99 Baa3 6,000 6,037 2,200 2,214 8,200
7.35% 6/20/00 Baa3 6,150 6,246 2,400 2,437 8,550
First USA Bank 6.5% 12/23/99 Aa2 5,400 5,468 1,700 1,721 7,100
KeyCorp. 7.45% 4/5/00 A1 3,250 3,360 1,100 1,137 4,350
NationsBank Corp. 5.75% 3/15/01 Aa2 7,700 7,818 3,000 3,046 10,700
Popular, Inc. 6.4% 8/25/00 A3 2,270 2,276 1,410 1,414 3,680
Providian National Bank:
6.25% 5/7/01 Baa3 3,200 3,231 1,300 1,313 4,500
6.7% 3/15/03 Baa3 5,000 5,013 1,800 1,805 6,800
62,405 25,812
CREDIT & OTHER FINANCE
Abbey National PLC 6.69% Aa3 5,400 5,563 2,400 2,472 7,800
10/17/05
Aristar, Inc. 6% 8/1/01 A3 4,500 4,518 3,200 3,213 7,700
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 5,690 5,769 1,940 1,967 7,630
6.25% 5/15/01 Baa3 7,310 7,253 2,500 2,481 9,810
Chrysler Financial Corp.:
5.25% 5/4/01 A2 6,400 6,394 2,800 2,797 9,200
8.42% 2/1/99 A3 2,500 2,517 2,500
Chrysler Financial LLC 6.375% A2 5,460 5,527 1,720 1,741 7,180
1/28/00
Edison Mission Energy Funding Baa1 5,117 5,300 1,667 1,727 6,784
Corp. 6.77% 9/15/03 (a)
ERP Operating LP 6.55% 11/15/01 A3 800 800 350 350 1,150
Finova Capital Corp. 6.27% Baa1 1,650 1,655 580 582 2,230
9/29/00
Ford Motor Credit Co. 5.125% A1 3,400 3,378 1,300 1,292 4,700
10/15/01
General Electric Capital Aaa 2,600 2,672 5,000 5,138 7,600
Corp. 6.01% 4/30/01
General Motors Acceptance
Corp.:
5.85% 4/20/00 A2 14,820 14,966 4,480 4,524 19,300
9% 10/15/02 A2 3,000 3,357 3,000
GS Escrow Corp. 6.75% 8/1/01 Ba1 5,400 5,286 2,400 2,349 7,800
(a)
Heller Financial, Inc. 6.25% A3 4,000 4,024 1,500 1,509 5,500
3/1/01
MCN Investment Corp. 5.84% Baa3 3,640 3,642 1,450 1,451 5,090
2/1/99
Money Store, Inc. 7.3% 12/1/02 A2 1,870 1,983 650 689 2,520
North America Mortgage Co. Baa2 2,250 2,247 750 749 3,000
5.8% 11/2/98
Salton Sea Funding Corp. Baa2 2,121 2,141 654 660 2,775
7.02% 5/30/00
85,635 39,048
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
TECHNOLOGY
6.42% 11/12/99 8,251
7.35% 6/20/00 8,683
First USA Bank 6.5% 12/23/99 7,189
KeyCorp. 7.45% 4/5/00 4,497
NationsBank Corp. 5.75% 3/15/01 10,864
Popular, Inc. 6.4% 8/25/00 3,690
Providian National Bank:
6.25% 5/7/01 4,544
6.7% 3/15/03 6,818
88,217
CREDIT & OTHER FINANCE
Abbey National PLC 6.69% 8,035
10/17/05
Aristar, Inc. 6% 8/1/01 7,731
AT&T Capital Corp.:
6.16% 12/3/99 7,736
6.25% 5/15/01 9,734
Chrysler Financial Corp.:
5.25% 5/4/01 9,191
8.42% 2/1/99 2,517
Chrysler Financial LLC 6.375% 7,268
1/28/00
Edison Mission Energy Funding 7,027
Corp. 6.77% 9/15/03 (a)
ERP Operating LP 6.55% 11/15/01 1,150
Finova Capital Corp. 6.27% 2,237
9/29/00
Ford Motor Credit Co. 5.125% 4,670
10/15/01
General Electric Capital 7,810
Corp. 6.01% 4/30/01
General Motors Acceptance
Corp.:
5.85% 4/20/00 19,490
9% 10/15/02 3,357
GS Escrow Corp. 6.75% 8/1/01 7,635
(a)
Heller Financial, Inc. 6.25% 5,533
3/1/01
MCN Investment Corp. 5.84% 5,093
2/1/99
Money Store, Inc. 7.3% 12/1/02 2,672
North America Mortgage Co. 2,996
5.8% 11/2/98
Salton Sea Funding Corp. 2,801
7.02% 5/30/00
124,683
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
SAVINGS & LOANS
Great Western Financial Corp. A3 1,025 1,030 1,025
6.375% 7/1/00
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 3,500 3,496 1,650 1,648 5,150
7% 6/13/02 Baa3 3,080 3,155 970 994 4,050
6,651 3,672
SECURITIES INDUSTRY
Amvescap PLC Yankee 6.375% A3 2,800 2,868 1,100 1,127 3,900
5/15/03
TOTAL FINANCE 157,559 69,659
INDUSTRIAL MACHINERY &
EQUIPMENT
INDUSTRIAL MACHINERY &
EQUIPMENT
Tyco International Group SA Baa1 5,500 5,611 2,250 2,295 7,750
yankee 6.125% 6/15/01
POLLUTION CONTROL
WMX Technologies, Inc. 6.25% Baa3 4,435 4,481 750 758 5,185
10/15/00
TOTAL INDUSTRIAL MACHINERY & 10,092 3,053
EQUIPMENT
MEDIA & LEISURE
BROADCASTING
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 820 899 320 351 1,140
8.5% 9/15/01 Baa3 5,755 6,109 2,104 2,234 7,859
TCI Communications, Inc.:
6.375% 9/15/99 Baa3 9,675 9,761 3,075 3,102 12,750
8.25% 1/15/03 Baa3 725 801 220 243 945
9% 1/2/02 Ba1 2,300 2,544 730 808 3,030
Time Warner, Inc.:
7.95% 2/1/00 Baa3 8,775 9,018 4,330 4,450 13,105
7.975% 8/15/00 Baa3 1,650 1,825 675 747 2,325
30,957 11,935
ENTERTAINMENT
Paramount Communications, Baa3 2,620 2,741 992 1,038 3,612
Inc.7.5% 1/15/02
Viacom, Inc.:
6.75% 1/15/03 Baa3 11,320 11,671 4,455 4,593 15,775
7.75% 8/1/05 Baa3 4,300 4,635 1,950 2,102 6,250
19,047 7,733
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
SAVINGS & LOANS
Great Western Financial Corp. 1,030
6.375% 7/1/00
Long Island Savings Bank FSB:
6.2% 4/2/01 5,144
7% 6/13/02 4,149
10,323
SECURITIES INDUSTRY
Amvescap PLC Yankee 6.375% 3,995
5/15/03
TOTAL FINANCE 227,218
INDUSTRIAL MACHINERY &
EQUIPMENT
INDUSTRIAL MACHINERY &
EQUIPMENT
Tyco International Group SA 7,906
yankee 6.125% 6/15/01
POLLUTION CONTROL
WMX Technologies, Inc. 6.25% 5,239
10/15/00
TOTAL INDUSTRIAL MACHINERY & 13,145
EQUIPMENT
MEDIA & LEISURE
BROADCASTING
Continental Cablevision, Inc.:
8.3% 5/15/06 1,250
8.5% 9/15/01 8,343
TCI Communications, Inc.:
6.375% 9/15/99 12,863
8.25% 1/15/03 1,044
9% 1/2/02 3,352
Time Warner, Inc.:
7.95% 2/1/00 13,468
7.975% 8/15/00 2,572
42,892
ENTERTAINMENT
Paramount Communications, 3,779
Inc.7.5% 1/15/02
Viacom, Inc.:
6.75% 1/15/03 16,264
7.75% 8/1/05 6,737
26,780
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
PUBLISHING
News America Holdings, Inc. Baa3 4,300 4,723 1,440 1,582 5,740
8.5% 2/15/05
Time Warner Entertainment Baa2 1,900 2,130 800 897 2,700
Co. LP 9.625% 5/1/02
6,853 2,479
TOTAL MEDIA & LEISURE 56,857 22,147
NONDURABLES
FOODS
Dole Food, Inc. 6.75% 7/15/00 Baa2 6,300 6,343 2,290 2,305 8,590
TOBACCO
Philip Morris Companies, Inc.:
7.125% 12/1/99 A2 7,000 7,130 2,300 2,343 9,300
7.25% 9/15/01 A2 2,545 2,654 830 866 3,375
9,784 3,209
TOTAL NONDURABLES 16,127 5,514
RETAIL & WHOLESALE
GENERAL MERCHANDISE STORES
Dayton Hudson Corp.:
6.8% 10/1/01 A3 4,870 5,043 1,600 1,657 6,470
9.75% 7/1/02 A3 2,980 3,388 930 1,057 3,910
10% 12/1/00 A3 2,380 2,594 1,133 1,235 3,513
Federated Department Stores, Baa2 4,380 4,679 1,595 1,704 5,975
Inc. 8.125% 10/15/02
15,704 5,653
TECHNOLOGY
COMPUTER SERVICES & SOFTWARE
Computer Associates Baa1 1,760 1,756 700 698 2,460
International, Inc. 6.25%
4/15/03
COMPUTER & OFFICE EQUIPMENT
Comdisco, Inc.:
5.86% 4/7/00 Baa1 1,090 1,100 3,900 3,937 4,990
6.55% 2/4/00 Baa1 12,400 12,645 4,500 4,589 16,900
6.1% 6/5/01 Baa1 14,210 14,532 2580 2638 16,790
7.75% 9/1/99 Baa1 4,000 4,048 4,000
32,325 11,164
TOTAL TECHNOLOGY 34,081 11,862
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
PUBLISHING
News America Holdings, Inc. 6,305
8.5% 2/15/05
Time Warner Entertainment 3,027
Co. LP 9.625% 5/1/02
9,332
TOTAL MEDIA & LEISURE 79,004
NONDURABLES
FOODS
Dole Food, Inc. 6.75% 7/15/00 8,648
TOBACCO
Philip Morris Companies, Inc.:
7.125% 12/1/99 9,473
7.25% 9/15/01 3,520
12,993
TOTAL NONDURABLES 21,641
RETAIL & WHOLESALE
GENERAL MERCHANDISE STORES
Dayton Hudson Corp.:
6.8% 10/1/01 6,700
9.75% 7/1/02 4,445
10% 12/1/00 3,829
Federated Department Stores, 6,383
Inc. 8.125% 10/15/02
21,357
TECHNOLOGY
COMPUTER SERVICES & SOFTWARE
Computer Associates 2,454
International, Inc. 6.25%
4/15/03
COMPUTER & OFFICE EQUIPMENT
Comdisco, Inc.:
5.86% 4/7/00 5,037
6.55% 2/4/00 17,234
6.1% 6/5/01 17,170
7.75% 9/1/99 4,048
43,489
TOTAL TECHNOLOGY 45,943
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
TRANSPORTATION
AIR TRANSPORTATION
Continental Airlines, Inc. Baa1 2,500 2,506 1,250 1,253 3,750
Pass Through Trust
Certificates 7.08% 11/1/04
Delta Air Lines, Inc. 9.875% Baa3 1,150 1,218 475 503 1,625
5/15/00
3,724 1,756
RAILROADS
CSX Corp.:
7.05% 5/1/02 Baa2 3,850 4,007 1,250 1,301 5,100
9.5% 8/1/00 Baa2 3,200 3,407 2,500 2,662 5,700
Norfolk Southern Corp.:
6.7% 5/1/00 2,000 2,032 2,000
6.95% 5/1/02 Baa1 2,300 2,402 800 835 3,100
9,816 6,830
TOTAL TRANSPORTATION 13,540 8,586
UTILITIES
ELECTRIC UTILITY
Avon Energy Partners Holdings Baa2 2,800 2,901 1,000 1,036 3,800
yankee 6.73% 12/11/02 (a)
Indiana Michigan Power Co. Baa1 5,500 5,604 2,000 2,038 7,500
6.4% 3/1/00
Niagara Mohawk Power Corp. Ba1 2,000 2,056 850 874 2,850
6.875% 3/1/01
Ohio Edison Co. 7.375% 9/15/02 Baa2 2,900 3,051 900 947 3,800
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 2,200 2,211 840 844 3,040
6.5% 5/1/03 Baa1 1,550 1,614 700 729 2,250
Texas Utilities Electric Co. Baa1 2,700 2,757 1,000 1,021 3,700
7.375% 11/1/99
20,194 7,489
GAS
Arkla, Inc. 8.875% 7/15/99 Baa1 2,500 2,572 5,500 5,658 8,000
TELEPHONE SERVICES
MCI WorldCom, Inc.:
6.125% 8/15/01 Baa2 6,765 6,917 2,865 2,930 9,630
8.875% 1/15/06 Baa2 1,881 2,061 627 687 2,508
9.375% 1/15/04 Baa2 3,333 3,468 1,176 1,224 4,509
12,446 4,841
TOTAL UTILITIES 35,212 17,988
TOTAL NONCONVERTABLE BONDS 369,695 156,983
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
TRANSPORTATION
AIR TRANSPORTATION
Continental Airlines, Inc. 3,759
Pass Through Trust
Certificates 7.08% 11/1/04
Delta Air Lines, Inc. 9.875% 1,721
5/15/00
5,480
RAILROADS
CSX Corp.:
7.05% 5/1/02 5,308
9.5% 8/1/00 6,069
Norfolk Southern Corp.:
6.7% 5/1/00 2,032
6.95% 5/1/02 3,237
16,646
TOTAL TRANSPORTATION 22,126
UTILITIES
ELECTRIC UTILITY
Avon Energy Partners Holdings 3,937
yankee 6.73% 12/11/02 (a)
Indiana Michigan Power Co. 7,642
6.4% 3/1/00
Niagara Mohawk Power Corp. 2,930
6.875% 3/1/01
Ohio Edison Co. 7.375% 9/15/02 3,998
Philadelphia Electric Co.:
5.625% 11/1/01 3,055
6.5% 5/1/03 2,343
Texas Utilities Electric Co. 3,778
7.375% 11/1/99
27,683
GAS
Arkla, Inc. 8.875% 7/15/99 8,230
TELEPHONE SERVICES
MCI WorldCom, Inc.:
6.125% 8/15/01 9,847
8.875% 1/15/06 2,748
9.375% 1/15/04 4,692
17,287
TOTAL UTILITIES 53,200
TOTAL NONCONVERTABLE BONDS 526,678
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 16.5%
U.S. GOVERNMENT AGENCY
OBLIGATIONS
Federal Home Loan Bank 5.83% Aaa 5,000 5,060 5,000
12/24/99
Government trust Certificates
(assests of Trust guaranteed
by U.S. Government
Through Defense Security Aaa 898 952 312 330 1,210
Assistance Agency) Class
T-3, 9.625% 5/15/02
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994-C, 6.61% 9/15/99 Aaa 142 143 120 120 262
Series 1995-A, 6.28% 6/15/04 Aaa 4,235 4,380 1,412 1,460 5,647
Israel Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through Aaa 1,398 1,455 577 601 1,975
Export-Import Bank) Series
1994-1, 6.88% 1/26/03
Private Export Funding Corp. 1,029 1,081 993 1,044 2,022
secured 6.86% 4/30/04
8,011 8,615
U.S. TREASURY OBLIGATIONS
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 30,110 30,787 2,575 2,633 32,685
5.5% 3/31/00 Aaa 63,500 64,447 24,700 25,065 88,200
5.625% 11/30/99 Aaa 4,270 4,324 8,275 8,380 12,545
5.75% 10/31/00 Aaa 3,000 3,081 1,000 1,027 4,000
5.875% 2/15/00 Aaa 3,190 3,248 965 982 4,155
5.875% 7/31/99 Aaa 3,430 3,465 710 717 4,140
6.25% 2/28/02 Aaa 8,220 8,685 2,935 3,101 11,155
6.875% 3/31/00 Aaa 22,600 23,359 9,604 9,927 32,204
141,396 51,832
TOTAL U.S. GOVERNMENT AND 149,407 60,447
GOVERNMENT AGENCY OBLIGATIONS
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 8.7%
FANNIE MAE
6.5% 12/1/12 to 1/1/13 Aaa 5,317 5,395 5,317
6.5% 1/1/13 to 2/1/13 Aaa 16,108 16,345 16,108
6.5% 11/1/28 (b) Aaa 13,500 13,605 5,800 5,845 19,300
7% 11/1/28 (b) Aaa 12,500 12,773 12,500
7% 11/1/28 Aaa 5,500 5,620 5,500
11.5% 11/1/15 Aaa 1,085 1,208 446 496 1,531
43,931 17,356
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 16.5%
U.S. GOVERNMENT AGENCY
OBLIGATIONS
Federal Home Loan Bank 5.83% 5,060
12/24/99
Government trust Certificates
(assests of Trust guaranteed
by U.S. Government
Through Defense Security 1,282
Assistance Agency) Class
T-3, 9.625% 5/15/02
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994-C, 6.61% 9/15/99 263
Series 1995-A, 6.28% 6/15/04 5,840
Israel Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through 2,056
Export-Import Bank) Series
1994-1, 6.88% 1/26/03
Private Export Funding Corp. 2,125
secured 6.86% 4/30/04
16,626
U.S. TREASURY OBLIGATIONS
U.S. Treasury Notes:
5.375% 2/15/01 33,420
5.5% 3/31/00 89,512
5.625% 11/30/99 12,704
5.75% 10/31/00 4,108
5.875% 2/15/00 4,230
5.875% 7/31/99 4,182
6.25% 2/28/02 11,786
6.875% 3/31/00 33,286
193,228
TOTAL U.S. GOVERNMENT AND 209,854
GOVERNMENT AGENCY OBLIGATIONS
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 8.7%
FANNIE MAE
6.5% 12/1/12 to 1/1/13 5,395
6.5% 1/1/13 to 2/1/13 16,345
6.5% 11/1/28 (b) 19,450
7% 11/1/28 (b) 12,773
7% 11/1/28 5,620
11.5% 11/1/15 1,704
61,287
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
FREDDIE MAC
7% 1/22/01 to 8/1/01 Aaa 1,874 1,893 1,001 1,009 2,875
8.5% 6/1/24 to 7/1/28 Aaa 4,480 4,670 1,840 1,915 6,320
12% 11/1/19 Aaa 273 313 109 125 382
6,876 3,049
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
7.5% 9/15/22 to 8/15/28 (c) Aaa 13,542 13,946 5,847 6,029 19,389
9.5% 3/15/16 to 12/15/20 Aaa 4,316 4,658 1,552 1,675 5,868
11% 12/15/09 to 8/15/20 Aaa 5,028 5,533 1,997 2,195 7,025
11.5% 4/15/13 to 7/15/15 Aaa 1,726 1,923 676 752 2,402
12% 2/15/16 Aaa 1,597 1,795 592 666 2,189
27,855 11,317
TOTAL U.S. GOVERNMENT AGENCY 78,662 31,722
- - MORTGAGE SECURITIES
ASSET-BACKED SECURITIES 17.4%
Aesop Funding II LLC 6.22% Aaa 4,500 4,582 4,500
10/20/01 (a)
Arcadia Automobile Aaa 3,700 3,715 1,500 1,506 5,200
Receivables Trust 5.67%
1/15/04
Boatmans Auto Trust 6.35% A2 1,375 1,377 610 611 1,985
10/15/01
Capital equipment Receivables
Trust:
6.45% 8/15/02 Aa3 5,100 5,259 1,700 1,753 6,800
6.57% 3/15/01 Aa3 2,230 2,272 810 825 3,040
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 1,770 1,765 690 688 2,460
6.15% 9/15/02 Aaa 3,907 3,931 1,639 1,649 5,546
6.45% 9/15/02 Aaa 3,000 3,081 1,330 1,366 4,330
Caterpillar Financial Asset A3 1,080 1,085 321 322 1,401
Trust 6.55% 5/25/02
Chase Manhattan Marine Owner Aaa 4,400 4,489 1,900 1,939 6,300
Trust 6.25% 4/16/07
Chevy Chase Auto Receivables
Trust:
5.97% 10/20/04 Aaa 4,620 4,654 1,667 1,679 6,287
6.2% 3/20/04 Aaa 1,929 1,946 772 779 2,701
Citibank Credit Card Master Aaa 4,100 4,158 1,300 1,318 5,400
Trust I 5.75% 1/15/03
Contimortgage Home Equity
Loan Trust:
6.26% 7/15/12 Aaa 8,800 8,800 2,450 2,450 11,250
6.3% 7/15/12 Aaa 3,300 3,321 1,100 1,107 4,400
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 2,515 2,519 1,024 1,026 3,539
6.7% 2/15/02 Aaa 836 841 299 301 1,135
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
FREDDIE MAC
7% 1/22/01 to 8/1/01 2,902
8.5% 6/1/24 to 7/1/28 6,585
12% 11/1/19 438
9,925
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION
7.5% 9/15/22 to 8/15/28 (c) 19,975
9.5% 3/15/16 to 12/15/20 6,333
11% 12/15/09 to 8/15/20 7,728
11.5% 4/15/13 to 7/15/15 2,675
12% 2/15/16 2,461
39,172
TOTAL U.S. GOVERNMENT AGENCY 110,384
- - MORTGAGE SECURITIES
ASSET-BACKED SECURITIES 17.4%
Aesop Funding II LLC 6.22% 4,582
10/20/01 (a)
Arcadia Automobile 5,221
Receivables Trust 5.67%
1/15/04
Boatmans Auto Trust 6.35% 1,988
10/15/01
Capital equipment Receivables
Trust:
6.45% 8/15/02 7,012
6.57% 3/15/01 3,097
Case Equipment Loan Trust:
5.85% 2/15/03 2,453
6.15% 9/15/02 5,580
6.45% 9/15/02 4,447
Caterpillar Financial Asset 1,407
Trust 6.55% 5/25/02
Chase Manhattan Marine Owner 6,428
Trust 6.25% 4/16/07
Chevy Chase Auto Receivables
Trust:
5.97% 10/20/04 6,333
6.2% 3/20/04 2,725
Citibank Credit Card Master 5,476
Trust I 5.75% 1/15/03
Contimortgage Home Equity
Loan Trust:
6.26% 7/15/12 11,250
6.3% 7/15/12 4,428
CPS Auto Grantor Trust:
6.09% 11/15/03 3,545
6.7% 2/15/02 1,142
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
CPS Auto Receivables Trust 6% Aaa 2,646 2,675 2,646
8/15/03
CS First Boston Mortgage Aaa 2,200 2,234 1,700 1,726 3,900
Securities Corp. 7% 3/15/27
Discover Card Master Trust I A2 12,199 12,104 4,920 4,882 17,119
6.0006% 7/18/05 (d)
Fidelity Funding Auto Trust Aaa 1,024 1,043 339 346 1,363
6.99% 11/15/02 (a)
Ford Credit Auto Owner Trust A2 4,900 4,912 1,800 1,805 6,700
6.15% 9/15/02
Ford Credit Grantor Trust Aaa 2,191 2,197 917 920 3,108
5.9% 10/15/00
General Motors Acceptance Aaa 988 988 373 373 1,361
Crop. Grantor Trust 7.15%
3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 Aaa 116 116 42 42 158
5.8% 2/15/27 Aaa 538 538 538
6.1% 2/15/27 to 4/15/27 Aaa 1,956 1,957 756 757 2,712
6.45% 5/15/27 Aaa 1,388 1,391 530 531 1,918
6.5% 6/15/27 Aaa 915 915 325 325 1,240
Key Auto Finance Trust 6.65% Baa3 814 826 268 272 1,082
10/15/03
KeyCorp Auto Grantor Trust A3 87 87 38 38 125
5.8% 7/15/00
Newcourt Equipment Trust Aaa 5,000 4,994 2,050 2,047 7,050
Securities sequential pay
Series 1998-1 Class A3,
5.24% 12/20/02
Norwest Automobile Trust 6.3% A2 3,375 3,406 1,130 1,140 4,505
5/15/03
Olympic Automobile
Receivables Trust :
6.125% 11/15/04 Aaa 1,696 1,731 565 577 2,261
6.4% 9/15/01 Aaa 3,800 3,861 1,280 1,300 5,080
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 Aaa 5,194 5,237 2,078 2,095 7,272
6.2% 6/15/03 Aaa 2,899 2,922 1,242 1,252 4,141
Petroleum Enhanced Trust Baa2 4,923 4,917 1,511 1,509 6,434
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (a)(d)
Premier Auto Trust:
5.7% 10/6/02 Aaa 9,500 9,601 3,800 3,840 13,300
5.82% 12/6/02 3,000 3,032 3,000
6% 5/6/00 Aaa 1,031 1,032 348 349 1,379
6.35% 7/6/00 A3 4,610 4,623 1,690 1,695 6,300
Reliance Auto Receivables Aaa 1,222 1,222 366 367 1,588
Corp., Inc. 6.1% 7/15/02 (a)
SCFC Recreational Vehicle Aaa 223 221 223
Loan Trust 7.25% 9/15/06
Sears Credit Account Master Aaa 3,800 3,870 1,800 1,833 5,600
Trust II 6.2% 2/16/06
TMS Auto Grantor Trust 5.9% Aaa 479 481 197 198 676
9/15/02
Tranex Auto Receivables Owner Aaa 2,550 2,586 834 846 3,384
Trust 6.334% 8/15/03 (a)
UFSB Grantor Trust 8.2% 1/10/01 Baa2 221 221 95 95 316
Union Acceptance Corp. 7.075% Baa2 354 355 157 157 511
7/10/02
Western Financial Grantor Aaa 1,899 1,928 789 801 2,688
Trust 5.875% 3/1/02
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
CPS Auto Receivables Trust 6% 2,675
8/15/03
CS First Boston Mortgage 3,960
Securities Corp. 7% 3/15/27
Discover Card Master Trust I 16,986
6.0006% 7/18/05 (d)
Fidelity Funding Auto Trust 1,389
6.99% 11/15/02 (a)
Ford Credit Auto Owner Trust 6,717
6.15% 9/15/02
Ford Credit Grantor Trust 3,117
5.9% 10/15/00
General Motors Acceptance 1,361
Crop. Grantor Trust 7.15%
3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 158
5.8% 2/15/27 538
6.1% 2/15/27 to 4/15/27 2,714
6.45% 5/15/27 1,922
6.5% 6/15/27 1,240
Key Auto Finance Trust 6.65% 1,098
10/15/03
KeyCorp Auto Grantor Trust 125
5.8% 7/15/00
Newcourt Equipment Trust 7,041
Securities sequential pay
Series 1998-1 Class A3,
5.24% 12/20/02
Norwest Automobile Trust 6.3% 4,546
5/15/03
Olympic Automobile
Receivables Trust :
6.125% 11/15/04 2,308
6.4% 9/15/01 5,161
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 7,332
6.2% 6/15/03 4,174
Petroleum Enhanced Trust 6,426
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (a)(d)
Premier Auto Trust:
5.7% 10/6/02 13,441
5.82% 12/6/02 3,032
6% 5/6/00 1,381
6.35% 7/6/00 6,318
Reliance Auto Receivables 1,589
Corp., Inc. 6.1% 7/15/02 (a)
SCFC Recreational Vehicle 221
Loan Trust 7.25% 9/15/06
Sears Credit Account Master 5,703
Trust II 6.2% 2/16/06
TMS Auto Grantor Trust 5.9% 679
9/15/02
Tranex Auto Receivables Owner 3,432
Trust 6.334% 8/15/03 (a)
UFSB Grantor Trust 8.2% 1/10/01 316
Union Acceptance Corp. 7.075% 512
7/10/02
Western Financial Grantor 2,729
Trust 5.875% 3/1/02
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
WFS Financial Owner Trust:
6.4% 7/20/02 Aaa 6,840 7,069 6,840
6.9% 12/20/03 Aaa 5,020 5,227 1,630 1,697 6,650
7.05% 11/20/03 Aaa 7,410 7,716 2,510 2,614 9,920
TOTAL ASSET-BACKED SECURITIES 160,323 61,455
COLLATERIZED MORTGAGE
OBLIGATIONS - 1.7%
PRIVATE SPONSOR
GE Capital Mortgage Services, Aaa 2,155 2,163 697 699 2,852
Inc. planned amortization
class Series 1994-2 Class
A-4, 6% 1/25/09
Residential Funding Mortgage
Securities I, Inc. planned
amortization class
Series 1994-S12 Class A-2, Aa1 6,730 6,797 2,892 2,921 9,622
6.5% 4/25/09
8,960 3,620
U.S. GOVERNMENT AGENCY
Fannie Mae ACES sequential Aaa 5,852 5,973 2,464 2,515 8,316
pay Series 1995-M1 Class
A-2, 6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE 14,933 6,135
OBLIGATIONS
COMERCIAL MORTGAGE SECURITIES
- - 6.9%
Allied Capital Commercial Aaa 4,141 4,134 1,380 1,378 5,521
Mortgage Trust sequential
pay Series 1998-1 Class A,
6.31% 1/25/28 (a)
Bankers Trust Remic Trust Baa2 6,715 6,558 2,270 2,217 8,985
1998-1 floater Series
1998-S1A Class D, 6.5023%
11/28/02 (a) (d)
BKB Commercial Mortgage Trust AA 1,516 1,512 506 504 2,022
Series 1997 C1 Class B,
7.218% 2/25/43 (a) (d)
CBM Funding Corp. sequential
pay Series 1996-1:
Class A 1, 7.55% 7/1/99 AA 144 144 56 56 200
Class A-2, 6.88% 7/1/02 AA 2,170 2,227 870 893 3,040
CS First Boston Mortgage
Securities Corp.:
sequential pay Series -- 6,604 6,612 2,302 2,305 8,906
1997-SPICE Class A, 6.653%
8/20/36 (a)
Series 1998 FLI Class E, Baa2 6,500 6,319 2,800 2,722 9,300
6.1938% 1/10/13 (a) (d)
DLJ Commercial Mortgage Corp. A2 2,740 2,726 1,090 1,085 3,830
floater Series 1998-STFA
Class A-3, 60075% 1/8/11 (a)
Equitable Life Assurance
Society of the United States
(The):
floater Series 174 Class Baa2 2,300 2,258 1,000 982 3,300
D-2, 6.7063% 5/15/03 (a) (d)
sequential pay Series 174 Aaa 2,500 2,673 1,000 1,069 3,500
Class A1, 7.24% 5/15/06 (a)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
WFS Financial Owner Trust:
6.4% 7/20/02 7,069
6.9% 12/20/03 6,924
7.05% 11/20/03 10,330
TOTAL ASSET-BACKED SECURITIES 221,778
COLLATERIZED MORTGAGE
OBLIGATIONS - 1.7%
PRIVATE SPONSOR
GE Capital Mortgage Services, 2,862
Inc. planned amortization
class Series 1994-2 Class
A-4, 6% 1/25/09
Residential Funding Mortgage
Securities I, Inc. planned
amortization class
Series 1994-S12 Class A-2, 9,718
6.5% 4/25/09
12,580
U.S. GOVERNMENT AGENCY
Fannie Mae ACES sequential 8,488
pay Series 1995-M1 Class
A-2, 6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE 21,068
OBLIGATIONS
COMERCIAL MORTGAGE SECURITIES
- - 6.9%
Allied Capital Commercial 5,512
Mortgage Trust sequential
pay Series 1998-1 Class A,
6.31% 1/25/28 (a)
Bankers Trust Remic Trust 8,775
1998-1 floater Series
1998-S1A Class D, 6.5023%
11/28/02 (a) (d)
BKB Commercial Mortgage Trust 2,016
Series 1997 C1 Class B,
7.218% 2/25/43 (a) (d)
CBM Funding Corp. sequential
pay Series 1996-1:
Class A 1, 7.55% 7/1/99 200
Class A-2, 6.88% 7/1/02 3,120
CS First Boston Mortgage
Securities Corp.:
sequential pay Series 8,917
1997-SPICE Class A, 6.653%
8/20/36 (a)
Series 1998 FLI Class E, 9,041
6.1938% 1/10/13 (a) (d)
DLJ Commercial Mortgage Corp. 3,811
floater Series 1998-STFA
Class A-3, 60075% 1/8/11 (a)
Equitable Life Assurance
Society of the United States
(The):
floater Series 174 Class 3,240
D-2, 6.7063% 5/15/03 (a) (d)
sequential pay Series 174 3,742
Class A1, 7.24% 5/15/06 (a)
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
Federal Deposit Insurance
Corp. Remic Trust:
sequential pay Series Aaa 1,060 1,061 498 498 1,558
1994-C1 Class II-A2, 7.85%
9/25/25
sequential pay Series Aaa 4,335 4,347 1,254 1,257 5,589
1996-C1 Class A1, 6.75%
7/25/26
FMAC Loan Receivables Trust Aaa 1,308 1,322 545 551 1,853
1998-C sequential pay Series
1998-C Class A1 Notes, 5.99%
9/15/20 (a)
Franchise Loan Trust 1998-1 Aaa 3,812 3,854 1,662 1,680 5,474
sequential pay Series 1998-I
Class A1 Notes, 6.24%
7/15/20 (a)
Kidder Peabody Acceptance Aa2 940 938 311 310 1,251
Corp. I sequential pay
Series 1993-M1 Class A-2,
7.15% 4/25/25
Nomura Asset Securities Corp. -- 2,006 2,007 892 892 2,898
floater Series 1994-MD-II
Class A-6, 6.9095% 7/7/03 (d)
Nomura Depositor Trust Baa2 5,400 5,076 2,210 2,077 7,610
floater Series 1998-ST1A
Class A-4, 6.489% 2/15/34
(a) (d)
Resolution Trust Corp.:
floater Series 1994-C1 Class AAA 434 434 195 195 629
A-3, 5.8625% 6/25/26 (d)
sequential pay Series 1995 Aaa 2,925 2,921 1,253 1,252 4,178
C-1 Class A2C, 6.9% 2/25/27
Structured Asset Securities
Corp.:
floater Series 1998-C2A A3 5,218 5,205 2,222 2,217 7,440
Class C, 5.6494% 1/25/13
(a)(d)
Series 1996-C3 Class A, AAA 1,078 1,073 359 358 1,437
6.75% 6/25/30 (a)(d)
TOTAL COMMERCIAL MORTGAGE 63,401 24,498
SECURITIES
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 0.9%
Ontario Province:
euro:
global 6.125% 6/28/00 (e) Aa3 2,700 2,760 1,000 1,022 3,700
8.5% 2/28/01 (e) Aa3 2,500 2,675 800 856 3,300
5.75% 11/7/00 (e) Aa3 2,740 2,770 1,010 1,021 3,750
TOTAL FOREIGN GOVERNMENT AND 8,205 2,899
GOVERNMENT AGENGCY OBLIGATIONS
SUPRANATIONAL OBLIGATIONS -
1.7%
African Development Bank:
7.75% 12/15/01 Aa1 5,090 5,437 1,670 1,784 6,760
9.3% 7/1/00 Aa1 10,270 10,896 3,540 3,756 13,810
TOTAL SUPRANATIONAL OBLIGATIONS 16,333 5,540
CERTIFICATES OF DEPOSIT - 0.7%
Canadian Imperial Bank of Aa3 6,885 6,997 2,180 2,216 9,065
Commerce, New York yankee
6.2% 8/1/00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
COMBINED
VALUE
(NOTE 1)
Federal Deposit Insurance
Corp. Remic Trust:
sequential pay Series 1,559
1994-C1 Class II-A2, 7.85%
9/25/25
sequential pay Series 5,604
1996-C1 Class A1, 6.75%
7/25/26
FMAC Loan Receivables Trust 1,873
1998-C sequential pay Series
1998-C Class A1 Notes, 5.99%
9/15/20 (a)
Franchise Loan Trust 1998-1 5,534
sequential pay Series 1998-I
Class A1 Notes, 6.24%
7/15/20 (a)
Kidder Peabody Acceptance 1,248
Corp. I sequential pay
Series 1993-M1 Class A-2,
7.15% 4/25/25
Nomura Asset Securities Corp. 2,899
floater Series 1994-MD-II
Class A-6, 6.9095% 7/7/03 (d)
Nomura Depositor Trust 7,153
floater Series 1998-ST1A
Class A-4, 6.489% 2/15/34
(a) (d)
Resolution Trust Corp.:
floater Series 1994-C1 Class 629
A-3, 5.8625% 6/25/26 (d)
sequential pay Series 1995 4,173
C-1 Class A2C, 6.9% 2/25/27
Structured Asset Securities
Corp.:
floater Series 1998-C2A 7,422
Class C, 5.6494% 1/25/13
(a)(d)
Series 1996-C3 Class A, 1,431
6.75% 6/25/30 (a)(d)
TOTAL COMMERCIAL MORTGAGE 87,899
SECURITIES
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 0.9%
Ontario Province:
euro:
global 6.125% 6/28/00 (e) 3,782
8.5% 2/28/01 (e) 3,531
5.75% 11/7/00 (e) 3,791
TOTAL FOREIGN GOVERNMENT AND 11,104
GOVERNMENT AGENGCY OBLIGATIONS
SUPRANATIONAL OBLIGATIONS -
1.7%
African Development Bank:
7.75% 12/15/01 7,221
9.3% 7/1/00 14,652
TOTAL SUPRANATIONAL OBLIGATIONS 21,873
CERTIFICATES OF DEPOSIT - 0.7%
Canadian Imperial Bank of 9,213
Commerce, New York yankee
6.2% 8/1/00
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
INVESTMENTS AT OCTOBER 31, 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT- SPARTAN SHORT-
TERM BOND FUND TERM BOND FUND COMBINED
MOODY RATINGS PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL
(UNAUDITED) AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT
CASH EQUIVALENTS - 4.2% MATURITY MATURITY
Investments in repurchase AMOUNT (000'S) AMOUNT (000'S)
agreements (U.S. Treasury
obligations),
in a joint trading account 34,889 34,873 18,760 18,751
at 5.64%, dated 10/30/98 due
11/2/98
TOTAL INVESTMENTS IN $ 902,829 $ 370,646
SECURITIES - 100%
TOTAL COST OF INVESTMENTS $ 899,249 $ 369,174
LEGEND
(a) Security exempt from
registration under Rule 144A
of the Securities Act of
1933. These securities may
be resold in transactions
exempted from registration,
normally to qualified
institutional buyers. At
the period end, the value of
these securities amounted to
$81,809,000 or 9.3% of net
assets for Fidelity
Short-Term Bond Fund,
$28,828,000 or 8.0% of the
net assets for Spartan
Short-Term Bond Fund and
$110,637,000 or 9.0% of the
net assets for the combined
funds.
(b) Security purchased on a
delayed delivery or when
issued basis.
(c) A portion of the security
was sold on a delayed
delivery or when issued basis.
(d) The coupon rate shown on
floating or adjustable rate
securities represents the
rate at period end.
(e) For foreign government
obligations not individually
rated by S&P or Moody's,
the ratings listed are
assigned to securities by
FMR, the fund's investment
advisor, based principally
on S&P and Moody's ratings
of the sovereign credit of
the issueing government.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
COMBINED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
CASH EQUIVALENTS - 4.2% MATURITY
Investments in repurchase AMOUNT (000'S)
agreements (U.S. Treasury
obligations),
in a joint trading account 53,649 53,624
at 5.64%, dated 10/30/98 due
11/2/98
TOTAL INVESTMENTS IN $ 1,273,475
SECURITIES - 100%
TOTAL COST OF INVESTMENTS $ 1,268,423
LEGEND
(a) Security exempt from
registration under Rule 144A
of the Securities Act of
1933. These securities may
be resold in transactions
exempted from registration,
normally to qualified
institutional buyers. At
the period end, the value of
these securities amounted to
$81,809,000 or 9.3% of net
assets for Fidelity
Short-Term Bond Fund,
$28,828,000 or 8.0% of the
net assets for Spartan
Short-Term Bond Fund and
$110,637,000 or 9.0% of the
net assets for the combined
funds.
(b) Security purchased on a
delayed delivery or when
issued basis.
(c) A portion of the security
was sold on a delayed
delivery or when issued basis.
(d) The coupon rate shown on
floating or adjustable rate
securities represents the
rate at period end.
(e) For foreign government
obligations not individually
rated by S&P or Moody's,
the ratings listed are
assigned to securities by
FMR, the fund's investment
advisor, based principally
on S&P and Moody's ratings
of the sovereign credit of
the issueing government.
</TABLE>
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
12 MONTHS ENDED OCTOBER 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT TERM BOND FUND SPARTAN SHORT TERM BOND FUND COMBINED
INVESTMENT INCOME
Interest $ 56,905 $ 21,681 $ 78,586
EXPENSES
Management fee 3,679 2,095 5,774
Transfer agent fees 1,713 1,713
Accounting fees and expenses 273 273
Trustees' compensation 16 1 17
Custodian fees and expenses 44 44
Registration fees 21 21
Audit 69 69
Legal 3 3
Miscellaneous 4 4
Total expenses before 5,822 2,096 7,918
reductions
Expense reductions (73) (876) (e) (949)
Total expenses 5,749 1,220 6,969
NET INVESTMENT INCOME 51,156 20,461 71,617
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on 725 146 871
investment securities
Change in net unrealized
appreciation
(depreciation) on 1,670 821 2,491
investment securities
NET GAIN (LOSS) 2,395 967 3,362
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM $ 53,551 $ 21,428 $ 74,979
OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
INVESTMENT INCOME
Interest $ $ 78,586
EXPENSES
Management fee (691) (b) 5,083
Transfer agent fees 377 (c) 2,090
Accounting fees and expenses 65 (c) 338
Trustees' compensation 17
Custodian fees and expenses 17 (c) 61
Registration fees 34 (d) 55
Audit (14) (c) 55
Legal 1 (c) 4
Miscellaneous 2 6
Total expenses before (209) 7,709
reductions
Expense reductions 556 (f) (393)
Total expenses 347 7,316
NET INVESTMENT INCOME (347) 71,270
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on 871
investment securities
Change in net unrealized
appreciation
(depreciation) on 2,491
investment securities
NET GAIN (LOSS) 3,362
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM $ (347) $ 74,632
OPERATIONS
</TABLE>
See accompanying notes which are an integral part of the financial
statements
FIDELITY FIXED-INCOME TRUST: FIDELITY SHORT TERM BOND FUND AND
FIDELITY CHARLES STREET TRUST: SPARTAN SHORT TERM BOND FUND
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES AS OF OCTOBER
31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY SHORT TERM BOND FUND SPARTAN SHORT TERM BOND FUND COMBINED
ASSETS
Investment in securities, at
value
- See accompanying schedule $ 902,829 370,646 $ 1,273,475
Commitment to sell (13,901) (5,972) (19,873)
securities on a delayed
delivery basis
Receivable for securities 13,926 5,983 19,909
sold on a delayed delivery
basis
Receivable for investments 8,477 3,115 11,592
sold
Receivable for fund shares 490 469 959
sold
Interest receivable 9,797 4,034 13,831
Other receivables 3 3
TOTAL ASSETS 921,621 378,275 1,299,896
LIABILITIES
Payable for investments
purchased
Regular delivery 16,002 18,270 34,272
Delayed delivery 26,267 26,267
Payable for fund shares 2,197 868 3,065
redeemed
Distributions payable 465 314 779
Accrued management fee 317 114 431
Other payables and accrued 233 4 237
expenses
TOTAL LIABILITIES 45,481 19,570 65,051
NET ASSETS $ 876,140 $ 358,705 $1,234,845
Net Assets consist of: Paid $1,042,828 $ 440,011 $1,482,839
in capital
Distributions in excess net (3,570) (1,279) (4,849)
investment income
Accumulated undistributed
net realized gain (loss)
on investments and (166,723) (81,510) (248,233)
foreign currency transactions
Net unrealized appreciation 3,605 1,483 5,088
(depreciation) on investments
NET ASSETS $ 876,140 $ 358,705 $1,234,845
NET ASSETS $ 876,140 $ 358,705 $1,234,845
Net Asset Value, offering $ 8.75 $ 9.09
price and redemption price
per share
Shares outstanding 100,126 39,469 139,595
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
ASSETS
Investment in securities, at
value
- See accompanying schedule $ $ 1,273,475
Commitment to sell (19,873)
securities on a delayed
delivery basis
Receivable for securities 19,909
sold on a delayed delivery
basis
Receivable for investments 11,592
sold
Receivable for fund shares 959
sold
Interest receivable 13,831
Other receivables 3
TOTAL ASSETS 1,299,896
LIABILITIES
Payable for investments
purchased
Regular delivery 34,272
Delayed delivery 26,267
Payable for fund shares 3,065
redeemed
Distributions payable 779
Accrued management fee 431
Other payables and accrued 237
expenses
TOTAL LIABILITIES 65,051
NET ASSETS $ $ 1,234,845
Net Assets consist of: Paid 1,482,839
in capital
Distributions in excess net (4,849)
investment income
Accumulated undistributed
net realized gain (loss)
on investments and (248,233)
foreign currency transactions
Net unrealized appreciation 5,088
(depreciation) on investments
NET ASSETS $ $ 1,234,845
NET ASSETS $ 1,234,845
Net Asset Value, offering $ 8.75
price and redemption price
per share
Shares outstanding 1,526 (a) 141,121
</TABLE>
See accompanying ntoes which are an integral part of the financial
statements
Fidelity Fixed-Income Trust: Fidelity Short Term Bond Fund and
Fidelity Charles Street Trust: Spartan Short Term Bond Fund
Notes to Pro Forma Combining Financial Statements
(Unaudited)
The accompanying unaudited Pro Forma Combining Schedule of
Investments and Statement of Assets and Liabilities as of October 31,
1998 and the unaudited Pro Forma Combining Statement of Operations for
the twelve months ended October 31, 1998 are intended to present the
financial condition and related results of operations of Fidelity
Short Term Bond Fund as if the reorganization with Spartan Short Term
Bond Fund, had been consummated at November 1, 1997. Had the pro
forma adjustments not included the effect of the FMR voluntary expense
limitations, Pro Forma Combined Expense reductions would have been
$41,000, resulting in Pro Forma Combined Net Interest Income and Pro
Forma Combined Net Increase in Net Assets resulting from operations of
$70,918,000 and $74,280,000, respectively.
The pro forma adjustments to these pro forma financial statements are
comprised of:
(a) Reflects the conversion of Spartan Short Term Bond Fund shares as
of October 31,1998.
(b) Decrease in management fee to reflect Fidelity Short Term Bond
Fund's management fee applied to the combined fund's average net
assets.
(c) Increase in fees reflects change from Spartan Short Term Bond
Fund's all-inclusive fee structure to Fidelity Short Term Bond Fund's
fee structure.
(d) Increase in fees reflects net increase in costs incurred as a
result of the reorganization.
(e) For the period ended October 31, 1998, FMR voluntarily agreed to
limit the Spartan Short Term Bond Fund's operating expenses to 0.38%
of it's average net assets.
(f) Reflects FMR's agreement to voluntarily limit the combined fund's
operating expenses to 0.63% of average net assets.
The unaudited pro forma combining statements should be read in
conjunction with the separate semiannual unaudited financial
statements as of October 31, 1998, annual audited financial statements
as of April 30, 1998 for Fidelity Short Term Bond Fund, and the annual
audited financial statements as of September 30, 1998 for Spartan
Short Term Bond Fund, which are incorporated by reference in the
Statement of Additional Information to this Proxy Statement and
Prospectus.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash
Fidelity Advisor Series III Portfolios
Fidelity Advisor Series IV Fidelity Institutional
Fidelity Advisor Series V Tax-Exempt Cash Portfolios
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts
Fidelity Beacon Street Trust Municipal Trust
Fidelity Boston Street Trust Fidelity Money Market Trust
Fidelity California Municipal Fidelity Mt. Vernon Street
Trust Trust
Fidelity California Municipal Fidelity Municipal Trust
Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal
Fidelity Charles Street Trust Trust
Fidelity Commonwealth Trust Fidelity New York Municipal
Fidelity Concord Street Trust Trust II
Fidelity Congress Street Fund Fidelity Phillips Street Trust
Fidelity Contrafund Fidelity Puritan Trust
Fidelity Corporate Trust Fidelity Revere Street Trust
Fidelity Court Street Trust Fidelity School Street Trust
Fidelity Court Street Trust II Fidelity Securities Fund
Fidelity Covington Trust Fidelity Select Portfolios
Fidelity Daily Money Fund Fidelity Sterling Performance
Fidelity Destiny Portfolios Portfolio, L.P.
Fidelity Deutsche Mark Fidelity Summer Street Trust
Performance Fidelity Trend Fund
Portfolio, L.P. Fidelity U.S.
Fidelity Devonshire Trust Investments-Bond Fund, L.P.
Fidelity Exchange Fund Fidelity U.S.
Fidelity Financial Trust Investments-Government
Fidelity Fixed-Income Trust Securities
Fidelity Government Fund, L.P.
Securities Fund Fidelity Union Street Trust
Fidelity Hastings Street Trust Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Newbury Street Trust
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
Variable Insurance Products
Fund III
in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Government
Fidelity Advisor Annuity Fund Securities Fund
Fidelity Advisor Series I Fidelity Hastings Street Trust
Fidelity Advisor Series II Fidelity Hereford Street Trust
Fidelity Advisor Series III Fidelity Income Fund
Fidelity Advisor Series IV Fidelity Institutional Cash
Fidelity Advisor Series V Portfolios
Fidelity Advisor Series VI Fidelity Institutional
Fidelity Advisor Series VII Tax-Exempt Cash Portfolios
Fidelity Advisor Series VIII Fidelity Institutional Trust
Fidelity Beacon Street Trust Fidelity Investment Trust
Fidelity Boston Street Trust Fidelity Magellan Fund
Fidelity California Municipal Fidelity Massachusetts
Trust Municipal Trust
Fidelity California Municipal Fidelity Money Market Trust
Trust II Fidelity Mt. Vernon Street
Fidelity Capital Trust Trust
Fidelity Charles Street Trust Fidelity Municipal Trust
Fidelity Commonwealth Trust Fidelity Municipal Trust II
Fidelity Congress Street Fund Fidelity New York Municipal
Fidelity Contrafund Trust
Fidelity Corporate Trust Fidelity New York Municipal
Fidelity Court Street Trust Trust II
Fidelity Court Street Trust II Fidelity Phillips Street Trust
Fidelity Covington Trust Fidelity Puritan Trust
Fidelity Daily Money Fund Fidelity Revere Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity School Street Trust
Fidelity Destiny Portfolios Fidelity Securities Fund
Fidelity Deutsche Mark Fidelity Select Portfolios
Performance Fidelity Sterling Performance
Portfolio, L.P. Portfolio, L.P.
Fidelity Devonshire Trust Fidelity Summer Street Trust
Fidelity Exchange Fund Fidelity Trend Fund
Fidelity Financial Trust Fidelity U.S.
Fidelity Fixed-Income Trust Investments-Bond Fund, L.P.
Fidelity U.S.
Investments-Government
Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Government
Fidelity Advisor Annuity Fund Securities Fund
Fidelity Advisor Series I Fidelity Hastings Street Trust
Fidelity Advisor Series II Fidelity Hereford Street Trust
Fidelity Advisor Series III Fidelity Income Fund
Fidelity Advisor Series IV Fidelity Institutional Cash
Fidelity Advisor Series V Portfolios
Fidelity Advisor Series VI Fidelity Institutional
Fidelity Advisor Series VII Tax-Exempt Cash Portfolios
Fidelity Advisor Series VIII Fidelity Institutional Trust
Fidelity Beacon Street Trust Fidelity Investment Trust
Fidelity Boston Street Trust Fidelity Magellan Fund
Fidelity California Municipal Fidelity Massachusetts
Trust Municipal Trust
Fidelity California Municipal Fidelity Money Market Trust
Trust II Fidelity Mt. Vernon Street
Fidelity Capital Trust Trust
Fidelity Charles Street Trust Fidelity Municipal Trust
Fidelity Commonwealth Trust Fidelity Municipal Trust II
Fidelity Congress Street Fund Fidelity New York Municipal
Fidelity Contrafund Trust
Fidelity Corporate Trust Fidelity New York Municipal
Fidelity Court Street Trust Trust II
Fidelity Court Street Trust II Fidelity Phillips Street Trust
Fidelity Covington Trust Fidelity Puritan Trust
Fidelity Daily Money Fund Fidelity Revere Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity School Street Trust
Fidelity Destiny Portfolios Fidelity Securities Fund
Fidelity Deutsche Mark Fidelity Select Portfolios
Performance Fidelity Sterling Performance
Portfolio, L.P. Portfolio, L.P.
Fidelity Devonshire Trust Fidelity Summer Street Trust
Fidelity Exchange Fund Fidelity Trend Fund
Fidelity Financial Trust Fidelity U.S.
Fidelity Fixed-Income Trust Investments-Bond Fund, L.P.
Fidelity U.S.
Investments-Government
Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson /s/Peter S.
3d___________ Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary /s/William O.
Burkhead_______________ McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox /s/Gerald C.
__________________ McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke /s/Marvin L.
Davis_____________ Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley /s/Thomas R. Williams
Jones________________ ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
