(2_FIDELITY_LOGOS)FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
ANNUAL REPORT
SEPTEMBER 30, 1993
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on bond funds.
PERFORMANCE 5 How the fund has done over time.
FUND TALK 8 The manager's review of fund
performance, strategy, and outlook.
INVESTMENT CHANGES 11 A summary of major shifts in the
fund's investments over the last six
months.
INVESTMENTS 12 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 13 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 17 Footnotes to the financial
statements.
REPORT OF INDEPENDENT 20 The auditor's opinion.
ACCOUNTANTS
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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK, AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED
BY THE
FDIC.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
You may be among the many bond fund investors who have enjoyed strong
returns in recent years. Falling interest rates and rising bond prices have
provided an unusually positive climate for bonds. Interest rates have
fallen to new lows with a key benchmark - the yield on 30-year Treasury
bonds - falling from about 9% in 1988 to below 6% in September of this
year.
For many people with bank accounts or other interest-bearing investments,
low rates have meant less income. To find higher yields, many of us moved
out of short-term investments into bond funds which have longer maturities
(the time remaining until a bond's principal is repaid). From 1988 through
1992, taxable bond funds averaged annual returns - their yields plus
changes in share price - of 10%, according to Lipper Analytical Services.
This was well above historical averages, which have been more in the 4 - 6%
range.
The question we'd all like answered is: what's ahead? Interest rates could
drop more or stay where they are, but they also could reverse course and
head back up. Just as falling rates translated into rising bond prices, so
rising rates would cause bond prices to fall. The longer a bond's maturity,
the greater the potential for price changes. The chart below, which
compares the price returns of long-term (10- to 30-year) government bonds
and one- to three-year government bonds, shows this. From December 31, 1976
to September 30, 1981, the price of these long-term bonds declined 36%,
while the price of the short-term bonds fell only 10%.
It's important to know in advance how a change in interest rates might
affect your investment. If you're in a long-term bond fund, you've probably
been earning a high yield. If interest rates were to rise substantially,
you would run the risk of losing some of the money you had originally
invested. The table on the next page shows what could happen if you owned a
PRICE CHANGES: LONG-TERM VS. SHORT-TERM BONDS
Lehman Brothers Long-Term Lehman Brothers 1-3 Year
Government Bond Index Government Bond Index
* THROUGH OCTOBER 31, 1993
Row: 1, Col: 1, Value: 8.69
Row: 1, Col: 2, Value: 2.25
Row: 2, Col: 1, Value: -6.149999999999999
Row: 2, Col: 2, Value: -2.84
Row: 3, Col: 1, Value: -8.950000000000001
Row: 3, Col: 2, Value: -3.7
Row: 4, Col: 1, Value: -9.33
Row: 4, Col: 2, Value: -0.52
Row: 5, Col: 1, Value: -12.83
Row: 5, Col: 2, Value: -0.6900000000000001
Row: 6, Col: 1, Value: -11.35
Row: 6, Col: 2, Value: 0.92
Row: 7, Col: 1, Value: 26.21
Row: 7, Col: 2, Value: 7.74
Row: 8, Col: 1, Value: -8.219999999999999
Row: 8, Col: 2, Value: -2.24
Row: 9, Col: 1, Value: 1.91
Row: 9, Col: 2, Value: 1.8
Row: 10, Col: 1, Value: 18.4
Row: 10, Col: 2, Value: 2.55
Row: 11, Col: 1, Value: 14.13
Row: 11, Col: 2, Value: 0.54
Row: 12, Col: 1, Value: -10.91
Row: 12, Col: 2, Value: -2.89
Row: 13, Col: 1, Value: -0.22
Row: 13, Col: 2, Value: -2.37
Row: 14, Col: 1, Value: 9.27
Row: 14, Col: 2, Value: 1.72
Row: 15, Col: 1, Value: -2.58
Row: 15, Col: 2, Value: 0.8500000000000001
Row: 16, Col: 1, Value: 9.279999999999999
Row: 16, Col: 2, Value: 3.22
Row: 17, Col: 1, Value: -0.15
Row: 17, Col: 2, Value: -0.92
Row: 18, Col: 1, Value: 13.33
Row: 18, Col: 2, Value: -0.3800000000000001
%
30-year Treasury bond with a yield of 6.3%. If interest rates rose 1%, the
bond's price would fall by about 12.1%. (A price return of -12.1% plus an
income return of +6.3% gives you a total return of -5.8%.)
Ask yourself now how much share price change you can tolerate. Your answer
will depend in part on your goal, in part on what role this investment
plays in your overall financial strategy. Many investors try to line up the
time they plan to be invested with the maturity of their bond fund. For
example, if you have a longer-term goal - like saving for retirement 10 or
more years away - you may be willing to ride out the markets ups and downs
in exchange for the higher returns of a longer-term fund.
If you decide you can't tolerate the potential share price fluctuations in
a longer- term bond fund, you may want to move to a fund with a shorter
maturity and a lower yield. Recently, yields on three-year Treasury notes,
for example, have been close to 4.4%. If interest rates rose 1%, the note's
price would fall by only about 1.8%. An income return of +4.4% would more
than offset the price return of -1.8%, giving you a total return of 2.6%.
This is close to current yields on money market funds, but gives you added
return potential if interest rates either fall or remain unchanged.
Finally, if you're uncomfortable with any share price changes, consider a
money market fund, which is managed - but not guaranteed - to maintain a
stable $1 share price. Although a money market fund is not insured, but its
yield will vary with interest rates. So if rates rise, your yield should
too.
The foundation of successful investing is making the right choice for your
situation. We're here to help by providing you with whatever information
you need to make an informed decision. Please call us at 1-800-544-8888 if
you'd like a copy of our guide on ALTERNATIVES TO LOW BANK RATES or if
you'd like to speak with one of our representatives. We look forward to
hearing from you.
Best regards,
Edward C. Johnson 3d
HOW INTEREST RATES AFFECT BOND RETURNS
<TABLE>
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MATURITY INTEREST RATES INTEREST RATES INTEREST RATES
UNCHANGED UP 1% DOWN 1%
Short-term bond (3 years) +4.4% +2.6% +6.4%
Intermediate-term bond (10 years) +5.8% -1.0% +13.1%
Long-term bond (30 years) +7.1% -5.8% +21.3%
</TABLE>
THIS TABLE SHOWS THE ESTIMATED TOTAL RETURN OF TREASURY BONDS WITH VARYING
MATURITIES, ASSUMING THAT OVER THE NEXT YEAR INTEREST RATES REMAIN THE
SAME, OR GO UP OR DOWN ONE PERCENTAGE POINT FROM CURRENT LEVELS. TOTAL
RETURN INCLUDES YIELD (INCOME RETURN) PLUS CHANGES IN PRICE (PRICE RETURN).
THE RETURNS ABOVE ARE BASED ON YIELDS OF 4.4% FOR THREE-YEAR TREASURY
NOTES, 5.7% FOR 10-YEAR TREASURY NOTES, AND 6.3% FOR 30-YEAR TREASURY
BONDS. (SINCE TREASURY BONDS ARE BACKED BY THE FULL FAITH AND CREDIT OF THE
U.S. GOVERNMENT, THERE IS NO CREDIT RISK.) THESE RETURNS DO NOT REFLECT THE
PAST OR FUTURE PERFORMANCE OF ANY FIDELITY FUND. FIDELITY FUNDS ARE NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
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. Each figure
includes changes in a fund's share price, plus reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value). You can also look at the fund's
income.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1993 PAST 1 LIFE OF
YEAR FUND
Short-Intermediate Government 5.26% 14.25%
Lehman Brothers 1-3 Year Government
Bond Index 4.94% n/a
Average Short U.S. Government Fund 5.67% n/a
Consumer Price Index 2.69% 6.22%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - one year, or since the fund started on September 13,
1991. For example, if you invested $1,000 in a fund that had a 5% return
over the past year, you would end up with $1,050. You can compare these
figures to the Lehman Brothers 1-3 Year Government Bond Index - a broad
measure of the performance of short-term government bonds. To measure how
the fund stacked up against its peers, you can also look at the average
short U.S. government fund, which reflects the perform- ance of 84 funds
tracked by Lipper Analytical Services. These benchmarks include reinvested
dividends and capital gains, if any. Comparing the fund's performance to
the consumer price index helps show how your fund did compared to
inflation.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1993 PAST 1 LIFE OF
YEAR FUND
Short-Intermediate Government 5.26% 6.71%
Lehman Brothers 1-3 Year Government
Bond Index 4.94% n/a
Average Short U.S. Government Fund 5.67% n/a
Consumer Price Index 2.69% 2.94%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Short-Intermd Gov't (464) LB 1-3 Year Gov't Index
09/30/91 10000.00 10000.00
10/31/91 10124.47 10108.00
11/30/91 10206.40 10212.11
12/31/91 10363.11 10367.34
01/31/92 10270.74 10353.86
02/29/92 10301.42 10384.92
03/31/92 10286.47 10381.81
04/30/92 10374.48 10476.28
05/31/92 10511.20 10573.71
06/30/92 10602.20 10680.50
07/31/92 10620.67 10803.33
08/31/92 10766.62 10890.84
09/30/92 10813.26 10993.21
10/31/92 10714.26 10930.55
11/30/92 10721.94 10914.15
12/31/92 10851.34 11015.65
01/31/93 11000.35 11131.32
02/28/93 11099.60 11220.37
03/31/93 11141.24 11255.15
04/30/93 11190.06 11323.81
05/31/93 11193.01 11296.63
06/30/93 11276.44 11381.36
07/31/93 11314.33 11406.40
08/31/93 11364.69 11501.07
09/30/93 11382.59 11537.87
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Short-
Intermediate Government Fund on September 30, 1991, shortly after the fund
started. As the chart shows, by September 30, 1993, the value of your
investment, with dividends reinvested would have grown to $11,383 - a
13.83% increase on your initial investment. For comparison, look at how the
Lehman Brothers 1-3 Year Government Bond Index did over the same period.
With dividends reinvested, the same $10,000 investment would have grown to
$11,538 - a 15.38% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, 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.
(checkmark)
INCOME
YEARS ENDED SEPTEMBER 30, 1993 1992
Income return 6.34% 6.73%
Capital gain returns 0.70% 0.10%
Change in share price (1.78)% 1.30%
Total return 5.26% 8.13%
Income returns, capital gain returns, and changes in share price are all
part of a bond fund's total return. An income return reflects the dividends
paid by the fund. A capital gain return reflects the amount paid by the
fund to shareholders based on the profits it has from selling bonds that
have grown in value. Both returns assume the dividends or gains are
reinvested. Changes in the fund's share price include changes in the prices
of the bonds owned by the fund. The sum of the return components may not
equal the total return due to rounding.
DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1993 PAST 30 PAST 6 PAST 1
DAYS MONTHS YEAR
Dividends per share n/a 28.47(cents) 62.27(cents)
Annualized dividend rate n/a 5.68% 6.23%
Annualized yield 3.43% n/a n/a
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 $10.00 over
the past six months and $10.00 over the past year, you can compare the
fund's income over these two periods. The 30-day annualized yield is a
standard formula for all funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Bonds began the year on shaky
ground but eventually posted
sharp gains tied to low inflation,
falling interest rates and slow
growth in the U.S. economy. Early
in the fall of 1992, fear of an
accelerating recovery and
uncertainty over the outcome of
the presidential election drove
interest rates up and bond prices
down. But midway through the
fourth quarter, as President-elect
Clinton promised to tackle the
budget deficit and fight inflation,
the bond market signaled its
approval. The yield on the
benchmark 30-year Treasury
bond fell from 7.65% on election
day to 6.73% on March 8, 1993.
Soon afterwards, a brief inflation
scare swept the market, causing
interest rates to rise again. But by
early summer, bond investors
focused on continued high
unemployment and slow growth,
and interest rates resumed
falling. The yield on the 30-year
Treasury dropped below 6% in
early September, a record, and
finished the month at 6.02%.
Overall, long-term Treasuries
returned 20.24% for the year
ended September 30, 1993.
Corporate junk bonds, as
measured by the Salomon
Brothers Composite High Yield
Index, rose 15.51%. Mortgage
securities lagged other fixed-
income investments; the
Salomon Brothers Mortgage
Index rose 8.90%, reflecting the
impact of massive refinancing by
homeowners throughout the year.
An interview with Curt Hollingsworth
Portfolio Manager of Fidelity Short-Intermediate Government Fund
Q. CURT, HOW DID THE FUND PERFORM?
A. During the 12 months ended September 30, the fund's total return - which
includes interest income and capital gains - amounted to 5.26%. According
to Lipper Analytical Services, short-term government bond funds posted a
higher average total return of 5.67%.
Q. WHY DID THE FUND LAG THE AVERAGE?
A. Because the fund invests fairly heavily in mortgage-backed securities
issued by the Government National Mortgage Association (GNMA). For example,
at the end of September, 41% of the fund's assets were in GNMAs. While
those securities pay higher yields than Treasury issues, their prices don't
rise as quickly when interest rates decline. That's because homeowners who
refinance their mortgages at lower rates prepay their current loans as
rates decline, and that money is refunded to GNMA investors as a return of
principal. So instead of holding a bond that is becoming more valuable as
rates fall, you get some of your cash back early.
Q. HOW DOES THE FUND CONTROL PREPAYMENT RISK?
A. In the past, the fund generally owned only high-coupon GNMAs - those
with high stated interest rates. Those securities have higher risk of
prepayment because they're backed by mortgages with high rates - the loans
that homeowners are most likely to refinance when rates fall. To better
control prepayment risk I've recently begun to balance our holdings by
adding lower coupon GNMAs. I'm also employing a barbell strategy, which
calls for buying a mix of the highest and lowest coupon GNMAs. The idea is
that most borrowers with very high-rate loans who want to refinance already
have done so, while borrowers with the lowest-rate loans have little
incentive to refinance them. Similarly, I paired GNMAs backed by loans that
were recently issued with GNMAs backed by loans issued long ago. Someone
who just got a mortgage isn't likely to go to the trouble of refinancing it
immediately, while someone who has held onto the same mortgage for years
isn't terribly likely to refinance it now.
Q. WERE YOU BETTING ON LOWER INTEREST RATES DURING THE PERIOD?
A. I don't make sizable bets on interest rates, because that would endanger
the fund's primary mission, which is to maintain a relatively stable share
price. Instead, I use a strategy called duration averaging to make modest
adjustments in the fund's duration - a measure of how sensitive the fund's
share price is to interest rate changes. When interest rates move above a
fixed point I typically buy issues with slightly longer maturities to
increase the fund's duration. For example, last fall the five-year
Treasury's yield to maturity rose from 5.32% to 6.22%, and I extended the
fund's duration - so that when rates subsided, the fund delivered bigger
price gains on its holdings. In effect, I'm buying longer-term issues after
their prices have declined - a strategy that should work well over time.
Right now, the fund's duration is two years, which is slightly longer than
neutral. That means if rates rose one percentage point, the fund's share
price - $9.96 as of September 30 - would fall about 2% to $9.76. Of course,
the reverse also is true. If rates fell one percentage point, the fund's
share price would rise about 2%.
Q. DOES THE FUND HOLD ANY INTERMEDIATE-TERM BONDS?
A. Yes, it does. Rather than concentrate the fund's assets solely in bonds
with two- to three-year maturities, I also hold a few intermediate-term
bonds with maturities of five years while maintaining a relatively short
average duration. I do that because I think that rates on five-year issues
are likely to decline, which means their prices would rise.
Q. WHAT'S YOUR OUTLOOK?
A. I don't expect short-term rates to decline much. They've already fallen
pretty far. For example, the federal funds rate - the rate banks charge
each other on overnight loans - has fallen from just below 10% in 1989 to
3% now. But I don't think short rates will rise, either. I feel the economy
is still too weak, and with many of our trading partners still in recession
that probably isn't likely to change soon. In fact, I'm expecting inflation
to decline from 3% to around 2% or 2.5% this year. If I'm correct, I
believe the fund should continue to deliver total returns that reward
investors for the added risk they're taking by beating the returns on money
funds and CDs, which, unlike the fund are FDIC -insured. I'll continue to
invest a significant portion of the fund's assets in GNMAs, which tend to
deliver higher returns than Treasuries when interest rates are stable or
rising.
FUND FACTS
GOAL: high current income
with preservation of capital
START DATE: September 13,
1991
SIZE: as of September 30,
1993, over $168 million
MANAGER: Curt
Hollingsworth, since October
1991; also manages Fidelity
Advisor Government
Investment; Fidelity
Government Securities,
Institutional
Short-Intermediate
Government; Spartan Limited
Maturity Government,
Long-Term Government and
Short-
Intermediate Government
funds
(checkmark)
CURT HOLLINGSWORTH ON THE
FUND'S INVESTMENT STRATEGY:
"The fund's main goal in earning
current income is to provide a
relatively stable share price. I
aim to do that by focusing on
short-term securities that don't
fluctuate much with changes in
interest rates. In addition, the
fund invests exclusively in
securities that are backed by the
full faith and credit of the U.S.
government. At the same time,
the fund attempts to provide
higher yields than more stable
money market funds or
certificates of deposit by
investing in securities with
slightly longer maturities,
including mortgage-backed
securities issued by the
Government National Mortgage
Association (GNMAs). To
enhance the potential for price
gains when interest rates are
falling, I use our mortgage
research capabilities to identify
GNMAs with low prepayment
risk."
(bullet) On September 30, the fund
had about 59% of its assets
in U.S. Treasury bonds and
notes and 41% in GNMAs.
(bullet) The fund's share price
during the 12 months ended
September 30 remained
between $9.83 and $10.19.
(bullet) The fund's duration, a
measure of its sensitivity to
changes in interest rates, was
two years as of September 30,
when its share price was
$9.96. That means a one
percentage point rise in rates
should cause its share price to
decline about 2% to around
$9.76. But if rates decline one
percentage point, the fund's
share price should rise
roughly 2% to around $10.16.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1993
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO
6 - 6.99% 0 5.7
7 - 7.99% 10.6 30.2
8 - 8.99% 48.5 20.0
9 - 9.99% 24.8 17.2
10 - 10.99% 11.3 0
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1993
6 MONTHS AGO
Years 4.3 3.6
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE
FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1993
6 MONTHS AGO
Years 2.0 2.0
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL
LOSE ABOUT 5% OF ITS VALUE.
ASSET ALLOCATION
AS OF SEPTEMBER 30, 1993 AS OF MARCH 31, 1993
Row: 1, Col: 1, Value: 0.0
Row: 1, Col: 2, Value: 40.6
Row: 1, Col: 3, Value: 59.4
U.S. Treasury
obligations 54.9%
Government
National Mortgage
Association
(GNMA)
securities 36.1%
Short-term
investments 9.0%
U.S. Treasury
obligations 59.4%
Government
National Mortgage
Association
(GNMA)
securities 40.6%
Short-term
investments 0%
Row: 1, Col: 1, Value: 9.0
Row: 1, Col: 2, Value: 36.1
Row: 1, Col: 3, Value: 54.9
INVESTMENTS SEPTEMBER 30, 1993
Showing Percentage of Total Value of Investments in Securities
U.S. TREASURY OBLIGATIONS - 59.4%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
8 1/2%, 5/15/95 $ 25,740,000 $ 27,642,443 912827YQ
10 3/8%, 5/15/95 10,000,000 11,031,200 912810CQ
9 1/4%, 8/15/98 14,000,000 16,707,032 912827WN
7 7/8%, 2/15/00 10,000,000 10,568,700 912810BS
8 3/8%, 8/15/00 31,620,000 34,045,886 912810BV
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $100,448,925) 99,995,261
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 40.6%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
7%, 12/15/22 to 6/15/23 1,588,748 1,634,426 36203RP9
7 1/2%, 3/15/22 to 5/15/23 5,415,883 5,657,872 36203AE5
8%, 8/15/17 to 2/15/23 11,550,185 12,181,761 36203CQU
8 1/2%, 1/15/17 to 2/15/23 7,328,449 7,768,165 362162WF
9%, 11/15/21 to 9/15/22 13,966,511 14,926,729 36218HRK
9 1/2%, 8/15/21 to 5/15/22 9,356,500 10,119,617 36223E6T
10%, 11/15/09 to 7/15/21 5,961,191 6,579,679 36218PPL
10 1/2%, 2/15/16 to 12/15/20 1,270,065 1,429,612 36220MTZ
12 1/2, 4/15/10 to 10/15/15 6,576,215 7,677,982 362062FK
13%, 9/15/14 250,176 294,107 36214S5A
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-
BACKED SECURITIES (Cost $68,136,316) 68,269,950
TOTAL INVESTMENTS IN SECURITIES - 100%
(Cost $168,585,241) $ 168,265,211
INCOME TAX INFORMATION
At September 30, 1993, the aggregate cost of investment securities for
income tax purposes was $168,585,241. Net unrealized depreci- ation
aggregated $320,030, of which $362,710 related to appreciated investment
securities and $682,740 related to depreciated investment securities.
The fund has elected to defer to its fiscal year ended September 30, 1994
$1,311,000 of losses recognized during the period November 1, 1992 to
September 30, 1993.
At September 30, 1993, the fund had a capital loss carryforward of
approximately $303,000 which will expire on September 30, 2001.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, 1993
ASSETS
Investment in securities, at value (cost $168,585,241) $ 168,265,211
(Note 1) - See accompanying schedule
Cash 594,077
Receivable for investments sold 14,257,909
Interest receivable 2,268,898
TOTAL ASSETS 185,386,095
LIABILITIES
Payable for investments purchased $ 16,872,425
Dividends payable 101,630
Accrued management fee 65,567
Other payables and accrued expenses 54,528
TOTAL LIABILITIES 17,094,150
NET ASSETS $ 168,291,945
Net Assets consist of:
Paid in capital $ 170,771,494
Undistributed net investment income 2,415,218
Accumulated undistributed net realized gain (loss) on (4,574,737)
investments
Net unrealized appreciation (depreciation) on investment (320,030)
securities
NET ASSETS, for 16,901,090 shares outstanding $ 168,291,945
NET ASSET VALUE, offering price and redemption price per $9.96
share ($168,291,945 (divided by) 16,901,090 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1993
INVESTMENT INCOME $ 13,070,327
Interest
EXPENSES
Management fee (Note 4) $ 783,194
Transfer agent fees (Note 4) 417,815
Accounting fees and expenses (Note 4) 80,316
Non-interested trustees' compensation 1,185
Custodian fees and expenses 70,210
Registration fees 89,044
Audit 56,193
Legal 1,417
Interest (Note 5) 4,085
Miscellaneous 1,338
Total expenses before reimbursement 1,504,797
Reimbursement of expenses (Note 6) (486,551) 1,018,246
NET INVESTMENT INCOME 12,052,081
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (3,529,055)
(NOTES 1 AND 3)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (80,251)
investment securities
NET GAIN (LOSS) (3,609,306)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 8,442,775
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED SEPTEMBER 30,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 12,052,081 $ 4,189,460
Net investment income
Net realized gain (loss) on investments (3,529,055) 16,575
Change in net unrealized appreciation (depreciation) (80,251) (240,481)
on investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 8,442,775 3,965,554
FROM
OPERATIONS
Distributions to shareholders from: (10,384,430) (3,441,893)
Net investment income
Net realized gain (1,041,753) (20,504)
Share transactions 163,545,822 227,192,187
Net proceeds from sales of shares
Reinvestment of distributions from: 8,988,221 3,090,094
Net investment income
Net realized gain 956,564 20,110
Cost of shares redeemed (175,078,369) (59,280,937)
Net increase (decrease) in net assets resulting from (1,587,762) 171,021,454
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,571,170) 171,524,611
NET ASSETS
Beginning of period 172,863,115 1,338,504
End of period (including undistributed net investment $ 168,291,945 $ 172,863,115
income of $2,415,218 and $747,567, respectively)
OTHER INFORMATION
Shares
Sold 16,349,116 22,481,012
Issued in reinvestment of distributions from: 899,578 306,255
Net investment income
Net realized gain 96,720 1,973
Redeemed (17,496,431) (5,870,895)
Net increase (decrease) (151,017) 16,918,345
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED SEPTEMBER 30, SEPTEMBER 13,
1991
(COMMENCEMENT
OF OPERATIONS) TO
1993 1992 SEPTEMBER 30,
1991
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.140 $ 10.010 $ 10.000
Income from Investment Operations .722 .694 .027
Net investment income
Net realized and unrealized gain (loss) (.209) .096(dagger)(dagger) .010
on investments
Total from investment operations .513 .790 .037
Less Distributions (.623) (.650) (.027)
From net investment income
From net realized gain on investments (.070) (.010) -
Total distributions (.693) (.660) (.027)
Net asset value, end of period $ 9.960 $ 10.140 $ 10.010
TOTAL RETURN (dagger) 5.26 8.13% .37%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 168,292 $ 172,863 $ 1,339
Ratio of expenses to average net assets (dagger) .61 .28% .65%*
%
Ratio of expenses to average net assets .90 1.29% 2.50%*
before voluntary expense limitation (dagger) %
Ratio of net interest income to average net 7.19 7.91% 5.67%*
assets %
Portfolio turnover rate 348 419% -%
%
</TABLE>
* ANNUALIZED
(dagger) THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THE ADVISER NOT
REIMBURSED CERTAIN EXPENSES DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES
TO FINANCIAL STATEMENTS). TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(dagger)(dagger) THE AMOUNT SHOWN IN THIS CAPTION, WHILE DETERMINED BY THE
SUMMATION OF AMOUNTS COMPUTED DAILY AS SHARES WERE SOLD OR REPURCHASED, IS
ALSO THE BALANCING FIGURE DERIVED FROM THE OTHER FIGURES IN THE STATEMENT
AND HAS BEEN SO COMPUTED. THE AMOUNT SHOWN FOR THE YEAR ENDED SEPTEMBER 30,
1992 FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD DOES NOT ACCORD WITH THE
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS FOR THE PERIOD BECAUSE OF
THE TIMING OF SALES AND REPURCHASES OF THE FUND'S SHARES IN RELATION TO
FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1993
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
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. Short-term securities
maturing within sixty days are valued either at amortized cost or original
cost plus accrued interest, both of which approximate current value.
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.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, each fund is not subject to income taxes to
the extent that it distributes all of its taxable income for the fiscal
year. The schedules of investments include 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 between 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. Mortgage security paydown gains
(losses) are taxable as ordinary income and, therefore, increase (decrease)
taxable ordinary income available for distribution.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
mortgage-backed securities and losses deferred due to wash sales.
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.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $588,825,328 and $573,419,357, 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 ranging from
.14% to .37% and is based on the monthly average net assets of all the
mutual funds advised by FMR. The annual individual fund fee rate is .30%.
For the period, the management fee was equivalent to an annual rate of .47%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $43,534 for the
period.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEE. Fidelity Service Co. (FSC), an affiliate of FMR, is the
fund's transfer, dividend disbursing and shareholder servicing agent. FSC
receives fees based on the type, size, number of accounts and the number of
transactions made by shareholders. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements.
ACCOUNTING FEE. 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. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balances during the periods for
which loans were outstanding amounted to $14,997,000 and $3,034,417,
respectively. The weighted average interest rate was 3.82%. Interest
expense of $4,085 was paid under the bank borrowing program.
6. REIMBURSEMENT OF
EXPENSES.
Prior to July 1, 1993, FMR voluntarily agreed to reimburse the fund for
total operating expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses). During the period expense limitation ranged
from .40% to .70% of average net assets and the reimbursement amounted to
$486,551.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders of
Fidelity Short-Intermediate Government Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Short-Intermediate Government Fund (a fund of Fidelity Charles
Street Trust) at September 30, 1993, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights
for the periods indicated in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Fidelity Short-Intermediate Government Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities owned at
September 30, 1993 by correspondence with the custodian and brokers and the
application of alternative auditing procedures when confirmation from
brokers was not received, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE
Boston, Massachusetts
November 2, 1993
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios.(Registered trademark)
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* 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. FOR MORE
INFORMATION ON ANY
FIDELITY FUND INCLUDING MANAGEMENT FEES AND CHARGES, CALL 1-800-544-8888
FOR A FREE
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
2249 Galiano Street
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
32 West Central Boulevard
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road, South
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
44 Front Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
175 East 400 South Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8300 Boone Boulevard
Vienna, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Curtis Hollingsworth, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Gerald C. McDonough*
Thomas R. Williams*
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income Fund
Ginnie Mae Portfolio
Global Bond Fund
Government Securities Fund
Intermediate Bond Fund
Investment Grade Bond Fund
Mortgage Securities Portfolio
New Markets Income Fund
Short-Intermediate Government Fund
Short-Term Bond Portfolio
Short-Term World Income Fund
Spartan Ginnie Mae Portfolio
Spartan Government Income Fund
Spartan High Income Fund
Spartan Investment Grade Bond Fund
Spartan Limited Maturity Government
Fund
Spartan Long-Term Government
Bond Fund
Spartan Short-Intermediate Government Fund
Spartan Short-Term Bond Fund
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
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)
