SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-92661)
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 31 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT [x]
COMPANY ACT OF 1940 (811-4508)
Amendment No. [ ]
Fidelity Income Fund
(Exact Name of Registrant as Specified in Charter)
82 Devonshire Street
Boston, MA 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (617) 570-7000
Arthur S. Loring, Esq.
82 Devonshire Street
Boston, MA 02109
(Name and Address of Agent for Service)
It is proposed that this filing become effective:
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[x] On (September 19, 1994) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] On ( ) pursuant to paragraph (a) of
Rule 485
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file the notice required by
such Rule before September 30, 1994.
FIDELITY INCOME FUND
SPARTAN LIMITED MATURITY GOVERNMENT FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Fund at a Glance;
Who May Want to Invest
3 a, b .............................. *
c .............................. Performance
4 a i............................. Charter
ii........................... The Fund at a Glance; Investment
Principles and Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment
Principles and Risks
5 a .............................. Charter
b i............................. Doing Business with Fidelity;
Charter
ii........................... Charter; Breakdown of Expenses
iii.......................... Expenses; Breakdown of Expenses
c, d .............................. Charter; Breakdown of Expenses;
Cover Page; FMR and Its Affiliates
e .............................. FMR and its Affiliates
f .............................. Expenses
g i............................. FMR and its Affiliates
.
ii............................ *
..
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell
Shares; Transaction Details;
Exchange Restrictions
iii.......................... *
b ............................. *
c .............................. Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How
to Buy Shares; How to Sell Shares;
Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. How to Buy Shares; Transaction
Details
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor
Services; Transaction Details;
Exchange Restrictions
9 .............................. *
</TABLE>
Not applicable
FIDELITY INCOME FUND
SPARTAN LIMITED MATURITY GOVERNMENT FUND
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ *
13 a - c ............................ Investment Policies and Limitations
d ............................ *
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR
ii ............................ Trustees and Officers
iii ............................ Management Contract
b ............................ Management Contract
c, d ............................ Contracts with Companies Affiliated
with FMR
e ............................ *
f ............................ Distribution and Service Plan
g ............................ *
h ............................ Description of the Trust
i ............................ Contracts with Companies Affiliated
with FMR
17 a ............................ Portfolio Transactions
b ............................ *
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trust
b ............................ *
19 a ............................ Additional Purchase and Redemption
Information
b ............................ Additional Purchase and Redemption
Information; Valuation of Portfolio
Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with Companies Affiliated
with FMR
c ............................ *
22 ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a copy
of the fund's most recent financial report and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated September 19, 1994.
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, the Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal.
Spartan Limited Maturity Government seeks high current income with
preservation of capital by investing mainly in U.S. government securities
while maintaining an average maturity of less than 10 years.
SPARTAN(REGISTERED TRADEMARK)
LIMITED MATURITY
GOVERNMENT
FUND
PROSPECTUS
SEPTEMBER 19, 1994(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SLM-pro-994
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
PERFORMANCE How the fund has
done over time.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account,
including tax-sheltered retirement
plans.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS, AND
ACCOUNT POLICIES TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current income with preservation of capital. As with any mutual
fund, there is no assurance that the fund will achieve its goal.
STRATEGY: Invests mainly in U.S. government securities while maintaining an
average maturity of less than 10 years.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. Foreign affiliates of FMR may help
choose investments for the fund.
SIZE: As of July 31, 1994, the fund had over $ 1 billion in assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who want high current income from
a portfolio of U.S. government securities. A fund's level of risk, and
potential reward, depend on the quality and maturity of its investments.
With its focus on high-quality investments of short to intermediate
maturities, the fund has a moderate risk level and yield potential.
The fund is not in itself a balanced investment plan. The value of the
fund's investments and the income they generate will vary from day to day,
generally reflecting changes in interest rates, market conditions, and
other political and economic news. The funds investments are also
subject to prepayments, which can lower the fund's yield, particularly in
periods of declining interest rates. When you sell your fund shares
they may be worth more or less than what you paid for them.
The Spartan family of funds is designed for cost-conscious investors
looking for higher yields through lower costs. The Spartan
Approach(registered trademark) requires investors to make high minimum
investments and, in some cases, to pay for individual transactions.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Spartan
Limited Maturity Government
is in the INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund. See page 16 for more information.
Maximum sales charge on purchases and
reinvested dividends None
Deferred sales charge on redemptions None
Exchange and wire transaction fees $5.00
Checkwriting fee, per check written $2.00
Account closeout fee $5.00
THESE FEES ARE WAIVED if your account balance at the time of the
transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund
pays a management fee to FMR. Expenses are factored into the fund's share
price or dividends and are not charged directly to shareholder accounts
(see page ) .
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
Management fee .65%
12b-1 fee None
Other expenses .00%
Total fund operating expenses .65%
EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses after
the number of years indicated, first assuming that you leave your account
open, and then assuming that you close your account at the end of the
period:
Account open Account closed
After 1 year $ 7 $ 12
After 3 years $ 21 $ 26
After 5 years $ 36 $ 41
After 10 years $ 81 $ 86
The example s illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
FINANCIAL HIGHLIGHTS
The table that follows is included in the fund's Annual Report and has been
audited by Price Waterhouse LLP , independent accountants. Their
report on the financial statements and financial highlights is included in
the Annual Report. The financial statements and financial highlights are
incorporated by reference into (are legally a part of) the fund's Statement
of Additional Information.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1.Years ended July 1988 A 1989 1990 1991 1992 1993 1994
31
2.Net asset value, $ 10.000 $ 9.880 $ 10.030 $ 9.930 $ 10.060 $ 10.180 $ 10.310
beginning of period
3.Income from .203 .806 .816 .853 .836 .872 .4 71E
Investment
Operations
Net investment
income
4. Net realized and (.120) .150 (.100) .142 .021 (.087) (. 411 )
unrealized
gain (loss) on
investments
5. Total from .083 .956 .716 .995 .857 .785 .0 60
investment
operations
6.Less Distributions (.203) (.806) (.816) (.845) (.677) (.605) ( .540)
From net E
investment
income
7. From net -- -- -- (.020) (.060) (.050) (. 220)
realized gain
on investments
8. Total (.203) (.806) (.816) (.865) (.737) (.655) (. 760)
distributions
9.Net asset value, $ 9.880 $ 10.030 $ 9.930 $ 10.060 $ 10.180 $ 10.310 $ 9.610
end of period
10.Total return B,C .83% 10.14% 7.49% 10.43% 8.78% 7.96% .57%
11.RATIOS AND SUPPLEMENTAL DATA
12.Net assets, end $ 25 $ 125 $ 132 $ 880 $ 1,770 $ 1,529 $ 1,018
of period
(In Millions)
13.Ratio of .21% .68 .83 .50 .61 .65 .65
expenses to D % % % % % %
average net assets
14.Ratio of 2.00% 1.13 .83 .69 .65 .65 .65
expenses to average D % % % % % %
net assets before
expense reductions
15.Ratio of net 8.70% 8.20 8.28 8.63 8.24 8.05 7.37
investment D % % % % % %
income to average
net assets
16.Portfolio 471% 806 270 288 330 324 391
turnover rate D % % % % % %
</TABLE>
A MAY 2, 1988 (COMMENCEMENT OF OPERATIONS)
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS
OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D ANNUALIZED
E THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK
AND TAX DIFFERENCES.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The total
returns and yields that follow are based on historical fund results and do
not reflect the effect of taxes or any transaction fees you may have paid.
The figures would be lower if fees were taken into account.
The fund's fiscal year runs from August 1 through July 31. The tables below
show the fund's performance over past fiscal years compared to a measure of
inflation. The chart on page 7 helps you compare the yields of this
fund to those of its competitors.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods Pas Past Life
ended t 1 5 of
July 31, 1994 yea year fund
r s A
Spartan Ltd. . 57 6.99 7.34
Govt. % % %
Consumer 2.77 3.59 3.86
Price % % %
Index
CUMULATIVE TOTAL RETURNS
Fiscal periods Pas Past Life
ended t 1 5 of
July 31, 1994 yea year fund
r s A
Spartan Ltd. .57 40.19 55.70
Govt. % % %
Consumer 2.77 19.29 26.73
Price % % %
Index
A FROM MAY 2, 1988
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield
may not equal the income actually paid to shareholders.
UNDERSTANDING
PERFORMANCE
Because this fund invests in
fixed-income securities, its
performance is related to
changes in interest rates.
Funds that hold short-term
bonds are usually less
affected by changes in
interest rates than long-term
bond funds. For that reason,
long-term bond funds typically
offer higher returns and carry
more risk than short-term
bond funds.
(checkmark)
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Short-Term U.S. Government
Funds Average, which currently reflects the performance of over 117
mutual funds with similar objectives. This average, which assumes
reinvestment of distributions, is published by Lipper Analytical Services,
Inc.
30-DAY YIELDS
Percentage (%)
Row: 1, Col: 1, Value: 6.48
Row: 1, Col: 2, Value: 5.470000000000001
Row: 2, Col: 1, Value: 5.83
Row: 2, Col: 2, Value: 5.57
Row: 3, Col: 1, Value: 7.06
Row: 3, Col: 2, Value: 5.95
Row: 4, Col: 1, Value: 5.87
Row: 4, Col: 2, Value: 5.85
Row: 5, Col: 1, Value: 5.74
Row: 5, Col: 2, Value: 5.57
Row: 6, Col: 1, Value: 6.25
Row: 6, Col: 2, Value: 5.48
Row: 7, Col: 1, Value: 6.5
Row: 7, Col: 2, Value: 5.18
Row: 8, Col: 1, Value: 6.71
Row: 8, Col: 2, Value: 5.01
Row: 9, Col: 1, Value: 6.609999999999999
Row: 9, Col: 2, Value: 4.81
Row: 10, Col: 1, Value: 6.01
Row: 10, Col: 2, Value: 4.69
Row: 11, Col: 1, Value: 5.77
Row: 11, Col: 2, Value: 5.02
Row: 12, Col: 1, Value: 6.1
Row: 12, Col: 2, Value: 5.09
Row: 13, Col: 1, Value: 5.53
Row: 13, Col: 2, Value: 4.87
Row: 14, Col: 1, Value: 5.72
Row: 14, Col: 2, Value: 4.74
Row: 15, Col: 1, Value: 5.859999999999999
Row: 15, Col: 2, Value: 4.5
Row: 16, Col: 1, Value: 5.87
Row: 16, Col: 2, Value: 4.44
Row: 17, Col: 1, Value: 5.67
Row: 17, Col: 2, Value: 4.41
Row: 18, Col: 1, Value: 5.29
Row: 18, Col: 2, Value: 4.359999999999999
Row: 19, Col: 1, Value: 5.14
Row: 19, Col: 2, Value: 4.2
Row: 20, Col: 1, Value: 5.22
Row: 20, Col: 2, Value: 4.19
Row: 21, Col: 1, Value: 5.21
Row: 21, Col: 2, Value: 4.01
Row: 22, Col: 1, Value: 5.04
Row: 22, Col: 2, Value: 4.0
Row: 23, Col: 1, Value: 5.22
Row: 23, Col: 2, Value: 4.0
Row: 24, Col: 1, Value: 5.58
Row: 24, Col: 2, Value: 3.95
Row: 25, Col: 1, Value: 5.55
Row: 25, Col: 2, Value: 4.87
Row: 26, Col: 1, Value: 5.8
Row: 26, Col: 2, Value: 4.14
Row: 27, Col: 1, Value: 5.91
Row: 27, Col: 2, Value: 4.470000000000001
Row: 28, Col: 1, Value: 5.31
Row: 28, Col: 2, Value: 4.77
Row: 29, Col: 1, Value: 5.31
Row: 29, Col: 2, Value: 5.05
Row: 30, Col: 1, Value: 5.72
Row: 30, Col: 2, Value: 5.18
Spartan Limited
Maturity
Government
Fund
Competitive
funds average
1993
1992
1994
THE CHART SHOWS THE 30-DAY ANNUALIZED NET YIELDS FOR THE FUND AND ITS
COMPETITIVE FUNDS AVERAGE AS OF THE LAST DAY OF EACH MONTH FROM
JANUARY 1992 THROUGH JUNE 1994.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
SPARTAN LIMITED MATURITY GOVERNMENT IS A MUTUAL FUND: an investment that
pools shareholders' money and invests it toward a specified goal. In
technical terms, the fund is currently a diversified fund of Fidelity
Income Fund, an open-end management investment company organized as a
Massachusetts business trust on August 7, 1984
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Fidelity will
mail proxy materials in advance, including a voting card and information
about the proposals to be voted on. The number of votes you are entitled
to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.), in London, England, and Fidelity Management & Research (Far
East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR with foreign
investments.
Curtis Hollingsworth is manager and vice president of Spartan Limited
Maturity Government, which he has managed since May 1988. Mr. Hollingsworth
also manages Advisor Government Investment, Fidelity Short-Intermediate
Government, Government Securities, Institutional Short-Intermediate
Government, Spartan Long Term Government Bond, and Spartan
Short-Intermediate Government. Mr. Hollingsworth joined Fidelity in 1985.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., and
FMR Far East . Through ownership of voting common stock, members of
the Edward C. Johnson 3d family form a controlling group with
respect to FMR Corp. Changes may occur in the Johnson family group,
through death or disability, which would result in changes in each
individual family members' holding of stock. Such changes could result in
one or more family members becoming holders of over 25% of the stock. FMR
Corp. has received an opinion of counsel that changes in the composition of
the Johnson family group under these circumstances would not result in the
termination of the fund's management or distribution contracts and,
accordingly, would not require a shareholder vote to continue operation
under those contracts.
To carry out the fund's transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that the fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
The fund seeks high current income with preservation of capital. FMR
normally invests at least 65% of the fund's total assets in U.S. government
securities and repurchase agreements secured by U.S. government securities.
FMR chooses securities for the fund based in part on their sensitivity to
interest rate changes. FMR attempts to position the fund so that it reacts
to interest rates similarly to government bonds with maturities of one to
four years. However, because the fund may invest in mortgage securities,
which are less sensitive to interest rates than their maturities would
suggest, the fund's dollar-weighted average maturity is normally less than
10 years.
The fund's yield and share price change based on changes in interest
rates, market conditions, and other political and economic news. In
general, bond prices rise when interest rates fall, and vice versa. FMR may
use various investment techniques to hedge the fund's risks, but there is
no guarantee that these strategies will work as intended. It is important
to note that the fund is not guaranteed by the U.S. government . When
you sell your shares, they may be worth more or less than what you paid for
them.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
investment-grade money market or short-term debt instruments for temporary,
defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, and strategies FMR may employ in
pursuit of the fund's investment objective. A summary of risks and
restrictions associated with these instrument types and investment
practices is included as well. A complete listing of the fund's policies
and limitations and more detailed information about the fund's investments
is contained in the fund's SAI. Policies and limitations are considered
at the time of purchase; the sale of instruments is not required in the
event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
fund achieve its goal. Current holdings and recent investment strategies
are described in the fund's financial reports which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
RESTRICTIONS: The fund does not currently intend to invest in debt
securities unless they are rated Aaa by Moody's Investors Service, Inc. or
AAA by Standard & Poor's Corporation, or in unrated securities judged by
FMR to be of equivalent quality.
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
FOREIGN SECURITIES and foreign currencies may involve additional risks.
These include currency fluctuations, risks relating to political or
economic conditions in the foreign country, and the potentially less
stringent investor protection and disclosure standards of foreign markets.
In addition to the political and economic factors that can affect foreign
securities, a governmental issuer may be unwilling to repay principal and
interest when due, and may require that the conditions for payment be
renegotiated. These factors could make foreign investments, especially
those in developing countries, more volatile.
MORTGAGE SECURITIES are interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by the government or by
private entities. For example, Ginnie Maes are interests in pools of
mortgage loans insured or guaranteed by a government agency. Because their
payments consist of both interest and principal as their underlying
mortgages are paid off, mortgage securities ar subject to prepayment risk.
This is especially true for stripped securities. Also, the value of a
mortgage security may be significantly affected by changes in interest
rates. Some securities may have a structure that makes their reaction to
interest rates and other factors difficult to predict, making their values
highly volatile.
ASSET-BACKED SECURITIES represent interests in pools of consumer loans. The
value of these securities may be significantly affected by changes in the
market's perception of the issuers and the creditworthiness of the parties
involved.
MONEY MARKET INSTRUMENTS are high-quality instruments that present minimal
credit risk. They may include U.S. government obligations, commercial paper
and other short-term corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
RESTRICTIONS: The fund does not currently intend to invest in short-term
securities unless they are rated Prime-1 by Moody's and A-1 by S &
P, or unrated securities judged by FMR to be of equivalent quality.
STRIPPED SECURITIES are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, and
purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the fund's yield.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of other securities, including illiquid securities, may be subject
to legal restrictions. Difficulty in selling securities may result in a
loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include convertible securities and preferred stocks.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of total assets, the fund may not invest
more than 5% of its total assets in any one issuer. The fund may not invest
more than 25% of its total assets in any one industry. These limitations do
not apply to U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
LENDING Lending securities to broker-dealers and institutions, including
FBSI, an affiliate of FMR, is a means of earning income. This practice
could result in a loss or a delay in recovering the fund's securities. The
fund may also lend money to other fund's advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 33% of the funds
total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
The fund seeks a high level of current income as is consistent with
preservation of capital. With respect to 75% of total assets, the fund may
not invest more than 5% of its total assets in any one issuer. The fund may
not invest more than 25% of its total assets in any one industry. The fund
may borrow only for temporary or emergency purposes, but not in an amount
exceeding 33% of its total assets. Loans, in the aggregate, may not exceed
33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn may pay fees to affiliates who provide
assistance with these services.
FMR may, from time to time, agree to reimburse the fund for management fees
above a specified limit. FMR retains the ability to be repaid by the fund
if expenses fall below the specified limit prior to the end of the fiscal
year. Reimbursement arrangements, which may be terminated at any time
without notice, can decrease the fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fund pays
the fee at the annual rate of .65% of its average net assets.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on issuers
based outside the United States. Under the sub-advisory agreements, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East 50% of its management fee rate
with respect to the fund's investments that the sub-adviser manages on a
discretionary basis.
FSC performs many transaction and accounting functions for the fund. These
services include processing shareholder transactions and calculating the
fund's share price. FMR, and not the fund, pays for these services.
To offset shareholder service costs, FMR or its affiliates also collect the
fund's $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire
purchases and redemptions, and the $2.00 checkwriting charge. For fiscal
1994, these fees amounted to $66,000, $4,000, $4,000, and
$ 1,000 , respectively.
The fund has adopted a Distribution and Service Plan. This plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. It is important to
note, however, that the fund does not pay FMR any separate fees for this
service.
The fund's portfolio turnover rate for fiscal 1994 was 391%. This rate
varies from year to year: High turnover rates increase transaction costs
and may increase taxable capital gains. FMR considers these effects when
evaluating the anticipated benefits of short-term investing.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 75 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in the fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed at right.
The account guidelines that follow may not apply to certain retirement
accounts. If your employer offers the fund through a retirement program,
contact your employer for more information. Otherwise, call Fidelity
directly.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 200
(solid bullet) Assets in Fidelity mutual
funds: over $225 billion
(solid bullet) Number of shareholder
accounts: over 19 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
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WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
RETIREMENT
TO SHELTER YOUR RETIREMENT SAVINGS FROM TAXES
Retirement plans allow individuals to shelter investment income and
capital gains from current taxes. In addition, contributions to these
accounts may be tax deductible. Retirement accounts require special
applications and typically have lower minimums.
(solid bullet) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal
age and under 70 with earned income to invest up to $2,000 per tax year.
Individuals can also invest in a spouse's IRA if the spouse has earned
income of less than $250.
(solid bullet) ROLLOVER IRAS retain special tax advantages for certain
distributions from employer-sponsored retirement plans.
(solid bullet) KEOGH OR CORPORATE PROFIT SHARING AND MONEY PURCHASE PENSION
PLANS allow self-employed individuals or small business owners (and their
employees) to make tax-deductible contributions for themselves and any
eligible employees up to $30,000 per year.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide small
business owners or those with self-employed income (and their eligible
employees) with many of the same advantages as a Keogh, but with fewer
administrative requirements.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of most
tax-exempt institutions, including schools, hospitals, and other charitable
organizations.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
THE FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. The fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
IF YOU ARE INVESTING THROUGH A TAX-SHELTERED RETIREMENT PLAN, such as an
IRA, for the first time, you will need a special application. Retirement
investing also involves its own investment procedures. Call 1-800-544-8888
for more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For Fidelity retirement accounts $10,000
TO ADD TO AN ACCOUNT $1,000
For Fidelity retirement accounts $1,000
Through automatic investment plans $500
MINIMUM BALANCE $5,000
For Fidelity retirement accounts $5,000
UNDERSTANDING THE
SPARTAN APPROACH(registered trademark)
Fidelity's Spartan Approach is
based on the principle that
lower fund expenses can
increase returns. The Spartan
funds keep expenses low in
two ways. First, higher
investment minimums reduce
the effect of a fund's fixed
costs, many of which are paid
on a per-account basis.
Second, unlike most mutual
funds that include transaction
costs as part of overall fund
expenses, Spartan
shareholders pay directly for
the transactions they make.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (small solid bullet) Exchange from another (small solid bullet) Exchange from another
Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(small solid bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
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Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check
application. Make your payable to Spartan
check payable to Limited Maturity
"Spartan Limited Government Fund."
Maturity Government Indicate your fund
Fund." Mail to the account number on
address indicated on your check and mail to
the application. the address printed on
your account statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
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Wire (wire_graphic) (small solid bullet) There may be a $5.00 (small solid bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(small solid bullet) Call 1-800-544-7777 to (small solid bullet) Not available for
set up your account retirement accounts.
and to arrange a wire (small solid bullet) Wire to:
transaction. Not Bankers Trust
available for retirement Company,
accounts. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Bank Specify "Spartan
Routing #021001033, Limited Maturity
Account #00163053. Government Fund."
Specify "Spartan and include your
Limited Maturity account number and
Government Fund." your name.
and include your new
account number and
your name.
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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the methods
described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be made
in writing, except for exchanges to other Fidelity funds, which can be
requested by phone or in writing. Call 1-800-544-6666 for a retirement
distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
at right.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOUR ACCOUNT BALANCE IS LESS THAN $50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION
TRANSACTIONS: $2.00 FOR EACH CHECK YOU WRITE AND $5.00 FOR EACH EXCHANGE, BANK WIRE,
AND ACCOUNT CLOSEOUT.
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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
except retirement $100,000.
(small solid bullet) For Money Line transfers to
All account types your bank account; minimum:
$10; maximum: $100,000.
(small solid bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (small solid bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Retirement account names appear on the
account.
(small solid bullet) The account owner should
Trust complete a retirement
distribution form. Call
1-800-544-6666 to request
one.
Business or (small solid bullet) The trustee must sign the
Organization letter indicating capacity as
trustee. If the trustee's name
is not in the account
registration, provide a copy of
the trust document certified
Executor, within the last 60 days.
Administrator, (small solid bullet) At least one person
Conservator, authorized by corporate
Guardian resolution to act on the
account must sign the letter.
(small solid bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(small solid bullet) Call 1-800-544-6666 for
instructions.
Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire
except retirement feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
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Check (check_graphic) All account types (small solid bullet) Minimum check: $1,000.
except retirement (small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of the fund, unless you place your transaction on
Fidelity's automated exchange services.
Note that exchanges out of the fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
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REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for
retirement, a home, educational expenses, and other long-term financial
goals. Certain restrictions apply for retirement accounts. Call
1-800-544-6666 for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (small solid bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (small solid bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(small solid bullet) Changes require a new authorization
form.
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FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (small solid bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (small solid bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
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A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in September
and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The fund offers four
options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
FOR RETIREMENT ACCOUNTS, all distributions are automatically reinvested.
When you are over 59 years old, you can receive distributions in cash.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of the
date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days.
TAXES
As with any investment, you should consider how your investment in the fund
will be taxed. If your account is not a tax-deferred retirement account,
you should be aware of these tax implications.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
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TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax,
and may also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the country in
which you reside. Your distributions are taxable when they are paid,
whether you take them in cash or reinvest them. However, distributions
declared in December and paid in January are taxable as if they were paid
on December 31.
For federal tax purposes, the fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions
are taxed as long-term capital gains. Every January, Fidelity will send you
and the IRS a statement showing the taxable distributions paid to you in
the previous year.
Mutual fund dividends from U.S. government securities are generally free
from state and local income taxes. However, particular states may limit
this benefit, and some types of securities, such as repurchase agreements
and some agency-backed securities, may not qualify for the benefit. In
addition, some states may impose intangible property taxes. You should
consult your own tax adviser for details and up-to-date information on the
tax laws in your state.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or loss
is the difference between the cost of your shares and the price you receive
when you sell them.
Whenever you sell shares of the fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before the fund deducts a
capital gain distribution from its NAV, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
"EFFECTS OF FOREIGN TAXES." The fund may pay withholding or other taxes to
foreign governments during the year. These taxes reduce the fund's
distributions, but are included in the taxable income reported on your tax
statement. You may be able to claim an offsetting tax credit or itemized
deduction for foreign taxes paid by the fund. Your tax statement will
generally show the amount of foreign tax for which a credit or deduction
may be available.
There are tax requirements that all funds must follow in order to avoid
federal taxation. In its effort to adhere to these requirements, the fund
may have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market
quotations. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates. If
quotations are not readily available or if the values have been materially
affected by events occurring after the closing of a foreign market, assets
are valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Note that Fidelity will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the identity of the
caller. Fidelity will request personalized security codes or other
information, and may also record calls. You should verify the accuracy of
your confirmation statements immediately after you receive them. If you do
not want the ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) The fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees the fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUND THROUGH A BROKER, who may charge you
a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when the fund is priced on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) The fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
THE FEES FOR INDIVIDUAL TRANSACTIONS are waived if your account balance at
the time of the transaction is $50,000 or more. Otherwise, you should note
the following:
(small solid bullet) The $2.00 checkwriting charge will be deducted from
your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the amount of
your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed and the $5.00 account closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of the fund
for shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be registered
for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, the fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) The exchange limit may be modified for accounts in
certain institutional retirement plans to conform to plan exchange limits
and Department of Labor regulations. See your plan materials for further
information.
(small solid bullet) The fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if the
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
fund reserves the right to terminate or modify the exchange privilege in
the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(Registered trademark) LIMITED MATURITY GOVERNMENT FUND
A FUND OF FIDELITY INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 19, 1994
This Statement is not a prospectus but should be read in conjunction with
the fund's current Prospectus (dated September 19, 1994). Please retain
this document for future reference. The fund's financial statements and
financial highlights, included in the Annual Report, for the fiscal year
ended July 31, 1994 are incorporated herein by reference. To obtain an
additional copy of the Prospectus or the Annual Report, please call
Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contract
Distribution and Service Plan
Contracts With Companies Affiliated With FMR
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Co. (FSC)
SLM-ptb-994
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations set forth below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(9) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to purchase interests of real
estate investment trusts that are not readily marketable or to
invest in interests of real estate limited partnerships that are not listed
on an exchange or traded on the NASDAQ National Market System if
as a result the sum of such interests and other investments considered
illiquid would exceed 10% of the fund is net assets.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by ( a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or portfolio
for which FMR or an affiliate serves as investment adviser , or
(b) acquiring loans, loan participations, or other forms of direct debt
instruments and in connection therewith, assuming any unfunded commitments
of the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(viii) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(ix) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(x) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission, the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
INTERFUND BORROWING PROGRAM. The fund has received permission
from the SEC to lend money to and borrow money from other funds advised
by FMR or its affiliates. Interfund loans and borrowings normally will
extend overnight, but can have a maximum duration of seven days. Loans
may be called on one day's notice. The fund will lend through the
program only when the returns are higher than those available at the same
time from other short-term instruments (such as repurchase agreements), and
will borrow through the program only when the costs are equal to or lower
than the cost of bank loans . T he fund may have to borrow from
a bank at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
SECURITIES LENDING. The fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange and
a subsidiary of FMR Corp.
Securities lending allows the fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that the fund
may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the fund must be able to terminate
the loan at any time; (4) the fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which the fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
MORTGAGE-BACKED SECURITIES. The fund may purchase mortgage-backed
securities issued by government and non-government entities, such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security may be an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations or
CMOs, make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
fund may invest in them if FMR determines they are consistent with the
fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
DELAYED DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. The fund may receive fees for entering
into delayed delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for the securities
until the delivery date, these risks are in addition to the risks
associated with the fund's other investments. If the fund remains
substantially fully invested at a time when delayed delivery purchases are
outstanding, the delayed-delivery purchases may result in a form of
leverage. When delayed delivery purchases are outstanding, the fund will
set aside appropriate liquid assets in a segregated custodial account to
cover its purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS are interests in amounts owed by a
corporate, governmental, or other borrower to another party. They may
represent amounts owed to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments involve a risk
of loss in case of default or insolvency of the borrower and may offer less
legal protection to the fund in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending
bank or other financial intermediary. Direct debt instruments may also
include standby financing commitments that obligate the fund to supply
additional cash to the borrower on demand.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price . The resale price reflects the price plus an
agreed - upon incremental amount which is unrelated to the coupon rate
or maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed - upon resale price,
which obligation is in effect secured by the value (at least equal to the
amount of the agreed - upon resale price and marked to market daily)
of the underlying security. The fund may engage in a repurchase
agreement s with respect to any type of security in which it
is authorized to invest. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
of a decline in the market value of the underlying securities, as well as
delays and costs to the fund in connection with bankruptcy proceedings), it
is the fund's current policy to limit repurchase agreement
transactions to those parties whose creditworthiness has been reviewed and
found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness is deemed satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by the fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments, and
swap agreements to be illiquid. However, with respect to
over-the-counter options the fund writes, all or a portion of the value of
the underlying instrument may be illiquid depending on the assets held to
cover the option and the nature and terms of any agreement the fund may
have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in
good faith by a committee appointed by the Board of Trustees. If through a
change in values, net assets, or other circumstances, the fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the fund might obtain
a less favorable price than prevailed when it decided to seek registration
of the security.
INDEXED SECURITIES. The fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease the fund's exposure to long- or
short-term interest rates mortgage securities, corporate borrowing rates,
or other factors such as security prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of
names. The fund is not limited to any particular form of swap agreement if
FMR determines it is consistent with the fund's investment objective and
policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift the fund's investment exposure from one
type of investment to another. For example, if the fund agreed to pay fixed
rates in exchange for floating rates while holding fixed-rate bonds, the
swap would tend to decrease the fund's exposure to long-term interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease
the overall volatility of the fund's investments and its share price and
yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, or other factors that determine the
amounts of payments due to and from the fund. If a swap agreement calls for
payments by the fund, the fund must be prepared to make such payments when
due. In addition, if the counterparty's creditworthiness declined, the
value of a swap agreement would be likely to decline, potentially resulting
in losses. The fund expects to be able to eliminate its exposure under swap
agreements either by assignment or other disposition, or by entering into
an offsetting swap agreement with the same party or a similarly
creditworthy party.
The fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If the fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of the fund's accrued
obligations under the swap agreement over the accrued amount the fund is
entitled to receive under the agreement. If the fund enters into a swap
agreement on other than a net basis, it will segregate assets with a value
equal to the full amount of the fund's accrued obligations under the
agreement.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and
interest from such securities, can change significantly when foreign
currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity
than U.S. markets, and prices on some foreign markets can be highly
volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be
more difficult to obtain reliable information regarding an issuer's
financial condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be difficult
to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate or counter these potential
events.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
The fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
corporation held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively,
ADRs and EDRs are alternatives to the purchase of the underlying securities
in their national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The fund will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the fund at one rate, while offering a lesser
rate of exchange should the fund desire to resell that currency to the
dealer. Forward contracts are generally traded in an interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
The fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be
used by the fund. The fund may also use swap agreements, indexed
securities, and options and futures contracts relating to foreign
currencies for the same purposes.
When the fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example,
if the fund owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The fund could also hedge the
position by selling another currency expected to perform similarly to the
pound sterling - for example, by entering into a forward contract to sell
Deutschemarks or European Currency Units in return for U.S. dollars. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if the fund held investments denominated in
Deutschemarks, the fund could enter into forward contracts to sell
Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is
purchased, much as if the fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause the fund to assume the risk of fluctuations in the
value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the fund will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The fund will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on FMR's skill
in analyzing and predicting currency values. Currency management strategies
may substantially change the fund's investment exposure to changes in
currency exchange rates, and could result in losses to the fund if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged the fund by selling that currency
in exchange for dollars, the fund would be unable to participate in the
currency's appreciation. If FMR hedges currency exposure through proxy
hedges, the fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if FMR increases the fund's exposure to a foreign
currency, and that currency's value declines, the fund will realize a loss.
There is no assurance that FMR's use of currency management strategies will
be advantageous to the fund or that it will hedge at an appropriate time.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5
under the Commodity Exchange Act, which limits the extent to which the
fund can commit assets to initial margin deposits and option premiums.
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; (c) purchase call options if, as a result, the current value
of option premiums for call options purchased by the fund would exceed 5%
of the fund's total assets; or (d) write call options on securities if, as
a result, the aggregate value of the securities underlying the calls would
exceed 25% of the fund's net assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the fund's investments in futures contracts and
options, and the fund's policies regarding futures contracts and options
discussed elsewhere in the Statement of Additional Information, may be
changed as regulatory changes permit.
FUTURES CONTRACTS. When the fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
the fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of the fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of the fund, the fund may
be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, the fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. The fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
COMBINED POSITIONS. The fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, the fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the fund's current or
anticipated investments exactly. The fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, the fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply with
guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of
the fund's assets could impede portfolio management or the fund's ability
to meet redemption requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the fund by FMR pursuant to authority contained in the management
contract. If FMR grants investment management authority to the
sub-advisers (see the section entitled "Management Contract"), the
sub-advisers are authorized to place orders for the purchase and sale of
portfolio securities, and will do so in accordance with the policies
described below. FMR is also responsible for the placement of transaction
orders for other investment companies and accounts for which it or its
affiliates act as investment adviser. In selecting broker-dealers, subject
to applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to: the size and type
of the transaction; the nature and character of the markets for the
security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. Generally, commissions for foreign
investments traded will be higher than for U.S. instruments and may not be
subject to negotiation.
The fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). The selection of such broker-dealers
generally is made by FMR (to the extent possible consistent with execution
considerations) based upon the quality of research and execution services
provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the fund may be useful to FMR in rendering investment management
services to the fund or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the fund or shares of other Fidelity funds
to the extent permitted by law. FMR may use research services provided by
and place agency transactions with Fidelity Brokerage Services, Inc. (FBSI)
and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of FMR Corp., if
the commissions are fair, reasonable, and comparable to commissions charged
by non-affiliated, qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
fund and review the commissions paid by the fund over representative
periods of time to determine if they are reasonable in relation to the
benefits to the fund.
For the fiscal periods ended July 31, 1994 and 1993, the fund's portfolio
turnover rates were 391 % and 324 %, respectively. Because a
high turnover rate increases transaction costs and may increase capital
gains, FMR carefully weighs the anticipated benefits of short-term
investing against these consequences.
For fiscal year 1994, 1993, and 1992, the fund paid no brokerage
commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the fund is concerned. In other cases,
however, the ability of the fund to participate in volume transactions will
produce better executions and prices for the fund. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to the fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
The fund's net asset value per share is determined by FSC under procedures
established by the Board of Trustees. Portfolio securities are valued
primarily on the basis of valuations furnished by a pricing service which
uses both dealer-supplied valuations and electronic data processing
techniques that take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Use of the pricing service
has been approved by the Board of Trustees. There are a number of pricing
services available, and the Trustees, or officers acting on behalf of the
Trustees, on the basis of ongoing evaluation of these services, may use
other pricing services or discontinue the use of any pricing service in
whole or in part.
Securities not valued by the pricing service and for which quotations are
readily available are valued at market values determined on the basis of
their latest available bid prices as furnished by recognized dealers in
such securities. Futures contracts and options are valued on the basis of
market quotations, if available. Securities and other assets for which
quotations or pricing service valuations 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.
PERFORMANCE
The fund may quote its performance in various ways. All performance
information supplied by the fund in advertising is historical and is not
intended to indicate future returns. The fund's share price, yield, and
total return fluctuate in response to market conditions and other
factors, and the value of fund shares when redeemed may be more or less
than their original cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing the fund's
interest incom e for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the fund's net asset value
( NAV ) at the end of the period, and annualizing the result
(assuming compounding of income) in order to arrive at an annual percentage
rate. Income is calculated for purposes of yield quotations in accordance
with standardized methods applicable to all stock and bond funds. Dividends
from equity investments are treated as if they were accrued on a daily
basis, solely for the purposes of yield calculations. In general, interest
income is reduced with respect to bonds trading at a premium over their par
value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For the fund's investments
denominated in foreign currencies, income and expenses are calculated first
in their respective currencies, and are then converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Income is adjusted to reflect gains and
losses from principal repayments received by the fund with respect to
mortgage-related securities and other asset-backed securities. Other
capital gains and losses generally are excluded from the calculation as are
gains and losses from currency exchange rate fluctuations.
Income calculated for the purposes of calculating the fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, the fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements.
Yield information may be useful in reviewing the fund's performance and in
providing a basis for comparison with other investment alternatives.
However, the fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates the
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years would
produce an average annual return of 7.18%, which is the steady annual rate
that would equal 100% growth on a compounded basis in ten years. While
average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the fund's performance is not
constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the fund.
In addition to average annual total returns, the fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and cumulative
total returns may be quoted as a percentage or as a dollar amount, and may
be calculated for a single investment, a series of investments, or a series
of redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration, and may omit or include the effect of the $5.00 account
closeout fee.
NET ASSET VALUE. Charts and graphs using the fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the fund
and reflects all elements of its return. Unless otherwise indicated, the
fund's adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following table shows the fund's yield and
total returns for periods ended July 31, 1994 . Total return figures
include the effect of the $5.00 account closeout fee based on an average
sized account.
Average Annual Total Return s Cumulative Total Returns*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
30-Day One Five Life of One Five Life of
Yield Year Year Fund* Year Year Fund**
5.84% 0.56% 6.99% 7.34% 0.56% 40.18% 55.68%
</TABLE>
* From May 2, 1988 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these periods,
the fund's total returns would have been lower.
The following table shows the income and capital elements of the fund's
cumulative total return. The table compares the fund's return to the record
of the Standard & Poor's Composite Price Index of 500 Stocks (S&P
500), the Dow Jones Industrial Average (DJIA), and the cost of living
(measured by the Consumer Price Index, or CPI) over the same period. The
CPI information is as of the month end closest to the initial investment
date for the fund. The S&P 500 and DJIA comparisons are provided to
show how the fund's total return compared to the record of a broad average
of common stocks and a narrower set of stocks of major industrial
companies, respectively, over the same period. Of course, since the fund
invests in fixed-income securities, common stocks represent a different
type of investment from the fund. Common stocks generally offer greater
growth potential than the fund, but generally experience greater price
volatility, which means greater potential for loss. In addition, common
stocks generally provide lower income than a fixed-income investment such
as the fund. Figures for the S&P 500 and DJIA are based on the prices of
unmanaged groups of stocks and, unlike the fund 's returns, do not
include the effect of paying brokerage commissions or other costs of
investing.
During the period from May 2, 1988 (commencement of operations) to
July 31, 1994, a hypothetical $10,000 investment in Spartan Limited
Maturity Government Fund would have grown to $ 15,565 , assuming all
distributions were reinvested and you closed your account . This was
a period of fluctuating interest rates and bond prices and the figures
below should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the fund
today.
SPARTAN LIMITED MATURITY GOVERNMENT FUND INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested
Period Ended $10,000 Income Capital Gain Total Cost of
7/31 Investment Distributions Distributions Value S&P DJIA Living*
1988(dagger) $ 9,880 $ 203 $ 0 $ 10,083 $ 10,508 $ 10,565 $ 10,120
1989 10,030 1,076 0 11,106 13,862 13,700 10,623
1990 9,930 2,008 0 11,938 14,762 15,535 11,136
1991 10,060 3,098 25 13,183 16,647 16,780 11,631
1992 10,180 4,055 105 14,340 18,778 19,396 11,998
1993 10,310 4,993 178 15,481 20,420 20,83 6 12,331
1994 9,610 5,462 498 15,570 21,473 22,777 12,673
</TABLE>
(dagger) From May 2, 1988 (commencement of operations).
* From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on May 2,
1988, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 16,207 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 4,482 for
income dividends and $ 360 for capital gain distributions. Tax
consequences of different investments have not been factored into the above
figures. The figures in the table do not reflect the effect of the fund's
$5 account closeout fee.
The fund's performance may be compared to the performance of other mutual
funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings prepared
by Lipper Analytical Services, Inc. (Lipper), an independent service
located in Summit, New Jersey which monitors the performance of mutual
funds. Lipper generally ranks funds on the basis of total return, assuming
reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank the funds based on yield. In addition to
the mutual fund rankings, the fund's performance may be compared to stock,
bond, and money market mutual fund performance indices prepared by Lipper
or other organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of investment.
For example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility. Likewise,
money market funds may offer greater stability of principal, but generally
do not offer the higher potential returns from stock mutual funds.
From time to time, the fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
The fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, the
fund may offer greater liquidity or higher potential returns than CDs, the
fund does not guarantee your principal or your return, and fund shares are
not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation based on the CPI , and combinations
of various capital markets. The performance of these capital markets is
based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark), which is
reported in the MONEY FUND REPORT(registered trademark), covers over
361 tax-free money market funds. The Bond Fund Report
AverageS(trademark)/All taxable, which is reported in the BOND FUND
REPORT(registered trademark), covers over 381 taxable bond funds.
When evaluating comparisons to money market funds, investors should
consider the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. The fund,
however, invests in longer-term instruments and its share price changes
daily in response to a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college or other
goals; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote or reprint financial or business publications and
periodicals, including model portfolios or allocations, as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the desirability
of owning a particular mutual fund, and Fidelity services and products.
Fidelity may also reprint, and use as advertising and sales literature,
articles from Fidelity Focus, a quarterly magazine provided free of charge
to Fidelity fund shareholders.
The fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. The fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, the fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program,
the investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares had been purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares through periods of low price levels.
The fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000
investment earning a taxable return of 10% annually would have an after-tax
value of $1,949 after ten years, assuming tax was deducted from the return
each year at a 31% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,100 after ten years, assuming tax was deducted at
a 31% rate from the tax-deferred earnings at the end of the ten-year
period.
As of July 31, 1994, FMR advised over $ 25 billion in tax-free fund
assets, $ 70 billion in money market fund assets, $ 155 billion
in equity fund assets, $ 35 billion in international fund assets, and
$ 20 billion in Spartan fund assets. The fund may reference the
growth and variety of money market mutual funds and the adviser's
innovation and participation in the industry. The equity funds under
management figure represents the largest amount of equity fund assets under
management by a mutual fund investment adviser in the United States, making
FMR America's leading equity (stock) fund manager. FMR, its subsidiaries,
and affiliates maintain a worldwide information and communications network
for the purpose of researching and managing investments abroad .
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1994 :
Washington's Birthday (observed), Good Friday, Memorial Day
(observe d ), Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day (observed). Although FMR expects the same holiday schedule,
with the addition of New Years Day to be observed in the future, the NYSE
may modify its holiday schedule at any time.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that portfolio securities are traded in other markets on days when
the NYSE is closed, the fund's NAV may be affected on days when investors
do not have access to the fund to purchase or redeem shares. In addition,
trading in some of the fund's portfolio securities may not occur on days
when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), the fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the prospectus, the fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. Because the fund's income is primarily derived from interest,
dividends from the fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do not
qualify for the dividends received deduction. A portion of the fund's
dividends derived from certain U.S. government obligations may be exempt
from state and local taxation. Mortgage security paydown gains (losses) are
generally taxable as ordinary income and, therefore, increase (decrease)
taxable dividend distributions. Gains (losses) attributable to foreign
currency fluctuations are generally taxable as ordinary income, and
therefore will increase (decrease) dividend distributions. The fund will
send each shareholder a notice in January describing the tax status of
dividend and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains regardless of the length of time that
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund and such shares are held
six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
the fund are taxable to shareholders as dividends, not as capital gains.
The fund hereby designates approximately $29,000 as a capital gain dividend
for the purpose of the dividend-paid deduction.
STATE AND LOCAL TAX ISSUES. For mutual funds organized as business trusts,
state law provides for a pass-through of the state and local income tax
exemption afforded to direct owners of U.S. government securities. Some
states limit this pass through to mutual funds that invest a certain amount
in U.S. government securities, and some types of securities, such as
repurchase agreements and some agency backed securities, may not qualify
for this benefit. The tax treatment of your dividend distributions from the
fund will be the same as if you directly owned your proportionate share of
the U.S. government securities in the fund's portfolio. Because the income
earned on most U.S. government securities in which the fund invests is
exempt from state and local income taxes, the portion of your dividends
from the fund attributable to these securities will also be free from
income taxes. The exemption from state and local income taxation does not
preclude states from assessing other taxes on the ownership of U.S.
government securities. In a number of states, corporate franchise
(income) tax laws do not exempt interest earned on U.S. government
securities whether such securities are held directly or through a fund.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities typically at a rate
between 10% and 35%. Foreign governments may also impose taxes on other
payments or gains with respect to foreign securities. If, at the close of
its fiscal year, more than 50% of the fund's total assets are invested in
securities of foreign issuers, the fund may elect to pass through foreign
taxes paid and thereby allow shareholders to take a credit or deduction on
their individual tax returns.
TAX STATUS OF THE FUND. The fund intends to qualify each year
as a "regulated investment company" for tax purposes so that it
will not be liable for federal tax on income and capital gains distributed
to shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund
level , the fund intends to distribute substantially all its net
investment income and net realized capital gains within each
calendar year was well as on a fiscal year basis. The fund intends to
comply with other tax rules applicable to regulated investment companies,
including a requirement that capital gains from the sale of securities held
for less than three months constitute less than 30% of the fund's gross
income for each fiscal year. Gains from some forward currency contracts,
futures contracts, and options are included in the 30% calculation, which
may limit the fund's investment in such instruments.
The fund is treated as a separate entity from the other portfolios of
Fidelity Income Fund for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions and shares may be subject to
state and local personal property taxes. Investors should consult their
tax advisers to determine whether the fund is suitable to their particular
tax situation.
FMR
FMR is a wholly owned subsidiary of FMR Corp ., it's ultimate parent
company organized in 1972. Through ownership of voting common stock and
the execution of a shareholders' voting agreement, Edward C. Johnson 3d,
Johnson family members, and various trusts for the benefit of the Johnson
family form a controlling group with respect to FMR Corp. At present,
the principal operating activities of FMR Corp. are those conducted by
three of its divisions as follows: FSC, which is the transfer and
shareholder servicing agent for certain of the Funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for certain institutional customers; and
Fidelity Investments Retail Marketing Company, which provides marketing
services to various companies within the Fidelity organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. FMR U.K. and FMR Far East , both wholly
owned subsidiaries of FMR formed in 1986, supply investment research, and
may supply portfolio management services, to FMR in connection with certain
funds advised by FMR. Analysts employed by FMR, FMR U.K., and FMR Far East
research and visit thousands of domestic and foreign companies each year.
FMR Texas Inc., a wholly owned subsidiary of FMR formed in 1989, supplies
portfolio management and research services in connection with certain money
market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. Unless
otherwise noted, the business address of each Trustee and officer is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the address
of FMR. Those Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) by virtue of their affiliation with either
the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a
consultant to Western Mining Corporation (1994). Prior to February 1994, he
was President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Until March 1990, Mr. Cox was President and Chief
Operating Officer of Union Pacific Resources Company (exploration and
production). He is a Director of Sanifill Corporation (non-hazardous waste,
1993) and CH2M Hill Companies (engineering). In addition, he served on the
Board of Directors of the Norton Company (manufacturer of industrial
devices, 1983-1990) and continues to serve on the Board of Directors of the
Texas State Chamber of Commerce, and is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992). Prior
to her retirement in September 1991, Mrs. Davis was the Senior Vice
President of Corporate Affairs of Avon Products, Inc. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM,
Inc. (manufacturer of chemical products, 1990). In addition, he serves as a
Trustee of First Union Real Estate Investments, Chairman of the Board of
Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the Financial
Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company. He
is a Director of Allegheny Power Systems, Inc. (electric utility), General
Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). In
addition, he serves as a Trustee of Corporate Property Investors, the EPS
Foundation at Trinity College, the Naples Philharmonic Center for the Arts,
and Rensselaer Polytechnic Institute, and he is a member of the Advisory
Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership
Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
("IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company of
Vermont, American Software, Inc. (1989), and AppleSouth, Inc. (restaurants,
1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and Senior
Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
CURTIS HOLLINGSWORTH is manager and Vice President of Spartan Limited
Maturity Government, which he has managed since May 1988. Mr. Hollingsworth
also manages Advisor Government Investment, Government Securities, Fidelity
Short-Intermediate Government, Institutional Short-Intermediate Government,
Spartan Long-Term Government Bond, and Spartan Short-Intermediate
Government. Mr. Hollingsworth joined Fidelity in 1983.
ARTHUR S. LORING, Secretary, is Senior Vice President and General Counsel
of FMR, Vice President-Legal of FMR Corp., and Vice President and Clerk of
FDC.
THOMAS J. STEFFANCI, Vice President (1994), is Vice President of
Fidelity's fixed-income funds and Senior Vice President of FMR (1993).
Prior to joining FMR, Mr. Steffanci was Senior Managing Director of CMB
Investment Counselors (1984-1990).
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the fund based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of July 31, 1994, FMR and its affiliates owned approximately 5 .3 %
of the total outstanding shares. Mr. Edward C. Johnson 3d, President
and a Trustee of the Trust, by virtue of his controlling interest in FMR
Corp., may be considered a beneficial owner of these shares. Also as of
this date, the other Trustees and officers owned, in the aggregate, less
than 1% of the f und's total outstanding shares .
MANAGEMENT CONTRACT
The fund employs FMR to furnish investment advisory and other services.
Under FMR's management contract with the fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of the fund in accordance with its investment objective,
policies, and limitations. FMR also provides the fund with all necessary
office facilities and personnel for servicing the fund's investments, and
compensates all officers of the trust, all Trustees who are "interested
persons" of the trust or FMR, and all personnel of the trust or FMR
performing services relating to research, statistical, and investment
activities. In addition, FMR or its affiliates, subject to the supervision
of the Board of Trustees, provide the management and administrative
services necessary for the operation of the fund. These services include
providing facilities for maintaining the fund's organization; supervising
relations with custodians, transfer and pricing agents, accountants,
underwriters, and other persons dealing with the fund; preparing all
general shareholder communications and conducting shareholder relations;
maintaining the fund's records and the registration of the fund's shares
under federal and state law; developing management and shareholder services
for the fund; and furnishing reports, evaluations, and analyses on a
variety of subjects to the Board of Trustees.
FMR is responsible for the payment of all expenses of the fund with certain
exceptions. Specific expenses payable by FMR include, without limitation,
the fees and expenses of registering and qualifying the trust, the fund,
and its shares for distribution under federal and state securities laws;
expenses of typesetting for printing the Prospectus and Statement of
Additional Information; custodian charges ; audit and legal expenses;
insurance expense; association membership dues; and the expenses of mailing
reports to shareholders, shareholder meetings, and proxy solicitations. FMR
also provides for transfer agent and dividend disbursing services and
portfolio and general accounting record maintenance through Fidelity
Service Co. (FSC).
FMR pays all other expenses of the fund with the following exceptions: fees
and expenses of all trustees who are not "interested persons" of the trust
or of FMR (the non-interested Trustees); interest on borrowings; taxes;
brokerage commissions (if any); and such non-recurring expenses as may
arise, including costs of any litigation to which the fund may be a party,
and any obligation it may have to indemnify the officers and Trustees with
respect to litigation.
FMR is the fund's manager pursuant to a management contract dated December
1, 1990, which was approved by the fund's shareholders on November 14,
1990. For the services of FMR under the current contract, the fund pays FMR
a monthly management fee at the annual rate of .65% of the fund's average
net assets throughout the month. FMR reduces its fee by an amount equal to
the fees and expenses of the non-interested Trustees.
Prior to December 1, 1990, FMR was the fund's manager pursuant to a
management contract, dated November 28, 1988. For the services of FMR under
that contract, the fund paid FMR a monthly management fee composed of two
elements: a group fee rate and an individual fund fee rate. The group fee
rate was based on the average monthly net assets of all the registered
investment companies with which FMR had management contracts and was
calculated on a cumulative basis pursuant to the graduated schedule that
ranged from .15% to .37%. The individual fund fee rate was .30%.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operating expenses (excluding interest, taxes, brokerage
commissions, and extraordinary expenses). Expense limitations in effect
since July 15, 1990 are indicated in the table below. Also indicated below
are the gross management fees incurred by the fund and the amounts
reimbursed by FMR during the fiscal years ended July 31, 1994, 1993, and
1992.
From To Expense Limitation
July 15, 1990 November 30, 1990 .65%
January 1, 1991 February 28, 1991 .30%
March 1, 1991 June 30, 1991 .45%
July 1, 1991 September 18, 1991 .55%
September 19, 1991 October 21, 1991 .00%
October 22, 1991 -- .65%
Management Fees Amount of
Fiscal Period Ended Before Reimbursement Reimbursement
1994 $ 8,474,000 $ 0
1993 $ 10,737, 000 $ 0
1992 $ 11,091, 000 $ 790, 000
To defray shareholder service costs, effective December 1, 1990, FMR or its
affiliates also collect the Fund's $5.00 exchange fee, $5.00 account
closeout fee, and $5.00 fee for wire purchases and redemptions and $2.00
checkwriting charge. Shareholder transaction fees and charges collected for
the fiscal years ended July 31 are indicated in the table on the following
page.
Fiscal Period Exchange Account Wire Checkwriting
Ended Fee Closeout Fee Fees Charges
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1994 $ 66,000 $ 4,000 $ 4,000 $ 1,000
1993 $ 12 2,000 $ 6, 000 $ 1 2,000 $ 1,000
1992 $ 169, 000 $ 5 ,000 $ 12 ,000 N/A
</TABLE>
SUB-ADVISERS. FMR has entered into sub-advisory agreements with FMR U.K.
and FMR Far East. Pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from the
sub-advisers. FMR may also grant the sub-advisers investment
management authority as well as the authority to buy and sell securities if
FMR believes it would be beneficial to the fund.
Currently, FMR U.K. and FMR Far East each focus on issuers in countries
other than the United States such as those in Europe and Asia. FMR U.K. and
FMR Far East are wholly owned subsidiaries of FMR. Under the sub-advisory
agreements FMR pays the fees of FMR U.K. and FMR Far East. For providing
non-discretionary investment advice and research services, the sub-advisers
are compensated as follows: FMR pays FMR U.K. and FMR Far East fees equal
to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services. For providing discretionary investment management and executing
portfolio transactions . FMR pays FMR U.K. and FMR Far East a fee
equal to 50% of its monthly management fee with respect to the fund's
average net assets managed by the sub-adviser on a discretionary basis.
For the fiscal years ended July 31, 1994, 1993, and 1992, no fees were paid
by FMR to FMR U.K. or FMR Far East on behalf of the fund.
DISTRIBUTION AND SERVICE PLAN
The fund has adopted a distribution and service plan (the p lan)
under Rule 12b-1 of the Investment Company Act of 1940 (the Rule). The Rule
provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan adopted by the
fund under the Rule. The Board of Trustees has adopted the p lan to
allow the fund and FMR to incur certain expenses that might be considered
to constitute indirect payment by the fund of distribution expenses. Under
the p lan, if the payment of management fees by the fund to FMR is
deemed to be indirect financing by the fund of the distribution of its
shares, such payment is authorized by the p lan.
The p lan also specifically recognizes that FMR, either directly or
through FDC, may use its management fee revenue, past profits, or other
resources, without limitation, to pay promotional and administrative
expenses in connection with the offer and sale of shares of the fund. In
addition, the p lan provides that FMR may use its resources,
including its management fee revenues, to make payments to third parties
that provide assistance in selling shares of the fund, or to third parties,
including banks, that render shareholder support services. Payments made by
FMR to third parties during the fiscal years, ended July 31, 1994, 1993 and
1992 amounted to $ 0 , $ 1,000 , and $ 1,000 .
The fund's p lan has been approved by the Trustees. As required by
the Rule, the Trustees carefully considered all pertinent factors relating
to the implementation of the p lan prior to its approval, and have
determined that there is a reasonable likelihood that the p lan will
benefit the fund and its shareholders. In particular, the Trustees noted
that the p lan does not authorize payments by the fund other than
those made to FMR under its management contract with the fund. To the
extent that the p lan gives FMR and FDC greater flexibility in
connection with the distribution of shares of the fund, additional sales of
the fund's shares may result. Additionally, certain shareholder support
services may be provided more effectively under the p lan by local
entities with whom shareholders have other relationships. The p lan
was approved by shareholders on November 15, 1988.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.
The fund may execute portfolio transactions with and purchase securities
issued by depository institutions that receive payments under the plan. No
preference for the instruments of such depository institutions will be
shown in the selection of investments. In addition, state securities laws
on this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
FSC performs transfer agency, dividend disbursing, and shareholder
servicing functions for the fund, the costs of these services are
borne by FMR pursuant to its management contract with the fund. FSC also
calculates the fund's net asset value per share and dividends,
maintains its general accounting records, and administers the fund's
securities lending program. The cost of these services also are borne by
FMR pursuant to its management contract with the fund.
The fund has a Distribution Agreement with FDC, a Massachusetts corporation
organized July 18, 1960. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The Distribution Agreement calls for FDC to use
all reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered at net
asset value. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
Spartan Limited Maturity Government Fund is a fund of Fidelity Income Fund
(the trust), an open-end management investment company originally organized
as a Massachusetts business trust on August 7, 1984. On October 25, 1985,
the trust's name was changed from Fidelity Mortgage Securities Fund to
Fidelity Income Fund. Currently there are three funds of the trust:
Fidelity Ginnie Mae Portfolio, Fidelity Mortgage Securities Portfolio, and
Spartan Limited Maturity Government Fund. The Declaration of Trust permits
the Trustees to create additional funds.
In the event that FMR ceases to be the investment adviser of the trust or
fund, the right of the trust or fund to use the identifying names
"Fidelity" or "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of the shares of
each fund and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general liabilities of the trust. Expenses with respect to the trust are to
be allocated in proportion to the assets of the respective funds except
where allocations of direct expenses can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which liabilities are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, the holders of the
shares of each fund are entitled to receive as a class the underlying
assets of such fund available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of
Trust provides that the trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
trust or the Trustees include a provision limiting the obligations created
thereby to the trust and its assets. The Declaration of Trust provides for
indemnification out of each fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of Trust
also provides that each fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the fund
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which a fund itself would be unable to meet its
obligations. FMR believes that, in view of the above, the risk of personal
liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value per share you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of redemption,
and the privilege of exchange are described in the Prospectus. Shares are
fully paid and nonassessable, except as set forth under the heading
"Shareholder and Trustee Liability" above. Shareholders representing 10% or
more of the trust or a fund may, as set forth in the Declaration of Trust,
call meetings of the trust or a fund for any purpose related to the trust
or fund, as the case may be, including, in the case of a meeting of the
entire trust, the purpose of voting on removal of one or more Trustees. The
trust or any fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and
distribution of its assets, if approved by vote of the holders of a
majority of the trust or the fund, as determined by the current value of
each shareholder's investment in the fund or trust. If not so terminated,
the trust and its funds will continue indefinitely. Each fund may invest
all of its assets in another investment company.
CUSTODIAN. Bank of New York, 110 Washington Street, New York, New York, is
custodian of the assets of the fund. The custodian is responsible for the
safekeeping of the fund's assets and the appointment of the subcustodian
bank and clearing agencies. The custodian takes no part in determining
investment policies of the fund or in deciding which securities are
purchased or sold by the fund. The fund may, however, invest in obligations
of the custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the trust's
Trustees may from time to time have transactions with various banks,
including banks serving as custodians for certain of the funds advised by
FMR. Transactions that have occurred to date include mortgages and personal
and general business loans. In the judgment of FMR, the terms and
conditions of those transactions were not influenced by existing or
potential custodial or other fund relationships.
AUDITOR. Price Waterhouse LLP , 160 Federal Street, Boston,
Massachusetts, serves as the trust's independent accountant. The auditor
examines financial statements for the funds and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal
year ended July 31, 1994 are included in the fund's Annual Report, which is
a separate report supplied with this Statement of Additional Information.
The fund's financial statements and financial highlights are incorporated
herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities, such as collateralized mortgage obligations, are determined on
a weighted average life basis, which is the average time for principal to
be repaid. For a mortgage security, this average time is calculated by
assuming a constant prepayment rate for the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
FIDELITY INCOME FUND:
FIDELITY GINNIE MAE PORTFOLIO
FIDELITY MORTGAGE SECURITIES PORTFOLIO
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance;
Who May Want to Invest
3 a .............................. Financial Highlights
b .............................. *
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment
Principles and Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment
Principles and Risks
5 a .............................. Charter
b i............................. Cover Page, Doing Business with
Fidelity; Charter, The Funds at a
Glance
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. Charter
d .............................. Charter, Breakdown of Expenses
e .............................. Cover Page, Charter
f .............................. Expenses
g i............................. Charter
.
ii............................ *
..
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell
Shares; Transaction Details;
Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Transaction Details, Exchange
Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How
to Buy Shares; How to Sell Shares;
Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. How to Buy Shares; Transaction
Details, Expenses
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor
Services; Transaction Details;
Exchange Restrictions
9 .............................. *
</TABLE>
Not applicable
FIDELITY INCOME FUND:
FIDELITY GINNIE MAE PORTFOLIO
FIDELITY MORTGAGE SECURITIES PORTFOLIO
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trust
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR, Portfolio Transactions
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Contracts with Companies Affiliated
with FMR
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trust
i ............................ Contracts with Companies Affiliated
with FMR
17 a ............................ Portfolio Transactions
b ............................ Portfolio Transactions
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trust
b ............................ *
19 a ............................ Additional Purchase and Redemption
Information
b ............................ Additional Purchase and Redemption
Information; Valuation of Portfolio
Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with Companies Affiliated
with FMR
c ............................ *
22 ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about the funds and their investments, you can obtain a
copy of each fund's most recent financial report and portfolio listing, or
a copy of the Statement of Additional Information (SAI) dated September 19,
1994. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, the Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal.
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
MOG/MOR-pro-99
4
These funds seek high current income. Ginnie Mae invests mainly in
securities issued by the Government National Mortgage Association, while
Mortgage Securities has broader flexibility to invest in any type of
mortgage security.
FIDELITY
GINNIE MAE
PORTFOLIO
AND
FIDELITY
MORTGAGE
SECURITIES
PORTFOLIO
PROSPECTUS
(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA 02109SEPTEMBER 19,
1994
CONTENTS
KEY FACTS THE FUNDS AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES Each fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of each fund's financial data.
PERFORMANCE How each fund has
done over time.
THE FUNDS IN DETAIL CHARTER How each fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
Each fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account,
including tax-sheltered retirement
plans.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS, AND
ACCOUNT POLICIES TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUNDS AT A GLANCE
GOAL: High current income. As with any mutual fund, there is no assurance
that a fund will achieve its goal.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. Foreign affiliates of FMR may help
choose investments for the funds.
GINNIE MAE
STRATEGY: Invests mainly in mortgage securities issued by the Government
National Mortgage Association (Ginnie Maes).
SIZE: As of July 31, 1994, the fund had over $ 750 million in assets.
MORTGAGE SECURITIES
STRATEGY: Invests mainly in mortgage-related securities of all kinds.
SIZE: As of July 31, 1994 the fund had over $360 million in assets.
WHO MAY WANT TO INVEST
Either fund may be appropriate for investors who seek high current income
from a portfolio of mortgage-related securities. Ginnie Mae invests mainly
in securities that are fully guaranteed by the U.S. government. Since
Mortgage Securities can invest in all kinds of mortgage-related securities
and may invest in lower-quality securities, it has the potential for higher
yields, but also carries a higher degree of risk.
These funds do not constitute a balanced investment plan. The value
o f each fund 's investments and the income they
generate varies from day to day, generally reflecting changes in
interest rates, market conditions, and other political and economic news.
Each fund ' s investments are also subject to prepayments,
which can lower the fund ' s yield, particularly in periods of
declining interest rates. When you sell your shares, they may be worth more
or less than what you paid for them.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The
funds in this prospectus are
in the INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports. A fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
GINNIE MAE
Management fee .46 %
12b-1 fee None
Other expenses .36 %
Total fund operating expenses .82 %
MORTGAGE SECURITIES
Management fee .46 %
12b-1 fee None
Other expenses .33 %
Total fund operating expenses .79 %
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses if you
close your account after the number of years indicated:
GINNIE MAE
After 1 year $ 8
After 3 years $ 26
After 5 years $ 46
After 10 years $ 10
1
MORTGAGE SECURITIES
After 1 year $ 8
After 3 years $ 25
After 5 years $ 44
After 10 years $ 98
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FINANCIAL HIGHLIGHTS
The tables that follow are included in each fund's Annual Report and have
been audited by Price Waterhouse, LLP, independent accountants.
Their reports on the financial statements and financial highlights are
included in the Annual Reports. The financial statements and financial
highlights are incorporated by reference into (are legally a part of) the
funds' Statement of Additional Information.
FIDELITY GINNIE MAE PORTFOLIO
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17.Selected Per-Share Data
and Ratios
18.Years Ended July 1986A 1987 1988 1989 1990 1991 1992 1993 1994
31
19.Net asset value, $ 10.0 $ 10.5 $ 10.2 $ 10.0 $ 10.4 $ 10.3 $ 10.6 $ 11.0 $ 11.2
beginning of period 00 80 30 20 20 70 50 60 60
20.Income from .719 .874 .864 .916 .891 .845 .833 .800 .582F
Investment
Operations
Net investment
income
21. Net realized and .580 (.340) (.210) .322 (.099) .288 .373 .083 (.650)
unrealized
gain (loss) on
investments
22. Total from 1.299 .534 .654 1.238 .792 1.133 1.206 .883 (.068)
investment operations
23.Less Distributions (.719) (.874) (.864) (.838) (.842) (.853) (.796) (.683) (.582)
From net investment
income
24. From net -- (.010) -- -- -- -- -- -- (.190)
realized
gain on investments
25. In excess of net -- -- -- -- -- -- -- -- (.060)
realized
gain on investments
26. Total (.719) (.884) (.864) (.838) (.842) (.853) (.796) (.683) (.832)
distributions
27.Net asset value, $ 10.5 $ 10.2 $ 10.0 $ 10.4 $ 10.3 $ 10.6 $ 11.0 $ 11.2 $ 10.3
end of period 80 30 20 20 70 50 60 60 60
28.Total return D,E 13.26 5.06% 6.68% 13.00 8.01% 11.36 11.65 8.23% (.63)
% % % % %
29.Net assets, end of $ 653 $ 869 $ 722 $ 651 $ 658 $ 797 $ 914 $ 976 $ 769
period
(in millions)
30.Ratio of expenses .75%B .79% .87% .85% .83% .83% .80% .80% .82%
to
average net assets B
31.Ratio of expenses 1.06% .87% .87% .85% .83% .83% .80% .80% .82%
to average net assets B,C
before expense
reductions
32.Ratio of net 9.13% 8.28% 8.57% 9.03% 8.71% 8.24% 7.73% 7.26% 7.03%
investment income B
to average net assets
33.Portfolio turnover 106% 177% 361% 291% 96% 125% 114% 259% 303%
rate B
</TABLE>
A FOR THE PERIOD NOVEMBER 8, 1985 (COMMENCEMENT OF OPERATIONS) TO JULY 31,
1986.
B ANNUALIZED
C LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION REGULATION.
D TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
E THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD THE ADVISOR NOT REIMBURSED
CERTAIN EXPENSES DURING THE PERIODS SHOWN.
F THE AMOUNT SHOWN REFLECTS CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
FIDELITY MORTGAGE SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
34.Selected Per-Share Data
and Ratios
35.Years Ended
1985A 1986 1987 1988 1989 1990 1991 1992 1993 1994
July 31
36.Net asset
$ 9.81 $ 10.1 $ 10.4 $ 10.1 $ 9.91 $ 10.2 $ 10.2 $ 10.4 $ 10.8 $ 10.9
value, beginning
0 00 90 00 0 60 20 80 30 10
of period
37.Income from
.699 1.063 .912 .898 .875 .896 .861 .808 .788 .570E
Investment
Operations
Net investment
income
38. Net realized
.290 .390 (.360) (.224) .306 (.119) .255 .313 (.007) (.242)
and
unrealized gain
(loss)
on investments
39. Total from
.989 1.453 .552 .674 1.181 .777 1.116 1.121 .781 .328
investment
operations
40.Less
(.699) (1.06 (.912) (.864) (.831) (.817) (.856) (.771) (.701) (.588)
Distributions 3)
From net
investment
income
41. From net
-- -- (.030) -- -- -- -- -- -- (.040)
realized gain
on investment
42. In excess of
- -- -- -- -- -- -- -- -- -- (.030)
net realized
gain on
investments
43. Total
(.699) (1.06 (.942) (.864) (.831) (.817) (.856) (.771) (.701) (.658)
distributions 3)
44.Net asset
$ 10.1 $ 10.4 $ 10.1 $ 9.91 $ 10.2 $ 10.2 $ 10.4 $ 10.8 $ 10.9 $ 10.5
value, end
00 90 00 0 60 20 80 30 10 80
of period
45.Total
10.37 14.98 5.35 6.97 12.53 7.98 11.38 10.98 7.47 3.13
return C,D
% % % % % % % % % %
46.Net assets,
$ 141 $ 643 $ 603 $ 485 $ 421 $ 387 $ 410 $ 441 $ 419 $ 366
end of period (in
millions)
47.Ratio of
.75% .75% .80% .90% .88% .82% .82% .80% .76% .79%
expenses to
B
average net
assets
48.Ratio of
1.36 .95% .85% .90% .88% .82% .82% .80% .76% .79%
expenses to
%B
average net
assets before
expense
reductions
49.Ratio of net
11.53 10.11 8.79 8.96 8.72 8.78 8.39 7.57 7.18 6.73
investment
%B % % % % % % % % %
income to
average net
assets
50.Portfolio
72%B 59% 160% 245% 271% 110% 209% 146% 278% 563%
turnover rate
</TABLE>
A FOR THE PERIOD DECEMBER 31, 1984 (COMMENCEMENT OF OPERATIONS) TO JULY 31,
1985.
B ANNUALIZED
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD THE ADVISOR NOT REIMBURSED
CERTAIN EXPENSES DURING THE PERIODS SHOWN.
E THE AMOUNT SHOWN REFLECTS CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The total
returns and yields that follow are based on historical fund results and do
not reflect the effect of taxes.
Each fund's fiscal year runs from August 1 through July 31. The tables
below show each fund's performance over past fiscal years compared to a
measure of inflation. The charts on page 7 help you compare the yields of
these funds to those of their competitors.
GINNIE MAE
Fiscal periods Pas Past Life
ended t 1 5 of
July 31, 1994 yea year fund
r s A
Average -0.63 7.63 8.70
annual % % %
total return
Cumulative -0.63 44.43 107.17
total return % % %
Consumer 2.77 19.29 36.52
Price % % %
Index
MORTGAGE SECURITIES
Fiscal periods Pas Past Life
ended t 1 5 of
July 31, 1994 yea year fund
r s B
Average 3.13 8.15 9.47
annual % % %
total return
Cumulative 3.13 47.94 138.10
total return % % %
Consumer 2.77 19.29 40.93
Price % % %
Index
A FROM NOVEMBER 8, 1985
B FROM DECEMBER 31, 1984
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
UNDERSTANDING
PERFORMANCE
Because these funds invest in
fixed-income securities, their
performance is related to
changes in interest rates.
Funds that hold short-term
bonds are usually less affected
by changes in interest rates
than long-term bond funds. For
that reason, long-term bond
funds typically offer higher
yields and carry more risk than
short-term bond funds.
(checkmark)
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield
may not equal the income actually paid to shareholders.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
THE COMPETITIVE FUNDS AVERAGES, which assume reinvestment of distributions,
are published by Lipper Analytical Services, Inc. Ginnie Mae
compare s i t s performance to the Lipper Ginnie Mae
Funds Average and Mortgage Securities compares its performance to the
Lipper U.S. Mortgage Funds Average. These averages currently reflect
the performance of over 48 and 58 mutual funds , respectively,
with similar objectives.
GINNIE MAE
30-day yields
Percentage (%)
Row: 1, Col: 1, Value: 7.59
Row: 1, Col: 2, Value: 7.13
Row: 2, Col: 1, Value: 7.37
Row: 2, Col: 2, Value: 7.13
Row: 3, Col: 1, Value: 7.23
Row: 3, Col: 2, Value: 7.13
Row: 4, Col: 1, Value: 6.970000000000001
Row: 4, Col: 2, Value: 7.04
Row: 5, Col: 1, Value: 6.92
Row: 5, Col: 2, Value: 6.970000000000001
Row: 6, Col: 1, Value: 7.06
Row: 6, Col: 2, Value: 6.94
Row: 7, Col: 1, Value: 6.96
Row: 7, Col: 2, Value: 6.79
Row: 8, Col: 1, Value: 6.970000000000001
Row: 8, Col: 2, Value: 6.71
Row: 9, Col: 1, Value: 6.74
Row: 9, Col: 2, Value: 6.54
Row: 10, Col: 1, Value: 6.649999999999999
Row: 10, Col: 2, Value: 6.48
Row: 11, Col: 1, Value: 6.33
Row: 11, Col: 2, Value: 6.5
Row: 12, Col: 1, Value: 6.59
Row: 12, Col: 2, Value: 6.42
Row: 13, Col: 1, Value: 6.34
Row: 13, Col: 2, Value: 6.2
Row: 14, Col: 1, Value: 6.4
Row: 14, Col: 2, Value: 6.44
Row: 15, Col: 1, Value: 6.78
Row: 15, Col: 2, Value: 6.470000000000001
Row: 16, Col: 1, Value: 6.31
Row: 16, Col: 2, Value: 6.25
Row: 17, Col: 1, Value: 5.92
Row: 17, Col: 2, Value: 5.609999999999999
Row: 18, Col: 1, Value: 5.26
Row: 18, Col: 2, Value: 5.54
Row: 19, Col: 1, Value: 5.26
Row: 19, Col: 2, Value: 5.25
Row: 20, Col: 1, Value: 6.21
Row: 20, Col: 2, Value: 5.3
Row: 21, Col: 1, Value: 5.23
Row: 21, Col: 2, Value: 5.29
Row: 22, Col: 1, Value: 5.46
Row: 22, Col: 2, Value: 5.33
Row: 23, Col: 1, Value: 5.57
Row: 23, Col: 2, Value: 5.25
Row: 24, Col: 1, Value: 5.37
Row: 24, Col: 2, Value: 5.03
Row: 25, Col: 1, Value: 5.3
Row: 25, Col: 2, Value: 4.87
Row: 26, Col: 1, Value: 5.35
Row: 26, Col: 2, Value: 5.18
Row: 27, Col: 1, Value: 5.75
Row: 27, Col: 2, Value: 5.5
Row: 28, Col: 1, Value: 5.63
Row: 28, Col: 2, Value: 5.54
Row: 29, Col: 1, Value: 6.26
Row: 29, Col: 2, Value: 5.659999999999999
Row: 30, Col: 1, Value: 6.619999999999999
Row: 30, Col: 2, Value: 6.07
Ginnie Mae
Competitive
funds average
1992
1993
1994
MORTGAGE SECURITIES
30-day yields
Percentage (%)
Row: 1, Col: 1, Value: 7.53
Row: 1, Col: 2, Value: 7.24
Row: 2, Col: 1, Value: 7.44
Row: 2, Col: 2, Value: 7.5
Row: 3, Col: 1, Value: 7.41
Row: 3, Col: 2, Value: 7.33
Row: 4, Col: 1, Value: 7.319999999999999
Row: 4, Col: 2, Value: 7.03
Row: 5, Col: 1, Value: 7.21
Row: 5, Col: 2, Value: 6.99
Row: 6, Col: 1, Value: 6.74
Row: 6, Col: 2, Value: 7.21
Row: 7, Col: 1, Value: 6.92
Row: 7, Col: 2, Value: 7.4
Row: 8, Col: 1, Value: 6.98
Row: 8, Col: 2, Value: 7.19
Row: 9, Col: 1, Value: 6.8
Row: 9, Col: 2, Value: 7.07
Row: 10, Col: 1, Value: 7.27
Row: 10, Col: 2, Value: 6.930000000000001
Row: 11, Col: 1, Value: 7.13
Row: 11, Col: 2, Value: 7.24
Row: 12, Col: 1, Value: 6.73
Row: 12, Col: 2, Value: 6.88
Row: 13, Col: 1, Value: 6.33
Row: 13, Col: 2, Value: 6.7
Row: 14, Col: 1, Value: 6.04
Row: 14, Col: 2, Value: 6.930000000000001
Row: 15, Col: 1, Value: 6.51
Row: 15, Col: 2, Value: 6.75
Row: 16, Col: 1, Value: 6.07
Row: 16, Col: 2, Value: 6.2
Row: 17, Col: 1, Value: 6.25
Row: 17, Col: 2, Value: 5.83
Row: 18, Col: 1, Value: 5.77
Row: 18, Col: 2, Value: 5.659999999999999
Row: 19, Col: 1, Value: 5.430000000000001
Row: 19, Col: 2, Value: 5.619999999999999
Row: 20, Col: 1, Value: 5.619999999999999
Row: 20, Col: 2, Value: 5.42
Row: 21, Col: 1, Value: 5.88
Row: 21, Col: 2, Value: 5.22
Row: 22, Col: 1, Value: 5.78
Row: 22, Col: 2, Value: 5.63
Row: 23, Col: 1, Value: 5.84
Row: 23, Col: 2, Value: 5.319999999999999
Row: 24, Col: 1, Value: 6.0
Row: 24, Col: 2, Value: 5.51
Row: 25, Col: 1, Value: 5.98
Row: 25, Col: 2, Value: 5.08
Row: 26, Col: 1, Value: 5.72
Row: 26, Col: 2, Value: 5.319999999999999
Row: 27, Col: 1, Value: 6.3
Row: 27, Col: 2, Value: 5.609999999999999
Row: 28, Col: 1, Value: 6.18
Row: 28, Col: 2, Value: 5.9
Row: 29, Col: 1, Value: 5.74
Row: 29, Col: 2, Value: 5.98
Row: 30, Col: 1, Value: 7.18
Row: 30, Col: 2, Value: 6.09
Mortgage
Securities
Competitive
funds average
1993
1992
1994
THE CHARTS SHOW THE 30-DAY ANNUALIZED NET YIELDS FOR THE FUNDS AND
THEIR COMPETITIVE FUNDS AVERAGES AS OF THE LAST DAY OF EACH MONTH FROM
JANUARY 1992 THROUGH JUNE 1994.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. In technical terms, each fund is
currently a diversified fund of Fidelity Income Fund, an open-end
management investment company organized as a Massachusetts business trust
on August 7, 1984.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses their investments and handles
their business affairs. Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, and Fidelity Management & Research (Far East)
Inc. (FMR Far East), in Tokyo, Japan, assist FMR with foreign investments.
Robert Ives is manager of Ginnie Mae, which he has managed since January
1993. Mr. Ives also manages Spartan Ginnie Mae and Spartan Government
Income. Mr. Ives joined Fidelity in 1991, after receiving an M.B.A. from
the University of Chicago. Previously, Mr. Ives was a consultant to the
U.S. Air force for MITRE Corp. , and an engineer at Bell Labs.
Kevin Grant is manager of Mortgage Securities, which he has managed since
August 1993. He is a former vice president and chief strategist for
mortgage-backed securities at Morgan Stanley. Previously, Mr. Grant served
as an investment director at Aetna Bond Investors.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR, FMR Far East and
FMR U.K. Through ownership of voting common stock, members of the
Edward C. Johnson 3d family form a controlling group with respect to
FMR Corp. Changes may occur in the Johnson family group, through death
or disability, which would result in changes in each individual family
member's holding of stock. Such changes could result in one or more family
members becoming holders of over 25% of the stock. FMR Corp. has received
an opinion of counsel that changes in the composition of the Johnson family
group under these circumstances would not result in the termination of the
funds' management or distribution contracts and, accordingly, would not
require a shareholder vote to continue operation under those contracts.
To carry out the funds' transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that a fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
GINNIE MAE seeks a high level of current income, consistent with prudent
investment risk, by investing primarily in Ginnie Maes. FMR normally
invests at least 65% of the fund's total assets in these securities. Ginnie
Maes are government securities that are interests in pools of mortgage
loans. Their principal and interest payments are guaranteed by the U.S.
government. When consistent with its goal, the fund may also consider the
potential for capital gain.
MORTGAGE SECURITIES seeks a high level of current income, consistent with
prudent investment risk, by investing primarily in mortgage-related
securities of all kinds. FMR normally invests at least 65% of the fund's
total assets in these securities. Many of the securities in which the
fund invests are issued by government sponsored agencies or
organizations. When consistent with its goal, the fund may also consider
the potential for capital gain.
EACH FUND invests in mortgage securities, which are subject to prepayment
risk. When interest rates are declining, people are more likely to prepay
their mortgages. Prepayments can limit price appreciation and can force a
fund to invest in lower-yielding instruments. Because of this risk,
mortgage securities generally offer higher yields than other high-quality
bonds.
Each fund may also invest in other types of domestic and foreign debt
securities. Ginnie Mae is less risky, and has lower potential rewards than
Mortgage Securities. Both funds focus on government securities, but
Mortgage Securities is expected to invest in more instruments
with out government backing and can invest in lower-quality
securities .
Each fund's yield and share price will change based on changes in interest
rates, market conditions, and other political and economic news. In
general, bond prices rise when interest rates fall, and vice versa. FMR may
use various investment techniques to hedge a fund's risks, but there is no
guarantee that these strategies will work as intended. It is important to
note that the funds are not guaranteed. When you sell your shares, they may
be worth more or less than what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. Each fund also reserves the right to invest without limitation in
investment-grade money market or short-term debt instruments for temporary,
defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, and strategies FMR may employ in
pursuit of a fund's investment objective. A summary of risks and
restrictions associated with these instrument types and investment
practices is included as well. A complete listing of each fund's
policies and limitations and more detailed information about the funds'
investments is contained in the funds' SAI. Policies and limitations
are considered at the time of purchase; the sale of instruments is not
required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
funds achieve their goals. Current holdings and recent investment
strategies are described in the funds' financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "junk bonds") are often
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices
of these securities may fluctuate more than higher-quality securities and
may decline significantly in periods of general economic difficulty.
The table on page 13 provides a summary of ratings assigned to debt
holdings (not including money market instruments) in Mortgage Securities'
portfolio. These figures are dollar-weighted averages of month-end
portfolio holdings during fiscal 1994, and are presented as a percentage of
total investments. These percentages are historical and do not necessarily
indicate the fund's current or future debt holdings.
RESTRICTIONS: Ginnie Mae does not currently intend to invest in
non-government securities rated below Aa by Moody's or AA by S&P, or in
unrated securities judged by FMR to be of equivalent quality. Mortgage
Securities does not currently intend to invest more than 35% of its assets
in securities rated below Baa by Moody's or BBB by S&P, and unrated
securities judged by FMR to be of equivalent quality. The fund does not
currently intend to invest in securities rated below B by Moody's or S&P,
or in unrated securities judged by FMR to be of equivalent quality.
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
MORTGAGE SECURITIES
Fiscal 1994 Debt Holdings, by Rating MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa 91.36% AA 91.36%
Upper-medium grade A A
Medium grade Baa 0.09% BBB 0.09%
LOWER QUALITY
Moderately speculative Ba 0.04% BB 0.04%
Speculative B 0.00% B 0.00%
Highly speculative Caa 0.00% CCC 0.00%
Poor quality Ca 0.00% CC 0.00%
Lowest quality, no interest C C
In default, in arrears -- D 0.00%
91.49% 91.49%
A FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS OF
THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT. THE DOLLAR-WEIGHTED AVERAGE
OF DEBT SECURITIES NOT RATED DIRECTLY OR INDIRECTLY BY MOODY'S OR S&P
AMOUNTED TO 0.11%. THIS MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY
RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. REFER TO THE
FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE
DISCUSSION
OF THESE RATINGS.
FOREIGN SECURITIES and foreign currencies may involve additional risks.
These include currency fluctuations, risks relating to political or
economic conditions in the foreign country, and the potentially less
stringent investor protection and disclosure standards of foreign markets.
In addition to the political and economic factors that can affect foreign
securities, a governmental issuer may be unwilling to repay principal and
interest when due, and may require that the conditions for payment be
renegotiated. These factors could make foreign investments, especially
those in developing countries, more volatile.
ASSET-BACKED SECURITIES represent interests in pools of lower-rated debt
securities, or consumer loans. The value of these securities may be
significantly affected by changes in the market's perception of the issuers
and the creditworthiness of the parties involved.
MORTGAGE SECURITIES are interests in pools of commercial or
residential mortgages , and may include complex instruments,
such as collateralized mortgage obligations and stripped
mortgage-backed securities. Mortgage securities may be issued by the
government or by private entities. For example, Ginnie Maes are interests
in pools of mortgage loans insured or guaranteed by a government
agenc y . Because their payments consist of both interest and
principal as their underlying mortgages are paid off, they are subject to
prepayment risk. This is especially true for stripped securities. Also,
t he value of mortgage securities may be significantly affected by
changes in interest rates. Some securities may have a structure that
makes their reaction to interest rates and other factors difficult to
predict, making their value highly volatile.
MONEY MARKET INSTRUMENTS are high-quality instruments that present
minimal credit risk. They may include U.S. government obligations,
commercial paper and other short-term corporate obligations, and
certificates of deposit, bankers' acceptances, bank deposits, and other
financial institution obligations. These instruments may carry fixed or
variable interest rates.
STRIPPED SECURITIES are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, and
purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for a fund, or there may be a requirement
that a fund supply additional cash to a borrower on demand .
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a security at
one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of other securities, including illiquid securities, may be subject
to legal restrictions. Difficulty in selling securities may result in a
loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include convertible securities and preferred stocks.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
RESTRICTIONS: With respect to 75% of total assets, a fund may not invest
more than 5% of its total assets in any one issuer. A fund may not invest
more than 25% of its total assets in any one industry. These limitations do
not apply to U.S. government securities.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: A fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
LENDING. Lending securities to broker-dealers and institutions, including
FBSI, an affiliate of FMR, is a means of earning income. This practice
could result in a loss or a delay in recovering a fund's securities. A fund
may also lend money to other funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 33% of a fund's total
assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
Each fund seeks a high level of current income consistent with prudent
investment risk, by investing primarily in mortgage-related securities. In
seeking current income, each fund may also consider the potential for
capital gain. Each fund, with respect to 75% of total assets, may not
invest more than 5% of its total asset in any one issuer. Each fund may not
invest more than 25% of its total assets in any one industry. Each fund may
borrow only for temporary or emergency purposes, but not in an amount
exceeding 33% of the fund's total assets. Loans, in the aggregate, may not
exceed 33% of each fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs, FMR in turn may pay fees to affiliates who provide
assistance with these services. Each fund also pays, OTHER EXPENSES which
are explained at right.
FMR may, from time to time, agree to reimburse the funds for management
fees and other expenses above a specified limit. FMR retains the ability to
be repaid by a fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee is
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets under management increase.
For July, 1994, the group fee rate was .16 %. The individual fund fee
rate for each fund is . 30% . The total management fee
rate for fiscal 1994 was . 46 % for both funds.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on issuers
based outside the United States. Under the sub-advisory agreements, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East 50% of its management fee with
respect to a fund's investments that the sub-adviser manages on a
discretionary basis.
OTHER EXPENSES
While the management fee is a significant component of the funds' annual
operating costs, the funds have other expenses as well.
The funds contract with FSC to perform many transaction and accounting
functions. These services include processing shareholder transactions,
valuing each fund's investments, and handling securities loans. In fiscal
1994, Ginnie Mae and Mortgage Securities paid FSC fees equal to .31 %
and .26 %, respectively, of average net assets .
The funds also pay other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
Each fund has adopted a Distribution and Service Plan. These plans
recognize that FMR may use its resources, including management fees, to pay
expenses associated with the sale of fund shares. This may include payments
to third parties, such as banks or broker-dealers, that provide shareholder
support services or engage in the sale of the fund's shares. It is
important to note, however, that the funds do not pay FMR any separate fees
for this service.
For fiscal 1994, the portfolio turnover rates for Ginnie Mae and Mortgage
Securities were 303 % and 563% , respectively. These rates vary
from year to year. High turnover rates increase transaction costs and
may increase taxable capital gains. FMR considers these effects when
evaluating the anticipated benefits of short-term investing.
UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in
FMR's total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will
pay a lower rate as FMR's
assets under management
increase.
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YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 75 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in a fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed at right.
The account guidelines that follow may not apply to certain retirement
accounts. If your employer offers a fund through a retirement program,
contact your employer for more information. Otherwise, call Fidelity
directly.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 200
(solid bullet) Assets in Fidelity mutual
funds: over $ 225 billion
(solid bullet) Number of shareholder
accounts: over 19 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
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WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
RETIREMENT
TO SHELTER YOUR RETIREMENT SAVINGS FROM TAXES
Retirement plans allow individuals to shelter investment income and
capital gains from current taxes. In addition, contributions to these
accounts may be tax deductible. Retirement accounts require special
applications and typically have lower minimums.
(solid bullet) INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal
age and under 70 with earned income to invest up to $2,000 per tax year.
Individuals can also invest in a spouse's IRA if the spouse has earned
income of less than $250.
(solid bullet) ROLLOVER IRAS retain special tax advantages for certain
distributions from employer-sponsored retirement plans.
(solid bullet) KEOGH OR CORPORATE PROFIT SHARING AND MONEY PURCHASE PENSION
PLANS allow self-employed individuals or small business owners (and their
employees) to make tax-deductible contributions for themselves and any
eligible employees up to $30,000 per year.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide small
business owners or those with self-employed income (and their eligible
employees) with many of the same advantages as a Keogh, but with fewer
administrative requirements.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of most
tax-exempt institutions, including schools, hospitals, and other charitable
organizations.
(solid bullet) 401(K) PROGRAMS allow employees of corporations of all sizes
to contribute a percentage of their wages on a tax-deferred basis. These
accounts need to be established by the trustee of the plan.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
EACH FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. Each fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
IF YOU ARE INVESTING THROUGH A TAX-SHELTERED RETIREMENT PLAN, such as an
IRA, for the first time, you will need a special application. Retirement
investing also involves its own investment procedures. Call 1-800-544-8888
for more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For Fidelity retirement accounts $500
TO ADD TO AN ACCOUNT $250
For Fidelity retirement accounts $250
Through automatic investment plans $100
MINIMUM BALANCE $1,000
For Fidelity retirement accounts $500
These minimums may vary for a Fidelity Payroll Deduction Program account in
Ginnie Mae. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (small solid bullet) Exchange from another (small solid bullet) Exchange from another
Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(small solid bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
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Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check
application. Make your payable to the complete
check payable to the name of the fund.
complete name of the Indicate your fund
fund of your choice. account number on
Mail to the address your check and mail to
indicated on the the address printed on
application. your account statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
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Wire (wire_graphic) (small solid bullet) Call 1-800-544-7777 to (small solid bullet) Not available for
set up your account retirement accounts.
and to arrange a wire (small solid bullet) Wire to:
transaction. Not Bankers Trust
available for retirement Company,
accounts. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify the complete
Bank Routing name of the fund and
#021001033, include your account
Account #00163053. number and your
Specify the complete name.
name of the fund and
include your new
account number and
your name.
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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the methods
described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be made
in writing, except for exchanges to other Fidelity funds, which can be
requested by phone or in writing. Call 1-800-544-6666 for a retirement
distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $1,000
worth of shares in the account to keep it open ($500 for retirement
accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations
apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
at right.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
except retirement $100,000.
(small solid bullet) For Money Line transfers to
All account types your bank account; minimum:
$10; maximum: $100,000.
(small solid bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (small solid bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Retirement account names appear on the
account.
(small solid bullet) The account owner should
Trust complete a retirement
distribution form. Call
1-800-544-6666 to request
one.
Business or (small solid bullet) The trustee must sign the
Organization letter indicating capacity as
trustee. If the trustee's name
is not in the account
registration, provide a copy of
the trust document certified
Executor, within the last 60 days.
Administrator, (small solid bullet) At least one person
Conservator, authorized by corporate
Guardian resolution to act on the
account must sign the letter.
(small solid bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(small solid bullet) Call 1-800-544-6666 for
instructions.
Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire
except retirement feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
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Check (check_graphic) All account types (small solid bullet) Minimum check: $500.
except retirement (small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be
mailed to your household, even if you have more than one account in the
fund. Call 1-800-544-6666 if you need copies of financial reports or
historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing.
Note that exchanges out of a fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for
retirement, a home, educational expenses, and other long-term financial
goals. Certain restrictions apply for retirement accounts. Call
1-800-544-6666 for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly or (small solid bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
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<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Every pay (small solid bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(small solid bullet) Changes require a new authorization
form.
</TABLE>
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FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, (small solid bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (small solid bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
</TABLE>
A BECAUSE THEIR SHARE PRICES FLUCTUATE, THESE FUNDS MAY NOT BE APPROPRIATE
CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in September
and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. Each fund offers four
options:
5. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
6. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
7. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
8. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
FOR RETIREMENT ACCOUNTS, all distributions are automatically reinvested.
When you are over 59 years old, you can receive distributions in cash.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of the
date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days.
TAXES
As with any investment, you should consider how your investment in a fund
will be taxed. If your account is not a tax-deferred retirement account,
you should be aware of these tax implications.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
(checkmark)
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax,
and may also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the country in
which you reside. Your distributions are taxable when they are paid,
whether you take them in cash or reinvest them. However, distributions
declared in December and paid in January are taxable as if they were paid
on December 31.
For federal tax purposes, each fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions
are taxed as long-term capital gains. Every January, Fidelity will send you
and the IRS a statement showing the taxable distributions paid to you in
the previous year.
Mutual fund dividends from U.S. government securities are generally free
from state and local income taxes. However, particular states may limit
this benefit, and some types of securities, such as repurchase agreements
and some agency-backed securities, may not qualify for the benefit. Ginnie
Mae securities and other mortgage-backed securities are notable exceptions
in most states. In addition, some states may impose intangible property
taxes. You should consult your own tax adviser for details and up-to-date
information on the tax laws in your state.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or loss
is the difference between the cost of your shares and the price you receive
when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a fund deducts a
capital gain distribution from its NAV, you will pay the full price
for the shares and then receive a portion of the price back in the form of
a taxable distribution.
EFFECT OF FOREIGN TAXES. A fund may pay withholding or other taxes to
foreign governments during the year. These taxes reduce the fund's
distributions, but are included in the taxable income reported on your tax
statement. You may be able to claim an offsetting tax credit or itemized
deduction for foreign taxes paid by the fund. Your tax statement will
generally show the amount of foreign tax for which a credit or deduction
may be available.
There are tax requirements that all funds must follow in order to avoid
federal taxation. In its effort to adhere to these requirements, a fund may
have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Each fund's assets are valued primarily on the basis of market quotations.
Foreign securities are valued on the basis of quotations from the
primary market in which they are traded, and are translated from the local
currency into U.S. dollars using current exchange rates. If quotations
are not readily available, or if the values have been materially
affected by events occurring after the closing of a foreign market,
assets are valued by a method that the Board of Trustees believes
accurately reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Note that Fidelity will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the identity of the
caller. Fidelity will request personalized security codes or other
information, and may also record calls. You should verify the accuracy of
your confirmation statements immediately after you receive them. If you do
not want the ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUNDS THROUGH A BROKER, who may charge
you a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
IF YOUR ACCOUNT BALANCE FALLS BELOW $1,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the funds without
reimbursement from the funds. Qualified recipients are securities dealers
who have sold fund shares or others, including banks and other financial
institutions, under special arrangements in connection with FDC's sales
activities. In some instances, these incentives may be offered only to
certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be registered
for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each fund reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) The exchange limit may be modified for accounts in
certain institutional retirement plans to conform to plan exchange limits
and Department of Labor regulations. See your plan materials for further
information.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincide
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
This prospectus is printed on recycled paper using soy-based inks.
FIDELITY GINNIE MAE PORTFOLIO
FIDELITY MORTGAGE SECURITIES PORTFOLIO
FUNDS OF FIDELITY INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 19, 1994
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated September 19, 1994). Please retain
this document for future reference. Each fund's financial statements and
financial highlights, included in each fund's Annual Report for the fiscal
year ended July 31, 1994 are incorporated herein by reference. To obtain an
additional copy of the Prospectus or the Annual Reports, please call
Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Contracts With Companies Affiliated With FMR
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (Far East) Inc. (FMR Far East)
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Co. (FSC)
MOG/MOR-ptb-994
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
Each fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations set forth below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF FIDELITY GINNIE MAE PORTFOLIO
THE FOLLOWING ARE GINNIE MAE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase any security if, as a result thereof, more than 25% of the
value of its total assets would be invested in the securities of companies
having their principal business activities in the same industry (this
limitation does not apply to securities issued or guaranteed by the United
States government, its agencies, or its instrumentalities);
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(9) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to lend assets other than securities
to other parties, except by (a) lending money (up to 7.5% of the fund's net
assets) to a registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) acquiring loans, loan
participations, or other forms of direct debt instruments and, in
connection therewith, assuming any associated unfunded commitments of the
sellers. (This limitation does not apply to purchases of debt securities or
to repurchase agreements.)
(vi) The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of reorganization, consolidation, or merger.
(vii) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(viii) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
(ix) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For the fund 's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" on
page .
INVESTMENT LIMITATIONS OF FIDELITY MORTGAGE SECURITIES PORTFOLIO
THE FOLLOWING ARE MORTGAGE SECURITIES PORTFOLIO'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer ;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940 ;
(3) borrow money , except that the fund may borrow money for
temporary or emergency purposes (not for leveraging or investment) in an
amount not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that
come to exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33 1/3%
limitation ;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities ;
(5) purchase any security if, as a result thereof, more than 25% of the
value of its total assets would be invested in the securities of companies
having their principal business activities in the same industry (this
limitation does not apply to securities issued or guaranteed by the United
States government, its agencies or instrumentalities);
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business) ;
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities) ; or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(9) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to lend assets other than securities
to other parties, except by (i) lending money (up to 7.5% of the fund's net
assets) to a registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (ii) acquiring loans, loan
participations, or other forms of direct debt instruments and, in
connection therewith, assuming any associated unfunded commitments of the
sellers. (This limitation does not apply to purchases of debt securities or
mortgage-related securities or direct mortgage investments; or to
repurchase agreements.)
(vi) The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary brokers commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies.
Limitations (a) and (b) do not apply to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
(vii) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(viii) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
(ix) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For the fund 's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" on
page .
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term, obligations of, and repurchase agreements with, the 50 largest
U.S. banks measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission, the Board of Trustee s has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price and/or yield, with payment and delivery taking place
after the customary settlement period for that type of security (and more
than seven days in the future). Typically, no interest accrues to the
purchaser until the security is delivered. The fund may receive fees for
entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities
until the delivery date, these risks are in addition to the risks
associated with the fund's other investments. If a fund remains
substantially fully invested at a time when delayed-delivery purchases are
outstanding, the delayed-delivery purchases may result in a form of
leverage. When delayed-delivery purchases are outstanding, the fund will
set aside appropriate liquid assets in a segregated custodial account to
cover its purchase obligations. When a fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price . The resale price reflects the purchase
price plus an agreed-upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed-upon resale price,
which obligation is in effect secured by the value (at least equal to the
amount of the agreed - upon resale price and marked to market
daily) of the underlying security. Each fund may engage in
repurchase agreement s with respect to any type of
security in which it is authorized to invest. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of the
underlying securities, as well as delays and costs to the funds in
connection with bankruptcy proceedings), it is each fund's current policy
to limit repurchase agreements to those parties whose creditworthiness has
been reviewed and found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, a fund will maintain appropriate liquid assets in a segregated
custodial account to cover its obligation under the agreement. Each fund
will enter into reverse repurchase agreements only with parties whose
creditworthiness is deemed satisfactory by FMR. Such transactions may
increase fluctuations in the market value of a fund's assets and may be
viewed as a form of leverage.
INTERFUND BORROWING PROGRAM. Each fund has received permissions from the
SEC to lend money to and borrow money from other funds advised by FMR or
its affiliates. Interfund loans and borrowings normally will extend
overnight, but can have a maximum duration of seven days. Each fund will
lend through the program only when the returns are higher than those
available at the same time from other short-term instruments (such as
repurchase agreements), and will borrow through the program only when the
costs are equal to or lower than the cost of bank loans. Loans may be
called on one day's notice, and the fund may have to borrow from a bank at
a higher interest rate if an interfund loan is called or not renewed. Any
delay in repayment to a lending fund could result in a lost investment
opportunity or additional borrowing costs.
SECURITIES LENDING. Each fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange and
a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that each fund
may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the fund must be able to terminate
the loan at any time; (4) the fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which a fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by a fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments,
emerging market securities, and swap agreements to be illiquid. However,
with respect to over-the-counter options a fund writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the
assets held to cover the option and the nature and terms of any agreement
the fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees. If through a change in values, net assets or other
circumstances, a fund were in a position where more than 10% of its net
assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease a fund's exposure to long- or
short-term interest rates (in the U.S. or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many different
forms and are known by a variety of names. A fund is not limited to any
particular form of swap agreement if FMR determines it is consistent with
the fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from one
type of investment to another. For example, if the fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of a fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses. Each fund expects to be able to eliminate
its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.
Each fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If a fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of the fund's accrued
obligations under the swap agreement over the accrued amount the fund is
entitled to receive under the agreement. If a fund enters into a swap
agreement on other than a net basis, it will segregate assets with a value
equal to the full amount of the fund's accrued obligations under the
agreement.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not
pay current income, their prices can be very volatile when interest rates
change. In calculating its daily dividend, each fund takes into account as
income a portion of the difference between a zero coupon bond's purchase
price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation and the Financing Corporation can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued
by the U.S. government, a government agency, or a corporation in zero
coupon form.
FANNIE MAES AND FREDDIE MACS are pass-through securities issued by the
Federal National Mortgage Association (FNMA) and the Federal Home Loan
Mortgage Corporation (FHLMC), respectively. FNMA and FHLMC, which guarantee
payment of interest and principal on Fannie Maes and Freddie Macs, are
federally chartered corporations supervised by the U.S. government and
acting as governmental instrumentalities under authority granted by
Congress. FNMA is authorized to borrow from the U.S. Treasury to meet its
obligations. Fannie Maes and Freddie Macs are not backed by the full faith
and credit of the United States government; however, their close
relationship with the U.S. government makes them high quality securities
with minimal credit risks.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities issued by government entities and non-government entities such
as banks, mortgage lenders, or other financial institutions. A
mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Some mortgage-backed securities, such as collateralized mortgage
obligations or CMOs, make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Other
types of mortgage-backed securities will likely be developed in the future,
and the Fund may invest in them if FMR determines they are consistent with
the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
ASSET-BACKED SECURITIES may include pools of mortgages, loans,
receivables or other assets. Payment of principal and interest may be
largely dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety
bonds, or other credit enhancements. The value of asset-backed securities
may also be affected by the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price
of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. Indexed securities may be more volatile
than the underlying instruments.
LOWER-QUALITY DEBT SECURITIES (MORTGAGE SECURITIES PORTFOLIO ONLY). While
the market for high-yield corporate debt securities has been in existence
for many years and has weathered previous economic downturns, the 1980s
brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructuring. Past experience may not
provide an accurate indication of the future performance of the high-yield
bond market, especially during periods of economic recession. In fact, from
1989 to 1991, the percentage of lower-quality securities that defaulted
rose significantly above prior levels, although the default rate decreased
in 1992 and 1993.
The market for lower-quality debt securities may be thinner and less active
than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing
high-yield corporate debt securities than is the case for securities for
which more external sources for quotations and last-sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-quality debt
securities and the fund's ability to sell these securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by the fund. In considering
investments for the fund, FMR will attempt to identify those issuers of
high-yielding securities whose financial condition is adequate to meet
future obligations, has improved, or is expected to improve in the future.
FMR's analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the fund's shareholders.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and
interest from such securities, can change significantly when foreign
currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity
than U.S. markets, and prices on some foreign markets can be highly
volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be
more difficult to obtain reliable information regarding an issuer's
financial condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be difficult
to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
The funds may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
corporation held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively,
ADRs and EDRs are alternatives to the purchase of the underlying securities
in their national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The funds may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The funds will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the fund at one rate, while offering a lesser
rate of exchange should the fund desire to resell that currency to the
dealer. Forward contracts are generally traded in an interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
Each fund may use currency forward contracts for any purpose consistent
with its investment objective. The following discussion summarizes the
principal currency management strategies involving forward contracts that
could be used by each fund. The funds may also use swap agreements, indexed
securities, and options and futures contracts relating to foreign
currencies for the same purposes.
When a fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The funds may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The funds may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example,
if a fund owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. A fund could also hedge the
position by selling another currency expected to perform similarly to the
pound sterling - for example, by entering into a forward contract to sell
Deutschemarks or European Currency Units in return for U.S. dollars. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
Each fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if a fund held investments denominated in
Deutschemarks, the fund could enter into forward contracts to sell
Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is
purchased, much as if the fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause the fund to assume the risk of fluctuations in the
value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the funds will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The funds will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on FMR's skill
in analyzing and predicting currency values. Currency management strategies
may substantially change a fund's investment exposure to changes in
currency exchange rates, and could result in losses to the fund if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged a fund by selling that currency in
exchange for dollars, the fund would be unable to participate in the
currency's appreciation. If FMR hedges currency exposure through proxy
hedges, a fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if FMR increases a fund's exposure to a foreign
currency, and that currency's value declines, the fund will realize a loss.
There is no assurance that FMR's use of currency management strategies will
be advantageous to the funds or that it will hedge at an appropriate time.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower
to lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments are subject to each fund's policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If a fund does not receive scheduled interest or
principal payments on such indebtedness, the fund's share price and yield
could be adversely affected. Loans that are fully secured offer a fund more
protections than an unsecured loan in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation
of collateral from a secured loan would satisfy the borrower's obligation,
or that the collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal when
due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a fund.
For example, if a loan is foreclosed, the fund could become part owner of
any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the fund could be held
liable as a co-lender. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt
instruments that are not in the form of securities may offer less legal
protection to a fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, each fund relies on FMR's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or
other indebtedness, each fund has direct recourse against the borrower, it
may have to rely on the agent to apply appropriate credit remedies against
a borrower. If assets held by the agent for the benefit of a fund were
determined to be subject to the claims of the agent's general creditors,
the fund might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness purchased by each fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the fund to pay additional cash on demand. These commitments may
have the effect of requiring the fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
Each fund will set aside appropriate liquid assets in a segregated
custodial account to cover its potential obligations under standby
financing commitments.
Each fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations 1 and 5
for each fund ). For purposes of these limitations, each fund generally
will treat the borrower as the "issuer" of indebtedness held by the fund.
In the case of loan participations where a bank or other lending
institution serves as financial intermediary between each fund and
the borrower, if the participation does not shift to the fund the direct
debtor-creditor relationship with the borrower, SEC interpretations require
the fund, in appropriate circumstances, to treat both the lending bank or
other lending institution and the borrower as "issuers" for these purposes.
Treating a financial intermediary as an issuer of indebtedness may restrict
a fund's ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
DIRECT INVESTMENTS IN MORTGAGES. (Mortgage Securities Portfolio only)
Although the fund has no current intention to invest directly in
mortgages, it may in the future invest up to 10% of the value of
total assets directly in mortgages securing residential real estate.
These mortgages are normally available from lending institutions which
group together a number of mortgages (usually 10 to 50) for resale and
which act as servicing agent for the purchaser with respect to, among other
things, the receipt of principal and interest payments. The vendor of such
mortgages receives a fee from the fund for acting as servicing agent. The
vendor does not provide any insurance or guarantees covering the repayment
of principal or interest on the mortgages. Unlike pass-through securities,
these constitute direct investment in mortgages inasmuch as the fund,
rather than a financial intermediary, becomes the mortgagee. At present,
such investments are considered to be illiquid by FMR. Each fund will
invest in such mortgages only if FMR has determined through an examination
of the mortgage loans and their originators (which may include an
examination of such factors as percentage of family income dedicated to
loan service and the relationship between loan value and market value) that
purchase of the mortgages should not present a significant risk of loss to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and options premiums.
In addition, each fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; (c) purchase call options if, as a result, the current value
of option premiums for call options purchased by the fund would exceed 5%
of the fund's total assets; or (d) write call options on securities if, as
a result, the aggregate value of the securities underlying the calls would
exceed 25% of the fund's net assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The funds' limitations on investments in futures contracts and options,
and the funds' policies regarding futures contracts and options discussed
elsewhere in this Statement of Additional Information may be changed as
regulatory agencies permit.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, they agree to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the funds
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, a fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
funds greater flexibility to tailor an option to their needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The
funds may purchase and sell currency futures and may purchase and write
currency options to increase or decrease their exposure to different
foreign currencies. A fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
a fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect a
fund against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of a fund's foreign-denominated
investments changes in response to many factors other than exchange rates,
it may not be possible to match the amount of currency options and futures
to the value of the fund's investments exactly over time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or options strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in each fund's
management contract. If FMR grants investment management authority
to the sub-advisers (see the section entitled "Management Contracts") the
sub-advisers are authorized to place orders for the purchase and sale of
portfolio securities, and will do so in accordance with the policies
described below. FMR is also responsible for the placement of transaction
orders for other investment companies and accounts for which it or its
affiliates act as investment adviser. In selecting broker-dealers, subject
to applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to, the size and type
of the transaction; the nature and character of the markets for the
security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. Generally, commissions for foreign
investments traded will be higher than for U.S. investments and may
not be subject to negotiation.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). The selection of such broker-dealers
generally is made by FMR (to the extent possible consistent with execution
considerations) based upon the quality of research and execution services
provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and, conversely, such research
provided by brokers-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI) and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of
FMR Corp., if the commissions are fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for
similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For the fiscal years ended July 31, 1994 and 1993, the funds' portfolio
turnover rates were 303 % and 259% (Ginnie Mae Portfolio) and
563 % and 278% (Mortgage Securities Portfolio), respectively.
Because a high turnover rate increases transaction costs and may
increase taxable gains, FMR carefully weighs the anticipated benefits of
short-term investing against these consequences.
The investment activities described herein are likely to result in the
funds engaging in a considerable amount of trading of securities held for
less than one year. Accordingly, it can be expected that the funds will
have a higher turnover rate, and thus a higher incidence of short-term
capital gains taxable as ordinary income, than might be expected from
investment companies that invest substantially all of their funds on a
long-term basis.
For the fiscal years ended 1994, 1993 and 1992 the funds paid no brokerage
commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of each fund to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
Securities and other assets for which market quotations are readily
available are valued at market values determined by their most recent bid
prices (sales prices if the principal market is an exchange) in the
principal market in which such securities normally are traded. Securities
and other assets for which market quotations are not readily available
(including restricted securities, if any) are appraised at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer-supplied valuations and evaluations
based on expert analysis of market data and other factors if such
valuations are believed to reflect more accurately the fair value of such
securities. Use of a pricing service has been approved by the Board of
Trustees. There are a number of pricing services available, and the
Trustees, or officers acting on behalf of the Trustees, on the basis of
ongoing evaluation of these pricing services, may use other pricing
services or may discontinue the use of any pricing service in whole or in
part.
Securities not valued by the pricing service, and for which quotations are
readily available, are valued at market values determined on the basis of
their latest available bid prices as furnished by recognized dealers in
such securities. Futures contracts and options are valued on the basis of
market quotations, if available.
PERFORMANCE
The funds may quote their performance in various ways. All performance
information supplied by the funds advertising is historical and is not
intended to indicate future returns. Each fund's share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of fund shares when redeemed may be more or less than their
original cost.
YIELD CALCULATIONS. Yields for a fund are computed by dividing the fund's
interest income for a given 30-day or one month period, net of expenses, by
the average number of shares entitled to receive dividends during the
period, dividing this figure by the fund's net asset value per share (NAV)
at the end of the period, and annualizing the result (assuming compounding
of income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of yield quotations in accordance with standardized
methods applicable to all stock and bond funds. In general, interest income
is reduced with respect to bonds trading at a premium over their par value
by subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For a fund's investments
denominated in foreign currencies, income and expenses are calculated first
in their respective currencies, and are then converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Income is adjusted to reflect gains and
losses from principal repayments received by the funds with respect to
mortgage-related securities and other asset-backed securities. Other
capital gains and losses generally are excluded from the calculation as are
gains and losses currently from exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, a fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's returns, including the effect of reinvesting dividends
and capital gain distributions, and any change in a fund's NAV over a
stated period. Average annual returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in a
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative return of 100% over ten years would produce an average annual
return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns are
a convenient means of comparing investment alternatives, investors should
realize that the funds' performance is not constant over time, but changes
from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the fund.
In addition to average annual returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before or after tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the fund
and reflects all elements of its return. Unless otherwise indicated, the
fund's adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following table shows each fund's yields and
total returns for the periods ended July 31, 1994:
Average Annual Returns Cumulative Returns
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
30-Day One Five Life of One Five Life of
Yield Year Years Fund* Year Years Fund**
Ginnie Mae Portfolio
6.63 % -0.63 % 7.63 % 8.70 % -0.63 % 44.43 % 107.17 %
Mortgage Securities Portfolio
7.13 % 3.13 % 8.15 % 9.47 % 3.13 % 47.94 % 138.10 %
</TABLE>
* From November 8, 1985 (commencement of operations).
** From December 31, 1984 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these periods,
each fund's total returns would have been lower.
The following tables show the income and capital elements of each fund's
cumulative total returns. The tables compare each fund's returns to the
record of the Standard & Poor's Composite Index of 500 Stocks (S&P
500), the Dow Jones Industrial Average (DJIA), and the cost of living
(measured by the Consumer Price Index, or CPI) over the same period. The
CPI information as of the month end closest to the initial investment date
for each fund. The S&P 500 and DJIA comparisons are provided to show how
each fund's total return compared to the return of a broad average of
common stocks and a narrower set of stocks of major industrial companies,
respectively, over the same period. Of course, since each fund invests in
fixed-income securities, common stocks represent a different type of
investment from the fund. Common stocks generally offer greater growth
potential than the funds, but generally experience greater price
volatility, which means greater potential for loss. In addition, common
stocks generally provide lower income than a fixed income investment such
as the funds. The S&P 500 and DJIA are based on the prices of unmanaged
groups of stocks and, unlike the funds' returns, their returns do not
include the effect of paying brokerage commissions or other costs of
investing.
GINNIE MAE PORTFOLIO. During the period from November 8, 1985 (commencement
of operations) to July 31, 1994, a hypothetical $10,000 investment in
Fidelity Ginnie Mae Portfolio would have grown to $ 20,717 , assuming
all distributions were reinvested. This was a period of fluctuating
interest rates and bond prices, and the figures below should not be
considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
GINNIE MAE PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of
Initial Value of Reinvested Cost
Year $10,000 Reinvested Capital Gain Total of
Ended Investment Dividends Distributions Value S&P 500 DJIA Living**
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
July 31, 1994$ 10,360 $ 9,905 $ 452 $ 20,717 $ 31,632 $ 35,97 $ 13,652
6
July 31, 1993 11,260 9,578 11 20,849 30,081 32,91 1 13,284
July 31, 1992 11,060 8,193 11 19,264 27,661 30,63 6 12,925
July 31, 1991 10,650 6,593 11 17,254 24,522 26,504 12,530
July 31, 1990 10,370 5,113 11 15,494 21,746 24,538 11,996
July 31, 1989 10,420 3,914 11 14,344 20,419 21,640 11,444
July 31, 1988 10,020 2,664 10 12,694 15,479 16,688 10,902
July 31, 1987 10,230 1,658 10 11,899 17,533 19,481 10,469
July 31, 1986*10,580 746 0 11,326 12,585 13,023 10,074
</TABLE>
* From November 8, 1985 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on November
8, 1985, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 20,548 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
the cash payments for the period would have amounted to $ 7,050 for
dividends and $ 260 for capital gain distributions. Tax consequences
of different investments have not been factored into the figures above.
During the period November 8, 1985 (commencement of operations) to August
16, 1985 shares of the fund were sold subject to a 1% sales charge. Figures
on the table and notes above do not include the effect of this 1% sales
charge.
MORTGAGE SECURITIES PORTFOLIO. During the period from December 31, 1984
(commencement of operations) to July 31, 1994, a hypothetical $10,000
investment in the Fidelity Mortgage Securities Portfolio would have grown
to $ 23,810 assuming all distributions were reinvested. This was a
period of fluctuating interest rates and bond prices, and the figures below
should not be considered representative of the dividend income or capital
gain or loss that could be realized from an investment in the fund today.
MORTGAGE SECURITIES PORTFOLIO INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of
Initial Value of Reinvested Cost
Year $10,000 Reinvested Capital Total of
Gain
Ended Investment Dividends Distributions Value S&P 500 DJIA Living**
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
July 31, 1994 $ 10,785 $ 12,841 $ 184 $ 23,810 $ 38,005 $ 43,496 $ 14,093
July 31, 1993 11,121 11,927 38 23,086 36,141 39,7 90 13,713
July 31, 1992 11,040 10,403 38 21,481 33,234 37,039 13,343
July 31, 1991 10,683 8,636 37 19,356 29,463 32,044 12,934
July 31, 1990 10,418 6,925 36 17,379 26,127 29,667 12,384
July31, 1989 10,459 5,600 36 16,094 24,534 26,162 11,814
July 31, 1988 10,102 4,165 35 14,302 18,598 20,177 11,254
July 31, 1987 10,296 3,038 35 13,369 21,065 23,552 10,807
July 31, 1986 10,693 1,997 0 12,690 15,121 15,745 10,399
July 31, 1985
* 10,296 741 0 11,037 11,774 11,503 10,237
</TABLE>
* From December 31, 1984 (commencement of operations)
** From month end to closest initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on December
31, 1984, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 22,756. If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
the cash payments for the period would have amounted to $ 8,260 for
dividends and $ 102 for capital gain distributions. Tax consequences
of different investments have not been factored into the above figures.
During the period December 31, 1984 (commencement of operations) to August
16, 1985 shares of the fund were sold subject to a 1% sales charge. Figures
in the table and notes above do not include the effect of this 1% sales
charge.
A fund's performance may be compared to the performance of other mutual
funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings prepared
by Lipper Analytical Services, Inc. (Lipper), an independent service
located in Summit, New Jersey that monitors the performance of mutual
funds. Lipper generally ranks funds on the basis of total return, assuming
reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to the
mutual fund rankings, a fund's performance may be compared to mutual fund
performance indices prepared by Lipper or other organizations. When
comparing these indices, it is important to remember the risk and return
characteristics of each type of investment. For example, while stock mutual
funds may offer higher potential returns, they also carry the highest
degree of share price volatility. Likewise, money market funds may offer
greater stability of principal, but generally do not offer the higher
potential returns from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund may be compared in advertising to Certificates of Deposits (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, and a
fund does not guarantee your principal or your return and fund shares are
not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions, materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which they may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donaghue's MONEY FUND AVERAGES(trademark)/All
Taxable, which is reported in the MONEY FUND REPORT(registered trademark)
covers over 381 taxable money market funds. The BOND FUND REPORT
AVERAGES(trademark)/ Government Mortgages which is reported in the BOND
FUND REPORT,(Registered trademark) covers over 64 bond funds. When
evaluating comparisons to money market funds, investors should consider the
relevant differences in investment objectives and policies. Specifically,
money market funds invest in short-term, high-quality instruments and seek
to maintain a stable $1.00 share price. The funds, however, invest in
longer-term instruments and their share price changes daily in response to
a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar-cost averaging and saving for college or other
goals; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to current
economic and political conditions, fund management, portfolio composition,
investment philosophy, investment techniques the desirability of owning a
particular mutual fund and Fidelity services and products. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus,a quarterly magazine provided free of charge to Fidelity
fund shareholders.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares through periods of low price levels.
A fund may be available for purchase through retirement plans or other
programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000
investment earning a taxable return of 10% annually would have an after-tax
value of $1,949 after ten years, assuming tax was deducted from the return
each year at a 31% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,100 after ten years, assuming tax was deducted at
a 31% rate from the tax-deferred earnings at the end of the ten-year
period.
As of July 31, 199 4 , FMR advised over $ 25 billion in
tax-free fund assets, $70 billion in money market fund assets,
$ 155 billion in equity fund assets, $ 35 billion in
international fund assets, and $ 20 billion in Spartan fund assets.
The funds may reference the growth and variety of money market mutual funds
and the adviser's innovation and participation in the industry. The equity
funds under management figure represents the largest amount of equity fund
assets under management by a mutual fund investment adviser in the United
States, making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1994:
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day
(observed). Although FMR expects the same holiday schedule with the
addition of New Year's Day to be observed in the future, the NYSE may
modify its holiday schedule at any time.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that portfolio securities are traded in other markets on days when
the NYSE is closed, a fund's NAV may be affected on days when investors do
not have access to the fund to purchase or redeem shares. In addition,
trading in some of a fund's portfolio securities may not occur on days when
the fund is open for business.
If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize either a gain or loss for tax purposes, and will
incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. Because each fund's income is primarily derived from interest,
dividends from each fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do not
qualify for the dividends received deduction. A portion of each fund's
dividends derived from certain U.S. government obligations may be exempt
from state and local taxation. Mortgage security paydown gains (losses) are
taxable as ordinary income and, therefore, increase (decrease) taxable
dividend income. Gains (losses) attributable to foreign currency
fluctuations are generally taxable as ordinary income and therefore will
increase (decrease) dividend distributions. The fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the funds on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of a fund, and such shares are held for
six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
each fund are taxable to shareholders as dividends, not as capital gains.
STATE AND LOCAL TAX ISSUES . For mutual funds organized as
business trusts, state law provides for a pass-through of the state and
local income tax exemption afforded to direct owners of U.S. government
securities. Some states limit this to mutual funds that invest a certain
amount in U.S. government securities, and some types of securities, such as
repurchase agreements and some agency backed securities, may not qualify
for this benefit. The tax treatment of your dividend distributions from a
fund will be the same as if you directly owned your proportionate share of
the U.S. government securities in each fund's portfolio. Because the income
earned on most U.S. government securities in which each fund invests is
exempt from state and local income taxes, the portion of your dividends
from each fund attributable to these securities will also be free from
income taxes. The exemption from state and local income taxation does not
preclude states from assessing other taxes on the ownership of U.S.
government securities. In a number of states, corporate franchise (income)
tax laws do not exempt interest earned on U.S. government securities
whether such securities are held directly or through a fund.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities, typically at a rate
between 10% and 35%. Foreign governments may also impose taxes on other
payments or gains with respect to foreign securities. Because each fund
does not currently anticipate that securities of foreign issuers will
constitute more than 50% of its total assets at the end of its fiscal year,
shareholders should not expect to claim a foreign tax credit or deduction
on their federal income tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUNDS. Each fund intends to qualify as a "regulated
investment company" for tax purposes so that it will not be liable for
federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject
to federal income or excise taxes at the fund level, each fund intends to
distribute substantially all of its net investment income and net realized
capital gains within each calendar year as well as on a fiscal year basis.
Each fund intends to comply with other tax rules applicable to regulated
investment companies, including a requirement that capital gains from the
sale of securities held less than three months constitute less than 30% of
the fund's gross income for each fiscal year. Gains from some forward
currency contracts, futures contracts, and options are included in this 30%
calculation, which may limit a fund's investments in such instruments.
If a fund purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the Internal
Revenue Code, it may be subject to U.S. federal income tax on a portion of
any excess distribution or gain from the disposition of such shares.
Interest charges may also be imposed on a fund with respect to deferred
taxes arising form such distributions or gains. Generally, each fund will
elect to mark-to-market any PFIC shares. Unrealized gains will be
recognized as income for tax purposes and must be distributed to
shareholders as dividends.
Each fund is treated as a separate entity from the other portfolios of
Fidelity Income Fund for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the funds and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on distributions received from the funds. Investors should
consult their tax advisers to determine whether either fund is suitable to
their particular tax situation.
FMR
All of the stock of FMR is owned by its parent company, FMR Corp. which
was organized in 1972. Through ownerhsip of voting common stock and the
execution of a shareholders' voting agreement, Edward C. Johnson 3d,
Johnson family members, and various trusts for the benefit of the Johnson
family form a controlling group with respect to FMR Corp. At present,
the principal operating activities of FMR Corp. are those conducted by
three of its divisions as follows: FSC, which is the transfer and
shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for certain institutional customers; and
Fidelity Investments Retail Marketing Company, which provides marketing
services to various companies within the Fidelity organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc. (FMR
U.K.) and Fidelity Management & Research (Far East) Inc., (FMR Far East),
both wholly owned subsidiaries of FMR formed in 1986, supply investment
research, and may supply portfolio management services, to FMR in
connection with certain funds advised by FMR. Analysts employed by FMR, FMR
U.K., and FMR Far East research and visit thousands of domestic and foreign
companies each year. FMR Texas Inc., a wholly owned subsidiary of FMR
formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. Unless
otherwise noted, the business address of each Trustee and officer is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the address
of FMR. Those Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) by virtue of their affiliation with either
the trust or FMR, are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a
consultant to Western Mining Corporation (1994). Prior to February 1994, he
was President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Until March 1990, Mr. Cox was President and Chief
Operating Officer of Union Pacific Resources Company (exploration and
production). He is a Director of Sanifill Corporation (non-hazardous waste,
1993) and CH2M Hill Companies (engineering). In addition, he served on the
Board of Directors of the Norton Company (manufacturer of industrial
devices, 1983-1990) and continues to serve on the Board of Directors of the
Texas State Chamber of Commerce, and is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992). Prior
to her retirement in September 1991, Mrs. Davis was the Senior Vice
President of Corporate Affairs of Avon Products, Inc. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM,
Inc. (manufacturer of chemical products, 1990). In addition, he serves as a
Trustee of First Union Real Estate Investments, Chairman of the Board of
Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the Financial
Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company. He
is a Director of Allegheny Power Systems, Inc. (electric utility), General
Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). In
addition, he serves as a Trustee of Corporate Property Investors, the EPS
Foundation at Trinity College, the Naples Philharmonic Center for the Arts,
and Rensselaer Polytechnic Institute, and he is a member of the Advisory
Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership
Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
("IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company of
Vermont, American Software, Inc. (1989), and AppleSouth, Inc. (restaurants,
1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and Senior
Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
JOHN H. COSTELLO, Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH, Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance of Officer of FMR Corp. (1993-1994); Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993); and
Vice President, Assistant Controller, and Director of the Accounting
Department - First Boston Corp. (1986-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
THOMAS J. STEFFANCI, Vice President (1994), is Vice President of
Fidelity's fixed income funds and Senior Vice President of FMR (1993).
Prior to joining FMR, Mr. Steffanci was Senior Managing Director of CMB
Investment Counselors (1984-1990).
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the fund based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of July 31, 1994, the Trustees and officers of each fund owned,
in the aggregate, less than 1 % of each fund's outstanding shares.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing the fund's investments, and
compensates all officers of the trust, all Trustees who are "interested
persons" of the trust or of FMR, and all personnel of the trust or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the funds. These services include providing facilities
for maintaining the funds' organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with the funds; preparing all general shareholder
communications and conducting shareholder relations; maintaining the funds'
records and the registration of the funds' shares under federal and state
law; developing management and shareholder services for the funds; and
furnishing reports, evaluations, and analyses on a variety of subjects to
the Board of Trustees.
In addition to the management fee payable to FMR and the fees payable to
FSC, each fund pays all of its expenses, without limitation, that are not
assumed by those parties. Each fund pays for typesetting, printing, and
mailing proxy material to shareholders, legal expenses, and the fees of the
custodian, auditor, and non-interested Trustees. Although each fund's
management contract provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statements of additional information,
notices, and reports to existing shareholders, the trust has entered into a
revised transfer agent agreement with FSC, pursuant to which FSC bears the
cost of providing these services to existing shareholders. Other expenses
paid by each fund include interest, taxes, brokerage commissions, each
fund's proportionate share of insurance premiums and Investment Company
Institute dues, and the costs of registering shares under federal and state
securities laws. Each fund is also liable for such nonrecurring expenses as
may arise, including costs of any litigation to which the fund may be a
party and any obligation it may have to indemnify the trust's officers and
Trustees with respect to litigation.
FMR is each fund's manager pursuant to contracts dated August 1, 1994,
which were approved by the funds' shareholders on July 13, 1994. For the
services of FMR under the contracts, each fund pays FMR a monthly
management fee composed of the sum of two elements: a group fee rate and an
individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown on the left. On the right, the effective fee rate schedule
shows the result of cumulatively applying the annualized rates at varying
asset levels. For example, the effective annual fee rate at $ 258
billion of group net assets -- their approximate level for July 1994
- was . 1597% , which was the weighted average of the
respective fee rates for each level of group net assets up to $258
billion .
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Effective
Average Group Annualized Group Net Annual
Assets Rate Assets Fee Rate
0 - $ 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Prior to August 1, 1994, the group fee rate was based on a schedule with
breakpoints ending at .1400% for average group assets in excess of $174
billion. The group fee rate breakpoints shown above for average group
assets in excess of $120 billion and under $228 billion were voluntarily
adopted by FMR on January 1, 1992. The additional breakpoints shown above
for average group assets in excess of $228 billion were voluntarily adopted
by FMR on November 1, 1993. Each fund's current management contract
reflects these extensions of the group fee rate schedule.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints. The revised group fee
rate schedule provides for lower management fee rates as FMR's assets under
management increase. The revised group fee rate schedule is identical to
the above schedule for average group assets under $156 billion. For average
group assets in excess of $156 billion, the group fee rate schedule
voluntarily adopted by FMR is as follows :
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Effective
Average Group Annualized Group Net Annual
Assets Rate Assets Fee Rate
$ 120 - 156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690%
192 - 228 .1350 200 .1652%
228 - 264 .1300 225 .1618%
264 - 300 .1275 250 .1587%
300 - 336 .1250 275 .1560%
336 - 372 .1225 300 .1536%
Over 372 .1200 325 .1514%
350 .1494%
375 .1476%
400 .1459%
Each fund's individual fund fee rate is .30%. Based on the average net
assets of funds advised by FMR for July 1994, each fund's annual management
fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
.1597 % + .30% = .4597 %
One twelfth (1/12) of this annual management fee rate is then applied to
each fund's average net assets for the current month, giving a dollar
amount which is the fee for that month.
Management fees paid to FMR for the fiscal years ended July 31, 1994,
1993, and 1992 are indicated in the following table.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1993 1992
Ginnie Mae Portfolio $ 3,992,000 $ 4,466,000 $ 4,147,000
Mortgage Securities Portfolio $ 1,735,000 $ 2,010,000 $ 2,043,000
</TABLE>
To comply with the California Code of Regulations, FMR will reimburse each
fund if and to the extent that the fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The
applicable percentages are 2.5% of the first $30 million, 2% of the next
$70 million, and 1.5% of average net assets in excess of $100 million. When
calculating a fund's expenses for purposes of this regulation, each fund
may exclude interest, taxes, brokerage commissions, and extraordinary
expenses, as well as a portion of its distribution plan expenses and
custodian fees attributable to investments in foreign securities.
SUB-ADVISORS. FMR has entered into subadvisory agreements with FMR U.K. and
FMR Far East. Pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from the
sub-advisers. FMR may also grant the sub-advisers investment management
authority as well as the authority to buy and sell securities if FMR
believes it would be beneficial to the funds.
Currently, FMR U.K. and FMR Far East each focus on issuers in countries
other than the United States such as those in Europe, Asia, and the Pacific
Basin.
FMR U.K. and FMR Far East are wholly owned subsidiaries of FMR. Under the
sub-advisory agreements FMR pays the fees of FMR U.K. and FMR Far East. For
providing non-discretionary investment advice and research services, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of FMR U.K.'s and FMR Far East's costs incurred in connection with
providing investment advice and research services.
For providing discretionary investment management and executing portfolio
transactions FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
monthly management fee with respect to a fund's average net assets
managed by the sub-advisers on a discretionary basis.
DISTRIBUTION AND SERVICE PLANS
Each fund has adopted a Distribution and Service Plan (the plans) under
Rule 12b-1 of the Investment Company Act of 1940 (the Rule). The Rule
provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan adopted by the
fund under the Rule. The Board of Trustees has adopted the plans to allow
the funds and FMR to incur certain expenses that might be considered to
constitute indirect payment by the funds of distribution expenses. Under
the plans, if the payment by a fund to FMR of management fees should be
deemed to be indirect financing by the fund of the distribution of their
shares, such payment is authorized by the plans.
The plans also specifically recognize that FMR, either directly or
through FDC, may use its management fee revenue, past profits, or other
resources, without limitation, to pay promotional and administrative
expenses in connection with the offer and sale of shares of the funds. In
addition, the plans provide that FMR may use its resources, including its
management fee revenues, to make payments to third parties that provide
assistance selling shares of the funds, or to third parties, including
banks, that render shareholder support services. P ayments made by
FMR during fiscal 1994 to third parties amounted to $85,000 and
$12,000 for Ginnie Mae Portfolio and Mortgage Securities Portfolio,
respectively.
Each fund's plan has been approved by the Trustees. As required by the
Rule, the Trustees carefully considered all pertinent factors relating to
the implementation of the plans prior to their approval, and have
determined that there is a reasonable likelihood that the plans will
benefit the funds and their shareholders. In particular, the Trustees noted
that the plans do not authorize payments by the funds other than those made
to FMR under its management contracts with the funds. To the extent that
the plans give FMR and FDC greater flexibility in connection with the
distribution of shares of the funds, additional sales of the funds' shares
may result. Additionally, certain shareholder support services may be
provided more effectively under the plans by local entities with whom
shareholders have other relationships.
Each fund's plan was approved by shareholders on January 21, 1987.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services,
and servicing and recordkeeping functions. FDC intends to engage banks only
to perform such functions. However, changes in federal or state statutes
and regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.
The funds may execute portfolio transactions with and purchase securities
issued by depository institutions that receive payments under the plan. No
preference will be shown in the selection of investments for the
instruments of such depository institutions. In addition, state securities
laws on this issue may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be
required to register as dealers pursuant to state law.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
FSC is transfer, dividend disbursing, and shareholders' servicing agent for
the funds. Under the trust ' s contract with FSC, each fund pays an
annual fee of $26.03 per basic retail account with a balance of $5,000 or
more, $15.31 per basic retail account with a balance of less than $5,000,
and a supplemental activity charge of $2.25 for standing order transactions
and $6.11 for other monetary transactions. These fees and charges are
subject to annual cost escalation based on postal rate changes and changes
in wage and price levels as measured by the National Consumer Price Index
for Urban Areas. With respect to certain institutional client master
accounts, the funds pay FSC a per account fee of $95 and monetary
transaction charges of $20 or $17.50, depending on the nature of services
provided. With respect to certain broker-dealer master accounts, the funds
pay FSC a per-account fee of $30 and a charge of $6 for monetary
transactions. Fees for certain institutional retirement plan accounts are
based on the net asset value of all such accounts in a fund.
Under the contract, FSC pays out-of-pocket expenses associated with
providing transfer agent services. In addition, FSC bears the expense of
typesetting, printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
shareholders, with the exception of proxy statements.
The table below shows the transfer agent fees paid to FSC during
each fund's last three fiscal years ended July 31.
TRANSFER AGENT FEES
1994 1993 1992
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GINNIE MAE PORTFOLIO $ 2,349,000 $ 2,313,000 $ 2,165,000
MORTGAGE SECURITIES PORTFOLIO 822,000 935,000 943,000
</TABLE>
The trust's contract with FSC also provides that FSC will perform the
calculations necessary to determine each fund's net asset value per share
and dividends, and maintain the fund's accounting records. The fee rates in
effect as of July 1, 1991 are based on each fund's average net assets,
specifically, .04% for the first $500 million of average net assets and
.02% for average net assets in excess of $500 million. The fee is limited
to a minimum of $45,000 and a maximum of $750,000 per year.
The table below shows the fees paid to FSC for pricing and bookkeeping
services including related out-of-pocket expenses during each fund's last
three fiscal years:
PRICING AND BOOKKEEPING FEES
1994 1993 1992
GINNIE MAE PORTFOLIO $ 303,000 $ 346,000 $ 310,000
MORTGAGE SECURITIES PORTFOLIO 159,000 192,000 185,000
FSC also receives fees for administering each fund's securities lending
program. There were no fees paid by either fund during fiscal 1993, 1992,
and 1991.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreements call
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Ginnie Mae Portfolio and Fidelity Mortgage
Securities Portfolio are funds of Fidelity Income Fund (the trust), an
open-end management investment company organized as a Massachusetts
business trust on August 7, 1984. On October 25, 1985 the trust's name was
changed from Fidelity Mortgage Securities Fund to Fidelity Income Fund.
Currently there are three funds of the trust: Fidelity Ginnie Mae
Portfolio, Fidelity Mortgage Securities Portfolio, and Spartan Limited
Maturity Government Fund. The Declaration of Trust permits the Trustees to
create additional funds.
In the event that FMR ceases to be the investment adviser to the trust or a
fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn. There is a remote possibility
that one fund might become liable for any misstatement in its prospectus or
statement of additional information about another fund.
The assets of the trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the trust. Expenses with respect to the trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of
Trust provides that the trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
trust or the Trustees shall include a provision limiting the obligations
created thereby to the trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value per share you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of redemption,
and the privilege of exchange are described in the Prospectus. Shares are
fully paid and nonassessable, except as set forth under the heading
"Shareholder and Trustee Liability" above. Shareholders representing 10% or
more of the trust or a fund may, as set forth in the Declaration of Trust,
call meetings of the trust or a fund for any purpose related to the trust
or fund, as the case may be, including, in the case of a meeting of the
entire trust, the purpose of voting on removal of one or more Trustees. The
trust or any fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and
distribution of its assets, if approved by vote of the holders of a
majority of the trust or fund as determined by the current value of each
shareholder's investment in the fund or trust. If not so terminated, the
trust and the funds will continue indefinitely. Each fund may invest all of
its assets in another investment company.
CUSTODIAN. Bank of New York, 110 Washington Street, New York, New York, is
custodian of the assets of the funds. The custodian is responsible for the
safekeeping of each fund's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the
investment policies of the funds or in deciding which securities are
purchased or sold by a fund. Each funds may, however, invest in obligations
of the custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the trust's
Trustees may, from time to time have transactions with various banks,
including banks serving as custodians for certain of the funds advised by
FMR. Transactions that have occurred to date include mortgages and personal
and general business loans. In the judgment of FMR, the terms and
conditions of those transactions were not influenced by existing or
potential custodial or other fund relationships.
AUDITOR. Price Waterhouse LLP , 160 Federal Street, Boston,
Massachusetts, serves as the trust's independent accountant. The auditor
examines financial statements for the funds and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
Each fund's financial statement and financial highlights for the fiscal
year ended July 31, 1994 are included in each fund's annual report, which
is a separate report supplied with this Statement of Additional
Information. Each fund's financial statements and financial highlights are
incorporated herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities, such as collateralized mortgage obligations, are determined on
a weighted average life basis, which is the average time for principal to
be repaid. For a mortgage security, this average time is calculated by
assuming a constant prepayment rate for the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC .'S CORPORATE BOND
RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payment of or maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned on actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) The Financial Statements for Fidelity Mortgage Securities
Portfolio for the fiscal year ended July 31, 1994 are incorporated by
reference to the fund's Statement of Additional Information and are filed
herein as Exhibit 24 (a) (1).
(2) The Financial Statements for Fidelity Ginnie Mae Portfolio for the
fiscal year ended July 31, 1994 are incorporated by reference to the fund's
Statement of Additional Information and are filed herein as Exhibit 24 (a)
(2).
(3) The Financial Statements for Spartan Limited Maturity Government Fund
the fiscal year ended July 31, 1994 are incorporated by reference to the
fund's Statement of Additional Information and are filed herein as Exhibit
24 (a) (3).
(b) Exhibits:
(1) Amended and Restated Declaration of Trust, dated September 15, 1994,
is filed herein electronically as Exhibit (1).
(2) Bylaws of Fidelity Income Fund Trust, as currently in effect, are
incorporated herein by reference to Exhibit 2 to Fidelity Union Street
Trust's Post-Effective Amendment No. 87.
(3) Not applicable.
(4) Not applicable.
(5)(a) Management Contract, dated August 1, 1994, between the Mortgage
Securities Portfolio and Fidelity Management and Research Company is filed
herein as Exhibit 5(a).
(b) Management Contract, dated August 1, 1994, between the Ginnie Mae
Portfolio and Fidelity Management and Research Company is filed herein as
Exhibit 5(b).
(c) Management Contract, dated December 1, 1990, between Spartan Limited
Maturity Government Fund and Fidelity Management and Research Company is
filed herein as Exhibit 5(c).
(d) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc., on behalf of
Mortgage Securities Portfolio, dated August 1, 1994, is filed herein as
Exhibit 5(d).
(e) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
Mortgage Securities Portfolio, dated August 1, 1994, is filed herein as
Exhibit 5(e).
(f) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc., on behalf of Ginnie
Mae Fund, dated August 1, 1994, is filed herein as Exhibit 5(f).
(g) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
Ginnie Mae Fund, dated August 1, 1994, is filed herein as Exhibit 5(g).
(h) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (U.K.) Inc., on behalf of
Spartan Limited Maturity Government Fund, dated August 1, 1994, is filed
herein as Exhibit 5(h).
(i) Sub-Advisory Agreement between Fidelity Management & Research
Company and Fidelity Management & Research (Far East) Inc. on behalf of
Spartan Limited Maturity Government Fund, dated August 1, 1994, is filed
herein as Exhibit 5(i).
(6)(a) General Distribution Agreement between the Mortgage Securities
Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(a) to Post-Effective
Amendment No. 18.
(b) Amendment, dated January 1, 1988, to General Distribution Agreement
between Fidelity Mortgage Securities Portfolio and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 11.
(c) General Distribution Agreement between the Ginnie Mae Portfolio and
Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(c) to Post-Effective Amendment No. 18.
(d) Amendment, dated January 1, 1988, to General Distribution Agreement
between Fidelity Ginnie Mae Portfolio and Fidelity Distributors Corporation
is incorporated herein by reference to Exhibit 6(d) to Post-Effective
Amendment No. 11.
(e) General Distribution Agreement between the Short-Term Government
Portfolio and Fidelity Distributors Corporation, dated April 30, 1988, is
incorporated herein by reference to Exhibit 6(e) to Post-Effective
Amendment No. 12.
(7) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, dated November 1, 1989, is incorporated herein by
reference to Exhibit No. 7 to Union Street Trust's Post-Effective Amendment
No. 87.
(8) Custodian Agreement and Schedules A and B between the Registrant and
the Bank of New York, dated July 18, 1991, is incorporated herein by
reference to Exhibit 8 to Post-Effective Amendment No. 23.
(9) Not applicable.
(10) Not applicable.
(11) Consent of Price Waterhouse is filed herein as Exhibit 11.
(12) Not applicable.
(13) Not applicable.
(14)(a) Fidelity Individual Retirement Account Custodial Agreement and
Disclosure Statement, as currently in effect, is incorporated herein by
reference to Exhibit 14(a) to Fidelity Union Street Trust's Post-Effective
Amendment No. 87.
(b) Fidelity Defined Contribution Retirement Plan as currently in effect
are incorporated herein by reference to Exhibit 14(b) to Post-Effective
Amendment No. 20.
(c) Defined Benefit Pension Plan and Trust as currently in effect are
incorporated herein by reference to Exhibit 14(c) to Post-Effective
Amendment No. 20.
(d) Fidelity 403(b)(7) Custodial Account Agreement as currently in
effect are incorporated herein by reference to Exhibit 14(d) to
Post-Effective Amendment No. 20.
(e) Fidelity Investments Individual Retirement Account Custodial
Agreement and Disclosure Statement (Group IRA) as currently in effect are
incorporated herein by reference to Exhibit 14(e) to Post-Effective
Amendment No. 20.
(f) Fidelity Master Plan for Savings and Investments as currently in
effect are incorporated herein by reference to Exhibit 14(f) to
Post-Effective Amendment No. 20.
(g) Fidelity Investments 401(a) Prototype Plan for Tax-Exempt Employers
as currently in effect are incorporated herein by reference to Exhibit
14(g) to Post-Effective Amendment No. 20.
(h) NFSC Individual Retirement Account, as currently in effect, is
incorporated herein by reference to Exhibit 14(h) to Fidelity Union Street
Trust's Post-Effective Amendment No. 87.
(i) Portfolio Advisory Services Individual Retirement Account, as
currently in effect, is incorporated herein by reference to Exhibit 14(i)
to Fidelity Union Street Trust's Post-Effective Amendment No. 87.
(j) 403(b) Individual Custodial Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(j) to Fidelity Union Street
Trust's Post-Effective Amendment No. 87.
(k) NFSC Defined Contribution Plan, as currently in effect, is
incorporated herein by reference to Exhibit 14(k) to Fidelity Union Street
Trust's Post-Effective Amendment No. 87.
(l) The CORPORATEplan for Retirement Profit Sharing/401k Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(l)
to Fidelity Union Street Trust's Post-Effective Amendment No. 87.
(m) The CORPORATEplan for Retirement Money Purchase Pension Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(m)
to Fidelity Union Street Trust's Post-Effective Amendment No. 87.
(15)(a) Distribution and Service Plan between the Mortgage Securities
Portfolio and Fidelity Distributors Corporation is incorporated herein by
reference to Exhibit 15(a) to Post-Effective Amendment No. 7.
(b) Distribution and Service Plan between Ginnie Mae Portfolio and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 15(b) to Post-Effective Amendment No. 5.
(c) Distribution and Service Plan between Short-Term Government
Portfolio and Fidelity Distributors is incorporated herein by reference to
Exhibit 15(c) to Post-Effective Amendment No. 12.
(16) A schedule for computation of performance quotations for Fidelity
Ginnie Mae Portfolio, Fidelity Mortgage Securities Portfolio and Fidelity
Short-Term Government Portfolio is incorporated herein by reference to
Exhibit 16 to Post-Effective Amendment No. 11.
(17) Financial Data schedules are filed herein as Exhibit 27.
Item 25. Persons Controlled by or Under Common Control with Registrant
The Board of Trustees of Registrant is the same as the Board of Trustees
of other funds advised by FMR, each of which has Fidelity Management &
Research Company as its investment adviser. In addition, the officers of
these funds are substantially identical. Nonetheless, Registrant takes the
position that it is not under common control with these other funds since
the power residing in the respective boards and officers arises as the
result of an official position with the respective funds.
Item 26. Number of Holders of Securities
July 1994
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity Mortgage Securities Portfolio 35,269
Fidelity Ginnie Mae Portfolio 93,444
Spartan Limited Maturity Government Fund 35,647
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit or
proceeding in which he is involved by virtue of his service as a trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless disregard
of the duties involved in the conduct of the particular office involved.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
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<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman of
the Board and a Director of FMR, FMR Corp., FMR Texas
Inc., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.; President
and Trustee of funds advised by FMR.
J. Gary Burkhead President of FMR; Managing Director of FMR Corp.;
President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.; Senior Vice
President and Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman of FMR (1992).
Robert Beckwitt Vice President of FMR and of funds advised by FMR.
David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.
Stephan Campbell Vice President of FMR (1993).
Dwight Churchill Vice President of FMR (1993).
Rufus C. Cushman, Jr. Vice President of FMR and of funds advised by FMR;
Corporate Preferred Group Leader.
Will Danoff Vice President of FMR (1993) and of a fund advised by
FMR.
Scott DeSano Vice President of FMR (1993).
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Larry Domash Vice President of FMR (1993).
George Domolky Vice President of FMR (1993) and of a fund advised by
FMR.
Robert K. Duby Vice President of FMR.
Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.
Kathryn L. Eklund Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Daniel R. Frank Vice President of FMR and of funds advised by FMR.
Gary L. French Vice President of FMR and Treasurer of the funds advised
by FMR.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Lawrence Greenberg Vice President of FMR (1993).
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Equity Division Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Richard Haberman Senior Vice President of FMR (1993).
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; and Director of Technical
Research.
Stephen Jonas Treasurer and Vice President of FMR (1993); Treasurer of
FMR Texas Inc. (1993), Fidelity Management & Research
(U.K.) Inc. (1993), and Fidelity Management & Research
(Far East) Inc. (1993).
David B. Jones Vice President of FMR (1993).
Steven Kaye Vice President of FMR (1993) and of a fund advised by
FMR.
Frank Knox Vice President of FMR (1993).
Robert A. Lawrence Senior Vice President of FMR (1993); and High Income
Division Leader.
Alan Leifer Vice President of FMR and of a fund advised by FMR.
Harris Leviton Vice President of FMR (1993) and of a fund advised by
FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Malcolm W. McNaught III Vice President of FMR (1993).
Robert H. Morrison Vice President of FMR and Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Andrew Offit Vice President of FMR (1993).
Judy Pagliuca Vice President of FMR (1993).
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Lee Sandwen Vice President of FMR (1993).
Patricia A. Satterthwaite Vice President of FMR (1993) and of a fund .
Thomas T. Soviero Vice President of FMR (1993).
Richard A. Spillane Vice President of FMR and of funds advised by FMR; and
Director of Equity Research.
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised
by FMR.
Thomas Steffanci Senior Vice President of FMR (1993); and Fixed-Income
Division Leader.
Gary L. Swayze Vice President of FMR and of funds advised by FMR; and
Tax-Free Fixed-Income Group Leader.
Thomas Sweeney Vice President of FMR (1993).
Donald Taylor Vice President of FMR (1993) and of funds advised by
FMR.
Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised
by FMR.
Joel Tillinghast Vice President of FMR (1993) and of a fund advised by
FMR.
Robert Tucket Vice President of FMR (1993).
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR; and Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Guy E. Wickwire Vice President of FMR and of a fund advised by FMR.
Arthur S. Loring Senior Vice President (1993), Clerk and General Counsel of
FMR; Vice President, Legal of FMR Corp.; and Secretary
of funds advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
FMR U.K. provides investment advisory services to Fidelity Management &
Research Company and Fidelity Management Trust Company. The directors and
officers of the Sub-Adviser have held the following positions of a
substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR U.K.; Chairman of the
Executive Committee of FMR; Chief Executive Officer of FMR
Corp.; Chairman of the Board and a Director of FMR, FMR
Corp., FMR Texas Inc., and Fidelity Management & Research
(Far East) Inc.; President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR U.K.; President of FMR;
Managing Director of FMR Corp.; President and a Director of
FMR Texas Inc. and Fidelity Management & Research (Far
East) Inc.; Senior Vice President and Trustee of funds advised
by FMR.
Richard C. Habermann Senior Vice President of FMR U.K.; Senior Vice President of
Fidelity Management & Research (Far East) Inc.; Director of
Worldwide Research of FMR.
Rick Spillane Senior Vice President and Director of Operations and
Compliance of FMR U.K. (1993).
Stephen Jonas Treasurer of FMR U.K. (1993), Fidelity Management &
Research (Far East) Inc. (1993), and FMR Texas Inc. (1993);
Treasurer and Vice President of FMR (1993).
David Weinstein Clerk of FMR U.K.; Clerk of Fidelity Management & Research
(Far East) Inc.; Secretary of FMR Texas Inc.
</TABLE>
(3) FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC. (FMR Far East)
FMR Far East provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The directors
and officers of the Sub-Adviser have held the following positions of a
substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Far East; Chairman of the
Executive Committee of FMR; Chief Executive Officer of
FMR Corp.; Chairman of the Board and a Director of
FMR, FMR Corp., FMR Texas Inc. and Fidelity
Management & Research (U.K.) Inc.; President and
Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Far East; President of
FMR; Managing Director of FMR Corp.; President and a
Director of FMR Texas Inc. and Fidelity Management &
Research (U.K.) Inc.; Senior Vice President and Trustee
of funds advised by FMR.
Richard C. Habermann Senior Vice President of FMR Far East; Senior Vice
President of Fidelity Management & Research (U.K.)
Inc.; Director of Worldwide Research of FMR.
William R. Ebsworth Vice President of FMR Far East.
Bill Wilder Vice President of FMR Far East (1993).
Stephen Jonas Treasurer of FMR Far East (1993), Fidelity Management
& Research (U.K.) Inc. (1993), and FMR Texas Inc.
(1993); Treasurer and Vice President of FMR (1993).
David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity Management &
Research (U.K.) Inc.; Secretary of FMR Texas Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR and the following other funds:
CrestFunds, Inc.
ARK Funds
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Nita B. Kincaid Director None
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer None
William L. Adair Senior Vice President None
Thomas W. Littauer Senior Vice President None
Arthur S. Loring Vice President and Clerk Secretary
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity Service
Co., 82 Devonshire St., Boston, MA, 02109, or the funds' custodian The
Bank of New York, 110 Washington Street, New York, N.Y.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant on behalf of Fidelity Mortgage Securities Portfolio,
Fidelity Ginnie Mae Portfolio, and Spartan Limited Maturity Government Fund
undertakes, provided the information required by Item 5A is contained in
the annual report, to furnish each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the
Registrant's latest annual report to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for the effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 31 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and Commonwealth of Massachusetts, on the 15th day
of September 1994.
FIDELITY INCOME FUND
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d(dagger) President and Trustee September 15, 1994
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Gary L. French Treasurer September 15, 1994
Gary L. French
/s/J. Gary Burkhead Trustee September 15, 1994
J. Gary Burkhead
/s/Ralph F. Cox * Trustee September 15, 1994
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee September 15, 1994
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee September 15, 1994
Richard J. Flynn
/s/E. Bradley Jones * Trustee September 15, 1994
E. Bradley Jones
/s/Donald J. Kirk * Trustee September 15, 1994
Donald J. Kirk
/s/Peter S. Lynch * Trustee September 15, 1994
Peter S. Lynch
/s/Edward H. Malone * Trustee September 15, 1994
Edward H. Malone
/s/Marvin L. Mann_____* Trustee September 15, 1994
Marvin L. Mann
/s/Gerald C. McDonough* Trustee September 15, 1994
Gerald C. McDonough
/s/Thomas R. Williams * Trustee September 15, 1994
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated October 20, 1993 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated October 20, 1993 and filed herewith.
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VII Fidelity Municipal Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Securities Fund
Fidelity Commonwealth Trust Fidelity Select Portfolios
Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P.
Fidelity Contrafund Fidelity Summer Street Trust
Fidelity Corporate Trust Fidelity Trend Fund
Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Xupolos, each of them singly, our true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for us and in our names in the appropriate capacities, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this twentieth day of October, 1993.
/s/Edward C. Johnson 3d /s/Peter S. Lynch
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead /s/Edward H. Malone
J. Gary Burkhead Edward H. Malone
/s/Richard J. Flynn /s/Gerald C. McDonough
Richard J. Flynn Gerald C. McDonough
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VII Fidelity Municipal Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Securities Fund
Fidelity Commonwealth Trust Fidelity Select Portfolios
Fidelity Congress Street Fund Fidelity Sterling Performance Portfolio, L.P.
Fidelity Contrafund Fidelity Summer Street Trust
Fidelity Corporate Trust Fidelity Trend Fund
Fidelity Court Street Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Destiny Portfolios Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as President and Board Member (collectively, the "Funds"), hereby
severally constitute and appoint J. Gary Burkhead, my true and lawful
attorney-in-fact, with full power of substitution, and with full power to
sign for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorney-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission. I hereby ratify
and confirm all that said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d October 20, 1993
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series VI Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VIII Fidelity New York Municipal Trust
Fidelity California Municipal Trust Fidelity Puritan Trust
Fidelity Capital Trust Fidelity School Street Trust
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Devonshire Trust Fidelity U.S. Investments-Government Securities
Fidelity Financial Trust Fund, L.P.
Fidelity Fixed-Income Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Government Securities Fund Spartan U.S. Treasury Money Market
Fidelity Hastings Street Trust Fund
Fidelity Income Fund Variable Insurance Products Fund
Fidelity Institutional Trust Variable Insurance Products Fund II
Fidelity Investment Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as a Board Member (collectively, the "Funds"), hereby severally
constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C.
Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each
of them singly, my true and lawful attorneys-in-fact, with full power of
substitution, and with full power to each of them, to sign for me and in my
name in the appropriate capacity, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, any Registration Statements on
Form N-14, and any supplements or other instruments in connection
therewith, and generally to do all such things in my name and behalf in
connection therewith as said attorneys-in-fact deem necessary or
appropriate, to comply with the provisions of the Securities Act of 1933
and Investment Company Act of 1940, and all related requirements of the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or their substitutes may do or cause to be done
by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Ralph F. Cox October 20, 1993
Ralph F. Cox
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Special Situations Fund
Fidelity Advisor Series IV Fidelity Sterling Performance Portfolio, L.P.
Fidelity Advisor Series VI Fidelity Trend Fund
Fidelity Advisor Series VII Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Advisor Series VIII Fidelity U.S. Investments-Government Securities
Fidelity Contrafund Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Yen Performance Portfolio, L.P.
Portfolio, L.P. Spartan U.S. Treasury Money Market
Fidelity Fixed-Income Trust Fund
Fidelity Government Securities Fund Variable Insurance Products Fund
Fidelity Hastings Street Trust Variable Insurance Products Fund II
Fidelity Institutional Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as a Board Member (collectively, the "Funds"), hereby severally
constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C.
Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each
of them singly, my true and lawful attorneys-in-fact, with full power of
substitution, and with full power to each of them, to sign for me and in my
name in the appropriate capacity, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, any Registration Statements on
Form N-14, and any supplements or other instruments in connection
therewith, and generally to do all such things in my name and behalf in
connection therewith as said attorneys-in-fact deem necessary or
appropriate, to comply with the provisions of the Securities Act of 1933
and Investment Company Act of 1940, and all related requirements of the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or their substitutes may do or cause to be done
by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Marvin L. Mann October 20, 1993
Marvin L. Mann
POWER OF ATTORNEY
I, the undersigned Director, Trustee or General Partner, as the case may
be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series IV Fidelity School Street Trust
Fidelity Advisor Series VI Fidelity Select Portfolios
Fidelity Advisor Series VIII Fidelity Sterling Performance Portfolio, L.P.
Fidelity Beacon Street Trust Fidelity Trend Fund
Fidelity Capital Trust Fidelity Union Street Trust
Fidelity Commonwealth Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Contrafund Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
Fidelity Institutional Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as a Board Member (collectively, the "Funds"), hereby severally
constitute and appoint Arthur J. Brown, Arthur C. Delibert, Robert C.
Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A. Xupolos, each
of them singly, my true and lawful attorneys-in-fact, with full power of
substitution, and with full power to each of them, to sign for me and in my
name in the appropriate capacity, all Pre-Effective Amendments to any
Registration Statements of the Funds, any and all subsequent Post-Effective
Amendments to said Registration Statements, any Registration Statements on
Form N-14, and any supplements or other instruments in connection
therewith, and generally to do all such things in my name and behalf in
connection therewith as said attorneys-in-fact deem necessary or
appropriate, to comply with the provisions of the Securities Act of 1933
and Investment Company Act of 1940, and all related requirements of the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact or their substitutes may do or cause to be done
by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Phyllis Burke Davis October 20, 1993
Phyllis Burke Davis
(small solid bullet) Exhibit 24(a)(1)
FIDELITY
(registered trademark)
MORTGAGE SECURITIES
PORTFOLIO
ANNUAL REPORT
JULY 31, 1994
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 JULY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Mortgage Securities 3.13% 47.94% 138.10%
Salomon Brothers Mortgage Index 0.67% 51.01% n/a
Average U.S. Mortgage Fund -1.84% 42.14% 127.72%
Consumer Price Index 2.77% 19.29% 40.93%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years, or since the fund
started on December 31, 1984. 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. To
measure how the fund stacked up against its peers, you can compare these
figures to the Salomon Brothers Mortgage Index - a broad measure of the
performance of mortgage securities. You can also look at the average U.S.
mortgage fund, which reflects the performance of 58 U.S. mortgage 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 JULY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Mortgage Securities 3.13% 8.15% 9.47%
Salomon Brothers Mortgage Index 0.67% 8.59% n/a
Average U.S. Mortgage Fund -1.84% 7.28% 8.95%
Consumer Price Index 2.77% 3.59% 3.64%
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
Mortgage Sec.SB Mortgage Index (SB05)
12/31/84 10000.00 10000.00
01/31/85 10268.17 10239.00
02/28/85 10182.13 9998.38
03/31/85 10381.15 10262.34
04/30/85 10557.41 10500.43
05/31/85 10895.84 11110.50
06/30/85 11062.37 11307.16
07/31/85 11036.95 11272.11
08/31/85 11202.73 11475.00
09/30/85 11333.92 11603.52
10/31/85 11513.08 11894.77
11/30/85 11773.13 12227.83
12/31/85 11967.05 12566.54
01/31/86 12059.68 12615.55
02/28/86 12267.56 12963.73
03/31/86 12440.08 13154.30
04/30/86 12505.38 13258.22
05/31/86 12358.15 13006.31
06/30/86 12506.49 13194.91
07/31/86 12689.96 13454.85
08/31/86 12909.18 13719.91
09/30/86 12907.75 13740.49
10/31/86 13076.73 13927.36
11/30/86 13269.91 14215.65
12/31/86 13314.34 14255.46
01/31/87 13472.59 14465.01
02/28/87 13563.70 14598.09
03/31/87 13543.66 14576.19
04/30/87 13178.83 14147.65
05/31/87 13147.72 14102.38
06/30/87 13349.38 14340.71
07/31/87 13369.30 14395.21
08/31/87 13326.51 14330.43
09/30/87 12990.10 14000.83
10/31/87 13375.03 14460.05
11/30/87 13502.59 14663.94
12/31/87 13673.42 14834.04
01/31/88 14133.26 15409.60
02/29/88 14285.67 15594.52
03/31/88 14201.00 15479.12
04/30/88 14113.12 15383.15
05/31/88 14054.43 15349.31
06/30/88 14335.70 15734.57
07/31/88 14301.64 15685.80
08/31/88 14319.79 15718.74
09/30/88 14607.80 16092.84
10/31/88 14881.56 16459.76
11/30/88 14684.79 16224.38
12/31/88 14591.89 16140.02
01/31/89 14856.64 16443.45
02/28/89 14777.98 16318.48
03/31/89 14807.18 16323.38
04/30/89 15080.51 16610.67
05/31/89 15437.42 17155.50
06/30/89 15811.03 17591.25
07/31/89 16094.12 18008.16
08/31/89 15924.13 17743.44
09/30/89 15993.65 17867.64
10/31/89 16310.87 18285.75
11/30/89 16468.05 18483.23
12/31/89 16581.56 18586.74
01/31/90 16428.80 18452.91
02/28/90 16538.23 18528.57
03/31/90 16551.22 18604.54
04/30/90 16408.05 18431.52
05/31/90 16885.08 18991.83
06/30/90 17129.86 19305.20
07/31/90 17378.80 19633.39
08/31/90 17332.84 19472.39
09/30/90 17425.36 19630.12
10/31/90 17603.86 19836.24
11/30/90 17989.06 20278.58
12/31/90 18299.37 20613.18
01/31/91 18489.25 20914.13
02/28/91 18607.63 21047.98
03/31/91 18732.78 21201.63
04/30/91 18935.57 21422.13
05/31/91 19034.01 21606.36
06/30/91 19081.61 21630.13
07/31/91 19355.69 21995.68
08/31/91 19725.57 22398.20
09/30/91 20033.52 22828.24
10/31/91 20270.31 23179.80
11/30/91 20394.23 23339.74
12/31/91 20790.41 23836.88
01/31/92 20690.40 23593.74
02/29/92 20896.28 23815.52
03/31/92 20751.87 23710.73
04/30/92 20946.42 23926.50
05/31/92 21292.15 24371.53
06/30/92 21517.75 24668.87
07/31/92 21480.82 24866.22
08/31/92 21619.76 25201.91
09/30/92 21755.49 25395.97
10/31/92 21539.15 25182.64
11/30/92 21643.25 25285.89
12/31/92 21924.12 25594.38
01/31/93 22124.14 25947.58
02/28/93 22313.63 26186.30
03/31/93 22459.34 26343.41
04/30/93 22616.14 26522.55
05/31/93 22683.10 26644.55
06/30/93 22959.81 26903.01
07/31/93 23086.02 27013.31
08/31/93 23129.01 27124.06
09/30/93 23179.53 27148.47
10/31/93 23220.77 27238.06
11/30/93 23172.23 27189.04
12/31/93 23395.87 27392.95
01/31/94 23611.34 27669.62
02/28/94 23486.83 27498.07
03/31/94 23220.65 26818.87
04/30/94 23118.93 26649.91
05/31/94 23315.73 26740.52
06/30/94 23435.07 26673.67
07/31/94 23809.69 27193.80
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Mortgage Securities Portfolio on December 31, 1984, when the fund started.
As the chart shows, by July 31, 1994, the value of your investment would
have grown to $23,810 - a 138.10% increase on your initial investment. For
comparison, look at how the Salomon Brothers Mortgage Index did over the
same period. With dividends reinvested, the same $10,000 investment would
have grown to $27,194 - a 171.94% 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)
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1994 1993 1992 1991 1990
Dividend return 5.52% 6.73% 7.64% 8.83% 8.37%
Capital appreciation return -2.39% 0.74% 3.34% 2.55% -0.39%
Total return 3.13% 7.47% 10.98% 11.38% 7.98%
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation 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 gains are
reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1994 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.72(cents) 28.55(cents) 58.81(cents)
Annualized dividend rate 5.30% 5.47% 5.52%
30-day annualized yield 7.13% - -
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 $10.48 over
the past month, $10.53 over the past six months and $10.66 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
INVESTMENTS JULY 31, 1994
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 74.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 10.0%
8%, 10/1/07 to 12/1/18 $ 1,487,051 $ 1,480,509
8 1/4%, 12/1/08 943,408 945,040
8 1/2%, 11/1/03 to 12/1/18 4,407,849 4,478,381
9%, 7/1/13 to 9/1/20 19,394,765 20,235,541
10%, 1/1/09 to 2/1/23 7,557,720 8,052,824
10 1/2%, 2/1/16 202,564 218,198
11 1/2%, 4/1/12 to 8/1/19 1,345,186 1,490,239
11 3/4%, 6/1/11 108,368 119,337
12 1/4%, 1/1/14 to 8/1/15 558,719 617,389
12 1/2%, 10/1/12 to 12/1/14 2,024,790 2,310,793
12 3/4%, 6/1/05 to 3/1/15 475,980 542,027
13%, 1/1/11 to 12/1/14 3,447,969 3,969,479
44,459,757
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 31.5%
5 1/2%, 11/1/08 to 5/1/09 49,994 43,901
7%, 7/1/23 to 7/1/24 15,064,015 14,301,776
7 1/2%, 8/1/23 to 8/1/24 74,000,000 72,253,600
8%, 1/1/07 to 7/1/08 290,113 293,050
8 1/4%, 1/1/13 266,713 269,210
8 1/2%, 11/1/01 to 8/1/12 4,240,600 4,369,128
8 3/4%, 11/1/08 to 7/1/09 503,332 519,482
9%, 1/1/08 to 6/1/09 1,761,800 1,838,832
9 1/2%, 11/1/09 to 12/1/20 2,986,095 3,168,882
10%, 10/1/02 to 11/1/21 24,231,895 26,024,705
10 1/2%, 1/1/01 to 5/1/08 1,869,811 2,000,101
11%, 12/1/02 to 8/1/10 5,636,982 6,209,579
12%, 4/1/15 to 3/1/17 3,579,945 4,044,617
12 1/4%, 2/1/13 to 3/1/16 1,240,318 1,396,383
12 1/2%, 2/1/13 to 3/1/16 1,689,219 1,925,717
12 3/4%, 8/1/13 to 7/1/15 781,551 889,020
13 1/2%, 12/1/12 to 12/1/14 350,705 402,437
14%, 5/1/12 to 11/1/14 191,770 221,975
140,172,395
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 32.5%
7%, 4/15/07 to 9/15/23 $ 42,285,346 $ 40,951,935
7 1/2%, 12/15/16 to 8/15/24 65,238,387 63,371,580
8 1/2%, 8/15/16 to 8/15/22 4,005,079 4,097,280
9%, 4/15/01 to 4/15/18 14,653,009 15,358,739
9 1/2%, 8/15/09 to 11/15/19 6,038,078 6,429,894
9 1/2%, 7/15/20 to 8/15/20 (d) 2,000,000 2,123,120
9 1/2%, 8/15/20 (d)(e) 10,000,000 10,615,600
10 1/2%, 1/15/98 to 8/15/20 1,264,292 1,359,779
11 1/2%, 7/15/10 to 7/15/18 180,918 204,314
13 1/2%, 10/15/14 37,400 43,572
144,555,813
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $328,368,253) 329,187,965
COLLATERALIZED MORTGAGE OBLIGATIONS - 3.6%
U.S. GOVERNMENT AGENCY - 3.2%
Federal Home Loan Mortgage Corp.:
Z bond series 1 class 1-Z, 9.30%, 4/15/19 9,709,728 9,952,471
Z bond series 9 class 9-Z, 9.05%, 8/15/19 4,294,149 4,358,561
14,311,032
PRIVATE ISSUER - 0.4%
Maryland National Bank pass thru series 1990-1 class A,
9 1/2%, 10/25/20 1,630,912 1,626,835
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $16,917,860) 15,937,867
COMMERCIAL MORTGAGE SECURITIES - 1.5%
CBA Mortgage Corp. commercial series 1993-C1 class E,
7.158%, 12/25/03 3,183,000 2,551,556
CS First Boston Mortgage Securities Corp.:
commercial series 1994-CFBI class D, 6.4769%, 1/25/28 3,731,000
3,023,276
commercial series 1994-CFBI class F, 6.4769%,
1/25/28 (a) 1,390,393 884,637
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $6,495,560) 6,459,469
COMPLEX MORTGAGE SECURITIES - 5.2%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
INTEREST ONLY STRIPS - 5.2%
Federal National Mortgage Association:
series A class 2, 605%, 8/25/10 (c) $ 95,728 $ 1,388,063
trust 47, 10%, 10/25/18 (b) 8,612,107 2,669,753
trust 49, 10%, 2/25/19 (b) 5,854,459 1,814,883
trust 249, 6 1/2%, 10/25/23 (b) 48,767,419 17,617,230
TOTAL COMPLEX MORTGAGE SECURITIES
(Cost $21,759,757) 23,489,929
REPURCHASE AGREEMENTS - 15.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 4.23%
dated 7/29/94 due 8/1/94 $ 69,767,584 69,743,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $443,284,430) $ 444,818,230
LEGEND
1. 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 $884,637 or 0.2% of net
assets.
2. Security represents the right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
3. Security represents right to receive monthly interest payments on an
underlying pool of mortgages and the principal amount shown. Coupon
reflects that the underlying pool of mortgages is larger than the principal
to be received.
4. Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
5. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
INCOME TAX INFORMATION
At July 31, 1994, the aggregate cost of investment securities for income
tax purposes was $443,289,698. Net unrealized appreciation aggregated
$1,528,532, of which $5,886,804 related to appreciated investment
securities and $4,358,272 related to depreciated investment securities.
The fund hereby designates $40,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
For the year ended July 31, 1994, the net realized loss on mortgage-backed
security paydowns treated as ordinary income for income tax purposes was
$5,175,715.
The fund intends to elect to defer to its fiscal year ending July 31, 1995
$4,447,200 of losses recognized during the period November 1, 1993 to July
31, 1994.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JULY 31, 1994
ASSETS 56. 57.
58.Investment in securities, at value (including 59. $ 444,818,230
repurchase agreements of $69,743,000) (cost
$443,284,430)
(Notes 1 and 2) - See accompanying schedule
60.Commitment to sell securities on a delayed delivery $ (12,738,720) 61.
basis
62.Receivable for securities sold on a delayed delivery 12,576,132 (162,588)
basis
63.Receivable for investments sold, regular delivery 64. 28,195,923
65.Cash 66. 2,858,378
67.Interest receivable 68. 2,553,358
69. TOTAL ASSETS 70. 478,263,301
LIABILITIES 71. 72.
73.Payable for investments purchased 101,231,844 74.
Regular delivery
75. Delayed delivery 10,645,556 76.
77.Payable for fund shares redeemed 31,994 78.
79.Dividends payable 273,571 80.
81.Accrued management fee 135,017 82.
83.Other payables and accrued expenses 144,569 84.
85. TOTAL LIABILITIES 86. 112,462,551
87.NET ASSETS 88. $ 365,800,750
89.Net Assets consist of (Note 1): 90. 91.
92.Paid in capital 93. $ 368,098,599
94.Distribution in excess of net investment income 95. (675,692)
96.Accumulated undistributed net realized gain (loss) on 97. (2,993,369)
investments
98.Net unrealized appreciation (depreciation) on 99. 1,371,212
investments
100.NET ASSETS, for 34,559,840 shares outstanding 101. $ 365,800,750
102.NET ASSET VALUE, offering price and redemption 103. $10.58
price per share ($365,800,750 (divided by) 34,559,840 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED JULY 31, 1994
INVESTMENT INCOME 105. $ 28,262,567
104.Interest
EXPENSES 106. 107.
108.Management fee (Note 4) $ 1,735,467 109.
110.Transfer agent fees (Note 4) 821,593 111.
112.Accounting fees and expenses (Note 4) 158,558 113.
114.Non-interested trustees' compensation 2,291 115.
116.Custodian fees and expenses 95,017 117.
118.Registration fees 27,721 119.
120.Audit 66,280 121.
122.Legal 3,053 123.
124.Interest (Note 5) 640 125.
126.Reports to shareholders 47,098
127.Miscellaneous 5,403 128.
129. TOTAL EXPENSES 130. 2,963,121
131.NET INVESTMENT INCOME 132. 25,299,446
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 134. (6,701,766)
(NOTES 1, 2 AND 3)
133.Net realized gain (loss) on investment securities
135.Change in net unrealized appreciation 136. 137.
(depreciation) on:
138. Investment securities (6,690,979) 139.
140. Delayed delivery commitments (162,588) (6,853,567)
141.NET GAIN (LOSS) 142. (13,555,333)
143.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 144. $ 11,744,113
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1994 1993
INCREASE (DECREASE) IN NET ASSETS
145.Operations $ 25,299,446 $ 30,772,023
Net investment income
146. Net realized gain (loss) (6,701,766) 1,875,336
147. Change in net unrealized appreciation (6,853,567) (1,885,193)
(depreciation)
148. 11,744,113 30,762,166
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS
149.Distributions to shareholders: (20,745,350) (27,846,286)
From net investment income
150. From net realized gain (1,532,937) -
151. In excess of net realized gain (1,074,645) -
152. TOTAL DISTRIBUTIONS (23,352,932) (27,846,286)
153.Share transactions 75,437,490 73,434,694
Net proceeds from sales of shares
154. Reinvestment of distributions 19,136,884 22,774,553
155. Cost of shares redeemed (136,632,161) (120,772,663)
156. (42,057,787) (24,563,416)
Net increase (decrease) in net assets resulting from
share transactions
157. (53,666,606) (21,647,536)
TOTAL INCREASE (DECREASE) IN NET ASSETS
NET ASSETS 158. 159.
160. Beginning of period 419,467,356 441,114,892
161. $ 365,800,750 $ 419,467,356
End of period (including under (over) distribution of
net investment income of $(675,692) and
$10,956,070, respectively)
OTHER INFORMATION 163. 164.
162.Shares
165. Sold 7,107,385 6,802,713
166. Issued in reinvestment of distributions 1,793,385 2,109,625
167. Redeemed (12,806,427) (11,183,805)
168. Net increase (decrease) (3,905,657) (2,271,467)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
169. YEARS ENDED JULY 31,
170. 1994 1993 1992 1991 1990
171.SELECTED PER-SHARE DATA
172.Net asset value, $ 10.910 $ 10.830 $ 10.480 $ 10.220 $ 10.260
beginning of period
173.Income from .570A .788 .808 .861 .896
Investment
Operations
Net investment income
174. Net realized and (.242) (.007) .313 .255 (.119)
unrealized gain (loss)
175. Total from .328 .781 1.121 1.116 .777
investment operations
176.Less Distributions (.588) (.701) (.771) (.856) (.817)
From net investment
income
177. From net realized (.040) - - - -
gain on investments
178. In excess of net (.030) - - - -
realized gain on
investments
179. Total distributions (.658) (.701) (.771) (.856) (.817)
180.Net asset value, $ 10.580 $ 10.910 $ 10.830 $ 10.480 $ 10.220
end of period
181.TOTAL RETURN 3.13% 7.47% 10.98% 11.38% 7.98%
182.RATIOS AND SUPPLEMENTAL DATA
183.Net assets, end of $ 366 $ 419 $ 441 $ 410 $ 387
period (in millions)
184.Ratio of expenses .79% .76% .80% .82% .82%
to average net assets
185.Ratio of net 6.73% 7.18% 7.57% 8.39% 8.78%
investment income to
average net assets
186.Portfolio turnover 563% 278% 146% 209% 110%
rate
</TABLE>
A THE AMOUNT SHOWN REFLECTS CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES (SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1994
1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Mortgage Securities Portfolio (the fund) is a fund of Fidelity
Income Fund (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, the fund is not subject to income taxes to
the extent that it distributes 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 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.
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
paydown gains/losses on certain securities and losses deferred due to
futures and options 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 and may affect net
investment income per share disclosed. Distributions in excess of net
investment income 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.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective August 1,
1993, the fund adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of July 31, 1993 have been reclassified to reflect
a decrease in paid in capital of $356,945, a decrease in undistributed net
investment income of $11,010,141 and a decrease in accumulated net realized
loss on investments of $11,367,086.
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 affiliated
entities of FMR, may transfer uninvested cash balances into one or more
joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The fund
may receive compensation for interest forgone in a delayed delivery
transaction. The fund identifies securities as segregated in its custodial
records with a value at least equal to the amount of the purchase
commitment.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,078,941,863 and $2,113,870,227, respectively, of which U.S.
government and government agency obligations aggregated $2,055,149 and
$2,078,358,338, 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
4. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .14% to .37% for the period from August 1, 1993 to
October 31, 1993 and .1325% to .3700% for the period from November 1, 1993
to July 31, 1994. In the event that these rates were lower than the
contractual rates in effect during those periods, FMR voluntarily
implemented the above rates for those periods as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annual rate of .46% of
average net assets.
The Board of Trustees has approved a new group fee rate schedule with rates
ranging from .12% to .37%. Effective August 1, 1994, FMR voluntarily agreed
to implement this new group fee rate schedule as it resulted in the same or
a lower management fee.
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 $11,828 for the period.
TRANSFER AGENT FEES. 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 FEES. FSC maintains the funds' 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 $6,700,000. The weighted average
interest rate was 3.4%.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of
Fidelity Mortgage Securities Portfolio:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operation and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Fidelity
Mortgage Securities Portfolio (a fund of Fidelity Income Fund) at July 31,
1994, 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 Mortgage Securities
Portfolio'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 July 31, 1994 by correspondence with
the custodian and brokers, and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 6, 1994
DISTRIBUTIONS
The Board of Trustees of Fidelity Income Fund: Fidelity Mortgage Securities
Portfolio voted to pay on September 6, 1994, to shareholders of record at
the opening of business on September 2, 1994 a distribution of $.05 derived
from capital gains realized from sales of portfolio securities.
.67% of the dividends distributed during the fiscal year was derived from
interest on U.S. government securities which is generally exempt from state
income tax.
The fund will notify shareholders in January 1995 of the applicable
percentage for use in preparing 1994 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
U.K. Inc. (FMR U.K.)
London, England
Fidelity Management & Research
Far East Inc. (FMR Far East)
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Thomas J. Steffanci, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
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
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Short-Term World Income
Spartan Ginnie Mae
(registered trademark)
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
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)
(registered trademark)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
(small solid bullet) Exhibit 24(a)(2)
FIDELITY
(registered trademark)
GINNIE MAE
PORTFOLIO
ANNUAL REPORT
JULY 31, 1994
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 JULY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Ginnie Mae Portfolio -0.63% 44.43% 107.17%
Salomon Brothers GNMA
Mortgage Pass-Through Index 0.28% 51.15% n/a
Average GNMA Fund -0.80% 44.20% n/a
Consumer Price Index 2.77% 19.29% 36.52%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years, or since the fund
started on November 8, 1985. 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 Salomon Brothers GNMA Mortgage
Pass-Through Index - a broad measure of GNMA performance. To measure how
the fund stacked up against its peers you can compare it to the average
GNMA fund, which reflects the performance of 48 GNMA funds tracked by
Lipper Analytical Services. This benchmark includes 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. (The CPI
returns begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Ginnie Mae Portfolio -0.63% 7.63% 8.70%
Salomon Brothers GNMA Mortgage
Pass-Through Index 0.28% 8.61% n/a
Average GNMA Fund -0.80% 7.59% n/a
Consumer Price Index 2.77% 3.59% 3.62%
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
GNMA Portfolio SB GNMA Index
11/30/85 10000.00 10000.00
12/31/85 10380.25 10296.00
01/31/86 10428.54 10327.92
02/28/86 10673.66 10604.71
03/31/86 10889.17 10752.11
04/30/86 10969.85 10844.58
05/31/86 10753.34 10638.53
06/30/86 10917.30 10805.56
07/31/86 11081.37 11002.22
08/31/86 11328.10 11204.66
09/30/86 11300.82 11224.83
10/31/86 11473.85 11369.63
11/30/86 11688.87 11581.10
12/31/86 11724.24 11637.85
01/31/87 11879.82 11785.65
02/28/87 11976.44 11903.51
03/31/87 11934.24 11902.32
04/30/87 11528.78 11538.11
05/31/87 11466.03 11498.88
06/30/87 11637.75 11700.11
07/31/87 11642.10 11727.02
08/31/87 11568.43 11660.17
09/30/87 11242.34 11362.84
10/31/87 11616.99 11742.36
11/30/87 11708.79 11912.62
12/31/87 11859.79 12049.62
01/31/88 12261.98 12543.65
02/29/88 12380.62 12692.92
03/31/88 12355.56 12579.95
04/30/88 12247.30 12488.12
05/31/88 12203.07 12475.63
06/30/88 12464.18 12801.25
07/31/88 12420.30 12751.32
08/31/88 12437.96 12764.07
09/30/88 12686.02 13080.62
10/31/88 12907.75 13385.40
11/30/88 12776.77 13189.97
12/31/88 12709.49 13118.75
01/31/89 12911.67 13360.13
02/28/89 12844.78 13257.26
03/31/89 12859.90 13262.56
04/30/89 13110.92 13501.29
05/31/89 13444.49 13960.33
06/30/89 13805.76 14355.41
07/31/89 14034.96 14678.41
08/31/89 13902.68 14465.57
09/30/89 13935.61 14556.70
10/31/89 14233.25 14895.87
11/30/89 14370.26 15068.67
12/31/89 14469.39 15163.60
01/31/90 14310.83 15030.16
02/28/90 14393.97 15087.27
03/31/90 14422.17 15149.13
04/30/90 14260.03 14977.95
05/31/90 14715.41 15461.73
06/30/90 14922.21 15718.40
07/31/90 15159.50 15993.47
08/31/90 15120.64 15833.54
09/30/90 15214.38 15964.95
10/31/90 15382.64 16140.57
11/30/90 15728.61 16537.63
12/31/90 15988.72 16813.80
01/31/91 16190.01 17050.88
02/28/91 16255.35 17151.48
03/31/91 16368.63 17283.55
04/30/91 16489.89 17465.02
05/31/91 16615.06 17603.00
06/30/91 16635.10 17639.96
07/31/91 16881.74 17939.84
08/31/91 17182.79 18264.55
09/30/91 17436.15 18606.10
10/31/91 17673.45 18885.19
11/30/91 17768.26 19007.95
12/31/91 18157.93 19483.14
01/31/92 18007.33 19264.93
02/29/92 18199.79 19442.17
03/31/92 18092.65 19374.12
04/30/92 18247.34 19540.74
05/31/92 18550.06 19884.66
06/30/92 18757.68 20157.08
07/31/92 18848.72 20310.27
08/31/92 19057.14 20590.55
09/30/92 19194.15 20755.28
10/31/92 19039.00 20612.07
11/30/92 19136.58 20723.37
12/31/92 19374.43 20961.69
01/31/93 19630.15 21255.15
02/28/93 19804.60 21442.20
03/31/93 19913.03 21581.57
04/30/93 19981.19 21691.64
05/31/93 20095.79 21813.11
06/30/93 20292.70 22033.43
07/31/93 20399.31 22121.56
08/31/93 20450.04 22165.80
09/30/93 20451.21 22181.32
10/31/93 20521.13 22232.34
11/30/93 20402.67 22201.21
12/31/93 20558.65 22369.94
01/31/94 20790.03 22562.32
02/28/94 20594.31 22454.02
03/31/94 20077.15 21885.93
04/30/94 19916.58 21754.62
05/31/94 19934.34 21826.41
06/30/94 19866.94 21782.76
07/31/94 20270.17 22185.74
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Ginnie Mae Portfolio on November 30, 1985, soon after the fund started. As
the chart shows, by July 31, 1994, the value of your investment would have
grown to $20,270 - a 102.70% increase on your initial investment. For
comparison, look at how the Salomon Brothers GNMA Mortgage Pass-Through
Index did over the same period. With dividends reinvested the same $10,000
investment would have grown to $22,186 - a 121.86% 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)
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1994 1993 1992 1991 1990
Dividend return 5.24% 6.42% 7.80% 8.66% 8.49%
Capital appreciation return -5.87% 1.81% 3.85% 2.70% -0.48%
Total return -0.63% 8.23% 11.65% 11.36% 8.01%
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation 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 gains are
reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1994 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.72(cents) 30.39(cents) 58.16(cents)
Annualized dividend rate 6.58% 5.86% 5.42%
30-day annualized yield 6.63% - -
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 $10.23 over
the past month, $10.45 over the past six months and $10.73 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
INVESTMENTS JULY 31, 1994
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 92.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.7%
8 1/2%, 2/1/04 to 5/1/17 $ 2,161 $ 2,203
9%, 6/1/10 to 4/1/21 7,620 8,019
10%, 10/1/04 to 12/1/19 10,397 11,028
10 1/4%, 2/1/09 to 11/1/16 7,323 7,759
10 1/2%, 11/1/17 1,082 1,166
11 1/4%, 2/1/10 to 5/1/11 953 1,042
11 1/2%, 2/1/12 to 8/1/19 3,636 4,037
11 3/4%, 11/1/11 231 255
12%, 6/1/15 to 11/1/15 758 839
12 1/2%, 11/1/12 to 9/1/13 1,637 1,868
38,216
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.4%
8 1/2%, 6/1/08 to 4/1/16 2,312 2,376
9%, 12/1/97 to 10/1/11 579 607
10%, 7/1/04 1,004 1,065
10 1/4%, 12/1/15 to 10/1/18 1,205 1,292
10 1/2%, 11/1/05 3,370 3,605
11 1/2%, 1/1/01 to 9/1/15 1,357 1,514
12 1/2%, 10/1/15 562 641
14%, 11/1/12 to 10/1/14 160 185
11,285
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 86.6%
6 1/2%, 9/15/23 to 12/15/23 43,714 39,602
6 1/2%, 8/15/24 (a) 15,000 13,594
7%, 11/15/07 to 2/15/24 143,912 136,696
7%, 8/15/24 (a) 8,000 7,518
7 1/2%, 5/15/17 to 11/15/23 144,699 140,540
8%, 5/15/16 to 12/15/23 128,407 128,151
8%, 8/15/24 9,000 8,975
8 1/2%, 12/15/05 to 7/15/17 8,772 8,996
8 1/2%, 8/15/22 13,950 14,251
9%, 6/15/01 to 6/15/24 97,581 102,211
9 1/2%, 4/15/01 to 8/15/20 54,674 58,210
10%, 10/15/00 to 12/15/18 12,509 13,488
10 1/2%, 5/15/98 to 1/15/16 1,962 2,109
11%, 2/15/10 to 12/15/15 1,365 1,516
11 1/4%, 7/15/13 to 1/15/16 1,019 1,124
11 1/2%, 3/15/10 to 9/15/18 4,745 5,362
11 3/4%, 1/15/16 198 220
12%, 12/15/99 to 5/15/15 2,726 3,083
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
12 1/4%, 3/15/14 $ 82 $ 93
12 1/2%, 3/15/10 to 12/15/14 10,665 12,260
13%, 1/15/11 to 5/15/15 1,452 1,685
13 1/2%, 5/15/10 to 11/15/14 681 793
700,477
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED OBLIGATIONS
(Cost $759,154) 749,978
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.3%
U.S. GOVERNMENT AGENCY - 1.3%
U.S. Dept. Veterans Affairs Vendee Mortgage Trust sequential pay
series1992-1 class 2- B, 7.75%, 9/15/10
(Cost $10,227) 10,000 10,125
REPURCHASE AGREEMENTS - 6.0%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 4.23% dated
7/29/94 due 8/1/94 $ 48,770 48,753
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $818,134) $ 808,856
LEGEND
(a) Security purchased on a delayed delivery basis. Interest rate to be
determined at settlement date (see Note 2 of Notes to Financial
Statements).
INCOME TAX INFORMATION
At July 31, 1994, the aggregate cost of investment securities for income
tax purposes was $833,803,000. Net unrealized depreciation aggregated
$24,947,000, all of which related to depreciated investment securities.
The fund hereby designates $2,590,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
The fund has elected to defer to its fiscal year ending July 31,1995,
$20,171,000 of losses recognized during the period November 1, 1993 to July
31, 1994.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT FOR PER-SHARE AMOUNTS) JULY 31, 1994
ASSETS 6. 7.
8.Investment in securities, at value (including 9. $ 808,856
repurchase agreements of $48,753) (cost $818,134)
(Notes 1 and 2) - See accompanying schedule
10.Receivable for investments sold 11. 3,696
12.Interest receivable 13. 5,197
14. TOTAL ASSETS 15. 817,749
LIABILITIES 16. 17.
18.Payable to custodian bank $ 1,192 19.
20.Payable for investments purchased: 25,200 21.
Regular delivery
22. Delayed delivery 20,842 23.
24.Payable for fund shares redeemed 532 25.
26.Dividends payable 609 27.
28.Accrued management fee 292 29.
30.Other payables and accrued expenses 317 31.
32. TOTAL LIABILITIES 33. 48,984
34.NET ASSETS 35. $ 768,765
36.Net Assets consist of (Note 1): 37. 38.
39.Paid in capital 40. $ 812,991
41.Distributions in excess of net investment income 42. (608)
43.Accumulated undistributed net realized gain (loss) 44. (34,340)
on investments
45.Net unrealized appreciation (depreciation) on 46. (9,278)
investments
47.NET ASSETS, for 74,226 shares outstanding 48. $ 768,765
49.NET ASSET VALUE, offering price and redemption price 50. $10.36
per share ($768,765 (divided by) 74,226 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1994
INVESTMENT INCOME 52. $ 67,851
51.Interest
EXPENSES 53. 54.
55.Management fee (Note 4) $ 3,992 56.
57.Transfer agent fees (Note 4) 2,349 58.
59.Accounting fees and expenses (Note 4) 303 60.
61.Non-interested trustees' compensation 5 62.
63.Custodian fees and expenses 240 64.
65.Registration fees 34 66.
67.Audit 51 68.
69.Legal 7 70.
71.Reports to shareholders 101
72.Miscellaneous 12 73.
74. TOTAL EXPENSES 75. 7,094
76.NET INVESTMENT INCOME 77. 60,757
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 80. (42,174)
78.(Notes 1 and 3)
79.Net realized gain (loss) on investment securities
81.Change in net unrealized appreciation (depreciation) 82. (24,038)
on investment securities
83.NET GAIN (LOSS) 84. (66,212)
85.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 86. $ (5,455)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEARS ENDED JULY 31,
1994 1993
INCREASE (DECREASE) IN NET ASSETS
87.Operations $ 60,757 $ 69,222
Net investment income
88. Net realized gain (loss) (42,174) 16,513
89. Change in net unrealized appreciation (depreciation) (24,038) (10,388)
90. NET INCREASE (DECREASE) IN NET ASSETS RESULTING (5,455) 75,347
FROM OPERATIONS
91.Distributions to shareholders (46,661) (58,428)
From net investment income
92. From net realized gain (16,166) -
93. In excess of net realized gain (5,195) -
94. TOTAL DISTRIBUTIONS (68,022) (58,428)
95.Share transactions 219,226 307,342
Net proceeds from sales of shares
96. Reinvestment of distributions 58,534 48,972
97. Cost of shares redeemed (411,083) (311,855)
98. Net increase (decrease) in net assets resulting (133,323) 44,459
from share transactions
99. TOTAL INCREASE (DECREASE) IN NET ASSETS (206,800) 61,378
NET ASSETS 100. 101.
102. Beginning of period 975,565 914,187
103. $ 768,765 $ 975,565
End of period (including under (over) distributions
of net investment income of $(608) and $23,765,
respectively)
OTHER INFORMATION 105. 106.
104.Shares
107. Sold 20,365 27,604
108. Issued in reinvestment of distributions 5,427 4,395
109. Redeemed (38,221) (28,022)
110. Net increase (decrease) (12,429) 3,977
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
111. YEARS ENDED JULY 31,
112. 1994 1993 1992 1991 1990
113.SELECTED PER-SHARE DATA
114.Net asset value, $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420
beginning of period
115.Income from .582A .800 .833 .845 .891
Investment
Operations
Net investment
income
116. Net realized and (.650) .083 .373 .288 (.099)
unrealized gain
(loss)
117. Total from (.068) .883 1.206 1.133 .792
investment
operations
118.Less Distributions (.582) (.683) (.796) (.853) (.842)
From net investment
income
119. From net (.190) - - - -
realized
gain on
investments
120. In excess of net (.060) - - - -
realized gain on
investments
121. Total (.832) (.683) (.796) (.853) (.842)
distributions
122.Net asset value, $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370
end of period
123.TOTAL RETURN (.63)% 8.23% 11.65% 11.36% 8.01%
124.RATIOS AND SUPPLEMENTAL
DATA
125.Net assets, end $ 769 $ 976 $ 914 $ 797 $ 658
of period (in millions)
126.Ratio of .82% .80% .80% .83% .83%
expenses to
average net assets
127.Ratio of net 7.03% 7.26% 7.73% 8.24% 8.71%
investment income
to average net
assets
128.Portfolio turnover 303% 259% 114% 125% 96%
rate
</TABLE>
A THE AMOUNT SHOWN REFLECTS CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES (SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1994
6. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Ginnie Mae Portfolio (the fund) is a fund of Fidelity Income Fund
(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 quotations are not readily available through the
pricing service 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, the fund is not subject to income taxes to
the extent that it distributes 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 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.
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
mortgagebacked securities, futures transactions, and losses deferred due to
wash sales 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 and may
affect net investment income per share disclosed. Distributions in excess
of net investment income may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable 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.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective August 1,
1993, the fund adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of July 31, 1993 have been reclassified to reflect
an increase in paid in capital of $10,000, a decrease in undistributed net
investment income of $24,476,000 and a decrease in accumulated net realized
loss on investments of $24,466,000.
7. 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 one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
DELAYED DELIVERY TRANSACTIONS.
The fund may purchase or sell securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more after
the date of the transaction. The price of the underlying securities and the
date when the securities will be delivered and paid for are fixed at the
time the transaction is negotiated. The fund may receive compensation for
interest forgone in a delayed delivery transaction. The fund identifies
securities as segregated in its custodial records with a value at least
equal to the amount of the purchase commitment.
8. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $2,603,015,000 and $2,719,129,000, respectively.
9. 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 .14% to .37% for the period from August 1, 1993 to
October 31, 1993 and .1325% to .3700% for the period from November 1, 1993
to July 31, 1994. In the event that these rates were lower than the
contractual rates in effect during those periods, FMR voluntarily
implemented the above rates, as they resulted in the same or a lower
management fee. The annual individual fund fee rate is .30%. For the
period, the management fee was equivalent to an annual rate of .46% of
average net assets.
The Board of Trustees has approved a new group fee rate schedule with rates
ranging from .12% to .37%. Effective August 1, 1994, FMR has voluntarily
agreed to implement this new group fee rate schedule as it results in the
same or a lower management fee.
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 $85,000 for the
period.
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the 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 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of Fidelity
Ginnie Mae Portfolio:
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 Ginnie Mae Portfolio, a fund of Fidelity Income Fund, at July
31, 1994, 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 Ginnie
Mae Portfolio'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 July 31, 1994 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
/s/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 2, 1994
DISTRIBUTIONS
The Board of Trustees of Fidelity Ginnie Mae Portfolio voted to pay on
September 6, 1994, to shareholders of record at the opening of business on
September 2, 1994 a distribution of $.02 derived from capital gains
realized from sales of portfolio securities. A total of 1.72% of the
dividends distributed during the fiscal year were derived from interest on
U.S. Government securities which is generally exempt from state income tax.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
U.K. Inc. (FMR U.K.)
London, England
Fidelity Management & Research
Far East Inc., (FMR Far East)
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Thomas J. Steffanci, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
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
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Short-Term World Income
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
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)
(registered trademark)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
(small solid bullet) Exhibit 24(a)(3)
SPARTAN(registered trademark)
(registered trademark)
LIMITED MATURITY GOVERNMENT
FUND
ANNUAL REPORT
JULY 31, 1994
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 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 19 Notes to the financial statements.
REPORT OF INDEPENDENT 22 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. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR
GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE
FDIC, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT
RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY
DISTRIBUTORS
CORPORATION IS A BANK.
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), and the effect of the $5 account
closeout fee. If Fidelity had not reimbursed certain fund expenses, the
fund's five year and life of fund returns would have been lower. You can
also look at the fund's income.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Limited Maturity Government 0.56% 40.18% 55.68%
Lehman Brothers 1-3 Year
Government Bond Index 2.21% 41.80% n/a
Average Short U.S. Government Fund 0.18% 38.69% n/a
Consumer Price Index 2.77% 19.29% 26.73%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years, or since the fund
started on May 2, 1988. 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 performance of 117
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. (The CPI returns begin on the month end closest to
the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Limited Maturity Government 0.56% 6.99% 7.34%
Lehman Brothers 1-3 Year
Government Bond Index 2.21% 7.23% n/a
Average Short U.S. Government 0.18% 6.74% n/a
Fund
Consumer Price Index 2.77% 3.59% 3.86%
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
$15,820
$15,585
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Limited Maturity Government Fund on May 31, 1988, shortly after the fund
started. As the chart shows, by July 31, 1994, the value of your investment
would have grown to $15,585 - a 55.85% increase on your initial investment.
This assumes you still own the fund on July 31, 1994, and therefore does
not include the effect of the $5 account closeout fee. 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 $15,820 - a 58.20% 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)
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1994 1993 1992 1991 1990
Dividend return 5.22% 6.18% 6.98% 8.91% 8.48%
Capital appreciation return -4.66% 1.77% 1.79% 1.50% -1.01%
Total return .56% 7.95% 8.77% 10.41% 7.47%
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation 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 gains are
reinvested. Capital appreciation and total returns include the effect of
the $5 account closeout fee.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1994 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.66(cents) 26.40(cents) 53.04(cents)
Annualized dividend rate 5.73% 5.48% 5.35%
30-day annualized yield 5.84% 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 $9.57 over
the past month, $9.71 over the past six months and $9.92 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1994
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO
4 - 4.99% 0.3 -
5 - 5.99% 14.8 1.4
6 - 6.99% 1.9 3.2
7 - 7.99% 25.9 27.6
8 - 8.99% 8.3 21.0
9 - 9.99% 17.3 5.0
10 - 10.99% 4.5 2.5
11 - 11.99% 5.3 15.6
12 - 12.99% 15.6 12.9
13% and over 1.7 1.4
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1994
6 MONTHS AGO
Years 4.5 3.1
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 JULY 31, 1994
6 MONTHS AGO
Years 2.7 2.6
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 JULY 31, 1994 AS OF JANUARY 31, 1994
Row: 1, Col: 1, Value: 4.4
Row: 1, Col: 2, Value: 1.5
Row: 1, Col: 3, Value: 46.0
Row: 1, Col: 4, Value: 48.8
Mortgage-backed
securities 74.3%
U.S. government
and government
agency obligations 16.2%
CMOs and other
mortgage related
securities 0.1%
Other 9.4%
Mortgage-backed
securities 48.8%
U.S. government
and government
agency obligations 46.0%
CMOs and other
mortgage related
securities 0.8%
Short-term
investments 4.4%
Row: 1, Col: 1, Value: 9.4
Row: 1, Col: 2, Value: 1.0
Row: 1, Col: 3, Value: 16.2
Row: 1, Col: 4, Value: 74.3
INVESTMENTS JULY 31, 1994
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 46.0%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 41.7%
7 3/8%, 5/15/96 $ 41,500 $ 42,518
7 1/4%, 11/15/96 89,700 91,858
7 7/8%, 2/15/96 113,000 116,443
5 1/8%, 3/31/98 144,700 138,325
9 1/4%, 8/15/98 34,350 37,565
426,709
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.3%
Agency for International Development
(guaranteed by U.S.government):
6%, 2/15/99 18,905 18,261
5 3/4%, 3/15/00 6,750 6,356
5 1/4%, 9/15/00 3,005 2,734
Government Trust Ctfs.:
Class 1-C 9 1/4%, 11/15/01 14,080 15,365
9.40%, 5/15/02 1,160 1,270
43,986
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(Cost $471,136) 470,695
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 48.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 9.1%
7 1/2%, 10/1/96 to 1/1/98 1,415 1,437
8%, 2/1/96 to 12/1/96 1,063 1,086
8 1/2%, 2/1/96 to 10/1/18 3,406 3,487
9%, 1/1/10 to 7/1/21 5,504 5,783
9 1/2%, 7/1/16 to 6/1/21 15,462 16,215
10%, 12/1/00 to 7/1/09 2,481 2,630
10 1/2%, 10/1/10 to 1/1/21 2,792 3,028
10 3/4%, 7/1/13 213 233
11%, 8/1/00 to 9/1/20 2,502 2,738
11 1/4%, 2/1/10 to 10/1/14 2,694 2,944
11 1/2%, 3/1/07 to 8/1/19 14,134 15,627
11 3/4%, 1/1/10 to 10/1/15 432 476
12%, 10/1/09 to 12/1/15 5,137 5,693
12 1/4%, 9/1/08 to 8/1/15 2,632 2,912
12 1/2%, 10/1/09 to 4/1/19 20,969 23,930
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - CONTINUED
12 3/4%, 2/1/10 to 8/1/11 $ 342 $ 390
13%, 9/1/10 to 5/1/17 2,334 2,687
13 1/4%, 11/1/10 to 12/1/14 382 438
13 1/2%, 11/1/10 to 10/1/14 676 782
13 3/4%, 10/1/14 44 50
14%, 11/1/12 to 4/1/16 286 331
14 1/2%, 12/1/10 to 9/1/12 184 213
14 3/4%, 3/1/10 67 78
16 1/4%, 7/1/11 17 20
93,208
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 12.2%
7%, 1/1/99 to 7/1/00 4,851 4,831
7 1/2%, 2/1/99 to 5/1/00 2,885 2,917
8%, 8/1/99 to 7/1/22 17,209 17,481
8 1/2%, 1/1/98 to 12/1/22 11,751 12,102
9%, 11/1/97 to 8/1/07 19,623 20,474
10%, 7/1/04 to 10/1/04 3,827 4,061
10 1/4%, 10/1/09 to 10/1/18 922 989
10 1/2%, 4/1/01 to 11/1/05 9,507 10,170
11%, 8/1/10 to 9/1/15 4,695 5,218
11 1/4%, 11/1/10 to 1/1/16 3,557 3,943
11 1/2%, 9/1/11 to 12/1/15 3,387 3,789
11 3/4%, 7/1/13 to 4/1/14 456 510
12%, 7/1/09 to 3/1/17 13,457 15,187
12 1/4%, 4/1/09 to 6/1/15 3,216 3,622
12 1/2%, 9/1/07 to 5/1/21 8,876 10,118
12 3/4%, 10/1/11 to 6/1/15 2,652 3,017
13%, 6/1/11 to 7/1/15 3,721 4,261
13 1/4%, 9/1/11 to 9/1/13 1,286 1,469
13 1/2%, 5/1/11 to 1/1/15 178 204
14%, 9/1/10 to 12/1/14 320 370
14 1/2%, 7/1/14 20 23
15%, 4/1/12 35 40
124,796
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 27.5%
6 1/2%, 12/15/23 4 3
6 1/2%, 8/15/24 TBA (a) 1,400 1,269
7 1/2%, 11/15/23 5,185 5,036
8%, 9/15/06 to 9/15/23 50,990 50,962
8 1/2%, 6/15/16 to 4/15/17 175 179
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
9%, 1/15/05 to 9/15/17 $ 42,385 $ 44,525
9 1/2%, 6/15/09 to 8/15/24 33,455 35,577
10%, 11/15/09 to 11/15/17 17,859 19,240
10 1/2%, 10/15/11 to 7/15/17 5,314 5,808
11%, 8/15/98 to 1/15/16 1,447 1,596
11 1/2%, 3/15/10 to 5/15/19 14,684 16,591
11 3/4%, 1/15/14 133 149
12%, 1/15/13 to 6/15/15 1,345 1,533
12 1/4%, 1/15/14 171 193
12 1/2%, 4/15/10 to 4/15/19 79,950 91,918
13%, 1/15/11 to 5/15/15 2,110 2,463
13 1/4%, 9/15/13 to 10/15/14 661 750
13 1/2%, 5/15/10 to 12/15/14 1,210 1,399
13 3/4%, 8/15/14 to 9/15/14 74 85
14%, 6/15/11 to 12/15/14 418 489
15%, 7/15/11 to 9/15/12 684 812
16%, 9/15/11 to 4/15/13 184 219
17%, 12/15/11 17 21
280,817
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $504,369) 498,821
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.1%
U.S. GOVERNMENT AGENCY - 0.1%
Resolution Trust Corp. pass thru series 1991-11
class 6-A, 12.64%, 10/25/21 1,247 1,303
PRIVATE ISSUER - 0.0%
DLJ Acceptance Trust planned amortization class series 1989-1
Class F, 11%, 8/1/19 383 390
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,759) 1,693
COMMERCIAL MORTGAGE SECURITIES - 0.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
CS First Boston Mortgage Securities Corp. commercial series
1994-CFB1 class A-1 4.9875%, 1/25/28 $ 2,984 $ 2,989
Resolution Trust Corp. commercial floater series 1992-C2
class A-2, 5.4375%, 10/25/21 (b) 4,161 4,232
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $7,189) 7,221
REPURCHASE AGREEMENTS - 4.4%
MATURITY
AMOUNT
(000S)
Investment in repurchase agreements,
(U.S. Treasury obligations), in a
joint trading account at 4.23%
dated 7/29/94 due 8/1/94 $ 44,913 $ 44,897
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,029,350) $ 1,023,327
LEGEND
10. Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
11. Coupon is inversely indexed to a floating interest rate multiplied by a
specified factor. The price may be considerably more volatile than the
price of a comparable fixed rate security. The rate shown is the rate at
period end.
INCOME TAX INFORMATION
At July 31, 1994, the aggregate cost of investment securities for income
tax purposes was $1,030,438,000. Net unrealized depreciation aggregated
$7,111,000, of which $3,614,000 related to appreciated investment
securities and $10,725,000 related to depreciated investment securities.
The fund hereby designates $29,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
The fund has elected to defer to its fiscal year ending July 31,1995
$47,440,000 of losses recognized during the period November 1, 1993 to July
31, 1994.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE AMOUNTS) JULY 31, 1994
ASSETS 135. 136.
137.Investment in securities, at value (including 138. $ 1,023,327
repurchase agreements of $44,897) (cost $1,029,350)
(Notes 1
and 2) - See accompanying schedule
139.Commitment to sell securities on a delayed delivery $ (1,269) 140.
basis
141.Receivable for securities sold on a delayed delivery 1,278 9
basis (Note 2)
142.Receivable for investments sold, regular delivery 143. 1,669
144.Cash 145. 28
146.Interest receivable 147. 15,547
148. TOTAL ASSETS 149. 1,040,580
LIABILITIES 150. 151.
152.Payable for investments purchased 19,076 153.
154.Payable for fund shares redeemed 2,089 155.
156.Dividends payable 743 157.
158.Accrued management fee 556 159.
160. TOTAL LIABILITIES 161. 22,464
162.NET ASSETS 163. $ 1,018,116
164.Net Assets consist of (Note 1): 165. 166.
167.Paid in capital 168. $ 1,076,105
169.Distributions in excess of net investment income 170. (3,544)
171.Accumulated undistributed net realized gain (loss) 172. (48,431)
on investments
173.Net unrealized appreciation (depreciation) on 174. (6,014)
investments
175.NET ASSETS, for 105,939 shares outstanding 176. $ 1,018,116
177.NET ASSET VALUE, offering price and redemption 178. $9.61
price per share ($1,018,116 (divided by) 105,939 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1994
INVESTMENT INCOME 180. $ 104,661
179.Interest (Note 1)
EXPENSES 181. 182.
183.Management fee (Note 4) $ 8,474 184.
185.Non-interested trustees' compensation 8 186.
187.Interest (Note 5) 19 188.
189. TOTAL EXPENSES 190. 8,501
191.NET INVESTMENT INCOME 192. 96,160
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 194. (68,416)
(NOTES 1 AND 3)
193.Net realized gain (loss) on investment securities
195.Change in net unrealized appreciation 196. 197.
(depreciation) on:
198. Investment securities (19,494) 199.
200. Delayed delivery commitments 9 (19,485)
201.NET GAIN (LOSS) 202. (87,901)
203.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 204. $ 8,259
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1994 1993
INCREASE (DECREASE) IN NET ASSETS
205.Operations $ 96,160 $ 133,147
Net investment income
206. Net realized gain (loss) (68,416) (8,178)
207. Change in net unrealized appreciation (19,485) 1,723
(depreciation)
208. 8,259 126,692
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS
209.Distributions to shareholders: (71,409) (97,834)
From net investment income
210. From net realized gain - (8,578)
211. In excess of net realized gain (31,339) -
212. TOTAL DISTRIBUTIONS (102,748) (106,412)
213.Share transactions 379,642 772,524
Net proceeds from sales of shares
214. Reinvestment of distributions 89,915 93,230
215. Cost of shares redeemed (886,133) (1,126,871)
216. (416,576) (261,117)
Net increase (decrease) in net assets resulting from
share transactions
217. (511,065) (240,837)
TOTAL INCREASE (DECREASE) IN NET ASSETS
NET ASSETS 218. 219.
220. Beginning of period 1,529,181 1,770,018
221. $ 1,018,116 $ 1,529,181
End of period (including under (over) distributed net
investment income of $(3,544) and $64,376,
respectively)
OTHER INFORMATION 223. 224.
222.Shares
225. Sold 37,868 75,607
226. Issued in reinvestment of distributions 8,997 9,112
227. Redeemed (89,181) (110,358)
228. Net increase (decrease) (42,316) (25,639)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
229. YEARS ENDED JULY 31,
230. 1994 1993 1992 1991 1990
231.SELECTED PER-SHARE DATA
232.Net asset value, $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030
beginning of period
233.Income from .470C .872 .836 .853 .816
Investment
Operations
Net investment
income
234. Net realized and (.410) (.087) .021 .142 (.100)
unrealized gain (loss)
235. Total from .060 .785 .857 .995 .716
investment operations
236.Less Distributions (.540)C (.605) (.677) (.845) (.816)
From net investment
income
237. From net realized - (.050) (.060) (.020) -
gain on investments
238. In excess of net (.220) - - - -
realized gain on
investment
239. Total distributions (.760) (.655) (.737) (.865) (.816)
240.Net asset value, $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930
end of period
241.TOTAL RETURN A, B .57% 7.96% 8.78% 10.43% 7.49%
242.RATIOS AND SUPPLEMENTAL DATA
243.Net assets, end of $ 1,018 $ 1,529 $ 1,770 $ 880 $ 132
period (in millions)
244.Ratio of expenses .65% .65% .61% .50% .83%
to average net assets
245.Ratio of expenses .65% .65% .65% .69% .83%
to average net assets
before expense
reductions
246.Ratio of net 7.37% 8.05% 8.24% 8.63% 8.28%
investment income to
average net assets
247.Portfolio turnover 391% 324% 330% 288% 270%
rate
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
C THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES (SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1994
12. SIGNIFICANT ACCOUNTING
POLICIES.
Spartan Limited Maturity Government Fund (the fund) is a fund of Fidelity
Income Fund (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, the fund is not subject to income taxes to
the extent that it distributes 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 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.
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.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect net investment income per share disclosed. Undistributed net
investment income may include temporary book and tax income 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.
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.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective August
1,1993, the fund adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of August 1, 1993 have been reclassified to reflect
a decrease in paid in capital of $6,430,000, a decrease in undistributed
net investment income of $58,983,000 and a decrease in accumulated net
realized (loss) on investments of $65,413,000.
13. 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 (SEC), the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into one
or more joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The fund
may receive compensation for interest forgone in a delayed delivery
transaction. The fund identifies securities as segregated in its custodial
records with a value at least equal to the amount of the purchase
commitment.
14. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $4,933,820,000 and $5,398,001,000, respectively.
15. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) pays all expenses except the compensation of the
non-interested Trustees and certain exceptions such as interest, taxes,
brokerage commissions and extraordinary
4. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
expenses. FMR receives a fee that is computed daily at an annual rate of
.65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund. For
the period, FMR or its affiliates collected certain transaction fees from
shareholders which aggregated $75,000.
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.
16. 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 $23,526,000 and $15,047,000,
respectively. The weighted average interest rate was 3.54%.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of Spartan
Limited Maturity 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 Spartan
Limited Maturity Government Fund (a fund of Fidelity Income Fund) at July
31, 1994, 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 Spartan Limited
Maturity 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 July 31, 1994 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 7, 1994
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Thomas J. Steffanci, Vice President
Curt Hollingsworth, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
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
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Short-Term World Income
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
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)
(registered trademark)
AMENDED AND RESTATED DECLARATION OF TRUST
DATED SEPTEMBER 15, 1994
AMENDED AND RESTATED DECLARATION OF TRUST, made September 15, 1994 by each
of the Trustees whose signature is affixed hereto (the "Trustees")
WHEREAS, the Trustees desire to amend and restate this Declaration of
Trust for the sole purpose of supplementing the Declaration to incorporate
amendments duly adopted; and
WHEREAS, this Trust was initially made on August 7, 1984 by Edward C.
Johnson 3d, Caleb Loring, Jr., and Frank Nesvet in order to establish a
trust fund for the investment and reinvestment of funds contributed
thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed in Trust
under this Amended and Restated Declaration of Trust as herein set forth
below.
ARTICLE I
NAME AND DEFINITIONS
NAME
Section 1. This Trust shall be known as "Fidelity Income Fund."
DEFINITIONS
Section 2. Wherever used herein, unless otherwise required by the context
or specifically provided:
(a) The Terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Majority Shareholder Vote" (the 67% or 50% requirement of the
third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them
in the 1940 Act, as amended from time to time;
(b) The "Trust" refers to Fidelity Income Bond Fund and reference to the
Trust, when applicable to one or more Series of the Trust, shall refer to
any such Series;
(c) "Net Asset Value" means the net asset value of each Series of the
Trust determined in the manner provided in Article X, Section 3;
(d) "Shareholder" means a record owner of Shares of the Trust;
(e) The "Trustees" refer to the individual trustees in their capacity as
trustees hereunder of the Trust and their successor or successors for the
time being in office as such trustee or trustees;
(f) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest of each Series shall be divided from
time to time, and includes fractions of shares as well as whole shares
consistent with the requirements of Federal and/or other securities laws;
and
(g) The "1940 Act" refers to the Investment Company Act of 1940, as
amended from time to time.
(h) "Series" refers to series of Shares of the Trust established in
accordance with the provisions of Article III.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a continuous source of
managed investment in securities.
ARTICLE III
BENEFICIAL INTEREST
SHARES OF BENEFICIAL INTEREST
Section 1. The beneficial interest in the Trust shall be divided into such
transferable Shares of one or more separate and distinct Series as the
Trustees shall from time to time create and establish. The number of Shares
is unlimited and each Share shall be without par value and shall be fully
paid and nonassessable. The Trustees shall have full power and authority,
in their sole discretion and without obtaining any prior authorization or
vote of the Shareholders of the Trust to create and establish (and to
change in any manner) Shares with such preferences, voting powers, rights
and privileges as the Trustees may from time to time determine, to divide
or combine the Shares into a greater or lesser number, to classify or
reclassify any issued Shares into one or more Series of Shares, to abolish
any one or more Series of Shares, and to take such other action with
respect to the Shares as the Trustees may deem desirable.
ESTABLISHMENT OF SERIES
Section 2. The establishment of any Series shall be effective upon the
adoption of a resolution by a majority of the then Trustees setting forth
such establishment and designation and the relative rights and preferences
of the Shares of such Series. At any time that there are no Shares
outstanding of any particular Series previously established and designated,
the Trustees may by a majority vote abolish that Series and the
establishment and designation thereof.
OWNERSHIP OF SHARES
Section 3. The ownership of Shares shall be recorded in the books of the
Trust. The Trustees may make such rules as they consider appropriate for
the transfer of Shares and similar matters. The record books of the Trust
shall be conclusive as to who are the holders of Shares and as to the
number of Shares held from time to time by each Shareholder.
INVESTMENT IN THE TRUST
Section 4. The Trustees shall accept investments in the Trust from such
persons and on such terms as they may from time to time authorize. Such
investments may be in the form of cash or securities in which the
appropriate Series is authorized to invest, valued as provided in Article
X, Section 3. After the date of the initial contribution of capital, the
number of Shares to represent the initial contribution may in the Trustees'
discretion be considered as outstanding and the amount received by the
Trustees on account of the contribution shall be treated as an asset of the
Trust. Subsequent investments in the Trust shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received; provided, however,
that the Trustees may, in their sole discretion, (a) impose a sales charge
upon investments in the Trust and (b) issue fractional Shares.
ASSETS AND LIABILITIES OF SERIES
Section 5. All consideration received by the Trust for the issue or sale
of Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be
referred to as "assets belonging to" that Series. In addition any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which
are not readily identifiable as belonging to any particular Series, shall
be allocated by the Trustees between and among one or more of the Series in
such manner as they, in their sole discretion, deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders
of all Series for all purposes, and shall be referred to as assets
belonging to that Series. The assets belonging to a particular Series shall
be so recorded upon the books of the Trust, and shall be held by the
Trustees in Trust for the benefit of the holders of Shares of that Series.
The assets belonging to each particular Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series. Any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as
belonging to any particular Series shall be allocated and charged by the
Trustees between or among any one or more of the Series in such manner as
the Trustees in their sole discretion deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all
Series for all purposes. Any creditor of any Series may look only to the
assets of that Series to satisfy such creditor's debt.
NO PREEMPTIVE RIGHTS
Section 6. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust
or the Trustees.
LIMITATION OF PERSONAL LIABILITY
Section 7. The Trustees shall have no power to bind any Shareholder
personally or to call upon any shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription for any Shares or
otherwise. Every note, bond, contract or other undertaking issued by or on
behalf of the Trust or the Trustees relating to the Trust shall include a
recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
THE TRUSTEES
MANAGEMENT OF THE TRUST
Section 1. The business and affairs of the Trust shall be managed by the
Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility.
ELECTION: INITIAL TRUSTEES
Section 2. On a date fixed by the Trustees, the Shareholders shall elect
not less than three Trustees. A Trustee shall not be required to be a
Shareholder of the Trust. The initial Trustees shall be Edward C. Johnson
3d, Caleb Loring, Jr. and Frank Nesvet and such other individuals as the
Board of Trustees shall appoint pursuant to Section 4 of the Article IV.
TERM OF OFFICE OF TRUSTEES
Section 3. The Trustees shall hold office during the lifetime of this
Trust, and until its termination as hereinafter provided; except (a) that
any Trustee may resign his trust by written instrument signed by him and
delivered to the other Trustees, which shall take effect upon such delivery
or upon such later date as is specified therein; (b) that any Trustee may
be removed at any time by written instrument, signed by at least two-thirds
of the number of Trustees prior to such removal, specifying the date when
such removal shall become effective; (c) that any Trustee who requests in
writing to be retired or who has become incapacitated by illness or injury
may be retired by written instrument signed by a majority of the other
Trustees, specifying the date of his retirement; and (d) a Trustee may be
removed at any Special Meeting of the Trust by a vote of two-thirds of the
outstanding Shares.
RESIGNATION AND APPOINTMENT OF TRUSTEES
Section 4. In case of the declination, death, resignation, retirement,
removal, incapacity, or inability of any of the Trustees, or in case a
vacancy shall, by reason of an increase in number, or for any other reason,
exist, the remaining Trustees shall fill such vacancy by appointing such
other person as they in their discretion shall see fit consistent with the
limitations under the Investment Company Act of 1940. Such appointment
shall be evidenced by a written instrument signed by a majority of the
Trustees in office or by recording in the records of the Trust, whereupon
the appointment shall take effect. An appointment of a Trustee may be made
by the Trustees then in office in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted this trust, the trust estate shall vest in
the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and he shall be deemed a Trustee hereunder.
The power of appointment is subject to the provisions of Section 16(a) of
the 1940 Act.
TEMPORARY ABSENCE OF TRUSTEE
Section 5. Any Trustee may, by power of attorney, delegate his power for
a period not exceeding six months at any one time to any other Trustee or
Trustees, provided that in no case shall less than two Trustees personally
exercise the other powers hereunder except as herein otherwise expressly
provided.
NUMBER OF TRUSTEES
Section 6. The number of Trustees, not less than three (3) nor more than
twelve (12), serving hereunder at any time shall be determined by the
Trustees themselves.
Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled, or while any Trustee is absent from the Commonwealth of
Massachusetts or, if not a domiciliary of Massachusetts, is absent from his
state of domicile, or is physically or mentally incapacitated by reason of
disease or otherwise, the other Trustees shall have all the powers
hereunder and the certificate of the other Trustees of such vacancy,
absence or incapacity, shall be conclusive, provided, however, that no
vacancy shall remain unfilled for a period longer than six calendar months.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
Section 7. The death, declination, resignation, retirement, removal,
incapacity, or inability of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency created
pursuant to the terms of this Declaration of Trust.
OWNERSHIP OF ASSETS OF THE TRUST
Section 8. The assets of the Trust shall be held separate and apart from
any assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets of
the Trust shall at all times be considered as vested in the Trustees. No
Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or any right of partition or possession thereof, but
each Shareholder shall have a proportionate undivided beneficial interest
in the Trust.
ARTICLE V
POWERS OF THE TRUSTEES
POWERS
Section 1. The Trustees in all instances shall act as principals, and are
and shall be free from the control of the Shareholders. The Trustees shall
have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust.
The Trustees shall not in any way be bound or limited by present or future
laws or customs in regard to trust investments, but shall have full
authority and power to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the purpose of
this Trust. Subject to any applicable limitation in the Declaration of
Trust or the Bylaws of the Trust, the Trustees shall have power and
authority:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by
any present or future law or custom in regard to investments by Trustees,
and to sell, exchange, lend, pledge, mortgage, hypothecate, write options
on and lease any or all of the assets of the Trust.
(b) To adopt Bylaws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders.
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate.
(d) To employ a bank or trust company as custodian of any assets of the
Trust subject to any conditions set forth in this Declaration of Trust or
in the Bylaws, if any.
(e) To retain a transfer agent and Shareholder servicing agent, or both.
(f) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or
by the Trust itself, or both.
(g) To set record dates in the manner hereinafter provided for.
(h) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, custodian or underwriter.
(i) To sell or exchange any or all of the assets of the Trust, subject to
the provisions of Article XII, Section 4(b) hereof.
(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion
with relation to securities or property as the Trustees shall deem proper.
(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities.
(l) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form; or either in its
own name or in the name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual practice of
Massachusetts trust companies or investment companies.
(m) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article III.
(n) To allocate assets, liabilities and expenses of the Trust to a
particular Series or to apportion the same between or among two or more
Series, provided that any liabilities or expenses incurred by a particular
Series shall be payable solely out of the assets belonging to that Series
as provided for in Article III.
(o) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of
which is held in the Trust; to consent to any contract, lease, mortgage,
purchase, or sale of property by such corporation or concern, and to pay
calls or subscriptions with respect to any security held in the Trust.
(p) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited
to, claims for taxes.
(q) To make distributions of income and of capital gains to Shareholders
in the manner hereinafter provided for.
(r) To borrow money, and to pledge, mortgage or hypothecate the assets of
the Trust, subject to applicable limitations of the 1940 Act.
(s) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon giving notice
to such Shareholder.
(t) Notwithstanding any other provision hereof, to invest all of the
assets of any series in a single open-end investment company, including
investment by means of transfer of such assets in exchange for an interest
or interests in such investment company.
No one dealing with the Trustees shall be under any obligation to make any
inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or
upon their order.
TRUSTEES AND OFFICERS AS SHAREHOLDERS
Section 2. Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of Shares to the same extent as if he were not a Trustee,
officer or agent; and the Trustees may issue and sell or cause to be issued
and sold Shares to and buy such Shares from any such person of any firm or
company in which he is interested, subject only to the general limitations
herein contained as to the sale and purchase of such Shares; and all
subject to any restrictions which may be contained in the Bylaws.
ACTION BY THE TRUSTEES
Section 3. The Trustees shall act by majority vote at a meeting duly
called or by unanimous written consent without a meeting or by telephone
consent provided a quorum of Trustees participate in any such telephonic
meeting, unless the 1940 Act requires that a particular action be taken
only at a meeting of the Trustees. At any meeting of the Trustees, a
majority of the Trustees shall constitute a quorum. Meetings of the
Trustees may be called orally or in writing by the Chairman of the Trustees
or by any two other Trustees. Notice of the time, date and place of all
meetings of the Trustees shall be given by the party calling the meeting to
each Trustee by telephone or telegram sent to his home or business address
at least twenty-four hours in advance of the meeting or by written notice
mailed to his home or business address at least seventy-two hours in
advance of the meeting. Notice need not be given to any Trustee who attends
the meeting without objecting to the lack of notice or who executes a
written waiver of notice with respect to the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to
any one of their number their authority to approve particular matters or
take particular actions on behalf of the Trust.
CHAIRMAN OF THE TRUSTEES
Section 4. The Trustees may appoint one of their number to be Chairman of
the Board of Trustees. The Chairman shall preside at all meetings of the
Trustees, shall be responsible for the execution of policies established by
the Trustees and the administration of the Trust, and may be the chief
executive, financial and accounting officer of the Trust.
ARTICLE VI
EXPENSES OF THE TRUST
TRUSTEE REIMBURSEMENT
Section 1. Subject to the provisions of Article III, Section 5, the
Trustees shall be reimbursed from the Trust estate or the assets belonging
to the appropriate Series for their expenses and disbursements, including,
without limitation, fees and expenses of Trustees who are not Interested
Persons of the Trust, interest expense, taxes, fees and commissions of
every kind, expenses of pricing Trust portfolio securities, expenses of
issue, repurchase and redemption of shares including expenses attributable
to a program of periodic repurchases or redemptions, expenses of
registering and qualifying the Trust and its Shares under Federal and State
laws and regulations, charges of custodians, transfer agents, and
registrars, expenses of preparing and setting up in type Prospectuses and
Statements of Additional Information, expenses of printing and distributing
prospectuses sent to existing Shareholders, auditing and legal expenses,
reports to Shareholders, expenses of meetings of Shareholders and proxy
solicitations therefor, insurance expense, association membership dues and
for such non-recurring items as may arise, including litigation to which
the Trust is a party, and for all losses and liabilities by them incurred
in administering the Trust, and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series prior to any rights or interests
of the Shareholders thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
ARTICLE VII
INVESTMENT ADVISER, PRINCIPAL, UNDERWRITER AND TRANSFER AGENT
INVESTMENT ADVISER
Section 1. Subject to a Majority Shareholder Vote, the Trustees may in
their discretion from time to time enter into an investment advisory or
management contract(s) with respect to the Trust or any Series thereof
whereby the other party(ies) to such contract(s) shall undertake to furnish
the Trustees such management, investment advisory, statistical and research
facilities and services and such other facilities and services, if any, and
all upon such terms and conditions, as the Trustees may in their discretion
determine. Notwithstanding any provisions of this Declaration of Trust, the
Trustees may authorize the investment adviser(s) (subject to such general
or specific instructions as the Trustees may from time to time adopt) to
effect purchases, sales or exchanges of portfolio securities and other
investment instruments of the Trust on behalf of the Trustees or may
authorize any officer, agent, or Trustee to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser (and all
without further action by the Trustees). Any such purchases, sales and
exchanges shall be deemed to have been authorized by all of the Trustees.
The Trustees may, subject to applicable requirements of the 1940 Act,
including those relating to Shareholder approval, authorize the investment
adviser to employ one or more sub-advisers from time to time to perform
such of the acts and services of the investment adviser, and upon such
terms and conditions, as may be agreed upon between the investment adviser
and sub-adviser.
PRINCIPAL UNDERWRITER
Section 2. The Trustees may in their discretion from time to time enter
into (a) contract(s) providing for the sale of the Shares, whereby the
Trust may either agree to sell the Shares to the other party to the
contract or appoint such other party its sales agent for such Shares. In
either case, the contract shall be on such terms and conditions as may be
prescribed in the Bylaws, if any, and such further terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Article VII, or of the Bylaws, if any; and such contract
may also provide for the repurchase or sale of Shares by such other party
as principal or as agent of the Trust.
TRANSFER AGENT
Section 3. The Trustees may in their discretion from time to time enter
into a transfer agency and Shareholder service contract whereby the other
party shall undertake to furnish the Trustees with transfer agency and
Shareholder services. The contract shall be on such terms and conditions as
the Trustees may in their discretion determine not inconsistent with the
provisions of this Declaration of Trust or of the Bylaws, if any. Such
services may be provided by one or more entities.
PARTIES TO CONTRACT
Section 4. Any contract of the character described in Sections 1, 2 and 3
of this Article VII or in Article IX hereof may be entered into with any
corporation, firm, partnership, trust or association, although one or more
of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable
for any profit realized directly or indirectly therefrom, provided that the
contract when entered into was reasonable and fair and not inconsistent
with the provisions of this Article VII or the Bylaws, if any. The same
person (including a firm, corporation, partnership, trust, or association)
may be the other party to contracts entered into pursuant to Sections 1, 2
and 3 above or Article IX, and any individual may be financially interested
or otherwise affiliated with persons who are parties to any or all of the
contracts mentioned in this Section 4.
PROVISIONS AND AMENDMENTS
Section 5. Any contract entered into pursuant to Sections 1 and 2 of this
Article VII shall be consistent with and subject to the requirements of
Section 15 of the 1940 Act (including any amendments thereof or other
applicable Act of Congress hereafter enacted) with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any
contract, entered into pursuant to Section 1 shall be effective unless
assented to by a Majority Shareholder Vote.
ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. The Shareholders shall have power to vote (i) for the election
of Trustees as provided in Article IV, Section 2, (ii) for the removal of
Trustees as provided in Article IV, Section 3(d), (iii) with respect to any
investment advisory or management contract as provided in Article VII,
Section 1, (iv) with respect to the amendment of this Declaration of Trust
as provided in Article XII, Section 7, (v) to the same extent as the
shareholders of a Massachusetts business corporation, as to whether or not
a court action, proceeding or claim should be brought or maintained
derivatively or as a class action on behalf of the Trust or the
Shareholders, provided, however, that a Shareholder of a particular Series
shall not be entitled to bring any derivative or class action on behalf of
any other Series of the Trust, and (vi) with respect to such additional
matters relating to the Trust as may be required or authorized by law, by
this Declaration of Trust, or the Bylaws of the Trust, if any, or any
registration of the Trust with the Securities and Exchange Commission (the
"Commission") or any State, as the Trustees may consider desirable. On any
matter submitted to a vote of the Shareholders, all shares shall be voted
by individual Series, except (i) when required by the 1940 Act, Shares
shall be voted in the aggregate and not by individual Series; and (ii) when
the Trustees have determined that the matter affects only the interests of
one or more Series, then only the Shareholders of such Series shall be
entitled to vote thereon. A shareholder of each series shall be entitled to
one vote for each dollar of net asset value (number of shares owned times
net asset value per share) of such series, on any matter on which such
shareholder is entitled to vote and each fractional dollar amount shall be
entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by
proxy. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required or permitted by law, this
Declaration of Trust or any Bylaws of the Trust to be taken by
Shareholders.
MEETINGS
Section 2. The first Shareholders' meeting shall be held as specified in
Section 2 of Article IV at the principal office of the Trust or such other
place as the Trustees may designate. Special meetings of the Shareholders
of any Series may be called by the Trustees and shall be called by the
Trustees upon the written request of Shareholders owning at least one-tenth
of the outstanding Shares entitled to vote. Whenever ten or more
Shareholders meeting the qualifications set forth in Section 16(c) of the
1940 Act, as the same may be amended from time to time, seek the
opportunity of furnishing materials to the other Shareholders with a view
to obtaining signatures on such a request for a meeting, the Trustees shall
comply with the provisions of said Section 16(c) with respect to providing
such Shareholders access to the list of the Shareholders of record of the
Trust or the mailing of such materials to such Shareholders of record.
Shareholders shall be entitled to at least fifteen days' notice of any
meeting.
QUORUM AND REQUIRED VOTE
Section 3. A majority of Shares entitled to vote in person or by proxy
shall be a quorum for the transaction of business at a Shareholders'
meeting, except that where any provision of law or of this Declaration of
Trust permits or requires that holders of any Series shall vote as a Series
then a majority of the aggregate number of Shares of that Series entitled
to vote shall be necessary to constitute a quorum for the transaction of
business by that Series. Any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a
reasonable time after the date set for the original meeting, without the
necessity of further notice. Except when a larger vote is required by any
provision of this Declaration of Trust or the Bylaws, a majority of the
Shares voted in person or by proxy shall decide any questions and a
plurality shall elect a Trustee, provided that where any provision of law
or of this Declaration of Trust permits or requires that the holders of any
Series shall vote as a Series, then a majority of the Shares of that Series
voted on the matter shall decide that matter insofar as that Series is
concerned.
ARTICLE IX
CUSTODIAN
APPOINTMENT AND DUTIES
Section 1. The Trustees shall at all times employ a bank or trust company
having capital, surplus and undivided profits of at least two million
dollars ($2,000,000), or such other amount or such other entity as shall be
allowed by the Commission or by the 1940 Act, as custodian with authority
as its agent, but subject to such restrictions, limitations or other
requirements, if any, as may be contained in the Bylaws of the Trust:
(1) to hold the securities owned by the Trust and deliver the same upon
written order or oral order, if confirmed in writing, or by such
electro-mechanical or electronic devices as are agreed to by the Trust and
the custodian, if such procedures have been authorized in writing by the
Trust;
(2) to receive and receipt for any moneys due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may direct;
and
(3) to disburse such funds upon orders or vouchers;
and the Trust may also employ such custodian as its agent:
(1) to keep the books and accounts of the Trust and furnish clerical and
accounting services; and
(2) to compute, if authorized to do so by the Trustees, the Net Asset Value
of any Series in accordance with the provisions hereof;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by
it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services
of the custodian, and upon such terms and conditions, as may be agreed upon
between the custodian and the sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a bank or trust
company organized under the laws of the United States or one of the states
thereof and having capital and surplus and individual profits of at least
two million dollars ($2,000,000) or such other person as may be permitted
by the Commission, or otherwise in accordance with the 1940 Act as from
time to time amended.
CENTRAL CERTIFICATE SYSTEM
Section 2. Subject to such rules, regulations and orders as the
Commission may adopt, the Trustees may direct the custodian to deposit all
or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities
exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person
as may be permitted by the Commission, or otherwise in accordance with the
1940 Act as from time to time amended, pursuant to which system all
securities of any particular class or series of any issuer deposited within
the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided
that all such deposits shall be subject to withdrawal only upon the order
of the Trust.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
DISTRIBUTIONS
Section 1.
(a) The Trustees may from time to time declare and pay dividends. The
amount of such dividends and the payment of them shall be wholly in the
discretion of the Trustees.
(b) The Trustees shall have power, to the fullest extent permitted by the
laws of Massachusetts, at any time to declare and cause to be paid
dividends on Shares of a particular Series, from the assets belonging to
that Series, which dividends, at the election of the Trustees, may be paid
daily or otherwise pursuant to a standing resolution or resolutions adopted
only once or with such frequency as the Trustees may determine, and may be
payable in Shares of that Series at the election of each Shareholder of
that Series.
(c) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute pro rata among the
Shareholders of a particular Series as of the record date of that Series
fixed as provided in Section 3 hereof a "stock dividend".
REDEMPTIONS
Section 2. In case any holder of record of Shares of a particular Series
desires to dispose of his Shares, he may deposit at the office of the
transfer agent or other authorized agent of that Series a written request
or such other form of request as the Trustees may from time to time
authorize, requesting that the Series purchase the Shares in accordance
with this Section 2; and the Shareholder so requesting shall be entitled to
require the Series to purchase, and the Series or the principal underwriter
of the Series shall purchase his said Shares, but only at the Net Asset
Value thereof (as described in Section 3 hereof). The Series shall make
payment for any such Shares to be redeemed, as aforesaid, in cash or
property from the assets of that Series and payment for such Shares shall
be made by the Series or the principal underwriter of the Series to the
Shareholder of record within seven (7) days after the date upon which the
request is effective.
DETERMINATION OF NET ASSET VALUE
AND VALUATION OF PORTFOLIO ASSETS
Section 3. The term "Net Asset Value" of any Series shall mean that
amount by which the assets of that Series, exceed its liabilities, all as
determined by or under the direction of the Trustees. Such value per Share
shall be determined separately for each Series of Shares and shall be
determined on such days and at such times as the Trustees may determine.
Such determination shall be made with respect to securities for which
market quotations are readily available, at the market value of such
securities; and with respect to other securities and assets, at the fair
value as determined in good faith by the Trustees, provided, however, that
the Trustees, without Shareholder approval, may alter the method of
appraising portfolio securities insofar as permitted under the 1940 Act and
the rules, regulations and interpretations thereof promulgated or issued by
the Commission or insofar as permitted by any Order of the Commission
applicable to the Series. The Trustees may delegate any of its powers and
duties under this Section 3 with respect to appraisal of assets and
liabilities. At any time the Trustees may cause the value par Share last
determined to be determined again in similar manner and may fix the time
when such redetermined value shall become effective.
SUSPENSION OF THE RIGHT OF REDEMPTION
Section 4. The Trustees may declare a suspension of the right of
redemption or postpone the date of payment as permitted under the 1940 Act.
Such suspension shall take effect at such time as the Trustees shall
specify but not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall be no
right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the Net Asset Value per Share existing after the
termination of the suspension.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Section 1. Provided they have exercised reasonable care and have acted
under the reasonable belief that their actions are in the best interest of
the Trust, the Trustees shall not be responsible for or liable in any event
for neglect or wrongdoing of them or any officer, agent, employee or
investment adviser of the Trust, but nothing contained herein shall protect
any Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
INDEMNIFICATION
Section 2.
(a) Subject to the exceptions and limitations contained in Section (b)
below:
(i) every person who is, or has been, a Trustee or officer of the Trust
(hereinafter referred to as "Covered Person") shall be indemnified by the
appropriate Series to the fullest extent permitted by law against liability
and against all expenses reasonably incurred or paid by him in connection
with any claim, action, suit or proceeding in which he becomes involved as
a party or otherwise by virtue of his being or having been a Trustee or
officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and
the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office or (B) not to
have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office,
(A) by the court or other body approving the settlement;
(B) by at least a majority of those Trustees who are neither interested
persons of the Trust nor are parties to the matter based upon a review of
readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal
proceedings, challenge any such determination by the Trustees, or by
independent counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now
or hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person. Nothing contained herein
shall affect any rights to indemnification to which Trust personnel, other
than Trustees and officers, and other persons may be entitled by contract
or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described
in paragraph (a) of this Section 2 may be paid by the applicable Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be
paid over by him to the applicable Series if it is ultimately determined
that he is not entitled to indemnification under this Section 2; provided,
however, that either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the Trust is insured against
losses arising out of any such advance payments or (c) either a majority of
the Trustees who are neither interested persons of the Trust nor parties to
the matter, or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to believe
that such Covered Person will be found entitled to indemnification under
this Section 2.
SHAREHOLDERS
Section 3. In case any Shareholder or former Shareholder of any Series of
the Trust shall be held to be personally liable solely by reason of his
being or having been a Shareholder and not because of his acts or omissions
or for some other reason, the Shareholder or former Shareholder (or his
heirs, executors, administrators or other legal representatives or in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the assets belonging to the applicable
Series to be held harmless from and indemnified against all loss and
expense arising from such liability. The Series shall, upon request by the
Shareholder, assume the defense of any claim made against the Shareholder
for any act or obligation of the Series and satisfy any judgment thereon.
ARTICLE XII
MISCELLANEOUS
TRUST NOT A PARTNERSHIP
Section 1. It is hereby expressly declared that a trust and not a
partnership is created hereby. No Trustee hereunder shall have any power to
bind personally either the Trust's officers or any Shareholder. All persons
extending credit to, contracting with or having any claim against the Trust
or the Trustees shall look only to the assets of the appropriate Series for
payment under such credit, contract or claim; and neither the Shareholders
nor the Trustees, nor any of their agents, whether past, present or future,
shall be personally liable therefor. Nothing in this Declaration of Trust
shall protect a Trustee against any liability to which the Trustee would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
the office of Trustee hereunder.
TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY
Section 2. The exercise by the Trustees of their powers and discretions
hereunder in good faith and with reasonable care under the circumstances
then prevailing, shall be binding upon everyone interested. Subject to the
provisions of Section 1 of this Article XII and to Article XI, the Trustees
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Declaration of Trust, and subject to the
provisions of Section 1 of this Article XII and to Article XI, shall be
under no liability for any act or Omission in accordance with such advice
or for failing to follow such advice. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is obtained.
ESTABLISHMENT OF RECORD DATES
Section 3. The Trustees may close the stock transfer books of the Trust
for a period not exceeding sixty (60) days preceding the date of any
meeting of Shareholders, or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or
conversion or exchange of Shares shall go into effect; or in lieu of
closing the stock transfer books as aforesaid, the Trustees may fix in
advance a date not exceeding sixty (60) days preceding the date of any
meeting of Shareholders, or the date for payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion
or exchange of Shares shall go into effect, as a record date for the
determination of the Shareholders entitled to notice of, and to vote at,
any such meeting, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect of
any such change, conversion or exchange of Shares, and in such case such
Shareholders and only such Shareholders as shall be Shareholders of record
on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend, or to receive such
allotment or rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any Shares on the books of the Trust after
any such record date fixed or aforesaid.
TERMINATION OF TRUST
Section 4.
(a) This Trust shall continue without limitation of time but subject to
the provisions of sub-section (b) of this Section 4.
(b) Subject to a Majority Shareholder Vote of each Series affected by the
matter or, if applicable, to a Majority Shareholder Vote of the Trust, the
Trustees may
(i) sell and convey the assets of the Trust or any affected Series to
another trust, partnership, association or corporation organized under the
laws of any state which is a diversified open-end management investment
company as defined in the 1940 Act, for adequate consideration which may
include the assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust or any affected Series,
and which may include shares of beneficial interest or stock of such trust,
partnership, association or corporation; or
(ii) at any time sell and convert into money all of the assets of the
Trust or any affected Series.
Upon making provision for the payment of all such liabilities in either
(i) or (ii), by such assumption or otherwise, the Trustees shall distribute
the remaining proceeds or assets (as the case may be) ratably among the
holders of the Shares of the Trust or any affected Series then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in sub-section (b), the Trust or any affected
Series shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder and the right, title and interest
of all parties shall be cancelled and discharged.
FILING OF COPIES, REFERENCES, AND HEADINGS
Section 5. The original or a copy of this instrument and of each
declaration of trust supplemental hereto shall be kept at the office of the
Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each supplemental declaration of trust shall be filed by
the Trustees with the Secretary of the Commonwealth of Massachusetts and
the Boston City Clerk, as well as any other governmental office where such
filing may from time to time be required. Anyone dealing with the Trust may
rely on a certificate by an officer or Trustee of the Trust as to whether
or not any such supplemental declarations of trust have been made and as to
any matters in connection with the Trust hereunder, and with the same
effect as if it were the original, may rely on a copy certified by an
officer or Trustee of the Trust to be a copy of this instrument or of any
such supplemental declaration of trust. In this instrument or in any such
supplemental declaration of trust, references to this instrument and all
expressions like "herein," "hereof" and "hereunder," shall be deemed to
refer to this instrument as amended or affected by any such supplemental
declaration of trust. Headings are placed herein for convenience of
reference only and in case of any conflict, the text of this instrument,
rather than the headings, shall control. This instrument may be executed in
any number of counterparts each of which shall be deemed an original.
APPLICABLE LAW
Section 6. The trust set forth in this instrument is made in the
Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof,
the Trust may exercise all powers which are ordinarily exercised by such a
trust.
AMENDMENTS
Section 7. If authorized by votes of the Trustees and a Majority
Shareholder Vote, or by any larger vote which may be required by applicable
law or this Declaration of Trust in any particular case, the Trustees shall
amend or otherwise supplement this instrument, by making a declaration of
trust supplemental hereto, which thereafter shall form a part hereof,
except that an amendment which shall affect the Shareholders of one or more
Series but not the Shareholders of all outstanding Series shall be
authorized by vote of the Shareholders holding a majority of the Shares
entitled to vote of each Series affected and no vote of Shareholders of a
Series not affected shall be required. Amendments having the purpose of
changing the name of the Trust or of supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained herein shall not require authorization by
Shareholder vote. Copies of the supplemental declaration of trust shall be
filed as specified in Section 5 of this Article XII.
FISCAL YEAR
Section 8. The fiscal year of the Trust shall end on a specified date as
set forth in the Bylaws, provided, however, that the Trustees may, without
Shareholder approval, change the fiscal year of the Trust.
USE OF THE WORD "FIDELITY"
Section 9. Fidelity Management & Research Company ("FMR") has consented
to the use by any Series of the Trust of the identifying word "Fidelity" in
the name of any Series of the Trust at some future date. Such consent is
conditioned upon the employment of FMR as investment adviser of each Series
of the Trust. As between the Trust and itself, FMR controls the use of the
name of the Trust insofar as such name contains the identifying word
"Fidelity". FMR may from time to time use the identifying word "Fidelity"
in other connections and for other purposes, including, without limitation,
in the names of other investment companies, corporations or businesses
which it may manage, advise, sponsor or own or in which it may have a
financial interest. FMR may require the Trust or any Series thereof to
cease using the identifying word "Fidelity" in the name of the Trust or any
Series thereof if the Trust or any Series thereof ceases to employ FMR or a
subsidiary or affiliate thereof as investment adviser.
IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees of
the Trust, have executed this instrument this 15th day of September, 1994.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have executed this instrument this 15th day of September, 1994.
/s/Edward C. Johnson 3d /s/Donald S. Kirk
Edward C. Johnson 3d Donald J. Kirk
/s/J. Gary Burkhead /s/Peter S. Lynch
J. Gary Burkhead Peter S. Lynch
/s/Ralph F. Cox /s/Gerald C. McDonough
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis /s/Edward H. Malone
Phyllis Burke Davis Edward H. Malone
/s/Richard J. Flynn /s/Marvin L. Mann
Richard J. Flynn Marvin L. Mann
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
Exhibit 5(a)
MANAGEMENT CONTRACT
between
FIDELITY INCOME FUND:
FIDELITY MORTGAGE SECURITIES PORTFOLIO
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
MODIFICATION made this 1st day of August, 1994, by and between Fidelity
Income Fund, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the "Fund"), on
behalf of Fidelity Mortgage Securities Portfolio (hereinafter called the
"Portfolio"), and Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Adviser").
Required authorization and approval by shareholders and Trustees having
been obtained, the Fund, on behalf of the Portfolio, and the Adviser hereby
consent, pursuant to Paragraph 6 of the existing Management Contract dated
September 29, 1989, to a modification of said Contract in the manner set
forth below. The Modified Management Contract shall when executed by duly
authorized officers of the Fund and the Adviser, take effect on the later
of August 1, 1994 or the first day of the month following approval.
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Portfolio in
accordance with the investment objective, policies and limitations as
provided in the Portfolio's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and rules
thereunder, as amended from time to time (the "1940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser. The Adviser shall also furnish for the use of the Portfolio
office space and all necessary office facilities, equipment and personnel
for servicing the investments of the Portfolio; and shall pay the salaries
and fees of all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all personnel of
the Fund or the Adviser performing services relating to research,
statistical and investment activities. The Adviser is authorized, in its
discretion and without prior consultation with the Portfolio, to buy, sell,
lend and otherwise trade in any stocks, bonds and other securities and
investment instruments on behalf of the Portfolio. The investment policies
and all other actions of the Portfolio are and shall at all times be
subject to the control and direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for the
performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund. The Adviser shall,
subject to the supervision of the Board of Trustees, perform various
services for the Portfolio, including but not limited to: (i) providing the
Portfolio with office space, equipment and facilities (which may be its
own) for maintaining its organization; (ii) on behalf of the Portfolio,
supervising relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable; (iii) preparing all general
shareholder communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered, maintaining
the registration and qualification of the Portfolio's shares under federal
and state law; and (vii) investigating the development of and developing
and implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Portfolio as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, information or
analyses to the Fund as the Fund's Board of Trustees may request from time
to time or as the Adviser may deem to be desirable. The Adviser shall make
recommendations to the Fund's Board of Trustees with respect to Fund
policies, and shall carry out such policies as are adopted by the Trustees.
The Adviser shall, subject to review by the Board of Trustees, furnish such
other services as the Adviser shall from time to time determine to be
necessary or useful to perform its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or dealers
selected by the Adviser, which may include brokers or dealers affiliated
with the Adviser. The Adviser shall use its best efforts to seek to
execute portfolio transactions at prices which are advantageous to the
Portfolio and at commission rates which are reasonable in relation to the
benefits received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the
other accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This determination
may be viewed in terms of either that particular transaction or the overall
responsibilities which the Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Trustees of
the Fund shall periodically review the commissions paid by the Portfolio to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor. The
Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of the
Fund are or may be or become interested in the Adviser as directors,
officers or otherwise and that directors, officers and stockholders of the
Adviser are or may be or become similarly interested in the Fund, and that
the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
3. The Adviser will be compensated on the following basis for the services
and facilities to be furnished hereunder. The Adviser shall receive a
monthly management fee, payable monthly as soon as practicable after the
last day of each month, composed of a Group Fee and an Individual Fund Fee.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the monthly
average of the net assets of the registered investment companies having
Advisory and Service or Management Contracts with the Adviser (computed in
the manner set forth in the fund's Declaration of Trust or other
organizational document) determined as of the close of business on each
business day throughout the month. The Group Fee Rate shall be determined
on a cumulative basis pursuant to the following schedule:
Average Net Assets Annualized Fee Rate (for each level)
0 - $ 3 billion .3700%
3 - 6 .3400
6 - 9 .3100
9 - 12 .2800
12 - 15 .2500
15 - 18 .2200
18 - 21 .2000
21 - 24 .1900
24 - 30 .1800
30 - 36 .1750
36 - 42 .1700
42 - 48 .1650
48 - 66 .1600
66 - 84 .1550
84 - 120 .1500
120 - 174 .1450
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
over - 336 .1325
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be .30%.
The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute the
Annual Management Fee Rate. One-twelfth of the Annual Management Fee Rate
shall be applied to the average of the net assets of the Portfolio
(computed in the manner set forth in the Fund's Declaration of Trust or
other organizational document) determined as of the close of business on
each business day throughout the month.
(c) In case of termination of this Contract during any month, the fee for
that month shall be reduced proportionately on the basis of the number of
business days during which it is in effect, and the fee computed upon the
average net assets for the business days it is so in effect for that month.
4. It is understood that the Portfolio will pay all its expenses, which
expenses payable by the Portfolio shall include, without limitation, (i)
interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase or sale of securities and other investment
instruments; (iii) fees and expenses of the Fund's Trustees other than
those who are "interested persons" of the Fund or the Adviser; (iv) legal
and audit expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Fund and the Portfolio's shares for distribution under
state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders of the Portfolio;
(viii) all other expenses incidental to holding meetings of the Portfolio's
shareholders, including proxy solicitations therefor; (ix) a pro rata
share, based on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management Contracts
with the Adviser, of 50% of insurance premiums for fidelity and other
coverage; (x) its proportionate share of association membership dues; (xi)
expenses of typesetting for printing Prospectuses and Statements of
Additional Information and supplements thereto; (xii) expenses of printing
and mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a party
and the legal obligation which the Portfolio may have to indemnify the
Fund's Trustees and officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage
in other activities, provided, however, that such other services and
activities do not, during the term of this Contract, interfere, in a
material manner, with the Adviser's ability to meet all of its obligations
with respect to rendering services to the Portfolio hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser,
the Adviser shall not be subject to liability to the Portfolio or to any
shareholder of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
6. (a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 6, this Contract shall continue in force until June 30, 1995
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually by vote of the
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio.
(b) This Contract may be modified by mutual consent, such consent on the
part of the Fund to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of this
paragraph 6, the terms of any continuance or modification of this Contract
must have been approved by the vote of a majority of those Trustees of the
Fund who are not parties to the Contract or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
(d) Either party hereto may, at any time on sixty (60) days' prior written
notice to the other, terminate this Contract, without payment of any
penalty, by action of its Trustees or Board of Directors, as the case may
be, or with respect to the Portfolio by vote of a majority of the
outstanding voting securities of the Portfolio. This Contract shall
terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust or
other organizational document and agrees that the obligations assumed by
the Fund pursuant to this Contract shall be limited in all cases to the
Portfolio and its assets, and the Adviser shall not seek satisfaction of
any such obligation from the shareholders or any shareholder of the
Portfolio or any other Portfolios of the Fund. In addition, the Adviser
shall not seek satisfaction of any such obligations from the Trustees or
any individual Trustee. The Adviser understands that the rights and
obligations of any Portfolio under the Declaration of Trust or other
organizational document are separate and distinct from those of any and all
other Portfolios.
8. This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without giving effect to the
choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, as now in effect or as
hereafter amended, and subject to such orders as may be granted by the
Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be signed in
their behalf by their respective officers thereunto duly authorized, and
their respective seals to be hereunto affixed, all as of the date written
above.
FIDELITY INCOME FUND
on behalf of Fidelity Mortgage Securities Portfolio
By:/s/ J. Gary Burkhead
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By:/s/ J. Gary Burkhead
President
Exhibit 5(b)
MANAGEMENT CONTRACT
between
FIDELITY INCOME FUND:
FIDELITY GINNIE MAE PORTFOLIO
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
MODIFICATION made this 1st day of August, 1994, by and between Fidelity
Income Fund, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the "Fund"), on
behalf of Fidelity Ginnie Mae Portfolio (hereinafter called the
"Portfolio"), and Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Adviser").
Required authorization and approval by shareholders and Trustees having
been obtained, the Fund, on behalf of the Portfolio, and the Adviser hereby
consent, pursuant to Paragraph 6 of the existing Management Contract
modified December 1, 1992, to a modification of said Contract in the manner
set forth below. The Modified Management Contract shall when executed by
duly authorized officers of the Fund and the Adviser, take effect on the
later of August 1, 1994 or the first day of the month following approval.
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Portfolio in
accordance with the investment objective, policies and limitations as
provided in the Portfolio's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and rules
thereunder, as amended from time to time (the "1940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser. The Adviser shall also furnish for the use of the Portfolio
office space and all necessary office facilities, equipment and personnel
for servicing the investments of the Portfolio; and shall pay the salaries
and fees of all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all personnel of
the Fund or the Adviser performing services relating to research,
statistical and investment activities. The Adviser is authorized, in its
discretion and without prior consultation with the Portfolio, to buy, sell,
lend and otherwise trade in any stocks, bonds and other securities and
investment instruments on behalf of the Portfolio. The investment policies
and all other actions of the Portfolio are and shall at all times be
subject to the control and direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for the
performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund. The Adviser shall,
subject to the supervision of the Board of Trustees, perform various
services for the Portfolio, including but not limited to: (i) providing the
Portfolio with office space, equipment and facilities (which may be its
own) for maintaining its organization; (ii) on behalf of the Portfolio,
supervising relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable; (iii) preparing all general
shareholder communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered, maintaining
the registration and qualification of the Portfolio's shares under federal
and state law; and (vii) investigating the development of and developing
and implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Portfolio as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, information or
analyses to the Fund as the Fund's Board of Trustees may request from time
to time or as the Adviser may deem to be desirable. The Adviser shall make
recommendations to the Fund's Board of Trustees with respect to Fund
policies, and shall carry out such policies as are adopted by the Trustees.
The Adviser shall, subject to review by the Board of Trustees, furnish such
other services as the Adviser shall from time to time determine to be
necessary or useful to perform its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or dealers
selected by the Adviser, which may include brokers or dealers affiliated
with the Adviser. The Adviser shall use its best efforts to seek to
execute portfolio transactions at prices which are advantageous to the
Portfolio and at commission rates which are reasonable in relation to the
benefits received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Portfolio and/or the
other accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for the Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This determination
may be viewed in terms of either that particular transaction or the overall
responsibilities which the Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Trustees of
the Fund shall periodically review the commissions paid by the Portfolio to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor. The
Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of the
Fund are or may be or become interested in the Adviser as directors,
officers or otherwise and that directors, officers and stockholders of the
Adviser are or may be or become similarly interested in the Fund, and that
the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
3. The Adviser will be compensated on the following basis for the services
and facilities to be furnished hereunder. The Adviser shall receive a
monthly management fee, payable monthly as soon as practicable after the
last day of each month, composed of a Group Fee and an Individual Fund Fee.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the monthly
average of the net assets of the registered investment companies having
Advisory and Service or Management Contracts with the Adviser (computed in
the manner set forth in the fund's Declaration of Trust or other
organizational document) determined as of the close of business on each
business day throughout the month. The Group Fee Rate shall be determined
on a cumulative basis pursuant to the following schedule:
Average Net Assets Annualized Fee Rate (for each level)
0 - $ 3 billion .3700%
3 - 6 .3400
6 - 9 .3100
9 - 12 .2800
12 - 15 .2500
15 - 18 .2200
18 - 21 .2000
21 - 24 .1900
24 - 30 .1800
30 - 36 .1750
36 - 42 .1700
42 - 48 .1650
48 - 66 .1600
66 - 84 .1550
84 - 120 .1500
120 - 174 .1450
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
over - 336 .1325
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be .30%.
The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute the
Annual Management Fee Rate. One-twelfth of the Annual Management Fee Rate
shall be applied to the average of the net assets of the Portfolio
(computed in the manner set forth in the Fund's Declaration of Trust or
other organizational document) determined as of the close of business on
each business day throughout the month.
(c) In case of termination of this Contract during any month, the fee for
that month shall be reduced proportionately on the basis of the number of
business days during which it is in effect, and the fee computed upon the
average net assets for the business days it is so in effect for that month.
4. It is understood that the Portfolio will pay all its expenses, which
expenses payable by the Portfolio shall include, without limitation, (i)
interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase or sale of securities and other investment
instruments; (iii) fees and expenses of the Fund's Trustees other than
those who are "interested persons" of the Fund or the Adviser; (iv) legal
and audit expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Fund and the Portfolio's shares for distribution under
state and federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders of the Portfolio;
(viii) all other expenses incidental to holding meetings of the Portfolio's
shareholders, including proxy solicitations therefor; (ix) a pro rata
share, based on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management Contracts
with the Adviser, of 50% of insurance premiums for fidelity and other
coverage; (x) its proportionate share of association membership dues; (xi)
expenses of typesetting for printing Prospectuses and Statements of
Additional Information and supplements thereto; (xii) expenses of printing
and mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a party
and the legal obligation which the Portfolio may have to indemnify the
Fund's Trustees and officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage
in other activities, provided, however, that such other services and
activities do not, during the term of this Contract, interfere, in a
material manner, with the Adviser's ability to meet all of its obligations
with respect to rendering services to the Portfolio hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser,
the Adviser shall not be subject to liability to the Portfolio or to any
shareholder of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
6. (a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 6, this Contract shall continue in force until June 30, 1995
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually by vote of the
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio.
(b) This Contract may be modified by mutual consent, such consent on the
part of the Fund to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of this
paragraph 6, the terms of any continuance or modification of this Contract
must have been approved by the vote of a majority of those Trustees of the
Fund who are not parties to the Contract or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
(d) Either party hereto may, at any time on sixty (60) days' prior written
notice to the other, terminate this Contract, without payment of any
penalty, by action of its Trustees or Board of Directors, as the case may
be, or with respect to the Portfolio by vote of a majority of the
outstanding voting securities of the Portfolio. This Contract shall
terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust or
other organizational document and agrees that the obligations assumed by
the Fund pursuant to this Contract shall be limited in all cases to the
Portfolio and its assets, and the Adviser shall not seek satisfaction of
any such obligation from the shareholders or any shareholder of the
Portfolio or any other Portfolios of the Fund. In addition, the Adviser
shall not seek satisfaction of any such obligations from the Trustees or
any individual Trustee. The Adviser understands that the rights and
obligations of any Portfolio under the Declaration of Trust or other
organizational document are separate and distinct from those of any and all
other Portfolios.
8. This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts, without giving effect to the
choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, as now in effect or as
hereafter amended, and subject to such orders as may be granted by the
Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be signed in
their behalf by their respective officers thereunto duly authorized, and
their respective seals to be hereunto affixed, all as of the date written
above.
FIDELITY INCOME FUND
on behalf of Fidelity Ginnie Mae Portfolio
By:/s/ J. Gary Burkhead
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By:/s/ J. Gary Burkhead
President
Exhibit 5(c)
MANAGEMENT CONTRACT
between
FIDELITY INCOME FUND:
Spartan Limited Maturity Government Fund
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this 1st day of December, 1990, by and between Fidelity
Income Fund, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the "Fund"), on
behalf of Spartan Limited Maturity Government Fund (hereinafter called the
"Portfolio"), and Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Adviser").
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Portfolio in
accordance with the investment objective, policies and limitations as
provided in the Portfolio's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and rules
thereunder, as amended from time to time (the "1940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser. The Adviser shall also furnish for the use of the Portfolio
office space and all necessary office facilities, equipment and personnel
for servicing the investments of the Portfolio; and shall pay the salaries
and fees of all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all personnel of
the Fund or the Adviser performing services relating to research,
statistical and investment activities. The Adviser is authorized, in its
discretion and without prior consultation with the Portfolio, to buy, sell,
lend and otherwise trade in any stocks, bonds and other securities and
investment instruments on behalf of the Portfolio. The investment policies
and all other actions of the Portfolio are and shall at all times be
subject to the control and direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for the
performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund. The Adviser shall,
subject to the supervision of the Board of Trustees, perform various
services for the Portfolio, including but not limited to: (i) providing the
Portfolio with office space, equipment and facilities (which may be its
own) for maintaining its organization; (ii) on behalf of the Portfolio,
supervising relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable; (iii) preparing all general
shareholder communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered, maintaining
the registration and qualification of the Portfolio's shares under federal
and state law; and (vii) investigating the development of and developing
and implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Portfolio as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, information or
analyses to the Fund as the Fund's Board of Trustees may request from time
to time or as the Adviser may deem to be desirable. The Adviser shall make
recommendations to the Fund's Board of Trustees with respect to Fund
policies, and shall carry out such policies as are adopted by the Trustees.
The Adviser shall, subject to review by the Board of Trustees, furnish such
other services as the Adviser shall from time to time determine to be
necessary or useful to perform its obligations under this Contract.
(c) The Adviser undertakes to pay all expenses involved in the operation
of the Portfolio, except the following, which shall be paid by the
Portfolio: (i) taxes; (ii) the fees and expenses of all Trustees of the
Fund who are not "interested persons" of the Fund or of the Adviser; (iii)
brokerage fees and commissions; (iv) interest expenses with respect to
borrowings by the Portfolio; and (v) non-recurring and extraordinary
expenses as may arise, including actions, suits or proceedings to which the
portfolio is or is threatened to be a party and the legal obligation that
the Portfolio may have to indemnify the Fund's Trustees and officers with
respect thereto. It is understood that service charges billed directly to
shareholders of the Portfolio, including charges for exchanges,
redemptions, or other services, shall not be payable by the Adviser, but
may be received and retained by the Adviser or its affiliates.
(d) The Adviser, at its own expense, shall place all orders for the
purchase and sale of portfolio securities for the Portfolio's account with
brokers or dealers selected by the Adviser, which may include brokers or
dealers affiliated with the Adviser. The Adviser shall use its best
efforts to seek to execute portfolio transactions at prices which are
advantageous to the portfolio and at commission rates which are reasonable
in relation to the benefits received. In selecting brokers or dealers
qualified to execute a particular transaction, brokers or dealers may be
selected who also provide brokerage and research services (at those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934) to the
Portfolio and/or the other accounts over which the Adviser or its
affiliates exercise investment discretion. The Adviser is authorized to
pay a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio which is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines in good
faith that such amount of commission is reasonable in relation to the value
of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular
transaction or the overall responsibilities which the Adviser and its
affiliates have with respect to accounts over which they exercise
investment discretion. The Trustees of the Fund shall periodically review
the commissions paid by the Portfolio to determine if the commissions paid
over the representative periods of time were reasonable in relation to the
benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor. The
Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of the
Fund are or may be or become interested in the Adviser as directors,
officers or otherwise and that directors, officers and stockholders of the
Adviser are or may be or become similarly interested in the Fund, and that
the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
3. For the services and facilities to be furnished hereunder, the Adviser
shall receive a monthly management fee, payable as soon as practical after
the last day of each month, at the annual rate of .65% of the average net
assets of the Portfolio (computed in the manner set forth in the Fund's
Declaration of Trust) determined as of the close of business on each day
through the month; provided that the fee, so computed, shall be reduced by
the compensation, including reimbursements of expenses, paid by the
Portfolio to those Trustees who are not "interested persons" of the Fund or
the Adviser. In the case of initiation or termination of this Contract
during any month, the fee shall be reduced proportionately based on the
number of business days during which it is in effect and the fee computed
upon the average net assets for the business days it is so in effect for
that month.
4. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage
in other activities, provided, however, that such other services and
activities do not, during the term of this Contract, interfere, in a
material manner, with the Adviser's ability to meet all of its obligations
with respect to rendering services to the Portfolio hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser,
the Adviser shall not be subject to liability to the Portfolio or to any
shareholder of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
5. (a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 5, this Contract shall continue in force until May 31, 1992
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually by vote of the
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio.
(b) This Contract may be modified by mutual consent, such consent on the
part of the Fund to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of this
paragraph 5, the terms of any continuance or modification of this Contract
must have been approved by the vote of a majority of those Trustees of the
Fund who are not parties to the Contract or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract, without payment of
any penalty, by action of its Trustees or Board of Directors, as the case
may be, or with respect to the Portfolio by vote of a majority of the
outstanding voting securities of the Portfolio. This Contract shall
terminate automatically in the event of its assignment.
6. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust and
agrees that the obligations assumed by the Fund pursuant to this Contract
shall be limited in all cases to the Portfolio and its assets, and the
Adviser shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Portfolio or any other Portfolios of
the Fund. In addition, the Adviser shall not seek satisfaction of any such
obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Portfolio under the
Declaration of Trust are separate and distinct from those of any and all
other Portfolios.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, as now in effect or as
hereafter amended, and subject to such orders as may be granted by the
Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be signed in
their behalf by their respective officers thereunto duly authorized all as
of the date written above.
FIDELITY INCOME FUND
on behalf of Spartan Limited
Maturity Government Fund
By:/s/ J. Gary Burkhead
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By:/s/ J. Gary Burkhead
President
Exhibit 5(d)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
AND
FIDELITY INCOME FUND ON BEHALF OF FIDELITY MORTGAGE SECURITIES PORTFOLIO
AGREEMENT made this 1st day of August, 1994, by and between Fidelity
Management & Research Company, a Massachusetts corporation with principal
offices at 82 Devonshire Street, Boston, Massachusetts (hereinafter called
the "Advisor"); Fidelity Management & Research (U.K.) Inc. (hereinafter
called the "Sub-Advisor"); and Fidelity Income Fund, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (hereinafter called the "Trust") on behalf of Fidelity Mortgage
Securities Portfolio (hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management Contract
on behalf of the Portfolio, pursuant to which the Advisor is to act as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated persons
have personnel in various locations throughout the world and have been
formed in part for the purpose of researching and compiling information and
recommendations with respect to the economies of various countries, and
securities of issuers located in such countries, and providing investment
advisory services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Trust, the Advisor and the Sub-Advisor agree as
follows:
1. Duties: The Advisor may, in its discretion, appoint the Sub-Advisor
to perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion
of the investments of the Portfolio to be advised or managed by the
Sub-Advisor shall be as agreed upon from time to time by the Advisor and
the Sub-Advisor. The Sub-Advisor shall pay the salaries and fees of all
personnel of the Sub-Advisor performing services for the Portfolio relating
to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the Advisor, the
Sub-Advisor shall provide investment advice to the Portfolio and the
Advisor with respect to all or a portion of the investments of the
Portfolio, and in connection with such advice shall furnish the Portfolio
and the Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such information
may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the Advisor,
the Sub-Advisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Portfolio in accordance with the
investment objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to time,
the Investment Company Act of 1940 (the "1940 Act") and rules thereunder,
as amended from time to time, and such other limitations as the Trust or
Advisor may impose with respect to the Portfolio by notice to the
Sub-Advisor. With respect to the portion of the investments of the
Portfolio under its management, the Sub-Advisor is authorized to make
investment decisions on behalf of the Portfolio with regard to any stock,
bond, other security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as the
Sub-Advisor may select. The Sub-Advisor may also be authorized, but only
to the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction of
the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or all
of the services contemplated by this Agreement directly or through such of
its subsidiaries or other affiliated persons as the Sub-Advisor shall
determine; provided, however, that performance of such services through
such subsidiaries or other affiliated persons shall have been approved by
the Trust to the extent required pursuant to the 1940 Act and rules
thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees or
the Advisor may reasonably request from time to time, or as the Sub-Advisor
may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor shall
place all orders for the purchase and sale of portfolio securities for the
Portfolio's account with brokers or dealers selected by the Sub-Advisor,
which may include brokers or dealers affiliated with the Advisor or
Sub-Advisor. The Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or to
the other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor has with respect to
accounts over which it exercises investment discretion. The Trustees of
the Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under subparagraph (a)
of paragraph 1 of this Agreement, the Advisor agrees to pay the Sub-Advisor
a monthly Sub-Advisory Fee. The Sub-Advisory Fee shall be equal to 110% of
the Sub-Advisor's costs incurred in connection with rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement. The
Sub-Advisory Fee shall not be reduced to reflect expense reimbursements or
fee waivers by the Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under subparagraph
(b) of paragraph 1 of this Agreement, the Advisor agrees to pay the
Sub-Advisor a monthly Investment Management Fee. The Investment Management
Fee shall be equal to: (i) 50% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is obligated
to pay the Advisor under its Management Contract with the Advisor,
multiplied by: (ii) the fraction equal to the net assets of the Portfolio
as to which the Sub-Advisor shall have provided investment management
services divided by the net assets of the Portfolio for that month. If in
any fiscal year the aggregate expenses of the Portfolio exceed any
applicable expense limitation imposed by any state or federal securities
laws or regulations, and the Advisor waives all or a portion of its
management fee or reimburses the Portfolio for expenses to the extent
required to satisfy such limitation, the Investment Management Fee paid to
the Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements and
the Advisor subsequently recovers all or any portion of such waivers or
reimbursements, then the Sub-Advisor shall be entitled to receive from the
Advisor a proportionate share of the amount recovered. To the extent that
waivers and reimbursements by the Advisor required by such limitations are
in excess of the Advisor's management fee, the Investment Management Fee
paid to the Sub-Advisor will be reduced to zero for that month, but in no
event shall the Sub-Advisor be required to reimburse the Advisor for all or
a portion of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1) for
the same portion of the investments of the Portfolio for the same period,
the fees paid to the Sub-Advisor with respect to such investments shall be
calculated exclusively under subparagraph (b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the Sub-Advisor
hereunder or by the Advisor under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Trust's Trustees
other than those who are "interested persons" of the Trust, the Sub-Advisor
or the Advisor; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to the
registration and qualification of the Trust and the Portfolio's shares for
distribution under state and federal securities laws; (vii) expenses of
printing and mailing reports and notices and proxy material to shareholders
of the Portfolio; (viii) all other expenses incidental to holding meetings
of the Portfolio's shareholders, including proxy solicitations therefore;
(ix) a pro rata share, based on relative net assets of the Portfolio and
other registered investment companies having Advisory and Service or
Management Contracts with the Advisor, of 50% of insurance premiums for
fidelity and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing Prospectuses and
Statements of Additional Information and supplements thereto; (xii)
expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to indemnify
the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Advisor
or the Sub-Advisor as directors, officers or otherwise and that directors,
officers and stockholders of the Advisor or the Sub-Advisor are or may be
or become similarly interested in the Trust, and that the Advisor or the
Sub-Advisor may be or become interested in the Trust as a shareholder or
otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in other
activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner,
with the Sub-Advisor's ability to meet all of its obligations hereunder.
The Sub-Advisor shall for all purposes be an independent contractor and not
an agent or employee of the Advisor or the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of this
paragraph 9, this Agreement shall continue in force until June 30, 1995 and
indefinitely thereafter, but only so long as the continuance after such
period shall be specifically approved at least annually by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor, the
Sub-Advisor and the Portfolio, such consent on the part of the Portfolio to
be authorized by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of this
paragraph 9, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any time
on sixty (60) days' prior written notice to the other parties, terminate
this Agreement, without payment of any penalty, by action of its Board of
Trustees or Directors, or with respect to the Portfolio by vote of a
majority of its outstanding voting securities. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Trust and
agrees that any obligations of the Trust or the Portfolio arising in
connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the Sub-Advisor seek satisfaction of any such
obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the 1940
Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of
the date written above.
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
BY: /s/ Steven Jonas
Treasurer
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/ J. Gary Burkhead
President
FIDELITY INCOME FUND ON BEHALF OF
FIDELITY MORTGAGE SECURITIES PORTFOLIO
BY: /s/ J. Gary Burkhead
Senior Vice President of the Trust
Exhibit 5(e)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
AND
FIDELITY INCOME FUND ON BEHALF OF FIDELITY MORTGAGE SECURITIES PORTFOLIO
AGREEMENT made this 1st day of August, 1994, by and between Fidelity
Management & Research Company, a Massachusetts corporation with principal
offices at 82 Devonshire Street, Boston, Massachusetts (hereinafter called
the "Advisor"); Fidelity Management & Research (Far East) Inc. (hereinafter
called the "Sub-Advisor"); and Fidelity Income Fund, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (hereinafter called the "Trust") on behalf of Fidelity Mortgage
Securities Portfolio (hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management Contract
on behalf of the Portfolio, pursuant to which the Advisor is to act as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated persons
have personnel in various locations throughout the world and have been
formed in part for the purpose of researching and compiling information and
recommendations with respect to the economies of various countries, and
securities of issuers located in such countries, and providing investment
advisory services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Trust, the Advisor and the Sub-Advisor agree as
follows:
1. Duties: The Advisor may, in its discretion, appoint the Sub-Advisor
to perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion
of the investments of the Portfolio to be advised or managed by the
Sub-Advisor shall be as agreed upon from time to time by the Advisor and
the Sub-Advisor. The Sub-Advisor shall pay the salaries and fees of all
personnel of the Sub-Advisor performing services for the Portfolio relating
to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the Advisor, the
Sub-Advisor shall provide investment advice to the Portfolio and the
Advisor with respect to all or a portion of the investments of the
Portfolio, and in connection with such advice shall furnish the Portfolio
and the Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such information
may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the Advisor,
the Sub-Advisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Portfolio in accordance with the
investment objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to time,
the Investment Company Act of 1940 (the "1940 Act") and rules thereunder,
as amended from time to time, and such other limitations as the Trust or
Advisor may impose with respect to the Portfolio by notice to the
Sub-Advisor. With respect to the portion of the investments of the
Portfolio under its management, the Sub-Advisor is authorized to make
investment decisions on behalf of the Portfolio with regard to any stock,
bond, other security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as the
Sub-Advisor may select. The Sub-Advisor may also be authorized, but only
to the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction of
the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or all
of the services contemplated by this Agreement directly or through such of
its subsidiaries or other affiliated persons as the Sub-Advisor shall
determine; provided, however, that performance of such services through
such subsidiaries or other affiliated persons shall have been approved by
the Trust to the extent required pursuant to the 1940 Act and rules
thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees or
the Advisor may reasonably request from time to time, or as the Sub-Advisor
may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor shall
place all orders for the purchase and sale of portfolio securities for the
Portfolio's account with brokers or dealers selected by the Sub-Advisor,
which may include brokers or dealers affiliated with the Advisor or
Sub-Advisor. The Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or to
the other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor has with respect to
accounts over which it exercises investment discretion. The Trustees of
the Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under subparagraph (a)
of paragraph 1 of this Agreement, the Advisor agrees to pay the Sub-Advisor
a monthly Sub-Advisory Fee. The Sub-Advisory Fee shall be equal to 105% of
the Sub-Advisor's costs incurred in connection with rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement. The
Sub-Advisory Fee shall not be reduced to reflect expense reimbursements or
fee waivers by the Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under subparagraph
(b) of paragraph 1 of this Agreement, the Advisor agrees to pay the
Sub-Advisor a monthly Investment Management Fee. The Investment Management
Fee shall be equal to: (i) 50% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is obligated
to pay the Advisor under its Management Contract with the Advisor,
multiplied by: (ii) the fraction equal to the net assets of the Portfolio
as to which the Sub-Advisor shall have provided investment management
services divided by the net assets of the Portfolio for that month. If in
any fiscal year the aggregate expenses of the Portfolio exceed any
applicable expense limitation imposed by any state or federal securities
laws or regulations, and the Advisor waives all or a portion of its
management fee or reimburses the Portfolio for expenses to the extent
required to satisfy such limitation, the Investment Management Fee paid to
the Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements and
the Advisor subsequently recovers all or any portion of such waivers and
reimbursements, then the Sub-Advisor shall be entitled to receive from the
Advisor a proportionate share of the amount recovered. To the extent that
waivers and reimbursements by the Advisor required by such limitations are
in excess of the Advisor's management fee, the Investment Management Fee
paid to the Sub-Advisor will be reduced to zero for that month, but in no
event shall the Sub-Advisor be required to reimburse the Advisor for all or
a portion of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1 for
the same portion of the investments of the Portfolio for the same period,
the fees paid to the Sub-Advisor with respect to such investments shall be
calculated exclusively under subparagraph (b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the Sub-Advisor
hereunder or by the Advisor under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Trust's Trustees
other than those who are "interested persons" of the Trust, the Sub-Advisor
or the Advisor; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to the
registration and qualification of the Trust and the Portfolio's shares for
distribution under state and federal securities laws; (vii) expenses of
printing and mailing reports and notices and proxy material to shareholders
of the Portfolio; (viii) all other expenses incidental to holding meetings
of the Portfolio's shareholders, including proxy solicitations therefore;
(ix) a pro rata share, based on relative net assets of the Portfolio and
other registered investment companies having Advisory and Service or
Management Contracts with the Advisor, of 50% of insurance premiums for
fidelity and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing Prospectuses and
Statements of Additional Information and supplements thereto; (xii)
expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to indemnify
the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Advisor
or the Sub-Advisor as directors, officers or otherwise and that directors,
officers and stockholders of the Advisor or the Sub-Advisor are or may be
or become similarly interested in the Trust, and that the Advisor or the
Sub-Advisor may be or become interested in the Trust as a shareholder or
otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in other
activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner,
with the Sub-Advisor's ability to meet all of its obligations hereunder.
The Sub-Advisor shall for all purposes be an independent contractor and not
an agent or employee of the Advisor or the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of this
paragraph 9, this Agreement shall continue in force until June 30, 1994
and indefinitely thereafter, but only so long as the continuance after such
period shall be specifically approved at least annually by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor, the
Sub-Advisor and the Portfolio, such consent on the part of the Portfolio to
be authorized by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of this
paragraph 9, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any time
on sixty (60) days' prior written notice to the other parties, terminate
this Agreement, without payment of any penalty, by action of its Board of
Trustees or Directors, or with respect to the Portfolio by vote of a
majority of its outstanding voting securities. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Trust and
agrees that any obligations of the Trust or the Portfolio arising in
connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the Sub-Advisor seek satisfaction of any such
obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the 1940
Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of
the date written above.
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
BY: /s/ Steven Jonas
Treasurer
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/ J. Gary Burkhead
President
FIDELITY INCOME FUND ON BEHALF OF
FIDELITY MORTGAGE SECURITIES PORTFOLIO
BY: /s/ J. Gary Burkhead
Senior Vice President of the Trust
Exhibit 5(f)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
AND
FIDELITY INCOME FUND ON BEHALF OF FIDELITY GINNIE MAE PORTFOLIO
AGREEMENT made this 1st day of August, 1994, by and between Fidelity
Management & Research Company, a Massachusetts corporation with principal
offices at 82 Devonshire Street, Boston, Massachusetts (hereinafter called
the "Advisor"); Fidelity Management & Research (U.K.) Inc. (hereinafter
called the "Sub-Advisor"); and Fidelity Income Fund, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (hereinafter called the "Trust") on behalf of Fidelity Ginnie Mae
Portfolio (hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management Contract
on behalf of the Portfolio, pursuant to which the Advisor is to act as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated persons
have personnel in various locations throughout the world and have been
formed in part for the purpose of researching and compiling information and
recommendations with respect to the economies of various countries, and
securities of issuers located in such countries, and providing investment
advisory services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Trust, the Advisor and the Sub-Advisor agree as
follows:
1. Duties: The Advisor may, in its discretion, appoint the Sub-Advisor
to perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion
of the investments of the Portfolio to be advised or managed by the
Sub-Advisor shall be as agreed upon from time to time by the Advisor and
the Sub-Advisor. The Sub-Advisor shall pay the salaries and fees of all
personnel of the Sub-Advisor performing services for the Portfolio relating
to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the Advisor, the
Sub-Advisor shall provide investment advice to the Portfolio and the
Advisor with respect to all or a portion of the investments of the
Portfolio, and in connection with such advice shall furnish the Portfolio
and the Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such information
may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the Advisor,
the Sub-Advisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Portfolio in accordance with the
investment objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to time,
the Investment Company Act of 1940 (the "1940 Act") and rules thereunder,
as amended from time to time, and such other limitations as the Trust or
Advisor may impose with respect to the Portfolio by notice to the
Sub-Advisor. With respect to the portion of the investments of the
Portfolio under its management, the Sub-Advisor is authorized to make
investment decisions on behalf of the Portfolio with regard to any stock,
bond, other security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as the
Sub-Advisor may select. The Sub-Advisor may also be authorized, but only
to the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction of
the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or all
of the services contemplated by this Agreement directly or through such of
its subsidiaries or other affiliated persons as the Sub-Advisor shall
determine; provided, however, that performance of such services through
such subsidiaries or other affiliated persons shall have been approved by
the Trust to the extent required pursuant to the 1940 Act and rules
thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees or
the Advisor may reasonably request from time to time, or as the Sub-Advisor
may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor shall
place all orders for the purchase and sale of portfolio securities for the
Portfolio's account with brokers or dealers selected by the Sub-Advisor,
which may include brokers or dealers affiliated with the Advisor or
Sub-Advisor. The Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or to
the other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor has with respect to
accounts over which it exercises investment discretion. The Trustees of
the Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under subparagraph (a)
of paragraph 1 of this Agreement, the Advisor agrees to pay the Sub-Advisor
a monthly Sub-Advisory Fee. The Sub-Advisory Fee shall be equal to 110% of
the Sub-Advisor's costs incurred in connection with rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement. The
Sub-Advisory Fee shall not be reduced to reflect expense reimbursements or
fee waivers by the Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under subparagraph
(b) of paragraph 1 of this Agreement, the Advisor agrees to pay the
Sub-Advisor a monthly Investment Management Fee. The Investment Management
Fee shall be equal to: (i) 50% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is obligated
to pay the Advisor under its Management Contract with the Advisor,
multiplied by: (ii) the fraction equal to the net assets of the Portfolio
as to which the Sub-Advisor shall have provided investment management
services divided by the net assets of the Portfolio for that month. If in
any fiscal year the aggregate expenses of the Portfolio exceed any
applicable expense limitation imposed by any state or federal securities
laws or regulations, and the Advisor waives all or a portion of its
management fee or reimburses the Portfolio for expenses to the extent
required to satisfy such limitation, the Investment Management Fee paid to
the Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements and
the Advisor subsequently recovers all or any portion of such waivers or
reimbursements, then the Sub-Advisor shall be entitled to receive from the
Advisor a proportionate share of the amount recovered. To the extent that
waivers and reimbursements by the Advisor required by such limitations are
in excess of the Advisor's management fee, the Investment Management Fee
paid to the Sub-Advisor will be reduced to zero for that month, but in no
event shall the Sub-Advisor be required to reimburse the Advisor for all or
a portion of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1) for
the same portion of the investments of the Portfolio for the same period,
the fees paid to the Sub-Advisor with respect to such investments shall be
calculated exclusively under subparagraph (b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the Sub-Advisor
hereunder or by the Advisor under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Trust's Trustees
other than those who are "interested persons" of the Trust, the Sub-Advisor
or the Advisor; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to the
registration and qualification of the Trust and the Portfolio's shares for
distribution under state and federal securities laws; (vii) expenses of
printing and mailing reports and notices and proxy material to shareholders
of the Portfolio; (viii) all other expenses incidental to holding meetings
of the Portfolio's shareholders, including proxy solicitations therefore;
(ix) a pro rata share, based on relative net assets of the Portfolio and
other registered investment companies having Advisory and Service or
Management Contracts with the Advisor, of 50% of insurance premiums for
fidelity and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing Prospectuses and
Statements of Additional Information and supplements thereto; (xii)
expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to indemnify
the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Advisor
or the Sub-Advisor as directors, officers or otherwise and that directors,
officers and stockholders of the Advisor or the Sub-Advisor are or may be
or become similarly interested in the Trust, and that the Advisor or the
Sub-Advisor may be or become interested in the Trust as a shareholder or
otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in other
activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner,
with the Sub-Advisor's ability to meet all of its obligations hereunder.
The Sub-Advisor shall for all purposes be an independent contractor and not
an agent or employee of the Advisor or the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of this
paragraph 9, this Agreement shall continue in force until June 30, 1995 and
indefinitely thereafter, but only so long as the continuance after such
period shall be specifically approved at least annually by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor, the
Sub-Advisor and the Portfolio, such consent on the part of the Portfolio to
be authorized by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of this
paragraph 9, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any time
on sixty (60) days' prior written notice to the other parties, terminate
this Agreement, without payment of any penalty, by action of its Board of
Trustees or Directors, or with respect to the Portfolio by vote of a
majority of its outstanding voting securities. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Trust and
agrees that any obligations of the Trust or the Portfolio arising in
connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the Sub-Advisor seek satisfaction of any such
obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the 1940
Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of
the date written above.
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
BY: /s/ Steven Jonas
Treasurer
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/ J. Gary Burkhead
President
FIDELITY INCOME FUND ON BEHALF OF
FIDELITY GINNIE MAE PORTFOLIO
BY: /s/ J. Gary Burkhead
Senior Vice President of the Trust
Exhibit 5(g)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
AND
FIDELITY INCOME FUND ON BEHALF OF FIDELITY GINNIE MAE PORTFOLIO
AGREEMENT made this 1st day of August, 1994, by and between Fidelity
Management & Research Company, a Massachusetts corporation with principal
offices at 82 Devonshire Street, Boston, Massachusetts (hereinafter called
the "Advisor"); Fidelity Management & Research (Far East) Inc. (hereinafter
called the "Sub-Advisor"); and Fidelity Income Fund, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (hereinafter called the "Trust") on behalf of Fidelity Ginnie Mae
Portfolio (hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management Contract
on behalf of the Portfolio, pursuant to which the Advisor is to act as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated persons
have personnel in various locations throughout the world and have been
formed in part for the purpose of researching and compiling information and
recommendations with respect to the economies of various countries, and
securities of issuers located in such countries, and providing investment
advisory services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Trust, the Advisor and the Sub-Advisor agree as
follows:
1. Duties: The Advisor may, in its discretion, appoint the Sub-Advisor
to perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion
of the investments of the Portfolio to be advised or managed by the
Sub-Advisor shall be as agreed upon from time to time by the Advisor and
the Sub-Advisor. The Sub-Advisor shall pay the salaries and fees of all
personnel of the Sub-Advisor performing services for the Portfolio relating
to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the Advisor, the
Sub-Advisor shall provide investment advice to the Portfolio and the
Advisor with respect to all or a portion of the investments of the
Portfolio, and in connection with such advice shall furnish the Portfolio
and the Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such information
may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the Advisor,
the Sub-Advisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Portfolio in accordance with the
investment objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to time,
the Investment Company Act of 1940 (the "1940 Act") and rules thereunder,
as amended from time to time, and such other limitations as the Trust or
Advisor may impose with respect to the Portfolio by notice to the
Sub-Advisor. With respect to the portion of the investments of the
Portfolio under its management, the Sub-Advisor is authorized to make
investment decisions on behalf of the Portfolio with regard to any stock,
bond, other security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as the
Sub-Advisor may select. The Sub-Advisor may also be authorized, but only
to the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction of
the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or all
of the services contemplated by this Agreement directly or through such of
its subsidiaries or other affiliated persons as the Sub-Advisor shall
determine; provided, however, that performance of such services through
such subsidiaries or other affiliated persons shall have been approved by
the Trust to the extent required pursuant to the 1940 Act and rules
thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees or
the Advisor may reasonably request from time to time, or as the Sub-Advisor
may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor shall
place all orders for the purchase and sale of portfolio securities for the
Portfolio's account with brokers or dealers selected by the Sub-Advisor,
which may include brokers or dealers affiliated with the Advisor or
Sub-Advisor. The Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or to
the other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor has with respect to
accounts over which it exercises investment discretion. The Trustees of
the Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under subparagraph (a)
of paragraph 1 of this Agreement, the Advisor agrees to pay the Sub-Advisor
a monthly Sub-Advisory Fee. The Sub-Advisory Fee shall be equal to 105% of
the Sub-Advisor's costs incurred in connection with rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement. The
Sub-Advisory Fee shall not be reduced to reflect expense reimbursements or
fee waivers by the Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under subparagraph
(b) of paragraph 1 of this Agreement, the Advisor agrees to pay the
Sub-Advisor a monthly Investment Management Fee. The Investment Management
Fee shall be equal to: (i) 50% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is obligated
to pay the Advisor under its Management Contract with the Advisor,
multiplied by: (ii) the fraction equal to the net assets of the Portfolio
as to which the Sub-Advisor shall have provided investment management
services divided by the net assets of the Portfolio for that month. If in
any fiscal year the aggregate expenses of the Portfolio exceed any
applicable expense limitation imposed by any state or federal securities
laws or regulations, and the Advisor waives all or a portion of its
management fee or reimburses the Portfolio for expenses to the extent
required to satisfy such limitation, the Investment Management Fee paid to
the Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements and
the Advisor subsequently recovers all or any portion of such waivers and
reimbursements, then the Sub-Advisor shall be entitled to receive from the
Advisor a proportionate share of the amount recovered. To the extent that
waivers and reimbursements by the Advisor required by such limitations are
in excess of the Advisor's management fee, the Investment Management Fee
paid to the Sub-Advisor will be reduced to zero for that month, but in no
event shall the Sub-Advisor be required to reimburse the Advisor for all or
a portion of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1 for
the same portion of the investments of the Portfolio for the same period,
the fees paid to the Sub-Advisor with respect to such investments shall be
calculated exclusively under subparagraph (b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the Sub-Advisor
hereunder or by the Advisor under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Trust's Trustees
other than those who are "interested persons" of the Trust, the Sub-Advisor
or the Advisor; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to the
registration and qualification of the Trust and the Portfolio's shares for
distribution under state and federal securities laws; (vii) expenses of
printing and mailing reports and notices and proxy material to shareholders
of the Portfolio; (viii) all other expenses incidental to holding meetings
of the Portfolio's shareholders, including proxy solicitations therefore;
(ix) a pro rata share, based on relative net assets of the Portfolio and
other registered investment companies having Advisory and Service or
Management Contracts with the Advisor, of 50% of insurance premiums for
fidelity and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing Prospectuses and
Statements of Additional Information and supplements thereto; (xii)
expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to indemnify
the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Advisor
or the Sub-Advisor as directors, officers or otherwise and that directors,
officers and stockholders of the Advisor or the Sub-Advisor are or may be
or become similarly interested in the Trust, and that the Advisor or the
Sub-Advisor may be or become interested in the Trust as a shareholder or
otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in other
activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner,
with the Sub-Advisor's ability to meet all of its obligations hereunder.
The Sub-Advisor shall for all purposes be an independent contractor and not
an agent or employee of the Advisor or the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of this
paragraph 9, this Agreement shall continue in force until June 30, 1994
and indefinitely thereafter, but only so long as the continuance after such
period shall be specifically approved at least annually by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor, the
Sub-Advisor and the Portfolio, such consent on the part of the Portfolio to
be authorized by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of this
paragraph 9, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any time
on sixty (60) days' prior written notice to the other parties, terminate
this Agreement, without payment of any penalty, by action of its Board of
Trustees or Directors, or with respect to the Portfolio by vote of a
majority of its outstanding voting securities. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Trust and
agrees that any obligations of the Trust or the Portfolio arising in
connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the Sub-Advisor seek satisfaction of any such
obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the 1940
Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of
the date written above.
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
BY: /s/ Steven Jonas
Treasurer
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/ J. Gary Burkhead
President
FIDELITY INCOME FUND ON BEHALF OF
FIDELITY GINNIE MAE PORTFOLIO
BY: /s/ J. Gary Burkhead
Senior Vice President of the Trust
Exhibit 5(h)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
AND
FIDELITY INCOME FUND ON BEHALF OF SPARTAN LIMITED MATURITY GOVERNMENT FUND
AGREEMENT made this 1st day of August, 1994, by and between Fidelity
Management & Research Company, a Massachusetts corporation with principal
offices at 82 Devonshire Street, Boston, Massachusetts (hereinafter called
the "Advisor"); Fidelity Management & Research (U.K.) Inc. (hereinafter
called the "Sub-Advisor"); and Fidelity Income Fund, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (hereinafter called the "Trust") on behalf of Spartan Limited
Maturity Government Fund (hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management Contract
on behalf of the Portfolio, pursuant to which the Advisor is to act as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated persons
have personnel in various locations throughout the world and have been
formed in part for the purpose of researching and compiling information and
recommendations with respect to the economies of various countries, and
securities of issuers located in such countries, and providing investment
advisory services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Trust, the Advisor and the Sub-Advisor agree as
follows:
1. Duties: The Advisor may, in its discretion, appoint the Sub-Advisor
to perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion
of the investments of the Portfolio to be advised or managed by the
Sub-Advisor shall be as agreed upon from time to time by the Advisor and
the Sub-Advisor. The Sub-Advisor shall pay the salaries and fees of all
personnel of the Sub-Advisor performing services for the Portfolio relating
to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the Advisor, the
Sub-Advisor shall provide investment advice to the Portfolio and the
Advisor with respect to all or a portion of the investments of the
Portfolio, and in connection with such advice shall furnish the Portfolio
and the Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such information
may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the Advisor,
the Sub-Advisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Portfolio in accordance with the
investment objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to time,
the Investment Company Act of 1940 (the "1940 Act") and rules thereunder,
as amended from time to time, and such other limitations as the Trust or
Advisor may impose with respect to the Portfolio by notice to the
Sub-Advisor. With respect to the portion of the investments of the
Portfolio under its management, the Sub-Advisor is authorized to make
investment decisions on behalf of the Portfolio with regard to any stock,
bond, other security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as the
Sub-Advisor may select. The Sub-Advisor may also be authorized, but only
to the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction of
the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or all
of the services contemplated by this Agreement directly or through such of
its subsidiaries or other affiliated persons as the Sub-Advisor shall
determine; provided, however, that performance of such services through
such subsidiaries or other affiliated persons shall have been approved by
the Trust to the extent required pursuant to the 1940 Act and rules
thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees or
the Advisor may reasonably request from time to time, or as the Sub-Advisor
may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor shall
place all orders for the purchase and sale of portfolio securities for the
Portfolio's account with brokers or dealers selected by the Sub-Advisor,
which may include brokers or dealers affiliated with the Advisor or
Sub-Advisor. The Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or to
the other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor has with respect to
accounts over which it exercises investment discretion. The Trustees of
the Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under subparagraph (a)
of paragraph 1 of this Agreement, the Advisor agrees to pay the Sub-Advisor
a monthly Sub-Advisory Fee. The Sub-Advisory Fee shall be equal to 110% of
the Sub-Advisor's costs incurred in connection with rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement. The
Sub-Advisory Fee shall not be reduced to reflect expense reimbursements or
fee waivers by the Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under subparagraph
(b) of paragraph 1 of this Agreement, the Advisor agrees to pay the
Sub-Advisor a monthly Investment Management Fee. The Investment Management
Fee shall be equal to: (i) 50% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is obligated
to pay the Advisor under its Management Contract with the Advisor,
multiplied by: (ii) the fraction equal to the net assets of the Portfolio
as to which the Sub-Advisor shall have provided investment management
services divided by the net assets of the Portfolio for that month. If in
any fiscal year the aggregate expenses of the Portfolio exceed any
applicable expense limitation imposed by any state or federal securities
laws or regulations, and the Advisor waives all or a portion of its
management fee or reimburses the Portfolio for expenses to the extent
required to satisfy such limitation, the Investment Management Fee paid to
the Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements and
the Advisor subsequently recovers all or any portion of such waivers or
reimbursements, then the Sub-Advisor shall be entitled to receive from the
Advisor a proportionate share of the amount recovered. To the extent that
waivers and reimbursements by the Advisor required by such limitations are
in excess of the Advisor's management fee, the Investment Management Fee
paid to the Sub-Advisor will be reduced to zero for that month, but in no
event shall the Sub-Advisor be required to reimburse the Advisor for all or
a portion of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1) for
the same portion of the investments of the Portfolio for the same period,
the fees paid to the Sub-Advisor with respect to such investments shall be
calculated exclusively under subparagraph (b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the Sub-Advisor
hereunder or by the Advisor under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Trust's Trustees
other than those who are "interested persons" of the Trust, the Sub-Advisor
or the Advisor; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to the
registration and qualification of the Trust and the Portfolio's shares for
distribution under state and federal securities laws; (vii) expenses of
printing and mailing reports and notices and proxy material to shareholders
of the Portfolio; (viii) all other expenses incidental to holding meetings
of the Portfolio's shareholders, including proxy solicitations therefore;
(ix) a pro rata share, based on relative net assets of the Portfolio and
other registered investment companies having Advisory and Service or
Management Contracts with the Advisor, of 50% of insurance premiums for
fidelity and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing Prospectuses and
Statements of Additional Information and supplements thereto; (xii)
expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to indemnify
the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Advisor
or the Sub-Advisor as directors, officers or otherwise and that directors,
officers and stockholders of the Advisor or the Sub-Advisor are or may be
or become similarly interested in the Trust, and that the Advisor or the
Sub-Advisor may be or become interested in the Trust as a shareholder or
otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in other
activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner,
with the Sub-Advisor's ability to meet all of its obligations hereunder.
The Sub-Advisor shall for all purposes be an independent contractor and not
an agent or employee of the Advisor or the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of this
paragraph 9, this Agreement shall continue in force until June 30, 1995 and
indefinitely thereafter, but only so long as the continuance after such
period shall be specifically approved at least annually by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor, the
Sub-Advisor and the Portfolio, such consent on the part of the Portfolio to
be authorized by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of this
paragraph 9, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any time
on sixty (60) days' prior written notice to the other parties, terminate
this Agreement, without payment of any penalty, by action of its Board of
Trustees or Directors, or with respect to the Portfolio by vote of a
majority of its outstanding voting securities. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Trust and
agrees that any obligations of the Trust or the Portfolio arising in
connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the Sub-Advisor seek satisfaction of any such
obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the 1940
Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of
the date written above.
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
BY: /s/ Steven Jonas
Treasurer
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/ J. Gary Burkhead
President
FIDELITY INCOME FUND ON BEHALF OF
SPARTAN LIMITED MATURITY GOVERNMENT FUND
BY: /s/ J. Gary Burkhead
Senior Vice President of the Trust
Exhibit 5(i)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
AND
FIDELITY INCOME FUND ON BEHALF OF SPARTAN LIMITED MATURITY GOVERNMENT FUND
AGREEMENT made this 1st day of August, 1994, by and between Fidelity
Management & Research Company, a Massachusetts corporation with principal
offices at 82 Devonshire Street, Boston, Massachusetts (hereinafter called
the "Advisor"); Fidelity Management & Research (Far East) Inc. (hereinafter
called the "Sub-Advisor"); and Fidelity Income Fund, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (hereinafter called the "Trust") on behalf of Spartan Limited
Maturity Government Fund (hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management Contract
on behalf of the Portfolio, pursuant to which the Advisor is to act as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated persons
have personnel in various locations throughout the world and have been
formed in part for the purpose of researching and compiling information and
recommendations with respect to the economies of various countries, and
securities of issuers located in such countries, and providing investment
advisory services in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the Trust, the Advisor and the Sub-Advisor agree as
follows:
1. Duties: The Advisor may, in its discretion, appoint the Sub-Advisor
to perform one or more of the following services with respect to all or a
portion of the investments of the Portfolio. The services and the portion
of the investments of the Portfolio to be advised or managed by the
Sub-Advisor shall be as agreed upon from time to time by the Advisor and
the Sub-Advisor. The Sub-Advisor shall pay the salaries and fees of all
personnel of the Sub-Advisor performing services for the Portfolio relating
to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the Advisor, the
Sub-Advisor shall provide investment advice to the Portfolio and the
Advisor with respect to all or a portion of the investments of the
Portfolio, and in connection with such advice shall furnish the Portfolio
and the Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such information
may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the Advisor,
the Sub-Advisor shall, subject to the supervision of the Advisor, manage
all or a portion of the investments of the Portfolio in accordance with the
investment objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to time,
the Investment Company Act of 1940 (the "1940 Act") and rules thereunder,
as amended from time to time, and such other limitations as the Trust or
Advisor may impose with respect to the Portfolio by notice to the
Sub-Advisor. With respect to the portion of the investments of the
Portfolio under its management, the Sub-Advisor is authorized to make
investment decisions on behalf of the Portfolio with regard to any stock,
bond, other security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as the
Sub-Advisor may select. The Sub-Advisor may also be authorized, but only
to the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction of
the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or all
of the services contemplated by this Agreement directly or through such of
its subsidiaries or other affiliated persons as the Sub-Advisor shall
determine; provided, however, that performance of such services through
such subsidiaries or other affiliated persons shall have been approved by
the Trust to the extent required pursuant to the 1940 Act and rules
thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees or
the Advisor may reasonably request from time to time, or as the Sub-Advisor
may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor shall
place all orders for the purchase and sale of portfolio securities for the
Portfolio's account with brokers or dealers selected by the Sub-Advisor,
which may include brokers or dealers affiliated with the Advisor or
Sub-Advisor. The Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a
particular transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or to
the other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Advisor determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular transaction
or the overall responsibilities which the Sub-Advisor has with respect to
accounts over which it exercises investment discretion. The Trustees of
the Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under subparagraph (a)
of paragraph 1 of this Agreement, the Advisor agrees to pay the Sub-Advisor
a monthly Sub-Advisory Fee. The Sub-Advisory Fee shall be equal to 105% of
the Sub-Advisor's costs incurred in connection with rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement. The
Sub-Advisory Fee shall not be reduced to reflect expense reimbursements or
fee waivers by the Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under subparagraph
(b) of paragraph 1 of this Agreement, the Advisor agrees to pay the
Sub-Advisor a monthly Investment Management Fee. The Investment Management
Fee shall be equal to: (i) 50% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is obligated
to pay the Advisor under its Management Contract with the Advisor,
multiplied by: (ii) the fraction equal to the net assets of the Portfolio
as to which the Sub-Advisor shall have provided investment management
services divided by the net assets of the Portfolio for that month. If in
any fiscal year the aggregate expenses of the Portfolio exceed any
applicable expense limitation imposed by any state or federal securities
laws or regulations, and the Advisor waives all or a portion of its
management fee or reimburses the Portfolio for expenses to the extent
required to satisfy such limitation, the Investment Management Fee paid to
the Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements and
the Advisor subsequently recovers all or any portion of such waivers and
reimbursements, then the Sub-Advisor shall be entitled to receive from the
Advisor a proportionate share of the amount recovered. To the extent that
waivers and reimbursements by the Advisor required by such limitations are
in excess of the Advisor's management fee, the Investment Management Fee
paid to the Sub-Advisor will be reduced to zero for that month, but in no
event shall the Sub-Advisor be required to reimburse the Advisor for all or
a portion of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1 for
the same portion of the investments of the Portfolio for the same period,
the fees paid to the Sub-Advisor with respect to such investments shall be
calculated exclusively under subparagraph (b) of this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the Sub-Advisor
hereunder or by the Advisor under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities and other
investment instruments; (iii) fees and expenses of the Trust's Trustees
other than those who are "interested persons" of the Trust, the Sub-Advisor
or the Advisor; (iv) legal and audit expenses; (v) custodian, registrar and
transfer agent fees and expenses; (vi) fees and expenses related to the
registration and qualification of the Trust and the Portfolio's shares for
distribution under state and federal securities laws; (vii) expenses of
printing and mailing reports and notices and proxy material to shareholders
of the Portfolio; (viii) all other expenses incidental to holding meetings
of the Portfolio's shareholders, including proxy solicitations therefore;
(ix) a pro rata share, based on relative net assets of the Portfolio and
other registered investment companies having Advisory and Service or
Management Contracts with the Advisor, of 50% of insurance premiums for
fidelity and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing Prospectuses and
Statements of Additional Information and supplements thereto; (xii)
expenses of printing and mailing Prospectuses and Statements of Additional
Information and supplements thereto sent to existing shareholders; and
(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to indemnify
the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the Advisor
or the Sub-Advisor as directors, officers or otherwise and that directors,
officers and stockholders of the Advisor or the Sub-Advisor are or may be
or become similarly interested in the Trust, and that the Advisor or the
Sub-Advisor may be or become interested in the Trust as a shareholder or
otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in other
activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner,
with the Sub-Advisor's ability to meet all of its obligations hereunder.
The Sub-Advisor shall for all purposes be an independent contractor and not
an agent or employee of the Advisor or the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of obligations or duties hereunder
on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to
liability to the Advisor, the Trust or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of this
paragraph 9, this Agreement shall continue in force until June 30, 1995 and
indefinitely thereafter, but only so long as the continuance after such
period shall be specifically approved at least annually by vote of the
Trust's Board of Trustees or by vote of a majority of the outstanding
voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor, the
Sub-Advisor and the Portfolio, such consent on the part of the Portfolio to
be authorized by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of this
paragraph 9, the terms of any continuance or modification of this Agreement
must have been approved by the vote of a majority of those Trustees of the
Trust who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting called for the purpose of voting on
such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any time
on sixty (60) days' prior written notice to the other parties, terminate
this Agreement, without payment of any penalty, by action of its Board of
Trustees or Directors, or with respect to the Portfolio by vote of a
majority of its outstanding voting securities. This Agreement shall
terminate automatically in the event of its assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Trust and
agrees that any obligations of the Trust or the Portfolio arising in
connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek satisfaction
of any such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the Sub-Advisor seek satisfaction of any such
obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts, without
giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested persons,"
when used herein, shall have the respective meanings specified in the 1940
Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of
the date written above.
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
BY: /s/ Steven Jonas
Treasurer
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/ J. Gary Burkhead
President
FIDELITY INCOME FUND ON BEHALF OF
SPARTAN LIMITED MATURITY GOVERNMENT FUND
BY: /s/ J. Gary Burkhead
Senior Vice President of the Trust
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Prospectuses
and Statements of Additional Information in Post-Effective Amendment No. 31
to the Registration Statement on Form N-1A of Fidelity Income Fund, of our
reports dated September 15, 1994 on the financial statements and financial
highlights included in the July 31, 1994 Annual Reports to Shareholders of
Fidelity Ginnie Mae Portfolio, Fidelity Mortgage Securities Portfolio, and
Spartan Limited Maturity Government Fund.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Auditor" in the Statements
of Additional Information.
/s/PRICE WATERHOUSE
PRICE WATERHOUSE
Boston, Massachusetts
September 15, 1994
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