FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
SEMIANNUAL REPORT
MARCH 31, 1999
(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 14 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 18 Notes to the financial
statements.
PROXY VOTING RESULTS 21
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
Breaking through 10,000 by the Dow Jones Industrial Average was the
big news in equity markets during March, as that milestone was the
last of six new highs the Dow recorded during the month. Renewed
strength in the energy and cyclical sectors contributed to the rally.
In fixed-income, Treasuries continued to struggle based on the
persistent strength of the economy, as yields on the 30-year benchmark
rose to their highest levels since August of 1998.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
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, or visit our
web site at www.fidelity.com. 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, life of fund total returns would
have been lower.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MARCH 31, 1999 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
FIDELITY SHORT-INTERMEDIATE 0.78% 5.29% 33.05% 49.83%
GOVERNMENT
LB 1-5 Year US Government Bond 0.79% 6.38% 36.80% n/a
Short-Intermediate US 0.34% 5.33% 32.55% n/a
Government 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 since the fund started on September 13, 1991. 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 1-5 Year
U.S. Government Bond Index - a market value-weighted index of
government fixed-rate debt issues with maturities between one and five
years. To measure how the fund's performance stacked up against its
peers, you can compare it to the short-intermediate U.S. government
funds average, which reflects the performance of mutual funds with
similar objectives tracked by Lipper Inc. The past six months average
represents a peer group of 98 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 MARCH 31, 1999 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
FIDELITY SHORT-INTERMEDIATE 5.29% 5.88% 5.50%
GOVERNMENT
LB 1-5 Year US Government Bond 6.38% 6.47% n/a
Short-Intermediate US 5.33% 5.78% n/a
Government 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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER LIFE OF FUND
Short-Intermediate Govt. LB 1-5 Year U.S. Govt
00464 LB069
1991/09/30 10000.00 10000.00
1991/10/31 10124.47 10116.21
1991/11/30 10206.40 10230.40
1991/12/31 10363.10 10424.16
1992/01/31 10270.73 10373.36
1992/02/29 10301.41 10400.56
1992/03/31 10286.46 10376.96
1992/04/30 10374.47 10477.88
1992/05/31 10511.20 10606.46
1992/06/30 10602.19 10742.90
1992/07/31 10620.67 10908.11
1992/08/31 10766.62 11016.23
1992/09/30 10813.25 11147.05
1992/10/31 10714.24 11038.93
1992/11/30 10721.93 11002.29
1992/12/31 10851.32 11123.90
1993/01/31 11000.33 11297.65
1993/02/28 11099.58 11429.82
1993/03/31 11141.22 11469.61
1993/04/30 11190.03 11555.70
1993/05/31 11192.99 11518.61
1993/06/30 11276.42 11640.89
1993/07/31 11314.31 11662.02
1993/08/31 11364.67 11800.04
1993/09/30 11382.56 11838.47
1993/10/31 11391.68 11867.25
1993/11/30 11374.03 11842.07
1993/12/31 11424.48 11889.05
1994/01/31 11516.80 11986.60
1994/02/28 11419.40 11867.25
1994/03/31 11219.00 11751.26
1994/04/30 11165.11 11683.38
1994/05/31 11169.90 11695.74
1994/06/30 11175.51 11713.50
1994/07/31 11292.35 11842.07
1994/08/31 11315.67 11878.93
1994/09/30 11247.75 11815.55
1994/10/31 11255.23 11830.38
1994/11/30 11211.34 11771.26
1994/12/31 11267.16 11797.11
1995/01/31 11430.33 11976.26
1995/02/28 11611.08 12179.01
1995/03/31 11673.28 12246.67
1995/04/30 11797.39 12372.55
1995/05/31 12051.10 12655.77
1995/06/30 12114.07 12729.50
1995/07/31 12143.32 12758.95
1995/08/31 12210.19 12847.06
1995/09/30 12277.38 12918.99
1995/10/31 12383.41 13042.84
1995/11/30 12503.72 13178.16
1995/12/31 12603.00 13290.78
1996/01/31 12715.55 13409.91
1996/02/29 12636.33 13319.32
1996/03/31 12585.83 13279.31
1996/04/30 12564.15 13268.52
1996/05/31 12563.92 13277.51
1996/06/30 12650.02 13392.38
1996/07/31 12698.67 13440.48
1996/08/31 12733.63 13474.42
1996/09/30 12851.01 13620.75
1996/10/31 13025.35 13807.54
1996/11/30 13146.05 13936.34
1996/12/31 13114.89 13902.18
1997/01/31 13166.72 13965.11
1997/02/28 13200.86 13991.64
1997/03/31 13142.47 13949.60
1997/04/30 13254.65 14083.80
1997/05/31 13341.05 14185.40
1997/06/30 13439.43 14294.87
1997/07/31 13624.99 14500.54
1997/08/31 13622.68 14483.91
1997/09/30 13737.33 14615.63
1997/10/31 13851.70 14752.29
1997/11/30 13885.72 14781.29
1997/12/31 13981.27 14891.21
1998/01/31 14136.15 15062.04
1998/02/28 14137.61 15059.34
1998/03/31 14176.84 15110.82
1998/04/30 14226.61 15183.42
1998/05/31 14298.73 15274.23
1998/06/30 14360.91 15361.00
1998/07/31 14425.64 15427.08
1998/08/31 14596.14 15663.77
1998/09/30 14811.37 15948.57
1998/10/31 14843.22 16011.51
1998/11/30 14825.54 15975.77
1998/12/31 14885.93 16030.61
1999/01/31 14947.80 16099.62
1999/02/28 14846.38 15963.63
1999/03/31 14927.26 16075.24
IMATRL PRASUN SHR__CHT 19990331 19990409 094436 R00000000000093
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Intermediate Government Fund on September
30, 1991, shortly after the fund started. As the chart shows, by March
31, 1999 the value of the investment would have grown to $14,927 - a
49.27% increase on the initial investment. For comparison, look at how
the Lehman Brothers 1-5 Year U.S. Government Bond Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $16,075 - a 60.75%
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 MARCH 31, YEARS ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
Dividend returns 3.30% 6.22% 6.36% 6.46% 7.00% 5.55%
Capital returns -2.52% 1.60% 0.54% -1.79% 2.15% -6.73%
Total returns 0.78% 7.82% 6.90% 4.67% 9.15% -1.18%
</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 MARCH 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.06(cents) 31.35(cents) 60.70(cents)
Annualized dividend rate 6.42% 6.70% 6.46%
30-day annualized yield 5.20% - -
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 $9.28
over the past one month, $9.39 over the past six months and $9.40 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
bond 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
In the midst of troublesome financial
markets overseas, a declining U.S.
stock market and nonexistent
inflationary pressures, investors
flocked to U.S. Treasury bonds in
the later stages of 1998. Three
consecutive interest-rate cuts by the
Federal Reserve Board in the fall of
1998 provided further strength,
especially in government securities.
The financial landscape was quickly
transformed, however, during the
first quarter of 1999 amid strong
economic data, improving global
economies and comments from the
Federal Reserve Board that a
reversal of last fall's three
consecutive interest-rate cuts might
be necessary. Bonds posted
negative returns across most sectors
as the Lehman Brothers Aggregate
Bond Index - a widely followed
measure of taxable bond
performance - posted a total
return of -0.16% for the six-month
period that ended March 31, 1999.
While Treasuries moved moderately
higher at the end of the period
following news that the Fed decided
to keep short-term interest rates
unchanged, the benchmark
30-year Treasury experienced one
of its biggest sell-offs in over 20
years as personal spending,
housing starts and Gross Domestic
Product remained stronger than
expected. The Lehman Brothers
Treasury Index had a six-month
return of -1.76% as of March 31,
1999. Corporate and mortgage
bond sectors outperformed
Treasuries of comparable maturities
as the Lehman Brothers Corporate
Bond Index and the Lehman
Brothers Mortgage Securities Index
returned -0.11% and 1.79%,
respectively, during the same
period.
(photograph of Andrew Dudley)
An interview with Andrew Dudley, who became Portfolio Manager of
Fidelity Short-Intermediate Government Fund on December 7, 1998
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six months that ended March 31, 1999, the fund had a total
return of 0.78%. In comparison, the Lehman Brothers 1-5 Year
Government Bond Index returned 0.79% during the same six-month period.
Fund performance compared favorably to the short-intermediate U.S.
government funds average tracked by Lipper Inc., which returned 0.34%.
For the 12-month period that ended March 31, 1999, the fund posted a
total return of 5.29%. The Lehman Brothers index returned 6.38%, while
the short-intermediate U.S. government funds average returned 5.33%
during the same period.
Q. AT THE TIME OF THE LAST REPORT, UNCERTAINTY IN GLOBAL EQUITY
MARKETS AND THE FEDERAL RESERVE BOARD'S BIAS TO EASE RATES RESULTED IN
AN EXTREME FLIGHT TO TREASURIES. HOW HAS THE MARKET ENVIRONMENT
CHANGED AND HOW DID THIS IMPACT THE FUND?
A. The bond market's perception of global financial markets certainly
reversed course amid stronger-than-expected economic data in the U.S.
and improving overseas markets. Additionally, concerns that the
Federal Reserve Board may change its course toward tightening monetary
policy by increasing rates caused further concern. In response, the
bond market pushed up yields, causing bond prices - which move in the
opposite direction of yields - to decline. While the total return was
slightly positive during the six-month period, increasing bond yields
erased much of the price gains made late last year. Among the
different fixed-income sectors, Treasury securities became the least
favored. The shift in market sentiment was most evident when the
Treasury market experienced one of its biggest sell-offs in over 20
years during the month of February. Fortunately, the fund's
overweighted positions in mortgage securities and government agencies
helped relative performance as each of these sectors outperformed
Treasuries over the last half of the period.
Q. DID ANY OTHER MARKET FACTORS INFLUENCE THE FUND'S PERFORMANCE?
A. Toward the end of the period, the fund held approximately 65% of
its investments in U.S. government agency obligations. While these
holdings slightly outperformed Treasuries during the six-month period,
absolute performance of government and agency bonds suffered more than
other segments of the fixed-income market as a result of increasing
bond yields, which produced negative price movement. Consequently, as
I mentioned above, declining bond prices erased much of the fund's
return, including much of the monthly income accrued during the last
few months of the period.
Q. WHAT WAS YOUR RATIONALE BEHIND THE FUND'S OVERWEIGHTING IN
GOVERNMENT AGENCIES AND MORTGAGE SECURITIES?
A. In the early part of the period, when Treasuries performed
exceptionally well, the fund's overweighted positions in mortgage
securities and government agencies hurt performance. However, the fund
remained overweighted in these sectors for a number of reasons. Most
notably, I felt that these sectors were undervalued relative to U.S.
Treasuries in the wake of the massive flight to quality we experienced
last fall.
Q. THIS FUND TRADITIONALLY HAS EMPHASIZED NON-CALLABLE AGENCY
SECURITIES. IS THIS STILL A FOCUS FOR THE FUND?
A. Yes, it is. As in the past, we tended to steer away from callable
agency bonds - those that can be redeemed by their issuers before
maturity - and focused more on non-callable agency issues. While
non-callable securities generally perform better than callable bonds
when interest rates fall - because the issuer can save money by
"calling" in bonds and issuing new securities at lower rates - they
generally fare no worse than callable bonds when interest rates rise.
I also improved the fund's overall liquidity at the margin by moving
some of the funds assets into larger size agency issues - making it
easier to trade large quantities of the fund's holdings. This change
coincides with Fannie Mae's shift toward issuing new bonds in larger
denominations.
Q. WHAT'S YOUR OUTLOOK, ANDY?
A. Though I don't try to predict the direction of interest rates, I do
think we may be moving into a more stable interest-rate environment
compared to what we experienced last fall. While the U.S. economy
remains stronger than anticipated and the perception exists that
overseas economies are improving, inflation remains in check with the
help of relatively low and stable global commodity prices and
persistent weakness in global demand. In a more stable interest-rate
environment, I'll probably continue to concentrate a majority of the
fund's assets in agency and mortgage securities because they can offer
better total return potential relative to Treasuries.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 464
TRADING SYMBOL: FLMGX
START DATE: September 13,
1991
SIZE: as of March 31, 1999,
more than $127 million
MANAGER: Andrew Dudley,
since December 1998;
manager, Fidelity Short-Term
Bond Fund and Fidelity
Advisor Short Fixed-Income
Fund, since 1997; joined
Fidelity in 1996
ANDREW DUDLEY ON INFLATION
AND THE BOND MARKET:
"The bond market's preoccupation
with inflation centers upon the
impact inflation has on interest
rates. If the bond market expects
higher inflation or a deterioration
in the value of money, then bond
investors expect to be paid more
interest for that decline in
purchasing or buying power.
The bond market sells off in the
wake of higher inflation forecasts
because investors fear being stuck
with fixed cash flows that will be
worth less in the future. During a
period of complex and
conflicting global financial
market forecasts, as we experienced
over the last six months, the
market can move very quickly to
adjust for these changes in inflation
expectations."
NOTE TO SHAREHOLDERS: On April 14,
1999, shareholders of Fidelity
Short-Intermediate Government
Fund approved the merger of the
fund into Fidelity Intermediate
Government Income Fund. The
merger became effective on April
29, 1999.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
MARCH 31, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Zero coupon bonds 1.4 0.0
5 - 5.99% 8.8 10.2
6 - 6.99% 24.9 18.0
7 - 7.99% 13.2 18.1
8 - 8.99% 13.1 12.3
9 - 9.99% 15.8 17.6
10 - 10.99% 8.8 7.3
11 - 11.99% 3.0 3.7
12% and over 9.8 8.9
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS
OF MARCH 31, 1999
6 MONTHS AGO
Years 3.8 3.4
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 MARCH 31, 1999
6 MONTHS AGO
Years 2.4 2.3
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 MARCH 31, 1999
Mortgage
securities 19.3%
U.S. Treasury
obligations 14.8%
U.S. government
agency obligations 64.7%
Short-term
investments 1.2%
Row: 1, Col: 1, Value: 19.3
Row: 1, Col: 2, Value: 14.8
Row: 1, Col: 3, Value: 64.7
Row: 1, Col: 4, Value: 1.2
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
AS OF SEPTEMBER 30, 1998
Mortgage
securities 15.0%
U.S. Treasury
obligations 16.8%
U.S. government
agency obligations 64.3%
Short-term
investments 3.9%
Row: 1, Col: 1, Value: 15.0
Row: 1, Col: 2, Value: 16.8
Row: 1, Col: 3, Value: 64.3
Row: 1, Col: 4, Value: 3.9
Row: 1, Col: 5, Value: 0.0
INVESTMENTS MARCH 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 78.7%
PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 63.9%
Fannie Mae:
5.125% 2/13/04 $ 410,000 $ 402,632
8.25% 12/18/00 7,600,000 7,961,000
12% 11/13/00 9,100,000 10,028,473
Farm Credit Systems Financial 4,000,000 4,568,120
Assistance Corp. 9.375%
7/21/03
Federal Agricultural Mortgage 350,000 364,438
Corp. 6.92% 2/10/02
Federal Home Loan Bank 5.125% 6,000,000 5,965,320
2/26/02
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class 1-C, 9.25% 11/15/01 7,583,588 7,975,432
Class 2-E 9.4% 5/15/02 3,039,820 3,175,092
Class T-3, 9.625% 5/15/02 3,263,587 3,407,838
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994 A, 7.12% 4/15/06 1,535,393 1,595,734
Series 1994 F, 8.187% 12/15/04 4,499,694 4,761,783
Series 1995 A, 6.28% 6/15/04 3,520,000 3,576,281
Guaranteed Trade Trust 1,875,000 1,889,625
Certificates (assets of
Trust guaranteed by U.S.
Government through Export-
Import Bank) Series 1997-A,
6.104% 7/15/03
Israel Export Trust 1,600,000 1,636,640
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994 1, 6.88% 1/26/03
Overseas Private Investment 1,046,150 1,064,970
Corp. U.S. Government
guaranteed participation
certificate Series 1994 195,
6.08% 8/15/04 (callable)
Private Export Funding Corp.:
secured 5.65% 3/15/03 1,080,000 1,082,009
secured 5.82% 6/15/03 (a) 3,500,000 3,492,891
8.75% 6/30/03 3,215,000 3,591,251
State of Israel (guaranteed
by U.S. Government through
Agency for International
Development):
6.05% 8/15/00 5,780,000 5,826,067
6.625% 8/15/03 7,000,000 7,242,830
TOTAL U.S. GOVERNMENT AGENCY 79,608,426
OBLIGATIONS
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
U.S. TREASURY OBLIGATIONS -
14.8%
U.S. Treasury Bond:
10.75% 8/15/05 $ 2,400,000 $ 3,082,488
12% 8/15/13 1,400,000 2,038,750
U.S. Treasury Notes 7.875% 10,950,000 11,630,980
8/15/01
U.S. Treasury Notes - coupon
STRIPS:
0% 5/31/00 207,000 195,518
0% 9/30/00 300,000 278,739
0% 10/31/00 142,000 131,361
0% 4/30/01 142,000 127,995
0% 5/31/01 207,000 185,756
0% 9/30/01 300,000 264,675
0% 4/30/02 142,000 121,305
0% 5/31/02 207,000 176,068
0% 9/30/02 200,000 167,104
TOTAL U.S. TREASURY 18,400,739
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 98,009,165
GOVERNMENT AGENCY OBLIGATIONS
(Cost $98,954,381)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 19.3%
FANNIE MAE - 9.3%
6% 5/1/09 1,900,000 1,883,969
6.5% 1/1/28 to 7/1/28 6,479,631 6,449,241
7% 10/1/28 3,200,001 3,244,001
11,577,211
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 10.0%
8.5% 1/15/17 to 7/15/17 49,407 52,417
9.5% 4/15/16 to 11/15/20 547,810 588,744
10% 11/15/09 to 11/15/20 2,281,142 2,454,506
10.5% 2/15/14 to 8/15/19 4,680,510 5,131,962
10.75% 12/15/09 165,327 180,335
11% 11/15/09 to 6/15/19 1,640,824 1,820,006
11.5% 3/15/10 to 7/15/19 1,658,750 1,862,993
12% 3/20/14 to 2/15/16 225,149 254,583
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
12.5% 12/15/10 $ 26,279 $ 29,901
13% 9/15/14 33,855 38,900
12,414,347
TOTAL U.S. GOVERNMENT AGENCY 23,991,558
- - MORTGAGE SECURITIES
(Cost $24,256,934)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.8%
U.S. GOVERNMENT AGENCY - 0.8%
Fannie Mae Planned 1,000,000 1,004,844
Amortization Class Series
1994-72 Class G, 6% 10/25/19
(Cost $1,005,703)
CASH EQUIVALENTS - 1.2%
MATURITY AMOUNT
Investments in repurchase $ 1,557,218 1,557,000
agreements (U.S. Government
obligations), in a joint
trading account at 5.04%,
dated 3/31/99 due 4/1/99
(Cost $1,557,000)
TOTAL INVESTMENT IN $ 124,562,567
SECURITIES - 100%
(Cost $125,774,018)
</TABLE>
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 $3,492,891 or 2.7% of net assets.
INCOME TAX INFORMATION
At March 31, 1999, the aggregate cost of investment securities for
income tax purposes was $125,774,018. Net unrealized depreciation
aggregated $1,211,451, of which $132,654 related to appreciated
investment securities and $1,344,105 related to depreciated investment
securities.
At September 30, 1998, the fund had a capital loss carryforward of
approximately $10,705,000 of which $40,000, $1,404,000, $5,655,000,
$2,404,000 and $1,202,000 will expire on September 30, 2001, 2002,
2003, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 124,562,567
value (including repurchase
agreements of $1,557,000)
(cost $125,774,018) - See
accompanying schedule
Cash 690
Receivable for fund shares 966,504
sold
Interest receivable 1,977,261
TOTAL ASSETS 127,507,022
LIABILITIES
Payable for fund shares $ 93,581
redeemed
Distributions payable 89,687
Accrued management fee 45,294
Other payables and accrued 37,645
expenses
TOTAL LIABILITIES 266,207
NET ASSETS $ 127,240,815
Net Assets consist of:
Paid in capital $ 138,746,352
Undistributed net investment 649,456
income
Accumulated undistributed net (10,943,542)
realized gain (loss) on
investments
Net unrealized appreciation (1,211,451)
(depreciation) on investments
NET ASSETS, for 13,710,397 $ 127,240,815
shares outstanding
NET ASSET VALUE, offering $9.28
price and redemption price
per share ($127,240,815
(divided by) 13,710,397
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31,
1999 (UNAUDITED)
INVESTMENT INCOME $ 4,883,692
Interest
EXPENSES
Management fee $ 283,022
Transfer agent fees 135,590
Accounting fees and expenses 30,527
Non-interested trustees' 263
compensation
Custodian fees and expenses 10,132
Registration fees 15,219
Audit 7,151
Legal 2,856
Shareholder report expense 6,773
Total expenses before 491,533
reductions
Expense reductions (668) 490,865
NET INVESTMENT INCOME 4,392,827
REALIZED AND UNREALIZED GAIN (238,604)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (3,165,075)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (3,403,679)
NET INCREASE (DECREASE) IN $ 989,148
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED MARCH 31, YEAR ENDED SEPTEMBER 30, 1998
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 4,392,827 $ 7,935,121
income
Net realized gain (loss) (238,604) 649,418
Change in net unrealized (3,165,075) 1,028,320
appreciation (depreciation)
NET INCREASE (DECREASE) IN 989,148 9,612,859
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (4,370,703) (7,535,429)
from net investment income
Share transactions Net 17,418,599 54,016,902
proceeds from sales of shares
Reinvestment of distributions 3,676,398 6,398,701
Cost of shares redeemed (23,581,348) (49,522,626)
NET INCREASE (DECREASE) IN (2,486,351) 10,892,977
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) (5,867,906) 12,970,407
IN NET ASSETS
NET ASSETS
Beginning of period 133,108,721 120,138,314
End of period (including $ 127,240,815 $ 133,108,721
undistributed net investment
income of $649,456 and
$627,332, respectively)
OTHER INFORMATION
Shares
Sold 1,853,028 5,742,399
Issued in reinvestment of 391,945 679,888
distributions
Redeemed (2,513,361) (5,264,176)
Net increase (decrease) (268,388) 1,158,111
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED MARCH 31, 1999 YEARS ENDED SEPTEMBER 30,
(UNAUDITED) 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning $ 9.520 $ 9.370 $ 9.320 $ 9.490 $ 9.290
of period
Income from Investment .315 C .591 C .603 C .599 .648
Operations Net investment
income
Net realized and unrealized (.241) .119 .022 (.167) .174
gain (loss)
Total from investment .074 .710 .625 .432 .822
operations
Less Distributions
From net investment income (.314) (.560) (.575) (.602) (.622)
Net asset value, end of $ 9.280 $ 9.520 $ 9.370 $ 9.320 $ 9.490
period
TOTAL RETURN B .78% 7.82% 6.90% 4.67% 9.15%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 127,241 $ 133,109 $ 120,138 $ 123,044 $ 140,471
(000 omitted)
Ratio of expenses to average .75% A .78% .81% .79% .82%
net assets
Ratio of net investment 6.73% A 6.29% 6.45% 6.54% 6.67%
income to average net assets
Portfolio turnover rate 96% A 253% 126% 188% 266%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30,
1994
SELECTED PER-SHARE DATA
Net asset value, beginning $ 9.960
of period
Income from Investment .533
Operations Net investment
income
Net realized and unrealized (.648)
gain (loss)
Total from investment (.115)
operations
Less Distributions
From net investment income (.555)
Net asset value, end of $ 9.290
period
TOTAL RETURN B (1.18)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 132,466
(000 omitted)
Ratio of expenses to average .95%
net assets
Ratio of net investment 6.80%
income to average net assets
Portfolio turnover rate 184%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Short-Intermediate Government 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.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which 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.
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 long-term U.S. government and government agency
obligations aggregated $61,475,062 and $60,933,758, 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
SUB-ADVISER FEE. FMR, on behalf of the fund, has entered into a
sub-advisory agreement(effective January 1, 1999) with Fidelity
Investments Money Management, Inc. (FIMM), a wholly owned subsidiary
of FMR. For its services, FIMM receives a fee from FMR of 50% of the
management fee payable to FMR. The fee is paid prior to any voluntary
expense reimbursements which may be in effect.
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 .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 an arrangement with its custodian 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 fees were reduced by $668 under this arrangement.
6. PROPOSED REORGANIZATION.
The Board of Trustees of the fund has approved an Agreement and Plan
of Reorganization ("Agreement") between the fund and Fidelity
Intermediate Government Income Fund ("Reorganization"). The Agreement
provides for the transfer of all of the assets of the fund to Fidelity
Intermediate Government Income Fund in exchange solely for the number
of shares of Fidelity Intermediate Government Income Fund having the
same aggregate net asset value as the outstanding shares of the fund
as of the close of business of the New York Stock Exchange on the day
that the Reorganization is effective and the assumption by Fidelity
Intermediate Government Income Fund of all of the liabilities of the
fund. The Reorganization, which has been approved by the vote of a
majority (as defined by the 1940 Act) of outstanding voting securities
of the fund, became effective on April 29, 1999.
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on April 14,
1999. The results of votes taken among shareholders on the proposal
before them are listed below. A share voted represents one dollar of
the net asset value of the fund.
PROPOSAL 1
To approve an Agreement and Plan of Reorganization between Fidelity
Short-Intermediate Government Fund and Fidelity Intermediate
Government Income Fund.
# OF % OF
DOLLARS VOTED SHARES VOTED
Affirmative 52,083,106.63 76.127
Against 12,498,202.99 18.267
Abstain 3,835,137.39 5.606
TOTAL 68,416,447.01 100.000
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT
MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED
OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE
PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF
ANY SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and
send you written confirmation upon completion of your request.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75039-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISER
Fidelity Investment
Money Management, Inc.
Merrimack, NH
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
Matthew N. Karstetter, Deputy 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
Abigail P. Johnson
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
FSG-SANN-0599 76037
1.702373.101
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-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
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) 1-800-544-4774
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
SPARTAN(REGISTERED TRADEMARK)
INVESTMENT GRADE BOND
FUND
SEMIANNUAL REPORT
MARCH 31, 1999
(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.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
Breaking through 10,000 by the Dow Jones Industrial Average was the
big news in equity markets during March, as that milestone was the
last of six new highs the Dow recorded during the month. Renewed
strength in the energy and cyclical sectors contributed to the rally.
In fixed-income, Treasuries continued to struggle based on the
persistent strength of the economy, as yields on the 30-year benchmark
rose to their highest levels since August of 1998.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
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, or visit our
web site at www.fidelity.com. 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 MARCH 31, 1999 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
SPARTAN INV. GRADE BOND 0.66% 6.76% 44.59% 61.70%
LB Aggregate Bond -0.16% 6.49% 45.52% 54.75%
Intermediate Investment Grade -0.45% 5.15% 39.38% n/a
Debt 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 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 Aggregate
Bond Index - a market value-weighted index of investment-grade
fixed-rate debt issues, including government, corporate, asset-backed
and mortgage-backed securities, with maturities of one year or more.
To measure how the fund's performance stacked up against its peers,
you can compare it to the intermediate investment grade debt funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Inc. The past six months average
represents a peer group of 275 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 MARCH 31, 1999 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
SPARTAN INV. GRADE BOND 6.76% 7.65% 7.67%
LB Aggregate Bond 6.49% 7.79% 6.95%
Intermediate Investment Grade 5.15% 6.86% n/a
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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER LIFE OF FUND
Spartan Inv. Grade Bond LB Aggregate Bond
00448 LB001
1992/10/01 10000.00 10000.00
1992/10/31 9812.23 9816.93
1992/11/30 9910.58 9818.90
1992/12/31 10141.51 9975.02
1993/01/31 10397.72 10166.54
1993/02/28 10729.65 10344.45
1993/03/31 10789.98 10387.90
1993/04/30 10830.04 10460.61
1993/05/31 10871.84 10474.21
1993/06/30 11226.71 10663.80
1993/07/31 11392.79 10724.58
1993/08/31 11782.44 10912.26
1993/09/30 11816.73 10941.72
1993/10/31 11913.99 10982.21
1993/11/30 11705.42 10888.86
1993/12/31 11740.02 10947.66
1994/01/31 11984.80 11095.45
1994/02/28 11571.41 10902.39
1994/03/31 11183.62 10633.10
1994/04/30 11070.36 10548.04
1994/05/31 11000.02 10546.98
1994/06/30 10994.05 10523.78
1994/07/31 11184.69 10733.20
1994/08/31 11183.61 10746.08
1994/09/30 11019.13 10588.11
1994/10/31 10995.76 10578.59
1994/11/30 11028.07 10555.31
1994/12/31 11132.78 10628.14
1995/01/31 11333.41 10838.58
1995/02/28 11549.35 11096.54
1995/03/31 11689.77 11164.23
1995/04/30 11838.95 11320.53
1995/05/31 12332.88 11758.63
1995/06/30 12424.27 11844.47
1995/07/31 12383.63 11818.41
1995/08/31 12539.11 11961.42
1995/09/30 12665.77 12077.44
1995/10/31 12831.52 12234.45
1995/11/30 13022.66 12417.96
1995/12/31 13204.49 12591.82
1996/01/31 13294.65 12674.92
1996/02/29 13063.03 12454.38
1996/03/31 12964.75 12367.20
1996/04/30 12876.88 12297.94
1996/05/31 12843.90 12273.35
1996/06/30 13004.84 12437.81
1996/07/31 13036.96 12471.39
1996/08/31 13015.72 12450.19
1996/09/30 13230.84 12666.82
1996/10/31 13515.06 12948.03
1996/11/30 13731.49 13169.44
1996/12/31 13616.13 13046.96
1997/01/31 13661.24 13087.41
1997/02/28 13686.05 13120.13
1997/03/31 13530.63 12974.49
1997/04/30 13741.70 13169.11
1997/05/31 13859.90 13294.22
1997/06/30 14016.97 13452.42
1997/07/31 14397.86 13815.63
1997/08/31 14277.92 13698.20
1997/09/30 14478.69 13900.93
1997/10/31 14669.01 14102.50
1997/11/30 14716.41 14167.37
1997/12/31 14880.02 14310.46
1998/01/31 15070.31 14493.63
1998/02/28 15082.54 14482.04
1998/03/31 15146.56 14531.28
1998/04/30 15223.90 14606.84
1998/05/31 15376.86 14745.60
1998/06/30 15483.26 14870.69
1998/07/31 15517.96 14902.25
1998/08/31 15686.01 15144.81
1998/09/30 16063.60 15499.37
1998/10/31 15948.28 15417.60
1998/11/30 16102.59 15504.92
1998/12/31 16183.56 15551.54
1999/01/31 16324.58 15662.62
1999/02/28 16058.45 15389.16
1999/03/31 16169.96 15474.54
IMATRL PRASUN SHR__CHT 19990331 19990409 095635 R00000000000081
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Investment Grade Bond Fund on October 1, 1992,
when the fund started. As the chart shows, by March 31, 1999, the
value of the investment would have grown to $16,170 - a 61.70%
increase on the initial investment. For comparison, look at how the
Lehman Brothers Aggregate Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $15,475 - a 54.75% 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 MARCH 31, YEARS ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
Dividend returns 2.91% 6.56% 6.72% 6.33% 7.65% 6.24%
Capital returns -2.25% 4.39% 2.71% -1.87% 7.29% -12.99%
Total returns 0.66% 10.95% 9.43% 4.46% 14.94% -6.75%
</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 MARCH 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.19(cents) 30.99(cents) 62.91(cents)
Annualized dividend rate 5.89% 5.91% 6.00%
30-day annualized yield 5.82% - -
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
$10.38 over the past one month, $10.51 over the past six months and
$10.49 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 bond 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 5.67%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
In the midst of troublesome financial
markets overseas, a declining U.S.
stock market and nonexistent
inflationary pressures, investors
flocked to U.S. Treasury bonds in
the later stages of 1998. Three
consecutive interest-rate cuts by the
Federal Reserve Board in the fall of
1998 provided further strength,
especially in government securities.
The financial landscape was quickly
transformed, however, during the
first quarter of 1999 amid strong
economic data, improving global
economies and comments from the
Federal Reserve Board that a
reversal of last fall's three
consecutive interest-rate cuts might
be necessary. Bonds posted
negative returns across most sectors
as the Lehman Brothers Aggregate
Bond Index - a widely followed
measure of taxable bond
performance - posted a total
return of -0.16% for the six-month
period that ended March 31, 1999.
While Treasuries moved moderately
higher at the end of the period
following news that the Fed decided
to keep short-term interest rates
unchanged, the benchmark
30-year Treasury experienced one
of its biggest sell-offs in over 20
years as personal spending,
housing starts and Gross Domestic
Product remained stronger than
expected. The Lehman Brothers
Treasury Index had a six-month
return of -1.76% as of March 31,
1999. Corporate and mortgage
bond sectors outperformed
Treasuries of comparable maturities
as the Lehman Brothers Corporate
Bond Index and the Lehman
Brothers Mortgage Securities Index
returned -0.11% and 1.79%,
respectively, during the same
period.
(photograph of Kevin Grant)
An interview with Kevin Grant, Portfolio Manager of Spartan Investment
Grade Bond Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. For the six-month period that ended March 31, 1999, the fund had a
total return of 0.66%. In comparison, the intermediate investment
grade debt funds average tracked by Lipper Inc. returned -0.45%. The
fund also outpaced the Lehman Brothers Aggregate Bond Index, which
returned -0.16% during the same period. For the 12 months that ended
March 31, 1999, the fund produced a 6.76% return, while the Lipper
average and Lehman Brothers index returned 5.15% and 6.49%,
respectively.
Q. THE FUND PERFORMED WELL AGAINST ITS PEERS. TO WHAT DO YOU ATTRIBUTE
THIS SUCCESS?
A. One key to our success was that, unlike the competition, the fund
did not have much exposure to Asia and to cyclicals during the
downturn of the late summer. Another factor is that a number of
competitors engaged in market timing strategies. Over the past six
months, it became clearly evident how easy it was to get burned taking
this approach. We don't market-time because we feel that it is simply
impossible to predict the market's direction; there is just far too
much short-term noise to grapple with. In the fall, those who bought
Treasuries when yields were at their lowest, and prices at their
highest, suffered during the reversal later in the period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S SOUND PERFORMANCE RELATIVE
TO ITS BENCHMARK?
A. Essentially, we've been in the right place over the past six
months. The key was not panicking last fall. At the time, we were set
up for a serious downturn in all but Treasuries. We knew that
corporates and mortgages were expensive, so we remained conservative
in our posture and were overweighted in both asset classes relative to
Treasuries. The majority of the tilt was toward short-term corporates,
as they tend to offer a yield advantage over Treasuries without a lot
of incremental price risk. This strategy protected the fund. Those
corporates we did own were defensive - cable companies and telephone
utilities - which were hurt as well in the fall, but not as much as
the paper companies or investment-grade Asian corporate bonds, which
are components of the index. Late in the period, the corporate bond
market rallied. The telecommunications sector, for instance, not only
made back all of the underperformance of the early fall, but returned
even more. The market had a veritable love affair with telecom and
media companies, but remained bearish on cyclicals. These factors,
together with the recovery in the mortgage market due to a slowdown in
prepayment activity, proved beneficial for the fund.
Q. WHAT INVESTMENTS HURT PERFORMANCE?
A. As spreads widened at the beginning of the six-month period, I
should have shifted to a below-normal position in corporate bonds and
mortgages. That hurt performance, although staying the course did help
later in the period. Within corporates, I should have owned more
energy securities over the last two months of the period. The fear
with the oil industry was that higher-rated companies with a lot of
cash, those which we would like to own, would likely look to buy
companies that we were most afraid of with the least cash on their
books. This situation drove the credit quality of the higher-rated
company down. So, even though the energy sector was cheap, and a good
place to put some money, event risk simply rendered the securities
untouchable in our eyes.
Q. WHAT'S YOUR OUTLOOK?
A. I am optimistic. Overall, it's an ideal environment for investing
in bonds. From an interest-rate perspective, I don't foresee any
significant moves one way or the other on the horizon. I think we're
set up for an environment where the spread sectors - mortgages,
corporates and the like - will outperform Treasuries over the next six
months. My feeling is that the corporate market still has a lot of
value in specific sectors. The mortgage market should also be a good
sector to own for a while. I may look to add mortgages if we see a
short-term drop in prices. I expect corporate cash flows to remain
strong in the coming months. The market is conditioned to expect
little or no inflation. Although the possibility of Fed tightening
exists, it is difficult to see recession in our immediate future. I
think the bond market is in for a reasonably stable period for the
next six to 12 months.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)FUND FACTS
GOAL: high current income
FUND NUMBER: 448
TRADING SYMBOL: FSIBX
START DATE: October 1, 1992
SIZE: as of March 31, 1999,
more than $1.2 billion
MANAGER: Kevin Grant, since
1997; also manager of several
Fidelity investment-grade
taxable bond funds; joined
Fidelity in 1993
KEVIN GRANT ON NAVIGATING
THROUGH SEAS OF MARKET
TURBULENCE:
"In times of uncertainty, bondholders
need to take a hard look at their
investment objectives. I suggest
bondholders take a long-term view.
It is true that over short periods of
time, corporate bonds and mortgage
securities can underperform
Treasuries. However, over the
long-term, the yield advantage of
corporates and mortgages usually
wins. It is important to remember
that yield takes a year or two to
create value. So, if you're really
concerned about safety and
high-quality instruments, you
should most likely be in a
government money market fund.
This approach, however, is not what
investing is all about - it's about
the longer term. If you have a two-
to three-year time horizon, you
probably don't want to own
Treasuries. There are so many other
more attractive options available in
the marketplace. You must,
however, be comfortable with the
fact that random things do happen
and that, over short periods of
time, your return may fall short of
expectations. But performance is
likely to recover, and then some,
just by giving yield some time to
work for you. I think you need to
look at your portfolio as a basket of
investments, not as a series of
trades."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF
MARCH 31, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa 54.0 56.5
Aa 2.9 3.8
A 11.3 6.9
Baa 22.2 18.9
Ba and Below 1.4 2.9
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P (registered trademark) 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 MARCH 31, 1999
6 MONTHS AGO
Years 8.8 7.8
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 MARCH 31, 1999
6 MONTHS AGO
Years 4.8 4.2
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 MARCH 31, 1999 *
Corporate bonds 37.7%
U.S. government
and agency
obligations 13.9%
U.S. government
agency mortgage
securities 35.4%
Other 4.8%
Short-term
investments 8.2%
* FOREIGN
INVESTMENTS 6.7%
Row: 1, Col: 1, Value: 8.199999999999999
Row: 1, Col: 2, Value: 4.8
Row: 1, Col: 3, Value: 35.4
Row: 1, Col: 4, Value: 13.9
Row: 1, Col: 5, Value: 37.7
AS OF SEPTEMBER 30, 1998 **
Corporate bonds 32.7%
U.S. government
and agency
obligations 21.1%
U.S. government
agency mortgage
securities 31.8%
Other 3.4%
Short-term
investments 11.0%
** FOREIGN
INVESTMENTS 6.7%
Row: 1, Col: 1, Value: 11.0
Row: 1, Col: 2, Value: 3.4
Row: 1, Col: 3, Value: 31.8
Row: 1, Col: 4, Value: 21.1
Row: 1, Col: 5, Value: 32.7
INVESTMENTS MARCH 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 33.3%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
AEROSPACE & DEFENSE - 0.4%
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. 6.45% 8/15/02 Baa1 $ 5,000 $ 5,083
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.8%
Monsanto Co. 5.75% 12/1/05 (c) A2 10,000 9,777
CONSTRUCTION & REAL ESTATE -
2.0%
REAL ESTATE INVESTMENT TRUSTS
- - 2.0%
CenterPoint Properties Trust Baa2 1,100 1,052
6.75% 4/1/05
Equity Office Properties Trust:
6.5% 1/15/04 Baa1 7,000 6,955
6.625% 2/15/05 Baa1 8,010 7,910
6.75% 2/15/08 Baa1 2,270 2,243
7.25% 2/15/18 Baa1 8,000 7,747
25,907
DURABLES - 0.4%
TEXTILES & APPAREL - 0.4%
Levi Strauss & Co. 7% 11/1/06 Baa3 5,745 5,136
(c)
ENERGY - 1.1%
ENERGY SERVICES - 0.1%
Baker Hughes, Inc. 6.875% A2 965 947
1/15/29 (c)
OIL & GAS - 1.0%
Oryx Energy Co.:
8.125% 10/15/05 Baa1 4,640 4,939
8.375% 7/15/04 Baa1 5,000 5,330
Petro-Canada 7% 11/15/28 A3 3,470 3,355
13,624
TOTAL ENERGY 14,571
FINANCE - 13.1%
BANKS - 4.7%
ABN-Amro Bank NV, Chicago A1 1,750 1,780
6.625% 10/31/01
BankAmerica Corp. 10% 2/1/03 Aa3 500 568
BankBoston NA 6.375% 3/25/08 A2 10,800 10,764
BanPonce Corp. 6.378% 4/8/99 A3 770 770
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Bank of Montreal 6.1% 9/15/05 A1 $ 3,000 $ 2,956
Barclays Bank PLC yankee:
5.875% 7/15/00 A1 4,500 4,508
5.95% 7/15/01 A1 5,400 5,415
Capital One Bank:
6.375% 2/15/03 Baa3 2,400 2,352
6.42% 11/12/99 Baa3 4,000 4,022
Capital One Financial Corp. Ba1 2,900 2,819
7.125% 8/1/08
Central Fidelity Banks, Inc. A1 1,000 1,073
8.15% 11/15/02
Fleet/Norstar Financial A3 370 399
Group, Inc. 9% 12/1/01
Kansallis-Osake-Pankki, New A3 430 476
York 10% 5/1/02
Korea Development Bank:
6.625% 11/21/03 Baa3 2,110 1,999
7.125% 9/17/01 Baa3 1,485 1,459
MBNA Corp.:
6.34% 6/2/03 Baa2 800 794
6.875% 11/15/02 Baa2 3,600 3,593
NB Capital Trust IV 8.25% Aa2 3,980 4,266
4/15/27
Provident Bank 6.125% 12/15/00 A3 210 210
Providian National Bank 6.25% Baa3 7,750 7,741
5/7/01
Summit Bancorp 8.625% 12/10/02 BBB+ 1,000 1,084
Union Planters Corp. 6.75% Baa2 1,200 1,205
11/1/05
Union Planters National Bank A3 1,000 1,018
6.81% 8/20/01
61,271
CREDIT & OTHER FINANCE - 7.5%
Associates Corp. of North
America:
6% 4/15/03 Aa3 2,400 2,412
6% 7/15/05 Aa3 10,000 9,884
AT&T Capital Corp. 7.5% Baa3 7,760 7,958
11/15/00
Bank of New York Co., Inc. A1 3,000 3,206
Capital I 7.97% 12/31/26
BankBoston Capital Trust II A2 1,750 1,745
7.75% 12/15/26
BanPonce Trust I 8.327% 2/1/27 A3 1,960 1,784
Chase Capital I 7.67% 12/1/26 Aa3 6,000 6,099
Chrysler Financial Corp. A1 5,000 5,001
5.69% 11/15/01
Citigroup, Inc. 5.8% 3/15/04 Aa2 8,000 7,959
ERP Operating LP 6.55% A3 1,000 1,005
11/15/01
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
First Security Capital I A3 $ 5,420 $ 5,680
8.41% 12/15/26
First Union Institutional BBB+ 7,450 7,846
Capital I 8.04% 12/1/26
Fleet Capital Trust II 7.92% A2 900 931
12/11/26
Fleet Mortgage Group, Inc. A2 250 251
6.5% 9/15/99
Ford Motor Credit Co. 5.125% A1 8,000 7,906
10/15/01
General Electric Capital Aaa 1,750 1,750
Corp. 6.94% 4/13/09 (b)
GS Escrow Corp. 7.125% 8/1/05 Ba1 10,300 10,327
Household Finance Corp. 6% A2 8,000 8,039
5/8/00
KeyCorp Institutional Capital A1 500 514
A 7.826% 12/1/26
PNC Institutional Capital A2 2,000 2,080
Trust 8.315% 5/15/27 (c)
Spieker Properties LP 6.9% Baa2 1,650 1,661
1/15/04
Sprint Capital Corp. 5.7% Baa1 2,800 2,773
11/15/03
96,811
INSURANCE - 0.2%
Executive Risk Capital Trust Baa3 2,750 2,979
8.675% 2/1/27
SAVINGS & LOANS - 0.4%
Great Western Finance Trust A3 4,000 4,193
II 8.206% 2/1/27
Long Island Savings Bank FSB Baa3 1,550 1,556
6.2% 4/2/01
5,749
SECURITIES INDUSTRY - 0.3%
Amvescap PLC:
yankee 6.375% 5/15/03 A3 1,500 1,498
yankee 6.6% 5/15/05 A3 1,750 1,726
3,224
TOTAL FINANCE 170,034
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.1%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.6%
Tyco International Group SA Baa1 8,000 8,062
yankee 6.125% 6/15/01
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
POLLUTION CONTROL - 0.5%
WMX Technologies, Inc.:
6.25% 4/1/99 Baa3 $ 2,200 $ 2,200
7.1% 8/1/26 Baa3 4,000 4,170
6,370
TOTAL INDUSTRIAL MACHINERY & 14,432
EQUIPMENT
MEDIA & LEISURE - 5.3%
BROADCASTING - 3.0%
Clear Channel Communications,
Inc.:
6.875% 6/15/18 Baa3 5,000 4,820
7.25% 10/15/27 Baa3 15,725 15,586
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 735 811
9% 9/1/08 Baa3 1,710 2,011
TCI Communications, Inc.:
8.25% 1/15/03 A2 120 130
8.75% 8/1/15 A2 6,075 7,383
9.8% 2/1/12 A2 3,150 4,129
Time Warner, Inc.:
6.875% 6/15/18 Baa3 520 516
9.125% 1/15/13 Baa3 3,000 3,666
39,052
ENTERTAINMENT - 0.5%
Viacom, Inc. 7.75% 6/1/05 Baa3 5,530 5,896
PUBLISHING - 1.8%
News America Holdings, Inc. Baa3 6,000 6,458
8% 10/17/16
News America, Inc. 6.625% Baa3 1,400 1,405
1/9/08
Time Warner Entertainment Co.
LP:
8.375% 3/15/23 Baa2 12,170 14,087
8.875% 10/1/12 Baa2 750 898
10.15% 5/1/12 Baa2 500 652
23,500
RESTAURANTS - 0.0%
Darden Restaurants, Inc. Baa1 35 34
6.375% 2/1/06
TOTAL MEDIA & LEISURE 68,482
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
NONDURABLES - 1.2%
BEVERAGES - 0.7%
Seagram Co. Ltd. yankee Baa3 $ 670 $ 618
6.875% 9/1/23
Seagram J E & Sons, Inc.:
6.625% 12/15/05 Baa3 6,000 5,940
7.6% 12/15/28 Baa3 3,000 3,045
9,603
FOODS - 0.2%
ConAgra, Inc. 7.125% 10/1/26 Baa1 2,040 2,089
TOBACCO - 0.3%
Philip Morris Companies, Inc. A2 4,000 4,107
6.95% 6/1/06
TOTAL NONDURABLES 15,799
RETAIL & WHOLESALE - 2.0%
DRUG STORES - 0.6%
Rite Aid Corp. 6% 12/15/05 (c) Baa1 8,000 7,647
GENERAL MERCHANDISE STORES -
0.6%
Dayton Hudson Corp. 6.4% A3 1,000 1,016
2/15/03
Federated Department Stores,
Inc.:
6.79% 7/15/27 Baa2 2,000 2,025
8.5% 6/15/03 Baa2 4,000 4,352
7,393
GROCERY STORES - 0.4%
American Stores Co. 7.5% A3 2,000 2,155
5/1/37
Kroger Co. 6% 7/1/00 Baa3 3,470 3,475
5,630
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.4%
USA Networks, Inc./USANI LLC Ba1 4,500 4,457
6.75% 11/15/05 (c)
TOTAL RETAIL & WHOLESALE 25,127
TECHNOLOGY - 1.0%
COMPUTERS & OFFICE EQUIPMENT
- - 1.0%
Comdisco, Inc.:
6.375% 11/30/01 Baa1 6,000 6,050
6.45% 11/13/00 Baa1 7,000 7,073
13,123
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
TRANSPORTATION - 1.2%
AIR TRANSPORTATION - 0.5%
Delta Air Lines, Inc. Baa1 $ 2,346 $ 2,506
equipment trust certificate
8.54% 1/2/07
United Air Lines, Inc.:
9% 12/15/03 Baa3 2,000 2,186
10.25% 7/15/21 Baa3 1,000 1,222
5,914
RAILROADS - 0.7%
Burlington Northern Santa Fe
Corp.:
6.53% 7/15/37 Baa2 5,000 5,068
6.875% 12/1/27 Baa2 2,000 1,988
Norfolk Southern Corp. 7.05% Baa1 2,510 2,603
5/1/37
9,659
TOTAL TRANSPORTATION 15,573
UTILITIES - 3.7%
CELLULAR - 0.5%
Cable & Wireless Baa1 6,330 6,376
Communications PLC 6.375%
3/6/03
ELECTRIC UTILITY - 1.9%
Avon Energy Partners Holdings:
6.46% 3/4/08 (c) Baa2 3,200 3,182
7.05% 12/11/07 (c) Baa2 6,000 6,218
DR Investments UK PLC yankee A2 2,000 2,047
7.1% 5/15/02 (c)
Hydro-Quebec yankee 8% 2/1/13 A2 250 286
Israel Electric Corp. Ltd.:
7.75% 12/15/27 (c) A3 5,195 4,883
yankee 7.25% 12/15/06 (c) A3 1,000 987
Philadelphia Electric Co. 1st Baa1 1,000 1,044
& ref. mtg. 7.75% 5/1/23
Texas Utilities Co. 6.375% Baa3 5,265 5,234
1/1/08
23,881
GAS - 0.6%
Cms Panhandle Holding Co.:
6.125% 3/15/04 (c) Baa3 2,350 2,346
7% 7/15/29 Baa3 1,800 1,770
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
UTILITIES - CONTINUED
GAS - CONTINUED
Mitchell Energy & Development Baa3 $ 2,520 $ 2,533
Corp. 8% 7/15/99
Panhandle Eastern Corp. A3 1,000 1,020
8.625% 12/1/99
7,669
TELEPHONE SERVICES - 0.7%
AT&T Corp. 6.5% 3/15/29 A1 3,500 3,439
GTE Corp. 7.83% 5/1/23 Baa1 1,000 1,057
MCI WorldCom, Inc. 6.4% Baa2 5,000 5,058
8/15/05
9,554
TOTAL UTILITIES 47,480
TOTAL NONCONVERTIBLE BONDS 430,524
(Cost $429,281)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 13.9%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 2.4%
Fannie Mae 5.75% 6/15/05 Aaa 1,800 1,806
Federal Home Loan Bank:
7.31% 6/16/04 Aaa 5,000 5,367
7.36% 7/1/04 Aaa 7,900 8,497
7.87% 10/20/04 Aaa 1,700 1,864
Financing Corp. Coupon Strip Aaa 5,606 4,217
0% 3/26/04
Freddie Mac:
5.035% 4/28/03 Aaa 4,490 4,489
8.115% 1/31/05 Aaa 4,350 4,839
Guaranteed Export Trust Aaa 4 5
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994 C, 6.61% 9/15/99
TOTAL U.S. GOVERNMENT AGENCY 31,084
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
11.5%
U.S. Treasury Bond:
6.125% 11/15/27 Aaa 13,860 14,384
6.875% 8/15/25 Aaa 6,110 6,904
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 Bond: - continued
7.625% 2/15/25 Aaa $ 2,700 $ 3,316
8.75% 5/15/17 Aaa 12,720 16,729
8.875% 8/15/17 Aaa 5,260 7,001
9.875% 11/15/15 Aaa 3,700 5,263
U.S. Treasury Notes:
6.5% 5/31/02 Aaa 29,300 30,431
7% 7/15/06 Aaa 58,990 64,539
TOTAL U.S. TREASURY 148,567
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 179,651
GOVERNMENT AGENCY OBLIGATIONS
(Cost $182,633)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 35.4%
FANNIE MAE - 33.7%
5.5% 1/1/09 to 4/1/11 Aaa 13,341 13,033
6% 4/1/13 to 2/1/29 Aaa 80,710 79,323
6.5% 12/1/25 to 3/1/29 Aaa 287,805 286,461
7% 3/1/23 to 1/1/29 Aaa 46,435 47,080
8% 7/1/26 Aaa 501 521
8.5% 11/1/26 to 12/1/26 Aaa 7,606 7,986
9.5% 4/1/17 to 12/1/18 Aaa 965 1,034
TOTAL FANNIE MAE 435,438
FREDDIE MAC - 0.4%
7% 6/1/01 to 7/1/01 Aaa 323 325
8.5% 5/1/25 to 8/1/27 Aaa 4,838 5,083
TOTAL FREDDIE MAC 5,408
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.3%
6% 10/15/08 to 5/15/09 Aaa 3,096 3,097
7% 10/15/27 Aaa 280 285
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
7.5% 12/15/05 to 10/15/27 Aaa $ 12,783 $ 13,188
9.5% 7/15/16 to 3/15/22 Aaa 481 517
TOTAL GOVERNMENT NATIONAL 17,087
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 457,933
- - MORTGAGE SECURITIES
(Cost $458,326)
ASSET-BACKED SECURITIES - 4.4%
Arcadia Automobile Aaa 14,000 14,092
Receivables Trust 6.5%
6/17/02
Capita Equipment Receivables Baa2 1,760 1,741
Trust 6.48% 10/15/06
Chevy Chase Auto Receivables Aaa 1,189 1,194
Trust 5.91% 12/15/04
Contimortgage Home Equity Aaa 4,623 4,626
Loan Trust 6.26% 7/15/12
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa3 1,790 1,782
6.4% 5/15/02 A1 1,730 1,741
6.4% 12/15/02 Baa3 1,020 1,017
Ford Credit Grantor Trust Aaa 111 111
5.9% 11/2/00
Green Tree Financial Corp. Aaa 208 208
6.1% 4/15/27
JCP Master Credit Card Trust Aaa 13,400 13,170
5.5% 6/15/07
Key Auto Finance Trust:
6.3% 10/15/03 A2 1,531 1,532
6.65% 10/15/03 Baa3 449 453
MBNA Master Credit Card Trust Aaa 5,000 5,181
II 6.55% 1/15/07
Peco Energy Transition Trust Aaa 4,200 4,182
6.05% 3/1/09
PNC Student Loan Trust I Aaa 5,700 5,737
6.314% 1/25/01
Premier Auto Trust 6% 5/6/00 Aaa 16 16
TOTAL ASSET-BACKED SECURITIES 56,783
(Cost $56,587)
COMMERCIAL MORTGAGE
SECURITIES - 1.6%
CS First Boston Mortgage
Securities Corp.:
Series 1997 C2 Class D, 7.27% Baa2 2,200 2,046
1/17/35
Series 1998 FLI Class E, Baa2 5,260 5,132
5.8134% 1/10/13 (c)(d)
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):
Series 174 Class B1, 7.33% Aa2 $ 1,000 $ 1,046
5/15/06 (c)
Series 174 Class C1, 7.52% A2 1,000 1,048
5/15/06 (c)
GS Mortgage Securities Corp. Baa3 2,000 1,794
II Series 1998-GLII Class E,
6.9697% 4/13/31 (c)(d)
Morgan Stanley Capital I,
Inc. Series 1998 CF1:
Class D, 7.35% 1/15/12 Baa2 3,125 2,899
Class E, 7.35% 12/15/12 Baa3 1,074 906
Structured Asset Securities AAA 851 846
Corp. sequential pay Series
1996 Class A-2A, 7.75%
2/25/28
Thirteen Affiliates of Aaa 3,000 3,032
General Growth Properties,
Inc. sequential pay Series A
2, 6.602% 12/15/10 (c)
Wells Fargo Capital Markets Aaa 1,943 1,968
Apartment Financing Trust
Series APT Class 1, 6.56%
12/29/05 (c)
TOTAL COMMERCIAL MORTGAGE 20,717
SECURITIES
(Cost $21,281)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 2.6%
Korean Republic:
8.75% 4/15/03 (e) Baa3 2,900 3,035
8.875% 4/15/08 (e) Baa3 6,350 6,805
New Brunswick Province yankee A1 500 568
7.625% 2/15/13 (e)
Ontario Province 7%, 8/4/05 Aa3 2,000 2,109
(e)
Quebec Province:
yankee:
7.125% 2/9/24 (e) A2 480 501
7.5% 7/15/23 (e) A2 15,480 16,870
7% 1/30/07 (e) A2 4,000 4,194
Saskatchewan Province yankee A2 300 367
8.5% 7/15/22 (e)
TOTAL FOREIGN GOVERNMENT AND 34,449
GOVERNMENT AGENCY OBLIGATIONS
(Cost $34,456)
SUPRANATIONAL OBLIGATIONS -
0.4%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Inter American Development Aaa $ 5,000 $ 4,970
Bank yankee 6.29% 7/16/27
(Cost $4,969)
CERTIFICATES OF DEPOSIT - 0.2%
Canadian Imperial Bank of Aa3 2,500 2,527
Commerce, New York yankee
6.2% 8/1/00 (Cost $2,504)
CASH EQUIVALENTS - 8.2%
MATURITY AMOUNT (000S)
Investments in repurchase $ 106,678 106,663
agreements (U.S. Government
obligations), in a joint
trading account at 5.04%,
dated 3/31/99 due 4/1/99
(Cost $106,663)
TOTAL INVESTMENT IN $ 1,294,217
SECURITIES - 100%
(Cost $1,296,700)
</TABLE>
LEGEND
(a) Standard & Poor's(registered trademark) credit ratings are used in
the absence of a rating by Moody's Investors Service, Inc.
(b) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified 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 $63,727,000 or 4.9% 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 have been assigned 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 68.1% AAA, AA, A 67.2%
Baa 21.5% BBB 21.7%
Ba 1.4% BB 1.3%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
INCOME TAX INFORMATION
At March 31, 1999, the aggregate cost of investment securities for
income tax purposes was $1,296,731,000. Net unrealized depreciation
aggregated $2,514,000, of which $8,989,000 related to appreciated
investment securities and $11,503,000 related to depreciated
investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) MARCH 31,
1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,294,217
value (including repurchase
agreements of $106,663)
(cost $1,296,700) - See
accompanying schedule
Receivable for investments 1,531
sold
Receivable for fund shares 2,868
sold
Interest receivable 13,969
TOTAL ASSETS 1,312,585
LIABILITIES
Payable for investments $ 13,734
purchased
Payable for fund shares 2,326
redeemed
Distributions payable 866
Accrued management fee 535
Other payables and accrued 1
expenses
TOTAL LIABILITIES 17,462
NET ASSETS $ 1,295,123
Net Assets consist of:
Paid in capital $ 1,297,250
Undistributed net investment 165
income
Accumulated undistributed net 191
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (2,483)
(depreciation) on investments
NET ASSETS, for 124,806 $ 1,295,123
shares outstanding
NET ASSET VALUE, offering $10.38
price and redemption price
per share ($1,295,123
(divided by) 124,806 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED
MARCH 31, 1999
(UNAUDITED)
INVESTMENT INCOME $ 39,992
Interest
EXPENSES
Management fee $ 3,756
Non-interested trustees' 2
compensation
Total expenses before 3,758
reductions
Expense reductions (992) 2,766
NET INVESTMENT INCOME 37,226
REALIZED AND UNREALIZED GAIN 9,032
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (38,747)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (29,715)
NET INCREASE (DECREASE) IN $ 7,511
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, YEAR ENDED SEPTEMBER 30, 1998
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 37,226 $ 50,090
income
Net realized gain (loss) 9,032 11,120
Change in net unrealized (38,747) 28,204
appreciation (depreciation)
NET INCREASE (DECREASE) IN 7,511 89,414
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (37,047) (50,184)
From net investment income
From net realized gain (9,544) -
TOTAL DISTRIBUTIONS (46,591) (50,184)
Share transactions Net 464,086 918,877
proceeds from sales of shares
Reinvestment of distributions 40,204 43,355
Cost of shares redeemed (390,378) (331,925)
NET INCREASE (DECREASE) IN 113,912 630,307
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 74,832 669,537
IN NET ASSETS
NET ASSETS
Beginning of period 1,220,291 550,754
End of period (including $ 1,295,123 $ 1,220,291
undistributed net investment
income and distribution in
excess of net investment
income of $165 and $14,
respectively)
OTHER INFORMATION
Shares
Sold 44,128 87,981
Issued in reinvestment of 3,822 4,148
distributions
Redeemed (37,173) (31,812)
Net increase (decrease) 10,777 60,317
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED MARCH 31, 1999 YEARS ENDED SEPTEMBER 30,
(UNAUDITED) 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.700 $ 10.250 $ 9.980 $ 10.170 $ 9.510
period
Income from Investment .311 D .634 D .640 D .655 .693
Operations Net investment
income
Net realized and unrealized (.241) .453 .273 (.211) .673
gain (loss)
Total from investment .070 1.087 .913 .444 1.366
operations
Less Distributions
From net investment income (.310) (.637) (.643) (.634) (.686)
From net realized gain (.080) - - - -
In excess of net realized - - - - (.020)
gain
Total distributions (.390) (.637) (.643) (.634) (.706)
Net asset value, end of $ 10.380 $ 10.700 $ 10.250 $ 9.980 $ 10.170
period
TOTAL RETURN B, C .66% 10.95% 9.43% 4.46% 14.94%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 1,295 $ 1,220 $ 551 $ 344 $ 148
millions)
Ratio of expenses to average .44% A, E .38% E .48% E .65% .65%
net assets
Ratio of net investment 5.94% A 6.11% 6.36% 6.35% 6.92%
income to average net assets
Portfolio turnover rate 205% A 222% 194% 169% 147%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30,
1994
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.940
period
Income from Investment .668
Operations Net investment
income
Net realized and unrealized (1.384)
gain (loss)
Total from investment (.716)
operations
Less Distributions
From net investment income (.704)
From net realized gain -
In excess of net realized (.010)
gain
Total distributions (.714)
Net asset value, end of $ 9.510
period
TOTAL RETURN B, C (6.75)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 106
millions)
Ratio of expenses to average .65%
net assets
Ratio of net investment 6.90%
income to average net assets
Portfolio turnover rate 44%
</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.
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.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1999 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Investment Grade 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, 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, futures and excise tax regulations. The fund also utilized
earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for income tax
purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed 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.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
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.
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. 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 $1,221,853,000 and $1,158,065,000, respectively, of which
U.S. government and government agency obligations aggregated
$839,602,000 and $841,908,000, 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 0.60% of the fund's average net assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, has entered into a
sub-advisory agreement (effective January 1, 1999) with Fidelity
Investments Money Management, Inc. (FIMM), a wholly owned subsidiary
of FMR. For its services, FIMM receives a fee from FMR of 50% of the
management fee payable to FMR. The fee is paid prior to any voluntary
expense reimbursements which may be in effect.
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 0.50% of average net assets.
Effective January 1, 1999, the expense limitation was changed from
0.38% to 0.50% of average net assets. For the period, the
reimbursement reduced expenses by $989,000.
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 $3,000 under these arrangements.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT
MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED
OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE
PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF
ANY SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and
send you written confirmation upon completion of your request.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75039-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
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
Fidelity Investments
Money Management, Inc.,
Merrimack, New Hampshire
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Kevin E. Grant, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy 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
Abigail P. Johnson
* INDEPENDENT TRUSTEES
SIG-SANN-0599 76068
1.702310.101
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
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-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
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(REGISTERED TRADEMARK)
SHORT-TERM BOND
FUND
SEMIANNUAL REPORT
MARCH 31, 1999
(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.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
Breaking through 10,000 by the Dow Jones Industrial Average was the
big news in equity markets during March, as that milestone was the
last of six new highs the Dow recorded during the month. Renewed
strength in the energy and cyclical sectors contributed to the rally.
In fixed-income, Treasuries continued to struggle based on the
persistent strength of the economy, as yields on the 30-year benchmark
rose to their highest levels since August of 1998.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
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, or visit our
web site at www.fidelity.com. 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 MARCH 31, 1999 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
SPARTAN SHORT-TERM BOND 1.78% 5.91% 28.79% 38.09%
LB 1-3 Year Govt/Corp 1.52% 6.19% 35.46% n/a
Short Investment Grade Debt 1.34% 5.13% 31.92% n/a
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 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 index of
government and investment grade 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
Inc. The past six months average represents a peer group of 110 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 MARCH 31, 1999 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
SPARTAN SHORT-TERM BOND 5.91% 5.19% 5.09%
LB 1-3 Year Govt/Corp 6.19% 6.26% n/a
Short Investment Grade Debt 5.13% 5.69% 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 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
1998/10/31 13680.83 14188.86
1998/11/30 13701.79 14186.17
1998/12/31 13769.99 14241.09
1999/01/31 13835.64 14302.03
1999/02/28 13803.63 14241.71
1999/03/31 13901.27 14342.59
IMATRL PRASUN SHR__CHT 19990331 19990409 095850 R00000000000080
$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 March 31, 1999, the
value of the investment would have grown to $13,901 - a 39.01%
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 $14,343 - a 43.43% 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 MARCH 31, YEARS ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995 1994
Dividend returns 2.88% 6.56% 6.67% 6.67% 6.49% 6.20%
Capital returns -1.10% 0.77% 0.33% -1.20% -2.14% -6.52%
Total returns 1.78% 7.33% 7.00% 5.47% 4.35% -0.32%
</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 MARCH 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 4.37(cents) 26.03(cents) 54.08(cents)
Annualized dividend rate 5.70% 5.77% 5.98%
30-day annualized yield 5.41% - -
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 $9.02
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
bond 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
In the midst of troublesome financial
markets overseas, a declining U.S.
stock market and nonexistent
inflationary pressures, investors
flocked to U.S. Treasury bonds in
the later stages of 1998. Three
consecutive interest-rate cuts by the
Federal Reserve Board in the fall of
1998 provided further strength,
especially in government securities.
The financial landscape was quickly
transformed, however, during the
first quarter of 1999 amid strong
economic data, improving global
economies and comments from the
Federal Reserve Board that a
reversal of last fall's three
consecutive interest-rate cuts might
be necessary. Bonds posted
negative returns across most sectors
as the Lehman Brothers Aggregate
Bond Index - a widely followed
measure of taxable bond
performance - posted a total
return of -0.16% for the six-month
period that ended March 31, 1999.
While Treasuries moved moderately
higher at the end of the period
following news that the Fed decided
to keep short-term interest rates
unchanged, the benchmark
30-year Treasury experienced one
of its biggest sell-offs in over 20
years as personal spending,
housing starts and Gross Domestic
Product remained stronger than
expected. The Lehman Brothers
Treasury Index had a six-month
return of -1.76% as of March 31,
1999. Corporate and mortgage
bond sectors outperformed
Treasuries of comparable maturities
as the Lehman Brothers Corporate
Bond Index and the Lehman
Brothers Mortgage Securities Index
returned -0.11% and 1.79%,
respectively, during the same
period.
(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 six months that ended March 31, 1999, the fund had a total
return of 1.78%. In comparison, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 1.52% during the same period.
Fund performance also compared favorably to the short investment grade
debt funds average, which returned 1.34%, according to Lipper Inc. For
the 12-month period that ended March 31, 1999, the fund posted a total
return of 5.91%. The Lehman Brothers index returned 6.19%, while the
short investment grade debt funds average returned 5.13% during the
same period.
Q. THE LAST TIME WE SPOKE, UNCERTAINTY IN GLOBAL EQUITY MARKETS AND
THE FEDERAL RESERVE BOARD'S BIAS TO EASE RATES RESULTED IN AN EXTREME
FLIGHT TO TREASURIES. HOW HAS THE MARKET ENVIRONMENT CHANGED AND HOW
DID THIS IMPACT THE FUND?
A. The bond market's perception of global financial markets reversed
course amid stronger-than-expected economic data in the U.S. and
improving overseas markets. Additionally, concerns that the Fed may
change its policy course toward tightening money supply by increasing
rates caused further concern. In response, the bond market pushed up
yields, causing bond prices - which move in the opposite direction of
yields - to decline. While returns were positive during the period,
increasing bond yields erased much of the gains made late last year.
Among the different fixed-income sectors, Treasuries became the least
favored. The Treasury market experienced one of its biggest sell-offs
in over 20 years during the month of February. Nevertheless, the
fund's overweighted positions in corporate bonds, as well as
asset-backed and mortgage securities, compared to the benchmark index
helped relative performance during the six-month period.
Q. DID ANY OTHER MARKET FACTORS INFLUENCE PERFORMANCE?
A. Another key factor was the strong rebound in stocks and the
stronger-than-expected earnings reports from the corporate market.
This environment boosted interest in new corporate issues as investors
gobbled up a relatively large supply of new bonds. More recently, the
increase in yield levels served to reduce the pace of new issuance,
particularly with bonds of shorter maturities - because bonds are more
expensive to finance at higher interest rates. This has led to further
support of a positive supply and demand environment.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED, AND CAN YOU TELL US A BIT
MORE ABOUT THE PERFORMANCE OF THESE SECTORS?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards, for example -
accounted for approximately 62% of the fund's investments at the end
of the period. Within these holdings, corporate bonds accounted for
roughly 44% of the fund's investments and posted the largest comeback
in over 10 years from their lows of early October 1998. In the first
quarter of 1999, absolute returns were hampered across most bond
sectors by rising interest rates. In addition, relative performance
was helped by the overweighted positions in asset-backed securities,
which outperformed Treasuries. As the market reversed course from the
massive flight to quality we saw early in the period, mortgage
securities, which represented approximately 17% of the fund's
investments, also outperformed Treasuries during the period.
Q. WHAT'S YOUR OUTLOOK, ANDY?
A. While I don't predict the direction of interest rates, I do think
we may be moving into a more stable interest-rate environment compared
to what we experienced last fall. Though the U.S. economy was stronger
than anticipated and the perception exists that overseas economies are
improving and stable, inflation remains in check with the help of
relatively low global commodity prices and persistent weakness in
global demand. In a more stable interest-rate environment, I'll
continue to concentrate a majority of the fund's assets in corporate
and mortgage securities because they can offer better total return
potential relative to government bonds.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(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 March 31, 1999,
more than $311 million
MANAGER: Andrew Dudley,
since 1997; manager,
Fidelity Advisor Short-Fixed
Income Fund and Spartan
Short-Term Bond Fund, since
1997; joined Fidelity in 1996
ANDREW DUDLEY ON INFLATION
AND THE BOND MARKET:
"The bond market's preoccupation
with inflation centers upon the
impact inflation has on interest
rates. If the bond market expects
higher inflation, or a deterioration
in the value of money, then bond
investors expect to be paid more
interest for that decline in
purchasing or buying power. The
bond market sells off in the wake
of higher inflation forecasts
because investors fear being stuck
with fixed cash flows that will be
worth less in the future. During a
period of complex and conflicting
global financial market forecasts,
much like we experienced over
the last six months, the market
can move very quickly to adjust for
these changes in inflation
expectations."
NOTE TO SHAREHOLDERS: On
December 17, 1998, the Board of
Trustees of Spartan Short-Term
Bond Fund voted to present a
proposal to shareholders to merge
the fund into Fidelity Short-Term
Bond Fund. A shareholder meeting
is scheduled for June 16, 1999. On
or about April 19, 1999,
shareholders will be sent proxy
materials asking them to vote on this
and any other proposals.
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF
MARCH 31, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa 36.7 41.4
Aa 6.7 7.8
A 18.3 14.3
Baa 31.8 27.3
Ba and Below 1.3 3.8
Not Rated 0.9 0.9
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P (registered trademark) RATINGS.
AVERAGE YEARS TO MATURITY AS
OF MARCH 31, 1999
6 MONTHS AGO
Years 2.6 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 MARCH 31, 1999
6 MONTHS AGO
Years 1.9 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 MARCH 31, 1999 *
Corporate bonds 62.1%
U.S. government
and agency
obligations 20.9%
CMOs and other
mortgage-related
securities 9.7%
Other 3.0%
Short-term
investments 4.3%
* FOREIGN
INVESTMENTS 5.4%
Row: 1, Col: 1, Value: 4.3
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 9.699999999999999
Row: 1, Col: 4, Value: 20.9
Row: 1, Col: 5, Value: 62.1
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: 4.5
Row: 1, Col: 2, Value: 3.3
Row: 1, Col: 3, Value: 8.699999999999999
Row: 1, Col: 4, Value: 24.2
Row: 1, Col: 5, Value: 59.3
INVESTMENTS MARCH 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 43.6%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
BASIC INDUSTRIES - 0.5%
CHEMICALS & PLASTICS - 0.5%
Monsanto Co. 5.375% 12/1/01 A2 $ 1,560 $ 1,550
(b)
CONSTRUCTION & REAL ESTATE -
3.0%
REAL ESTATE INVESTMENT TRUSTS
- - 3.0%
Camden Property Trust 6.625% Baa2 2,825 2,813
2/15/01
CenterPoint Properties Trust:
6.75% 4/1/05 Baa2 430 411
7.125% 3/15/04 Baa2 1,200 1,194
Equity Office Properties Trust:
6.375% 1/15/02 Baa1 1,550 1,547
6.375% 2/15/03 Baa1 1,250 1,241
6.376% 2/15/02 Baa1 900 898
Weeks Realty LP 6.875% 3/15/05 Baa2 1,100 1,092
9,196
ENERGY - 2.2%
ENERGY SERVICES - 0.7%
Baker Hughes, Inc. 5.8% A2 2,000 1,985
2/15/03 (b)
OIL & GAS - 1.5%
Occidental Petroleum Corp. Baa3 580 581
6.09% 11/29/99
Oryx Energy Co.:
8% 10/15/03 Baa1 310 324
8.125% 10/15/05 Baa1 3,070 3,268
8.375% 7/15/04 Baa1 530 565
4,738
TOTAL ENERGY 6,723
FINANCE - 16.6%
BANKS - 7.5%
Banc One Corp. 6.7% 3/24/00 Aa3 1,250 1,264
Banco Latinoamericano Baa2 550 548
Exportaciones SA euro 6.9%
12/4/99 (b)
Bank One Corp. 7.25% 8/1/02 A1 1,000 1,043
BankBoston Corp. 6.125% A2 1,800 1,811
3/15/02
BanPonce Corp. 6.488% 3/3/00 A3 1,290 1,300
BanPonce Financial Corp.:
6.88% 6/16/00 A3 510 515
7.65% 5/3/00 A3 1,550 1,567
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Barclays Bank PLC yankee A1 $ 2,500 $ 2,505
5.875% 7/15/00
Capital One Bank:
6.26% 5/7/01 Baa3 1,420 1,426
6.48% 6/28/02 Baa3 1,380 1,389
6.65% 3/15/04 Baa3 1,000 1,001
KeyCorp. 7.45% 4/5/00 A1 1,100 1,122
Korea Development Bank:
6.625% 11/21/03 Baa3 515 488
7.125% 9/17/01 Baa3 360 354
7.375% 9/17/04 Baa3 250 240
yankee 6.5% 11/15/02 Baa3 520 492
NationsBank Corp. 5.75% Aa2 1,600 1,604
3/15/01
Popular, Inc. 6.4% 8/25/00 A3 1,410 1,415
Providian National Bank:
6.25% 5/7/01 Baa3 1,300 1,299
6.7% 3/15/03 Baa3 1,800 1,784
23,167
CREDIT & OTHER FINANCE - 6.5%
AT&T Capital Corp.:
6.25% 5/15/01 Baa3 2,500 2,522
6.875% 1/16/01 Baa3 1,440 1,467
Chrysler Financial Corp. A1 2,800 2,782
5.25% 5/4/01
Chrysler Financial LLC 6.375% A1 1,720 1,734
1/28/00
Edison Mission Energy Funding Baa1 1,538 1,559
Corp. 6.77% 9/15/03 (b)
ERP Operating LP 6.55% A3 350 352
11/15/01
Finova Capital Corp. 6.11% Baa1 580 580
2/18/03
Ford Motor Credit Co. 5.125% A1 1,300 1,285
10/15/01
General Motors Acceptance A2 2,100 2,100
Corp. 5.625% 2/15/01
GS Escrow Corp. 6.75% 8/1/01 Ba1 2,400 2,398
Heller Financial, Inc. 6.25% A3 1,500 1,514
3/1/01
Money Store, Inc. 7.3% 12/1/02 A2 650 679
Salton Sea Funding Corp. Baa2 282 284
7.02% 5/30/00
Sprint Capital Corp. 5.7% Baa1 800 792
11/15/03
20,048
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
SAVINGS & LOANS - 1.1%
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 $ 1,650 $ 1,656
7% 6/13/02 Baa3 970 991
Sovereign Bancorp, Inc. Ba1 900 898
6.625% 3/15/01
3,545
SECURITIES INDUSTRY - 1.5%
Amvescap PLC:
yankee 6.375% 5/15/03 A3 1,100 1,098
yankee 6.6% 5/15/05 A3 600 592
Goldman Sachs Group L.P.:
6.2% 2/15/01 A1 1,000 1,008
6.6% 7/15/02 (b) A1 500 507
Merrill Lynch & Co., Inc. Aa3 1,500 1,497
5.71% 1/15/02
4,702
TOTAL FINANCE 51,462
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.0%
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Tyco International Group SA Baa1 2,250 2,268
yankee 6.125% 6/15/01
POLLUTION CONTROL - 0.3%
WMX Technologies, Inc. 6.25% Baa3 750 756
10/15/00
TOTAL INDUSTRIAL MACHINERY & 3,024
EQUIPMENT
MEDIA & LEISURE - 5.0%
BROADCASTING - 3.1%
Continental Cablevision, Inc. Baa3 2,104 2,216
8.5% 9/15/01
TCI Communications, Inc.:
6.375% 9/15/99 A2 3,075 3,093
8.25% 1/15/03 A2 220 239
9% 1/2/02 Ba1 730 792
Time Warner, Inc. 7.95% 2/1/00 Baa3 3,330 3,397
9,737
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 1.4%
Paramount Communications, Baa3 $ 992 $ 1,032
Inc. 7.5% 1/15/02
Viacom, Inc. 6.75% 1/15/03 Baa3 3,055 3,116
4,148
PUBLISHING - 0.5%
News America Holdings, Inc. Baa3 1,440 1,573
8.5% 2/15/05
TOTAL MEDIA & LEISURE 15,458
NONDURABLES - 2.9%
BEVERAGES - 1.2%
Seagram J E & Sons, Inc. 6.4% Baa3 3,600 3,568
12/15/03
FOODS - 0.7%
Dole Food, Inc. 6.75% 7/15/00 Baa2 2,290 2,307
TOBACCO - 1.0%
Philip Morris Companies, Inc.:
7.125% 12/1/99 A2 2,300 2,324
7.25% 9/15/01 A2 830 854
3,178
TOTAL NONDURABLES 9,053
RETAIL & WHOLESALE - 2.4%
DRUG STORES - 1.2%
Rite Aid Corp.:
5.5% 12/15/00 (b) Baa1 2,730 2,705
6% 12/15/05 (b) Baa1 1,000 956
3,661
GENERAL MERCHANDISE STORES -
1.2%
Dayton Hudson Corp.:
9.75% 7/1/02 A3 930 1,038
10% 12/1/00 A3 1,133 1,212
Federated Department Stores, Baa2 1,595 1,700
Inc. 8.125% 10/15/02
3,950
TOTAL RETAIL & WHOLESALE 7,611
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
TECHNOLOGY - 3.5%
COMPUTERS & OFFICE EQUIPMENT
- - 3.5%
Comdisco, Inc.:
6% 1/30/02 Baa1 $ 3,500 $ 3,495
6.1% 6/5/01 Baa1 2,580 2,586
6.65% 11/13/01 Baa1 4,900 4,968
11,049
TRANSPORTATION - 3.2%
AIR TRANSPORTATION - 1.4%
Continental Airlines, Inc.
Pass Through Trust
Certificates:
6.954% 2/2/11 Baa1 2,000 1,985
7.08% 11/1/04 Baa1 1,250 1,246
Delta Air Lines, Inc.:
6.65% 3/15/04 Baa3 640 648
9.875% 5/15/00 Baa3 475 495
4,374
RAILROADS - 1.2%
CSX Corp.:
7.05% 5/1/02 Baa2 1,250 1,285
9.5% 8/1/00 Baa2 1,500 1,572
Norfolk Southern Corp. 6.95% Baa1 800 823
5/1/02
3,680
TRUCKING & FREIGHT - 0.6%
Federal Express Corp. 7.53% A3 1,827 1,866
9/23/06
TOTAL TRANSPORTATION 9,920
UTILITIES - 3.3%
ELECTRIC UTILITY - 2.3%
Avon Energy Partners Holdings Baa2 1,000 1,011
6.73% 12/11/02 (b)
Niagara Mohawk Power Corp. Baa3 1,050 1,070
6.875% 3/1/01
Ohio Edison Co. 7.375% 9/15/02 Baa2 1,190 1,237
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 1,440 1,435
6.5% 5/1/03 Baa1 700 716
NONCONVERTIBLE BONDS -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Texas Utilities Electric Co.:
7.375% 11/1/99 A3 $ 1,000 $ 1,013
7.375% 8/1/01 A3 730 759
7,241
GAS - 0.4%
Cms Panhandle Holding Co. Baa3 550 549
6.125% 3/15/04 (b)
Enserch Corp. 6.25% 1/1/03 Baa2 650 655
1,204
TELEPHONE SERVICES - 0.6%
MCI WorldCom, Inc.:
6.125% 8/15/01 Baa2 1,305 1,317
8.875% 1/15/06 Baa2 627 675
1,992
TOTAL UTILITIES 10,437
TOTAL NONCONVERTIBLE BONDS 135,483
(Cost $135,652)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 13.2%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 1.0%
Government Trust Certificates Aaa 257 269
(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 33 33
Series 1995 A, 6.28% 6/15/04 Aaa 1,294 1,315
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Israel Export Trust Aaa $ 513 $ 525
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 910 936
secured 6.86% 4/30/04
TOTAL U.S. GOVERNMENT AGENCY 3,078
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
12.2%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 2,775 2,792
5.75% 10/31/00 Aaa 950 960
6.875% 3/31/00 Aaa 33,454 34,091
TOTAL U.S. TREASURY 37,843
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 40,921
GOVERNMENT AGENCY OBLIGATIONS
(Cost $41,027)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 7.7%
FANNIE MAE - 6.0%
6.5% 12/1/12 to 12/1/28 Aaa 7,667 7,631
7% 10/1/28 to 4/1/29 Aaa 10,538 10,683
11.5% 11/1/15 Aaa 400 446
TOTAL FANNIE MAE 18,760
FREDDIE MAC - 0.3%
7% 8/1/99 to 7/1/01 Aaa 728 731
12% 11/1/19 Aaa 103 115
TOTAL FREDDIE MAC 846
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 1.4%
9.5% 5/15/16 to 11/15/20 Aaa 1,353 1,454
11% 2/15/10 to 9/15/19 Aaa 1,686 1,864
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
11.5% 5/15/13 to 7/15/15 Aaa $ 519 $ 582
12% 2/15/16 Aaa 502 568
TOTAL GOVERNMENT NATIONAL 4,468
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 24,074
- - MORTGAGE SECURITIES
(Cost $24,270)
ASSET-BACKED SECURITIES - 18.5%
Arcadia Automobile Aaa 1,500 1,488
Receivables Trust 5.67%
1/15/04
ARG Funding Corp. 5.88% Aaa 2,550 2,546
5/20/03 (b)
Boatmens Auto Trust 6.35% A2 610 610
10/15/01
Capita Equipment Receivables
Trust:
6.45% 8/15/02 Aa3 1,700 1,704
6.57% 3/15/01 Aa3 810 814
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 690 691
6.15% 9/15/02 Aaa 888 890
6.45% 9/15/02 Aaa 1,330 1,345
Caterpillar Financial Asset A3 286 285
Trust 6.55% 5/25/02
Chase Manhattan Marine Owner Aaa 1,900 1,919
Trust 6.25% 4/16/07
Chevy Chase Auto Receivables
Trust:
5.97% 10/20/04 Aaa 1,354 1,357
6.2% 3/20/04 Aaa 624 628
Citibank Credit Card Master Aaa 1,300 1,301
Trust I 5.75% 1/15/03
Contimortgage Home Equity
Loan Trust:
6.26% 7/15/12 Aaa 2,265 2,267
6.3% 7/15/12 Aaa 1,100 1,101
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 892 895
6.7% 2/15/02 Aaa 233 234
CS First Boston Mortgage Aaa 1,700 1,721
Securities Corp. 7% 3/15/27
Discover Card Master Trust I A2 4,920 4,915
6.0006% 7/18/05 (c)
Fidelity Funding Auto Trust Aaa 255 258
6.99% 11/15/02 (b)
ASSET-BACKED SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Ford Credit Auto Owner Trust A2 $ 1,800 $ 1,795
6.15% 9/15/02
Ford Credit Grantor Trust Aaa 572 572
5.9% 10/15/00
Green Tree Financial Corp.:
6.1% 4/15/27 Aaa 304 304
6.45% 5/15/27 Aaa 153 153
Green Tree Lease Finance LLC A 1,900 1,895
6.66% 10/20/04
Key Auto Finance Trust:
5.83% 1/15/07 Aaa 2,000 1,997
6.65% 10/15/03 Baa3 211 213
KeyCorp Auto Grantor Trust A3 20 20
5.8% 7/15/00
Newcourt Equipment Trust Aaa 2,050 2,037
Securities sequential pay
Series 1998-1 Class A3,
5.24% 12/20/02
Norwest Automobile Trust 6.3% A2 1,130 1,133
5/15/03
Olympic Automobile
Receivables Trust:
6.125% 11/15/04 Aaa 467 467
6.4% 9/15/01 Aaa 793 793
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 Aaa 1,710 1,717
6.2% 6/15/03 Aaa 954 960
Petroleum Enhanced Trust Baa2 1,320 1,307
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (b)(c)
Premier Auto Trust:
5.7% 10/6/02 Aaa 3,800 3,808
6% 5/6/00 Aaa 17 17
6.35% 7/6/00 A3 1,690 1,694
Reliance Auto Receivables Aaa 504 502
Corp., Inc. 6.1% 7/15/02 (b)
Sears Credit Account Master Aaa 1,800 1,815
Trust II 6.2% 2/16/06
TMS Auto Grantor Trust 5.9% Aaa 136 137
9/15/02
Tranex Auto Receivables Owner Aaa 686 690
Trust 6.334% 8/15/03 (b)
Triad Auto Receivables Owner Aaa 1,813 1,804
Trust 5.98% 9/17/05
Union Acceptance Corp. 7.075% Baa2 117 117
7/10/02
Western Financial Grantor Aaa 530 530
Trust 5.875% 3/1/02
ASSET-BACKED SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
WFS Financial Owner Trust:
6.9% 12/20/03 Aaa $ 1,630 $ 1,647
7.05% 11/20/03 Aaa 2,285 2,309
TOTAL ASSET-BACKED SECURITIES 57,402
(Cost $57,324)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.4%
PRIVATE SPONSOR - 0.9%
GE Capital Mortgage Services, Aaa 569 567
Inc. planned amortization
class Series 1994-2 Class
A-4, 6% 1/25/09
Residential Funding Mortgage Aa1 2,218 2,220
Securities I, Inc. planned
amortization class Series
1994-S12 Class A-2, 6.5%
4/25/09
TOTAL PRIVATE SPONSOR 2,787
U.S. GOVERNMENT AGENCY - 0.5%
Fannie Mae ACES sequential Aaa 1,724 1,728
pay Series 1995 - M1 Class
A, 6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE 4,515
OBLIGATIONS
(Cost $4,525)
COMMERCIAL MORTGAGE
SECURITIES - 8.3%
Allied Capital Commercial Aaa 1,078 1,075
Mortgage Trust sequential
pay Series 1998-1 Class A,
6.31% 1/25/28 (b)
Bankers Trust II Series Baa2 2,000 2,000
1999-S1A, 7.1244% 2/28/14
(b)(c)
Bankers Trust Remic Trust Aa2 2,270 2,275
1988-1 floater Series
1998-S1A Class D, 5.7891%
11/28/02 (b)(c)
CBM Funding Corp. sequential
pay Series 1996-1:
Class A-1, 7.55% 7/1/99 AA 22 22
Class A-2, 6.88% 7/1/02 AA 1,300 1,312
Commercial Resecuritization Aaa 6 6
Trust 6.74% 1/1/09 (b)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
CS First Boston Mortgage
Securities Corp.:
sequential pay Series - $ 1,718 $ 1,716
1997-SPICE Class A, 6.653%
8/20/36 (b)
Series 1998 FLI Class E, Baa2 2,800 2,732
5.8134% 1/10/13 (b)(c)
DLJ Commercial Mortgage Corp. A2 1,090 1,087
floater Series 1998-STFA
Class A-3, 5.6325% 12/8/00
(b)(c)
Equitable Life Assurance
Society of the United States
(The):
floater Series 174 Class D-2, Baa2 1,000 979
6.7063% 5/15/03 (b)(c)
sequential pay Series 174 Aaa 1,000 1,046
Class A1, 7.24% 5/15/06 (b)
Federal Deposit Insurance
Corp. Remic Trust:
sequential pay Series 1996-C1 Aaa 979 986
Class 1A, 6.75% 7/25/26
sequential pay Series 1994-C1 Aaa 296 296
Class II-A2, 7.85% 9/25/25
FMAC Loan Receivables Trust Aaa 746 737
sequential pay Series 1998-C
Class A1 Notes, 5.99%
9/15/20 (b)
Franchise Loan Trust 1998-1 Aaa 1,561 1,546
sequential pay Series 1998-I
Class A1 Notes, 6.24%
7/15/20 (b)
GS Mortgage Securities Corp.
II Series 1999-GSFL II:
Class E, 7.1634% 11/13/13 Baa2 1,000 996
(b)(c)
Class F, 7.6634% 11/13/13 Baa3 1,000 985
(b)(c)
Kidder Peabody Acceptance Aaa 115 115
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, 6.2038% 7/7/03 (c)
Nomura Depositor Trust Baa2 2,210 2,033
floater Series 1998-ST1A
Class A-4, 5.8388% 2/15/34
(b)(c)
Resolution Trust Corp. Aaa 958 956
sequential pay Series 1995
C-1 Class A2C, 6.9% 2/25/27
Structured Asset Securities A3 2,093 2,085
Corp. floater Series
1998-C2A Class C, 5.3688%
1/25/13 (b)(c)
TOTAL COMMERCIAL MORTGAGE 25,877
SECURITIES
(Cost $26,201)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 1.2%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
Korean Republic 8.75% 4/15/03 Baa3 $ 1,510 $ 1,580
(d)
Ontario Province:
5.75% 11/7/00 (d) Aa3 1,010 1,013
euro global 6.125% 6/28/00 (d) Aa3 1,000 1,008
TOTAL FOREIGN GOVERNMENT AND 3,601
GOVERNMENT AGENCY OBLIGATIONS
(Cost $3,595)
SUPRANATIONAL OBLIGATIONS -
1.8%
African Development Bank:
7.75% 12/15/01 Aa1 1,670 1,754
9.3% 7/1/00 Aa1 3,540 3,703
TOTAL SUPRANATIONAL OBLIGATIONS 5,457
(Cost $5,563)
CASH EQUIVALENTS - 4.3%
MATURITY AMOUNT (000S)
Investments in repurchase $ 13,455 13,453
agreements (U.S. Government
obligations), in a joint
trading account at 5.04%,
dated 3/31/99 due 4/1/99
(Cost $13,453)
TOTAL INVESTMENT IN $ 310,783
SECURITIES - 100%
(Cost $311,610)
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange
Security
LEGEND
(a) Standard & Poor's (registered trademark) 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 $37,971,000 or 12.2% of net assets.
(c) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(d) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned 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 60.7% AAA, AA, A 57.6%
Baa 31.8% BBB 31.4%
Ba 1.3% BB 0.8%
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 0.9%.
INCOME TAX INFORMATION
At March 31, 1999, the aggregate cost of investment securities for
income tax purposes was $311,621,000. Net unrealized depreciation
aggregated $838,000, of which $765,000 related to appreciated
investment securities and $1,603,000 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) MARCH 31,
1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 310,783
value (including repurchase
agreements of $13,453) (cost
$311,610) - See
accompanying schedule
Cash 8
Receivable for investments 7,672
sold
Receivable for fund shares 94
sold
Interest receivable 2,609
TOTAL ASSETS 321,166
LIABILITIES
Payable for investments $ 7,321
purchased
Payable for fund shares 1,796
redeemed
Distributions payable 283
Accrued management fee 170
Other payables and accrued 4
expenses
TOTAL LIABILITIES 9,574
NET ASSETS $ 311,592
Net Assets consist of:
Paid in capital $ 395,370
Distributions in excess of (1,085)
net investment income
Accumulated undistributed net (81,866)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (827)
(depreciation) on investments
NET ASSETS, for 34,531 shares $ 311,592
outstanding
NET ASSET VALUE, offering $9.02
price and redemption price
per share ($311,592 (divided
by) 34,531 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED
MARCH 31, 1999
(UNAUDITED)
INVESTMENT INCOME $ 10,450
Interest
EXPENSES
Management fee $ 1,057
Non-interested trustees' 1
compensation
Total expenses before 1,058
reductions
Expense reductions (230) 828
NET INVESTMENT INCOME 9,622
REALIZED AND UNREALIZED GAIN (79)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (4,067)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (4,146)
NET INCREASE (DECREASE) IN $ 5,476
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, YEAR ENDED SEPTEMBER 30, 1998
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 9,622 $ 20,248
income
Net realized gain (loss) (79) (167)
Change in net unrealized (4,067) 2,855
appreciation (depreciation)
NET INCREASE (DECREASE) IN 5,476 22,936
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (9,395) (19,966)
from net investment income
Share transactions Net 78,508 203,528
proceeds from sales of shares
Reinvestment of distributions 7,581 16,900
Cost of shares redeemed (128,461) (152,987)
NET INCREASE (DECREASE) IN (42,372) 67,441
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) (46,291) 70,411
IN NET ASSETS
NET ASSETS
Beginning of period 357,883 287,472
End of period (including $ 311,592 $ 357,883
distributions in excess of
net investment income of
$1,085 and $1,312,
respectively)
OTHER INFORMATION
Shares
Sold 8,675 22,486
Issued in reinvestment of 838 1,867
distributions
Redeemed (14,202) (16,902)
Net increase (decrease) (4,689) 7,451
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED MARCH 31, 1999 YEARS ENDED SEPTEMBER 30,
(UNAUDITED) 1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.120 $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990
period
Income from Investment .267 D .579 D .588 D .598 .584 .574
Operations Net investment
income
Net realized and unrealized (.107) .063 .025 (.112) (.199) (.604)
gain (loss)
Total from investment .160 .642 .613 .486 .385 (.030)
operations
Less Distributions
From net investment income (.260) (.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 (.260) (.572) (.583) (.596) (.585) (.630)
Net asset value, end of $ 9.020 $ 9.120 $ 9.050 $ 9.020 $ 9.130 $ 9.330
period
TOTAL RETURN B, C 1.78% 7.33% 7.00% 5.47% 4.35% (.32)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 312 $ 358 $ 287 $ 344 $ 522 $ 798
millions)
Ratio of expenses to average .51% A, E .38% E .50% E .65% .65% .54% E
net assets
Ratio of expenses to average .51% A .38% .50% .64% F .65% .54%
net assets after expense
reductions
Ratio of net investment 5.91% A 6.40% 6.50% 6.52% 6.45% 6.42%
income to average net assets
Portfolio turnover rate 171% A 117% 105% 134% 159% 97%
</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.
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.
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.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1999 (Unaudited)
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. 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 $268,455,000 and $310,959,000, respectively, of which U.S.
government and government agency obligations aggregated $181,923,000
and $201,831,000, 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 0.65% of the fund's average net
assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, has entered into a
sub-advisory agreement(effective January 1, 1999) with Fidelity
Investments Money Management, Inc. (FIMM), a wholly owned subsidiary
of FMR. For its services, FIMM receives a fee from FMR of 50% of the
management fee payable to FMR. The fee is paid prior to any voluntary
expense reimbursements which may be in effect.
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 0.38% of average net assets through
December 31, 1998. For the period, the reimbursement reduced expenses
by $228,000.
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 $2,000 under these arrangements.
6. PROPOSED REORGANIZATION.
The Board of Trustees of the fund has approved an Agreement and Plan
of Reorganization ("Agreement") between the fund and Fidelity
Short-Term Bond Fund ("Reorganization"). The Agreement provides for
the transfer of all of the assets of the fund to Fidelity Short-Term
Bond Fund in exchange solely for the number of shares of Fidelity
Short-Term Bond Fund having the same aggregate net asset value as the
outstanding shares of the fund as of the close of business of the New
York Stock Exchange on the day that the Reorganization is effective
and the assumption by Fidelity Short-Term Bond Fund of all of the
liabilities of the fund. The Reorganization can be consummated only
if, among other things, it is approved by the vote of a majority (as
defined by the 1940 Act) of outstanding voting securities of the fund.
A Special Meeting of Shareholders ("Meeting") of the fund will be held
on June 16, 1999 to vote on the Agreement. A detailed description of
the proposed transaction and voting information was sent to
shareholders of the fund in April, 1999. If the Agreement is approved
at the Meeting, the Reorganization is expected to become effective on
or about June 24, 1999.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT
MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED
OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE
PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF
ANY SALES CHARGES.
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
Fidelity Investments
Money Management, Inc.,
Merrimack, New Hampshire
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
Matthew N. Karstetter, Deputy 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
Abigail P. Johnson
* INDEPENDENT TRUSTEES
SST-SANN-0599 76067
1.702308.101
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
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-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
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