As filed with the Securities and Exchange Commission
on December 22, 1998
Registration No. 2-92661
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
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<S> <C>
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
</TABLE>
Fidelity Income Fund
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Offices)
Registrant's Telephone Number (617) 563-7000
Eric D. Roiter, Secretary
82 Devonshire Street
Boston, MA 02109
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective under the
Securities Act of 1933.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the
Investment Company Act of 1940; accordingly, no fee is payable
herewith because of reliance upon Section 24(f). Pursuant to Rule 429,
this Registration Statement relates to shares previously registered on
Form N-1A.
It is proposed that this filing will become effective on January 21,
1999, pursuant to Rule 488.
Fidelity Intermediate Government Income Fund
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and
documents:
Facing Page
Contents of Registration Statement
Cross Reference Sheet
Solicitation Letters to Shareholders
Form of Proxy Cards
Notice of Special Meeting of Shareholders
Part A - Proxy Statement and Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
FIDELITY INCOME FUND:
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FORM N-14 CROSS REFERENCE SHEET
PART A
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Form N-14 Item Number and Caption Prospectus/Proxy Statement Caption
1. Beginning of Registration Statement and Out- Cover Page
side Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Pro- Table of Contents
spectus
3. Fee Table, Synopsis Information and Risk Factors Synopsis; Comparison of Other Policies of the Funds;
Comparison of Principal Risk Factors; The Proposed
Transaction
4. Information About the Transactions Synopsis; The Proposed Transaction;
5. Information About the Registrant Prospectus of Fidelity Intermediate Government
Income Fund dated September 21, 1998;
Synopsis; Comparison of Other Policies of the Funds;
Comparison of Principal Risk Factors; Miscellaneous;
Additional Information About Fidelity Intermediate
Government Income Fund; Prospectus of Fidelity
Intermediate Government Income Fund dated
September 21, 1998; Attachment I.
6. Information About the Company Being Acquired Cover Page; Synopsis; Comparison of Other Policies
of the Funds; Comparison of Principal Risk Factors;
Miscellaneous; Prospectus of Spartan
Short-Intermediate Government Fund dated June 26,
1998; Prospectus of Fidelity Short-Intermediate
Government Fund dated November 24, 1998
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not applicable
9. Additional Information Required for Reoffering Not applicable
by Persons Deemed to be Underwriters
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
PART B
Item Number and Caption Statement of Additional Information Caption
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information About the Registrant Prospectus and Statement of Additional
Information of Fidelity Intermediate
Government Income Fund dated September
21, 1998
13. Additional Information About the Company Be- Not applicable
ing Acquired
14. Financial Statements Financial Statements included in the Annual
Report of Spartan Short-Intermediate
Government Fund for the Fiscal Year Ended
April 30, 1998; Financial Statements included
in the Annual Report of Fidelity
Short-Intermediate Government Fund for the
Fiscal Year Ended September 30, 1998.
Financial Statements included in the
Semiannual Report of Spartan
Short-Intermediate Government Fund for the
Fiscal Period Ended October 31, 1998.
Pro-Forma Financial Statements for the
Fiscal Year Ended July 31, 1998
Part C Information required to be included in Part C
is set forth under the appropriate item so
numbered in Part C of this Registration
Statement.
</TABLE>
IMPORTANT PROXY MATERIALS
PLEASE CAST YOUR VOTE NOW!
Dear Shareholder:
I am writing to let you know that a special meeting of shareholders
Spartan(registered trademark) Short-Intermediate Government Fund will
be held on April 14, 1999. The purpose of the meeting is to vote on
important proposals that affect the fund and your investment in it,
including a proposal to merge Spartan Short-Intermediate Government
Fund into Fidelity Intermediate Government Income Fund. As a
shareholder, you have the opportunity to voice your opinion on the
matters that affect your fund. This package contains information
about the proposals and the materials to use when voting by mail.
The enclosed materials include two proxy statements. One provides
information pertaining to the merger proposal. The other proxy
statement provides information regarding several proposals pertaining
to the Fidelity Fixed-Income Trust, which is the current trust for
your fund. Both proxy statements relate to your investment in the
fund, so please make sure you read both proxy statements and cast your
vote on the enclosed proxy card(s) for both the merger proposal and
the trust proposals. PLEASE VOTE AND RETURN YOUR CARD(S) PROMPTLY.
YOUR VOTE IS EXTREMELY IMPORTANT, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
All of the proposals have been carefully reviewed by the Board of
Trustees. The Trustees, most of whom are not affiliated with
Fidelity, are responsible for protecting your interests as a
shareholder. The Trustees believe these proposals are in the best
interest of shareholders. They recommend that you vote for each
proposal.
The following Q&A is provided to assist you in understanding the
proposals. Each of the proposals is described in greater detail in
the enclosed proxy statement.
VOTING IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED. To cast
your vote, simply complete the proxy card(s) enclosed in this package.
Be sure to sign the card(s) before mailing it in the postage-paid
envelope.
If you have any questions before you vote, please call Fidelity at
1-800-544-8888. We'll be glad to help you get your vote in quickly.
Thank you for your participation in this important initiative.
Sincerely,
Edward C. Johnson 3d
Chairman and Chief Executive Officer
Important information to help you understand and vote on the proposals
Please read the full text of both enclosed proxy statements. Below is
a brief overview of the proposals to be voted upon. Your vote is
important. We appreciate you placing your trust in Fidelity and look
forward to helping you achieve your financial goals.
WHAT PROPOSALS AM I BEING ASKED TO VOTE ON?
You are being asked to vote on the following proposals:
(solid bullet) To approve a merger of Spartan Short-Intermediate
Government Fund into Fidelity Intermediate Government Income Fund.
(solid bullet) To elect a Board of Trustees.
(solid bullet) To ratify the selection of PricewaterhouseCoopers LLP
as independent accountants of the fund.
(solid bullet) To authorize the Trustees to adopt an amended and
restated Declaration of Trust.
WHY AM I RECEIVING TWO PROXY STATEMENTS?
One proxy statement provides information pertaining to the merger of
Spartan Short-Intermediate Government Fund into Fidelity Intermediate
Government Income. Fund. The other proxy statement provides
information on proposals for the Fidelity Fixed-Income Trust, which is
the current trust for your fund. Both proxy statements relate to your
investment in the fund.
MERGER PROPOSAL PROXY STATEMENT
WHAT IS THE REASON FOR AND ADVANTAGES OF THE MERGER OF SPARTAN
SHORT-INTERMEDIATE GOVERNMENT FUND (SHORT-INTERMEDIATE) INTO FIDELITY
INTERMEDIATE GOVERNMENT INCOME FUND (INTERMEDIATE GOVERNMENT)?
The proposed merger is part of a wider strategy by Fidelity to reduce
the number of bond funds it manages. The combined fund would have
lower expenses guaranteed through June 30, 2001, and similar
investment policies.
DO THE FUNDS BEING MERGED HAVE SIMILAR INVESTMENT POLICIES?
Both funds are bond funds that seek high current income consistent
with the preservation of capital by investing in U.S. Government
securities, repurchase agreements, and other instruments related to
U.S. Government securities. The funds differ primarily with respect
to their average maturity and duration. Short-Intermediate seeks to
maintain an average maturity of between two and five years, while
Intermediate Government seeks to maintain an average maturity of
between three and ten years.
WHO IS THE FUND MANAGER FOR THESE FUNDS?
Andrew Dudley currently manages both funds and is expected to manage
the combined fund.
HOW DO THE EXPENSE STRUCTURES OF THE FUNDS COMPARE?
Short-Intermediate has a similar contractual expense structure to
Intermediate Government. Both funds pay an all-inclusive management
fee of 0.65% of average net assets to Fidelity Management & Research
Company (FMR). If the Reorganization is approved, FMR has agreed to
limit the combined fund's total operating expenses to 0.63% of average
net assets through June 30, 2001. After that date, the combined
fund's expenses could increase or decrease, as permitted by the
Intermediate Government management contract.
WHAT WILL BE THE NAME OF THE COMBINED FUND AFTER THE MERGER IS
COMPLETED?
If shareholders of Short-Intermediate approve the merger of their fund
into Intermediate Government, the combined fund's name will remain
Fidelity Intermediate Government Income Fund.
IS THE MERGER A TAXABLE EVENT FOR FEDERAL INCOME TAX PURPOSES?
Typically, the exchange of shares pursuant to a merger does not result
in a gain or loss for federal income tax purposes.
WHAT WILL BE THE SIZE OF INTERMEDIATE GOVERNMENT AFTER THE MERGER AND
HOW HAS THE FUND PERFORMED?
If the proposal is approved, the combined fund is anticipated to have
over $800 million in assets.
The table below shows average annual total returns for both
Intermediate Government and its Lipper peer group over the last 1, 3,
5, and 10 year periods. Please keep in mind that past performance is
no guarantee of future results and you may have a gain or loss when
you sell your shares.
AVERAGE ANNUAL TOTAL RETURN AS OF SEPTEMBER 30, 1998*
<TABLE>
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<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Fidelity Intermediate Government Income Fund 9.64% 7.64% 6.39% 7.64%
Lipper Short-Inter. U.S. Govt Funds Average** 8.25% 6.64% 5.31% 7.52%
</TABLE>
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF INTERMEDIATE GOVERNMENT
THAT I WILL RECEIVE?
As of the close of business of the New York Stock Exchange on the
Closing Date of the merger, shareholders will receive the number of
full and fractional shares of Intermediate Government that is equal in
value to the net asset value of their shares of Short-Intermediate on
that date. The anticipated closing date is April 22, 1999.
FIDELITY FIXED-INCOME TRUST PROXY STATEMENT
WHAT ROLE DOES THE BOARD PLAY? (PROPOSAL 1)
The Trustees oversee the investment policies of each fund. Members of
the Board are fiduciaries and have an obligation to serve the best
interests of shareholders, including approving policy changes such as
those proposed in the proxy statement. In addition, the Trustees
review fund performance, oversee fund activities, and review
contractual arrangements with companies that provide services to the
funds.
WHAT IS THE ROLE OF THE INDEPENDENT ACCOUNTANTS? (PROPOSAL 2)
The independent accountants examine annual financial statements for
each fund and provide other audit and tax-related services. They also
sign or certify any financial statements of the funds that are
required by law to be independently certified and filed with the
Securities and Exchange Commission (SEC).
WHY IS THE FUND PROPOSING TO ADOPT AN AMENDED AND RESTATED DECLARATION
OF TRUST? (PROPOSAL 3)
The new Declaration of Trust is a more modern form of trust instrument
for a Massachusetts business trust. It gives the Trustees more
flexibility, and, subject to the applicable requirements of federal
and state law, broader authority to act. This increased flexibility
may allow the Trustees to react more quickly to changes in competitive
and regulatory conditions.
Adoption of the new Declaration of Trust will not alter the Trustees'
existing fiduciary obligations to act in the best interests of the
fund's shareholders. Before utilizing any new flexibility that the
new Declaration of Trust may afford, the Trustees must first consider
the shareholders' interests and act in accordance with such interests.
The new Declaration of Trust amends the current Declaration of Trust
in a number of significant ways. Please review the proxy statement
for specific details.
GENERAL INFORMATION
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM BY THE SCHEDULED
SHAREHOLDER MEETING DATE?
To facilitate receiving sufficient votes, we will need to take further
action. We or D.F. King & Co., Inc., a proxy solicitation firm, may
contact you by mail or telephone. Therefore, we encourage
shareholders to vote as soon as they review the enclosed proxy
materials to avoid additional mailings or telephone calls.
If there are not sufficient votes to approve the proposal by the time
of the Shareholder Meeting (April 14, 1999), the meeting may be
adjourned to permit further solicitation of proxy votes.
HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSALS?
Yes. The Board of Trustees has unanimously approved the proposals in
each proxy statement and recommends that you vote to approve them.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder, you are entitled to one vote for each dollar of net
asset value you own of a fund on the record date. The record date is
February 16, 1999.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy
card, and mailing it in the enclosed postage paid envelope. If you
need any assistance, or have any questions regarding the proposal or
how to vote your shares, please call Fidelity at 800-544-8888.
HOW DO I SIGN THE PROXY CARD?
INDIVIDUAL ACCOUNTS: Shareholders should sign exactly as their names
appear on the account registration shown on the
card.
JOINT ACCOUNTS: Either owner may sign, but the name of the person
signing should conform exactly to a name shown in
the registration.
ALL OTHER ACCOUNTS: The person signing must indicate his or her
capacity. For example, a trustee for a trust or
other entity should sign, "Ann B. Collins,
Trustee."
* Average annual total returns are historical and include changes in
share price, reinvestment of dividends and capital gains, if any.
Share price, yield and return will vary.
** Lipper Analytical Services, Inc. is a nationally recognized
organization that reports on mutual fund total return performance and
calculates fund rankings. Lipper averages are based on universes of
funds with the same investment objective. Peer group averages include
reinvested dividends and capital gains, if any, and exclude sales
charges.
Fidelity Distributors Corporation
IMPORTANT PROXY MATERIALS
PLEASE CAST YOUR VOTE NOW!
Dear Shareholder:
I am writing to ask you for your vote on an important proposal to
merge Fidelity Short-Intermediate Government Fund (SHORT-INTERMEDIATE)
into Fidelity Intermediate Government Income Fund (INTERMEDIATE
GOVERNMENT). A shareholder meeting is scheduled for April 14, 1999.
Votes received in time to be counted at the meeting will decide
whether the merger takes place. This package contains information
about the proposal and includes all the materials you will need to
vote by mail.
The fund's Board of Trustees has reviewed the proposed merger and has
recommended that the proposed merger be presented to shareholders.
The Trustees, most of whom are not affiliated with Fidelity, are
responsible for protecting your interests as a shareholder. The
Trustees have determined that the proposed merger is in shareholders'
best interest. However, the final decision is up to you.
The proposed merger would give shareholders of Short-Intermediate the
opportunity to participate in a larger fund with similar investment
policies. The combined fund would also have lower expenses guaranteed
through June 30, 2001. We have attached a Q&A to assist you in
understanding the proposal. The enclosed proxy statement includes a
detailed description of the proposed merger.
Please read the enclosed materials and promptly cast your vote on the
proxy card. You are entitled to one vote for each dollar of net asset
value you own of a fund on the record date (February 16, 1999). Your
vote is extremely important, no matter how large or small your
holdings may be.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED.
To cast your vote, simply complete the proxy card enclosed in this
package. Be sure to sign the card before mailing it in the
postage-paid envelope provided.
If you have any questions before you vote, please call us at
1-800-544-8888. We will be glad to help you get your vote in quickly.
Thank you for your participation in this important initiative for your
fund.
Sincerely,
[signature]
Edward C. Johnson 3d
Chairman and Chief Executive Officer
Important information to help you understand and vote on the proposal
Please read the full text of the enclosed proxy statement. Below is a
brief overview of the proposal to be voted upon. Your vote is
important. We appreciate you placing your trust in Fidelity and look
forward to helping you achieve your financial goals.
WHAT PROPOSAL AM I BEING ASKED TO VOTE ON?
You are being asked to approve a merger of Fidelity Short-Intermediate
Government Fund into Fidelity Intermediate Government Income Fund.
WHAT IS THE REASON FOR AND ADVANTAGES OF THIS MERGER?
The proposed merger is part of a wider strategy by Fidelity to reduce
the number of bond funds it manages. The combined fund would have
lower expenses guaranteed through June 30, 2001, and similar
investment policies.
DO THE FUNDS BEING MERGED HAVE SIMILAR INVESTMENT POLICIES?
Both funds are bond funds that seek high current income consistent
with the preservation of capital by investing in U.S. Government
securities, repurchase agreements, and other instruments related to
U.S. Government securities. The funds differ primarily with respect
to their average maturity and duration. Short-Intermediate seeks to
maintain an average maturity of between two and five years, while
Intermediate Government seeks to maintain an average maturity of
between three and ten years.
WHO IS THE FUND MANAGER FOR THESE FUNDS?
Andrew Dudley currently manages both funds and is expected to manage
the combined fund.
HOW DO THE EXPENSE STRUCTURES OF THE FUNDS COMPARE?
Short-Intermediate and Intermediate Government have different
contractual expense structures. Short-Intermediate pays its management
fees and other expenses separately, while Intermediate Government pays
an all-inclusive management fee to Fidelity Management & Research
Company (FMR). If the Reorganization is approved, FMR has agreed to
limit the combined fund's total operating expenses to 0.63% of average
net assets through June 30, 2001. After that date, the combined
fund's expenses could increase or decrease, as permitted by the
Intermediate Government management contract.
WHAT WILL BE THE NAME OF THE COMBINED FUND AFTER THE MERGER IS
COMPLETED?
If shareholders of Short-Intermediate approve the merger of their fund
into Intermediate Government, the combined fund's name will remain
Fidelity Intermediate Government Income Fund.
IS THE MERGER A TAXABLE EVENT FOR FEDERAL INCOME TAX PURPOSES?
Typically, the exchange of shares pursuant to a merger does not result
in a gain or loss for federal income tax purposes.
WHAT WILL BE THE SIZE OF INTERMEDIATE GOVERNMENT AFTER THE MERGER AND
HOW HAS THE FUND PERFORMED?
If the proposal is approved, the combined fund is anticipated to have
over $900 million in assets.
The table below shows average annual total returns for both
Intermediate Government and its Lipper peer group over the last 1, 3,
5, and 10 year periods. Please keep in mind that past performance is
no guarantee of future results and you may have a gain or loss when
you sell your shares.
AVERAGE ANNUAL TOTAL RETURN AS OF SEPTEMBER 30, 1998*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Fidelity Intermediate Government Income Fund 9.64% 7.64% 6.39% 7.64%
Lipper Short-Inter. U.S. Govt Funds Average** 8.25% 6.64% 5.31% 7.52%
</TABLE>
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF INTERMEDIATE GOVERNMENT
THAT I WILL RECEIVE?
As of the close of business of the New York Stock Exchange on the
Closing Date of the merger, shareholders will receive the number of
full and fractional shares of Intermediate Government that is equal in
value to the net asset value of their shares of Short-Intermediate on
that date. The anticipated closing date is April 29, 1999.
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH QUORUM BY THE SCHEDULED
SHAREHOLDER MEETING DATE?
To facilitate receiving sufficient votes, we will need to take further
action. We or D.F. King & Co., Inc., a proxy solicitation firm, may
contact you by mail or telephone. Therefore, we encourage
shareholders to vote as soon as they review the enclosed proxy
materials to avoid additional mailings or telephone calls.
If there are not sufficient votes to approve the proposal by the time
of the Shareholder Meeting (April 14, 1999), the meeting may be
adjourned to permit further solicitation of proxy votes.
HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSAL?
Yes. The Board of Trustees has unanimously approved the proposal and
recommends that you vote to approve it.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder, you are entitled to one vote for each dollar of net
asset value you own of a fund on the record date. The record date is
February 16, 1999.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy
card, and mailing it in the enclosed postage paid envelope. If you
need any assistance, or have any questions regarding the proposal or
how to vote your shares, please call Fidelity at 800-544-8888.
HOW DO I SIGN THE PROXY CARD?
INDIVIDUAL ACCOUNTS: Shareholders should sign exactly as their names
appear on the account registration shown on the
card.
JOINT ACCOUNTS: Either owner may sign, but the name of the person
signing should conform exactly to a name shown in
the registration.
ALL OTHER ACCOUNTS: The person signing must indicate his or her
capacity. For example, a trustee for a trust or
other entity should sign, "Ann B. Collins,
Trustee."
* Average annual total returns are historical and include changes in
share price, reinvestment of dividends and capital gains, if any.
Share price, yield and return will vary.
** Lipper Analytical Services, Inc. is a nationally recognized
organization that reports on mutual fund total return performance and
calculates fund rankings. Lipper averages are based on universes of
funds with the same investment objective. Peer group averages include
reinvested dividends and capital gains, if any, and exclude sales
charges.
Fidelity Distributors Corporation
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- ---------------------------------------------------------------------
FIDELITY FIXED-INCOME TRUST: SPARTAN SHORT-INTERMEDIATE GOVERNMENT
FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward
C. Johnson 3d, Eric D. Roiter, and William O. McCoy, or any one or
more of them, attorneys, with full power of substitution, to vote all
shares of Fidelity Fixed-Income Trust: Spartan Short-Intermediate
Government Fund, which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the fund to be held at the office
of the trust at 82 Devonshire St., Boston, MA 02109, on April 14, 1999
at 9:00 a.m. Eastern time and at any adjournments thereof. All powers
may be exercised by a majority of said proxy holders or substitutes
voting or acting or, if only one votes and acts, then by that one.
This Proxy shall be voted on the proposals described in the Proxy
Statement as specified on the reverse side. Receipt of the Notice of
the Meeting and the accompanying Proxy Statement is hereby
acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When
signing in a fiduciary capacity, such as executor, administrator,
trustee, attorney, guardian, etc., please so indicate. Corporate and
partnership proxies should be signed by an authorized person
indicating the person's title.
Date _____________, 1998
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316146505/fund #474
Please refer to the Proxy Statement discussion of this matter.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE
PROPOSAL.
As to any other matter, said attorneys shall vote in accordance with
their best judgment.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
- ------------------------------------------------------------------
__________________________________________________________________
1. To approve an FOR [ ] AGAINST [ ] ABSTAIN [ ] 1.
Agreement and
Plan of
Reorganization
between
Spartan
Short-Intermed
iate
Government
Fund and
Fidelity
Intermediate
Government
Income Fund, a
fund of Fidelity
Income Fund,
providing for
the transfer of
all of the assets
of Spartan
Short-Intermed
iate
Government
Fund to Fidelity
Intermediate
Government
Income Fund in
exchange solely
for shares of
beneficial
interest in
Fidelity
Intermediate
Government
Income Fund
and the
assumption by
Fidelity
Intermediate
Government
Income Fund of
Spartan
Short-Intermed
iate
Government
Fund's
liabilities,
followed by the
distribution of
shares of
Fidelity
Intermediate
Government
Income Fund to
shareholders of
Spartan
Short-Intermed
iate
Government
Fund in
liquidation of
Spartan
Short-Intermed
iate
Government
Fund.
SSG-PXC-299 cusip # 316146505/fund# 474
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- --------------------------------------------------------------------
FIDELITY CHARLES STREET TRUST: FIDELITY SHORT-INTERMEDIATE GOVERNMENT
FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward
C. Johnson 3d, Eric D. Roiter, and William O. McCoy, or any one or
more of them, attorneys, with full power of substitution, to vote all
shares of Fidelity Charles Street Trust: Fidelity Short-Intermediate
Government Fund, which the undersigned is entitled to vote at the
Special Meeting of Shareholders of the fund to be held at the office
of the trust at 82 Devonshire St., Boston, MA 02109, on April 14, 1999
at 9:00 a.m. Eastern time and at any adjournments thereof. All powers
may be exercised by a majority of said proxy holders or substitutes
voting or acting or, if only one votes and acts, then by that one.
This Proxy shall be voted on the proposals described in the Proxy
Statement as specified on the reverse side. Receipt of the Notice of
the Meeting and the accompanying Proxy Statement is hereby
acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When
signing in a fiduciary capacity, such as executor, administrator,
trustee, attorney, guardian, etc., please so indicate. Corporate and
partnership proxies should be signed by an authorized person
indicating the person's title.
Date _____________, 1998
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316069202/fund #464
Please refer to the Proxy Statement discussion of this matter.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE
PROPOSAL.
As to any other matter, said attorneys shall vote in accordance with
their best judgment.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
- ----------------------------------------------------------------------
______________________________________________________________________
1. To approve an FOR [ ] AGAINST [ ] ABSTAIN [ ] 1.
Agreement and
Plan of
Reorganization
between
Fidelity
Short-Intermed
iate
Government
Fund and
Fidelity
Intermediate
Government
Income Fund, a
fund of Fidelity
Income Fund,
providing for
the transfer of
all of the assets
of Fidelity
Short-Intermed
iate
Government
Fund to Fidelity
Intermediate
Government
Income Fund in
exchange solely
for shares of
beneficial
interest in
Fidelity
Intermediate
Government
Income Fund
and the
assumption by
Fidelity
Intermediate
Government
Income Fund of
Fidelity
Short-Intermed
iate
Government
Fund's
liabilities,
followed by the
distribution of
shares of
Fidelity
Intermediate
Government
Income Fund to
shareholders of
Fidelity
Short-Intermed
iate
Government
Fund in
liquidation of
Fidelity
Short-Intermed
iate
Government
Fund.
FSG-PXC-299 cusip # 316069202/fund# 464
SPARTAN(Registered trademark) SHORT-INTERMEDIATE GOVERMENT FUND
A FUND OF
FIDELITY FIXED-INCOME TRUST
AND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF
FIDELITY CHARLES STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To the Shareholders of Spartan Short-Intermediate Government Fund
(Spartan Short-Intermediate) and Fidelity Short-Intermediate
Government Fund (Fidelity Short-Intermediate).
NOTICE IS HEREBY GIVEN that Special Meetings of Shareholders (the
Meetings) of Spartan Short-Intermediate and Fidelity
Short-Intermediate (the funds) will be held at the office of Fidelity
Fixed-Income Trust and Fidelity Charles Street Trust (the trusts), 82
Devonshire Street, Boston, Massachusetts 02109 on April 14, 1999, at
9:00 a.m. Eastern time. The purpose of the Meetings is to consider and
act upon the following proposals, and to transact such other business
as may properly come before the Meetings or any adjournments thereof.
Approval of each proposal will be determined solely by approval of the
shareholders of the individual fund affected. It will not be necessary
for both Reorganizations to be approved for either of them to take
place.
(A) To approve an Agreement and Plan of Reorganization between
Spartan Short-Intermediate and Fidelity Intermediate Government Income
Fund (Intermediate Government), a fund of Fidelity Income Fund,
providing for the transfer of all of the assets of Spartan
Short-Intermediate to Intermediate Government in exchange solely for
shares of beneficial interest of Intermediate Government and the
assumption by Intermediate Government of Spartan Short-Intermediate's
liabilities, followed by the distribution of Intermediate Government
shares to shareholders of Spartan Short-Intermediate in liquidation of
Spartan Short-Intermediate.
(B) To approve an Agreement and Plan of Reorganization between
Fidelity Short-Intermediate and Fidelity Intermediate Government
Income Fund (Intermediate Government) providing for the transfer of
all of the assets of Fidelity Short-Intermediate to Intermediate
Government in exchange solely for shares of beneficial interest of
Intermediate Government and the assumption by Intermediate Government
of Fidelity Short-Intermediate's liabilities, followed by the
distribution of Intermediate Government shares to shareholders of
Fidelity Short-Intermediate in liquidation of Fidelity
Short-Intermediate.
The Boards of Trustees have fixed the close of business on February
16, 1999 as the record date for the determination of the shareholders
of each of Spartan Short-Intermediate and Fidelity Short-Intermediate
entitled to notice of, and to vote at, such Meetings and any
adjournments thereof.
By order of the Boards of Trustees,
ERIC D. ROITER, Secretary
February 16, 1999
YOUR VOTE IS IMPORTANT -
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND a MEETING IN PERSON. ANY
SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO
INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN
IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE
ASK YOUR COOPERATION IN MAILING YOUR PROXY CARD PROMPTLY, NO MATTER
HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of
assistance to you and help avoid the time and expense involved in
validating your vote if you fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it
appears in the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual
signing. This can be shown either in the form of the account
registration itself or by the individual executing the proxy card. For
example:
REGISTRA VALID
TION SIGNATUR
E
A. 1) ABC Corp. John Smith,
Treasurer
2) ABC Corp. John Smith,
Treasurer
c/o John
Smith,
Treasurer
B. 1) ABC Corp. Ann B.
Profit Collins,
Sharing Plan Trustee
2) ABC Trust Ann B.
Collins,
Trustee
3) Ann B. Ann B.
Collins, Collins,
Trustee Trustee
u/t/d
12/28/78
C. 1) Anthony B. Anthony B.
Craft, Cust. Craft
f/b/o
Anthony B.
Craft, Jr.
UGMA
SPARTAN(Registered trademark) SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF
FIDELITY FIXED-INCOME TRUST
AND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF
FIDELITY CHARLES STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
PROXY STATEMENT AND PROSPECTUS
FEBRUARY 16, 1999
This Proxy Statement and Prospectus (Proxy Statement) is being
furnished to shareholders of Spartan Short-Intermediate Government
Fund (Spartan Short-Intermediate), a fund of Fidelity Fixed-Income
Trust, and Fidelity Short-Intermediate Government Fund (Fidelity
Short-Intermediate), a fund of Fidelity Charles Street Trust (the
funds), in connection with the solicitation of proxies by the trusts'
Boards of Trustees for use at the Special Meetings of Shareholders of
Spartan Short-Intermediate and Fidelity Short-Intermediate and at any
adjournments thereof (the Meetings).
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY
STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Meetings will be held on Wednesday, April 14, 1999 at 9:00 a.m.
Eastern time at 82 Devonshire Street, Boston, Massachusetts 02109, the
principal executive office of the trusts.
As more fully described in the Proxy Statement, the purpose of each
Meeting is to vote on a proposed reorganization (a Reorganization).
Pursuant to each Agreement and Plan of Reorganization (the
Agreements), each of Spartan Short-Intermediate and Fidelity
Short-Intermediate would transfer all of its assets to Intermediate
Government in exchange solely for shares of beneficial interest of
Intermediate Government and the assumption by Intermediate Government
of Spartan Short-Intermediate's and Fidelity Short-Intermediate's
liabilities. The number of shares to be issued in each proposed
Reorganization will be based upon each fund's net asset value relative
to the net asset value per share of Intermediate Government at the
time of the exchange. As provided in the Agreements, Spartan
Short-Intermediate and Fidelity Short-Intermediate will distribute
shares of Intermediate Government to their shareholders in liquidation
of Spartan Short-Intermediate and Fidelity Short-Intermediate on April
22, 1999 and April 29, 1999, respectively, or such other dates as the
parties may agree (the Closing Dates). Approval of each Reorganization
will be determined solely by approval of the shareholders of the
individual fund affected. It will not be necessary for both
Reorganizations to be approved for either of them to take place.
Intermediate Government is a bond fund, a diversified fund of
Fidelity Income Fund, an open-end management investment company
organized as a Massachusetts business trust on May 2, 1988.
Intermediate Government's investment objective is to seek a high level
of current income with preservation of capital by investing in U.S.
Government securities and instruments related to U.S. Government
securities while maintaining a dollar-weighted average maturity of
three to ten years.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the Reorganizations and
Intermediate Government that a shareholder should know before voting
on a proposed Reorganization. The Statement of Additional Information
dated February 16, 1999 relating to this Proxy Statement has been
filed with the Securities and Exchange Commission (SEC) and is
incorporated herein by reference. This Proxy Statement is accompanied
by the Prospectus, dated September 21, 1998 and supplemented on
December 7, 1998, which offers shares of Intermediate Government. The
Statement of Additional Information for Intermediate Government, dated
September 21, 1998 and supplemented on October 8, 1998, is available
upon request. Attachment 1 contains excerpts from the Annual Report of
Intermediate Government dated July 31, 1998. The Prospectus and
Statement of Additional Information for Intermediate Government have
been filed with the SEC and are incorporated herein by reference. A
Prospectus and Statement of Additional Information for Spartan
Short-Intermediate, dated June 26, 1998 and a supplement to the
Prospectus dated December 7, 1998, and a Prospectus and Statement of
Additional Information for Fidelity Short-Intermediate, dated November
24, 1998 and a supplement to the Prospectus dated December 7, 1998,
have been filed with the SEC and are incorporated herein by reference.
Copies of these documents may be obtained without charge by contacting
Fidelity Fixed-Income Trust, Fidelity Charles Street Trust, or
Fidelity Income Fund at Fidelity Distributors Corporation, 82
Devonshire Street, Boston, Massachusetts 02109 or by calling
1-800-544-8888.
TABLE OF CONTENTS
Voting Information
Synopsis
Comparison of Other Policies of the Funds
Comparison of Principal Risk Factors
The Proposed Transaction
Additional Information about Fidelity Intermediate Government Income
Fund
Miscellaneous
Attachment 1. Excerpts from the Annual Report of Fidelity
Intermediate Government Income Fund, dated July 31, 1998
Attachment 2. Annual Fund Operating Expenses and Examples of Fund
Expenses for Certain Reorganizations
Exhibit 1. Form of Agreement and Plan of Reorganization between
Fidelity Intermediate Government Income Fund and Spartan
Short-Intermediate Government Fund
Exhibit 2. Form of Agreement and Plan of Reorganization between
Fidelity Intermediate Government Income Fund and Fidelity
Short-Intermediate Government Fund
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETINGS OF SHAREHOLDERS OF
SPARTAN SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF
FIDELITY FIXED-INCOME TRUST
AND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF
FIDELITY CHARLES STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
TO BE HELD ON APRIL 14, 1999
_________________________________
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of,
the Boards of Trustees of Fidelity Fixed-Income Trust and Fidelity
Charles Street Trust (the trusts) to be used at the Special Meetings
of Shareholders of Spartan Short-Intermediate Government Fund (Spartan
Short-Intermediate) and Fidelity Short-Intermediate Government Fund
(Fidelity Short-Intermediate) (the funds) and at any adjournments
thereof (the Meetings), each to be held on April 14, 1999, at 9:00
a.m. Eastern time at 82 Devonshire Street, Boston, Massachusetts
02109, the principal executive office of the trusts and Fidelity
Management & Research Company (FMR), the funds' investment adviser.
The purpose of the Meetings is set forth in the accompanying Notice.
The solicitation is made primarily by the mailing of this Proxy
Statement and the accompanying proxy card on or about February 16,
1999. Supplementary solicitations may be made by mail, telephone,
telegraph, facsimile, electronic means or by personal interview by
representatives of the trusts. In addition, D.F. King & Co., Inc.
and/or Management Information Services Corp. may be paid on a per-call
basis to solicit shareholders on behalf of the funds at an anticipated
cost of approximately $2,000 and $3,000, for Spartan
Short-Intermediate and Fidelity Short-Intermediate, respectively. For
Spartan Short-Intermediate, the expenses incurred in connection with
preparing this Proxy Statement and its enclosures and of all
solicitations will be borne by FMR. FMR will reimburse brokerage
firms and others for their reasonable expenses incurred in forwarding
solicitation material to the beneficial owners of shares. For Fidelity
Short-Intermediate, the expenses incurred in connection with preparing
this Proxy Statement and its enclosures and of all solicitations will
be paid by the fund. The fund will reimburse brokerage firms and
others for their reasonable expenses incurred in forwarding
solicitation material to the beneficial owners of shares.
If the enclosed proxy card for the applicable Meeting is executed and
returned, it may nevertheless be revoked at any time prior to its use
by written notification received by the applicable trust, by the
execution of a later-dated proxy card, or by attending the applicable
Meeting and voting in person.
All proxy cards solicited by the Boards of Trustees that are properly
executed and received by the Secretary prior to the applicable
Meeting, and which are not revoked, will be voted at the applicable
Meeting. Shares represented by such proxies will be voted in
accordance with the instructions thereon. If no specification is made
on a proxy card, it will be voted FOR the matters specified on the
proxy card. Only proxies that are voted will be counted toward
establishing a quorum. Broker non-votes are not considered voted for
this purpose. Shareholders should note that while votes to ABSTAIN
will count toward establishing a quorum, passage of any proposal being
considered at a Meeting will occur only if a sufficient number of
votes are cast FOR the proposal. Accordingly, votes to ABSTAIN and
votes AGAINST will have the same effect in determining whether the
proposal is approved.
Spartan Short-Intermediate and Fidelity Short-Intermediate may also
arrange to have votes recorded by telephone. D.F. King & Co., Inc. may
be paid on a per-call basis for vote-by-phone solicitations on behalf
of each fund at an anticipated cost of approximately $3,000 and
$4,000, respectively. For Spartan Short-Intermediate, the expenses
incurred in connection with telephone voting will be borne by FMR. For
Fidelity Short-Intermediate, the expenses incurred in connection with
telephone voting will be paid by the fund. If a fund records votes by
telephone, it will use procedures designed to authenticate
shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to
confirm that their instructions have been properly recorded. Proxies
given by telephone may be revoked at any time before they are voted in
the same manner that proxies voted by mail may be revoked.
If a quorum is not present at a Meeting, or if a quorum is present at
a Meeting but sufficient votes to approve the proposed item are not
received, or if other matters arise requiring shareholder attention,
the persons named as proxy agents may propose one or more adjournments
of a Meeting to permit the further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of those
shares present at the Meeting or represented by proxy. When voting on
a proposed adjournment, the persons named as proxy agents will vote
FOR the proposed adjournment all shares that they are entitled to vote
with respect to each item, unless directed to vote AGAINST the item,
in which case such shares will be voted against the proposed
adjournment with respect to that item. A shareholder vote may be taken
on an item in this Proxy Statement or on any other business properly
presented at a Meeting prior to such adjournment if sufficient votes
have been received and it is otherwise appropriate.
Shares of each fund and of Fidelity Intermediate Government Income
Fund (Intermediate Government) issued and outstanding on November 30,
1998 are listed below.
SPARTAN 7,598,442
SHORT-INTERMEDIATE
FIDELITY 14,046,947
SHORT-INTERMEDIATE
INTERMEDIATE 76,572,674
GOVERNMENT
Shareholders of record of Spartan Short-Intermediate and Fidelity
Short-Intermediate at the close of business on February 16, 1999 will
be entitled to vote at the applicable Meeting. Each such shareholder
will be entitled to one vote for each dollar of net asset value held
on that date.
As of November 30, 1998, the Trustees, Members of the Advisory Board,
and officers of each fund owned, in the aggregate, less than 1% of
each fund's total outstanding shares. As of November 30, 1998, the
following shareholder owned of record and beneficially 5% or more of a
fund's outstanding shares:
Fidelity Short-Intermediate: Bank of New York, New York, NY (6.24%).
To the knowledge of each trust and each fund, no other shareholder
owned of record or beneficially 5% or more of the outstanding shares
of its respective fund on that date. If both Reorganizations became
effective on November 30, 1998, there would have been no shareholder
who owned of record 5% or more of the outstanding shares of the
combined fund as a result of the Reorganizations. If only the Spartan
Short-Intermediate Reorganization became effective on November 30,
1998, there would have been no shareholder who owned of record 5% or
more of the outstanding shares of the combined fund as a result of the
Reorganization. If only the Fidelity Short-Intermediate
Reorganization became effective on November 30, 1998, there would have
been no shareholder who owned of record 5% or more of the outstanding
shares of the combined fund as a result of the Reorganization.
VOTE REQUIRED: APPROVAL OF EACH REORGANIZATION REQUIRES THE
AFFIRMATIVE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES"
OF SPARTAN SHORT-INTERMEDIATE OR FIDELITY SHORT-INTERMEDIATE, AS
APPLICABLE. UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE 1940 ACT),
THE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" MEANS
THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE VOTING
SECURITIES PRESENT AT A MEETING OR REPRESENTED BY PROXY IF THE HOLDERS
OF MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE PRESENT OR
REPRESENTED BY PROXY OR (B) MORE THAN 50% OF THE OUTSTANDING VOTING
SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED "PRESENT" FOR THIS
PURPOSE.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, in the Agreements, and in the Prospectuses of
Spartan Short-Intermediate, Fidelity Short-Intermediate, and
Intermediate Government, which are incorporated herein by this
reference. Shareholders should read the entire Proxy Statement and the
Prospectus of Intermediate Government for more complete information.
The proposed reorganizations (the Reorganizations) would merge
Spartan Short-Intermediate and Fidelity Short-Intermediate into
Intermediate Government, a bond fund also managed by FMR. If the
Reorganizations are approved, Spartan Short-Intermediate and Fidelity
Short-Intermediate will cease to exist and current shareholders of
each fund will become shareholders of Intermediate Government instead.
Approval of each Reorganization will be determined solely by approval
of the shareholders of the individual fund affected. It will not be
necessary for both of the Reorganizations to be approved for either
one of them to take place.
INVESTMENT OBJECTIVES AND POLICIES
The following paragraphs summarize the investment objectives and
policy differences between Spartan Short-Intermediate, Fidelity
Short-Intermediate, and Intermediate Government.
Spartan Short-Intermediate, Fidelity Short-Intermediate, and
Intermediate Government have substantially similar investment
objectives: to seek a high level of current income as is consistent
with the preservation of capital.
The funds invest only in U.S. Government securities, repurchase
agreements and other instruments related to U.S. Government securities
under normal conditions. FMR, the funds' investment adviser, normally
invests at least 65% of each fund's total assets in U.S. Government
securities and in repurchase agreements for U.S. Government
securities.
The main differences among the funds are their average maturity and
their interest rate risk. Both Fidelity Short-Intermediate and
Spartan Short-Intermediate seek to maintain an average maturity
between two and five years and are managed to have similar overall
interest rate risk to an index of U.S. Government bonds with
maturities between one and five years. Intermediate Government, by
contrast, seeks to maintain an average maturity between three and ten
years and is managed to have similar overall interest rate risk to an
index of U.S. Government bonds with maturities between one and ten
years. Intermediate Government, therefore, has a longer average
maturity and greater interest rate risk than both Spartan
Short-Intermediate and Fidelity Short-Intermediate.
EXPENSE STRUCTURES
Spartan Short-Intermediate and Intermediate Government have similar
contractual expense structures. Fidelity Short-Intermediate and
Intermediate Government differ with respect to their contractual
expense structures. Each of the three funds pays a monthly management
fee to FMR. Spartan Short-Intermediate and Intermediate Government
each pays an all-inclusive management fee to FMR (at an annual rate of
0.65% of average net assets) which covers substantially all of each
fund's expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses). Fidelity Short-Intermediate, by contrast,
pays its management fee and other expenses separately. Its management
fee and other expenses, as a percentage of its average net assets,
vary from year to year. Fidelity Short-Intermediate's total operating
expenses (the sum of its management fee and other expenses) were 0.79%
of its average net assets for the 12 months ended July 31, 1998. If
one or both of the Reorganizations are approved, FMR has agreed to
limit the combined fund's total operating expenses to 0.63% of its
average net assets through June 30, 2001 (excluding interest, taxes,
brokerage commissions and extraordinary expenses). After that date,
the combined fund's expenses could increase.
In sum, the proposed Spartan Short-Intermediate merger would provide
Spartan Short-Intermediate shareholders with the opportunity to
participate in a larger, similar fund with greater interest rate risk
and expenses guaranteed to be lower than Spartan Short-Intermediate's
for more than two years. Greater interest rate risk would likely
result in better relative performance during periods of falling
interest rates and worse relative performance during periods of rising
interest rates. Intermediate Government has had better historical
performance and greater interest rate risk than Spartan
Short-Intermediate.
In sum, the proposed Fidelity Short-Intermediate merger would provide
Fidelity Short-Intermediate shareholders with the opportunity to
participate in a larger, similar fund with greater interest rate risk
and expenses guaranteed to be lower than Fidelity Short-Intermediate's
for more than two years. Greater interest rate risk would likely
result in better relative performance during periods of falling
interest rates and worse relative performance during periods of rising
interest rates. Intermediate Government has had better historical
performance and greater interest rate risk than Fidelity
Short-Intermediate.
The Boards of Trustees believe that each Reorganization would benefit
Spartan Short-Intermediate and Fidelity Short-Intermediate
shareholders, as applicable, and recommend that shareholders vote in
favor of the applicable Reorganization.
THE PROPOSED REORGANIZATIONS
Shareholders of Spartan Short-Intermediate and Fidelity
Short-Intermediate will be asked at the Meetings to vote upon and
approve a Reorganization and an Agreement, which provides for the
acquisition by Intermediate Government of all of the assets of Spartan
Short-Intermediate or Fidelity Short-Intermediate, as applicable, in
exchange solely for shares of Intermediate Government and the
assumption by Intermediate Government of the liabilities of Spartan
Short-Intermediate and Fidelity Short-Intermediate. Spartan
Short-Intermediate and Fidelity Short-Intermediate will each then
distribute the shares of Intermediate Government to its respective
shareholders, so that each shareholder will receive the number of full
and fractional shares of Intermediate Government equal in value to the
aggregate net asset value of the shareholder's shares of Spartan
Short-Intermediate or Fidelity Short-Intermediate on the applicable
Closing Date (defined below). The exchange of Spartan
Short-Intermediate's and Fidelity Short-Intermediate's assets for
Intermediate Government's shares will occur as of the close of
business of the New York Stock Exchange (NYSE) on April 22, 1999 and
April 29, 1999, respectively, or such other time and date as the
parties may agree (the Closing Dates). Spartan Short-Intermediate and
Fidelity Short-Intermediate will then be liquidated as soon as
practicable thereafter. Approval of each Reorganization will be
determined solely by approval of the shareholders of the individual
fund affected.
Each fund has received an opinion of counsel that the applicable
Reorganization will not result in any gain or loss for federal income
tax purposes either to Spartan Short-Intermediate or Fidelity
Short-Intermediate, or to the shareholders of each fund. The rights
and privileges of the former shareholders of Spartan
Short-Intermediate and Fidelity Short-Intermediate will be effectively
unchanged by the Reorganizations, except as described on page __ under
the heading "Forms of Organization."
COMPARATIVE FEE TABLES
Each fund pays a management fee to FMR for managing its investments
and business affairs which is calculated and paid to FMR every month.
Spartan Short-Intermediate and Intermediate Government each pays FMR
a management fee at an annual rate of 0.65% of its respective average
net assets. FMR not only provides each fund with investment advisory
and research services, but also pays all of each fund's expenses, with
the exception of fees and expenses of the non-interested Trustees,
interest, taxes, brokerage commissions (if any), and such
non-recurring expenses as may arise, including costs of any litigation
to which a fund may be a party, and any obligation it may have to
indemnify its officers and Trustees with respect to litigation. The
management fee that each fund pays FMR is reduced by an amount equal
to the fees and expenses paid by that fund to the non-interested
Trustees.
In contrast, Fidelity Short-Intermediate pays a management fee and
other expenses separately. Fidelity Short-Intermediate's management
fee is calculated by adding a group fee rate to an individual fund fee
rate, and multiplying the result by the fund's monthly average net
assets. The group fee rate is based on the monthly average net assets
of all mutual funds advised by FMR. The individual fund fee rate is
0.30% of the fund's average net assets. In addition to the management
fee payable by the fund, Fidelity Short-Intermediate also incurs other
expenses for services such as maintaining shareholder records and
furnishing shareholder statements and financial reports. For the 12
months ended July 31, 1998, Fidelity Short-Intermediate's management
fee was 0.44% of its average net assets and its total operating
expenses were 0.79% of its average net assets.
If shareholders approve one or both of the Reorganizations, the
combined fund will retain Intermediate Government's expense structure,
requiring payment of an all-inclusive management fee. FMR has agreed
to voluntarily limit the combined fund's total operating expenses to
0.63% (excluding interest, taxes, brokerage commissions and
extraordinary expenses) of its average net assets through June 30,
2001. The expense limitation would lower Spartan Short-Intermediate's
total operating expenses from 0.65% to 0.63% of its average net
assets. The expense limitation would lower Fidelity
Short-Intermediate's total operating expenses from 0.79% to 0.63% of
the fund's average net assets. The expense limitation would begin on
the first business day after the Closing Date of each Reorganization.
After June 30, 2001, the combined fund's expenses could increase. If
a proposed Reorganization is not approved, that fund will maintain its
current fee structure. For more information about the funds' current
fees, refer to their Prospectuses.
The following table shows the fees and expenses for each fund for the
year ended July 31, 1998, adjusted to reflect current fees, and pro
forma fees for the combined fund based on the same time period after
giving effect to the Reorganizations, including the effect of FMR's
guaranteed expense limitation of 0.63% of average net assets through
June 30, 2001 (excluding interest, taxes, brokerage commissions and
extraordinary expenses).
ANNUAL FUND OPERATING EXPENSES
Annual fund operating expenses are paid out of each fund's assets.
Expenses are factored into each fund's share price or dividends and
are not charged directly to shareholder accounts. The following
figures are based on historical expenses, adjusted to reflect current
fees, of each fund and are calculated as a percentage of average net
assets of each fund. Attachment 2 provides expense information for the
combined fund if either one of the Reorganizations is not approved.
IF BOTH REORGANIZATIONS ARE APPROVED:
SPARTAN FIDELITY INTERMEDIATE PRO
SHORT-INTERM SHORT-INTERME GOVERNMENT FORMA
EDIATE DIATE EXPENSE
S* -
COMBIN
ED FUND
MANAGE 0.65% 0.44% 0.65% 0.63%
MENT (AFTER
FEE REIMBUR
SEMENT)
12B-1 NONE NONE NONE NONE
FEE
OTHER 0.00% 0.35% 0.00% 0.00%
EXPENSE
S
TOTAL 0.65% 0.79% 0.65% 0.63%
OPERATI (AFTER
NG REIMBUR
EXPENSE SEMENT)
S
* If one or both of the Reorganizations are approved, FMR has agreed
to limit the total operating expenses of the combined fund to 0.63% of
its average net assets (excluding interest, taxes, brokerage
commissions, and extraordinary expenses) through June 30, 2001. If
this agreement were not in effect, the combined fund's management fee,
other expenses, and total operating expenses would be 0.65%, 0.00%,
and 0.65%, respectively.
EXAMPLES OF EFFECT OF FUND EXPENSES
The following table illustrates the expenses on a hypothetical $1,000
investment in each fund under the current and pro forma (combined
fund) expenses (after voluntary reimbursement for the combined fund)
calculated at the rates stated above, assuming a 5% annual return.
Attachment 2 provides examples of the effect of fund expenses for the
combined fund if both Reorganizations are not approved.
IF BOTH REORGANIZATIONS ARE APPROVED:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN FIDELITY INTERMEDIATE COMBINED FUND
SHORT-INTERMEDIAT SHORT-INTERMEDIAT GOVERNMENT (PRO FORMA)
E E
1 YEAR $7 $8 $7 $6
3 YEARS $21 $25 $21 $20
5 YEARS $36 $44 $36 $35
10 YEARS $81 $98 $81 $79
</TABLE>
These examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. These examples
illustrate the effect of expenses but are not meant to suggest actual
or expected expenses, which may vary. The assumed return of 5% is not
a prediction of, and does not represent, actual or expected
performance of any fund.
COMBINED CAPITALIZATION
The following table shows the capitalization of the funds as of July
31, 1998 and on a pro forma combined basis (unaudited) as of that date
giving effect to both Reorganizations.
NET ASSETS NET ASSET VALUE SHARES OUTSTANDING
PER SHARE
SPARTAN $ 75,535,644 $ 9.38 8,053,544
SHORT-I
NTERMED
IATE
FIDELITY $ 127,761,710 $ 9.37 13,639,898
SHORT-I
NTERMED
IATE
INTERME $ 703,830,764 $ 9.78 71,942,356
DIATE
GOVERN
MENT
PRO $ 907,128,118 $ 9.78 92,729,407
FORMA
COMBIN
ED FUND
FORMS OF ORGANIZATION
Spartan Short-Intermediate and Fidelity Short-Intermediate are
diversified funds of Fidelity Fixed-Income Trust and Fidelity Charles
Street Trust, respectively, both open-end management investment
companies. Fidelity Fixed-Income Trust and Fidelity Charles Street
Trust were organized as Massachusetts business trusts on December 18,
1992 and July 13, 1991, respectively. Intermediate Government is a
diversified fund of Fidelity Income Fund, an open-end management
investment company organized as a Massachusetts business trust on May
2, 1988. Each trust is authorized to issue an unlimited number of
shares of beneficial interest. The Declarations of Trust under which
Spartan Short-Intermediate and Fidelity Short-Intermediate are
organized require shareholder approval to reorganize or terminate the
trust or any of its series and to amend the Declaration of Trust. The
Declaration of Trust under which Intermediate Government is organized
permits the Trustees, subject to the Investment Company Act of 1940
and applicable state law, to reorganize or terminate the trust or any
of its series without shareholder approval. Also, it permits the
Trustees, with certain exceptions, to amend the Declaration of Trust
without shareholder approval. Therefore, if either Reorganization is
approved, the former shareholders of Spartan Short-Intermediate and
Fidelity Short-Intermediate, as applicable, would become shareholders
of a fund organized under a Declaration of Trust that gives Trustees
broader powers, subject to the limitations of the 1940 Act and
applicable state law. For more information regarding shareholder
rights, refer to the section of each fund's Statement of Additional
Information called "Description of the Trust."
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of Spartan Short-Intermediate and Fidelity
Short-Intermediate, to seek as high a level of current income as is
consistent with the preservation of capital, is substantially the same
as the investment objective of Intermediate Government, which seeks a
high level of current income as is consistent with the preservation of
capital. Each fund attempts to achieve its objective by investing in
U.S. Government securities, repurchase agreements, and other
instruments related to U.S. Government securities under normal
conditions.
INVESTMENT POLICIES AND CHARACTERISTICS
The following table summarizes the funds' investment policies and
characteristics.
OVERALL AVERAGE AVERAGE
INTEREST RATE MATURITY MATURITY AS OF
RISK POLICY NOVEMBER 30,
1998
SPARTAN 1-5 YEARS 2-5 YEARS 3.3 YEARS
SHORT-INT
ERMEDIAT
E
FIDELITY 1-5 YEARS 2-5 YEARS 3.4 YEARS
SHORT-INT
ERMEDIAT
E
INTERMED 1-10 YEARS 3-10 YEARS 4.7 YEARS
IATE
GOVERNM
ENT
SPARTAN SHORT-INTERMEDIATE
Spartan Short-Intermediate maintains a shorter average maturity than
Intermediate Government. Spartan Short-Intermediate normally
maintains an average maturity between two and five years. FMR manages
Spartan Short-Intermediate to have similar overall interest rate risk
to the Lehman Brothers 1-5 Year U.S. Government Bond Index, an index
of U.S. Government fixed- rate debt issues with maturities between one
and five years. By contrast, Intermediate Government normally
maintains an average maturity between three and ten years. FMR
manages Intermediate Government to have similar overall interest rate
risk to the Lehman Brothers Intermediate Government Bond Index, an
index of U.S. Government fixed-rate debt issues with maturities
between one and ten years. On November 30, 1998, Spartan
Short-Intermediate's average maturity was 3.3 years, and Intermediate
Government's average maturity was 4.7 years.
If Spartan Short-Intermediate shareholders approve the
Reorganization, FMR may sell shorter-term securities held by Spartan
Short-Intermediate in the period between shareholder approval and the
Closing Date. Such selling could cause the average maturity of
Spartan Short-Intermediate to rise above five years during this
period. Any transaction costs associated with such portfolio
adjustments will be borne by Spartan Short-Intermediate.
FIDELITY SHORT-INTERMEDIATE
Fidelity Short-Intermediate maintains a shorter average maturity than
Intermediate Government. Fidelity Short-Intermediate normally
maintains an average maturity between two and five years. FMR manages
Fidelity Short-Intermediate to have similar overall interest rate risk
to the Lehman Brothers 1-5 Year U.S. Government Bond Index, an index
of U.S. Government fixed- rate debt issues with maturities between one
and five years. By contrast, Intermediate Government normally
maintains an average maturity between three and ten years. FMR
manages Intermediate Government to have similar overall interest rate
risk to the Lehman Brothers Intermediate Government Bond Index, an
index of U.S. Government fixed rate debt issues with maturities
between one and ten years. On November 30, 1998, Fidelity
Short-Intermediate's average maturity was 3.4 years, and Intermediate
Government's average maturity was 4.7 years.
If Fidelity Short-Intermediate shareholders approve the
Reorganization, FMR may sell shorter-term securities held by Fidelity
Short-Intermediate in the period between shareholder approval and the
Closing Date. Such selling could cause the average maturity of
Fidelity Short-Intermediate to rise above five years during this
period. Any transaction costs associated with such portfolio
adjustments will be borne by Fidelity Short-Intermediate.
The investment objectives of Spartan Short-Intermediate, Fidelity
Short-Intermediate, and Intermediate Government are fundamental and
may not be changed without the approval of a vote of at least a
majority of the outstanding voting securities of the applicable fund.
There can be no assurance that any fund will achieve its objective.
With the exception of fundamental policies, investment policies of the
funds can be changed without shareholder approval.
PERFORMANCE COMPARISONS OF THE FUNDS
The following table compares the funds' average annual total returns
for the periods indicated. Please note that total returns are based on
past results and are not an indication of future performance.
YEAR-BY-YEAR TOTAL RETURNS
(PERIODS ENDED DECEMBER 31)
1994 1995 1996 1997 1998*
SPARTAN (0.52)% 12.29% 4.27% 6.61% 6.22%
SHORT-INTERM
EDIATE**
FIDELITY (1.38)% 11.86% 4.06% 6.61% 7.09%
SHORT-INTERM
EDIATE
INTERMEDIATE (0.95%) 13.93% 4.14% 7.70% 6.04%
GOVERNMENT*
*
* Through November 30, 1998
** If the fund had not been in reimbursement during the periods shown,
total returns would have been lower.
The following table compares each fund's individual cumulative total
returns for the periods indicated. Please note that cumulative total
returns are based on past results and are not an indication of future
performance.
CUMULATIVE TOTAL RETURNS
(PERIODS ENDED DECEMBER 31, 1997)
1 YEAR 3 YEAR
SPARTAN 6.61% 24.82%
SHORT-INT
ERMEDIAT
E*
FIDELITY 6.61% 24.09%
SHORT-INT
ERMEDIAT
E
INTERMED 7.70% 27.78%
IATE
GOVERNM
ENT*
*If the fund had not been in reimbursement during the periods shown,
total returns would have been lower.
The tables above show that the funds have experienced relatively
similar performance over the time periods shown, with Intermediate
Government slightly outperforming Spartan Short-Intermediate and
Fidelity Short-Intermediate. Differences in performance may be
attributed, in part, to Intermediate Government's longer average
maturity.
The following graphs show the value of a hypothetical $10,000
investment in Spartan Short-Intermediate and Fidelity
Short-Intermediate made on December 31, 1995, assuming all
distributions are reinvested. The graphs compare the cumulative total
returns, on a monthly basis from December 31, 1995 through September
30, 1998, of the funds to the total returns of Intermediate Government
for the same period.
Spartan Sht-Int Govt. Intermediate Govt Income
00474 00452
1995/12/31 10000.00 10000.00
1996/01/31 10081.75 10085.02
1996/02/29 10023.44 9987.35
1996/03/31 9989.61 9931.75
1996/04/30 9974.91 9903.63
1996/05/31 9972.76 9898.01
1996/06/30 10052.63 9993.35
1996/07/31 10091.45 10027.84
1996/08/31 10116.08 10040.28
1996/09/30 10217.04 10168.40
1996/10/31 10352.81 10340.46
1996/11/30 10454.60 10471.14
1996/12/31 10426.86 10413.80
1997/01/31 10464.89 10451.77
1997/02/28 10485.31 10473.05
1997/03/31 10453.27 10405.45
1997/04/30 10530.98 10518.28
1997/05/31 10597.71 10600.54
1997/06/30 10685.04 10693.18
1997/07/31 10832.94 10886.25
1997/08/31 10829.55 10857.47
1997/09/30 10918.58 10982.90
1997/10/31 11009.39 11098.46
1997/11/30 11037.91 11133.10
1997/12/31 11116.14 11215.22
1998/01/31 11228.66 11354.75
1998/02/28 11240.32 11351.52
1998/03/31 11267.83 11386.66
1998/04/30 11305.46 11443.92
1998/05/31 11372.64 11515.70
1998/06/30 11417.26 11586.98
1998/07/31 11463.75 11624.11
1998/08/31 11607.16 11791.10
1998/09/30 11788.99
12042.19IMATRL PRASUN SHR__CHT 19981031 19981202
161107 R00000000000074
Short-Intermediate Govt. Intermediate Govt. Income
00464 00452
1995/12/31 10000.00 10000.00
1996/01/31 10089.30 10085.02
1996/02/29 10026.44 9987.35
1996/03/31 9986.37 9931.75
1996/04/30 9969.17 9903.63
1996/05/31 9968.99 9898.01
1996/06/30 10037.31 9993.35
1996/07/31 10075.91 10027.84
1996/08/31 10103.65 10040.28
1996/09/30 10196.79 10168.40
1996/10/31 10335.11 10340.46
1996/11/30 10430.89 10471.14
1996/12/31 10406.16 10413.80
1997/01/31 10447.28 10451.77
1997/02/28 10474.38 10473.05
1997/03/31 10428.04 10405.45
1997/04/30 10517.05 10518.28
1997/05/31 10585.61 10600.54
1997/06/30 10663.67 10693.18
1997/07/31 10810.91 10886.25
1997/08/31 10809.07 10857.47
1997/09/30 10900.04 10982.90
1997/10/31 10990.79 11098.46
1997/11/30 11017.79 11133.10
1997/12/31 11093.60 11215.22
1998/01/31 11216.49 11354.75
1998/02/28 11217.65 11351.52
1998/03/31 11248.77 11386.66
1998/04/30 11288.27 11443.92
1998/05/31 11345.50 11515.70
1998/06/30 11394.83 11586.98
1998/07/31 11446.19 11624.11
1998/08/31 11581.48 11791.10
1998/09/30 11752.25
12042.19IMATRL PRASUN SHR__CHT 19980930 19981202
172232 R00000000000088
COMPARISON OF OTHER POLICIES OF THE FUNDS
DIVERSIFICATION. Spartan Short-Intermediate, Fidelity
Short-Intermediate and Intermediate Government are diversified funds.
As a matter of fundamental policy, with respect to 75% of each fund's
total assets, the fund may not invest more than 5% of its total assets
in the securities of a single issuer, and the fund may not hold more
than 10% of the outstanding voting securities of a single issuer.
These limitations do not apply to U.S. Government securities. For
Intermediate Government, these limitations also do not apply to
securities of other investment companies.
BORROWING. Each fund may borrow money from banks or from other funds
advised by FMR, or through reverse repurchase agreements. As a matter
of fundamental policy, each fund may borrow money for temporary or
emergency purposes, but not in an amount exceeding 33-1/3% of its
total assets.
LENDING. Each fund does not currently intend to lend assets, other
than securities, to other parties, except by lending money (up to 7.5%
of the fund's net assets) to other funds or portfolios advised by FMR
or an affiliate, or by acquiring loans, loan participations, or other
forms of direct debt instruments. As a matter of fundamental policy,
each fund may not lend more than 33-1/3% of its total assets to other
parties, but this limitation does not apply to purchases of debt
securities or to repurchase agreements.
TEMPORARY DEFENSIVE POLICIES. FMR normally invests each fund's
assets according to the fund's investment strategy. Each fund also
reserves the right to invest without limitation in investment-grade
money market instruments or short-term debt instruments for temporary
defensive purposes.
For more information about the risks and restrictions associated with
these policies, see each fund's Prospectus, and for a more detailed
discussion of the funds' investments, see their Statements of
Additional Information, which are incorporated herein by reference.
OPERATIONS OF INTERMEDIATE GOVERNMENT FOLLOWING A REORGANIZATION
FMR does not expect Intermediate Government to revise its investment
policies as a result of a Reorganization. In addition, FMR does not
anticipate significant changes to the fund's management or to agents
that provide the fund with services. Specifically, the Trustees and
officers, investment adviser, distributor, and other agents will
continue to serve Intermediate Government in their current capacities.
Curt Hollingsworth was the Portfolio Manager of each fund until
December 6, 1998. Andrew Dudley is currently responsible for
portfolio management of each fund and is expected to continue to be
responsible for portfolio management of Intermediate Government after
a Reorganization.
All of the current investments of Spartan Short-Intermediate and
Fidelity Short-Intermediate are permissible investments for
Intermediate Government. FMR may sell up to 50% of the securities held
by each of Spartan Short-Intermediate and Fidelity Short-Intermediate
between shareholder approval and the Closing Date of the applicable
Reorganization. Transaction costs associated with such adjustments
that occur between shareholder approval and the fund's applicable
Closing Date will be borne by the fund that incurred them. Transaction
costs associated with such adjustments that occur after the fund's
applicable Closing Date will be borne by Intermediate Government.
PURCHASES AND REDEMPTIONS
The price to buy one share of each fund is each fund's net asset
value per share (NAV). Each fund's shares are sold without a sales
charge. Your shares are purchased at the next NAV calculated after
your investment is received in proper form. Each fund's NAV is
normally calculated each business day at 4:00 p.m. Eastern time. Refer
to each fund's Prospectus for more information regarding how to buy
shares.
The redemption policies for each fund are identical. The price to
sell one share of each fund is the fund's NAV. Your shares will be
sold at the next NAV calculated after your order is received in proper
form. Each fund's NAV is normally calculated each business day at 4:00
p.m. Eastern time.
For Spartan Short-Intermediate, the minimum initial investment amount
is $10,000, the minimum additional investment amount is $1,000, and
the minimum account balance is $5,000. For Fidelity
Short-Intermediate and Intermediate Government, the minimum initial
investment amount is $2,500, the minimum additional investment amount
is $250, and the minimum account balance is $2,000.
If shareholders of Spartan Short-Intermediate approve their
Reorganization, they would become shareholders of a fund with lower
minimum investment and balance requirements than Spartan
Short-Intermediate. The minimum investment and balance requirements
for shareholders of Fidelity Short-Intermediate would be unchanged by
that fund's Reorganization.
On June 26, 1998, Spartan Short-Intermediate and Fidelity
Short-Intermediate closed to new accounts pending the Reorganizations.
Spartan Short-Intermediate and Fidelity Short-Intermediate
shareholders can continue to purchase shares of their respective fund
on or prior to the applicable Closing Date. Shareholders of each fund
may redeem shares through the Closing Date of that fund's
Reorganization. If one or both of the Reorganizations are approved,
the purchase and redemption policies of the combined fund will be the
same as the current policies of Intermediate Government.
EXCHANGES
The exchange privilege currently offered by each fund is the same and
is not expected to change after the Reorganizations. Shareholders of
the funds may exchange their shares of a fund for shares of any other
Fidelity fund available in a shareholder's state.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each fund distributes substantially all of its net investment income
and capital gains to shareholders each year. Each fund declares income
dividends daily and pays them monthly. Capital gains for Spartan
Short-Intermediate are normally distributed in June and December.
Capital gains for Fidelity Short-Intermediate are normally distributed
in December. Capital gains for Intermediate Government are normally
distributed in September and December. On or before the Closing Date,
Spartan Short-Intermediate and Fidelity Short-Intermediate may declare
additional dividends or other distributions in order to distribute
substantially all of their investment company taxable income and net
realized capital gain.
Each of Spartan Short-Intermediate and Fidelity Short-Intermediate
will be required to recognize gain or loss on Section 1256 contracts
held by the individual fund on the last day of its taxable year which
is April 30 and September 30, 1998, respectively.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATIONS
Each fund has received an opinion of its counsel, Kirkpatrick &
Lockhart LLP, that the applicable Reorganization will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the Code). Accordingly,
except with respect to Section 1256 contracts, no gain or loss will be
recognized by the funds or their shareholders as a result of a
Reorganization. Please see the section entitled "Federal Income Tax
Considerations" for more information.
On August 31, 1998, Spartan Short-Intermediate and Fidelity
Short-Intermediate had unrealized gains of approximately $613,390 and
$717,837, respectively. During the period between shareholder
approval and the applicable Closing Date, FMR may sell some of these
funds' short-term securities to increase each fund's average maturity.
Selling these securities may result in realization of capital gains,
which, when distributed, would be taxable to the funds' shareholders.
As of April 30, 1998, Spartan Short-Intermediate has capital loss
carryforwards for federal tax purposes of approximately $4,460,000.
As of September 30, 1998, Fidelity Short-Intermediate has capital loss
carryforwards for federal tax purposes of approximately $10,705,000.
As of July 31, 1998, Intermediate Government has capital loss
carryforwards for federal tax purposes of approximately $55,907,000.
Under current federal income tax law, Intermediate Government may be
limited to using only a portion, if any, of its capital loss
carryforwards or the capital loss carryforwards transferred by
Fidelity Short-Intermediate and Spartan Short-Intermediate at the time
of the applicable Reorganization. There is no assurance that
Intermediate Government will be able to realize sufficient capital
gains to use the capital loss carryforwards before they expire. The
capital loss carryforwards attributable to Spartan Short-Intermediate
will expire between July 31, 2001 and July 31, 2005. The capital loss
carryforwards attributable to Fidelity Short-Intermediate will expire
between July 31, 2000 and July 31, 2004. The capital loss
carryforwards attributable to Intermediate Government will expire
between July 31, 2003 and July 31, 2005.
COMPARISON OF PRINCIPAL RISK FACTORS
Each fund is subject to the risks normally associated with bond
funds. As described more fully above, the funds have similar
investment objectives, policies, and permissible investments.
INVESTMENT STRATEGY. SPARTAN SHORT-INTERMEDIATE and Intermediate
Government have substantially similar investment strategies.
Because each fund invests only in short-term or intermediate-term
U.S. Government securities and related instruments, the funds have
substantially similar levels of risk. However, Intermediate
Government may present a slightly greater risk than Spartan
Short-Intermediate because it maintains a longer average maturity than
Spartan Short-Intermediate and is managed to have greater interest
rate risk than Spartan Short-Intermediate.
Interest rate risk refers to the degree to which a fund is affected
by changes in interest rates. Typically, bond prices rise when
interest rates fall and fall when interest rates rise. Longer-term
bonds are usually more sensitive to interest rate changes, that is,
the longer the maturity of a bond, the greater the impact a change in
interest rates is likely to have on the bond's price. Mutual funds
that invest in longer-term bonds, therefore, are usually more
sensitive to changes in interest rates than funds that invest in
shorter-term bonds. Therefore, Intermediate Government may have
better performance than Spartan Short-Intermediate during periods of
falling interest rates, but poorer performance during periods of
rising interest rates.
For a more complete discussion of the risks associated with bond
funds, please refer to the Investment Principles and Risks section of
each fund's prospectus.
INVESTMENT STRATEGY. FIDELITY SHORT-INTERMEDIATE and Intermediate
Government have substantially similar investment strategies.
Because each fund invests only in short-term or intermediate-term
U.S. Government securities and related instruments, the funds have
substantially similar levels of risk. However, Intermediate
Government may present a slightly greater risk than Fidelity
Short-Intermediate because it maintains a longer average maturity than
Fidelity Short-Intermediate and is managed to have greater interest
rate risk than Fidelity Short-Intermediate.
Interest rate risk refers to the degree to which a fund is affected
by changes in interest rates. Typically, bond prices rise when
interest rates fall and fall when interest rates rise. Longer-term
bonds are usually more sensitive to interest rate changes, that is,
the longer the maturity of a bond, the greater the impact a change in
interest rates is likely to have on the bond's price. Mutual funds
that invest in longer-term bonds, therefore, are usually more
sensitive to changes in interest rates than funds that invest in
shorter-term bonds. Therefore, Intermediate Government may have
better performance than Fidelity Short-Intermediate during periods of
falling interest rates, but poorer performance during periods of
rising interest rates.
For a more complete discussion of the risks associated with bond
funds, please refer to the Investment Principles and Risks section of
each fund's prospectus.
SPARTAN SHORT-INTERMEDIATE AND FIDELITY SHORT-INTERMEDIATE
If shareholders approve one or both Reorganizations, FMR may sell up
to 50% of Spartan Short-Intermediate's or Fidelity
Short-Intermediate's securities, as applicable, which may cause that
fund's average maturity to rise above five years during the period
from the meeting date to the applicable Closing Date. This would
increase the fund's interest rate risk as well as its potential for
earning higher income.
In addition, depending on market conditions during that period, it
may be necessary to sell some of Intermediate Government's
shorter-term securities as well. FMR expects that the impact of
portfolio adjustments to Intermediate Government will be minimal.
THE PROPOSED TRANSACTIONS
A. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN
SHORT-INTERMEDIATE GOVERNMENT FUND AND FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND.
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Agreement. Significant provisions of
the Agreement are summarized below; however, this summary is qualified
in its entirety by reference to the Agreement, a copy of which is
attached as Exhibit 1 to this Proxy Statement.
The Agreement contemplates (a) Intermediate Government acquiring as
of the Closing Date all of the assets of Spartan Short-Intermediate in
exchange solely for shares of Intermediate Government and the
assumption by Intermediate Government of Spartan Short-Intermediate's
liabilities; and (b) the distribution of shares of Intermediate
Government to the shareholders of Spartan Short-Intermediate as
provided for in the Agreement.
The assets of Spartan Short-Intermediate to be acquired by
Intermediate Government include all cash, cash equivalents,
securities, receivables (including interest or dividends receivables),
claims, choses in action, and other property owned by Spartan
Short-Intermediate, and any deferred or prepaid expenses shown as an
asset on the books of Spartan Short-Intermediate on the Closing Date.
Intermediate Government will assume from Spartan Short-Intermediate
all liabilities, debts, obligations, and duties of Spartan
Short-Intermediate of whatever kind or nature, whether absolute,
accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable on the
Closing Date, and whether or not specifically referred to in the
Agreement; provided, however, that Spartan Short-Intermediate will use
its best efforts, to the extent practicable, to discharge all of its
known liabilities prior to the Closing Date, other than liabilities
incurred in the ordinary course of business. Intermediate Government
also will deliver to Spartan Short-Intermediate the number of full and
fractional shares of Intermediate Government having an aggregate net
asset value equal to the value of the assets of Spartan
Short-Intermediate less the liabilities of Spartan Short-Intermediate
as of the Closing Date. Spartan Short-Intermediate shall then
distribute the Intermediate Government shares pro rata to its
shareholders.
The value of Spartan Short-Intermediate's assets to be acquired by
Intermediate Government and the amount of its liabilities to be
assumed by Intermediate Government will be determined as of the close
of business of the NYSE on the Closing Date, using the valuation
procedures set forth in Spartan Short-Intermediate's then-current
Prospectus and Statement of Additional Information. The net asset
value of a share of Intermediate Government will be determined as of
the same time using the valuation procedures set forth in its
then-current Prospectus and Statement of Additional Information.
As of the Closing Date, Spartan Short-Intermediate will distribute to
its shareholders of record the shares of Intermediate Government it
received, so that each Spartan Short-Intermediate shareholder will
receive the number of full and fractional shares of Intermediate
Government equal in value to the aggregate net asset value of shares
of Spartan Short-Intermediate held by such shareholder on the Closing
Date; Spartan Short-Intermediate will be liquidated as soon as
practicable thereafter. Such distribution will be accomplished by
opening accounts on the books of Intermediate Government in the names
of the Spartan Short-Intermediate shareholders and by transferring
thereto shares of Intermediate Government. Each Spartan
Short-Intermediate shareholder's account shall be credited with the
respective pro rata number of full and fractional shares (rounded to
the third decimal place) of Intermediate Government due that
shareholder. Intermediate Government shall not issue certificates
representing its shares in connection with such exchange.
Accordingly, immediately after the Reorganization, each former
Spartan Short-Intermediate shareholder will own shares of Intermediate
Government equal in value to the aggregate net asset value of that
shareholder's shares of Spartan Short-Intermediate immediately prior
to the Reorganization. The net asset value per share of Intermediate
Government will be unchanged by the transaction. Thus, the
Reorganization will not result in a dilution of any shareholder
interest.
Any transfer taxes payable upon issuance of shares of Intermediate
Government in a name other than that of the registered holder of the
shares on the books of Spartan Short-Intermediate as of that time
shall be paid by the person to whom such shares are to be issued as a
condition of such transfer. Any reporting responsibility of Spartan
Short-Intermediate is and will continue to be its responsibility up to
and including the date on which it is terminated.
Pursuant to its all-inclusive management contract with Spartan
Short-Intermediate, FMR will bear the cost of Spartan
Short-Intermediate's Reorganization. Reorganization costs include
professional fees, expenses associated with the filing of registration
statements, and the cost of soliciting proxies for the Meeting, which
will consist principally of printing and mailing prospectuses and
proxy statements, together with the cost of any supplementary
solicitation. However, there may be some transaction costs associated
with portfolio adjustments to Spartan Short-Intermediate due to the
Reorganization prior to the Closing Date which will be borne by
Spartan Short-Intermediate. Any transaction costs associated with
portfolio adjustments due to the Reorganization which occur after the
Closing Date and any additional reorganization-related costs
attributable to Intermediate Government which occur after the Closing
Date will be borne by Intermediate Government. The funds may recognize
a taxable gain or loss on the disposition of securities pursuant to
these portfolio adjustments.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by
a fund. In addition, the Agreement may be amended, modified, or
supplemented in any mutually agreeable manner, except that no
amendment that may have a materially adverse effect on the
shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Boards of Trustees (the Boards) of the funds have determined that
the Reorganization is in the best interests of the shareholders of
both funds and that the Reorganization will not result in a dilution
of the interests of shareholders of either fund.
In considering the Reorganization, the Boards considered a number of
factors, including the following:
(1) the compatibility of the funds' investment objectives and
policies;
(2) the historical performance of the funds;
(3) the relative expense ratios of the funds;
(4) the costs to be incurred by each fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) the relative size of the funds;
(7) the elimination of similar funds;
(8) the impact of the changes to the taxable bond product line on
the fund's and their shareholders; and
(9) the benefit to FMR and to the shareholders of the funds.
FMR recommended the Reorganization to the Boards at a meeting of the
Boards on October 15, 1998. In recommending the Reorganization, FMR
advised the Boards that the funds have similar investment objectives,
policies, and investment portfolios. In particular, FMR informed the
Boards that the funds differed primarily with respect to the average
maturities of their investments and their initial and additional
investment and account balance minimums.
The Boards considered that the proposed merger would provide
shareholders of Spartan Short-Intermediate with a fund that has higher
historical returns because of, among other reasons, Intermediate
Government's longer average maturity.
In addition, the Boards also considered that if the Reorganization is
approved, FMR would voluntarily limit the combined fund's total
operating expenses to 0.63% of its average net assets (excluding
interest, taxes, brokerage commissions, and extraordinary expenses)
through June 30, 2001. This expense limitation would lower the total
operating expenses of Spartan Short-Intermediate Government from 0.65%
to 0.63% of its average net assets.
Finally, the Boards considered the proposed Reorganization in the
context of a general goal of reducing the number of similar funds
managed by FMR. While the reduction of similar funds and funds with
lower assets potentially would benefit FMR, it should also benefit
shareholders by facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fidelity Income Fund (the trust) is registered with the Securities
and Exchange Commission (the Commission) as an open-end management
investment company. The trust's Trustees are authorized to issue an
unlimited number of shares of beneficial interest of separate series.
Intermediate Government is one of three funds of the trust. Each share
of Intermediate Government represents an equal proportionate interest
with each other share of the fund, and each such share of Intermediate
Government is entitled to equal voting, dividend, liquidation, and
redemption rights. Each shareholder of the fund is entitled to one
vote for each dollar value of net asset value of the fund that
shareholder owns. Shares of Intermediate Government have no
preemptive or conversion rights. The voting and dividend rights, the
right of redemption, and the privilege of exchange are described in
the fund's Prospectus. Shares are fully paid and nonassessable, except
as set forth in the fund's Statement of Additional Information under
the heading "Shareholder and Trustee Liability."
The trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless less than a majority of the Trustees holding office
have been elected by shareholders, at which time the Trustees then in
office will call a shareholder meeting for the election of Trustees.
Under the 1940 Act, shareholders of record of at least two-thirds of
the outstanding shares of an investment company may remove a Trustee
by votes cast in person or by proxy at a meeting called for that
purpose. The Trustees are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any Trustee
when requested in writing to do so by the shareholders of record
holding at least 10% of the trust's outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Spartan Short-Intermediate's assets for Intermediate
Government shares and the assumption of the liabilities of Spartan
Short-Intermediate by Intermediate Government is intended to qualify
for federal income tax purposes as a tax-free reorganization under the
Code. With respect to the Reorganization, the participating funds have
received an opinion from Kirkpatrick & Lockhart LLP, counsel to
Spartan Short-Intermediate and Intermediate Government, substantially
to the effect that:
(i) The acquisition by Intermediate Government of all of the assets
of Spartan Short-Intermediate solely in exchange for Intermediate
Government shares and the assumption by Intermediate Government of
Spartan Short-Intermediate's liabilities, followed by the distribution
by Spartan Short-Intermediate of Intermediate Government shares to the
shareholders of Spartan Short-Intermediate pursuant to the liquidation
of Spartan Short-Intermediate and constructively in exchange for their
Spartan Short-Intermediate shares, will constitute a reorganization
within the meaning of section 368(a)(1)(C) of the Code, and Spartan
Short-Intermediate and Intermediate Government will each be "a party
to a reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized by Spartan
Short-Intermediate upon the transfer of all of its assets to
Intermediate Government in exchange solely for Intermediate Government
shares and Intermediate Government's assumption of Spartan
Short-Intermediate's liabilities, followed by Spartan
Short-Intermediate's subsequent distribution of those shares to its
shareholders in liquidation of Spartan Short-Intermediate;
(iii) No gain or loss will be recognized by Intermediate Government
upon the receipt of the assets of Spartan Short-Intermediate in
exchange solely for Intermediate Government shares and its assumption
of Spartan Short-Intermediate's liabilities;
(iv) The shareholders of Spartan Short-Intermediate will recognize
no gain or loss upon the exchange of their Spartan Short-Intermediate
shares solely for Intermediate Government shares;
(v) The basis of Spartan Short-Intermediate's assets in the hands of
Intermediate Government will be the same as the basis of those assets
in the hands of Spartan Short-Intermediate immediately prior to the
Reorganization, and the holding period of those assets in the hands of
Intermediate Government will include the holding period of those
assets in the hands of Spartan Short-Intermediate;
(vi) The basis of Spartan Short-Intermediate shareholders in
Intermediate Government shares will be the same as their basis in
Spartan Short-Intermediate shares to be surrendered in exchange
therefor; and
(vii) The holding period of the Intermediate Government shares to be
received by the Spartan Short-Intermediate shareholders will include
the period during which the Spartan Short-Intermediate shares to be
surrendered in exchange therefor were held, provided such Spartan
Short-Intermediate shares were held as capital assets by those
shareholders on the date of the Reorganization.
Shareholders of Spartan Short-Intermediate should consult their tax
advisers regarding the effect, if any, of the proposed Reorganization
in light of their individual circumstances. Because the foregoing
discussion relates only to the federal income tax consequences of the
Reorganization, those shareholders also should consult their tax
advisers as to state and local tax consequences, if any, of the
Reorganization.
CAPITALIZATION
The following table shows the capitalization of Spartan
Short-Intermediate and Intermediate Government as of July 31, 1998 and
on a pro forma combined basis (unaudited) as of that date giving
effect to the Reorganization.
NET NAV SHARES
ASSETS PER SHARE OUTSTANDING
SPARTAN $ 75,535,644 $9.38 8,053,544
SHORT-INT
ERMEDIAT
E
INTERMED $703,830,764 $9.78 71,942,356
IATE
GOVERNM
ENT
PRO $779,366,408 $9.78 79,665,837
FORMA
COMBINE
D FUND
CONCLUSION
The Agreement and Plan of Reorganization and the transactions
provided for therein were approved by the Boards at a meeting held on
October 15, 1998. The Boards of Trustees of Fidelity Fixed-Income
Trust and Fidelity Income Fund determined that the proposed
Reorganization is in the best interests of shareholders of each fund
and that the interests of Spartan Short-Intermediate shareholders
would not be diluted as a result of the Reorganization. In the event
that the Reorganization is not consummated, Spartan Short-Intermediate
will continue to engage in business as a fund of a registered
investment company and the Board of Fidelity Fixed-Income Trust will
consider other proposals for the reorganization or liquidation of the
fund.
B. TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND AND FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND.
REORGANIZATION PLAN
The terms and conditions under which the proposed transaction may be
consummated are set forth in the Agreement. Significant provisions of
the Agreement are summarized below; however, this summary is qualified
in its entirety by reference to the Agreement, a copy of which is
attached as Exhibit 2 to this Proxy Statement.
The Agreement contemplates (a) Intermediate Government acquiring as
of the Closing Date all of the assets of Fidelity Short-Intermediate
in exchange solely for shares of Intermediate Government and the
assumption by Intermediate Government of Fidelity Short-Intermediate's
liabilities; and (b) the distribution of shares of Intermediate
Government to the shareholders of Fidelity Short-Intermediate as
provided for in the Agreement.
The assets of Fidelity Short-Intermediate to be acquired by
Intermediate Government include all cash, cash equivalents,
securities, receivables (including interest or dividends receivables),
claims, choses in action, and other property owned by Fidelity
Short-Intermediate, and any deferred or prepaid expenses shown as an
asset on the books of Fidelity Short-Intermediate on the Closing Date.
Intermediate Government will assume from Fidelity Short-Intermediate
all liabilities, debts, obligations, and duties of Fidelity
Short-Intermediate of whatever kind or nature, whether absolute,
accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable on the
Closing Date, and whether or not specifically referred to in the
Agreement; provided, however, that Fidelity Short-Intermediate will
use its best efforts, to the extent practicable, to discharge all of
its known liabilities prior to the Closing Date, other than
liabilities incurred in the ordinary course of business. Intermediate
Government also will deliver to Fidelity Short-Intermediate the number
of full and fractional shares of Intermediate Government having an
aggregate net asset value equal to the value of the assets of Fidelity
Short-Intermediate less the liabilities of Fidelity Short-Intermediate
as of the Closing Date. Fidelity Short-Intermediate shall then
distribute the Intermediate Government shares pro rata to its
shareholders.
The value of Fidelity Short-Intermediate's assets to be acquired by
Intermediate Government and the amount of its liabilities to be
assumed by Intermediate Government will be determined as of the close
of business of the NYSE on the Closing Date, using the valuation
procedures set forth in Fidelity Short-Intermediate's then-current
Prospectus and Statement of Additional Information. The net asset
value of a share of Intermediate Government will be determined as of
the same time using the valuation procedures set forth in its
then-current Prospectus and Statement of Additional Information.
As of the Closing Date, Fidelity Short-Intermediate will distribute
to its shareholders of record the shares of Intermediate Government it
received, so that each Fidelity Short-Intermediate shareholder will
receive the number of full and fractional shares of Intermediate
Government equal in value to the aggregate net asset value of shares
of Fidelity Short-Intermediate held by such shareholder on the Closing
Date; Fidelity Short-Intermediate will be liquidated as soon as
practicable thereafter. Such distribution will be accomplished by
opening accounts on the books of Intermediate Government in the names
of the Fidelity Short-Intermediate shareholders and by transferring
thereto shares of Intermediate Government. Each Fidelity
Short-Intermediate shareholder's account shall be credited with the
respective pro rata number of full and fractional shares (rounded to
the third decimal place) of Intermediate Government due that
shareholder. Intermediate Government shall not issue certificates
representing its shares in connection with such exchange.
Accordingly, immediately after the Reorganization, each former
Fidelity Short-Intermediate shareholder will own shares of
Intermediate Government equal in value to the aggregate net asset
value of that shareholder's shares of Fidelity Short-Intermediate
immediately prior to the Reorganization. The net asset value per share
of Intermediate Government will be unchanged by the transaction. Thus,
the Reorganization will not result in a dilution of any shareholder
interest.
Any transfer taxes payable upon issuance of shares of Intermediate
Government in a name other than that of the registered holder of the
shares on the books of Fidelity Short-Intermediate as of that time
shall be paid by the person to whom such shares are to be issued as a
condition of such transfer. Any reporting responsibility of Fidelity
Short-Intermediate is and will continue to be its responsibility up to
and including the date on which it is terminated.
Fidelity Short-Intermediate will bear the cost of the
Reorganization. Reorganization costs include professional fees,
expenses associated with the filing of registration statements, and
the cost of soliciting proxies for the Meeting, which will consist
principally of printing and mailing prospectuses and proxy statements,
together with the cost of any supplementary solicitation. There may
also be some transaction costs associated with portfolio adjustments
to Fidelity Short-Intermediate due to the Reorganization prior to the
Closing Date which will be borne by Fidelity Short-Intermediate. Any
transaction costs associated with portfolio adjustments due to the
Reorganization which occur after the Closing Date and any additional
reorganization-related costs attributable to Intermediate Government
which occur after the Closing Date will be borne by Intermediate
Government. The funds may recognize a taxable gain or loss on the
disposition of securities pursuant to these portfolio adjustments.
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by
a fund. In addition, the Agreement may be amended, modified, or
supplemented in any mutually agreeable manner, except that no
amendment that may have a materially adverse effect on the
shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Boards of Trustees (the Boards) of the funds have determined that
the Reorganization is in the best interests of the shareholders of
both funds and that the Reorganization will not result in a dilution
of the interests of shareholders of either fund.
In considering the Reorganization, the Boards considered a number of
factors, including the following:
(1) the compatibility of the funds' investment objectives and
policies;
(2) the historical performance of the funds;
(3) the relative expense ratios of the funds;
(4) the costs to be incurred by each fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) the relative size of the funds;
(7) the elimination of similar funds;
(8) the impact of the changes to the taxable bond product line on
the funds and their shareholders; and
(9) the benefit to FMR and to the shareholders of the funds.
FMR recommended the Reorganization to the Boards at a meeting of the
Boards on October 15, 1998. In recommending the Reorganization, FMR
advised the Boards that the funds have similar investment objectives,
policies, and investment portfolios. In particular, FMR informed the
Boards that the funds differed primarily with respect to the average
maturities of their investments.
The Boards considered that the proposed merger would provide
shareholders of Fidelity Short-Intermediate with a fund that has
higher historical returns because of, among other things, Intermediate
Government's longer average maturity.
In addition, the Boards also considered that if the Reorganization is
approved, FMR would voluntarily limit the combined fund's total
operating expenses to 0.63% of its average net assets (excluding
interest, taxes, brokerage commissions, and extraordinary expenses)
through June 30, 2001. This expense limitation would lower the total
operating expenses of Fidelity Short-Intermediate from 0.79% to 0.63%
of the fund's average net assets.
Finally, the Boards considered the proposed Reorganization in the
context of a general goal of reducing the number of similar funds
managed by FMR. While the reduction of similar funds and funds with
lower assets potentially would benefit FMR, it should also benefit
shareholders by facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fidelity Income Fund (the trust) is registered with the Securities
and Exchange Commission (the Commission) as an open-end management
investment company. The trust's Trustees are authorized to issue an
unlimited number of shares of beneficial interest of separate series.
Intermediate Government is one of three funds of the trust. Each share
of Intermediate Government represents an equal proportionate interest
with each other share of the fund, and each such share of Intermediate
Government is entitled to equal voting, dividend, liquidation, and
redemption rights. Each shareholder of the fund is entitled to one
vote for each dollar value of net asset value of the fund that
shareholder owns. Shares of Intermediate Government have no
preemptive or conversion rights. The voting and dividend rights, the
right of redemption, and the privilege of exchange are described in
the fund's Prospectus. Shares are fully paid and nonassessable, except
as set forth in the fund's Statement of Additional Information under
the heading "Shareholder and Trustee Liability."
The trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless less than a majority of the Trustees holding office
have been elected by shareholders, at which time the Trustees then in
office will call a shareholder meeting for the election of Trustees.
Under the 1940 Act, shareholders of record of at least two-thirds of
the outstanding shares of an investment company may remove a Trustee
by votes cast in person or by proxy at a meeting called for that
purpose. The Trustees are required to call a meeting of shareholders
for the purpose of voting upon the question of removal of any Trustee
when requested in writing to do so by the shareholders of record
holding at least 10% of the trust's outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Fidelity Short-Intermediate's assets for Intermediate
Government shares and the assumption of the liabilities of Fidelity
Short-Intermediate by Intermediate Government is intended to qualify
for federal income tax purposes as a tax-free reorganization under the
Code. With respect to the Reorganization, the participating funds have
received an opinion from Kirkpatrick & Lockhart LLP, counsel to
Fidelity Short-Intermediate and Intermediate Government, substantially
to the effect that:
(i) The acquisition by Intermediate Government of all of the assets
of Fidelity Short-Intermediate solely in exchange for Intermediate
Government shares and the assumption by Intermediate Government of
Fidelity Short-Intermediate's liabilities, followed by the
distribution by Fidelity Short-Intermediate of Intermediate Government
shares to the shareholders of Fidelity Short-Intermediate pursuant to
the liquidation of Fidelity Short-Intermediate and constructively in
exchange for their Fidelity Short-Intermediate shares, will constitute
a reorganization within the meaning of section 368(a)(1)(C) of the
Code, and Fidelity Short-Intermediate and Intermediate Government will
each be "a party to a reorganization" within the meaning of section
368(b) of the Code;
(ii) No gain or loss will be recognized by Fidelity
Short-Intermediate upon the transfer of all of its assets to
Intermediate Government in exchange solely for Intermediate Government
shares and Intermediate Government's assumption of Fidelity
Short-Intermediate's liabilities, followed by Fidelity
Short-Intermediate's subsequent distribution of those shares to its
shareholders in liquidation of Fidelity Short-Intermediate;
(iii) No gain or loss will be recognized by Intermediate Government
upon the receipt of the assets of Fidelity Short-Intermediate in
exchange solely for Intermediate Government shares and its assumption
of Fidelity Short-Intermediate's liabilities;
(iv) The shareholders of Fidelity Short-Intermediate will recognize
no gain or loss upon the exchange of their Fidelity Short-Intermediate
shares solely for Intermediate Government shares;
(v) The basis of Fidelity Short-Intermediate's assets in the hands
of Intermediate Government will be the same as the basis of those
assets in the hands of Fidelity Short-Intermediate immediately prior
to the Reorganization, and the holding period of those assets in the
hands of Intermediate Government will include the holding period of
those assets in the hands of Fidelity Short-Intermediate;
(vi) The basis of Fidelity Short-Intermediate shareholders in
Intermediate Government shares will be the same as their basis in
Fidelity Short-Intermediate shares to be surrendered in exchange
therefor; and
(vii) The holding period of the Intermediate Government shares to be
received by the Fidelity Short-Intermediate shareholders will include
the period during which the Fidelity Short-Intermediate shares to be
surrendered in exchange therefor were held, provided such Fidelity
Short-Intermediate shares were held as capital assets by those
shareholders on the date of the Reorganization.
Shareholders of Fidelity Short-Intermediate should consult their tax
advisers regarding the effect, if any, of the proposed Reorganization
in light of their individual circumstances. Because the foregoing
discussion relates only to the federal income tax consequences of the
Reorganization, those shareholders also should consult their tax
advisers as to state and local tax consequences, if any, of the
Reorganization.
CAPITALIZATION
The following table shows the capitalization of Fidelity
Short-Intermediate and Intermediate Government as of July 31, 1998 and
on a pro forma combined basis (unaudited) as of that date giving
effect to the Reorganization.
NET NAV SHARES
ASSETS PER SHARE OUTSTANDING
FIDELITY $127,761,710 $9.37 13,639,898
SHORT-INT
ERMEDIAT
E
INTERMED $703,830,764 $9.78 71,942,356
IATE
GOVERNM
ENT
PRO $831,592,474 $9.78 85,005,926
FORMA
COMBINE
D FUND
CONCLUSION
The Agreement and Plan of Reorganization and the transactions
provided for therein were approved by the Boards at a meeting held on
October 15, 1998. The Boards of Trustees of Fidelity Charles Street
Trust and Fidelity Income Fund determined that the proposed
Reorganization is in the best interests of shareholders of each fund
and that the interests of Fidelity Short-Intermediate shareholders
would not be diluted as a result of the Reorganization. In the event
that the Reorganization is not consummated, Fidelity
Short-Intermediate will continue to engage in business as a fund of a
registered investment company and the Board of Fidelity Charles Street
Trust will consider other proposals for the reorganization or
liquidation of the fund.
ADDITIONAL INFORMATION ABOUT FIDELITY INTERMEDIATE GOVERNMENT INCOME
FUND
The Prospectus for Intermediate Government, dated September 21, 1998
and supplemented on December 7, 1998, is enclosed with this Proxy
Statement and is incorporated herein by reference. The Prospectus
contains additional information about the fund including its
investment objective and policies, investment adviser, advisory fees
and expenses, organization, and procedures for purchasing and
redeeming shares. The prospectus also contains Intermediate
Government's financial highlights for the fiscal year ended July 31,
1998, as shown below:
FINANCIAL HIGHLIGHTS
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED
PER-SHARE
DATA AND
RATIOS
YEARS 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
ENDED JULY
31
NET $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030 $ 9.880
ASSET VALUE,
BEGINNING OF
PERIOD
INCOME .652C .675C .678 .610 .470 .872 .836 .853 .816 .806
FROM
INVESTMENT
OPERATIONS
NET
INVESTMENT
INCOME
NET (.008) .124 (.150) .143 (.410) (.087) .021 .142 (.100) .150
REALIZED AND
UNREALIZED
GAIN (LOSS)
TOTAL .644 .799 .528 .753 .060 .785 .857 .995 .716 .956
FROM
INVESTMENT
OPERATIONS
LESS (.654) (.659) (.638) (.603) (.540) (.605) (.677) (.845) (.816) (.806)
DISTRIBUTIONS
FROM NET
INVESTMENT
INCOME
FROM -- -- -- -- -- (.050) (.060) (.020) -- --
NET REALIZED
GAIN
IN -- -- -- -- (.220) -- -- -- -- --
EXCESS OF NET
REALI
ZED GAIN
TOTAL (.654) (.659) (.638) (.603) (.760) (.655) (.737) (.865) (.816) (.806)
DISTRIBUTIONS
NET $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030
ASSET VALUE,
END OF PERIOD
TOTAL 6.78% 8.56% 5.49% 8.16% .57% 7.96% 8.78% 10.43% 7.49% 10.14%
RETURNA,B
NET $ 704 $ 704 $ 740 $ 817 $ 1,018 $ 1,529 $ 1,770 $ 880 $ 132 $ 125
ASSETS, END
OF PERIOD (IN
MILLIONS)
RATIO OF .38%E .54%E .63%E .65% .65% .65% .61%E .50%E .83% .68%E
EXPENSES TO
AVERAGE NET
ASSETS
RATIO OF .38% .54% .62%D .65% .65% .65% .61% .50% .83% .68%
EXPENSES TO
AVERAGE NET
ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF 6.65% 6.96% 6.89% 7.18% 7.37% 8.05% 8.24% 8.63% 8.28% 8.20%
NET
INVESTMENT
INCOME TO
AVERAGE
NET ASSETS
PORTFOLIO 188% 105% 105% 210% 391% 324% 330% 288% 270% 806%
TURNOVER
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 FORMER ACCOUNT CLOSEOUT FEE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
MISCELLANEOUS
LEGAL MATTERS. Certain legal matters in connection with the issuance
of Intermediate Government shares have been passed upon by Kirkpatrick
& Lockhart LLP, counsel to Fidelity Income Fund.
EXPERTS. The audited financial statements of Spartan
Short-Intermediate, Fidelity Short-Intermediate, and Intermediate
Government, incorporated by reference into their Statements of
Additional Information, have been examined by PricewaterhouseCoopers
LLP, independent accountants, whose reports thereon are included in
the Annual Report to Shareholders for the fiscal years ended on April
30, September 30, and July 31, 1998, respectively. Unaudited
financial statements for Spartan Short-Intermediate for the six-month
period ended October 31, 1998 are also incorporated by reference into
the Statement of Additional Information. The financial statements
audited by PricewaterhouseCoopers LLP have been incorporated by
reference in reliance on their reports given on their authority as
experts in auditing and accounting.
AVAILABLE INFORMATION. Fidelity Fixed-Income Trust, Fidelity Charles
Street Trust and Fidelity Income Fund are each subject to the
informational requirements of the Securities and Exchange Act of 1934
and the 1940 Act, and in accordance therewith file reports, proxy
material, and other information with the SEC. Such reports, proxy
material, and other information can be inspected and copied at the
Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington D.C. 20549 and 7 World Trade Center, New York, NY 10048.
Copies of such material can also be obtained from the Public Reference
Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington D.C. 20549, at
prescribed rates.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES. Please advise Fidelity Fixed-Income Trust and Fidelity
Charles Street Trust whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of
copies of the Proxy Statement you wish to receive in order to supply
copies to the beneficial owners of the respective shares.
ATTACHMENT 1
EXCERPTS FROM ANNUAL REPORT OF FIDELITY INTERMEDIATE GOVERNMENT INCOME
FUND DATED JULY 31, 1998
AVERAGE
ANNUAL
TOTAL
RETURNS
PERIODS PAST 1 PAST 5 PAST 10
ENDED YEAR YEARS YEARS
JULY 31,
1998
INTERMED 6.78% 5.87% 7.40%
IATE
GOVERNM
ENT
LEHMAN 6.83% 5.95% 8.12%
BROTHERS
INTERMED
IATE
GOVERNM
ENT BOND
INDEX
LIPPER 5.67% 5.00% 7.38%
SHORT-INT
ERMEDIAT
E U.S.
GOVERNM
ENT
FUNDS
AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual
total returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Intermediate Govt Income
00452
1988/07/31 10000.00
1988/08/31 10022.26
1988/09/30 10129.89
1988/10/31 10228.54
1988/11/30 10224.54
1988/12/31 10263.19
1989/01/31 10345.52
1989/02/28 10349.51
1989/03/31 10402.59
1989/04/30 10539.87
1989/05/31 10688.35
1989/06/30 10878.99
1989/07/31 11014.39
1989/08/31 10947.78
1989/09/30 11003.53
1989/10/31 11177.94
1989/11/30 11268.22
1989/12/31 11325.69
1990/01/31 11311.71
1990/02/28 11374.27
1990/03/31 11400.99
1990/04/30 11417.83
1990/05/31 11589.15
1990/06/30 11699.92
1990/07/31 11839.04
1990/08/31 11887.20
1990/09/30 11982.27
1990/10/31 12106.43
1990/11/30 12248.30
1990/12/31 12360.09
1991/01/31 12497.95
1991/02/28 12595.40
1991/03/31 12699.24
1991/04/30 12808.56
1991/05/31 12874.77
1991/06/30 12925.80
1991/07/31 13073.79
1991/08/31 13236.31
1991/09/30 13370.71
1991/10/31 13537.85
1991/11/30 13587.03
1991/12/31 13832.30
1992/01/31 13765.19
1992/02/29 13846.73
1992/03/31 13830.12
1992/04/30 13932.84
1992/05/31 14072.08
1992/06/30 14180.82
1992/07/31 14221.74
1992/08/31 14392.88
1992/09/30 14492.06
1992/10/31 14432.58
1992/11/30 14499.38
1992/12/31 14629.63
1993/01/31 14755.19
1993/02/28 14917.19
1993/03/31 14995.80
1993/04/30 15092.83
1993/05/31 15142.65
1993/06/30 15301.47
1993/07/31 15353.49
1993/08/31 15468.38
1993/09/30 15521.52
1993/10/31 15556.99
1993/11/30 15453.85
1993/12/31 15568.66
1994/01/31 15730.72
1994/02/28 15583.03
1994/03/31 15382.89
1994/04/30 15308.09
1994/05/31 15292.25
1994/06/30 15286.87
1994/07/31 15441.39
1994/08/31 15486.94
1994/09/30 15453.40
1994/10/31 15471.54
1994/11/30 15435.95
1994/12/31 15420.86
1995/01/31 15653.87
1995/02/28 15881.21
1995/03/31 15956.79
1995/04/30 16145.24
1995/05/31 16563.40
1995/06/30 16664.26
1995/07/31 16700.76
1995/08/31 16841.36
1995/09/30 16964.54
1995/10/31 17194.09
1995/11/30 17388.35
1995/12/31 17569.14
1996/01/31 17718.51
1996/02/29 17546.91
1996/03/31 17449.23
1996/04/30 17399.83
1996/05/31 17389.95
1996/06/30 17557.46
1996/07/31 17618.04
1996/08/31 17639.91
1996/09/30 17865.00
1996/10/31 18167.29
1996/11/30 18396.89
1996/12/31 18296.14
1997/01/31 18362.86
1997/02/28 18400.25
1997/03/31 18281.47
1997/04/30 18479.72
1997/05/31 18624.23
1997/06/30 18786.99
1997/07/31 19126.20
1997/08/31 19075.64
1997/09/30 19296.01
1997/10/31 19499.03
1997/11/30 19559.89
1997/12/31 19704.17
1998/01/31 19949.31
1998/02/28 19943.63
1998/03/31 20005.39
1998/04/30 20105.98
1998/05/31 20232.10
1998/06/30 20357.32
1998/07/31 20422.57
IMATRL PRASUN SHR__CHT 19980731 19981217 161108
R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Intermediate Government Income Fund on July 31,
1988. As the chart shows, by July 31, 1998, the value of the
investment would have grown to $20,423 -- a 104.23% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Intermediate Government Bond Index, which reflects the performance of
U.S. Government debt securities with maturities between one and ten
years, did over the same period. With dividends reinvested, the same
$10,000 would have grown to $21,839--a 118.39% increase.
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S. bonds
amid a sharp sell-off in Russian
bonds, weakness in overseas
markets and concerns about U.S.
corporate profits. The Lehman
Brothers Aggregate Bond Index -
a broad gauge of the U.S. taxable
bond market - returned 7.87%
during the 12-month period that
ended July 31, 1998. In the fourth
quarter of 1997 and the first half
of 1998, global market volatility
and low interest rates were the
main stories behind bond market
performance. As investors moved
assets from stocks and riskier bonds
to highly rated corporate bonds
and U.S. Treasuries, bond yields -
which move in the opposite
direction of bond prices - fell to
their lowest levels in decades. The
yield on the benchmark 30-year
bond fell to 5.70% from 6.50%
during the period. The Lehman
Brothers Corporate Bond Index
returned 7.35% for the past 12
months as corporate bond
investors benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading
above 50 indicates an expansion in
the manufacturing economy,
while one below 50 points to a
contraction. The report also
indicated there were no new signs
of inflationary pressure. Since
inflation erodes the value of
fixed-income holdings such as
bonds, this was positive news for
bond investors.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Intermediate Government Income Fund
HOW DID THE FUND PERFORM, CURT?
For the 12-month period that ended July 31, 1998, the fund had a total
return of 6.78%. To get a sense of how the fund did relative to its
competitors, the short-intermediate U.S. government funds average
returned 5.67% for the same one-year period, according to Lipper
Analytical Services. Additionally, the Lehman Brothers Intermediate
Government Bond Index - which tracks the types of securities in which
the fund invests - returned 6.83%.
ALTHOUGH IT CONTINUED TO POST GOOD RETURNS, THE INTERMEDIATE
GOVERNMENT MARKET DIDN'T PERFORM AS WELL IN THE MOST RECENT SIX-MONTH
PERIOD AS IT DID IN THE PRIOR SIX. WHY WAS THAT?
Returns were smaller in the second half of the period because bond
yields, which move in the opposite direction of bond prices, didn't
fall as much in the second half as they did in the first. The yield on
the 10-year Treasury bond - which serves as a good proxy for the
intermediate market - dropped by 52 basis points (0.52%) in the first
six months, when inflation fears were waning. In the second half of
the period, however, the 10-year bond yield fell by only about 9 basis
points. Intermediate bond prices saw larger gains in response to the
more emphatic decline in yields in the first half.
WHY DID THE FUND OUTPACE THE SHORT-INTERMEDIATE U.S. GOVERNMENT FUNDS
AVERAGE?
The fund had a larger weighting in both agency and mortgage
securities, and a smaller exposure to U.S. Treasuries throughout the
period than the Lipper average. In large part due to their higher
yields, agency and mortgage securities generally outpaced Treasuries
during much of the past year and helped the fund to outpace its Lipper
peer group. That said, agency and mortgage securities lagged the
Treasury market during the final months of the period and, while they
helped the fund's performance for the year, they modestly detracted
from its more recent performance. Treasuries' strong performance was
largely due to heavy buying from domestic and international investors
seeking a haven from the economic turmoil in Southeast Asia. Agency
securities, on the other hand, didn't enjoy the same demand and lagged
Treasuries as a result.
WHY DID MORTGAGE-BACKED SECURITIES STRUGGLE DURING THE PAST FEW
MONTHS?
As interest rates moved lower - to their lowest levels since 1993 -
homeowners rushed to replace old high-rate mortgages with cheaper
loans. That caused the rate of home mortgage refinancings, and the
prepayment of mortgage loans, to rise substantially. Although
refinancings are good for mortgage holders, they can be difficult for
investors in mortgage securities. As the refinancings occur and
mortgage securities are prepaid, investors must find a new place to
put their money, usually at a lower interest rate. Generally speaking,
I focus on finding those mortgage securities that I think are less
susceptible to a pick-up or slowdown in the pace of refinancings.
However, in periods of interest-rate volatility - whether rates move
substantially up or down - prepayment patterns become more difficult
to predict and mortgage security prices can suffer as a result.
WHAT WAS YOUR APPROACH TO SELECTING VARIOUS AGENCY SECURITIES?
While the majority of the fund's agency holdings were well-known
securities such as Fannie Mae and Freddie Mac, I looked for
opportunities among agencies that received less attention from market
participants. Because of a lack of attention, I was able to buy many
of these securities - including Government Trust Certificates and
Government Loan Trusts Notes - at cheap prices relative to comparable,
better-known securities.
WHAT'S YOUR OUTLOOK?
The direction of interest rates, as always, will be the prime
determinant of bond performance, and I'm not willing to speculate on
where interest rates will be six months or a year from now. I will
say, however, that I believe that interest rates could remain volatile
as investors struggle with the dueling forces of a strong U.S. economy
and an ever-weakening Asia. I'll try to identify those securities that
I believe will offer the best total-return potential in any type of
interest-rate environment.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH JULY 31, 1998. THE MANAGER'S VIEWS ARE SUBJECT TO
CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS.CURT
HOLLINGSWORTH WAS THE PORTFOLIO MANAGER OF THE FUND THROUGH DECEMBER
6, 1998. EFFECTIVE DECEMBER 7, 1998, ANDREW DUDLEY IS THE FUND'S
PORTFOLIO MANAGER.
ATTACHMENT 2
ANNUAL FUND OPERATING EXPENSES AND EXAMPLES OF FUND EXPENSES FOR
CERTAIN REORGANIZATIONS
IF ONLY THE SPARTAN SHORT-INTERMEDIATE REORGANIZATION IS APPROVED:
SPARTAN INTERMEDIATE PRO FORMA
SHORT-INTERM GOVERNMENT EXPENSES
EDIATE COMBINED
FUND*
MANAGEME 0.65% 0.65% 0.63% (AFTER
NT FEE REIMBURSE-ME
NT)
12B-1 FEE NONE NONE NONE
OTHER 0.00% 0.00% 0.00%
EXPENSES
TOTAL 0.65% 0.65% 0.63% (AFTER
OPERATING REIMBURSE-ME
EXPENSES NT)
* If the Reorganization is approved, FMR has agreed to limit the
combined fund's total operating expenses to 0.63% of its average net
assets (excluding interest, taxes, brokerage commissions, and
extraordinary expenses) through June 30, 2001. If this agreement were
not in effect, the combined fund's management fee, other expenses, and
total operating expenses would be 0.65%, 0.00%, and 0.65%,
respectively.
EXAMPLE:
AFTER 1 AFTER 3 AFTER 5 AFTER 10
YEAR YEARS YEARS YEARS
SPARTAN $ 7 $ 21 $ 36 $ 81
SHORT-INTER
MEDIATE
INTERMEDIAT $ 7 $ 21 $ 36 $ 81
E
GOVERNME
NT
COMBINED $ 6 $ 20 $ 35 $ 79
FUND
(PRO
FORMA)
IF ONLY THE FIDELITY SHORT-INTERMEDIATE REORGANIZATION IS APPROVED:
FIDELITY
SHORT-IN PRO FORMA
TER-MEDI INTERMEDIATE EXPENSES
ATE GOVERNMENT COMBINED FUND*
MANAGE-ME 0.44% 0.65% 0.63% (AFTER
NT FEE REIMBURSEMENT)
12B-1 FEE NONE NONE NONE
OTHER 0.35% 0.00% 0.00%
EXPENSES
TOTAL 0.79% 0.65% 0.63% (AFTER
OPERATING REIMBURSEMENT)
EXPENSES
* If the Reorganization is approved, FMR has agreed to limit the
combined fund's total operating expenses to 0.63% of its average net
assets (excluding interest, taxes, brokerage commissions, and
extraordinary expenses) through June 30, 2001. If this agreement were
not in effect, the combined fund's management fee, other expenses, and
total operating expenses would be 0.65%, 0.00%, and 0.65%,
respectively.
EXAMPLE:
AFTER 1 AFTER 3 AFTER 5 AFTER 10
YEAR YEARS YEARS YEARS
FIDELITY $ 8 $ 25 $ 44 $ 98
SHORT-INTERME
DIATE
INTERMEDIATE $ 7 $ 21 $ 36 $ 81
GOVERNMENT
COMBINED $ 6 $ 20 $ 35 $ 79
FUND
(PRO FORMA)
EXHIBIT 1
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as
of February 16, 1999 by and between Fidelity Fixed-Income Trust, a
Massachusetts business trust, on behalf of its series Spartan
Short-Intermediate Government Fund (Spartan Short-Intermediate), and
Fidelity Income Fund, a Massachusetts business trust, on behalf of its
series Fidelity Intermediate Government Income Fund (Intermediate
Government). Fidelity Fixed-Income Trust and Fidelity Income Fund may
be referred to herein collectively as the "Trusts" or each
individually as a "Trust." The Trusts are duly organized business
trusts under the laws of the Commonwealth of Massachusetts with their
principal place of business at 82 Devonshire Street, Boston,
Massachusetts 02109. Intermediate Government and Spartan
Short-Intermediate may be referred to herein collectively as the
"Funds" or each individually as the "Fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the Code). The
reorganization will comprise: (a) the transfer of all of the assets of
Spartan Short-Intermediate to Intermediate Government solely in
exchange for shares of beneficial interest in Intermediate Government
(the Intermediate Government Shares) and the assumption by
Intermediate Government of Spartan Short-Intermediate's liabilities;
and (b) the constructive distribution of such shares by Spartan
Short-Intermediate PRO RATA to its shareholders in complete
liquidation and termination of Spartan Short-Intermediate in exchange
for all of Spartan Short-Intermediate's outstanding shares. Spartan
Short-Intermediate shall receive shares of Intermediate Government
having an aggregate net asset value equal to the value of the assets
of Spartan Short-Intermediate on the Closing Date (as defined in
Section 6), which Spartan Short-Intermediate shall then distribute PRO
RATA to its shareholders. The foregoing transactions are referred to
herein as the "Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF SPARTAN SHORT-INTERMEDIATE.
Spartan Short-Intermediate represents and warrants to and agrees with
Intermediate Government that:
(a) Spartan Short-Intermediate is a series of Fidelity Fixed-Income
Trust, a business trust duly organized, validly existing, and in good
standing under the laws of the Commonwealth of Massachusetts, and has
the power to own all of its properties and assets and to carry out its
obligations under this Agreement. It has all necessary federal,
state, and local authorizations to carry on its business as now being
conducted and to carry out this Agreement;
(b) Fidelity Fixed-Income Trust is an open-end, management investment
company duly registered under the Investment Company Act of 1940, as
amended (the 1940 Act), and such registration is in full force and
effect;
(c) The Prospectus and Statement of Additional Information of Spartan
Short-Intermediate dated June 26, 1998, and the supplement to the
Prospectus dated December 7, 1998, previously furnished to
Intermediate Government, did not and do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Spartan Short-Intermediate, threatened
against Spartan Short-Intermediate which assert liability on the part
of Spartan Short-Intermediate. Spartan Short-Intermediate knows of no
facts which might form the basis for the institution of such
proceedings;
(e) Spartan Short-Intermediate is not in, and the execution,
delivery, and performance of this Agreement will not result in,
violation of any provision of its Amended and Restated Declaration of
Trust or By-laws, or, to the knowledge of Spartan Short-Intermediate,
of any agreement, indenture, instrument, contract, lease, or other
undertaking to which Spartan Short-Intermediate is a party or by which
Spartan Short-Intermediate is bound or result in the acceleration of
any obligation or the imposition of any penalty under any agreement,
judgment or decree to which Spartan Short-Intermediate is a party or
is bound;
(f) The Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, Financial
Highlights, and the Schedule of Investments (including market values)
of Spartan Short-Intermediate at April 30, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, and have been
furnished to Intermediate Government together with such unaudited
financial statements and schedule of investments (including market
values) for the six month period ended October 31, 1998. Said
Statements of Assets and Liabilities and Schedule of Investments
fairly present the Fund's financial position as of such date and said
Statement of Operations, Statement of Changes in Net Assets, and
Financial Highlights fairly reflect its results of operations, changes
in financial position, and financial highlights for the periods
covered thereby in conformity with generally accepted accounting
principles consistently applied;
(g) Spartan Short-Intermediate has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging
to it on its statement of assets and liabilities as of April 30, 1998
and those incurred in the ordinary course of Spartan
Short-Intermediate's business as an investment company since April 30,
1998;
(h) The registration statement (Registration Statement) filed with
the Securities and Exchange Commission (Commission) by Fidelity Income
Fund on Form N-14 relating to the shares of Intermediate Government
issuable hereunder and the proxy statement of Spartan
Short-Intermediate included therein (Proxy Statement), on the
effective date of the Registration Statement and insofar as they
relate to Spartan Short-Intermediate (i) comply in all material
respects with the provisions of the Securities Act of 1933, as amended
(the 1933 Act), the Securities Exchange Act of 1934, as amended (the
1934 Act), and the 1940 Act, and the rules and regulations thereunder,
and (ii) do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the
time of the shareholders' meeting referred to in Section 7 and on the
Closing Date, the prospectus contained in the Registration Statement
of which the Proxy Statement is a part (the Prospectus), as amended or
supplemented, insofar as it relates to Spartan Short-Intermediate,
does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(i) All material contracts and commitments of Spartan
Short-Intermediate (other than this Agreement) will be terminated
without liability to Spartan Short-Intermediate prior to the Closing
Date (other than those made in connection with redemptions of shares
and the purchase and sale of portfolio securities made in the ordinary
course of business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Spartan
Short-Intermediate of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act, and state securities or blue sky laws (which term as
used herein shall include the District of Columbia and Puerto Rico);
(k) Spartan Short-Intermediate has filed or will file all federal and
state tax returns which, to the knowledge of Spartan
Short-Intermediate's officers, are required to be filed by Spartan
Short-Intermediate and has paid or will pay all federal and state
taxes shown to be due on said returns or provision shall have been
made for the payment thereof, and, to the best of Spartan
Short-Intermediate's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such
returns;
(l) Spartan Short-Intermediate has met the requirements of Subchapter
M of the Code for qualification and treatment as a regulated
investment company for all prior taxable years and intends to meet
such requirements for its current taxable year ending on the Closing
Date;
(m) All of the issued and outstanding shares of Spartan
Short-Intermediate are, and at the Closing Date will be, duly and
validly issued and outstanding and fully paid and nonassessable as a
matter of Massachusetts law (except as disclosed in the Fund's
Statement of Additional Information), and have been offered for sale
and in conformity with all applicable federal securities laws. All of
the issued and outstanding shares of Spartan Short-Intermediate will,
at the Closing Date, be held by the persons and in the amounts set
forth in the list of shareholders submitted to Intermediate Government
in accordance with this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Spartan Short-Intermediate will have the full right,
power, and authority to sell, assign, transfer, and deliver its
portfolio securities and any other assets of Spartan
Short-Intermediate to be transferred to Intermediate Government
pursuant to this Agreement. As of the Closing Date, subject only to
the delivery of Spartan Short-Intermediate's portfolio securities and
any such other assets as contemplated by this Agreement, Intermediate
Government will acquire Spartan Short-Intermediate's portfolio
securities and any such other assets subject to no encumbrances,
liens, or security interests (except for those that may arise in the
ordinary course and are disclosed to Intermediate Government) and
without any restrictions upon the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Spartan Short-Intermediate, and this
Agreement constitutes a valid and binding obligation of Spartan
Short-Intermediate enforceable in accordance with its terms, subject
to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF INTERMEDIATE GOVERNMENT.
Intermediate Government represents and warrants to and agrees with
Spartan Short-Intermediate that:
(a) Intermediate Government is a series of Fidelity Income Fund, a
business trust duly organized, validly existing, and in good standing
under the laws of the Commonwealth of Massachusetts, and has the power
to own all of its properties and assets and to carry out its
obligations under this Agreement. It has all necessary federal, state,
and local authorizations to carry on its business as now being
conducted and to carry out this Agreement;
(b) Fidelity Income Fund is an open-end, management investment
company duly registered under the 1940 Act, and such registration is
in full force and effect;
(c) The Prospectus and Statement of Additional Information of
Intermediate Government, dated September 21, 1998, the supplement to
the Prospectus dated December 7, 1998, and the supplement to the
Statement of Additional Information dated October 8, 1998, previously
furnished to Spartan Short-Intermediate did not and do not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Intermediate Government, threatened
against Intermediate Government which assert liability on the part of
Intermediate Government. Intermediate Government knows of no facts
which might form the basis for the institution of such proceedings;
(e) Intermediate Government is not in, and the execution, delivery,
and performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws,
or, to the knowledge of Intermediate Government, of any agreement,
indenture, instrument, contract, lease, or other undertaking to which
Intermediate Government is a party or by which Intermediate Government
is bound or result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment, or decree to
which Intermediate Government is a party or is bound;
(f) The Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, Financial
Highlights, and the Schedule of Investments (including market values)
of Intermediate Government at July 31, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, and have been
furnished to Spartan Short-Intermediate. Said Statement of Assets and
Liabilities and Schedule of Investments fairly present its financial
position as of such date and said Statement of Operations, Statement
of Changes in Net Assets, and Financial Highlights fairly reflect its
results of operations, changes in financial position, and financial
highlights for the periods covered thereby in conformity with
generally accepted accounting principles consistently applied;
(g) Intermediate Government has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging
to it on its statement of assets and liabilities as of July 31, 1998
and those incurred in the ordinary course of Intermediate Government's
business as an investment company since July 31, 1998;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by
Intermediate Government of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, and state securities or blue sky laws (which
term as used herein shall include the District of Columbia and Puerto
Rico);
(i) Intermediate Government has filed or will file all federal and
state tax returns which, to the knowledge of Intermediate Government's
officers, are required to be filed by Intermediate Government and has
paid or will pay all federal and state taxes shown to be due on said
returns or provision shall have been made for the payment thereof,
and, to the best of Intermediate Government's knowledge, no such
return is currently under audit and no assessment has been asserted
with respect to such returns;
(j) Intermediate Government has met the requirements of Subchapter M
of the Code for qualification and treatment as a regulated investment
company for all prior taxable years and intends to meet such
requirements for its current taxable year ending on July 31, 1999;
(k) As of the Closing Date, the shares of beneficial interest of
Intermediate Government to be issued to Spartan Short-Intermediate
will have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable as a matter of Massachusetts law (except
as disclosed in the Fund's Statement of Additional Information) by
Intermediate Government, and no shareholder of Intermediate Government
will have any preemptive right of subscription or purchase in respect
thereof;
(l) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Intermediate Government, and this
Agreement constitutes a valid and binding obligation of Intermediate
Government enforceable in accordance with its terms, subject to
approval by the shareholders of Spartan Short-Intermediate;
(m) The Registration Statement and the Proxy Statement, on the
effective date of the Registration Statement and insofar as they
relate to Intermediate Government, (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act, and the
1940 Act, and the rules and regulations thereunder, and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and on the Closing
Date, the Prospectus, as amended or supplemented, insofar as it
relates to Intermediate Government, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(n) The issuance of the Intermediate Government Shares pursuant to
this Agreement will be in compliance with all applicable federal
securities laws; and
(o) All of the issued and outstanding shares of beneficial interest
of Intermediate Government have been offered for sale and sold in
conformity with the federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Spartan
Short-Intermediate and to the other terms and conditions contained
herein, Spartan Short-Intermediate agrees to assign, sell, convey,
transfer, and deliver to Intermediate Government as of the Closing
Date all of the assets of Spartan Short-Intermediate of every kind and
nature existing on the Closing Date. Intermediate Government agrees in
exchange therefor: (i) to assume all of Spartan Short-Intermediate's
liabilities existing on or after the Closing Date, whether or not
determinable on the Closing Date, and (ii) to issue and deliver to
Spartan Short-Intermediate the number of full and fractional shares of
Intermediate Government having an aggregate net asset value equal to
the value of the assets of Spartan Short-Intermediate transferred
hereunder, less the value of the liabilities of Spartan
Short-Intermediate, determined as provided for under Section 4.
(b) The assets of Spartan Short-Intermediate to be acquired by
Intermediate Government shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest or
dividends receivables), claims, choses in action, and other property
owned by Spartan Short-Intermediate, and any deferred or prepaid
expenses shown as an asset on the books of Spartan Short-Intermediate
on the Closing Date. Spartan Short-Intermediate will pay or cause to
be paid to Intermediate Government any dividend or interest payments
received by it on or after the Closing Date with respect to the assets
transferred to Intermediate Government hereunder, and Intermediate
Government will retain any dividend or interest payments received by
it after the Valuation Time with respect to the assets transferred
hereunder without regard to the payment date thereof.
(c) The liabilities of Spartan Short-Intermediate to be assumed by
Intermediate Government shall include (except as otherwise provided
for herein) all of Spartan Short-Intermediate's liabilities, debts,
obligations, and duties, of whatever kind or nature, whether absolute,
accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable on the
Closing Date, and whether or not specifically referred to in this
Agreement. Notwithstanding the foregoing, Spartan Short-Intermediate
agrees to use its best efforts to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred
in the ordinary course of business.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable, Spartan Short-Intermediate will
constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the
Intermediate Government Shares in exchange for such shareholders'
shares of beneficial interest in Spartan Short-Intermediate and
Spartan Short-Intermediate will be liquidated in accordance with
Spartan Short-Intermediate's Amended and Restated Declaration of
Trust. Such distribution shall be accomplished by the Funds' transfer
agent opening accounts on Intermediate Government's share transfer
books in the names of the Spartan Short-Intermediate shareholders and
transferring the Intermediate Government Shares thereto. Each Spartan
Short-Intermediate shareholder's account shall be credited with the
respective PRO RATA number of full and fractional (rounded to the
third decimal place) Intermediate Government Shares due that
shareholder. All outstanding Spartan Short-Intermediate shares,
including any represented by certificates, shall simultaneously be
canceled on Spartan Short-Intermediate's share transfer records.
Intermediate Government shall not issue certificates representing the
Intermediate Government Shares in connection with the Reorganization.
(e) Any reporting responsibility of Spartan Short-Intermediate is and
shall remain its responsibility up to and including the date on which
it is terminated.
(f) Any transfer taxes payable upon issuance of the Intermediate
Government Shares in a name other than that of the registered holder
on Spartan Short-Intermediate's books of the Spartan
Short-Intermediate shares constructively exchanged for the
Intermediate Government Shares shall be paid by the person to whom
such Intermediate Government Shares are to be issued, as a condition
of such transfer.
4. VALUATION.
(a) The Valuation Time shall be as of the close of business of the
New York Stock Exchange on the Closing Date, or such other date as may
be mutually agreed upon in writing by the parties hereto (the
Valuation Time).
(b) As of the Closing Date, Intermediate Government will deliver to
Spartan Short-Intermediate the number of Intermediate Government
Shares having an aggregate net asset value equal to the value of the
assets of Spartan Short-Intermediate transferred hereunder less the
liabilities of Spartan Short-Intermediate, determined as provided in
this Section 4.
(c) The net asset value per share of the Intermediate Government
Shares to be delivered to Spartan Short-Intermediate, the value of the
assets of Spartan Short-Intermediate transferred hereunder, and the
value of the liabilities of Spartan Short-Intermediate to be assumed
hereunder shall in each case be determined as of the Valuation Time.
(d) The net asset value per share of the Intermediate Government
Shares shall be computed in the manner set forth in the then-current
Intermediate Government Prospectus and Statement of Additional
Information, and the value of the assets and liabilities of Spartan
Short-Intermediate shall be computed in the manner set forth in the
then-current Spartan Short-Intermediate Prospectus and Statement of
Additional Information.
(e) All computations pursuant to this Section shall be made by or
under the direction of Fidelity Service Company, Inc., a wholly-owned
subsidiary of FMR Corp., in accordance with its regular practice as
pricing agent for Spartan Short-Intermediate and Intermediate
Government.
5. FEES; EXPENSES.
(a) Pursuant to Spartan Short-Intermediate's all-inclusive management
contract with Fidelity Management & Research Company (FMR), FMR will
pay all fees and expenses, including legal, accounting, printing,
filing, and proxy solicitation expenses, portfolio transfer taxes (if
any), or other similar expenses incurred in connection with the
transactions contemplated by this Agreement (but not including costs
incurred in connection with the purchase or sale of portfolio
securities). Any expenses incurred in connection with the
transactions contemplated by this Agreement which may be attributable
to Intermediate Government will be borne by FMR.
(b) Each of Intermediate Government and Spartan Short-Intermediate
represents that there is no person who has dealt with it who by reason
of such dealings is entitled to any broker's or finder's or other
similar fee or commission arising out of the transactions contemplated
by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to
consummate the same (the Closing), unless otherwise provided herein,
shall occur at the principal office of the Trusts, 82 Devonshire
Street, Boston, Massachusetts, as of the Valuation Time on April 22,
1999, or at some other time, date, and place agreed to by Spartan
Short-Intermediate and Intermediate Government (the Closing Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the Funds is closed to trading, or (ii) trading
thereon is restricted, or (iii) trading or the reporting of trading on
said market or elsewhere is disrupted, all so that accurate appraisal
of the total net asset value of Spartan Short-Intermediate and the net
asset value per share of Intermediate Government is impracticable, the
Valuation Time and the Closing Date shall be postponed until the first
business day after the day when such trading shall have been fully
resumed and such reporting shall have been restored, or such other
date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF SPARTAN SHORT-INTERMEDIATE.
(a) Spartan Short-Intermediate agrees to call a meeting of its
shareholders after the effective date of the Registration Statement,
to consider transferring its assets to Intermediate Government as
herein provided, adopting this Agreement, and authorizing the
liquidation of Spartan Short-Intermediate.
(b) Spartan Short-Intermediate agrees that as soon as reasonably
practicable after distribution of the Intermediate Government Shares,
Spartan Short-Intermediate shall be terminated as a series of Fidelity
Fixed-Income Trust pursuant to its Amended and Restated Declaration of
Trust, any further actions shall be taken in connection therewith as
required by applicable law, and on and after the Closing Date Spartan
Short-Intermediate shall not conduct any business except in connection
with its liquidation and termination.
8. CONDITIONS TO OBLIGATIONS OF INTERMEDIATE GOVERNMENT.
(a) That Spartan Short-Intermediate furnishes to Intermediate
Government a statement, dated as of the Closing Date, signed by an
officer of Fidelity Fixed-Income Trust, certifying that as of the
Valuation Time and the Closing Date all representations and warranties
of Spartan Short-Intermediate made in this Agreement are true and
correct in all material respects and that Spartan Short-Intermediate
has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such dates;
(b) That Spartan Short-Intermediate furnishes Intermediate Government
with copies of the resolutions, certified by an officer of Fidelity
Fixed-Income Trust, evidencing the adoption of this Agreement and the
approval of the transactions contemplated herein by the requisite vote
of the holders of the outstanding shares of beneficial interest of
Spartan Short-Intermediate;
(c) That, on or prior to the Closing Date, Spartan Short-Intermediate
will declare one or more dividends or distributions which, together
with all previous such dividends or distributions attributable to its
current taxable year, shall have the effect of distributing to the
shareholders of Spartan Short-Intermediate substantially all of
Spartan Short-Intermediate's investment company taxable income and all
of its net realized capital gain, if any, as of the Closing Date;
(d) That Spartan Short-Intermediate shall deliver to Intermediate
Government at the Closing a statement of its assets and liabilities,
together with a list of its portfolio securities showing each such
security's adjusted tax basis and holding period by lot, with values
determined as provided in Section 4 of this Agreement, all as of the
Valuation Time, certified on Spartan Short-Intermediate's behalf by
its Treasurer or Assistant Treasurer;
(e) That Spartan Short-Intermediate's custodian shall deliver to
Intermediate Government a certificate identifying the assets of
Spartan Short-Intermediate held by such custodian as of the Valuation
Time on the Closing Date and stating that as of the Valuation Time:
(i) the assets held by the custodian will be transferred to
Intermediate Government; (ii) Spartan Short-Intermediate's assets have
been duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof; and (iii) to the best of the
custodian's knowledge, all necessary taxes in conjunction with the
delivery of the assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment
has been made;
(f) That Spartan Short-Intermediate's transfer agent shall deliver to
Intermediate Government at the Closing a certificate setting forth the
number of shares of Spartan Short-Intermediate outstanding as of the
Valuation Time and the name and address of each holder of record of
any such shares and the number of shares held of record by each such
shareholder;
(g) That Spartan Short-Intermediate calls a meeting of its
shareholders to be held after the effective date of the Registration
Statement, to consider transferring its assets to Intermediate
Government as herein provided, adopting this Agreement, and
authorizing the liquidation and termination of Spartan
Short-Intermediate;
(h) That Spartan Short-Intermediate delivers to Intermediate
Government a certificate of an officer of Fidelity Fixed-Income Trust,
dated as of the Closing Date, that there has been no material adverse
change in Spartan Short-Intermediate's financial position since April
30, 1998, other than changes in the market value of its portfolio
securities, or changes due to net redemptions of its shares, dividends
paid, or losses from operations; and
(i) That all of the issued and outstanding shares of beneficial
interest of Spartan Short-Intermediate shall have been offered for
sale and sold in conformity with all applicable state securities laws
and, to the extent that any audit of the records of Spartan
Short-Intermediate or its transfer agent by Intermediate Government or
its agents shall have revealed otherwise, Spartan Short-Intermediate
shall have taken all actions that in the opinion of Intermediate
Government are necessary to remedy any prior failure on the part of
Spartan Short-Intermediate to have offered for sale and sold such
shares in conformity with such laws.
9. CONDITIONS TO OBLIGATIONS OF SPARTAN SHORT-INTERMEDIATE.
(a) That Intermediate Government shall have executed and delivered to
Spartan Short-Intermediate an Assumption of Liabilities, certified by
an officer of Fidelity Income Fund, dated as of the Closing Date
pursuant to which Intermediate Government will assume all of the
liabilities of Spartan Short-Intermediate existing at the Valuation
Time in connection with the transactions contemplated by this
Agreement;
(b) That Intermediate Government furnishes to Spartan
Short-Intermediate a statement, dated as of the Closing Date, signed
by an officer of Fidelity Income Fund, certifying that as of the
Valuation Time and the Closing Date all representations and warranties
of Intermediate Government made in this Agreement are true and correct
in all material respects, and Intermediate Government has complied
with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to such dates; and
(c) That Spartan Short-Intermediate shall have received an opinion of
Kirkpatrick & Lockhart LLP, counsel to Spartan Short-Intermediate and
Intermediate Government, to the effect that the Intermediate
Government Shares are duly authorized and upon delivery to Spartan
Short-Intermediate as provided in this Agreement will be validly
issued and will be fully paid and nonassessable by Intermediate
Government (except as disclosed in Intermediate Government's Statement
of Additional Information) and no shareholder of Intermediate
Government has any preemptive right of subscription or purchase in
respect thereof.
10. CONDITIONS TO OBLIGATIONS OF INTERMEDIATE GOVERNMENT AND SPARTAN
SHORT-INTERMEDIATE.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of
the holders of the outstanding shares of beneficial interest of
Spartan Short-Intermediate;
(b) That all consents of other parties and all other consents,
orders, and permits of federal, state, and local regulatory
authorities (including those of the Commission and of state Blue Sky
and securities authorities, which term as used herein shall include
the District of Columbia and Puerto Rico, and including "no action"
positions of such federal or state authorities) deemed necessary by
Intermediate Government or Spartan Short-Intermediate to permit
consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order, or permit would not involve a risk of
a material adverse effect on the assets or properties of Intermediate
Government or Spartan Short-Intermediate, provided that either party
hereto may for itself waive any of such conditions;
(c) That all proceedings taken by either Fund in connection with the
transactions contemplated by this Agreement and all documents
incidental thereto shall be satisfactory in form and substance to it
and its counsel, Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Intermediate Government
and Spartan Short-Intermediate, threatened by the Commission; and
(f) That Intermediate Government and Spartan Short-Intermediate shall
have received an opinion of Kirkpatrick & Lockhart LLP satisfactory to
Intermediate Government and Spartan Short-Intermediate that for
federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Spartan Short-Intermediate and
Intermediate Government will each be parties to the Reorganization
under section 368(b) of the Code;
(ii) No gain or loss will be recognized by Spartan
Short-Intermediate upon the transfer of all of its assets to
Intermediate Government in exchange solely for the Intermediate
Government Shares and the assumption of Spartan Short-Intermediate's
liabilities followed by the distribution of those Intermediate
Government Shares to the shareholders of Spartan Short-Intermediate in
liquidation of Spartan Short-Intermediate;
(iii) No gain or loss will be recognized by Intermediate Government
on the receipt of Spartan Short-Intermediate's assets in exchange
solely for the Intermediate Government Shares and the assumption of
Spartan Short-Intermediate's liabilities;
(iv) The basis of Spartan Short-Intermediate's assets in the hands
of Intermediate Government will be the same as the basis of such
assets in Spartan Short-Intermediate's hands immediately prior to the
Reorganization;
(v) Intermediate Government's holding period in the assets to be
received from Spartan Short-Intermediate will include Spartan
Short-Intermediate's holding period in such assets;
(vi) A Spartan Short-Intermediate shareholder will recognize no gain
or loss on the exchange of his or her shares of beneficial interest in
Spartan Short-Intermediate for the Intermediate Government Shares in
the Reorganization;
(vii) A Spartan Short-Intermediate shareholder's basis in the
Intermediate Government Shares to be received by him or her will be
the same as his or her basis in the Spartan Short-Intermediate shares
exchanged therefor;
(viii) A Spartan Short-Intermediate shareholder's holding period for
his or her Intermediate Government Shares will include the holding
period of Spartan Short-Intermediate shares exchanged, provided that
those Spartan Short-Intermediate shares were held as capital assets on
the date of the Reorganization.
Notwithstanding anything herein to the contrary, neither Spartan
Short-Intermediate nor Intermediate Government may waive the
conditions set forth in this subsection 10(f).
11. COVENANTS OF INTERMEDIATE GOVERNMENT AND SPARTAN
SHORT-INTERMEDIATE.
(a) Intermediate Government and Spartan Short-Intermediate each
covenants to operate its respective business in the ordinary course
between the date hereof and the Closing Date, it being understood that
such ordinary course of business will include the payment of customary
dividends and distributions;
(b) Spartan Short-Intermediate covenants that it is not acquiring the
Intermediate Government Shares for the purpose of making any
distribution other than in accordance with the terms of this
Agreement;
(c) Spartan Short-Intermediate covenants that it will assist
Intermediate Government in obtaining such information as Intermediate
Government reasonably requests concerning the beneficial ownership of
Spartan Short-Intermediate's shares; and
(d) Spartan Short-Intermediate covenants that its liquidation and
termination will be effected in the manner provided in its Amended and
Restated Declaration of Trust in accordance with applicable law and
after the Closing Date, Spartan Short-Intermediate will not conduct
any business except in connection with its liquidation and
termination.
12. TERMINATION; WAIVER.
Intermediate Government and Spartan Short-Intermediate may terminate
this Agreement by mutual agreement. In addition, either Intermediate
Government or Spartan Short-Intermediate may at its option terminate
this Agreement at or prior to the Closing Date because:
(i) of a material breach by the other of any representation,
warranty, or agreement contained herein to be performed at or prior to
the Closing Date; or
(ii) a condition herein expressed to be precedent to the obligations
of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Spartan Short-Intermediate or Intermediate
Government, or their respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter
hereof, constitutes the only understanding with respect to such
subject matter, may not be changed except by a letter of agreement
signed by each party hereto and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Intermediate Government
or Spartan Short-Intermediate; provided, however, that following the
shareholders' meeting called by Spartan Short-Intermediate pursuant to
Section 7 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of Intermediate
Government Shares to be paid to Spartan Short-Intermediate
shareholders under this Agreement to the detriment of such
shareholders without their further approval.
(c) Either Fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on
the interests of such Fund's shareholders.
The representations, warranties, and covenants contained in the
Agreement, or in any document delivered pursuant hereto or in
connection herewith, shall survive the consummation of the
transactions contemplated hereunder.
14. DECLARATIONS OF TRUST.
A copy of each Fund's Declaration of Trust, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed on behalf of the Trustees of each Fund as trustees and not
individually and that the obligations of each Fund under this
instrument are not binding upon any of such Fund's Trustees, officers,
or shareholders individually but are binding only upon the assets and
property of such Fund. Each Fund agrees that its obligations hereunder
apply only to such Fund and not to its shareholders individually or to
the Trustees of such Fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer of any rights or obligations hereunder shall be made by
any party without the written consent of the other parties. Nothing
herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation other than the
parties hereto and their respective successors and assigns any rights
or remedies under or by reason of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by an appropriate officer.
[SIGNATURE LINES OMITTED]
EXHIBIT 2
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as
of February 16, 1999 by and between Fidelity Charles Street Trust, a
Massachusetts business trust, on behalf of its series Fidelity
Short-Intermediate Government Fund (Fidelity Short-Intermediate), and
Fidelity Income Fund, a Massachusetts business trust, on behalf of its
series Fidelity Intermediate Government Income Fund (Intermediate
Government). Fidelity Charles Street Trust and Fidelity Income Fund
may be referred to herein collectively as the "Trusts" or each
individually as a "Trust." The Trusts are duly organized business
trusts under the laws of the Commonwealth of Massachusetts with their
principal place of business at 82 Devonshire Street, Boston,
Massachusetts 02109. Intermediate Government and Fidelity
Short-Intermediate may be referred to herein collectively as the
"Funds" or each individually as the "Fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the Code). The
reorganization will comprise: (a) the transfer of all of the assets of
Fidelity Short-Intermediate to Intermediate Government solely in
exchange for shares of beneficial interest in Intermediate Government
(the Intermediate Government Shares) and the assumption by
Intermediate Government of Fidelity Short-Intermediate's liabilities;
and (b) the constructive distribution of such shares by Fidelity
Short-Intermediate PRO RATA to its shareholders in complete
liquidation and termination of Fidelity Short-Intermediate in exchange
for all of Fidelity Short-Intermediate's outstanding shares. Fidelity
Short-Intermediate shall receive shares of Intermediate Government
having an aggregate net asset value equal to the value of the assets
of Fidelity Short-Intermediate on the Closing Date (as defined in
Section 6), which Fidelity Short-Intermediate shall then distribute
PRO RATA to its shareholders. The foregoing transactions are referred
to herein as the "Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF FIDELITY SHORT-INTERMEDIATE.
Fidelity Short-Intermediate represents and warrants to and agrees with
Intermediate Government that:
(a) Fidelity Short-Intermediate is a series of Fidelity Charles
Street Trust, a business trust duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Massachusetts,
and has the power to own all of its properties and assets and to carry
out its obligations under this Agreement. It has all necessary
federal, state, and local authorizations to carry on its business as
now being conducted and to carry out this Agreement;
(b) Fidelity Charles Street Trust is an open-end, management
investment company duly registered under the Investment Company Act of
1940, as amended (the 1940 Act), and such registration is in full
force and effect;
(c) The Prospectus and Statement of Additional Information of
Fidelity Short-Intermediate dated November 24, 1998 and the supplement
to the Prospectus dated December 7, 1998, previously furnished to
Intermediate Government, did not and do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Fidelity Short-Intermediate,
threatened against Fidelity Short-Intermediate which assert liability
on the part of Fidelity Short-Intermediate. Fidelity
Short-Intermediate knows of no facts which might form the basis for
the institution of such proceedings;
(e) Fidelity Short-Intermediate is not in, and the execution,
delivery, and performance of this Agreement will not result in,
violation of any provision of its Amended and Restated Declaration of
Trust or By-laws, or, to the knowledge of Fidelity Short-Intermediate,
of any agreement, indenture, instrument, contract, lease, or other
undertaking to which Fidelity Short-Intermediate is a party or by
which Fidelity Short-Intermediate is bound or result in the
acceleration of any obligation or the imposition of any penalty under
any agreement, judgment or decree to which Fidelity Short-Intermediate
is a party or is bound;
(f) The Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, Financial
Highlights, and the Schedule of Investments (including market values)
of Fidelity Short-Intermediate at September 30, 1998, have been
audited by PricewaterhouseCoopers LLP, independent accountants, and
have been furnished to Intermediate Government. Said Statement of
Assets and Liabilities and Schedule of Investments fairly present the
Fund's financial position as of such date and said Statement of
Operations, Statement of Changes in Net Assets, and Financial
Highlights fairly reflect its results of operations, changes in
financial position, and financial highlights for the periods covered
thereby in conformity with generally accepted accounting principles
consistently applied;
(g) Fidelity Short-Intermediate has no known liabilities of a
material nature, contingent or otherwise, other than those shown as
belonging to it on its statement of assets and liabilities as of
September 30, 1998 and those incurred in the ordinary course of
Fidelity Short-Intermediate's business as an investment company since
September 30, 1998;
(h) The registration statement (Registration Statement) filed with
the Securities and Exchange Commission (Commission) by Fidelity Income
Fund on Form N-14 relating to the shares of Intermediate Government
issuable hereunder and the proxy statement of Fidelity
Short-Intermediate included therein (Proxy Statement), on the
effective date of the Registration Statement and insofar as they
relate to Fidelity Short-Intermediate (i) comply in all material
respects with the provisions of the Securities Act of 1933, as amended
(the 1933 Act), the Securities Exchange Act of 1934, as amended (the
1934 Act), and the 1940 Act, and the rules and regulations thereunder,
and (ii) do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the
time of the shareholders' meeting referred to in Section 7 and on the
Closing Date, the prospectus contained in the Registration Statement
of which the Proxy Statement is a part (the Prospectus), as amended or
supplemented, insofar as it relates to Fidelity Short-Intermediate,
does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(i) All material contracts and commitments of Fidelity
Short-Intermediate (other than this Agreement) will be terminated
without liability to Fidelity Short-Intermediate prior to the Closing
Date (other than those made in connection with redemptions of shares
and the purchase and sale of portfolio securities made in the ordinary
course of business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Fidelity
Short-Intermediate of the transactions contemplated by this Agreement,
except such as have been obtained under the 1933 Act, the 1934 Act,
the 1940 Act, and state securities or blue sky laws (which term as
used herein shall include the District of Columbia and Puerto Rico);
(k) Fidelity Short-Intermediate has filed or will file all federal
and state tax returns which, to the knowledge of Fidelity
Short-Intermediate's officers, are required to be filed by Fidelity
Short-Intermediate and has paid or will pay all federal and state
taxes shown to be due on said returns or provision shall have been
made for the payment thereof, and, to the best of Fidelity
Short-Intermediate's knowledge, no such return is currently under
audit and no assessment has been asserted with respect to such
returns;
(l) Fidelity Short-Intermediate has met the requirements of
Subchapter M of the Code for qualification and treatment as a
regulated investment company for all prior taxable years and intends
to meet such requirements for its current taxable year ending on the
Closing Date;
(m) All of the issued and outstanding shares of Fidelity
Short-Intermediate are, and at the Closing Date will be, duly and
validly issued and outstanding and fully paid and nonassessable as a
matter of Massachusetts law (except as disclosed in the Fund's
Statement of Additional Information), and have been offered for sale
and in conformity with all applicable federal securities laws. All of
the issued and outstanding shares of Fidelity Short-Intermediate will,
at the Closing Date, be held by the persons and in the amounts set
forth in the list of shareholders submitted to Intermediate Government
in accordance with this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Fidelity Short-Intermediate will have the full right,
power, and authority to sell, assign, transfer, and deliver its
portfolio securities and any other assets of Fidelity
Short-Intermediate to be transferred to Intermediate Government
pursuant to this Agreement. As of the Closing Date, subject only to
the delivery of Fidelity Short-Intermediate's portfolio securities and
any such other assets as contemplated by this Agreement, Intermediate
Government will acquire Fidelity Short-Intermediate's portfolio
securities and any such other assets subject to no encumbrances,
liens, or security interests (except for those that may arise in the
ordinary course and are disclosed to Intermediate Government) and
without any restrictions upon the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Fidelity Short-Intermediate, and this
Agreement constitutes a valid and binding obligation of Fidelity
Short-Intermediate enforceable in accordance with its terms, subject
to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF INTERMEDIATE GOVERNMENT.
Intermediate Government represents and warrants to and agrees with
Fidelity Short-Intermediate that:
(a) Intermediate Government is a series of Fidelity Income Fund, a
business trust duly organized, validly existing, and in good standing
under the laws of the Commonwealth of Massachusetts, and has the power
to own all of its properties and assets and to carry out its
obligations under this Agreement. It has all necessary federal, state,
and local authorizations to carry on its business as now being
conducted and to carry out this Agreement;
(b) Fidelity Income Fund is an open-end, management investment
company duly registered under the 1940 Act, and such registration is
in full force and effect;
(c) The Prospectus and Statement of Additional Information of
Intermediate Government, dated September 21, 1998, the supplement to
the Prospectus dated December 7, 1998, and the supplement to the
Statement of Additional Information dated October 8, 1998, previously
furnished to Fidelity Short-Intermediate did not and do not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Intermediate Government, threatened
against Intermediate Government which assert liability on the part of
Intermediate Government. Intermediate Government knows of no facts
which might form the basis for the institution of such proceedings;
(e) Intermediate Government is not in, and the execution, delivery,
and performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws,
or, to the knowledge of Intermediate Government, of any agreement,
indenture, instrument, contract, lease, or other undertaking to which
Intermediate Government is a party or by which Intermediate Government
is bound or result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment, or decree to
which Intermediate Government is a party or is bound;
(f) The Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, Financial
Highlights, and the Schedule of Investments (including market values)
of Intermediate Government at July 31, 1998, have been audited by
PricewaterhouseCoopers LLP, independent accountants, and have been
furnished to Fidelity Short-Intermediate. Said Statement of Assets and
Liabilities and Schedule of Investments fairly present its financial
position as of such date and said Statement of Operations, Statement
of Changes in Net Assets, and Financial Highlights fairly reflect its
results of operations, changes in financial position, and financial
highlights for the periods covered thereby in conformity with
generally accepted accounting principles consistently applied;
(g) Intermediate Government has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging
to it on its statement of assets and liabilities as of July 31, 1998
and those incurred in the ordinary course of Intermediate Government's
business as an investment company since July 31, 1998;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by
Intermediate Government of the transactions contemplated by this
Agreement, except such as have been obtained under the 1933 Act, the
1934 Act, the 1940 Act, and state securities or blue sky laws (which
term as used herein shall include the District of Columbia and Puerto
Rico);
(i) Intermediate Government has filed or will file all federal and
state tax returns which, to the knowledge of Intermediate Government's
officers, are required to be filed by Intermediate Government and has
paid or will pay all federal and state taxes shown to be due on said
returns or provision shall have been made for the payment thereof,
and, to the best of Intermediate Government's knowledge, no such
return is currently under audit and no assessment has been asserted
with respect to such returns;
(j) Intermediate Government has met the requirements of Subchapter M
of the Code for qualification and treatment as a regulated investment
company for all prior taxable years and intends to meet such
requirements for its current taxable year ending on July 31, 1999;
(k) As of the Closing Date, the shares of beneficial interest of
Intermediate Government to be issued to Fidelity Short-Intermediate
will have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable as a matter of Massachusetts law (except
as disclosed in the Fund's Statement of Additional Information) by
Intermediate Government, and no shareholder of Intermediate Government
will have any preemptive right of subscription or purchase in respect
thereof;
(l) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Intermediate Government, and this
Agreement constitutes a valid and binding obligation of Intermediate
Government enforceable in accordance with its terms, subject to
approval by the shareholders of Fidelity Short-Intermediate;
(m) The Registration Statement and the Proxy Statement, on the
effective date of the Registration Statement and insofar as they
relate to Intermediate Government, (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act, and the
1940 Act, and the rules and regulations thereunder, and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and on the Closing
Date, the Prospectus, as amended or supplemented, insofar as it
relates to Intermediate Government, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(n) The issuance of the Intermediate Government Shares pursuant to
this Agreement will be in compliance with all applicable federal
securities laws; and
(o) All of the issued and outstanding shares of beneficial interest
of Intermediate Government have been offered for sale and sold in
conformity with the federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Fidelity
Short-Intermediate and to the other terms and conditions contained
herein, Fidelity Short-Intermediate agrees to assign, sell, convey,
transfer, and deliver to Intermediate Government as of the Closing
Date all of the assets of Fidelity Short-Intermediate of every kind
and nature existing on the Closing Date. Intermediate Government
agrees in exchange therefor: (i) to assume all of Fidelity
Short-Intermediate's liabilities existing on or after the Closing
Date, whether or not determinable on the Closing Date, and (ii) to
issue and deliver to Fidelity Short-Intermediate the number of full
and fractional shares of Intermediate Government having an aggregate
net asset value equal to the value of the assets of Fidelity
Short-Intermediate transferred hereunder, less the value of the
liabilities of Fidelity Short-Intermediate, determined as provided for
under Section 4.
(b) The assets of Fidelity Short-Intermediate to be acquired by
Intermediate Government shall include, without limitation, all cash,
cash equivalents, securities, receivables (including interest or
dividends receivables), claims, choses in action, and other property
owned by Fidelity Short-Intermediate, and any deferred or prepaid
expenses shown as an asset on the books of Fidelity Short-Intermediate
on the Closing Date. Fidelity Short-Intermediate will pay or cause to
be paid to Intermediate Government any dividend or interest payments
received by it on or after the Closing Date with respect to the assets
transferred to Intermediate Government hereunder, and Intermediate
Government will retain any dividend or interest payments received by
it after the Valuation Time with respect to the assets transferred
hereunder without regard to the payment date thereof.
(c) The liabilities of Fidelity Short-Intermediate to be assumed by
Intermediate Government shall include (except as otherwise provided
for herein) all of Fidelity Short-Intermediate's liabilities, debts,
obligations, and duties, of whatever kind or nature, whether absolute,
accrued, contingent, or otherwise, whether or not arising in the
ordinary course of business, whether or not determinable on the
Closing Date, and whether or not specifically referred to in this
Agreement. Notwithstanding the foregoing, Fidelity Short-Intermediate
agrees to use its best efforts to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred
in the ordinary course of business.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable, Fidelity Short-Intermediate will
constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the
Intermediate Government Shares in exchange for such shareholders'
shares of beneficial interest in Fidelity Short-Intermediate and
Fidelity Short-Intermediate will be liquidated in accordance with
Fidelity Short-Intermediate's Amended and Restated Declaration of
Trust. Such distribution shall be accomplished by the Funds' transfer
agent opening accounts on Intermediate Government's share transfer
books in the names of the Fidelity Short-Intermediate shareholders and
transferring the Intermediate Government Shares thereto. Each Fidelity
Short-Intermediate shareholder's account shall be credited with the
respective PRO RATA number of full and fractional (rounded to the
third decimal place) Intermediate Government Shares due that
shareholder. All outstanding Fidelity Short-Intermediate shares,
including any represented by certificates, shall simultaneously be
canceled on Fidelity Short-Intermediate's share transfer records.
Intermediate Government shall not issue certificates representing the
Intermediate Government Shares in connection with the Reorganization.
(e) Any reporting responsibility of Fidelity Short-Intermediate is
and shall remain its responsibility up to and including the date on
which it is terminated.
(f) Any transfer taxes payable upon issuance of the Intermediate
Government Shares in a name other than that of the registered holder
on Fidelity Short-Intermediate's books of the Fidelity
Short-Intermediate shares constructively exchanged for the
Intermediate Government Shares shall be paid by the person to whom
such Intermediate Government Shares are to be issued, as a condition
of such transfer.
4. VALUATION.
(a) The Valuation Time shall be as of the close of business of the
New York Stock Exchange on the Closing Date, or such other date as may
be mutually agreed upon in writing by the parties hereto (the
Valuation Time).
(b) As of the Closing Date, Intermediate Government will deliver to
Fidelity Short-Intermediate the number of Intermediate Government
Shares having an aggregate net asset value equal to the value of the
assets of Fidelity Short-Intermediate transferred hereunder less the
liabilities of Fidelity Short-Intermediate, determined as provided in
this Section 4.
(c) The net asset value per share of the Intermediate Government
Shares to be delivered to Fidelity Short-Intermediate, the value of
the assets of Fidelity Short-Intermediate transferred hereunder, and
the value of the liabilities of Fidelity Short-Intermediate to be
assumed hereunder shall in each case be determined as of the Valuation
Time.
(d) The net asset value per share of the Intermediate Government
Shares shall be computed in the manner set forth in the then-current
Intermediate Government Prospectus and Statement of Additional
Information, and the value of the assets and liabilities of Fidelity
Short-Intermediate shall be computed in the manner set forth in the
then-current Fidelity Short-Intermediate Prospectus and Statement of
Additional Information.
(e) All computations pursuant to this Section shall be made by or
under the direction of Fidelity Service Company, Inc., a wholly-owned
subsidiary of FMR Corp., in accordance with its regular practice as
pricing agent for Fidelity Short-Intermediate and Intermediate
Government.
5. FEES; EXPENSES.
(a) Fidelity Short-Intermediate shall be responsible for all
expenses, fees and other charges in connection with the transactions
contemplated by this Agreement. Any expenses incurred in connection
with the transactions contemplated by this Agreement which may be
attributable to Intermediate Government will be borne by FMR.
(b) Each of Intermediate Government and Fidelity Short-Intermediate
represents that there is no person who has dealt with it who by reason
of such dealings is entitled to any broker's or finder's or other
similar fee or commission arising out of the transactions contemplated
by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to
consummate the same (the Closing), unless otherwise provided herein,
shall occur at the principal office of the Trusts, 82 Devonshire
Street, oston, Massachusetts, as of the Valuation Time on April 29,
1998, or at some other time, date, and place agreed to by Fidelity
Short-Intermediate and Intermediate Government (the Closing Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the Funds is closed to trading, or (ii) trading
thereon is restricted, or (iii) trading or the reporting of trading on
said market or elsewhere is disrupted, all so that accurate appraisal
of the total net asset value of Fidelity Short-Intermediate and the
net asset value per share of Intermediate Government is impracticable,
the Valuation Time and the Closing Date shall be postponed until the
first business day after the day when such trading shall have been
fully resumed and such reporting shall have been restored, or such
other date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF FIDELITY SHORT-INTERMEDIATE
(a) Fidelity Short-Intermediate agrees to call a meeting of its
shareholders after the effective date of the Registration Statement,
to consider transferring its assets to Intermediate Government as
herein provided, adopting this Agreement, and authorizing the
liquidation of Fidelity Short-Intermediate.
(b) Fidelity Short-Intermediate agrees that as soon as reasonably
practicable after distribution of the Intermediate Government Shares,
Fidelity Short-Intermediate shall be terminated as a series of
Fidelity Charles Street Trust pursuant to its Amended and Restated
Declaration of Trust, any further actions shall be taken in connection
therewith as required by applicable law, and on and after the Closing
Date Fidelity Short-Intermediate shall not conduct any business except
in connection with its liquidation and termination.
8. CONDITIONS TO OBLIGATIONS OF INTERMEDIATE GOVERNMENT
(a) That Fidelity Short-Intermediate furnishes to Intermediate
Government a statement, dated as of the Closing Date, signed by an
officer of Fidelity Charles Street Trust, certifying that as of the
Valuation Time and the Closing Date all representations and warranties
of Fidelity Short-Intermediate made in this Agreement are true and
correct in all material respects and that Fidelity Short-Intermediate
has complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such dates;
(b) That Fidelity Short-Intermediate furnishes Intermediate
Government with copies of the resolutions, certified by an officer of
Fidelity Charles Street Trust, evidencing the adoption of this
Agreement and the approval of the transactions contemplated herein by
the requisite vote of the holders of the outstanding shares of
beneficial interest of Fidelity Short-Intermediate;
(c) That, on or prior to the Closing Date, Fidelity
Short-Intermediate will declare one or more dividends or distributions
which, together with all previous such dividends or distributions
attributable to its current taxable year, shall have the effect of
distributing to the shareholders of Fidelity Short-Intermediate
substantially all of Fidelity Short-Intermediate's investment company
taxable income and all of its net realized capital gain, if any, as of
the Closing Date;
(d) That Fidelity Short-Intermediate shall deliver to Intermediate
Government at the Closing a statement of its assets and liabilities,
together with a list of its portfolio securities showing each such
security's adjusted tax basis and holding period by lot, with values
determined as provided in Section 4 of this Agreement, all as of the
Valuation Time, certified on Fidelity Short-Intermediate's behalf by
its Treasurer or Assistant Treasurer;
(e) That Fidelity Short-Intermediate's custodian shall deliver to
Intermediate Government a certificate identifying the assets of
Fidelity Short-Intermediate held by such custodian as of the Valuation
Time on the Closing Date and stating that as of the Valuation Time:
(i) the assets held by the custodian will be transferred to
Intermediate Government; (ii) Fidelity Short-Intermediate's assets
have been duly endorsed in proper form for transfer in such condition
as to constitute good delivery thereof; and (iii) to the best of the
custodian's knowledge, all necessary taxes in conjunction with the
delivery of the assets, including all applicable federal and state
stock transfer stamps, if any, have been paid or provision for payment
has been made;
(f) That Fidelity Short-Intermediate's transfer agent shall deliver
to Intermediate Government at the Closing a certificate setting forth
the number of shares of Fidelity Short-Intermediate outstanding as of
the Valuation Time and the name and address of each holder of record
of any such shares and the number of shares held of record by each
such shareholder;
(g) That Fidelity Short-Intermediate calls a meeting of its
shareholders to be held after the effective date of the Registration
Statement, to consider transferring its assets to Intermediate
Government as herein provided, adopting this Agreement, and
authorizing the liquidation and termination of Fidelity
Short-Intermediate;
(h) That Fidelity Short-Intermediate delivers to Intermediate
Government a certificate of an officer of Fidelity Charles Street
Trust, dated as of the Closing Date, that there has been no material
adverse change in Fidelity Short-Intermediate's financial position
since September 30,1998, other than changes in the market value of its
portfolio securities, or changes due to net redemptions of its shares,
dividends paid, or losses from operations; and
(i) That all of the issued and outstanding shares of beneficial
interest of Fidelity Short-Intermediate shall have been offered for
sale and sold in conformity with all applicable state securities laws
and, to the extent that any audit of the records of Fidelity
Short-Intermediate or its transfer agent by Intermediate Government or
its agents shall have revealed otherwise, Fidelity Short-Intermediate
shall have taken all actions that in the opinion of Intermediate
Government are necessary to remedy any prior failure on the part of
Fidelity Short-Intermediate to have offered for sale and sold such
shares in conformity with such laws.
9. CONDITIONS TO OBLIGATIONS OF FIDELITY SHORT-INTERMEDIATE
(a) That Intermediate Government shall have executed and delivered to
Fidelity Short-Intermediate an Assumption of Liabilities, certified by
an officer of Fidelity Income Fund, dated as of the Closing Date
pursuant to which Intermediate Government will assume all of the
liabilities of Fidelity Short-Intermediate existing at the Valuation
Time in connection with the transactions contemplated by this
Agreement;
(b) That Intermediate Government furnishes to Fidelity
Short-Intermediate a statement, dated as of the Closing Date, signed
by an officer of Fidelity Income Fund, certifying that as of the
Valuation Time and the Closing Date all representations and warranties
of Intermediate Government made in this Agreement are true and correct
in all material respects, and Intermediate Government has complied
with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to such dates; and
(c) That Fidelity Short-Intermediate shall have received an opinion
of Kirkpatrick & Lockhart LLP, counsel to Fidelity Short-Intermediate
and Intermediate Government, to the effect that the Intermediate
Government Shares are duly authorized and upon delivery to Fidelity
Short-Intermediate as provided in this Agreement will be validly
issued and will be fully paid and nonassessable by Intermediate
Government (except as disclosed in Intermediate Government's Statement
of Additional Information) and no shareholder of Intermediate
Government has any preemptive right of subscription or purchase in
respect thereof.
10. CONDITIONS TO OBLIGATIONS OF INTERMEDIATE GOVERNMENT AND FIDELITY
SHORT-INTERMEDIATE.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of
the holders of the outstanding shares of beneficial interest of
Fidelity Short-Intermediate;
(b) That all consents of other parties and all other consents,
orders, and permits of federal, state, and local regulatory
authorities (including those of the Commission and of state Blue Sky
and securities authorities, which term as used herein shall include
the District of Columbia and Puerto Rico, and including "no action"
positions of such federal or state authorities) deemed necessary by
Intermediate Government or Fidelity Short-Intermediate to permit
consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order, or permit would not involve a risk of
a material adverse effect on the assets or properties of Intermediate
Government or Fidelity Short-Intermediate, provided that either party
hereto may for itself waive any of such conditions;
(c) That all proceedings taken by either Fund in connection with the
transactions contemplated by this Agreement and all documents
incidental thereto shall be satisfactory in form and substance to it
and its counsel, Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Intermediate Government
and Fidelity Short-Intermediate, threatened by the Commission; and
(f) That Intermediate Government and Fidelity Short-Intermediate
shall have received an opinion of Kirkpatrick & Lockhart LLP
satisfactory to Intermediate Government and Fidelity
Short-Intermediate that for federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Fidelity Short-Intermediate and
Intermediate Government will each be parties to the Reorganization
under section 368(b) of the Code;
(ii) No gain or loss will be recognized by Fidelity
Short-Intermediate upon the transfer of all of its assets to
Intermediate Government in exchange solely for the Intermediate
Government Shares and the assumption of Fidelity Short-Intermediate's
liabilities followed by the distribution of those Intermediate
Government Shares to the shareholders of Fidelity Short-Intermediate
in liquidation of Fidelity Short-Intermediate;
(iii) No gain or loss will be recognized by Intermediate Government
on the receipt of Fidelity Short-Intermediate's assets in exchange
solely for the Intermediate Government Shares and the assumption of
Fidelity Short-Intermediate's liabilities;
(iv) The basis of Fidelity Short-Intermediate's assets in the hands
of Intermediate Government will be the same as the basis of such
assets in Fidelity Short-Intermediate's hands immediately prior to the
Reorganization;
(v) Intermediate Government's holding period in the assets to be
received from Fidelity Short-Intermediate will include Fidelity
Short-Intermediate's holding period in such assets;
(vi) A Fidelity Short-Intermediate shareholder will recognize no
gain or loss on the exchange of his or her shares of beneficial
interest in Fidelity Short-Intermediate for the Intermediate
Government Shares in the Reorganization;
(vii) A Fidelity Short-Intermediate shareholder's basis in the
Intermediate Government Shares to be received by him or her will be
the same as his or her basis in the Fidelity Short-Intermediate shares
exchanged therefor;
(viii) A Fidelity Short-Intermediate shareholder's holding period
for his or her Intermediate Government Shares will include the holding
period of Fidelity Short-Intermediate shares exchanged, provided that
those Fidelity Short-Intermediate shares were held as capital assets
on the date of the Reorganization.
Notwithstanding anything herein to the contrary, neither Fidelity
Short-Intermediate nor Intermediate Government may waive the
conditions set forth in this subsection 10(f).
11. COVENANTS OF INTERMEDIATE GOVERNMENT AND FIDELITY
SHORT-INTERMEDIATE.
(a) Intermediate Government and Fidelity Short-Intermediate each
covenants to operate its respective business in the ordinary course
between the date hereof and the Closing Date, it being understood that
such ordinary course of business will include the payment of customary
dividends and distributions;
(b) Fidelity Short-Intermediate covenants that it is not acquiring
the Intermediate Government Shares for the purpose of making any
distribution other than in accordance with the terms of this
Agreement;
(c) Fidelity Short-Intermediate covenants that it will assist
Intermediate Government in obtaining such information as Intermediate
Government reasonably requests concerning the beneficial ownership of
Fidelity Short-Intermediate's shares; and
(d) Fidelity Short-Intermediate covenants that its liquidation and
termination will be effected in the manner provided in its Amended and
Restated Declaration of Trust in accordance with applicable law and
after the Closing Date, Fidelity Short-Intermediate will not conduct
any business except in connection with its liquidation and
termination.
12. TERMINATION; WAIVER.
Intermediate Government and Fidelity Short-Intermediate may terminate
this Agreement by mutual agreement. In addition, either Intermediate
Government or Fidelity Short-Intermediate may at its option terminate
this Agreement at or prior to the Closing Date because:
(i) of a material breach by the other of any representation,
warranty, or agreement contained herein to be performed at or prior to
the Closing Date; or
(ii) a condition herein expressed to be precedent to the obligations
of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Fidelity Short-Intermediate or Intermediate
Government, or their respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter
hereof, constitutes the only understanding with respect to such
subject matter, may not be changed except by a letter of agreement
signed by each party hereto and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Intermediate Government
or Fidelity Short-Intermediate; provided, however, that following the
shareholders' meeting called by Fidelity Short-Intermediate pursuant
to Section 7 of this Agreement, no such amendment may have the effect
of changing the provisions for determining the number of Intermediate
Government Shares to be paid to Fidelity Short-Intermediate
shareholders under this Agreement to the detriment of such
shareholders without their further approval.
(c) Either Fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on
the interests of such Fund's shareholders.
The representations, warranties, and covenants contained in the
Agreement, or in any document delivered pursuant hereto or in
connection herewith, shall survive the consummation of the
transactions contemplated hereunder.
14. DECLARATIONS OF TRUST.
A copy of each Fund's Declaration of Trust, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is
executed on behalf of the Trustees of each Fund as trustees and not
individually and that the obligations of each Fund under this
instrument are not binding upon any of such Fund's Trustees, officers,
or shareholders individually but are binding only upon the assets and
property of such Fund. Each Fund agrees that its obligations hereunder
apply only to such Fund and not to its shareholders individually or to
the Trustees of such Fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer of any rights or obligations hereunder shall be made by
any party without the written consent of the other parties. Nothing
herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation other than the
parties hereto and their respective successors and assigns any rights
or remedies under or by reason of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by an appropriate officer.
[SIGNATURE LINES OMITTED]
SUPPLEMENT TO FIDELITY'S GOVERNMENT BOND FUNDS SEPTEMBER 21, 1998
PROSPECTUS
The following information replaces footnote D to the Financial
Highlights table for Fidelity Ginnie Mae Fund found on page 8.
FMR or the fund has entered into varying arrangements with third
parties who either paid or reduced a portion of the fund's expenses.
The following information replaces the biographical information for
Curt Hollingsworth found in the "Charter" section on page 15.
Thomas Silvia is Vice President and manager of Ginnie Mae and
Government Income, which he has managed since December 1998. He also
manages other Fidelity funds. Mr. Silvia joined Fidelity as a senior
mortgage trader in 1993. Previously, he was a quantitative analyst
with Donaldson, Lufkin & Jenrette in New York from 1990 to 1993.
Andrew Dudley is Vice President and manager of Intermediate Government
Income, which he has managed since December 1998. He also manages
other Fidelity funds. Prior to joining Fidelity in 1996, Mr. Dudley
was a portfolio manager for Putnam Investments from 1991 to 1996.
VT-9801 dECEMBER 7, 1998
.477036.101
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how
each fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a
copy of each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated September 21, 1998. The SAI has been filed with the Securities
and Exchange Commission (SEC) and is available along with other
related materials on the SEC's Internet Web Site (http://www.sec.gov).
The SAI is incorporated herein by reference (legally forms a part of
the prospectus). For a free copy of either document, call
Fidelity(registered trademark) at 1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
GVT-pro-0998
1.537653.101
FIDELITY'S
GOVERNMENT BOND
FUNDS
Each of these funds seeks high current income by investing mainly in
U.S. Government securities. The funds have different investment
strategies, however, and carry varying degrees of risk and yield
potential.
FIDELITY GINNIE MAE FUND
(fund number 015, trading symbol FGMNX)
FIDELITY GOVERNMENT INCOME FUND (formerly Fidelity Government
Securities Fund)
(fund number 054, trading symbol FGOVX)
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND (formerly
Spartan(registered trademark) Limited Maturity Government Fund)
(fund number 452, trading symbol FSTGX)
PROSPECTUS
SEPTEMBER 21, 1998
(FIDELITY_LOGO_GRAPHIC)(REGISTERED TRADEMARK)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
KEY FACTS 2 THE FUNDS AT A GLANCE
3 WHO MAY WANT TO INVEST
4 EXPENSES EACH FUND'S YEARLY OPERATING
EXPENSES.
6 FINANCIAL HIGHLIGHTS A SUMMARY OF
EACH FUND'S FINANCIAL DATA.
12 PERFORMANCE HOW EACH FUND HAS DONE
OVER TIME.
THE FUNDS IN DETAIL 14 CHARTER HOW EACH FUND IS ORGANIZED.
15 INVESTMENT PRINCIPLES AND RISKS EACH
FUND'S OVERALL APPROACH TO INVESTING.
16 BREAKDOWN OF EXPENSES HOW
OPERATING COSTS ARE CALCULATED AND WHAT
THEY INCLUDE.
YOUR ACCOUNT 17 DOING BUSINESS WITH FIDELITY
18 TYPES OF ACCOUNTS DIFFERENT WAYS TO
SET UP YOUR ACCOUNT, INCLUDING
TAX-ADVANTAGED RETIREMENT PLANS.
19 HOW TO BUY SHARES OPENING AN
ACCOUNT AND MAKING ADDITIONAL
INVESTMENTS.
22 HOW TO SELL SHARES TAKING MONEY OUT
AND CLOSING YOUR ACCOUNT.
25 INVESTOR SERVICES SERVICES TO HELP YOU
MANAGE YOUR ACCOUNT.
SHAREHOLDER AND 26 DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
27 TRANSACTION DETAILS SHARE PRICE
CALCULATIONS AND THE TIMING OF PURCHASES
AND REDEMPTIONS.
28 EXCHANGE RESTRICTIONS
KEY FACTS
THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments(registered trademark), which
was established in 1946 and is now America's largest mutual fund
manager. Foreign affiliates of FMR may help choose investments for
some of the funds.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, will choose investments for the funds.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
GINNIE MAE
GOAL: High current income.
STRATEGY: Invests mainly in mortgage securities issued by the
Government National Mortgage Association (Ginnie Maes). FMR uses the
Lehman Brothers GNMA Index as a guide in structuring the fund and
selecting its investments.
SIZE: As of July 31, 1998, the fund had over $917 million in assets.
GOVERNMENT INCOME
GOAL: High current income with preservation of capital.
STRATEGY: Normally invests in U.S. Government securities and
instruments related to U.S. Government securities. FMR uses the Lehman
Brothers Government Bond Index as a guide in structuring the fund and
selecting its investments.
SIZE: As of July 31, 1998, the fund had over $1.2 billion in assets.
INTERMEDIATE GOV'T INCOME
GOAL: High current income with preservation of capital.
STRATEGY: Normally invests in U.S. Government securities and
instruments related to U.S. Government securities while maintaining a
dollar-weighted average maturity of three to ten years. FMR uses the
Lehman Brothers Intermediate Government Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of July 31, 1998, the fund had over $703 million in assets.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who seek 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.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other economic and political news. Ginnie Mae's
investments are also subject to prepayment risk, 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. By themselves, the funds do not constitute a
balanced investment plan.
(CHECKMARK)THE SPECTRUM OF
FIDELITY FUNDS
BROAD CATEGORIES OF FIDELITY
FUNDS ARE PRESENTED HERE IN
ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO
MAXIMIZE RETURN MUST ASSUME
GREATER RISK. THE FUNDS IN THIS
PROSPECTUS ARE IN THE INCOME
CATEGORY.
(SOLID BULLET) MONEY MARKET SEEKS
INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY,
SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY
INVESTING IN BONDS.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy,
sell, or exchange shares of a fund. In addition, you may be charged an
annual account maintenance fee if your account balance falls below
$2,500. See "Transaction Details," page , for an explanation of how
and when these charges apply.
SALES CHARGE ON PURCHASES NONE
AND REINVESTED DISTRIBUTIONS
DEFERRED SALES CHARGE ON NONE
REDEMPTIONS
ANNUAL ACCOUNT $12.00
MAINTENANCE FEE (FOR
ACCOUNTS UNDER $2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets.
Each fund pays a management fee to FMR. FMR is responsible for the
payment of all other expenses for Intermediate Government Income with
certain limited exceptions. Each of Ginnie Mae and Government Income
also incurs other expenses for services such as maintaining
shareholder records and furnishing shareholder statements and
financial reports. A fund's expenses are factored into its share price
or dividends and are not charged directly to shareholder accounts (see
"Breakdown of Expenses" page ).
The following figures are based on historical expenses, adjusted to
reflect current fees, of each fund and are calculated as a percentage
of average net assets of each fund. In addition, on behalf of
Intermediate Government Income, FMR has entered into arrangements with
the fund's custodian and transfer agent whereby credits realized as a
result of uninvested cash balances are used to reduce fund expenses.
Each of Ginnie Mae and Government Income has entered into arrangements
with its custodian and transfer agent whereby credits realized as a
result of uninvested cash balances are used to reduce custodian and
transfer agent expenses. Including these reductions, the total fund
operating expenses presented in the table would have been 0.68% for
Government Income.
GINNIE MAE
MANAGEMENT FEE (AFTER 0.35%
REIMBURSEMENT)
12B-1 FEE NONE
OTHER EXPENSES 0.30%
TOTAL FUND OPERATING 0.65%
EXPENSES
(AFTER REIMBURSEMENT)
GOVERNMENT INCOME
MANAGEMENT FEE 0.44%
12B-1 FEE NONE
OTHER EXPENSES 0.25%
TOTAL FUND OPERATING 0.69%
EXPENSES
INTERMEDIATE GOV'T INCOME
MANAGEMENT FEE (AFTER 0.38%
REIMBURSEMENT)
12B-1 FEE NONE
OTHER EXPENSES 0.00%
TOTAL FUND OPERATING 0.38%
EXPENSES
(AFTER REIMBURSEMENT)
EXAMPLES: Let's say, hypothetically, that each fund's annual return is
5% and that your shareholder transaction expenses and each fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
GINNIE MAE
1 YEAR $ 7
3 YEARS $ 21
5 YEARS $ 36
10 YEARS $ 81
GOVERNMENT INCOME
1 YEAR $ 7
3 YEARS $ 22
5 YEARS $ 38
10 YEARS $ 86
INTERMEDIATE GOV'T INCOME
1 YEAR $ 4
3 YEARS $ 12
5 YEARS $ 21
10 YEARS $ 48
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
Effective June 27, 1998, FMR has voluntarily agreed to reimburse
Ginnie Mae to the extent that the management fee, other expenses and
total operating expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) exceed 0.65% of its average
net assets. If this agreement were not in effect, the management fee,
other expenses and total operating expenses, as a percentage of
average net assets, of the fund would have been 0.44%, 0.30% and
0.74%, respectively.
Effective March 1, 1997, FMR has voluntarily agreed to reimburse
Intermediate Government Income to the extent that total operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) exceed 0.38% of its average net assets. If
this agreement were not in effect, the management fee, other expenses,
and total operating expenses would have been 0.65%, 0.00%, and 0.65%,
respectively.
The reimbursement agreement for Intermediate Government Income will
continue through December 31, 1998.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by
PricewaterhouseCoopers LLP, independent accountants. The funds'
financial highlights, financial statements, and reports of the auditor
are included in the funds' Annual Report, and are incorporated by
reference into (are legally a part of) the funds' SAI. Contact
Fidelity for a free copy of an Annual Report or the SAI.
FIDELITY GINNIE MAE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED
PER-SHARE
DATA AND
RATIOS
YEARS 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
ENDED JULY
31
NET $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420 $ 10.020
ASSET VALUE,
BEGINNING OF
PERIOD
INCOME .714B .720B .688 .721 .582 .800 .833 .845 .891 .916
FROM
INVESTMENT
OPERATIONS
NET
INVESTMENT
INCOME
NET .004 .310 (.107) .292 (.650) .083 .373 .288 (.099) .322
REALIZED AND
UNREALIZED
GAIN (LOSS)
TOTAL .718 1.030 .581 1.013 (.068) .883 1.206 1.133 .792 1.238
FROM
INVESTMENT
OPERATIONS
LESS (.698) (.710) (.691) (.713) (.582) (.683) (.796) (.853) (.842) (.838)
DISTRIBUTIONS
FROM NET
INVESTMENT
INCOME
FROM -- -- -- -- (.190) -- -- -- -- --
NET
REALIZED
GAIN
IN -- -- -- (.020) (.060) -- -- -- -- --
EXCESS OF NET
REALI
ZED GAIN
TOTAL (.698) (.710) (.691) (.733) (.832) (.683) (.796) (.853) (.842) (.838)
DISTRIBUTIONS
NET $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420
ASSET VALUE,
END OF PERIOD
TOTAL 6.81% 10.11% 5.55% 10.26% (.63)% 8.23% 11.65% 11.36% 8.01% 13.00%
RETURNA
NET $ 917 $ 822 $ 790 $ 767 $ 769 $ 976 $ 914 $ 797 $ 658 $ 651
ASSETS, END
OF PERIOD (IN
MILLIONS)
RATIO OF .72%C .76% .76% .75% .82% .80% .80% .83% .83% .85%
EXPENSES TO
AVERAGE NET
ASSETS
RATIO OF .72% .75%D .75%D .75% .82% .80% .80% .83% .83% .85%
EXPENSES TO
AVERAGE NET
ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF 6.58% 6.75% 6.69% 7.24% 7.03% 7.26% 7.73% 8.24% 8.71% 9.03%
NET
INVESTMENT
INCOME TO
AVERAGE
NET ASSETS
PORTFOLIO 172% 98% 107% 210% 303% 259% 114% 125% 96% 291%
TURNOVER
RATE
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
FIDELITY GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED
PER-SHARE
DATA AND
RATIOS
YEAR 1998E 1997D 1996D 1995D 1994D 1993D 1992F 1991G 1990G 1989G 1988G
ENDED JULY
31
NET $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870 $ 10.500 $ 10.300 $ 9.640 $ 9.610 $ 9.270 $ 9.520
ASSET VALUE,
BEGINNING OF
PERIOD
INCOME .481I .625I .670 .625 .626 .672 .556 .801 .832 .784 .839
FROM
INVESTMENT
OPERATIONS
NET
INVESTMENT
INCOME
NET .208 .175 (.299) .564 (1.225) .627 .198 .660 .030 .340 (.250)
REALIZED AND
UNREALIZED
GAIN (LOSS)
TOTAL .689 .800 .371 1.189 (.599) 1.299 .754 1.461 .862 1.124 .589
FROM
INVESTMENT
OPERATIONS
LESS (.469) (.660) (.641) (.609) (.631) (.679) (.554) (.801) (.832) (.784) (.839)
DISTRIBUTIONS
FROM NET
INVESTMENT
INCOME
FROM -- -- -- -- (.310) (.250) -- -- -- -- --
NET REALIZED
GAIN
IN -- -- -- (.020) -- -- -- -- -- -- --
EXCESS OF NET
REALI
ZED GAIN
TOTAL (.469) (.660) (.641) (.629) (.941) (.929) (.554) (.801) (.832) (.784) (.839)
DISTRIBUTIONS
NET $ 9.980 $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870 $ 10.500 $ 10.300 $ 9.640 $ 9.610 $ 9.270
ASSET VALUE,
END OF PERIOD
TOTAL 7.19% 8.61% 3.82% 13.21% (5.81)% 13.18% 7.65% 15.96% 9.53% 12.62% 6.36%
RETURNB,C
NET $ 1,253 $ 1,023 $ 949 $ 897 $ 614 $ 729 $ 582 $ 522 $ 469 $ 560 $ 568
ASSETS, END
OF PERIOD (IN
MILLIONS)
RATIO OF .69%A .73% .72% .71% .69% .69% .70%A .70% .66% .73% .79%
EXPENSES TO
AVERAGE NET
ASSETS
RATIO OF .68%A,H .72%H .71%H .71% .69% .69% .70%A .70% .66% .73% .79%
EXPENSES TO
AVERAGE NET
ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF 5.82%A 6.48% 6.52% 6.36% 6.26% 6.40% 7.31%A 8.23% 8.84% 8.29% 8.87%
NET
INVESTMENT
INCOME TO
AVERAGE
NET ASSETS
PORTFOLIO 289%A 199% 124% 391% 402% 323% 219%A 257% 302% 312% 283%
TURNOVER
RATE
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D YEAR ENDED SEPTEMBER 30
E TEN MONTHS ENDED JULY 31,1998
F NINE MONTHS ENDED SEPTEMBER 30, 1992
G YEAR ENDED DECEMBER 31
H FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
I NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED
PER-SHARE
DATA AND
RATIOS
YEARS 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
ENDED JULY
31
NET $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030 $ 9.880
ASSET VALUE,
BEGINNING OF
PERIOD
INCOME .652C .675C .678 .610 .470 .872 .836 .853 .816 .806
FROM
INVESTMENT
OPERATIONS
NET
INVESTMENT
INCOME
NET (.008) .124 (.150) .143 (.410) (.087) .021 .142 (.100) .150
REALIZED AND
UNREALIZED
GAIN (LOSS)
TOTAL .644 .799 .528 .753 .060 .785 .857 .995 .716 .956
FROM
INVESTMENT
OPERATIONS
LESS (.654) (.659) (.638) (.603) (.540) (.605) (.677) (.845) (.816) (.806)
DISTRIBUTIONS
FROM NET
INVESTMENT
INCOME
FROM -- -- -- -- -- (.050) (.060) (.020) -- --
NET REALIZED
GAIN
IN -- -- -- -- (.220) -- -- -- -- --
EXCESS OF NET
REALI
ZED GAIN
TOTAL (.654) (.659) (.638) (.603) (.760) (.655) (.737) (.865) (.816) (.806)
DISTRIBUTIONS
NET $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030
ASSET VALUE,
END OF PERIOD
TOTAL 6.78% 8.56% 5.49% 8.16% .57% 7.96% 8.78% 10.43% 7.49% 10.14%
RETURNA,B
NET $ 704 $ 704 $ 740 $ 817 $ 1,018 $ 1,529 $ 1,770 $ 880 $ 132 $ 125
ASSETS, END
OF PERIOD (IN
MILLIONS)
RATIO OF .38%E .54%E .63%E .65% .65% .65% .61%E .50%E .83% .68%E
EXPENSES TO
AVERAGE NET
ASSETS
RATIO OF .38% .54% .62%D .65% .65% .65% .61% .50% .83% .68%
EXPENSES TO
AVERAGE NET
ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF 6.65% 6.96% 6.89% 7.18% 7.37% 8.05% 8.24% 8.63% 8.28% 8.20%
NET
INVESTMENT
INCOME TO
AVERAGE
NET ASSETS
PORTFOLIO 188% 105% 105% 210% 391% 324% 330% 288% 270% 806%
TURNOVER
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 FORMER ACCOUNT CLOSEOUT FEE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do
not reflect the effect of taxes.
Each fund's fiscal year runs from August 1 through July 31. The tables
below show each fund's performance over past fiscal years compared to
different measures, including a comparative index and a competitive
funds average. The charts on page present calendar year performance.
AVERAGE ANNUAL TOTAL RETURNS
FISCAL PERIODS PAST 1 PAST 5 PAST 10
ENDED YEAR YEARS YEARS
JULY 31,
1998
GINNIE MAE* 6.81% 6.34% 8.37%
LEHMAN 7.46% 7.01% 9.25%
BROTHERS
GNMA INDEX
LIPPER GNMA 6.81% 6.11% 8.27%
FUNDS AVERA
GE
GOVERNMENT 7.67% 5.87% 8.70%
INCOME
LEHMAN 8.35% 6.57% 8.97%
BROTHERS
GOV'T BOND
INDEX
LIPPER 7.32% 5.60% 7.93%
GENERAL
U.S. GOV'T
FUNDS AVERA
GE
INTERMEDIATE 6.78% 5.87% 7.40%
GOV'T
INCOME*
LEHMAN 6.83% 5.95% 8.12%
BROTHERS
INTERMEDIATE
GOV'T
BOND INDEX
LIPPER 5.67% 5.00% 7.38%
SHORT-INTERM
EDIATE U.S.
GOV'T. FUNDS
AVERAGE
* IF FMR HAD NOT REIMBURSED CERTAIN FUND EXPENSES DURING THESE
PERIODS, YIELDS AND TOTAL RETURNS WOULD HAVE BEEN LOWER.
CUMULATIVE TOTAL RETURNS
FISCAL PERIODS PAST 1 PAST 5 PAST 10
ENDED YEAR YEARS YEARS
JULY 31,
1998
GINNIE MAE* 6.81% 36.00% 123.36%
LEHMAN 7.46% 40.29% 142.29%
BROTHERS
GNMA INDEX
LIPPER GNMA 6.81% 34.54% 121.63%
FUNDS AVERA
GE
GOVERNMENT 7.67% 33.00% 130.27%
INCOME
LEHMAN 8.35% 37.43% 135.99%
BROTHERS
GOV'T BOND
INDEX
LIPPER 7.32% 31.41% 115.07%
GENERAL
U.S. GOV'T
FUNDS AVERA
GE
INTERMEDIATE 6.78% 33.02% 104.23%
GOV'T
INCOME*
LEHMAN 6.83% 33.48% 118.39%
BROTHERS
INTERMEDIATE
GOV'T
BOND INDEX
LIPPER 5.67% 27.74% 104.03%
SHORT-INTERM
EDIATE U.S.
GOV'T FUNDS
AVERAGE
* IF FMR HAD NOT REIMBURSED CERTAIN FUND EXPENSES DURING THESE
PERIODS, YIELDS AND TOTAL RETURNS WOULD HAVE BEEN LOWER.
(CHECKMARK)UNDERSTANDING
PERFORMANCE
BECAUSE THESE FUNDS INVEST IN
FIXED-INCOME SECURITIES, THEIR
PERFORMANCE IS RELATED TO
CHANGES IN INTEREST RATES. FUNDS
THAT HOLD SHORT-TERM BONDS ARE
USUALLY LESS AFFECTED BY
CHANGES IN INTEREST RATES THAN
LONG-TERM BOND FUNDS. FOR THAT
REASON, LONG-TERM BOND FUNDS
TYPICALLY OFFER HIGHER YIELDS
AND CARRY MORE RISK THAN
SHORT-TERM BOND FUNDS.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. Yields
are calculated according to a standard that is required for all stock
and bond funds. Because this differs from other accounting methods,
the quoted yield may not equal the income actually paid to
shareholders.
LEHMAN BROTHERS GNMA INDEX is a market capitalization weighted index
of fixed-rate securities issued by the Government National Mortgage
Association.
LEHMAN BROTHERS GOVERNMENT BOND INDEX is an index of U.S. Government
and government agency securities (other than mortgage securities) with
maturities of one year or more.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX is a market value
weighted index of U.S. Government fixed-rate debt issues with
maturities between one and ten years.
Unlike each fund's returns, the total returns of each comparative
index do not include the effect of any brokerage commissions,
transaction fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper GNMA Funds Average,
Lipper General U.S. Government Funds Average, and Lipper
Short-Intermediate U.S. Government Funds Average for Ginnie Mae,
Government Income, and Intermediate Government Income, respectively.
As of July 31, 1998, the averages reflected the performance of 53,
185, and 100 mutual funds with similar investment objectives,
respectively. These averages, published by Lipper Analytical Services,
Inc., exclude the effect of sales loads.
The funds' recent strategies, performance, and holdings are detailed
twice a year in financial reports, which are sent to all shareholders.
For current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
YEAR-BY-YEAR TOTAL RETURNS
Calendar
years 1989 1990 1991 1992 1993 1994 1995 1996 1997
GINNIE MAE 13.85% 10.50% 13.57% 6.70% 6.11% -2.00% 16.60% 4.86% 8.70%
Lehman
Brothers
GNMA Index 15.69% 10.58% 16.04% 7.41% 6.58% -1.50% 17.05% 5.53% 9.53%
Lipper GNMA
Funds
Average 13.28% 9.55% 14.86% 6.49% 6.57% -2.49% 16.25% 3.81% 8.80%
Consumer
Price Index 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 13.85
Row: 3, Col: 1, Value: 10.5
Row: 4, Col: 1, Value: 13.57
Row: 5, Col: 1, Value: 6.7
Row: 6, Col: 1, Value: 6.109999999999999
Row: 7, Col: 1, Value: -2.0
Row: 8, Col: 1, Value: 16.6
Row: 9, Col: 1, Value: 4.859999999999999
Row: 10, Col: 1, Value: 8.699999999999999
(LARGE SOLID BOX) Ginnie Mae
YEAR-BY-YEAR TOTAL RETURNS
Calendar
years 1989 1990 1991 1992 1993 1994 1995 1996 1997
GOVERNMENT
INCOME 12.62% 9.53% 15.96% 7.97% 12.32% -5.21% 18.07% 2.09% 8.93%
Lehman Brothers Government
Bond Index 14.22% 8.72% 15.32% 7.23% 10.66% -3.37% 18.34% 2.77% 9.59%
Lipper
General U.S.
Government
Funds
Average 12.46% 8.22% 14.44% 6.41% 9.42% -4.64% 17.34% 1.72% 8.84%
Consumer
Price Index 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 12.62
Row: 3, Col: 1, Value: 9.529999999999999
Row: 4, Col: 1, Value: 15.96
Row: 5, Col: 1, Value: 7.970000000000001
Row: 6, Col: 1, Value: 12.32
Row: 7, Col: 1, Value: -5.21
Row: 8, Col: 1, Value: 18.07
Row: 9, Col: 1, Value: 2.09
Row: 10, Col: 1, Value: 8.93
(LARGE SOLID BOX) Government Income
YEAR-BY-YEAR TOTAL RETURNS
Calendar
years 1989 1990 1991 1992 1993 1994 1995 1996 1997
INTERMEDIATE GOV'T
INCOME 10.35% 9.13% 11.91% 5.76% 6.42% -0.95% 13.93% 4.14% 7.70%
Lehman Brothers Intermediate
Government 12.68% 9.56% 14.11% 6.93% 8.17% -1.75% 14.41% 4.06% 7.72%
Lipper Short-Intermediate U.S. Govt.
Fund
Average 10.84% 9.22% 13.11% 5.94% 6.96% -2.26% 12.46% 3.52% 6.72%
Consumer Price
Index 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 10.35
Row: 3, Col: 1, Value: 9.129999999999999
Row: 4, Col: 1, Value: 11.91
Row: 5, Col: 1, Value: 5.76
Row: 6, Col: 1, Value: 6.42
Row: 7, Col: 1, Value: -0.9500000000000001
Row: 8, Col: 1, Value: 13.93
Row: 9, Col: 1, Value: 4.14
Row: 10, Col: 1, Value: 7.7
(LARGE SOLID BOX) Intermediate
Gov't Income
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders'
money and invests it toward a specified goal. Ginnie Mae and
Intermediate Government Income are diversified funds, and Government
Income is a non-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 periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses the funds' investments and
handles their business affairs.
Affiliates assist FMR with foreign investments:
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for Ginnie Mae and
Intermediate Government Income.
(small solid bullet) Fidelity Management & Research (Far East) Inc.
(FMR Far East), in Tokyo, Japan, serves as a sub-adviser for Ginnie
Mae and Intermediate Government Income.
Beginning January 1, 1999, FIMM, located in Merrimack, New Hampshire,
will have primary responsibility for providing investment management
services for the funds.
Curt Hollingsworth is Vice President and manager of Ginnie Mae and
Government Income, which he has managed since February 1997; and
Intermediate Government Income, which he has managed since May 1988.
Since joining Fidelity in 1983, Mr. Hollingsworth has worked as a
fixed-income trader and portfolio manager.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Service Company, Inc. (FSC) performs transfer agent servicing
functions for each fund.
FMR Corp. is the ultimate parent company of FMR, FMR U.K., FMR Far
East, and FIMM. Members of the Edward C. Johnson 3d family are the
predominant owners of a class of shares of common stock representing
approximately 49% of the voting power of FMR Corp. Under the
Investment Company Act of 1940 (the 1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political, or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
PREPAYMENT RISK. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment risk occurs
when the issuer of a security can prepay principal prior to the
security's maturity. Securities subject to prepayment risk generally
offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising
interest rate environment. In addition, the potential impact of
prepayment features on the price of a debt security may be difficult
to predict and result in greater volatility.
FIDELITY'S APPROACH TO BOND FUNDS. In managing bond funds, FMR selects
a benchmark index that is representative of the universe of securities
in which a fund invests. FMR uses this benchmark as a guide in
structuring the fund and selecting its investments.
FMR allocates assets among different market sectors (for example,
fixed-rate or adjustable rate mortgages) and different maturities
based on its view of the relative value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which a fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
GINNIE MAE seeks high current income, consistent with prudent
investment risk, by investing in Ginnie Maes. When consistent with its
goal, the fund may also consider the potential for capital gain. FMR
normally invests at least 65% of the fund's total assets in Ginnie
Maes. The fund may also invest in other U.S. Government securities and
instruments related to U.S. Government securities. Other instruments
may include futures or options on U.S. Government securities or
interests in U.S. Government securities that have been repackaged by
dealers or other third parties. It is important to note that neither
the fund's share price nor its yield is guaranteed by the U.S.
Government.
Ginnie Maes are government securities that are interests in pools of
mortgage loans. Their principal and interest payments are fully
guaranteed by the U.S. Government, making them high-quality
investments.
The benchmark index for the fund is the Lehman Brothers GNMA Index, a
market capitalization weighted index of fixed-rate securities that
represent interests in pools of mortgage loans with original terms of
15 and 30 years and are issued by the Government National Mortgage
Association (GNMA). FMR manages the fund to have similar overall
interest rate risk to the index. As of July 31, 1998, the
dollar-weighted average maturity of the fund and the index was
approximately 6.10 years and 5.75 years, respectively.
The reaction of mortgage securities to changes in interest rates can
be difficult to predict because mortgage securities are subject to
prepayment of principal and interest and can be structured in a
complex manner. In determining a security's maturity for purposes of
calculating a fund's average maturity, an estimate of the average time
for its principal to be paid may be used. This can be substantially
shorter than its stated final maturity.
GOVERNMENT INCOME seeks high current income, consistent with
preservation of principal, by investing in U.S. Government securities
and instruments related to U.S. Government securities under normal
conditions. The benchmark index for the fund is the Lehman Brothers
Government Bond Index, a market value weighted benchmark of U.S.
Government and government agency securities (other than mortgage
securities) with maturities of one year or more. FMR manages the fund
to have similar overall interest rate risk to the index. As of July
31,1998, the dollar-weighted average maturity of the fund and the
index was approximately 8.70 years and 8.90 years, respectively.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
The fund normally invests only in U.S. Government securities,
repurchase agreements and other instruments related to U.S. Government
securities. FMR normally invests at least 65% of the fund's total
assets in U.S. Government securities and repurchase agreements for
U.S. Government securities. Other instruments may include futures or
options on U.S. Government securities or interests in U.S. Government
securities that have been repackaged by dealers or other third
parties. It is important to note that neither the fund's share price
nor its yield is guaranteed by the U.S. Government.
INTERMEDIATE GOVERNMENT INCOME seeks high current income, consistent
with preservation of capital, by investing in U.S. Government
securities and instruments related to U.S. Government securities under
normal conditions. The benchmark index for the fund is the Lehman
Brothers Intermediate Government Bond Index, a market value weighted
benchmark of U.S. Government fixed-rate debt issues with maturities
between one and 10 years. FMR manages the fund to have similar overall
interest rate risk to the index. As of July 31, 1998, the
dollar-weighted average maturity of the fund and the index was
approximately 4.70 years and 3.88 years, respectively. In addition,
the fund normally maintains a dollar-weighted average maturity of
between three and 10 years.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
The fund normally invests only in U.S. Government securities,
repurchase agreements and other instruments related to U.S. Government
securities. FMR normally invests at least 65% of the fund's total
assets in U.S. Government securities and repurchase agreements for
U.S. Government securities. Other instruments may include futures or
options on U.S. Government securities or interests in U.S. Government
securities that have been repackaged by dealers or other third
parties. It is important to note that neither the fund's share price
nor its yield is guaranteed by the U.S. Government.
FMR may use various investment techniques to hedge a portion of a
fund's risks, but there is no guarantee that these strategies will
work as FMR intends. When you sell your shares of a fund, they may be
worth more or less than what you paid for them.
FMR normally invests each fund's assets according to its investment
strategy. Each fund also reserves the right to invest without
limitation in investment-grade money market or short-term debt
instruments for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in
the funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes. In addition, bond prices are also
affected by the credit quality of the issuer.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by Fannie Mae are supported
by the instrumentality's right to borrow money from the U.S. Treasury
under certain circumstances. Other U.S. Government securities, such as
those issued by the Federal Farm Credit Banks Funding Corporation, are
supported only by the credit of the entity that issued them.
ASSET-BACKED SECURITIES include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the market's
perception of the servicer of the pool, and any credit enhancement
provided. In addition, these securities may be subject to prepayment
risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
RESTRICTIONS: Each of Government Income and Intermediate Government
Income does not currently intend to invest more than 40% of its assets
in mortgage securities.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund buys a
security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, commodity prices, or other factors that affect
security values. These techniques may involve derivative transactions
such as buying and selling options and futures contracts, entering
into swap agreements and purchasing indexed securities.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID 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.
Difficulty in selling securities may result in a loss or may be costly
to a fund.
RESTRICTIONS: A fund may not invest more than 10% of its assets in
illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
OTHER INSTRUMENTS may include real estate-related instruments.
CASH MANAGEMENT. A fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, or through reverse repurchase agreements. If
a fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If a fund makes
additional investments while borrowings are outstanding, this may be
considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering a fund's securities. A fund may also lend money to
other funds advised by FMR or its affiliates.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of a
fund's total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
GINNIE MAE seeks a high level of current income consistent with
prudent investment risk, by investing primarily in mortgage-related
securities. In seeking current income, the fund may also consider the
potential for capital gain.
GOVERNMENT INCOME seeks a high level of current income, consistent
with preservation of principal. The fund invests in securities issued
by the U.S. Government or issued by U.S. Government agencies or
instrumentalities, and in certain options and futures contracts.
INTERMEDIATE GOVERNMENT INCOME seeks a high level of current income as
is consistent with the preservation of capital.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 331/3% of each fund's total
assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, each fund pays fees related to its daily
operations. Expenses paid out of each fund's assets are reflected in
its share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to affiliates who provide
assistance with these services for certain funds. Each of Ginnie Mae
and Government Income also pays OTHER EXPENSES, which are explained on
page .
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, in the case of certain funds, may be terminated
at any time without notice, can decrease a fund's expenses and boost
its performance.
MANAGEMENT FEE AND OTHER EXPENSES
The management fee is calculated and paid to FMR every month. FMR pays
all of the other expenses of Intermediate Government Income with
limited exceptions.
Intermediate Government Income's annual management fee rate is 0.65%
of its average net assets. For the fiscal year ended July 31, 1998,
Intermediate Government Income paid a management fee of 0.38% of the
fund's average net assets, after reimbursement.
For each of Ginnie Mae and Government Income, the fee is calculated by
adding a group fee rate to an individual fund fee rate, dividing by
twelve, and multiplying the result by the fund's average net assets
throughout the month.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
For July 1998, the group fee rate was 0.1331%. The individual fund fee
rate is 0.30% for each of Ginnie Mae and Government Income.
The total management fee for the fiscal year ended July 31, 1998 was
0.42%, after reimbursement, of the fund's average net assets for
Ginnie Mae and 0.44% (annualized) of the fund's average net assets for
Government Income.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East on
behalf of Ginnie Mae and Intermediate Government Income. These
sub-advisers provide FMR with investment research and advice on
issuers based outside the United States. Under the sub-advisory
agreements, FMR pays FMR U.K. and FMR Far East fees equal to 110% and
105%, respectively, of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to a fund's investments that the
sub-adviser manages on a discretionary basis.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing each fund's investments. FMR will pay FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
While the management fee is a significant component of each of Ginnie
Mae's and Government Income's annual operating costs, these funds have
other expenses as well.
The funds contract with FSC to perform transfer agency, dividend
disbursing, shareholder servicing, and accounting functions. These
services include processing shareholder transactions, valuing each
fund's investments, handling securities loans for each fund, and
calculating each fund's share price and dividends.
For the fiscal year ended July 1998, transfer agency and pricing and
bookkeeping fees paid (as a percentage of average net assets) amounted
to the following. These amounts are before expense reductions, if any.
TRANSFER AGENCY AND
PRICING AND BOOKKEEPING
FEES PAID BY FUND
GINNIE MAE 0.26%
GOVERNMENT INCOME* 0.21%
* ANNUALIZED
In the case of Intermediate Government Income, FMR, not the fund, pays
for these services.
Each of Ginnie Mae and Government Income also pays other expenses,
such as legal, audit, and custodian fees; in some instances, proxy
solicitation costs; and the compensation of trustees who are not
affiliated with Fidelity. A broker-dealer may use a portion of the
commissions paid by a fund to reduce that fund's custodian or transfer
agent fees.
Intermediate Government Income also pays other expenses, such as
brokerage fees and commissions, interest on borrowings, taxes, and the
compensation of trustees who are not affiliated with Fidelity.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees of each fund has authorized such
payments.
For the fiscal year ended July 1998, the portfolio turnover rates for
Ginnie Mae, Government Income and Intermediate Government Income were
172%, 289% (annualized), and 188%, respectively. These rates vary from
year to year. High turnover rates increase transaction costs and may
increase taxable capital gains. FMR considers these effects when
evaluating the anticipated benefits of short-term investing.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of
America's first mutual funds. Today, Fidelity is the largest mutual
fund company in the country, and is known as an innovative provider of
high-quality financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, FBSI. Fidelity is also a
leader in providing tax-advantaged retirement plans for individuals
investing on their own or through their employer.
Fidelity is committed to providing investors with practical
information to make investment decisions. Based in Boston, Fidelity
provides customers with complete service 24 hours a day, 365 days a
year, through a network of telephone service centers around the
country and Fidelity's Web site.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity
has over 75 walk-in Investor Centers across the country.
If you would prefer to access information on-line, you can visit
Fidelity's Web site at www.fidelity.com.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend
to purchase individual securities as part of your total investment
portfolio, you may consider investing in a fund through a brokerage
account.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in a fund. Certain features of
the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
(CHECKMARK)FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 225
(solid bullet) Assets in Fidelity mutual
funds: over $611 billion
(solid bullet) Number of shareholder
accounts: over 38 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 250
The account guidelines that follow may not apply to certain retirement
accounts. If you are investing through a retirement account or if your
employer offers the funds through a retirement program, you may be
subject to additional fees. For more information, please refer to your
program materials, contact your employer, call your retirement
benefits number, visit Fidelity's Web site at www.fidelity.com, or
contact Fidelity directly, as appropriate.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
Retirement plans provide individuals with tax-advantaged ways to save
for retirement, either with tax-deductible contributions or tax-free
growth. Retirement accounts require special applications and typically
have lower minimums.
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow
individuals under age 70 with compensation to contribute up to $2,000
per tax year. Married couples can contribute up to $4,000 per tax
year, provided no more than $2,000 is contributed on behalf of either
spouse. (These limits are aggregate for Traditional and Roth IRAs.)
Contributions may be tax-deductible, subject to certain income limits.
(solid bullet) ROTH IRAS allow individuals to make non-deductible
contributions of up to $2,000 per tax year. Married couples can
contribute up to $4,000 per tax year, provided no more than $2,000 is
contributed on behalf of either spouse. (These limits are aggregate
for Traditional and Roth IRAs.) Eligibility is subject to certain
income limits. Qualified distributions are tax-free.
(solid bullet) ROTH CONVERSION IRAS allow individuals with assets held
in a Traditional IRA or Rollover IRA to convert those assets to a Roth
Conversion IRA. Eligibility is subject to certain income limits.
Qualified distributions are tax-free.
(solid bullet) ROLLOVER IRAS help retain special tax advantages for
certain eligible rollover distributions from employer-sponsored
retirement plans.
(solid bullet) KEOGH PLANS are generally profit sharing or money
purchase pension plans that allow self-employed individuals or small
business owners to make tax-deductible contributions for themselves
and any eligible employees.
(solid bullet) SIMPLE IRAS provide small business owners and those
with self-employment income (and their eligible employees) with many
of the advantages of a 401(k) plan, but with fewer administrative
requirements.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide
small business owners or those with self-employment income (and their
eligible employees) with many of the same advantages as a Keogh, but
with fewer administrative requirements.
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS) allow employees of
businesses with 25 or fewer employees to contribute a percentage of
their wages on a tax-deferred basis. These plans must have been
established by the employer prior to January 1, 1997.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of
501(c)(3) tax-exempt institutions, including schools, hospitals, and
other charitable organizations.
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS) are available
to employees of most state and local governments and their agencies
and to employees of tax-exempt institutions.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset value
per share (NAV). Each fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received in proper form. Each fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
Each fund reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they
would disrupt management of a fund.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888 or visit Fidelity's
Web site at www.fidelity.com for an application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
IF YOU ARE INVESTING THROUGH A TAX-ADVANTAGED RETIREMENT PLAN, such as
an IRA, for the first time, you will need a special application.
Retirement investing also involves its own investment procedures. Call
1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com for
more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For certain Fidelity retirement accountsA $500
TO ADD TO AN ACCOUNT $250
Through regular investment plansB $100
MINIMUM BALANCE $2000
A THIS LOWER MINIMUM APPLIES TO FIDELITY TRADITIONAL IRA, ROTH
IRA, ROTH CONVERSION IRA, ROLLOVER IRA, SEP-IRA, AND KEOGH ACCOUNTS.
B FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE
REFER TO "INVESTOR SERVICES," PAGE .
These minimums may be lower for investments through a Fidelity
GoalPlannerSM account in Ginnie Mae.
There is no minimum account balance or initial or subsequent
investment minimum for investments through Fidelity Portfolio Advisory
ServicesSM, a qualified state tuition program, certain Fidelity
retirement accounts funded through salary deduction, or accounts
opened with the proceeds of distributions from such retirement
accounts.
Refer to the program materials for details. In addition, each fund
reserves the right to waive or lower investment minimums in other
circumstances.
<TABLE>
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TO OPEN AN TO ADD TO AN
ACCOUNT ACCOUNT
Phone 1-800-544-7777
(phone_graphic) (bullet) (bullet)
Exchange from another 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.
(bullet)
Use Fidelity Money
Line to transfer from
your bank account.
Call before your first
use to verify that this
service is in place on
your account.
Maximum Money
Line: up to
$100,000.
The Internet
www.fidelity.com
(computer graphic) (bullet) (bullet)
Complete and sign the Exchange from another
application. Make your Fidelity fund account
check payable to the with the same
complete name of the registration, including
fund. Mail to the name, address, and
address indicated on taxpayer ID number.
the application. (bullet)
Use Fidelity Money Line
to transfer from your
bank account. Visit
Fidelity's Web site
before your first use to
verify that this service is
in place on your
account. Maximum
Money Line: up to
$100,000.
Mail
(mail_graphic) (bullet) (bullet)
Complete and sign the Make your check
application. Make payable to the
your check payable to complete name of the
the complete name of fund. Indicate your
the fund. Mail to the fund account number
address indicated on on your check and
the application. mail to the address
printed on your
account statement.
(bullet)
Exchange by mail: call
1-800-544-6666 for
instructions.
In Person
(hand_graphic) (bullet) (bullet)
Bring your application Bring your check to a
and check to a Fidelity Fidelity Investor
Investor Center. Call Center. Call
1-800-544-9797 for 1-800-544-9797 for
the center nearest you. the center nearest
you.
Wire
(wire_graphic) (bullet) (bullet)
Call 1-800-544-7777 Not available for
to set up your account retirement accounts.
and to arrange a wire (bullet)
transaction. Not Wire to: Bankers Trust
available for Company,
retirement accounts. Bank Routing
(bullet) #021001033,
Wire within 24 hours Account #00163053.
to: Bankers Trust Specify the complete
Company, Bank name of the fund and
Routing include your account
#021001033, number and your
Account #00163053. name.
Specify the complete
name of the fund and
include your new
account number and
your name.
Automatically
(automatic_graphic) (bullet) (bullet)
Not available. Use Fidelity Automatic
Account Builder. Sign
up for this service when
opening your account,
visit Fidelity's Web site
at www.fidelity.com to
obtain the form to add
the service, or call
1-800-544-6666 to
add the service.
(tdd_graphic) TDD
- - Service for the Deaf
and Hearing Impaired:
1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. Each fund's NAV is normally calculated
each business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone, in writing, or through Fidelity's Web site.
Call 1-800-544-6666 for a retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$2,000 worth of shares in the account to keep it open ($500 for
retirement accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited
number of checks. Do not, however, try to close out your account by
check.
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ACCOUNT TYPE SPECIAL
REQUIREMENTS
Phone 1-800-544-7777
(phone_graphic) All account types except (bullet)
retirement Maximum check
request: $100,000.
All account types (bullet)
For Money Line
transfers to your
bank account;
minimum: $10;
maximum: up to
$100,000.
(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 Tenant, (bullet)
Sole Proprietorship, The letter of
UGMA, UTMA instruction must be
Retirement account signed by all persons
required to sign for
transactions, exactly
Trust as their names
appear on the
account.
(bullet)
Business or Organization The account owner
should complete a
retirement
distribution form.
Call
Executor, Administrator, 1-800-544-6666 to
Conservator, Guardian request one.
(bullet)
The trustee must sign
the letter indicating
capacity as trustee. If
the trustee's name is
not in the account
registration, provide a
copy of the trust
document certified
within the last 60
days.
(bullet)
At least one person
authorized by
corporate resolution
to act on the account
must sign the letter.
(bullet)
Include a corporate
resolution with
corporate seal or a
signature guarantee.
(bullet)
Call
1-800-544-6666 for
instructions.
Wire
(wire_graphic) All account types except (bullet)
retirement You must sign up for
the wire feature
before using it. To
verify that it is in
place, call
1-800-544-6666.
Minimum wire:
$5,000.
(bullet)
Your wire redemption
request must be
received in proper
form by Fidelity
before 4:00 p.m.
Eastern time for
money to be wired
on the next business
day.
Check
(check_graphic) All account types (bullet)
Minimum check:
$500.
(bullet)
All account owners
must sign a
signature card to
receive a checkbook.
(tdd_graphic) TDD - Service
for the Deaf and Hearing
Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
FIDELITY'S WEB SITE at www.fidelity.com offers product and servicing
information, customer education, planning tools, and the ability to
make certain transactions in your account.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
(CHECKMARK)24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
WEB SITE
WWW.FIDELITY.COM
AUTOMATED SERVICE
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in our electronic
delivery program, call 1-800-544-6666 or visit Fidelity's Web site at
www.fidelity.com for more information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone, in writing, or through Fidelity's
Web site.
Note that exchanges out of a fund are limited to four per calendar
year, and that they may have tax consequences for you. For details on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or
revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
<TABLE>
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REGULAR
INVESTMENT
PLANS
FIDELITY
AUTOMATIC
ACCOUNT
BUILDER(registered trademark)
TO MOVE
MONEY FROM
YOUR BANK
ACCOUNT TO A
FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly or quarterly (small solid bullet) For a new account, complete the
appropriate section on the fund
application.
(small solid bullet) For existing accounts, call 1-800-544-6666
or visit Fidelity's Web
site at www.fidelity.com for an application.
(small solid bullet) To change the amount or frequency of
your investment, call
1-800-544-6666 at least three business days prior to your next
scheduled investment date.
DIRECT
DEPOSIT
TO SEND ALL OR
A PORTION OF
YOUR PAYCHECK
OR GOVERNMENT
CHECK TO A
FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Every pay period (small solid bullet) Check the appropriate box on the
fund application, or call
1-800-544-6666 or visit Fidelity's Web site at www.fidelity.com
for an authorization form.
(small solid bullet) Changes require a new authorization form.
FIDELITY
AUTOMATIC
EXCHANGE
SERVICE
TO MOVE
MONEY FROM A
FIDELITY MONEY
MARKET FUND TO
ANOTHER
FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, bimonthly, (small solid bullet) To establish, call 1-800-544-6666 after
both accounts are
quarterly, or annually opened.
(small solid bullet) To change the amount or frequency of
your investment, call
1-800-544-6666.
A BECAUSE THEIR
SHARE PRICES
FLUCTUATE, THESE
FUNDS MAY NOT BE
APPROPRIATE
CHOICES FOR DIRECT
DEPOSIT OF YOUR
ENTIRE CHECK.
</TABLE>
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:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions
will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned
this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each
dividend distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital
gain distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
If you select distribution option 2 or 3 and the U.S. Postal Service
does not deliver your checks, your election may be converted to the
Reinvestment Option. You will not receive interest on amounts
represented by uncashed distribution checks. To change your
distribution option, call Fidelity at 1-800-544-6666.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of
the date the fund deducts the distribution from its NAV. The mailing
of distribution checks will begin within seven days.
TAXES
As with any investment, you should consider how your investment in a
fund will be taxed. If your account is not a tax-advantaged retirement
account, you should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax, and may also be subject to state or local taxes. If you live
outside the United States, your distributions could also be taxed by
the country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are
taxable as if they were paid on December 31.
(CHECKMARK)UNDERSTANDING
DISTRIBUTIONS
AS A FUND SHAREHOLDER, YOU ARE
ENTITLED TO YOUR SHARE OF THE
FUND'S NET INCOME AND GAINS
ON ITS INVESTMENTS. THE FUND
PASSES ITS EARNINGS ALONG TO ITS
INVESTORS AS DISTRIBUTIONS.
EACH FUND EARNS INTEREST FROM
ITS INVESTMENTS. THESE ARE
PASSED ALONG AS DIVIDEND
DISTRIBUTIONS. THE FUND MAY
REALIZE CAPITAL GAINS IF IT SELLS
SECURITIES FOR A HIGHER PRICE
THAN IT PAID FOR THEM. THESE
ARE PASSED ALONG AS CAPITAL
GAIN DISTRIBUTIONS.
For federal tax purposes, each fund's income and short-term capital
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
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 when a fund has realized but
not yet distributed capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
There are tax requirements that all funds must follow in order to
avoid federal taxation. In its effort to adhere to these requirements,
a fund may have to limit its investment activity in some types of
instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
Each fund's assets are valued on the basis of information furnished by
a pricing service or market quotations, if available, or by another
method that the Board of Trustees believes accurately reflects fair
value. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify
that your social security or taxpayer identification number is correct
and that you are not subject to 31% backup withholding for failing to
report income to the IRS. If you violate IRS regulations, the IRS can
require a fund to withhold 31% of your taxable distributions and
redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to redeem and
exchange by telephone, call Fidelity for instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during
periods of unusual market activity), consider placing your order by
mail or by visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased
at the next NAV calculated after your investment is received in proper
form. Note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number
of checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees a fund or
its transfer agent has incurred.
(small solid bullet) Shares begin to earn dividends on the first
business day following the day of purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money
order, U.S. Treasury check, Federal Reserve check, or direct deposit
instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements
with FDC may enter confirmed purchase orders on behalf of customers by
phone, with payment to follow no later than the time when a fund is
priced on the following business day. If payment is not received by
that time, the financial institution could be held liable for
resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at
the next NAV calculated after your order is received in proper form.
Note the following:
(small solid bullet) Normally, redemption proceeds will be mailed to
you on the next business day, but if making immediate payment could
adversely affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares earn dividends through the day of
redemption; however, shares redeemed on a Friday or prior to a holiday
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day
after your phone call.
(small solid bullet) Each fund may hold payment on redemptions until
it is reasonably satisfied that investments made by check or Fidelity
Money Line have been collected, which can take up to seven business
days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays),
when trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the
amount of the check is greater than the value of your account, your
check will be returned to you and you may be subject to additional
charges.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for
that year. The fee, which is payable to the transfer agent, is
designed to offset in part the relatively higher costs of servicing
smaller accounts. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $2,000 you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send
the proceeds to you. Your shares will be redeemed at the NAV on the
day your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the funds
without reimbursement from the funds. Qualified recipients are
securities dealers who have sold fund shares or others, including
banks and other financial institutions, under special arrangements in
connection with FDC's sales activities. In some instances, these
incentives may be offered only to certain institutions whose
representatives provide services in connection with the sale or
expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a
fund for shares of other Fidelity funds. However, you should note the
following:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) If you exchange into a fund with a sales charge,
you pay the percentage-point difference between that fund's sales
charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already
paid a sales charge of 2% on your shares and you exchange them into a
fund with a 3% sales charge, you would pay an additional 1% sales
charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund
performance and shareholders, each fund reserves the right to
temporarily or permanently terminate the exchange privilege of any
investor who makes more than four exchanges out of the fund per
calendar year. Accounts under common ownership or control, including
accounts with the same taxpayer identification number, will be counted
together for purposes of the four exchange limit.
(small solid bullet) The exchange limit may be modified for accounts
in certain institutional retirement plans to conform to plan exchange
limits and Department of Labor regulations. See your plan materials
for further information.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would
be unable to invest the money effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
(small solid bullet) Your exchanges may be restricted or refused if a
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges
that coincides with a "market timing" strategy may be disruptive to a
fund.
Although the funds will attempt to give you prior notice whenever they
are reasonably able to do so, they may impose these restrictions at
any time. The funds reserve the right to terminate or modify the
exchange privilege in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to 1.00% and trading fees of up to 3.00% of
the amount exchanged. Check each fund's prospectus for details.
Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, TouchTone Xpress, Fidelity Automatic
Account Builder, Directed Dividends, and Spartan are registered
trademarks of FMR Corp.
Portfolio Advisory Services and Fidelity GoalPlanner are service marks
of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
(RECYCLE LOGO)This prospectus is printed on recycled paper using
soy-based inks.
SUPPLEMENT TO THE
FIDELITY GOVERNMENT BOND FUNDS:
FIDELITY GINNIE MAE FUND, FIDELITY GOVERNMENT INCOME FUND, AND
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
SEPTEMBER 21, 1998
STATEMENT OF ADDITIONAL INFORMATION
THE FOLLOWING INFORMATION REPLACES SIMILAR INFORMATION FOUND IN THE
"TRUSTEES AND OFFICERS" SECTION ON PAGE 19:
STANLEY N. GRIFFITH (51), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
THE FOLLOWING INFORMATION SUPPLEMENTS THE INFORMATION FOUND IN THE
"TRUSTEES AND OFFICERS" SECTION ON PAGE 19:
THOMAS J. SIMPSON (40), Assistant Treasurer (1996), is Assistant
Treasurer of Fidelity's Fixed-Income Funds (1998) and an employee of
FMR (1996). Prior to joining Fidelity, Mr. Simpson was Vice President
and Fund Controller of Liberty Investment Services (1987-1995).
GVTB-98-01 October 8, 1998
1.708978.100
FIDELITY'S GOVERNMENT BOND FUNDS
FIDELITY GINNIE MAE FUND
FIDELITY GOVERNMENT INCOME FUND
(FORMERLY FIDELITY GOVERNMENT SECURITIES FUND)
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
(FORMERLY SPARTAN(registered trademark) LIMITED MATURITY GOVERNMENT
FUND)
FUNDS OF FIDELITY INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 21, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus
(dated September 21, 1998). Please retain this document for future
reference. The funds' Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity(registered trademark) at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and 31
Limitations
Portfolio Transactions 35
Valuation 36
Performance 36
Additional Purchase, Exchange 41
and Redemption Information
Distributions and Taxes 41
FMR 41
Trustees and Officers 42
Management Contracts 44
Distribution and Service Plans 49
Contracts with FMR Affiliates 49
Description of the Trust 50
Financial Statements 50
Appendix 50
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
GVT-ptb-0998
1.475374.101
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with the fund's investment policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF FIDELITY GINNIE MAE FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities or
securities of other investment companies) 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 borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page .
INVESTMENT LIMITATIONS OF FIDELITY GOVERNMENT INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) 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;
(3) 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;
(4) 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;
(5) 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);
(6) 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);
(7) 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 limit does not apply to purchases of debt securities or to
repurchase agreements; or
(8) invest in companies for the purpose of exercising control or
management.
(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 managed by Fidelity
Management & Research Company or an affiliate or successor 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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) 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.
(iii) 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.
(iv) 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 (2)). 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.
(v) 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.
(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 associated
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 invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
With respect to limitation (v), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page .
INVESTMENT LIMITATIONS OF FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities or
securities of other investment companies) 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 borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser,
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page .
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help a fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
funds may receive fees or price concessions for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of
price and yield fluctuations and the risk that the security will not
be issued as anticipated. Because payment for the securities is not
required until the delivery date, these risks are in addition to the
risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form
of leverage. When delayed-delivery purchases are outstanding, a fund
will set aside appropriate liquid assets in a segregated custodial
account to cover the purchase obligations. When a fund has sold a
security on a delayed-delivery basis, the fund does not participate in
further gains or losses with respect to the security. If the other
party to a delayed-delivery transaction fails to deliver or pay for
the securities, a fund could miss a favorable price or yield
opportunity or suffer a loss.
A fund may renegotiate a delayed delivery transaction and may sell the
underlying securities before delivery, which may result in capital
gains or losses for the fund.
FANNIE MAES AND FREDDIE MACS are pass-through securities issued by
Fannie Mae and Freddie Mac, respectively. Fannie Mae and Freddie Mac,
which guarantee payment of interest and repayment of principal on
Fannie Maes and Freddie Macs, respectively, are federally chartered
corporations supervised by the U.S. Government that act as
governmental instrumentalities under authority granted by Congress.
Fannie Mae 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 U.S. Government.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, OTC Options, Purchasing
Put and Call Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will
comply with guidelines established by the SEC with respect to coverage
of options and futures strategies by mutual funds and, if the
guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held
in a segregated account cannot be sold while the futures or option
strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a
large percentage of a fund's assets could impede portfolio management
or the fund's ability to meet redemption requests or other current
obligations.
COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price, to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices.
Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a futures commission merchant (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive
all or a portion of this amount. Initial and variation margin payments
do not constitute purchasing securities on margin for purposes of a
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of a fund, the fund may be entitled to
return of margin owed to it only in proportion to the amount received
by the FCM's other customers, potentially resulting in losses to the
fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading
Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The funds intend to comply with Rule
4.5 under the Commodity Exchange Act, which limits the extent to which
the funds can commit assets to initial margin deposits and option
premiums.
In addition, each fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of
the fund's total assets would be hedged with futures and options under
normal conditions; (b) purchase futures contracts or write put options
if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would
exceed 25% of its total assets under normal conditions; or (c)
purchase call options if, as a result, the current value of option
premiums for call options purchased by the fund would exceed 5% of the
fund's total assets. These limitations do not apply to options
attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
Each fund further limits its options and futures investments to
options and futures contracts relating to U.S. Government securities.
The above limitations on the funds' investments in futures contracts
and options, and the funds' policies regarding futures contracts and
options discussed elsewhere in this SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible to enter into new positions or close out
existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and potentially
could require a fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater flexibility
to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer assumes the obligation
to pay the strike price for the option's underlying instrument if the
other party to the option chooses to exercise it. The writer may seek
to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the
secondary market is not liquid for a put option, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position. When writing an option on a
futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by FMR to be illiquid include
repurchase agreements not entitling the holder to repayment of
principal and payment of interest within seven days, non-government
stripped fixed-rate mortgage-backed securities, and over-the-counter
options. Also, FMR may determine some government-stripped fixed-rate
mortgage-backed securities to be illiquid. However, with respect to
over-the-counter options a fund writes, all or a portion of the value
of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the
fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by
the Board of Trustees.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are
indexed, and may also be influenced by interest rate changes. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will borrow
through the program only when the costs are equal to or lower than the
costs of bank loans, and will lend through the program only when the
returns are higher than those available from an investment in
repurchase agreements. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
MORTGAGE-BACKED SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage-backed security is an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations (or "CMOs"), make payments of both
principal and interest at a range of specified intervals; others make
semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage-backed securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject
to prepayment risk, which is the risk that early principal payments
made on the underlying mortgages, usually in response to a reduction
in interest rates, will result in the return of principal to the
investor, causing it to be invested subsequently at a lower current
interest rate. Alternatively, in a rising interest rate environment,
mortgage-backed security values may be adversely affected when
prepayments on underlying mortgages do not occur as anticipated,
resulting in the extension of the security's effective maturity and
the related increase in interest rate sensitivity of a longer-term
instrument. The prices of stripped mortgage-backed securities tend to
be more volatile in response to changes in interest rates than those
of non-stripped mortgage-backed securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. As
protection against the risk that the original seller will not fulfill
its obligation, the securities are held in a separate account at a
bank, marked-to-market daily, and maintained at a value at least equal
to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as
delays and costs to a fund in connection with bankruptcy proceedings),
the funds will engage in repurchase agreement transactions with
parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. While a reverse repurchase
agreement is outstanding, a fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. The funds will enter into reverse repurchase agreements
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR. Such transactions may increase fluctuations in
the market value of fund assets and may be viewed as a form of
leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are
created by separating the income and principal components of a U.S.
Government security and selling them separately. STRIPS (Separate
Trading of Registered Interest and Principal of Securities) are
created when the coupon payments and the principal payment are
stripped from an outstanding U.S. Treasury security by a Federal
Reserve Bank.
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, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements
can take many different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if the fund agreed to
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 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, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to
make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses. A fund may be able
to eliminate its exposure under a swap agreement either by assignment
or other disposition, or by entering into an offsetting swap agreement
with the same party or a similarly creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of each fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR considers various relevant factors, including,
but not limited to: the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold;
the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; the reasonableness of any
commissions; and, if applicable, arrangements for payment of fund
expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
above.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and
effect securities transactions and perform functions incidental
thereto (such as clearance and settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to a fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher commissions, FMR
must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided
by such executing broker-dealers, viewed in terms of a particular
transaction or FMR's overall responsibilities to that fund or its
other clients. In reaching this determination, FMR will not attempt to
place a specific dollar value on the brokerage and research services
provided, or to determine what portion of the compensation should be
related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services Japan LLC (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar
services. Prior to December 9, 1997, FMR used research services
provided by and placed agency transactions with Fidelity Brokerage
Services (FBS), an indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
The Trustees of each fund periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended July 31, 1998 and 1997, the portfolio
turnover rates were 172%, and 98%, respectively, for Ginnie Mae, 188%
and 105%, respectively, for Intermediate Government Income. For the
fiscal periods October 1, 1997 through July 31, 1998 and October 1,
1996 through September 30, 1997, the portfolio turnover rates were
289% (annualized) and 199% respectively, for Government Income.
Because a high turnover rate increases transaction costs and may
increase taxable gains, FMR carefully weighs the anticipated benefits
of short-term investing against these consequences. Variations in
turnover rates may be due to fluctuating volume of shareholder
purchase and redemption orders, market conditions, or changes in FMR's
investment outlook.
For the fiscal years ended July 31, 1998, 1997 and 1996 for Ginnie Mae
and Intermediate Government Income, respectively, the funds paid no
brokerage commissions. For the fiscal periods October 1, 1997 through
July 31, 1998, October 1, 1996 through September 30, 1997, and October
1, 1995 through September 30, 1996, Government Income paid no
brokerage commissions.
For the fiscal year ended July 1998, the funds paid no brokerage
commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwriting in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR or its affiliates,
investment decisions for each fund are made independently from those
of other funds managed by FMR funds or accounts managed by FMR
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these funds or accounts. Simultaneous
transactions are inevitable when several funds and accounts are
managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one
fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to each fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
FSC normally determines each fund's net asset value per share (NAV) as
of the close of the New York Stock Exchange (NYSE) (normally 4:00 p.m.
Eastern time). The valuation of portfolio securities is determined as
of this time for the purpose of computing each fund's NAV.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities may be valued on the basis of information
furnished by a pricing service that uses a valuation matrix which
incorporates both dealer-supplied valuations and electronic data
processing techniques. Use of pricing services has been approved by
the Board of Trustees. A number of pricing services are available, and
the funds may use various pricing services or discontinue the use of
any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by a fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
A fund may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. Each fund's share price,
yield, and total return fluctuate in response to market conditions and
other factors, and the value of fund shares when redeemed may be more
or less than their original cost.
YIELD CALCULATIONS. Yields for a fund are computed by dividing a
fund's interest and income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the fund's
NAV at the end of the period, and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage
rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all stock and bond
funds. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of
the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the
discount to daily income. Income is adjusted to reflect gains and
losses from principal repayments received by a fund with respect to
mortgage-related securities and other asset-backed securities. Other
capital gains and losses generally are excluded from the calculation.
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, a fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing the fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect
all aspects of a fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in a fund's
NAV over a stated period. Average annual total returns are calculated
by determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative total return
of 100% over ten years would produce an average annual total return of
7.18%, which is the steady annual rate of return that would equal 100%
growth on a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment alternatives,
investors should realize that a fund's performance is not constant
over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of a fund.
In addition to average annual total returns, the fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to
exhibit performance. An adjusted NAV includes any distributions paid
by a fund and reflects all elements of its return. Unless otherwise
indicated, a fund's adjusted NAVs are not adjusted for sales charges,
if any.
CALCULATING HISTORICAL FUND RESULTS. The following table shows
performance for each fund calculated including certain fund expenses.
HISTORICAL FUND RESULTS. The following tables show each fund's yield
and total return for the period ended July 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Cumulativ
Annual e Total
Total Returns
Returns
Thirty Day One Five Ten One Five Ten
Yield Year Years Years Year Years Years
Ginnie Mae 6.37% 6.81% 6.34% 8.37% 6.81% 36.00% 123.36%
Government 5.32% 7.67% 5.87% 8.70% 7.67% 33.00% 130.27%
Income
Intermediate 5.89% 6.78% 5.87% 7.40% 6.78% 33.02% 104.23%
Government
Income
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, Ginnie Mae and Intermediate Government Income's total returns
would have been lower.
Note: If FMR had not reimbursed certain fund expenses during these
periods, Ginnie Mae and Intermediate Government Income's yields would
have been 6.32% and 5.60%, respectively.
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each fund's return
to the record of the Standard & Poor's 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (CPI), over the same period. The CPI
information is as of the month-end closest to the initial investment
date for each fund. The S&P 500 and DJIA comparisons are provided to
show how each fund's total return compared to the record of a broad
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because each
fund invests in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investments such as the funds. The S&P 500 and DJIA
returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended July
31, 1998, assuming all distributions were reinvested. Total returns
are based on past results and are not an indication of future
performance. Tax consequences of different investments have not been
factored into the figures below.
During the 10-year period ended July 31, 1998, a hypothetical $10,000
investment in Ginnie Mae would have grown to $22,336.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
GINNIE MAE INDICES
Year Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital
Investment Distributio Gain
ns Distributio
ns
1998 $ 10,848 $ 11,090 $ 398 $ 22,336 $ 54,515 $ 55,318 $ 13,772
1997 $ 10,828 $ 9,686 $ 398 $ 20,912 $ 45,702 $ 50,376 $ 13,544
1996 $ 10,509 $ 8,097 $ 386 $ 18,992 $ 30,040 $ 33,218 $ 13,249
1995 $ 10,619 $ 6,985 $ 390 $ 17,994 $ 25,770 $ 27,670 $ 12,869
1994 $ 10,339 $ 5,633 $ 348 $ 16,320 $ 20,435 $ 21,556 $ 12,523
1993 $ 11,238 $ 5,186 $ 0 $ 16,424 $ 19,433 $ 19,721 $ 12,186
1992 $ 11,038 $ 4,138 $ 0 $ 15,176 $ 17,870 $ 18,358 $ 11,857
1991 $ 10,629 $ 2,963 $ 0 $ 13,592 $ 15,842 $ 15,882 $ 11,494
1990 $ 10,349 $ 1,856 $ 0 $ 12,205 $ 14,049 $ 14,704 $ 11,004
1989 $ 10,399 $ 901 $ 0 $ 11,300 $ 13,192 $ 12,967 $ 10,498
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Ginnie Mae
on August 1, 1988, the net amount invested in fund shares was $10,000.
The cost of the initial investment ($10,000) together with the
aggregate cost of reinvested dividends and capital gain distributions
for the period covered (their cash value at the time they were
reinvested) amounted to $21,232. If distributions had not been
reinvested, the amount of distributions earned from the fund over time
would have been smaller, and cash payments for the period would have
amounted to $7,390 for dividends and $269 for capital gain
distributions.
During the 10-year period ended July 31, 1998, a hypothetical $10,000
investment in Government Income would have grown to $23,027.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
GOVERNME INDICES
NT INCOME
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital
Investment Distributio Gain
ns Distributio
ns
1998 $ 10,651 $ 11,464 $ 912 $ 23,027 $ 54,515 $ 55,318 $ 13,772
1997 $ 10,480 $ 10,009 $ 898 $ 21,387 $ 45,702 $ 50,376 $ 13,544
1996 $ 10,235 $ 8,398 $ 877 $ 19,510 $ 30,040 $ 33,218 $ 13,249
1995 $ 10,448 $ 7,320 $ 895 $ 18,663 $ 25,770 $ 27,670 $ 12,869
1994 $ 10,277 $ 6,055 $ 842 $ 17,174 $ 20,435 $ 21,556 $ 12,523
1993 $ 11,355 $ 5,557 $ 402 $ 17,314 $ 19,433 $ 19,721 $ 12,186
1992 $ 11,089 $ 4,357 $ 0 $ 15,446 $ 17,870 $ 18,358 $ 11,857
1991 $ 10,224 $ 2,984 $ 0 $ 13,208 $ 15,842 $ 15,882 $ 11,494
1990 $ 10,096 $ 1,866 $ 0 $ 11,962 $ 14,049 $ 14,704 $ 11,004
1989 $ 10,363 $ 902 $ 0 $ 11,265 $ 13,192 $ 12,967 $ 10,498
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Government
Income on August 1, 1988, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amounted to $22,166. If distributions had not
been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would
have amounted to $7,466 for dividends and $619 for capital gain
distributions.
During the 10-year period ended July 31, 1998, a hypothetical $10,000
investment in Intermediate Government Income would have grown to
$20,423.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
INTERMEDI INDICES
ATE
GOVERN
MENT
INCOME
Year Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital
Investment Distributio Gain
ns Distributio
ns
1998 $ 9,899 $ 10,021 $ 503 $ 20,423 $ 54,515 $ 55,318 $ 13,772
1997 $ 9,909 $ 8,714 $ 503 $ 19,126 $ 45,702 $ 50,376 $ 13,544
1996 $ 9,767 $ 7,355 $ 496 $ 17,618 $ 30,040 $ 33,218 $ 13,249
1995 $ 9,879 $ 6,320 $ 502 $ 16,701 $ 25,770 $ 27,670 $ 12,869
1994 $ 9,727 $ 5,220 $ 494 $ 15,441 $ 20,435 $ 21,556 $ 12,523
1993 $ 10,435 $ 4,741 $ 177 $ 15,353 $ 19,433 $ 19,721 $ 12,186
1992 $ 10,304 $ 3,814 $ 104 $ 14,222 $ 17,870 $ 18,358 $ 11,857
1991 $ 10,182 $ 2,867 $ 25 $ 13,074 $ 15,842 $ 15,882 $ 11,494
1990 $ 10,051 $ 1,788 $ 0 $ 11,839 $ 14,049 $ 14,704 $ 11,004
1989 $ 10,152 $ 862 $ 0 $ 11,014 $ 13,192 $ 12,967 $ 10,498
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in
Intermediate Government Income on August 1, 1988, the net amount
invested in fund shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested) amounted to $20,635. 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 $6,915 for dividends
and $364 for capital gain distributions.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
based on yield. In addition to the mutual fund rankings, a fund's
performance may be compared to stock, bond, and money market mutual
fund performance indices prepared by Lipper or other organizations.
When comparing these indices, it is important to remember the risk and
return characteristics of each type of investment. For example, while
stock mutual funds may offer higher potential returns, they also carry
the highest degree of share price volatility. Likewise, money market
funds may offer greater stability of principal, but generally do not
offer the higher potential returns available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A fund may advertise risk ratings,
including symbols or numbers, prepared by independent rating agencies.
A fund's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest.
The total return of a benchmark index reflects reinvestment of all
dividends and capital gains paid by securities included in the index.
Unlike a fund's returns, however, the index returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
Ginnie Mae may compare its performance to that of the Lehman Brothers
GNMA Index, a market value weighted performance benchmark of
fixed-rate securities issued by the Government National Mortgage
Association (GNMA). These securities represent interests in pools of
mortgage loans with original terms of 15 and 30 years.
Government Income may compare its performance to that of the Lehman
Brothers Government Bond Index, a market value weighted index of U.S.
Government and government agency securities (other than mortgage
securities) with maturities of one year or more. Issues include all
public obligations of the U.S. Treasury (excluding flower bonds and
foreign-targeted issues) and U.S. Government agencies and
quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government.
Intermediate Government Income may compare its performance to that of
the Lehman Brothers Intermediate Government Bond Index, a market value
weighted performance benchmark for government fixed-rate debt issues.
Issues included in the index have an outstanding par value of at least
$100 million and maturities between one and ten years. Issues include
all public obligations of the U.S. Treasury (excluding flower bonds
and foreign-targeted issues) and U.S. Government agencies and
quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
A fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a fund's historical share price fluctuations or total
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, a fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific
periods of time. Each point on the momentum indicator represents a
fund's percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
A fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which
may produce superior after-tax returns over time. For example, a
$1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of July 31, 1998, FMR advised over $31 billion in municipal fund
assets, $107 billion in money market fund assets, $460 billion in
equity fund assets, $71 billion in international fund assets, and $27
billion in Spartan fund assets. The funds may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management
figure represents the largest amount of equity fund assets under
management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, a fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. A fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
Each fund is open for business and each net asset value per share
(NAV) is calculated each day the New York Stock Exchange (NYSE) is
open for trading. The NYSE has designated the following holiday
closings for 1998: New Year's Day, Martin Luther King's Birthday,
Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day, and Christmas Day. Although
FMR expects the same holiday schedule to be observed in the future,
the NYSE may modify its holiday schedule at any time. In addition, on
days when the Federal Reserve Wire System is closed, federal funds
wires cannot be sent.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
SEC. To the extent that portfolio securities are traded in other
markets on days when the NYSE is closed, a fund's NAV may be affected
on days when investors do not have access to the fund to purchase or
redeem shares. In addition, trading in some of a fund's portfolio
securities may not occur on days when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing each fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the 1940 Act, each fund is required to
give shareholders at least 60 days' notice prior to terminating or
modifying its exchange privilege. Under the Rule, the 60-day
notification requirement may be waived if (i) the only effect of a
modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the
time of an exchange, or (ii) the fund suspends the redemption of the
shares to be exchanged as permitted under the 1940 Act or the rules
and regulations thereunder, or the fund to be acquired suspends the
sale of its shares because it is unable to invest amounts effectively
in accordance with its investment objective and policies.
In the Prospectus, each fund has notified shareholders that it
reserves the right at any time, without prior notice, to refuse
exchange purchases by any person or group if, in FMR's judgment, the
fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
DISTRIBUTIONS AND TAXES
DIVIDENDS. Because each fund's income is primarily derived from
interest, dividends from the fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do
not qualify for the dividends-received deduction. A portion of each
fund's dividends derived from certain U.S. Government securities may
be exempt from state and local taxation. Mortgage security paydown
gains (losses) on mortgage securities purchased by a fund on or prior
to June 8, 1997 are generally taxable as ordinary income and,
therefore, increase (decrease) taxable dividend distributions. Each
fund will send each shareholder a notice in January describing the tax
status of dividend and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each
fund on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains, regardless of the length
of time shareholders have held their shares. If a shareholder receives
a capital gain distribution on shares of a fund, and such shares are
held six months or less and are sold at a loss, the portion of the
loss equal to the amount of the capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by each fund are taxable to shareholders as dividends, not
as capital gains.
As of July 31, 1998, Ginnie Mae had a capital loss carryforward
aggregating approximately $15,435,000. This loss carryforward, of
which $10,681,000, and $4,754,000 will expire on July 31, 2003, and
2004 , respectively, is available to offset future capital gains.
As of July 31, 1998, Government Income had a capital loss carryforward
aggregating approximately $6,321,000. This loss carryforward, of which
$1,847,000, and $4,474,000 will expire on July 31, 2004, and 2005,
respectively, is available to offset future capital gains.
As of July 31, 1998, Intermediate Government Income had a capital loss
carryforward aggregating approximately $55,905,000. This loss
carryforward, of which $45,999,000, $6,634,000, and $3,272,000 will
expire on July 31, 2003, 2004, and 2005, respectively, is available to
offset future 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 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 a fund will be the same as if you
directly owned a proportionate share of the U.S. Government
securities. Because the income earned on most U.S. Government
securities is exempt from state and local income taxes, the portion of
dividends from a 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.
TAX STATUS OF THE FUND. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company
and avoid being subject to federal income or excise taxes at the fund
level, each fund intends to distribute substantially all of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds, if
any, of its trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal income taxes, shareholders may be
subject to state and local taxes on fund distributions, and shares may
be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether a fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the 1940 Act, control of a company is presumed where one individual or
group of individuals owns more than 25% of the voting stock of that
company. Therefore, through their ownership of voting common stock and
the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. Trustees and officers elected or appointed to
Fidelity Income Fund prior to Government Income's conversion from a
series of a Massachusetts business trust served in identical
capacities. All persons named as Trustees and Members of the Advisory
Board also serve in similar capacities for other funds advised by FMR.
The business address of each Trustee, Member of the Advisory Board,
and officer who is an "interested person" (as defined in the
Investment Company Act of 1940) is 82 Devonshire Street, Boston,
Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees is Fidelity Investments, P.O. Box
9235, Boston, Massachusetts 02205-9235. Those Trustees who are
"interested persons" by virtue of their affiliation with either the
trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (68), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (57), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (66), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES (70), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Inc., Chairman
of the Board of Trustees of the Greenwich Hospital Association,
Director of the Yale-New Haven Health Services Corp. (1998), a Member
of the Public Oversight Board of the American Institute of Certified
Public Accountants' SEC Practice Section (1995), and as a Public
Governor of the National Association of Securities Dealers, Inc.
(1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (70), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board, of
Lexmark International, Inc. (office machines, 1991). Prior to 1991, he
held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993) and Imation Corp. (imaging and
information storage, 1997).
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, group
leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
FRED L. HENNING, JR. (59), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
CURT HOLLINGSWORTH (41), is Vice President of Fidelity Government
Income Fund (1997) of Fidelity Ginnie Mae Fund (1997), and Fidelity
Intermediate Government Income Fund (1990) and an employee of FMR
(1983).
ERIC D. ROITER (49), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER (51), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
STANLEY N. GRIFFITH (52), Assistant Vice President, is Assistant Vice
President of Fidelity's Fixed-Income Funds.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (52), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended July 31, 1998 or calendar
year ended December 31, 1997, as applicable. During part of the fiscal
period ended July 31, 1998 Government Income was a fund of Fidelity
Government Securities Trust.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate Aggregate Aggregate Total
and Compensation Compensation Compensation Compensation
Members of the from from from from the
Advisory Board Fidelity Ginnie Fidelity Fidelity Fund Complex*,A
Mae FundB Government Intermediate
Income FundB Government
Income FundB
J. Gary Burkhead** $ 0 $ 0 $ 0 $ 0
Ralph F. Cox $ 312 $ 268 $ 414 $ 214,500
Phyllis Burke Davis $ 312 $ 268 $ 414 $ 210,000
Robert M. Gates $ 316 $ 271 $ 323 $ 176,000
Edward C. Johnson 3d** $ 0 $ 0 $ 0 $ 0
E. Bradley Jones $ 314 $ 270 $ 417 $ 211,500
Donald J. Kirk $ 314 $ 270 $ 417 $ 211,500
Peter S. Lynch** $ 0 $ 0 $ 0 $ 0
William O. McCoy $ 316 $ 271 $ 323 $ 214,500
Gerald C. McDonough $ 389 $ 334 $ 517 $ 264,500
Marvin L. Mann $ 310 $ 266 $ 411 $ 214,500
Robert C. Pozen** $ 0 $ 0 $ 0 $ 0
Thomas R. Williams $ 314 $ 270 $ 417 $ 214,500
</TABLE>
* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $62,500; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,699; Marvin L. Mann, $53,699; and Thomas R.
Williams, $62,462.
B Compensation figures include cash.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of July 31, 1998, the Trustees, Members of the Advisory Board, and
officers of each fund owned, in the aggregate, less than 1% of each
fund's total outstanding shares.
As of July 31, 1998, the following owned of record or beneficially 5%
or more of Government Income's outstanding shares: Bank of New York,
New York, NY (6.27%).
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
each fund, FMR acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the
fund in accordance with its investment objective, policies, and
limitations. FMR also provides each fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of each fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of each
fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters, and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES (GINNIE MAE AND GOVERNMENT INCOME). In
addition to the management fee payable to FMR and the fees payable to
the transfer, dividend disbursing, and shareholder servicing agent,
pricing and bookkeeping agent, and securities lending agent, each fund
pays all of its expenses that are not assumed by those parties. Each
fund pays for the typesetting, printing, and mailing of its proxy
materials to shareholders, legal expenses, and the fees of the
custodian, auditor and non-interested Trustees. Each fund's management
contract further provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders; however, under the
terms of each fund's transfer agent agreement, the transfer agent
bears the costs of providing these services to existing shareholders.
Other expenses paid by each fund include interest, taxes, brokerage
commissions, each fund's proportionate share of insurance premiums and
Investment Company Institute dues, and the costs of registering shares
under federal securities laws and making necessary filings under state
securities laws. Each fund is also liable for such non-recurring
expenses as may arise, including costs of any litigation to which the
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT-RELATED EXPENSES (INTERMEDIATE GOVERNMENT INCOME). Under
the terms of its management contract with the fund, FMR is responsible
for payment of all operating expenses of the fund with certain
exceptions. Specific expenses payable by FMR include expenses for
typesetting, printing, and mailing proxy materials to shareholders,
legal expenses, fees of the custodian, auditor and interested
Trustees, the fund's proportionate share of insurance premiums and
Investment Company Institute dues, and the costs of registering shares
under federal securities laws and making necessary filings under state
securities laws. The fund's management contract further provides that
FMR will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders; however, under the terms of each fund's transfer agent
agreement, the transfer agent bears the costs of providing these
services to existing shareholders. FMR also pays all fees associated
with transfer agent, dividend disbursing, and shareholder services,
pricing and bookkeeping services and administration of the fund's
securities lending program.
FMR pays all other expenses of Intermediate Government Income with the
following exceptions: fees and expenses of the non-interested
Trustees, interest, taxes, brokerage commissions (if any), and such
nonrecurring expenses as may arise, including costs of any litigation
to which the fund may be a party, and any obligation it may have to
indemnify its officers and Trustees with respect to litigation.
MANAGEMENT FEES. For the services of FMR under the management
contract, Intermediate Government Income pays FMR a monthly management
fee at the annual rate of 0.65% of its average net assets throughout
the month.
The management fee paid to FMR by Intermediate Government Income is
reduced by an amount equal to the fees and expenses paid by the fund
to the non-interested Trustees.
For the services of FMR under the management contract, Ginnie Mae and
Government Income each pays FMR a monthly management fee which has two
components: 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1690
24 - 30 .1800 200 .1652
30 - 36 .1750 225 .1618
36 - 42 .1700 250 .1587
42 - 48 .1650 275 .1560
48 - 66 .1600 300 .1536
66 - 84 .1550 325 .1514
84 - 120 .1500 350 .1494
120 - 156 .1450 375 .1476
156 - 192 .1400 400 .1459
192 - 228 .1350 425 .1443
228 - 264 .1300 450 .1427
264 - 300 .1275 475 .1413
300 - 336 .1250 500 .1399
336 - 372 .1225 525 .1385
372 - 408 .1200 550 .1372
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over 516 .1100
</TABLE>
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $648 billion of group net assets - the approximate level for
July 1998 was 0.1331%, which is the weighted average of the respective
fee rates for each level of group net assets up to $648 billion.
The individual fund fee rate for each of Ginnie Mae and Government
Income is 0.30%. Based on the average group net assets of the funds
advised by FMR for July 1998, each fund's annual management fee rate
would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
Ginnie 0.1331% + 0.30% = 0.4331%
Mae
Governme 0.1331% + 0.30% = 0.4331%
nt Income
</TABLE>
One-twelfth of this annual management fee rate, is applied to each
fund's net assets averaged for the most recent month, giving a dollar
amount, which is the fee for that month.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years, and the amounts of
credits reducing management fees for each fund.
Fund July 31 Amount of Management Fees
Credits Reducing Paid to FMR
Management Fees
Ginnie Mae 1998 $ 0 $ 3,763,000
1997 $ 0 $ 3,511,000
1996 $ 0 $ 3,534,000
Government 1998** $ 0 $ 4,322,000
Income
1997*** $ 0 $ 4,315,000
1996**** $ 0 $ 4,287,000
Intermediate 1998 $ 7,000 $ 4,782,000*
Government
Income
1997 $ 13,000 $ 4,536,000*
1996 $ 73,000 $ 5,118,000*
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
** For the fiscal period October 1, 1997 to July 31, 1998.
*** For the fiscal period ended October 1, 1996 to September 30, 1997.
**** For the fiscal period October 1, 1995 to September 30, 1996.
During the period reported FMR voluntarily modified the breakpoints in
the group fee rate schedules on January 1, 1996 to provide for lower
management fee rates as FMR's assets under management increase.
FMR may, from time to time, voluntarily reimburse all or a portion of
a fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses), in the case of certain
funds, which is subject to revision or termination. FMR retains the
ability to be repaid for these expense reimbursements in the amount
that expenses fall below the limit prior to the end of the fiscal
year.
Expense reimbursements by FMR will increase a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
During the past three fiscal periods, FMR voluntarily agreed to
reimburse certain of the funds if and to the extent that the fund's
aggregate operating expenses, including management fees, were in
excess of an annual rate of its average net assets. The tables below
show the period of reimbursement and levels of expense limitations for
the applicable funds; the dollar amount of management fees incurred
under each fund's contract before reimbursement; and the dollar amount
of management fees reimbursed by FMR under the expense reimbursement
for the period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Periods of Aggregate Fiscal Years Management Amount of
Expense Operating Ended Fee Management
Limitation Expense July 31 Before Fee
From Limitation Reimbursement Reimbursement
To
Ginnie Mae June 27, -- 0.65% 1998 $ 3,763,000 $ 120,000
1998
Intermediat March 1, December 0.38% 1998 $ 4,789,000* $ 1,987,000
e 1997 31, 1998
Governme
nt Income
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
SUB-ADVISERS. On behalf of Ginnie Mae and Intermediate Government
Income, FMR has entered into sub-advisory agreements with FMR U.K. and
FMR Far East pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from
the sub-advisers.
On behalf of Ginnie Mae and Intermediate Government Income, 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, which were organized in 1986, are wholly
owned subsidiaries of FMR. Under the sub-advisory agreements FMR pays
the fees of FMR U.K. and FMR Far East. For providing non-discretionary
investment advice and research services, FMR pays FMR U.K. and FMR Far
East fees equal to 110% and 105%, respectively, of FMR U.K.'s and FMR
Far East's costs incurred in connection with providing investment
advice and research services.
On behalf of Ginnie Mae and Intermediate Government Income, for
providing discretionary investment management and executing portfolio
transactions, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of
its monthly management fee rate with respect to each fund's average
net assets managed by the sub-adviser on a discretionary basis.
No fees were paid to the sub-advisers by FMR on behalf of Ginnie Mae,
and Intermediate Government Income for the past three fiscal years.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, each Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has authorized such
payments for Ginnie Mae, Government Income and Intermediate Government
Income shares.
FMR made no payments either directly or through FDC to third parties
for the fiscal year ended 1998.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each Plan does not authorize payments by the fund other
than those made to FMR under its management contract with the fund. To
the extent that each Plan gives FMR and FDC greater flexibility in
connection with the distribution of shares, additional sales of fund
shares may result. Furthermore, certain shareholder support services
may be provided more effectively under the Plans by local entities
with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
Each fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreements, FSC performs
transfer agency, dividend disbursing, and shareholder services for
each fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state tuition
program (QSTP), as defined under the Small Business Job Protection Act
of 1996, managed by FMR or an affiliate and each Fidelity Freedom
Fund, a fund of funds managed by an FMR affiliate, according to the
percentage of the QSTP's or Freedom Fund's assets that is invested in
a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each fund has also entered into a service agent agreement with FSC.
Under the terms of the agreements, FSC calculates the NAV and
dividends for each fund, maintains each fund's portfolio and general
accounting records, and administers each fund's securities lending
program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month. The annual fee rates for pricing and bookkeeping services are
.0400% of the first $500 million of average net assets and .0200% of
average net assets in excess of $500 million. The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 and a maximum of $800,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
Fund 1998 1997 1996
Ginnie Mae $ 278,000 $ 268,000 $ 260,000
Government $ 287,000* $ 305,000** $ 295,000***
Income
* From October 1, 1997 through July 31, 1998.
** From October 1, 1996 through September 30, 1997
*** From October 1, 1995 through September 30, 1996
For administering each fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
For fiscal years ended July 31, 1998, 1997, and 1996, Ginnie Mae paid
no securities lending fees.
For the fiscal periods October 1, 1997 through July 31, 1998, October
1, 1996 through September 30, 1997 and October 1, 1995 through
September 30, 1996, Government Income paid no securities lending fees.
For Intermediate Government Income, FMR bears the cost of transfer
agency, dividend disbursing, and shareholder services, pricing and
bookkeeping services, and administration of the securities lending
program under the terms of its management contract with the fund.
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call for FDC to use all
reasonable efforts, consistent with its other business, to secure
purchasers for shares of each fund, which are continuously offered at
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUSTS' ORGANIZATION. Fidelity Ginnie Mae Fund, Fidelity Government
Income Fund, and Fidelity Intermediate Government Income Fund are
funds of Fidelity Income Fund, an open-end management investment
company originally organized as a Massachusetts business trust under
the name Fidelity Mortgage Securities Fund on August 7, 1984. On
October 25, 1985, the trust's name was changed from Fidelity Mortgage
Securities Fund to Fidelity Income Fund. Currently, Fidelity Ginnie
Mae Fund, Fidelity Intermediate Government Income Fund, and Fidelity
Government Income Fund are the only funds of the trust. The
Declaration of Trust permits the Trustees to create additional funds.
In the event that FMR ceases to be the investment adviser to a trust
or a fund, the right of the trust or fund to use the identifying name
"Fidelity" may be withdrawn. There is a remote possibility that one
fund might become liable for any misstatement in its prospectus or
statement of additional information about another fund.
The assets of the trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general liabilities of their trust.
Expenses with respect to the trust are to be allocated in proportion
to the asset value of their respective funds, except where allocations
of direct expense can otherwise be fairly made. The officers of the
trust, subject to the general supervision of the Boards of Trustees,
have the power to determine which expenses are allocable to a given
fund, or which are general or allocable to all of the funds of the
trust. In the event of the dissolution or liquidation of the trust,
shareholders of each fund of the trust are entitled to receive as a
class the underlying assets of such fund available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be
held personally liable for the obligations of the trust. The
Declaration of Trust provides that the trust shall not have any claim
against shareholders except for the payment of the purchase price of
shares and requires that each agreement, obligation, or instrument
entered into or executed by the trust or its Trustees shall include a
provision limiting the obligations created thereby to the trust and
its assets. The Declaration of Trust provides for indemnification out
of each fund's property of any shareholder held personally liable for
the obligations of the fund. The Declaration of Trust also provides
that its funds shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the fund and
satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the
risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value
of net asset value you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the trust or a fund may, as
set forth in the Declarations of Trust, call meetings of a trust or
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. Each trust or each fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
trust or the fund, as determined by the current value of each
shareholder's investment in the fund or trust. If not so terminated,
the trust and the funds will continue indefinitely. Each fund may
invest all of its assets in another investment company.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, New
York, is custodian of the assets of the funds. The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any subcustodian banks and clearing agencies. The custodian takes
no part in determining the investment policies of a fund or in
deciding which securities are purchased or sold by a fund. However, a
fund may invest in obligations of its custodian and may purchase
securities from or sell securities to the custodian. The Chase
Manhattan Bank headquartered in New York, also may serve as a special
purpose custodians of certain assets in connection with repurchase
agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
AUDITOR. PricewaterhouseCoopers LLP, 160 Federal Street, and One Post
Office Square, Boston, Massachusetts serves as the trust's independent
accountant. The auditor examines financial statements for the funds
and provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year period July 31, 1998, and reports of the auditors, are
included in each fund's Annual Report, which are separate reports
supplied with this SAI. The funds' financial statements, including the
financial highlights, and reports of the auditor are incorporated
herein by reference. For a free additional copy of a fund's Annual
Report, contact Fidelity at 1-800-544-8888, 82 Devonshire Street,
Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. Also, the maturities of mortgage-backed securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF CORPORATE BONDS
Moody's ratings for obligations with an original remaining maturity in
excess of one year fall within nine categories. They range from Aaa
(highest quality) to C (lowest quality). Moody's applies numerical
modifiers of 1, 2, or 3 to each generic rating classification from Aa
through B. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
on the lower end of its generic rating category.
AAA - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities.
A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
BAA - Bonds that are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
BA - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
CAA - Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect
to principal or interest.
CA - Bonds that are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked short-comings.
C - Bonds that are rated C are the lowest-rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF CORPORATE BONDS
Debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA to CCC may be modified by the addition of a plus sign (+) or minus
sign (-) to show relative standing within the major rating categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C
rating may be used to cover a situation where a bankruptcy petition
has been filed but debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The
D rating will also be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
Spartan(registered trademark) Limited Maturity, Fidelity(registered
trademark) and Fidelity Focus(registered trademark) are registered
trademarks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
FIDELITY GINNIE MAE FUND
(REGISTERED TRADEMARK)
FIDELITY GOVERNMENT
INCOME FUND
(FORMERLY KNOWN AS FIDELITY GOVERNMENT
SECURITIES FUND)
FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND
(FORMERLY KNOWN AS SPARTAN LIMITED
MATURITY GOVERNMENT FUND)
ANNUAL REPORT
JULY 31, 1998
(2 FIDELITY LOGO GRAPHICS)(REGISTERED TRADEMARK)
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PRESIDENT'S MESSAGE 3 NED JOHNSON ON
INVESTING STRATEGIES
FIDELITY GINNIE MAE FUND
4 PERFORMANCE
7 FUND TALK: THE
MANAGER'S OVERVIEW
10 INVESTMENT CHANGES
11 INVESTMENTS
13 FINANCIAL STATEMENTS
FIDELITY GOVERNMENT INCOME FUND
17 PERFORMANCE
20 FUND TALK: THE
MANAGER'S OVERVIEW
23 INVESTMENT CHANGES
24 INVESTMENTS
29 FINANCIAL STATEMENTS
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
33 PERFORMANCE
36 FUND TALK: THE
MANAGER'S OVERVIEW
39 INVESTMENT CHANGES
40 INVESTMENTS
46 FINANCIAL STATEMENTS
NOTES 50 NOTES TO THE
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT 54 THE AUDITORS'
OPINION.
ACCOUNTANTS
PROXY VOTING RESULTS 55
</TABLE>
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUNDS. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUNDS UNLESS PRECEDED OR ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888
FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND
MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
So far, 1998 has been a year of considerable volatility in the U.S.
stock and bond markets. In the first quarter, the U.S. stock market
soared as inflation and interest rates remained stable, while the
economy maintained strong growth. By summer, however, investors began
to exercise caution relative to the troublesome Asian economic climate
and reports of concerns about corporate earnings domestically. Market
volatility and low interest rates were also the main stories in the
bond market, with many investors moving assets to highly rated U.S.
Treasuries.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
FIDELITY GINNIE MAE FUND
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GINNIE MAE FUND 6.81% 36.00% 123.36%
LB GNMA 7.46% 40.29% 142.29%
SB GNMA 7.37% 39.84% 142.68%
GNMA FUNDS AVERAGE 6.81% 34.54% 121.63%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of both
the Lehman Brothers GNMA Index and the Salomon Brothers GNMA Index,
both of which are market capitalization weighted indexes of fixed-rate
securities issued by the Government National Mortgage Association
(GNMA). These securities represent interests in pools of mortgage
loans with original terms of 15 and 30 years. To measure how the
fund's performance stacked up against its peers, you can compare it to
the GNMA funds average, which reflects the performance of mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc.
The past one year average represents a peer group of 53 mutual funds.
These benchmarks include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GINNIE MAE FUND 6.81% 6.34% 8.37%
LB GNMA 7.46% 7.01% 9.25%
SB GNMA 7.37% 6.94% 9.27%
GNMA FUNDS AVERAGE 6.81% 6.11% 8.27%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Ginnie Mae LB GNMA
00015 LB020
1988/07/31 10000.00 10000.00
1988/08/31 10014.21 10011.68
1988/09/30 10213.94 10269.83
1988/10/31 10392.46 10497.02
1988/11/30 10287.00 10351.89
1988/12/31 10232.83 10294.65
1989/01/31 10395.62 10460.81
1989/02/28 10341.76 10399.49
1989/03/31 10353.94 10412.63
1989/04/30 10556.05 10636.61
1989/05/31 10824.61 10961.34
1989/06/30 11115.48 11267.96
1989/07/31 11300.02 11502.75
1989/08/31 11193.52 11359.95
1989/09/30 11220.03 11431.78
1989/10/31 11459.68 11696.06
1989/11/30 11569.99 11829.81
1989/12/31 11649.80 11909.82
1990/01/31 11522.15 11809.66
1990/02/28 11589.08 11875.07
1990/03/31 11611.79 11906.03
1990/04/30 11481.24 11800.61
1990/05/31 11847.88 12170.31
1990/06/30 12014.39 12357.79
1990/07/31 12205.44 12586.15
1990/08/31 12174.15 12416.48
1990/09/30 12249.62 12511.97
1990/10/31 12385.10 12666.45
1990/11/30 12663.64 12954.09
1990/12/31 12873.07 13169.31
1991/01/31 13035.14 13366.14
1991/02/28 13087.75 13477.11
1991/03/31 13178.96 13574.35
1991/04/30 13276.58 13701.67
1991/05/31 13377.36 13813.51
1991/06/30 13393.50 13839.80
1991/07/31 13592.08 14076.33
1991/08/31 13834.46 14337.99
1991/09/30 14038.45 14590.59
1991/10/31 14229.50 14831.50
1991/11/30 14305.83 14934.30
1991/12/31 14619.57 15282.39
1992/01/31 14498.31 15093.16
1992/02/29 14653.27 15251.14
1992/03/31 14567.01 15164.41
1992/04/30 14691.56 15303.70
1992/05/31 14935.29 15573.24
1992/06/30 15102.46 15763.64
1992/07/31 15175.76 15901.76
1992/08/31 15343.57 16114.36
1992/09/30 15453.88 16257.74
1992/10/31 15328.96 16135.97
1992/11/30 15407.52 16209.55
1992/12/31 15599.02 16414.85
1993/01/31 15804.92 16621.31
1993/02/28 15945.38 16790.09
1993/03/31 16032.67 16882.08
1993/04/30 16087.55 16943.70
1993/05/31 16179.82 17059.92
1993/06/30 16338.36 17198.63
1993/07/31 16424.19 17271.05
1993/08/31 16465.04 17313.98
1993/09/30 16465.98 17328.88
1993/10/31 16522.28 17358.66
1993/11/30 16426.89 17333.84
1993/12/31 16552.48 17494.74
1994/01/31 16738.77 17632.29
1994/02/28 16581.19 17544.68
1994/03/31 16164.81 17071.02
1994/04/30 16035.53 16954.21
1994/05/31 16049.83 17002.69
1994/06/30 15995.56 16977.86
1994/07/31 16320.21 17309.02
1994/08/31 16360.87 17362.17
1994/09/30 16133.19 17117.74
1994/10/31 16112.48 17090.59
1994/11/30 16060.55 17042.40
1994/12/31 16222.05 17231.63
1995/01/31 16564.45 17588.48
1995/02/28 16990.50 18051.92
1995/03/31 17074.58 18140.40
1995/04/30 17305.96 18409.06
1995/05/31 17837.90 18971.21
1995/06/30 17941.11 19100.28
1995/07/31 17993.92 19140.58
1995/08/31 18161.82 19337.40
1995/09/30 18341.20 19526.63
1995/10/31 18490.23 19686.66
1995/11/30 18694.23 19914.15
1995/12/31 18915.67 20169.96
1996/01/31 19033.79 20310.42
1996/02/29 18890.75 20158.57
1996/03/31 18851.27 20107.17
1996/04/30 18791.04 20054.61
1996/05/31 18714.05 19987.15
1996/06/30 18923.40 20249.68
1996/07/31 18992.27 20325.90
1996/08/31 19005.04 20334.66
1996/09/30 19290.32 20675.15
1996/10/31 19670.58 21093.33
1996/11/30 19944.27 21400.25
1996/12/31 19834.56 21285.77
1997/01/31 19964.45 21449.30
1997/02/28 20018.47 21526.69
1997/03/31 19812.61 21314.39
1997/04/30 20114.26 21663.94
1997/05/31 20302.71 21886.17
1997/06/30 20549.08 22145.49
1997/07/31 20911.86 22547.31
1997/08/31 20872.47 22499.12
1997/09/30 21122.17 22798.15
1997/10/31 21333.81 23035.86
1997/11/30 21368.24 23106.53
1997/12/31 21560.43 23315.03
1998/01/31 21755.04 23540.18
1998/02/28 21790.29 23592.75
1998/03/31 21870.52 23692.62
1998/04/30 22008.73 23830.16
1998/05/31 22167.36 23992.82
1998/06/30 22221.33 24093.86
1998/07/31 22336.44 24229.35
IMATRL PRASUN SHR__CHT 19980731 19980811 133226 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Ginnie Mae Fund on July 31, 1988. As the chart
shows, by July 31, 1998, the value of the investment would have grown
to $22,336 - a 123.36% increase on the initial investment. For
comparison, look at how the Lehman Brothers GNMA Index did over the
same period. With dividends and capital gains, if any, reinvested the
same $10,000 investment would have grown to $24,229 - a 142.29%
increase. The fund will compare its performance to that of the Lehman
Brothers GNMA Index rather than the Salomon Brothers GNMA Index. The
indexes include the same types of bonds, and their performance is not
materially different. The fund is changing to the Lehman Brothers
index mainly because Lehman Brothers indexes are used by most other
Fidelity bond funds. For comparison purposes, both indexes are shown
on page 4.
(CHECKMARK)UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL
DO TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.63% 7.07% 6.58% 7.35% 5.24%
CAPITAL RETURNS 0.18% 3.04% -1.03% 2.91% -5.87%
TOTAL RETURNS 6.81% 10.11% 5.55% 10.26% -0.63%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.63(CENTS) 34.78(CENTS) 69.82(CENTS)
ANNUALIZED DIVIDEND RATE 6.10% 6.45% 6.43%
30-DAY ANNUALIZED YIELD 6.37% - -
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
$10.87 over the past one month, $10.88 over the past six months and
$10.86 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis. If Fidelity
had not reimbursed certain fund expenses, the fund's yield would have
been 6.32%.
FIDELITY GINNIE MAE FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S.
bonds amid a sharp sell-off in
Russian bonds, weakness in
overseas markets and concerns
about U.S. corporate profits. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable bond market - returned
7.87% during the 12-month period
that ended July 31, 1998. In the
fourth quarter of 1997 and the first
half of 1998, global market
volatility and low interest rates
were the main stories behind bond
market performance. As investors
moved assets from stocks and
riskier bonds to highly rated
corporate bonds and U.S.
Treasuries, bond yields - which
move in the opposite direction of
bond prices - fell to their lowest
levels in decades. The yield on
the benchmark 30-year bond fell
to 5.70% from 6.50% during the
period. The Lehman Brothers
Corporate Bond Index returned
7.35% for the past 12 months as
corporate bond investors
benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading above
50 indicates an expansion in the
manufacturing economy, while one
below 50 points to a contraction.
The report also indicated there
were no new signs of inflationary
pressure. Since inflation erodes
the value of fixed-income holdings
such as bonds, this was positive
news for bond investors.
(CURT HOLLINGSWORK PHOTOGRAPH)
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Ginnie Mae Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended July 31, 1998, the fund had a
total return of 6.81%. To get a sense of how the fund did relative to
its competitors, the GNMA funds average also returned 6.81% for the
same one-year period, according to Lipper Analytical Services.
Additionally, the Lehman Brothers GNMA Index - which tracks the types
of securities in which the fund invests - returned 7.46%.
Q. MORTGAGE-BACKED SECURITIES, INCLUDING GINNIE MAE SECURITIES,
OUTPACED TREASURIES THROUGHOUT MUCH OF THE PAST YEAR, BUT RECENTLY
HAVE LAGGED THEM. WHAT ACCOUNTED FOR THAT SHIFT?
A. Because interest rates fell substantially over the past year, home
sales and mortgage refinancings have occurred at or near record rates
so far this year. Those transactions, in turn, prompted a significant
rise in the prepayment of mortgage-backed securities. As prepayment
activity accelerated, mortgage security prices came under pressure.
While refinancings often put money in consumers' pockets, they take
steady long-term streams of payments away from holders of
mortgage-backed securities. When refinancings step up, many mortgage
security holders must find a new place to put their money - usually at
lower interest rates.
Q. WHICH HOLDINGS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The fund's holdings in securities containing loans that originated
between five and 10 years ago was relatively light throughout the
year, a strategy that proved beneficial for the fund. Those securities
proved to be less immune to prepayment activity in the face of
substantial interest-rate declines than many observers first thought.
On the other hand, the fund's stake in loans originated in early 1998
with coupons - the interest rate the borrower promises to pay - of
7.5% and 8.0% was relatively heavy. In large part because of the
newness of the underlying mortgages and the very slight risk that the
mortgage holders would turn around and refinance just months after
taking out the loan, these securities offered relatively good
protection against prepayment. They were bid up in response.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. I wouldn't point to a specific security that was a disappointment
or that meaningfully detracted from the fund's performance. However,
I'd point to the ever-decreasing number of opportunities to find
securities that offered good protection against prepayment, at a
reasonable price. In previous years, there were occasions when a
particular coupon became cheap, but that hasn't been the case for some
time.
Q. WHAT WERE THE OTHER KEY ELEMENTS TO YOUR STRATEGY?
A. I kept the fund's duration - or interest-rate sensitivity -
neutral. By that I mean I didn't structure the fund to benefit from
interest rates moving higher or lower. I believe that it is extremely
difficult to predict the direction of interest rates with any regular
success over an extended time period. As a result, I kept duration in
line with the market rather than making it more or less sensitive
based on where I think interest rates are headed. Additionally, by
keeping the fund's investments evenly spread across the various
coupons available in the mortgage market, I have attempted to position
the fund to perform well whether interest rates rise, fall or remain
stable.
Q. WHAT'S YOUR OUTLOOK FOR THE GINNIE MAE MARKET?
A. I believe that prepayments will continue at a fairly quick pace
until interest rates stabilize or move higher. As is always the case,
the direction of interest rates will be the main factor that
determines the performance of mortgage securities. But since I'm not
in the business of forecasting interest rates, I won't try to predict
where rates will end up six months or a year from today. I'll continue
to focus on finding securities that I believe will offer the best
total-return potential, whether interest rates are heading higher,
lower or remain the same.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(CHECKMARK)FUND FACTS
GOAL: to provide high current
income by investing mainly in
mortgage securities issued by
the Government National
Mortgage Association (Ginnie
Mae)
FUND NUMBER: 015
TRADING SYMBOL: FGMNX
START DATE: November 8, 1985
SIZE: as of July 31, 1998,
more than $917 million
MANAGER: Curt Hollingsworth,
since 1997; manager, various
Fidelity and Spartan
government funds; joined
Fidelity in 1983
CURT HOLLINGSWORTH ON HIS
MORTGAGE-BACKED SECURITY
SELECTION:
"Because there are some periods
- - - such as the past year - when
significantly falling interest rates
can set off an unexpected wave of
prepayment of mortgages, I spend
a fair amount of time analyzing a
mortgage security's risk of being
called, or redeemed, when the
underlying mortgages are prepaid.
With the help of Fidelity's research
team, I try to identify mortgage
securities that have less of a
chance of being prepaid, and then
look for opportunities to buy them
at attractive prices.
"For example, I try to find
opportunities among mortgage
securities with coupons - or the
interest rate the borrower
promises to pay - that are
significantly higher than current
interest rates. At first glance, it may
appear that mortgages with
coupons that are much higher than
prevailing rates are extremely
susceptible to being prepaid. But
because these mortgages have not
yet been prepaid - despite the
borrowers being presented with
several attractive opportunities to
do so - the likelihood that they
will be prepaid in the future is
rather small."
FIDELITY GINNIE MAE FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 15.0 7.1
7%
7 - 46.3 38.6
7.99%
8 - 26.2 30.3
8.99%
9 - 5.4 4.9
9.99%
10 - 2.4 2.6
10.99%
11% AND 1.4 1.6
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-
TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 6.1 5.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 2.8 2.6
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1998
ROW: 1, COL: 1, VALUE: 97.0
ROW: 1, COL: 2, VALUE: 3.0
MORTGAGE-BACKED
SECURITIES * 96.7%
SHORT-TERM
INVESTMENTS 3.3%
*GNMA SECURITIES 94.3%
ROW: 1, COL: 1, VALUE: 85.0
ROW: 1, COL: 2, VALUE: 15.0
MORTGAGE-BACKED
SECURITIES ** 85.1%
SHORT-TERM
INVESTMENTS 14.9%
**GNMA SECURITIES 82.5%
FIDELITY GINNIE MAE FUND
INVESTMENTS JULY 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 96.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FANNIE MAE - 0.3%
8 1/2%, 6/1/08 to 4/1/16 $ 979 $ 1,020
9%, 10/1/11 190 199
10 1/4%, 12/1/15 to 10/1/18 487 536
11 1/2%, 6/1/13 to 9/1/15 363 412
12 1/2%, 10/1/15 233 272
14%, 11/1/12 9 10
2,449
FREDDIE MAC - 2.1%
8 1/2%, 2/1/04 to 5/1/17 819 852
9%, 6/1/10 to 4/1/21 3,039 3,190
10%, 10/1/04 to 12/1/19 5,853 6,335
10 1/4%, 2/1/09 to 11/1/16 2,936 3,188
10 1/2%, 5/1/10 to 12/1/20 4,341 4,835
11 1/4%, 2/1/10 249 278
11 3/4%, 11/1/11 108 121
12%, 6/1/15 to 11/1/15 307 355
12 1/2%, 11/1/12 to 9/1/13 694 806
19,960
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 94.3%
6%, 10/15/23 to 7/15/28 13,626 13,290
6 1/2%, 5/15/08 to 8/15/28 128,952 128,844
7%, 10/15/07 to 8/15/28 232,064 235,781
7 1/2%, 6/15/02 to 8/15/28 198,427 204,256
8%, 7/15/01 to 8/15/28 189,742 196,985
8 1/2%, 2/15/05 to 10/15/22 47,610 50,538
9%, 12/15/04 to 12/15/24 15,326 16,425
9 1/2%, 4/15/01 to 11/15/22 29,275 31,555
10%, 10/15/00 to 2/15/25 2,078 2,274
10 1/2%, 11/15/98 to 4/15/19 4,901 5,415
11%, 1/15/10 to 8/15/19 3,801 4,267
11 1/2%, 3/15/10 to 4/15/19 4,445 5,007
12%, 5/15/99 to 11/15/15 922 1,050
13%, 2/15/11 to 5/15/15 633 742
13 1/2%, 5/15/10 to 1/15/15 364 428
896,857
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $904,359) 919,266
CASH EQUIVALENTS - 3.3%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.62%, dated 7/31/98
due 8/03/98 (Cost $31,732) $ 31,747 $ 31,732
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $936,091) $ 950,998
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,555,396,000 and $1,463,633,000,
respectively.
INCOME TAX INFORMATION
At July 31, 1998, the aggregate cost of investment securities for
income tax purposes was $942,300,000. Net unrealized appreciation
aggregated $8,698,000, of which $10,203,000 related to appreciated
investment securities and $1,505,000 related to depreciated investment
securities.
At July 31, 1998, the fund had a capital loss carryforward of
approximately $15,435,000 of which $10,681,000, and $4,754,000 will
expire on July 31, 2003 and 2004, respectively.
FIDELITY GINNIE MAE FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 950,998
AGREEMENTS OF $31,732) (COST $936,091) -
SEE ACCOMPANYING SCHEDULE
CASH 1
RECEIVABLE FOR INVESTMENTS SOLD 89,802
RECEIVABLE FOR FUND SHARES SOLD 2,217
INTEREST RECEIVABLE 5,658
TOTAL ASSETS 1,048,676
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 129,314
PAYABLE FOR FUND SHARES REDEEMED 1,019
DISTRIBUTIONS PAYABLE 565
ACCRUED MANAGEMENT FEE 297
OTHER PAYABLES AND ACCRUED EXPENSES 251
TOTAL LIABILITIES 131,446
NET ASSETS $ 917,230
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 925,829
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (1,862)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (21,644)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 14,907
NET ASSETS, FOR 84,363 SHARES OUTSTANDING $ 917,230
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $10.87
SHARE ($917,230 (DIVIDED BY) 84,363 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1998
INVESTMENT INCOME $ 63,051
INTEREST
EXPENSES
MANAGEMENT FEE $ 3,763
TRANSFER AGENT FEES 1,933
ACCOUNTING FEES AND EXPENSES 278
NON-INTERESTED TRUSTEES' COMPENSATION 13
CUSTODIAN FEES AND EXPENSES 180
REGISTRATION FEES 46
AUDIT 50
LEGAL 34
REPORTS TO SHAREHOLDERS 77
TOTAL EXPENSES BEFORE REDUCTIONS 6,374
EXPENSE REDUCTIONS (143) 6,231
NET INVESTMENT INCOME 56,820
REALIZED AND UNREALIZED GAIN (LOSS) 14,559
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (13,818)
INVESTMENT SECURITIES
NET GAIN (LOSS) 741
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 57,561
FROM OPERATIONS
OTHER INFORMATION
EXPENSE REDUCTIONS:
FMR REIMBURSEMENT $ 120
CUSTODIAN CREDITS 1
TRANSFER AGENT CREDITS 22
$ 143
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 56,820 $ 53,630
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 14,559 2,497
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (13,818) 20,073
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 57,561 76,200
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (55,500) (52,899)
SHARE TRANSACTIONS 349,964 195,577
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 48,330 45,337
COST OF SHARES REDEEMED (305,260) (232,014)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 93,034 8,900
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 95,095 32,201
NET ASSETS
BEGINNING OF PERIOD 822,135 789,934
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET $ 917,230 $ 822,135
INVESTMENT INCOME OF $1,862 AND $1,202, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 32,197 18,325
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 4,446 4,249
REDEEMED (28,087) (21,758)
NET INCREASE (DECREASE) 8,556 816
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260
OF PERIOD
INCOME FROM INVESTMENT .714 B .720 B .688 .721 .582
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED .004 .310 (.107) .292 (.650)
GAIN (LOSS)
TOTAL FROM INVESTMENT .718 1.030 .581 1.013 (.068)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.698) (.710) (.691) (.713) (.582)
FROM NET REALIZED GAIN - - - - (.190)
IN EXCESS OF NET REALIZED GAIN - - - (.020) (.060)
TOTAL DISTRIBUTIONS (.698) (.710) (.691) (.733) (.832)
NET ASSET VALUE, END OF PERIOD $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360
TOTAL RETURN A 6.81% 10.11% 5.55% 10.26% (.63)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 917 $ 822 $ 790 $ 767 $ 769
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .72% D .76% .76% .75% .82%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET .72% .75% C .75% C .75% .82%
ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 6.58% 6.75% 6.69% 7.24% 7.03%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 172% 98% 107% 210% 303%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FIDELITY GOVERNMENT SECURITIES FUND
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GOVERNMENT SECURITIES 7.67% 33.00% 130.27%
LB GOVERNMENT BOND 8.35% 37.43% 135.99%
SB TREASURY/AGENCY 8.40% 37.54% 136.42%
GENERAL US GOVERNMENT FUNDS AVERAGE 7.32% 31.41% 115.07%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Lehman Brothers Government Bond Index and the Salomon Brothers
Treasury/Agency Index, both of which are indexes of U.S. government
and government agency securities (other than mortgage securities) with
maturities of one year or more. To measure how the fund's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 185 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GOVERNMENT SECURITIES 7.67% 5.87% 8.70%
LB GOVERNMENT BOND 8.35% 6.57% 8.97%
SB TREASURY/AGENCY 8.40% 6.58% 8.99%
GENERAL US GOVERNMENT FUNDS AVERAGE 7.32% 5.60% 7.93%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Government Securities LB Government Bond
00054 LB003
1988/07/31 10000.00 10000.00
1988/08/31 10011.06 10019.90
1988/09/30 10180.60 10238.83
1988/10/31 10327.85 10419.23
1988/11/30 10234.30 10295.99
1988/12/31 10250.93 10335.28
1989/01/31 10377.18 10466.69
1989/02/28 10321.24 10381.47
1989/03/31 10371.42 10445.00
1989/04/30 10569.89 10669.03
1989/05/31 10760.61 10920.62
1989/06/30 11064.39 11284.99
1989/07/31 11264.95 11523.31
1989/08/31 11109.17 11329.39
1989/09/30 11152.86 11378.12
1989/10/31 11381.56 11672.58
1989/11/30 11485.64 11785.61
1989/12/31 11544.43 11805.52
1990/01/31 11395.05 11638.39
1990/02/28 11439.32 11661.61
1990/03/31 11453.25 11659.05
1990/04/30 11412.90 11556.22
1990/05/31 11649.47 11878.49
1990/06/30 11811.36 12066.55
1990/07/31 11962.23 12220.92
1990/08/31 11899.99 12050.73
1990/09/30 11989.03 12166.31
1990/10/31 12168.01 12365.08
1990/11/30 12437.27 12639.13
1990/12/31 12644.99 12834.58
1991/01/31 12736.65 12972.37
1991/02/28 12836.93 13046.62
1991/03/31 12890.65 13112.96
1991/04/30 13010.18 13256.87
1991/05/31 13076.56 13308.41
1991/06/30 13046.04 13289.53
1991/07/31 13207.57 13447.22
1991/08/31 13547.04 13759.03
1991/09/30 13856.52 14047.61
1991/10/31 13975.36 14170.60
1991/11/30 14105.50 14312.72
1991/12/31 14663.22 14800.34
1992/01/31 14412.25 14569.93
1992/02/29 14441.44 14626.83
1992/03/31 14346.96 14541.35
1992/04/30 14436.21 14632.95
1992/05/31 14733.20 14902.91
1992/06/30 14984.69 15116.48
1992/07/31 15445.51 15497.44
1992/08/31 15578.64 15641.86
1992/09/30 15785.02 15863.08
1992/10/31 15528.60 15634.20
1992/11/30 15539.60 15607.15
1992/12/31 15831.99 15869.97
1993/01/31 16207.09 16207.04
1993/02/28 16604.36 16531.60
1993/03/31 16692.49 16586.97
1993/04/30 16857.45 16714.55
1993/05/31 16790.24 16696.18
1993/06/30 17203.68 17066.67
1993/07/31 17313.71 17170.78
1993/08/31 17795.97 17554.03
1993/09/30 17866.15 17621.14
1993/10/31 17958.89 17687.73
1993/11/30 17704.12 17493.81
1993/12/31 17782.75 17561.43
1994/01/31 18069.07 17801.79
1994/02/28 17532.93 17424.92
1994/03/31 17065.76 17032.99
1994/04/30 16903.19 16899.03
1994/05/31 16888.73 16877.34
1994/06/30 16799.31 16838.56
1994/07/31 17174.37 17148.07
1994/08/31 17164.14 17151.39
1994/09/30 16828.02 16909.75
1994/10/31 16762.55 16896.99
1994/11/30 16747.70 16866.12
1994/12/31 16857.05 16968.69
1995/01/31 17173.52 17284.58
1995/02/28 17574.16 17656.60
1995/03/31 17671.73 17767.34
1995/04/30 17892.20 17999.54
1995/05/31 18605.76 18725.47
1995/06/30 18736.07 18869.13
1995/07/31 18663.00 18799.72
1995/08/31 18877.88 19020.69
1995/09/30 19051.80 19203.90
1995/10/31 19346.77 19496.31
1995/11/30 19641.28 19800.21
1995/12/31 19902.72 20080.89
1996/01/31 20009.24 20204.13
1996/02/29 19580.74 19792.55
1996/03/31 19416.59 19627.21
1996/04/30 19264.68 19501.93
1996/05/31 19233.13 19469.27
1996/06/30 19459.22 19720.60
1996/07/31 19509.68 19769.33
1996/08/31 19452.25 19725.19
1996/09/30 19780.32 20052.56
1996/10/31 20196.55 20493.74
1996/11/30 20527.02 20850.20
1996/12/31 20317.69 20637.39
1997/01/31 20339.68 20660.36
1997/02/28 20353.32 20688.68
1997/03/31 20133.48 20469.75
1997/04/30 20416.47 20765.23
1997/05/31 20576.13 20944.35
1997/06/30 20795.69 21179.35
1997/07/31 21386.88 21780.51
1997/08/31 21153.72 21565.16
1997/09/30 21483.28 21889.46
1997/10/31 21811.82 22268.12
1997/11/30 21917.37 22382.18
1997/12/31 22132.54 22616.16
1998/01/31 22461.03 22954.50
1998/02/28 22399.45 22892.25
1998/03/31 22462.33 22957.06
1998/04/30 22543.28 23060.40
1998/05/31 22764.78 23297.19
1998/06/30 23008.63 23562.04
1998/07/31 23027.20 23598.53
IMATRL PRASUN SHR__CHT 19980731 19980817 114923 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Government Securities Fund on July 31, 1988. As
the chart shows, by July 31, 1998, the value of the investment would
have grown to $23,027 - a 130.27% increase on the initial investment.
For comparison, look at how the Lehman Brothers Government Bond Index
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $23,599 -
a 135.99% increase. The fund will compare its performance to that of
the Lehman Brothers Government Bond Index rather than the Salomon
Brothers Treasury/Agency Index. The indexes include the same type of
bonds, and their performance is not materially different. The fund is
changing to the Lehman Brothers index mainly because Lehman Brothers
indexes are used by most other Fidelity bond funds. For comparison,
both indexes are shown on page 17.
(CHECKMARK)UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.04% 7.22% 6.58% 6.78% 5.93%
CAPITAL RETURNS 1.63% 2.40% -2.04% 1.89% -6.73%
TOTAL RETURNS 7.67% 9.62% 4.54% 8.67% -0.80%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains, if any, paid by the fund, are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.81(CENTS) 27.84(CENTS) 57.26(CENTS)
ANNUALIZED DIVIDEND RATE 5.66% 5.64% 5.79%
30-DAY ANNUALIZED YIELD 5.32% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of
$10.00 over the past one month, $9.96 over the past six months and
$9.89 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis.
FIDELITY GOVERNMENT SECURITIES FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S. bonds
amid a sharp sell-off in Russian
bonds, weakness in overseas
markets and concerns about U.S.
corporate profits. The Lehman
Brothers Aggregate Bond Index -
a broad gauge of the U.S. taxable
bond market - returned 7.87%
during the 12-month period that
ended July 31, 1998. In the fourth
quarter of 1997 and the first half
of 1998, global market volatility
and low interest rates were the
main stories behind bond market
performance. As investors moved
assets from stocks and riskier bonds
to highly rated corporate bonds
and U.S. Treasuries, bond yields -
which move in the opposite
direction of bond prices - fell to
their lowest levels in decades. The
yield on the benchmark 30-year
bond fell to 5.70% from 6.50%
during the period. The Lehman
Brothers Corporate Bond Index
returned 7.35% for the past 12
months as corporate bond
investors benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading
above 50 indicates an expansion in
the manufacturing economy,
while one below 50 points to a
contraction. The report also
indicated there were no new signs
of inflationary pressure. Since
inflation erodes the value of
fixed-income holdings such as
bonds, this was positive news for
bond investors.
(PHOTOGRAPH OF CURT HOLLINGSWORTH)
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Government Securities Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended July 31, 1998, the fund had a
total return of 7.67%. To get a sense of how the fund did relative to
its competitors, the general U.S. government funds average returned
7.32% for the same one-year period, according to Lipper Analytical
Services. Additionally, the Lehman Brothers Government Bond Index -
which tracks the types of securities in which the fund invests -
returned 8.35%.
Q. WHAT FACTORS HELPED THE FUND OUTPACE ITS PEERS?
A. I think it came down to two factors. First, I managed the fund to
have approximately the same sensitivity to interest-rate movements as
the market for government securities, as represented by the Lehman
Brothers Government Bond Index. By doing so, I avoided the mistake of
positioning the fund based on a potentially incorrect prediction of
where interest rates were headed. The second reason for the fund's
outperformance was its heavy exposure, compared to the index, to
agency and mortgage securities, and its relatively small position in
U.S. Treasury securities. Primarily because of their yield advantage,
mortgage and agency securities outpaced their U.S. Treasury
counterparts throughout much of the period.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. For the last couple of months or so of the period, agency and
mortgage securities lagged their Treasury counterparts. Treasuries
posted significant gains mainly because international investors
scooped them up as protection against the Asian economic crisis. A
similar rally was prevented in the agency market, however, because
demand wasn't as strong. Mortgage securities, meanwhile, suffered from
an accelerated rate of prepayments. As interest rates fell, homeowners
refinanced their mortgages at the fastest pace since 1993. As this
happened, mortgage-backed securities returned their principal to
investors. The timing of that return of principal was inopportune
because some investors had to plow their returned principal into their
investments at a time when interest rates were near historic lows.
Q. HOW DO YOU TRY TO DEAL WITH PREPAYMENT OF MORTGAGE SECURITIES?
A. I try to minimize prepayment activity by emphasizing "seasoned"
securities, as well as those with very high and very low coupons, or
interest rates. Seasoned securities have been through several
refinancing periods, but the mortgage holders haven't refinanced even
after being presented several attractive opportunities to do so.
Mortgage securities with very high and very low coupons are often less
likely than those with coupons around the current interest rate to
experience dramatic changes in prepayment activity.
Q. WHAT CHOICES DID YOU MAKE IN THE TREASURY SECTOR?
A. I emphasized securities that were issued some time ago, known as
"off-the-run" Treasuries. That's because they were more attractively
priced than newly issued Treasuries, which command a premium for being
more liquid, or easily traded.
Q. AND WHICH CHOICES DID YOU MAKE IN THE AGENCY SECTOR?
A. I focused almost exclusively on agency securities that are
non-callable - those that can't be redeemed by their issuers before
maturity. Bonds typically are called when interest rates fall so
significantly that issuers can save money by issuing new bonds at
lower rates. A call is a positive for issuers because it cuts their
borrowing costs. But holders of callable bonds are often at a
disadvantage because they may have to reinvest the proceeds from the
called securities in new, lower-yielding bonds. Non-callable bonds
generally perform better than callable ones when interest rates fall
and bond prices rally, and generally fare no worse than callable bonds
when interest rates rise and bond prices fall.
Q. WHAT DO YOU SEE ON THE HORIZON FOR THE GOVERNMENT SECURITIES
MARKET?
A. The direction of interest rates, as always, will be the prime
determinant of government bond performance, and I'm not willing to
speculate on where interest rates will be six months or a year from
now. I will say, however, that I believe that interest rates could
remain volatile as investors struggle with the dueling forces of a
strong U.S. economy and an ever-weakening Asia. I'll try to identify
those securities that I believe will offer the best total-return
potential in any type of interest-rate environment.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(CHECKMARK)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 054
TRADING SYMBOL: FGOVX
START DATE: April 4, 1979
SIZE: as of July 31, 1998,
more than $1.2 billion
MANAGER: Curt Hollingsworth,
since 1997; manager, various
Fidelity and Spartan
government funds; joined
Fidelity in 1983
CURT HOLLINGSWORTH ON
MANAGING THE FUND'S DURATION:
"A cornerstone of my investment
strategy - which I stick to whether
interest rates rise, fall or remain
stable - is keeping the fund's
`duration' in line with that of the
Lehman Brothers Government
Bond Index. Essentially, keeping
the fund's duration approximately
the same as that index means that
the fund will be no more or less
sensitive to changes in interest
rates than the market for
government securities as
measured by its index. It's my view
that it is impossible to pinpoint the
direction and magnitude of
interest-rate changes with any
accuracy and consistency over
time. In fact, positioning the fund
to bet on the direction of interest
rates can seriously backfire if that
bet proves to be a losing one."
FIDELITY GOVERNMENT SECURITIES FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 4 MONTHS AGO
ZERO 0.1 10.9
COUPON
BONDS
5 - 9.9 12.2
5.99%
6 - 28.5 18.5
6.99%
7 - 11.4 4.6
7.99%
8 - 24.2 13.5
8.99%
9 - 19.2 26.2
9.99%
10 - 4.2 4.4
10.99%
11% AND 2.0 1.3
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1998
4 MONTHS AGO
YEARS 8.7 8.7
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JULY 31, 1998
4 MONTHS AGO
YEARS 5.2 5.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1998 AS OF MARCH 31, 1998
ROW: 1, COL: 1, VALUE: 18.1
ROW: 1, COL: 2, VALUE: 24.1
ROW: 1, COL: 3, VALUE: 56.8
ROW: 1, COL: 4, VALUE: 1.0
MORTGAGE-BACKED
SECURITIES 18.1%
U.S. TREASURY
OBLIGATIONS 24.1%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 57.3%
SHORT-TERM
INVESTMENTS 0.5%
ROW: 1, COL: 1, VALUE: 13.5
ROW: 1, COL: 2, VALUE: 33.0
ROW: 1, COL: 3, VALUE: 45.1
ROW: 1, COL: 4, VALUE: 8.4
MORTGAGE-BACKED
SECURITIES 13.5%
U.S. TREASURY
OBLIGATIONS 33.0%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 45.1%
SHORT-TERM
INVESTMENTS 8.4%
FIDELITY GOVERNMENT SECURITIES FUND
INVESTMENTS JULY 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 81.4%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 24.1%
8 3/4%, 5/15/17 $ 61,000 $ 81,378
8 7/8%, 8/15/17 110,560 149,342
9%, 11/15/18 49,400 67,995
TOTAL U.S. TREASURY OBLIGATIONS 298,715
U.S. GOVERNMENT AGENCY OBLIGATIONS - 57.3%
Fannie Mae:
6.18%, 1/31/00 40,000 40,300
8 1/4%, 12/18/00 15,000 15,837
5.44%, 1/24/01 11,700 11,625
6.74%, 5/13/04 3,720 3,884
7.40%, 7/1/04 2,200 2,372
Farm Credit System Financial Assistance Corporation:
9 3/8%, 7/21/03 11,437 13,187
8.80%, 6/10/05 8,485 9,898
Federal Agriculture Mortgage Corporation 8.07%,
7/17/06 3,000 3,415
Federal Farm Credit Bank:
6 1/4%, 9/24/04 7,300 7,475
6.19%, 11/03/04 2,000 2,039
6.20%, 11/12/04 6,900 7,039
6.14%, 11/22/04 22,440 22,801
8.06%, 1/4/05 7,600 8,506
8.12%, 2/01/05 8,635 9,702
7.35%, 3/24/05 1,000 1,083
Federal Home Loan Bank:
9 1/2%, 2/25/04 1,850 2,173
7.31%, 6/16/04 8,240 8,849
6.58%, 6/24/04 4,325 4,491
7.36%, 7/1/04 7,110 7,658
7.66%, 7/20/04 6,460 7,059
7.38%, 8/5/04 3,770 4,067
7.46%, 9/9/04 6,015 6,526
7.58%, 9/13/04 4,000 4,365
6.56%, 9/17/04 1,585 1,648
6.26%, 9/24/04 1,800 1,844
7.87%, 10/20/04 1,280 1,416
6.21%, 11/04/04 11,330 11,564
8.09%, 12/28/04 2,140 2,398
5.79%, 2/09/05 26,900 26,866
7.59%, 3/10/05 1,895 2,074
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal Home Loan Bank: - continued
6.23%, 10/24/05 $ 17,175 $ 17,583
6.07%, 5/02/06 1,500 1,522
Freddie Mac:
7 1/4%, 4/28/04 2,000 2,142
6.51%, 7/01/04 5,000 5,174
6.80%, 3/19/07 29,700 31,482
7.10%, 4/10/07 9,000 9,751
Financing Corp. stripped principal:
0%, 8/3/05 1,082 724
0%, 8/3/05 907 607
Government Loan Trusts (assets of Trust
guaranteed by
U.S. Government through Agency for
International
Development) 8 1/2%, 4/1/06 3,920 4,314
Government Trust Certificates (assets of Trust
guaranteed by
U.S. Government through Defense Security
Assistance Agency)
Class T-3, 9 5/8%, 5/15/02 18,538 19,536
Class 1-C, 9 1/4%, 11/15/01 51,139 54,119
Class 2-E, 9.40%, 5/15/02 18,574 19,575
Guaranteed Export Trust Certificates (assets of
Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1994-A, 7.12%, 4/15/06 5,162 5,365
Series 1995-A, 6.28%, 6/15/04 10,408 10,537
Series 1995-B, 6.13%, 6/15/04 25,828 26,038
Series 1996-A, 6.55%, 6/15/04 15,723 16,036
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed
by U.S. Government through export-Import Bank):
Series 1994-A, 7.39%, 6/26/06 34,667 36,671
Series 1994-B, 7 1/2%, 1/26/06 8,189 8,704
Israel Export Trust Certificates (assets of
Trust guaranteed by
U.S. Government through Export-Import Bank):
Series 1994-1, 6.88%, 1/26/03 9,302 9,526
Overseas Private Investment Corp. U.S. Government
guaranteed guaranteed participation certificate:
Series 1994-195, 6.08%, 8/15/04 (callable) 9,400 9,456
5.926%, 6/15/05 15,392 15,417
Private Exporting Funding Corp. 5.82%,
6/15/03 (a) 19,000 19,008
State of Israel (guaranteed by U.S.
Government through
Agency for International Development):
5 3/4%, 3/15/00 1,600 1,603
6 5/8%, 8/15/03 9,530 9,861
5 5/8%, 9/15/03 40,680 40,365
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S.
Government through
Agency for International Development):
- - continued
6 3/4%, 8/15/04 $ 7,500 $ 7,879
7 5/8%, 8/15/04 30,170 33,021
6.60%, 2/15/08 25,515 26,682
Student Loan Marketing Association:
8.14%, 5/17/04 1,500 1,671
6 1/8%, 12/01/05 4,190 4,265
U.S. Trade Trust Certificates (assets of Trust
guaranteed by
U.S. Government through Export-Import Bank)
8.17%, 1/15/07 5,295 5,719
U.S. Department of Housing and Urban Development
government guaranteed participation certificates
Series 1995-A, 8.24%, 8/1/02 3,000 3,246
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 709,760
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $994,199) 1,008,475
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED
SECURITIES - 16.4%
FANNIE MAE - 4.7%
5 1/2%, 5/1/09 to 3/1/24 8,813 8,403
6%, 7/1/20 2,450 2,396
8%, 1/1/22 1,211 1,257
9 1/2%, 11/1/09 to 10/1/28 19,611 21,024
10%, 8/1/10 1,473 1,556
11%, 3/1/10 1,080 1,146
11 1/2%, 6/1/19 to 5/1/28 20,039 23,114
58,896
FREDDIE MAC - 2.3%
8%, 1/1/10 to 6/1/11 1,035 1,072
8 1/2%, 8/1/08 to 12/1/10 1,912 1,989
9%, 8/1/09 to 12/1/10 1,137 1,199
9 3/4%, 8/1/14 1,130 1,221
10 1/2%, 7/1/20 to 12/1/20 20,287 22,639
28,120
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 9.4%
6%, 7/15/08 to 12/15/10 $ 50,051 $ 49,967
9 1/2%, 9/15/09 to 2/15/25 35,396 38,225
10%, 8/15/15 to 1/15/26 25,685 28,170
116,362
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $203,929) 203,378
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.7%
U.S. GOVERNMENT AGENCY - 1.7%
Freddie Mac planned amortization class
Series 1698, Class E 6% 10/15/06
(Cost $21,291) 21,250 21,277
CASH EQUIVALENTS - 0.5%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligation), in a joint
account at 5.62%, dated 7/31/98
due 8/03/98 (Cost $5,555) $ 5,558 5,555
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,224,974) $ 1,238,685
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$19,008,000 or 1.5% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $2,972,602,000 and $2,788,867,000,
respectively.
The fund participated in the bank borrowing program. The maximum loan
and average daily balance during the period for which the loan was
outstanding amounted to $14,411,000. The weighted average interest
rate was 5.9% (see Note 6 of Notes to Financial Statements).
INCOME TAX INFORMATION
At July 31, 1998, the aggregate cost of investment securities for
income tax purposes was $1,224,974,000. Net unrealized appreciation
aggregated $13,711,000, of which $17,053,000 related to appreciated
investment securities and $3,342,000 related to depreciated investment
securities.
At July 31, 1998, the fund had a capital loss carryforward of
approximately $6,321,000 of which $1,847,000, and, $4,474,000 will
expire on July 31, 2004, and 2005, respectively.
A total of 71.79% 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. (unaudited)
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
FIDELITY GOVERNMENT SECURITIES FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 1,238,685
AGREEMENTS OF $5,555) (COST $1,224,974) -
SEE ACCOMPANYING SCHEDULE
CASH 1,389
RECEIVABLE FOR INVESTMENTS SOLD 819
RECEIVABLE FOR FUND SHARES SOLD 2,949
INTEREST RECEIVABLE 18,909
TOTAL ASSETS 1,262,751
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 6,122
PAYABLE FOR FUND SHARES REDEEMED 2,472
DISTRIBUTIONS PAYABLE 474
ACCRUED MANAGEMENT FEE 460
OTHER PAYABLES AND ACCRUED EXPENSES 312
TOTAL LIABILITIES 9,840
NET ASSETS $ 1,252,911
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 1,241,016
UNDISTRIBUTED NET INVESTMENT INCOME 4,504
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (6,320)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 13,711
NET ASSETS, FOR 125,546 SHARES OUTSTANDING $ 1,252,911
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $ 9.98
SHARE ($1,252,911 (DIVIDED BY) 125,546 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS TEN MONTHS ENDED JULY 31, 1998
INVESTMENT INCOME $ 64,531
INTEREST
EXPENSES
MANAGEMENT FEE $ 4,322
TRANSFER AGENT FEES 1,825
ACCOUNTING FEES AND EXPENSES 287
NON-INTERESTED TRUSTEES' COMPENSATION 9
CUSTODIAN FEES AND EXPENSES 7
REGISTRATION FEES 170
AUDIT 34
LEGAL 38
INTEREST 2
REPORTS TO SHAREHOLDERS 146
MISCELLANEOUS 5
TOTAL EXPENSES BEFORE REDUCTIONS 6,845
EXPENSE REDUCTIONS (74) 6,771
NET INVESTMENT INCOME 57,760
REALIZED AND UNREALIZED GAIN (LOSS) 28,818
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (5,599)
ON INVESTMENT SECURITIES
NET GAIN (LOSS) 23,219
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 80,979
FROM OPERATIONS
OTHER INFORMATION
EXPENSE REDUCTIONS:
CUSTODIAN CREDITS $ 7
TRANSFER AGENT CREDITS 67
$ 74
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS TEN MONTHS ENDED YEAR ENDED
JULY 31, SEPTEMBER 30,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 57,760 $ 63,391
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 28,818 (622)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (5,599) 18,125
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 80,979 80,894
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (56,286) (66,908)
SHARE TRANSACTIONS 835,669 378,207
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 50,449 57,722
COST OF SHARES REDEEMED (680,613) (376,059)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 205,505 59,870
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 230,198 73,856
NET ASSETS
BEGINNING OF PERIOD 1,022,713 948,857
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 1,252,911 $ 1,022,713
INCOME OF $4,504 AND $581, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 84,090 39,114
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 5,076 5,974
REDEEMED (68,444) (38,946)
NET INCREASE (DECREASE) 20,722 6,142
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
TEN MONTHS ENDED YEARS ENDED
JULY 31, SEPTEMBER 30,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870
OF PERIOD
INCOME FROM INVESTMENT .481 D .625 D .670 .625 .626
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED .208 .175 (.299) .564 (1.225)
GAIN (LOSS)
TOTAL FROM INVESTMENT .689 .800 .371 1.189 (.599)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.469) (.660) (.641) (.609) (.631)
FROM NET REALIZED GAIN - - - - (.310)
IN EXCESS OF NET REALIZED GAIN - - - (.020) -
TOTAL DISTRIBUTIONS (.469) (.660) (.641) (.629) (.941)
NET ASSET VALUE, END OF PERIOD $ 9.980 $ 9.760 $ 9.620 $ 9.890 $ 9.330
TOTAL RETURN B, C 7.19% 8.61% 3.82% 13.21% (5.81)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 1,253 $ 1,023 $ 949 $ 897 $ 614
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .69% A .73% .72% .71% .69%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE .68% A, E .72% E .71% E .71% .69%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 5.82% A 6.48% 6.52% 6.36% 6.26%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 289% A 199% 124% 391% 402%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY INTERMEDIATE GOV'T INCOME 6.78% 33.02% 104.23%
LB INT GOVERNMENT BOND 6.83% 33.48% 118.39%
SB TREASURY/AGENCY 1-10 YR 6.90% 33.58% 118.56%
SHORT-INTERMEDIATE US 5.67% 27.74% 104.03%
GOVERNMENT FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the Lehman Brothers
Intermediate Government Bond Index - a market value weighted index of
U.S. government fixed-rate debt issues with maturities between one and
10 years - and the Salomon Brothers Treasury/Agency 1-10 Year Index -
a market capitalization weighted index of U.S. Treasury and U.S.
government agency securities with fixed-rate coupons and maturities
between one and 10 years. To measure how the fund's performance
stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 100 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY INTERMEDIATE GOV'T INCOME 6.78% 5.87% 7.40%
LB INT GOVERNMENT BOND 6.83% 5.95% 8.12%
SB TREASURY/AGENCY 1-10 YR 6.90% 5.96% 8.13%
SHORT-INTERMEDIATE US 5.67% 5.00% 7.38%
GOVERNMENT FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Intermediate Govt Income LB Govt Intermediate
00452 LB008
1988/07/31 10000.00 10000.00
1988/08/31 10022.26 10013.41
1988/09/30 10129.89 10186.45
1988/10/31 10228.54 10326.86
1988/11/30 10224.54 10238.06
1988/12/31 10263.19 10247.93
1989/01/31 10345.52 10350.13
1989/02/28 10349.51 10305.86
1989/03/31 10402.59 10354.18
1989/04/30 10539.87 10563.15
1989/05/31 10688.35 10767.05
1989/06/30 10878.99 11041.54
1989/07/31 11014.39 11265.94
1989/08/31 10947.78 11113.64
1989/09/30 11003.53 11166.77
1989/10/31 11177.94 11401.03
1989/11/30 11268.22 11513.86
1989/12/31 11325.69 11547.76
1990/01/31 11311.71 11475.92
1990/02/28 11374.27 11518.42
1990/03/31 11400.99 11532.08
1990/04/30 11417.83 11493.37
1990/05/31 11589.15 11739.53
1990/06/30 11699.92 11893.85
1990/07/31 11839.04 12060.56
1990/08/31 11887.20 12017.05
1990/09/30 11982.27 12124.57
1990/10/31 12106.43 12293.31
1990/11/30 12248.30 12478.50
1990/12/31 12360.09 12651.29
1991/01/31 12497.95 12781.32
1991/02/28 12595.40 12858.73
1991/03/31 12699.24 12929.82
1991/04/30 12808.56 13063.40
1991/05/31 12874.77 13137.02
1991/06/30 12925.80 13147.90
1991/07/31 13073.79 13290.33
1991/08/31 13236.31 13542.55
1991/09/30 13370.71 13772.77
1991/10/31 13537.85 13930.38
1991/11/30 13587.03 14093.81
1991/12/31 13832.30 14436.35
1992/01/31 13765.19 14297.46
1992/02/29 13846.73 14341.99
1992/03/31 13830.12 14284.81
1992/04/30 13932.84 14413.07
1992/05/31 14072.08 14628.11
1992/06/30 14180.82 14838.85
1992/07/31 14221.74 15123.46
1992/08/31 14392.88 15278.03
1992/09/30 14492.06 15488.51
1992/10/31 14432.58 15302.57
1992/11/30 14499.38 15240.34
1992/12/31 14629.63 15436.65
1993/01/31 14755.19 15723.54
1993/02/28 14917.19 15955.27
1993/03/31 14995.80 16013.96
1993/04/30 15092.83 16139.19
1993/05/31 15142.65 16095.17
1993/06/30 15301.47 16328.17
1993/07/31 15353.49 16361.06
1993/08/31 15468.38 16604.69
1993/09/30 15521.52 16672.23
1993/10/31 15556.99 16711.70
1993/11/30 15453.85 16628.97
1993/12/31 15568.66 16697.78
1994/01/31 15730.72 16862.73
1994/02/28 15583.03 16631.25
1994/03/31 15382.89 16388.64
1994/04/30 15308.09 16282.64
1994/05/31 15292.25 16294.27
1994/06/30 15286.87 16297.56
1994/07/31 15441.39 16511.59
1994/08/31 15486.94 16559.65
1994/09/30 15453.40 16422.79
1994/10/31 15471.54 16426.08
1994/11/30 15435.95 16352.96
1994/12/31 15420.86 16406.34
1995/01/31 15653.87 16673.24
1995/02/28 15881.21 16994.79
1995/03/31 15956.79 17088.39
1995/04/30 16145.24 17286.48
1995/05/31 16563.40 17773.98
1995/06/30 16664.26 17887.07
1995/07/31 16700.76 17895.67
1995/08/31 16841.36 18043.41
1995/09/30 16964.54 18164.34
1995/10/31 17194.09 18363.44
1995/11/30 17388.35 18587.33
1995/12/31 17569.14 18770.74
1996/01/31 17718.51 18929.11
1996/02/29 17546.91 18729.00
1996/03/31 17449.23 18643.49
1996/04/30 17399.83 18589.10
1996/05/31 17389.95 18579.49
1996/06/30 17557.46 18768.21
1996/07/31 17618.04 18826.40
1996/08/31 17639.91 18847.91
1996/09/30 17865.00 19091.53
1996/10/31 18167.29 19404.47
1996/11/30 18396.89 19638.74
1996/12/31 18296.14 19532.99
1997/01/31 18362.86 19608.13
1997/02/28 18400.25 19640.00
1997/03/31 18281.47 19528.18
1997/04/30 18479.72 19748.53
1997/05/31 18624.23 19902.35
1997/06/30 18786.99 20072.61
1997/07/31 19126.20 20442.72
1997/08/31 19075.64 20364.55
1997/09/30 19296.01 20585.91
1997/10/31 19499.03 20825.74
1997/11/30 19559.89 20871.53
1997/12/31 19704.17 21041.54
1998/01/31 19949.31 21316.03
1998/02/28 19943.63 21293.51
1998/03/31 20005.39 21359.80
1998/04/30 20105.98 21461.75
1998/05/31 20232.10 21609.24
1998/06/30 20357.32 21754.71
1998/07/31 20422.57 21838.44
IMATRL PRASUN SHR__CHT 19980731 19980824 103006 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Intermediate Government Income Fund on July 31,
1988. As the chart shows, by July 31, 1998, the value of the
investment would have grown to $20,423 - a 104.23% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Intermediate Government Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $21,839 - a 118.39% increase. The fund will
compare its performance to that of the Lehman Brothers Intermediate
Government Bond Index rather than the Salomon Brothers Treasury/Agency
1-10 Year Index. The indexes include the same type of bonds and their
performance is not materially different. The fund is changing to the
Lehman Brothers index mainly because Lehman Brothers indexes are used
by most other Fidelity funds. For comparison purposes, both indexes
are shown on page 33.
(CHECKMARK)UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION OF INTEREST
RATES. IN TURN, THE SHARE PRICE,
RETURN AND YIELD OF A FUND THAT
INVESTS IN BONDS WILL VARY. THAT
MEANS IF YOU SELL YOUR SHARES
DURING A MARKET DOWNTURN,
YOU MIGHT LOSE MONEY. BUT IF
YOU CAN RIDE OUT THE MARKET'S
UPS AND DOWNS, YOU MAY
HAVE A GAIN.
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.88% 7.11% 6.62% 6.60% 5.22%
CAPITAL RETURNS -0.10% 1.45% -1.13% 1.56% -4.65%
TOTAL RETURNS 6.78% 8.56% 5.49% 8.16% 0.57%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.14(CENTS) 30.01(CENTS) 65.38(CENTS)
ANNUALIZED DIVIDEND RATE 6.18% 6.18% 6.68%
30-DAY ANNUALIZED YIELD 5.89% - -
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 $9.80
over the past one month, $9.80 over the past six months and $9.79 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses, the fund's yield would have been
5.60%.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S.
bonds amid a sharp sell-off in
Russian bonds, weakness in
overseas markets and concerns
about U.S. corporate profits. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable bond market - returned
7.87% during the 12-month period
that ended July 31, 1998. In the
fourth quarter of 1997 and the first
half of 1998, global market
volatility and low interest rates
were the main stories behind bond
market performance. As investors
moved assets from stocks and
riskier bonds to highly rated
corporate bonds and U.S.
Treasuries, bond yields - which
move in the opposite direction of
bond prices - fell to their lowest
levels in decades. The yield on
the benchmark 30-year bond fell
to 5.70% from 6.50% during the
period. The Lehman Brothers
Corporate Bond Index returned
7.35% for the past 12 months as
corporate bond investors
benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading above
50 indicates an expansion in the
manufacturing economy, while one
below 50 points to a contraction.
The report also indicated there
were no new signs of inflationary
pressure. Since inflation erodes
the value of fixed-income holdings
such as bonds, this was positive
news for bond investors.
(PHOTOGRAPH OF CURT HOLLINGSWORTH)
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Intermediate Government Income Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended July 31, 1998, the fund had a
total return of 6.78%. To get a sense of how the fund did relative to
its competitors, the short-intermediate U.S. government funds average
returned 5.67% for the same one-year period, according to Lipper
Analytical Services. Additionally, the Lehman Brothers Intermediate
Government Bond Index - which tracks the types of securities in which
the fund invests - returned 6.83%.
Q. ALTHOUGH IT CONTINUED TO POST GOOD RETURNS, THE INTERMEDIATE
GOVERNMENT MARKET DIDN'T PERFORM AS WELL IN THE MOST RECENT SIX-MONTH
PERIOD AS IT DID IN THE PRIOR SIX. WHY WAS THAT?
A. Returns were smaller in the second half of the period because bond
yields, which move in the opposite direction of bond prices, didn't
fall as much in the second half as they did in the first. The yield on
the 10-year Treasury bond - which serves as a good proxy for the
intermediate market - dropped by 52 basis points (0.52%) in the first
six months, when inflation fears were waning. In the second half of
the period, however, the 10-year bond yield fell by only about 9 basis
points. Intermediate bond prices saw larger gains in response to the
more emphatic decline in yields in the first half.
Q. WHY DID THE FUND OUTPACE THE SHORT-INTERMEDIATE U.S. GOVERNMENT
FUNDS AVERAGE?
A. The fund had a larger weighting in both agency and mortgage
securities, and a smaller exposure to U.S. Treasuries throughout the
period than the Lipper average. In large part due to their higher
yields, agency and mortgage securities generally outpaced Treasuries
during much of the past year and helped the fund to outpace its Lipper
peer group. That said, agency and mortgage securities lagged the
Treasury market during the final months of the period and, while they
helped the fund's performance for the year, they modestly detracted
from its more recent performance. Treasuries' strong performance was
largely due to heavy buying from domestic and international investors
seeking a haven from the economic turmoil in Southeast Asia. Agency
securities, on the other hand, didn't enjoy the same demand and lagged
Treasuries as a result.
Q. WHY DID MORTGAGE-BACKED SECURITIES STRUGGLE DURING THE PAST FEW
MONTHS?
A. As interest rates moved lower - to their lowest levels since 1993 -
homeowners rushed to replace old high-rate mortgages with cheaper
loans. That caused the rate of home mortgage refinancings, and the
prepayment of mortgage loans, to rise substantially. Although
refinancings are good for mortgage holders, they can be difficult for
investors in mortgage securities. As the refinancings occur and
mortgage securities are prepaid, investors must find a new place to
put their money, usually at a lower interest rate. Generally speaking,
I focus on finding those mortgage securities that I think are less
susceptible to a pick-up or slowdown in the pace of refinancings.
However, in periods of interest-rate volatility - whether rates move
substantially up or down - prepayment patterns become more difficult
to predict and mortgage security prices can suffer as a result.
Q. WHAT WAS YOUR APPROACH TO SELECTING VARIOUS AGENCY SECURITIES?
A. While the majority of the fund's agency holdings were well-known
securities such as Fannie Mae and Freddie Mac, I looked for
opportunities among agencies that received less attention from market
participants. Because of a lack of attention, I was able to buy many
of these securities - including Government Trust Certificates and
Government Loan Trusts Notes - at cheap prices relative to comparable,
better-known securities.
Q. WHAT'S YOUR OUTLOOK?
A. The direction of interest rates, as always, will be the prime
determinant of bond performance, and I'm not willing to speculate on
where interest rates will be six months or a year from now. I will
say, however, that I believe that interest rates could remain volatile
as investors struggle with the dueling forces of a strong U.S. economy
and an ever-weakening Asia. I'll try to identify those securities that
I believe will offer the best total-return potential in any type of
interest-rate environment.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: high current income
with preservation of capital
by investing mainly in U.S.
government and agency securities
while maintaining a dollare
weighted average maturity
between three and 10 years
FUND NUMBER: 452
TRADING SYMBOL: FSTGX
START DATE: May 2, 1988
SIZE: as of July 31, 1998,
more than $703 million
MANAGER: Curt Hollingsworth,
since 1988; manager, various
Fidelity and Spartan
government funds; joined
Fidelity in 1983
CURT HOLLINGSWORTH ON
THE MIX OF GOVERNMENT SECURITIES
OWNED BY THE FUND:
U.S. TREASURIES: "I prefer to own
U.S. Treasury securities that were
issued some time ago, which are
known as 'off-the-run' Treasuries.
Newly issued, or 'current,' Treasuries
tend to be more expensive than
comparable older securities because
they command a premium price for
being more liquid, or easily traded."
AGENCIES: "I generally emphasize
agency securities that can't be
redeemed by their issuer before
maturity, known as 'non-callable'
securities. This call protection
prevents the fund from having to
turn around and reinvest cash from
a called bond at potentially lower
interest rates."
MORTGAGES: "One way I try to mitigate
the risk that the fund's mortgage
securities will be prepaid is to own
bonds with very low and very high
coupons, both of which are less
likely to be prepaid. Additionally,
I tend to emphasize 'seasoned'
securities, which contain mortgages
that homeowners do not tend to prepay,
despite being presented attractive
opportunities to do so."
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 0.0 5.2
5%
5 - 14.5 12.7
5.99%
6 - 31.6 35.9
6.99%
7 - 8.5 7.8
7.99%
8 - 9.1 10.3
8.99%
9 - 16.9 12.9
9.99%
10 - 3.8 4.1
10.99%
11 - 4.7 4.6
11.99%
12% AND 4.3 4.5
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 4.7 4.6
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 3.1 3.1
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1998 AS OF JANUARY 31, 1998
ROW: 1, COL: 4, VALUE: 23.7
ROW: 1, COL: 3, VALUE: 3.5
ROW: 1, COL: 2, VALUE: 66.2
ROW: 1, COL: 1, VALUE: 6.6
MORTGAGE-BACKED
SECURITIES 23.7%
U.S. TREASURY
OBLIGATIONS 3.5%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 66.2%
SHORT-TERM
INVESTMENTS 6.6%
ROW: 1, COL: 1, VALUE: 23.3
ROW: 1, COL: 2, VALUE: 19.3
ROW: 1, COL: 3, VALUE: 55.4
ROW: 1, COL: 4, VALUE: 2.0
MORTGAGE-BACKED
SECURITIES 23.3%
U.S. TREASURY
OBLIGATIONS 19.3%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 55.4%
SHORT-TERM
INVESTMENTS 2.0%
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENTS JULY 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 69.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 3.5%
7 7/8%, 8/15/01 $ 10,000 $ 10,641
6 1/2%, 8/31/01 13,700 14,061
TOTAL U.S. TREASURY OBLIGATIONS 24,702
U.S. GOVERNMENT AGENCY OBLIGATIONS - 66.2%
Fannie Mae:
8 1/4%, 12/18/00 9,600 10,135
6.29%, 2/11/02 25,000 25,414
5.89%, 11/06/02 15,000 15,059
6.74%, 5/13/04 2,150 2,245
7 7/8%, 2/24/05 5,455 6,062
7.49%, 3/02/05 5,980 6,523
Farm Credit System Financial Assistance Corporation
9 3/8%, 7/21/03 25,570 29,481
Federal Agricultural Mortgage Corporation
7.04%, 8/10/05 2,050 2,192
Federal Farm Credit Bank:
5.54%, 9/10/03 1,300 1,290
9.15%, 2/14/05 500 590
Federal Home Loan Bank:
6.26%, 9/24/04 3,500 3,585
8.09%, 12/28/04 3,500 3,922
7.59%, 3/10/05 1,940 2,124
6 1/2%, 11/29/05 3,000 3,127
6 3/4%, 4/10/06 1,000 1,056
Freddie Mac:
6.51%, 7/01/04 3,200 3,311
6.08%, 12/17/04 14,275 14,494
8.12%, 1/31/05 7,350 8,255
6.78%, 8/18/05 15,000 15,827
5.83%, 2/09/06 4,250 4,252
6.99%, 7/05/06 1,000 1,070
6.80%, 3/19/07 7,300 7,738
7.10%, 4/10/07 2,700 2,925
Government Loan Trusts (assets of Trust guaranteed by
U.S. Government through Agency for International
Development) 8 1/2%, 4/1/06 11,490 12,645
Government Trust Certificates (assets of Trust
guaranteed by U.S.
Government through Defense Security Assistance
Agency)
Class T-3, 9 5/8%, 5/15/02 4,306 4,538
Class 1-C, 9 1/4%, 11/15/01 41,309 43,717
Class 2-E, 9.40%, 5/15/02 9,678 10,200
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Export Trust Certificates
(assets of Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 $ 1,364 $ 1,341
Series 1993-D, 5.23%, 5/15/05 1,031 1,012
Series 1994-A, 7.12%, 4/15/06 5,693 5,917
Series 1994-C, 6.61%, 9/15/99 173 174
Series 1996-A, 6.55%, 6/15/04 8,704 8,877
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1992-A, 7.02%, 9/1/04 6,781 7,001
Series 1997-A, 6.104%, 7/15/03 12,861 12,926
Series 1994-B, 7 1/2%, 1/26/06 811 862
Israel Export Trust Certificates (assets of
Trust guaranteed by
U.S. Government through Export-Import Bank)
Series 1994-1, 6.88%, 1/26/03 5,453 5,584
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate:
Series 1994-195, 6.08%, 8/15/04 (callable) 6,787 6,827
Series 1996-A1, 6.726%, 9/15/10 (callable) 4,000 4,178
Private Exporting Funding Corp. secured:
8.35%, 1/31/01 3,800 4,032
5.65%, 3/15/03 2,065 2,058
5.82%, 6/15/03 (a) 36,700 36,715
5.48%, 9/15/03 2,695 2,673
5.80%, 2/1/04 4,590 4,595
6.86%, 4/30/04 2,499 2,565
State of Israel (guaranteed by U.S. Government
through
Agency for International Development):
7 3/4%, 11/15/99 4,200 4,306
5 1/4%, 9/15/00 11,550 11,458
6 3/8%, 8/15/01 1,433 1,459
6 1/4%, 8/15/02 7,300 7,435
6 5/8%, 8/15/03 12,860 13,307
5 5/8%, 9/15/03 11,550 11,461
6 3/4%, 8/15/04 350 368
7 5/8%, 8/15/04 8,820 9,653
6.60%, 2/15/08 27,910 29,186
Tennessee Valley Authority 6%, 11/01/00 4,060 4,082
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban Development
government guaranteed participation certificates:
Series 1996-A, 6.59%, 8/1/00 $ 1,340 $ 1,362
Series 1995-A, 8.24%, 8/1/02 5,000 5,415
Series 1996-A, 6.98%, 8/1/05 8,000 8,536
U.S. Trade Trust Certificates (assets of Trust
guaranteed
by U.S. Government through Export-Import Bank)
8.17%, 1/15/07 5,468 5,907
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 463,049
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $483,817) 487,751
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 23.4%
FANNIE MAE - 8.8%
5 1/2%, 1/1/09 to 2/1/09 9,709 9,503
6%, 10/1/08 to 12/1/08 20,178 20,049
8%, 10/1/00 8 9
8 1/4%, 12/1/01 5,399 5,825
8 1/2%, 9/1/07 to 12/1/22 1,402 1,464
9%, 2/1/13 939 999
9 1/2%, 11/1/09 3,422 3,663
10%, 1/1/20 133 145
10 1/4%, 10/1/09 to 10/1/18 320 351
11%, 8/1/10 to 1/1/16 5,161 5,750
11 1/4%, 1/1/10 to 1/1/16 1,019 1,147
11 1/2%, 9/1/11 to 6/1/19 3,538 4,038
11 3/4%, 7/1/13 to 4/1/14 137 156
12 1/4%, 10/1/10 to 6/1/15 1,070 1,239
12 1/2%, 9/1/07 to 5/1/21 2,850 3,335
12 3/4%, 10/1/11 to 6/1/15 1,182 1,395
13%, 6/1/11 to 7/1/15 1,336 1,575
13 1/4%, 9/1/11 to 9/1/13 611 729
13 1/2%, 5/1/11 to 12/1/14 34 41
14%, 6/1/11 to 12/1/14 103 123
14 1/2%, 7/1/14 19 24
15%, 4/1/12 23 28
61,588
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FREDDIE MAC - 8.6%
6 1/2%, 5/1/08 $ 2,451 $ 2,472
7%, 6/1/01 to 8/1/01 1,491 1,505
8 1/2%, 5/1/10 to 1/1/22 4,552 4,751
9%, 11/1/09 to 8/1/16 1,168 1,226
9 1/2%, 7/1/16 to 8/1/21 6,913 7,435
10%, 12/1/00 to 2/1/23 11,620 12,662
10 1/2%, 9/1/09 to 1/1/21 7,809 8,677
10 3/4%, 7/1/13 122 137
11%, 8/1/00 to 9/1/20 876 986
11 1/4%, 2/1/10 to 10/1/14 1,006 1,128
11 1/2%, 10/1/15 to 8/1/19 559 633
11 3/4%, 1/1/10 to 10/1/15 208 234
12%, 1/1/00 to 11/1/19 2,043 2,343
12 1/4%, 2/1/11 to 8/1/15 828 958
12 1/2%, 10/1/09 to 6/1/19 10,247 11,914
12 3/4%, 2/1/10 to 1/1/11 192 222
13%, 9/1/10 to 5/1/17 1,563 1,842
13 1/4%, 11/1/10 to 12/1/14 141 164
13 1/2%, 11/1/10 to 10/1/14 311 369
13 3/4%, 10/1/14 13 14
14%, 11/1/12 to 4/1/16 47 56
14 1/2%, 12/1/10 to 9/1/12 91 109
14 3/4%, 3/1/10 29 35
16 1/4%, 7/1/11 7 9
59,881
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.0%
8%, 9/15/06 to 11/15/07 938 975
8 1/2%, 4/15/16 to 4/15/17 94 100
9%, 11/15/04 to 5/15/17 1,408 1,499
9 1/2%, 6/15/09 to 11/15/20 11,922 12,861
10%, 12/15/09 to 10/15/20 1,680 1,837
10 1/2%, 8/15/15 to 1/15/18 2,573 2,827
11%, 4/15/00 to 8/15/19 3,584 4,012
11 1/2%, 3/15/10 to 1/15/21 12,973 14,631
12%, 11/15/12 to 6/15/15 791 902
12 1/4%, 1/15/14 51 57
12 1/2%, 6/15/14 65 76
13%, 1/15/11 to 12/15/14 1,017 1,190
13 1/4%, 9/15/13 to 10/15/14 195 225
13 1/2%, 5/15/10 to 12/15/14 528 617
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
14%, 6/15/11 to 12/15/14 $ 87 $ 103
16%, 4/15/13 164 198
17%, 12/15/11 3 4
42,114
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $160,225) 163,583
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3%
U.S. GOVERNMENT AGENCY - 0.3%
Fannie Mae planned amortization class Series 1988-21,
Class G, 9 1/2%, 8/25/18 1,662 1,776
Freddie Mac sequential pay Series 1353
Class A, 5 1/2%, 11/15/04 101 100
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,895) 1,876
CASH EQUIVALENTS - 6.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligation),
in a joint account at:
5.62%, dated 7/31/98 due 8/03/98 $ 39,747 39,728
5.63%, dated 7/31/98 due 8/03/98 6,447 6,444
TOTAL CASH EQUIVALENTS
(Cost $46,172) 46,172
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $692,109) $ 699,382
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$36,715,000 or 5.2% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,329,943,000 and $1,349,279,000,
respectively.
INCOME TAX INFORMATION
At July 31, 1998, the aggregate cost of investment securities for
income tax purposes was $692,118,000. Net unrealized appreciation
aggregated $7,264,000, of which $8,962,000 related to appreciated
investment securities and $1,698,000 related to depreciated investment
securities.
At July 31, 1998, the fund had a capital loss carryforward of
approximately $55,905,000 of which $45,999,000, $6,634,000, and
$3,272,000 will expire on July 31, 2003, 2004 and 2005, respectively.
A total of 22.63% 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. (unaudited)
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 699,382
AGREEMENTS OF $46,172) (COST $692,109) -
SEE ACCOMPANYING SCHEDULE
CASH 1
RECEIVABLE FOR INVESTMENTS SOLD 864
RECEIVABLE FOR FUND SHARES SOLD 368
INTEREST RECEIVABLE 10,264
OTHER RECEIVABLES 63
TOTAL ASSETS 710,942
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 5,630
PAYABLE FOR FUND SHARES REDEEMED 602
DISTRIBUTIONS PAYABLE 633
ACCRUED MANAGEMENT FEE 226
OTHER PAYABLES AND ACCRUED EXPENSES 20
TOTAL LIABILITIES 7,111
NET ASSETS $ 703,831
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 750,604
UNDISTRIBUTED NET INVESTMENT INCOME 1,867
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (55,913)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 7,273
NET ASSETS, FOR 71,942 SHARES OUTSTANDING $ 703,831
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.78
SHARE ($703,831 (DIVIDED BY) 71,942 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1998
INVESTMENT INCOME $ 51,759
INTEREST
EXPENSES
MANAGEMENT FEE $ 4,789
NON-INTERESTED TRUSTEES' COMPENSATION 3
TOTAL EXPENSES BEFORE REDUCTIONS 4,792
EXPENSE REDUCTIONS (1,994) 2,798
NET INVESTMENT INCOME 48,961
REALIZED AND UNREALIZED GAIN (LOSS) 5,968
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (6,214)
INVESTMENT SECURITIES
NET GAIN (LOSS) (246)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 48,715
FROM OPERATIONS
OTHER INFORMATION
EXPENSE REDUCTIONS:
FMR REIMBURSEMENT $ 1,987
CUSTODIAN CREDITS 5
TRANSFER AGENT CREDITS 2
$ 1,994
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 48,961 $ 48,874
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 5,968 (3,334)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (6,214) 12,958
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 48,715 58,498
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (49,186) (47,692)
SHARE TRANSACTIONS 255,811 147,916
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 40,988 39,235
COST OF SHARES REDEEMED (296,896) (233,304)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (97) (46,153)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (568) (35,347)
NET ASSETS
BEGINNING OF PERIOD 704,399 739,746
END OF PERIOD (INCLUDING UNDER (OVER) DISTRIBUTIONS OF NET $ 703,831 $ 704,399
INVESTMENT INCOME OF $1,867 AND $(140), RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 26,122 15,242
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 4,188 4,045
REDEEMED (30,301) (24,040)
NET INCREASE (DECREASE) 9 (4,753)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310
OF PERIOD
INCOME FROM INVESTMENT .652 C .675 C .678 .610 .470
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED (.008) .124 (.150) .143 (.410)
GAIN (LOSS)
TOTAL FROM INVESTMENT .644 .799 .528 .753 .060
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.654) (.659) (.638) (.603) (.540)
FROM NET REALIZED GAIN - - - - -
IN EXCESS OF NET REALIZED GAIN - - - - (.220)
TOTAL DISTRIBUTIONS (.654) (.659) (.638) (.603) (.760)
NET ASSET VALUE, END OF PERIOD $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610
TOTAL RETURN A, B 6.78% 8.56% 5.49% 8.16% .57%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 704 $ 704 $ 740 $ 817 $ 1,018
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .38% D .54% D .63% D .65% .65%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE .38% .54% .62% E .65% .65%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 6.65% 6.96% 6.89% 7.18% 7.37%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 188% 105% 105% 210% 391%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE FORMER ACCOUNT CLOSEOUT FEE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS)
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Ginnie Mae Fund, Fidelity Government Securities Fund
(formerly a fund of Fidelity Government Securities Trust) and Fidelity
Intermediate Government Income Fund (formerly Spartan Limited Maturity
Government Fund) (the funds) are funds of Fidelity Income Fund (the
trust). 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. Each fund is
authorized to issue an unlimited number of shares. The financial
statements have been prepared in conformity with generally accepted
accounting principles which require management to make certain
estimates and assumptions at the date of the financial statements. On
June 19, 1997, the Board of Trustees approved a change in the fiscal
year-end of the Fidelity Government Securities Fund to July 31.
Accordingly, the financial statements of Fidelity Government
Securities Fund are presented for the ten-month period ended July 31,
1998. On June 17, 1998, the Board of Trustees approved a change in the
name of Fidelity Government Securities Fund to Fidelity Government
Income Fund effective on or about September 21, 1998. The following
summarizes the significant accounting policies of the funds:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, each fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for the fiscal year. The schedules of investments
include information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
gains/losses on certain securities, market discount, capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income or distributions in excess of net
investment income and accumulated undistributed net realized gain
(loss) on investments may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the funds, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the funds, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the funds' investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. Each fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. With respect to purchase commitments, each fund identifies
securities as segregated in its custodial records with a value at
least equal to the amount of the commitment. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
RESTRICTED SECURITIES. Certain funds are permitted to invest in
securities that are subject to legal or contractual restrictions on
resale. These securities generally may be resold in transactions
exempt from registration or to the public if the securities are
registered. Disposal of these securities may involve time-consuming
negotiations
2. OPERATING POLICIES -
CONTINUED
RESTRICTED SECURITIES - CONTINUED
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the funds had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of each applicable fund's schedule of
investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE.
As the investment adviser for Fidelity Ginnie Mae Fund and Fidelity
Government Securities Fund, 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 each fund. The
group fee rate is the weighted average of a series of rates and is
based on the monthly average net assets of all the mutual funds
advised by FMR. The rates ranged from .1100% to .3700% for the period.
The annual individual fund fee rate is .30%. In the event that these
rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent
to an annual rate of .44% of average net assets for Fidelity Ginnie
Mae Fund. For the period, the management fee was equivalent to an
annualized rate of .44% of average net assets for Fidelity Government
Securities Fund.
For Fidelity Intermediate Government Income Fund, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets. FMR also
bears the cost of providing shareholder services to the fund. To
offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $9,300 for the period. Effective June 27, 1998, these
transaction fees were eliminated.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the transfer, dividend disbursing and shareholder
servicing agent for Fidelity Ginnie Mae Fund and Fidelity Government
Securities Fund. FSC receives account fees and asset-based fees that
vary according to account size and type of account. FSC pays for
typesetting, printing and mailing of all shareholder reports, except
proxy statements. For the period, the transfer agent fee was
equivalent to an annual rate of .22% of average net assets for
Fidelity Ginnie Mae Fund. For the period, the transfer agent fee was
equivalent to an annualized rate of .18% of average net assets for
Fidelity Government Securities Fund.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
ACCOUNTING FEES. FSC maintains the accounting records for Fidelity
Ginnie Mae Fund and Fidelity Government Securities Fund. The fee is
based on the level of each fund's average net assets for the month
plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
For Fidelity Intermediate Government Income Fund, FMR voluntarily
agreed to reimburse the fund's operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above an
annual rate of .38% of average net assets. Effective June 27, 1998,
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above an annual rate of .65% of Fidelity Ginnie Mae Fund's average net
assets.
In addition, Fidelity Ginnie Mae Fund, Fidelity Government Securities
Fund, and FMR on behalf of Fidelity Intermediate Government Income
Fund, have entered into arrangements with their custodian and transfer
agent whereby credits realized on uninvested cash balances were used
to offset a portion of certain of each fund's expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on each applicable fund's
Statement of Operations.
6. BANK BORROWINGS.
Each fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. Each fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, each 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. Information regarding a fund's
participation in the program is included under the caption "Other
Information" at the end of each applicable fund's schedule of
investments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of
Fidelity Ginnie Mae Fund, Fidelity Government Securities Fund and
Fidelity Intermediate Government Income Fund (formerly Spartan Limited
Maturity Government Fund):
In our opinion, the accompanying statements of assets and liabilities,
including the schedules 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 Fund, Fidelity Government Securities Fund and
Fidelity Intermediate Government Income Fund (formerly Spartan Limited
Maturity Government Fund) (funds of Fidelity Income Fund) at July 31,
1998, the results of their operations, the changes in their 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 Fidelity Income
Fund's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at July 31,
1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 8, 1998
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on July 15,
1998. The results of votes taken among shareholders on proposals
before them are listed below.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
RALPH F. COX
AFFIRMATIVE 1,651,958,203.91 97.164
WITHHELD 48,220,916.99 2.836
TOTAL 1,700,179,120.90 100.000
PHYLLIS BURKE DAVIS
AFFIRMATIVE 1,652,223,467.94 97.179
WITHHELD 47,955,652.96 2.821
TOTAL 1,700,179,120.90 100.000
ROBERT M. GATES
AFFIRMATIVE 1,651,224,161.42 97.121
WITHHELD 48,954,959.48 2.879
TOTAL 1,700,179,120.90 100.000
EDWARD C. JOHNSON 3D
AFFIRMATIVE 1,652,007,241.03 97.167
WITHHELD 48,171,879.87 2.833
TOTAL 1,700,179,120.90 100.000
E. BRADLEY JONES
AFFIRMATIVE 1,649,145,998.05 96.998
WITHHELD 51,033,122.85 3.002
TOTAL 1,700,179,120.90 100.000
DONALD J. KIRK
AFFIRMATIVE 1,653,199,972.08 97.237
WITHHELD 46,979,148.82 2.763
TOTAL 1,700,179,120.90 100.000
# OF % OF
DOLLARS VOTED DOLLARS VOTED
PETER S. LYNCH
AFFIRMATIVE 1,653,387,884.55 97.248
WITHHELD 46,791,236.35 2.752
TOTAL 1,700,179,120.90 100.000
WILLIAM O. MCCOY
AFFIRMATIVE 1,653,375,663.18 97.247
WITHHELD 46,803,457.72 2.753
TOTAL 1,700,179,120.90 100.000
GERALD C. MCDONOUGH
AFFIRMATIVE 1,649,195,994.06 97.001
WITHHELD 50,983,126.84 2.999
TOTAL 1,700,179,120.90 100.000
MARVIN L. MANN
AFFIRMATIVE 1,652,881,436.93 97.218
WITHHELD 47,297,683.97 2.782
TOTAL 1,700,179,120.90 100.000
ROBERT C. POZEN
AFFIRMATIVE 1,652,699,192.82 97.207
WITHHELD 47,479,928.08 2.793
TOTAL 1,700,179,120.90 100.000
THOMAS R. WILLIAMS
AFFIRMATIVE 1,651,939,558.10 97.163
WITHHELD 48,239,562.80 2.837
TOTAL 1,700,179,120.90 100.000
PROPOSAL 2
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Fidelity Ginnie Mae Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 412,010,357.66 92.982
AGAINST 18,489,458.62 4.172
ABSTAIN 12,608,871.54 2.846
TOTAL 443,108,687.82 100.000
PROPOSAL 3
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Fidelity Government Securities Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 607,828,848.81 96.733
AGAINST 4,696,869.43 0.747
ABSTAIN 15,832,594.27 2.520
TOTAL 628,358,312.51 100.000
PROPOSAL 4
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Spartan Limited Maturity Government Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 346,807,581.09 96.586
AGAINST 3,225,006.92 0.898
ABSTAIN 9,032,796.70 2.516
TOTAL 359,065,384.71 100.000
PROPOSAL 5
To authorize the Trustees to adopt an Amended and Restated Declaration
of Trust.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 1,513,079,756.37 89.970
AGAINST 62,655,788.85 3.725
ABSTAIN 106,028,282.98 6.305
TOTAL 1,681,763,828.20 100.000
BROKER 18,415,292.70
NON-VOTES
PROPOSAL 6
To approve an amended management contract for Fidelity Ginnie Mae
Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 394,250,682.02 88.974
AGAINST 27,055,043.48 6.106
ABSTAIN 21,802,962.32 4.920
TOTAL 443,108,687.82 100.000
PROPOSAL 7
To amend Fidelity Ginnie Mae Fund's fundamental investment limitation
concerning diversification.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 366,461,526.11 82.702
AGAINST 27,812,040.82 6.277
ABSTAIN 48,835,120.89 11.021
TOTAL 443,108,687.82 100.000
PROPOSAL 8
To amend Spartan Limited Maturity Government Fund's fundamental
investment limitation concerning diversification.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 320,055,334.74 89.620
AGAINST 17,486,336.33 4.896
ABSTAIN 19,583,973.54 5.484
TOTAL 357,125,644.61 100.000
BROKER 1,939,740.10
NON-VOTES
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
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CALIFORNIA
815 East Birch Street
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851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
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10100 Santa Monica Blvd.
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
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455 Market Street
San Francisco, CA
950 Northgate Drive
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1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
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DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
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8880 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
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8065 Beneva Road
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1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
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416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
16850 SW 72 Avenue
Tigard, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and
send you written confirmation upon completion of your request.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Stanley N. Griffith, Assistant
Vice President
Curt Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Strategic Income
Target Timeline SM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress(registered trademark) (automated graphic)
1-800-544-5555
(automated graphic) AUTOMATED LINE FOR QUICKEST SERVICE
SUPPLEMENT TO
THE SPARTAN(registered trademark) SHORT-INTERMEDIATE GOVERNMENT FUND
JUNE 26, 1998 PROSPECTUS
The following information replaces similar information found under the
heading "FMR and Its Affiliates" in the "Charter" section beginning on
page 9.
Andrew Dudley is Vice President and manager of Spartan
Short-Intermediate Government, which he has managed since December
1998. He also manages other Fidelity funds. Prior to joining Fidelity
in 1996, Mr. Dudley was a portfolio manager for Putnam Investments
from 1991 to 1996.
The following information replaces similar information found in the
"Who May Want to Invest" section beginning on page 3.
PROPOSED REORGANIZATION. The Board of Trustees of Spartan
Short-Intermediate Government Fund has unanimously approved an
Agreement and Plan of Reorganization ("Agreement") between Spartan
Short-Intermediate Government Fund and Fidelity Intermediate
Government Income Fund (formerly Spartan Limited Maturity Government
Fund), a fund of Fidelity Income Fund.
The Agreement provides for the transfer of all of the assets and the
assumption of all of the liabilities of Spartan Short-Intermediate
Government Income Fund solely in exchange for the number of shares of
Fidelity Intermediate Government Income Fund equal in value to the
relative net asset value of the outstanding shares of Spartan
Short-Intermediate Government Fund. Following such exchange, Spartan
Short-Intermediate Government Fund will distribute the Fidelity
Intermediate Government Income Fund shares to its shareholders pro
rata, in liquidation of Spartan Short-Intermediate Government Fund as
provided in the Agreement (the transactions contemplated by the
Agreement referred to as the "Reorganization"). The Reorganization can
be consummated only if, among other things, it is approved by a
majority vote of shareholders. A Special Meeting (the "Meeting") of
the Shareholders of Spartan Short-Intermediate Government Fund will be
held on April 14, 1999, and approval of the Agreement will be voted on
at that time. In connection with the Meeting, Spartan
Short-Intermediate Government Fund will be filing with the Securities
and Exchange Commission and delivering to its shareholders of record a
Proxy Statement describing the Reorganization and a Prospectus for
Fidelity Intermediate Government Income Fund.
If the Agreement is approved at the Meeting and certain conditions
required by the Agreement are satisfied, the Reorganization is
expected to become effective on or about April 22, 1999. If
shareholder approval of the Agreement is delayed due to failure to
meet a quorum or otherwise, the Reorganization will become effective,
if approved, as soon as practicable thereafter.
In the event Spartan Short-Intermediate Government Fund shareholders
fail to approve the Agreement, Spartan Short-Intermediate Government
Fund will continue to engage in business as a registered investment
company and the Board of Trustees will consider other proposals for
the reorganization or liquidation of Spartan Short-Intermediate
Government Fund.
Effective the close of business on June 26, 1998, the fund's shares
are no longer available to new accounts. Shareholders of the fund on
that date may continue to purchase shares in accounts existing on that
date. Investors who did not own shares of the fund on June 26, 1998,
generally will not be allowed to purchase shares of the fund except
that new accounts may be established: 1) by participants in most group
employer retirement plans (and their successor plans) in which the
fund had been established as an investment option by June 26, 1998,
and 2) for accounts managed on a discretionary basis by certain
registered investment advisors that have discretionary assets of at
least $500 million invested in mutual funds and have included the fund
in their discretionary account program since June 26, 1998. These
restrictions generally will apply to investments made directly with
Fidelity and investments made through intermediaries. Investors may be
required to demonstrate eligibility to purchase shares of the fund
before an investment is accepted.
SSG-98-01 December 7, 1998
480662.103
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 June
26, 1998. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is available along with other related materials
on the SEC's Internet Web site (http://www.sec.gov). The SAI is
incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call
Fidelity(registered trademark) at 1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE
SSG-pro-0698
704238
SPARTAN(registered trademark)
SHORT-INTERMEDIATE
GOVERNMENT
FUND
(fund number 474, trading symbol SPSIX)
The fund invests in U.S. Government securities and seeks high current
income with preservation of capital.
PROSPECTUS
JUNE 26, 1998
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
KEY FACTS 2 THE FUND AT A GLANCE
3 WHO MAY WANT TO INVEST
4 EXPENSES THE FUND'S YEARLY OPERATING
EXPENSES.
5 FINANCIAL HIGHLIGHTS A SUMMARY OF THE
FUND'S FINANCIAL DATA.
6 PERFORMANCE HOW THE FUND HAS DONE
OVER TIME.
THE FUND IN DETAIL CHARTER HOW THE FUND IS ORGANIZED.
7 INVESTMENT PRINCIPLES AND RISKS THE
FUND'S OVERALL APPROACH TO INVESTING.
9 BREAKDOWN OF EXPENSES HOW
OPERATING COSTS ARE CALCULATED AND WHAT
THEY INCLUDE.
YOUR ACCOUNT 9 DOING BUSINESS WITH FIDELITY
9 TYPES OF ACCOUNTS DIFFERENT WAYS TO
SET UP YOUR ACCOUNT, INCLUDING
TAX-ADVANTAGED RETIREMENT PLANS.
11 HOW TO BUY SHARES OPENING AN
ACCOUNT AND MAKING ADDITIONAL
INVESTMENTS.
13 HOW TO SELL SHARES TAKING MONEY OUT
AND CLOSING YOUR ACCOUNT.
15 INVESTOR SERVICES SERVICES TO HELP YOU
MANAGE YOUR ACCOUNT.
SHAREHOLDER AND 16 DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
17 TRANSACTION DETAILS SHARE PRICE
CALCULATIONS AND THE TIMING OF PURCHASES
AND REDEMPTIONS.
18 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: Normally invests in U.S. Government securities and
instruments related to U.S. Government securities while maintaining an
average maturity of two to five years. FMR uses the Lehman Brothers
1-5 Year U.S. Government Bond Index as a guide in structuring the fund
and selecting its investments.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments(registered trademark), which
was established in 1946 and is now America's largest mutual fund
manager.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, will choose investments for the fund.
SIZE: As of April 30, 1998, the fund had over $75 million in assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors who seek high current income
from a portfolio of U.S. Government securities. The fund's level of
risk and potential reward depend on the quality and maturity of its
investments.
The value of the fund's investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other economic and political news. The fund's
investments are also subject to prepayment risk, 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. By itself, the fund does not constitute a balanced
investment plan.
FMR anticipates presenting a proposal to the Board of Trustees of
Spartan Short-Intermediate Government Fund requesting their approval
to present shareholders of the fund a proposal to merge the fund into
Fidelity Intermediate Government Income Fund (formerly Spartan Limited
Maturity Government Fund).
(checkmark)THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking to
maximize return must assume
greater risk. Spartan
Short-Intermediate 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.
As a result, effective the close of business on June 26, 1998, the
fund's shares will no longer be available to new accounts.
Shareholders of the fund on that date may continue to purchase shares
in accounts existing on that date. Investors who did not own shares of
the fund on June 26, 1998, generally will not be allowed to purchase
shares of the fund except that new accounts may be established: 1) by
participants in most group employer retirement plans (and their
successor plans) in which the fund had been established as an
investment option by June 26, 1998, and 2) for accounts managed on a
discretionary basis by certain registered investment advisors that
have discretionary assets of at least $1 billion invested in mutual
funds and have included the fund in their discretionary account
program since June 26, 1998. These restrictions generally will apply
to investments made directly with Fidelity and investments made
through intermediaries. Investors may be required to demonstrate
eligibility to purchase shares of the fund before an investment is
accepted.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of the fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page , for an explanation of how and when
these charges apply.
SALES CHARGE ON PURCHASES NONE
AND REINVESTED DISTRIBUTIONS
DEFERRED SALES CHARGE ON NONE
REDEMPTIONS
ANNUAL ACCOUNT $12.00
MAINTENANCE FEE
(FOR ACCOUNTS UNDER
$2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The
fund pays a management fee to FMR. FMR is responsible for the payment
of all other fund expenses with certain limited exceptions. Expenses
are factored into the fund's share price or dividends and are not
charged directly to shareholder accounts (see "Breakdown of Expenses"
page ).
The following figures are based on historical expenses of the fund and
are calculated as a percentage of average net assets of the fund.
MANAGEMENT FEE 0.65%
12B-1 FEE NONE
OTHER EXPENSES 0.00%
TOTAL FUND OPERATING 0.65%
EXPENSES
EXAMPLES: Let's say, hypothetically, that the fund's annual return is
5% and that your shareholder transaction expenses and the fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
1 YEAR $ 7
3 YEARS $ 21
5 YEARS $ 36
10 YEARS $ 81
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
(checkmark)UNDERSTANDING
EXPENSES
OPERATING A MUTUAL FUND
INVOLVES A VARIETY OF EXPENSES
FOR PORTFOLIO MANAGEMENT,
SHAREHOLDER STATEMENTS, TAX
REPORTING, AND OTHER SERVICES.
THE MANAGEMENT FEE IS PAID
FROM THE FUND'S ASSETS, AND ITS
EFFECT IS ALREADY FACTORED INTO
ANY QUOTED SHARE PRICE OR
RETURN. OTHER EXPENSES ARE
PAID BY FMR OUT OF THE FUND'S
MANAGEMENT FEE. ALSO, AS AN
INVESTOR, YOU MAY PAY CERTAIN
EXPENSES DIRECTLY.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by
Coopers & Lybrand L.L.P., independent accountants. The fund's
financial highlights, financial statements, and report of the auditor
are included in the fund's Annual Report, and are incorporated by
reference into (are legally a part of) the fund's SAI. Contact
Fidelity for a free copy of the Annual Report or the SAI.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED APRIL 1998 1997 1996 1995 1994 1993F
30
NET ASSET VALUE, $ 9.270 $ 9.400 $ 9.440 $ 9.490 $ 10.090 $ 10.000
BEGINNING OF PERIOD
INCOME FROM .584C .658C .688 .665 .616 .257
INVESTMENT
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED AND .082 (.149) (.045) (.065) (.579) .083
UNREALIZED GAIN (LOSS)
TOTAL FROM .666 .509 .643 .600 .037 .340
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS (.546) (.639) (.683) (.650) (.617) (.250)
FROM NET
INVESTMENT INCOME
IN EXCESS OF NET -- -- -- -- (.010) --
INVESTMENT INCOME
IN EXCESS OF NET -- -- -- -- (.010) --
REALIZED GAIN
TOTAL (.546) (.639) (.683) (.650) (.637) (.250)
DISTRIBUTIONS
NET ASSET VALUE, $ 9.390 $ 9.270 $ 9.400 $ 9.440 $ 9.490 $ 10.090
END OF PERIOD
TOTAL RETURNA,B 7.35% 5.57% 6.92% 6.60% .29% 3.43%
RATIOS
AND
SUPPLEME
NTAL DATA
NET ASSETS, END $ 75,501 $ 68,949 $ 78,278 $ 93,888 $ 53,726 $ 54,853
OF PERIOD (000
OMITTED)
RATIO OF .65% .65% .45%E .10%E .10%E .02%D,E
EXPENSES TO AVERAGE
NET ASSETS
RATIO OF NET 6.23% 7.04% 7.16% 7.35% 7.33% 7.28%D
INVESTMENT INCOME
TO AVERAGE NET
ASSETS
PORTFOLIO 166% 104% 161% 282% 271% 587%D
TURNOVER 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 FORMER ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D ANNUALIZED
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
F DECEMBER 18, 1992 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1993
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do
not reflect the effect of taxes or any transaction fees you may have
paid. The figures would be lower if fees were taken into account.
The fund's fiscal year runs from May 1 through April 30. The tables
below show the fund's performance over past fiscal years compared to
different measures, including a comparative index and a competitive
funds average. The chart on page presents calendar year performance.
AVERAGE ANNUAL TOTAL RETURNS
FISCAL PERIODS ENDED PAST 1 PAST 5 LIFE OF
APRIL 30, 1998 YEAR YEARS FUNDA
SPARTAN 7.35% 5.31% 5.60%
SHORT-INTERMEDIATE
GOVERNMENT
LEHMAN BROS. 7.81% 5.61% N/A
1-5 YEAR U.S. GOVT.
BOND INDEX
LIPPER 7.36% 5.00% N/A
SHORT-INTERMEDIATE
U.S. GOVT. FUNDS
AVERAGE
CUMULATIVE TOTAL RETURNS
FISCAL PERIODS ENDED PAST 1 PAST 5 LIFE OF
APRIL 30, 1998 YEAR YEARS FUNDA
SPARTAN 7.35% 29.54% 33.99%
SHORT-INTERMEDIATE
GOVERNMENT
LEHMAN BROS. 7.81% 31.39% N/A
1-5 YEAR U.S. GOVT.
BOND INDEX
LIPPER 7.36% 27.70% N/A
SHORT-INTERMEDIATE
U.S. GOVT. FUNDS
AVERAGE
A FROM DECEMBER 18, 1992 (COMMENCEMENT OF OPERATIONS)
If FMR had not reimbursed certain fund expenses during these periods,
total returns would have been lower.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in 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.
(checkmark)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 YIELDS
AND CARRY MORE RISK THAN
SHORT-TERM BOND FUNDS.
LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND INDEX is a market value
weighted performance benchmark for government fixed-rate debt issues
with maturities between one and five years.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1993 1994 1995 1996 1997
SPARTAN SHORT-INTERMEDIATE
GOVERNMENT 5.68% -0.52% 12.29% 4.27% 6.61%
Lehman Bros. 1-5 Year
U.S. Govt. Bond Index 6.88% -0.77% 12.66% 4.60% 7.11%
Lipper Short-Intermediate
U.S. Govt. Funds Average 6.96% -2.26% 12.46% 3.52% 6.72%
Consumer Price Index 2.75% 2.67% 2.54% 3.32% 1.70%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 5.68
Row: 7, Col: 1, Value: -0.52
Row: 8, Col: 1, Value: 12.29
Row: 9, Col: 1, Value: 4.270000000000001
Row: 10, Col: 1, Value: 6.609999999999999
(LARGE SOLID BOX) Spartan
Short-Intermediate
Government
Unlike the fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Short-Intermediate U.S.
Government Funds Average. As of April 30, 1998, the average reflected
the performance of 97 mutual funds with similar investment objectives.
This average, published by Lipper Analytical Services, Inc., excludes
the effect of sales loads.
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 SHORT-INTERMEDIATE GOVERNMENT IS A MUTUAL FUND: an investment
that pools shareholders' money and invests it toward a specified goal.
The fund is a diversified fund of Fidelity Fixed-Income Trust, an
open-end management investment company organized as a Massachusetts
business trust on September 5, 1984.
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 periodically throughout the year to oversee the
fund's activities, review contractual arrangements with companies that
provide services to the fund, and review the fund's performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Beginning January 1, 1999, FIMM, located
in Merrimack, New Hampshire, will have primary responsibility for
providing investment management services for the fund.
Curt Hollingsworth is Vice President and manager of Spartan
Short-Intermediate Government, which he has managed since December
1992. He also manages several other Fidelity funds. Since joining
Fidelity in 1983, Mr. Hollingsworth has worked as a fixed-income
trader and portfolio manager.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Service Company, Inc. (FSC) performs transfer agent servicing
functions for the fund.
FMR Corp. is the ultimate parent company of FMR and FIMM. Members of
the Edward C. Johnson 3d family are the predominant owners of a class
of shares of common stock representing approximately 49% of the voting
power of FMR Corp. Under the Investment Company Act of 1940 (the 1940
Act), control of a company is presumed where one individual or group
of individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form
a controlling group with respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out the fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
PREPAYMENT RISK. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment risk occurs
when the issuer of a security can prepay principal prior to the
security's maturity. Securities subject to prepayment risk generally
offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising
interest rate environment. In addition, the potential impact of
prepayment features on the price of a debt security may be difficult
to predict and result in greater volatility.
FIDELITY'S APPROACH TO BOND FUNDS. In managing bond funds, FMR selects
a benchmark index that is representative of the universe of securities
in which the fund invests. FMR uses this benchmark as a guide in
structuring the fund and selecting its investments.
FMR allocates assets among different market sectors (for example, U.S.
Treasury or U.S. Government agency securities) and different
maturities based on its view of the relative value of each sector or
maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
THE FUND seeks high current income, consistent with preservation of
capital, by investing in U.S. Government securities and instruments
related to U.S. Government securities under normal conditions. The
benchmark index for the fund is the Lehman Brothers 1-5 Year U.S.
Government Bond Index, a market value weighted benchmark of government
fixed-rate debt issues with maturities between one and five years. FMR
manages the fund to have similar overall interest rate risk to the
Index. As of April 30, 1998, the dollar-weighted average maturity of
the fund and the Index was approximately 3.2 and 2.7 years,
respectively. In addition, the fund normally maintains a
dollar-weighted average maturity between two and five years.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
The fund normally invests only in U.S. Government securities,
repurchase agreements and other instruments related to U.S. Government
securities. FMR normally invests at least 65% of the fund's total
assets in U.S. Government securities and repurchase agreements for
U.S. Government securities. Other instruments may include futures or
options on U.S. Government securities or interests in U.S. Government
securities that have been repackaged by dealers or other third
parties. It is important to note that neither the fund's share price
nor its yield is guaranteed by the U.S. Government.
FMR may use various techniques to hedge a portion of the fund's risks,
but there is no guarantee that these strategies will work as FMR
intends. When you sell your shares of the fund, 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, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of the fund's limitations and more
detailed information about the fund's investments are 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 unless it believes that they are consistent with the fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in 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 generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes. In addition, bond prices are also
affected by the credit quality of the issuer.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by Fannie Mae are supported
by the instrumentality's right to borrow money from the U.S. Treasury
under certain circumstances. Other U.S. Government securities such as
those issued by the Federal Farm Credit Banks Funding Corporation are
supported only by the credit of the entity that issued them.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
RESTRICTIONS: The fund does not currently intend to invest more than
40% of its assets in mortgage securities.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, 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.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, or other factors that affect security values. These
techniques may involve derivative transactions such as buying and
selling options and futures contracts, entering into 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.
ILLIQUID 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.
Difficulty in selling securities may result in a loss or may be costly
to the fund.
RESTRICTIONS: The fund may not invest more than 10% of its assets in
illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
OTHER INSTRUMENTS may include real estate-related instruments.
CASH MANAGEMENT. The fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering the fund's securities. The fund may also lend
money to other funds advised by FMR or its affiliates.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the
fund's total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
THE FUND seeks as high a level of current income as is consistent with
preservation of capital.
The fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 331/3% of 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 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 fund's management fee is calculated and paid to FMR every month.
FMR pays all of the other expenses of the fund with limited
exceptions. The fund's annual management fee rate is 0.65% of its
average net assets.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing the fund's investments. FMR will pay FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
FSC is the transfer and service agent for the fund. FSC performs
transfer agency, dividend disbursing, shareholder servicing, and
accounting functions for the fund. These services include processing
shareholder transactions, valuing the fund's investments, handling
securities loans, and calculating the fund's share price and
dividends. FMR, not the fund, pays for these services.
The fund also pays other expenses, such as brokerage fees and
commissions, interest on borrowings, taxes, and the compensation of
trustees who are not affiliated with Fidelity.
The fund has adopted a DISTRIBUTION AND SERVICE PLAN. This plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees has authorized such payments.
The fund's portfolio turnover rate for the fiscal year ended April
1998 was 166%. 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-advantaged retirement plans for individuals investing on their own
or through their employer.
Fidelity is committed to providing investors with practical
information to make investment decisions. Based in Boston, Fidelity
provides customers with complete service 24 hours a day, 365 days a
year, through a network of telephone service centers around the
country and Fidelity's Web site.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity
has over 80 walk-in Investor Centers across the country.
If you would prefer to access information on-line, you can visit
Fidelity's Web site at www.fidelity.com.
TYPES OF ACCOUNTS
You may set up an account directly in 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.
You may purchase or sell shares of the fund through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in the fund. Certain features
of the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
The account guidelines that follow may not apply to certain retirement
accounts. If you are investing through a retirement account or if your
employer offers the fund through a retirement program, you may be
subject to additional fees. For more information, please refer to your
program materials, contact your employer, call your retirement
benefits number, visit Fidelity's Web site at www.fidelity.com, or
contact Fidelity directly, as appropriate.
(checkmark)FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 225
(solid bullet) Assets in Fidelity mutual
funds: over $595 billion
(solid bullet) Number of shareholder
accounts: over 37 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 250
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
Retirement plans provide individuals with tax-advantaged ways to save
for retirement, either with tax-deductible contributions or tax-free
growth. Retirement accounts require special applications and typically
have lower minimums.
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow
individuals under age 70 with compensation to contribute up to $2,000
per tax year. Married couples can contribute up to $4,000 per tax
year, provided no more than $2,000 is contributed on behalf of either
spouse. (These limits are aggregate for Traditional and Roth IRAs.)
Contributions may be tax-deductible, subject to certain income limits.
(solid bullet) ROTH IRAS allow individuals to make non-deductible
contributions of up to $2,000 per tax year. Married couples can
contribute up to $4,000 per tax year, provided no more than $2,000 is
contributed on behalf of either spouse. (These limits are aggregate
for Traditional and Roth IRAs.) Eligibility is subject to certain
income limits. Qualified distributions are tax-free.
(solid bullet) ROTH CONVERSION IRAS allow individuals with assets held
in a Traditional IRA or Rollover IRA to convert those assets to a Roth
Conversion IRA. Eligibility is subject to certain income limits.
Qualified distributions are tax-free.
(solid bullet) ROLLOVER IRAS help retain special tax advantages for
certain eligible rollover distributions from employer-sponsored
retirement plans.
(solid bullet) KEOGH PLANS are generally profit sharing or money
purchase pension plans that allow self-employed individuals or small
business owners to make tax-deductible contributions for themselves
and any eligible employees.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide
small business owners or those with self-employment income (and their
eligible employees) with many of the same advantages as a Keogh, but
with fewer administrative requirements.
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS) allow employees of
businesses with 25 or fewer employees to contribute a percentage of
their wages on a tax-deferred basis. These plans must have been
established by the employer prior to January 1, 1997.
(solid bullet) SIMPLE IRAS provide small business owners and those
with self-employment income (and their eligible employees) with many
of the advantages of a 401(k) plan, but with fewer administrative
requirements.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of
501(c)(3) tax-exempt institutions, including schools, hospitals, and
other charitable organizations.
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS) are available
to employees of most state and local governments and their agencies
and to employees of tax-exempt institutions.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of the fund is the fund's net asset value
per share (NAV). The fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received in proper form. The fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time. Shares of
Spartan Short-Intermediate Government are generally offered to current
shareholders only, except for investments through certain group
employer retirement plans and certain registered investment advisors.
The fund 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.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888 or visit Fidelity's
Web site at www.fidelity.com for an application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
IF YOU ARE INVESTING THROUGH A TAX-ADVANTAGED RETIREMENT PLAN, such as
an IRA, for the first time, you will need a special application.
Retirement investing also involves its own investment procedures. Call
1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com for
more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For certain Fidelity retirement accounts(double dagger) $10,000
TO ADD TO AN ACCOUNT $1,000
For certain Fidelity retirement accounts(double dagger) $1,000
Through regular investment plans* $500
MINIMUM BALANCE $5,000
For certain Fidelity retirement accounts(double dagger) $5,000
(double dagger)THESE LOWER MINIMUMS APPLY TO FIDELITY TRADITIONAL IRA,
ROTH IRA, ROTH CONVERSION IRA, ROLLOVER IRA, SEP-IRA, AND KEOGH
ACCOUNTS.
*FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE .
There is no minimum account balance or initial or subsequent
investment minimum for investments through Fidelity Portfolio Advisory
ServicesSM, a qualified state tuition program, certain Fidelity
retirement accounts funded through salary deduction, or accounts
opened with the proceeds of distributions from such retirement
accounts.
Refer to the program materials for details. In addition, the fund
reserves the right to waive or lower investment minimums in other
circumstances.
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TO OPEN AN TO ADD TO AN
ACCOUNT ACCOUNT
PHONE 1-800-544-7777 (PHONE_GRAPHIC) (BULLET) (BULLET)
EXCHANGE FROM EXCHANGE FROM
ANOTHER FIDELITY FUND ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME ACCOUNT WITH THE
REGISTRATION, INCLUDING SAME REGISTRATION,
NAME, ADDRESS, AND INCLUDING NAME,
TAXPAYER ID NUMBER. ADDRESS, AND TAXPAYER
ID NUMBER.
(BULLET)
USE FIDELITY MONEY
LINE TO TRANSFER FROM
YOUR BANK ACCOUNT.
CALL BEFORE YOUR FIRST
USE TO VERIFY THAT THIS
SERVICE IS IN PLACE ON
YOUR ACCOUNT.
MAXIMUM MONEY
LINE: UP TO
$100,000.
THE INTERNET WWW.FIDELITY.COM (COMPUTER GRAPHIC) (BULLET) (BULLET)
COMPLETE AND SIGN THE EXCHANGE FROM
APPLICATION. MAKE YOUR ANOTHER FIDELITY FUND
CHECK PAYABLE TO THE ACCOUNT WITH THE
COMPLETE NAME OF THE SAME REGISTRATION,
FUND. MAIL TO THE INCLUDING NAME,
ADDRESS INDICATED ON THE ADDRESS, AND TAXPAYER
APPLICATION. ID NUMBER.
(BULLET)
USE FIDELITY MONEY
LINE TO TRANSFER FROM
YOUR BANK ACCOUNT.
VISIT FIDELITY'S WEB
SITE BEFORE YOUR FIRST
USE TO VERIFY THAT THIS
SERVICE IS IN PLACE ON
YOUR ACCOUNT.
MAXIMUM MONEY
LINE: UP TO
$100,000.
MAIL (MAIL_GRAPHIC) (BULLET) (BULLET)
COMPLETE AND SIGN THE MAKE YOUR CHECK
APPLICATION. MAKE YOUR PAYABLE TO THE
CHECK PAYABLE TO THE COMPLETE NAME OF THE
COMPLETE NAME OF THE FUND. INDICATE YOUR
FUND. MAIL TO THE FUND ACCOUNT NUMBER
ADDRESS INDICATED ON THE ON YOUR CHECK AND
APPLICATION. MAIL TO THE ADDRESS
PRINTED ON YOUR
ACCOUNT STATEMENT.
(BULLET)
EXCHANGE BY MAIL: CALL
1-800-544-6666 FOR
INSTRUCTIONS.
IN PERSON (HAND_GRAPHIC) (BULLET) (BULLET)
BRING YOUR APPLICATION BRING YOUR CHECK TO A
AND CHECK TO A FIDELITY FIDELITY INVESTOR
INVESTOR CENTER. CALL CENTER. CALL
1-800-544-9797 FOR 1-800-544-9797 FOR
THE CENTER NEAREST THE CENTER NEAREST
YOU. YOU.
WIRE (WIRE_GRAPHIC) (BULLET) (BULLET)
CALL 1-800-544-7777 NOT AVAILABLE FOR
TO SET UP YOUR ACCOUNT RETIREMENT ACCOUNTS.
AND TO ARRANGE A WIRE (BULLET)
TRANSACTION. NOT WIRE TO:
AVAILABLE FOR BANKERS TRUST
RETIREMENT ACCOUNTS. COMPANY,
(BULLET) BANK ROUTING
WIRE WITHIN 24 HOURS #021001033,
TO:BANKERS TRUST ACCOUNT #00163053.
COMPANY,BANK SPECIFY THE COMPLETE
ROUTING#021001033, NAME OF THE FUND AND
ACCOUNT INCLUDE YOUR ACCOUNT
#00163053.SPECIFY NUMBER AND YOUR
THE COMPLETE NAME OF NAME.
THE FUND AND INCLUDE
YOUR NEW ACCOUNT
NUMBER AND YOUR
NAME.
AUTOMATICALLY (AUTOMATIC_GRAPHIC) (BULLET) (BULLET)
NOT AVAILABLE. USE FIDELITY
AUTOMATIC ACCOUNT
BUILDER. SIGN UP FOR
THIS SERVICE WHEN
OPENING YOUR
ACCOUNT, VISIT
FIDELITY'S WEB SITE AT
WWW.FIDELITY.COM TO
OBTAIN THE FORM TO
ADD THE SERVICE, OR
CALL 1-800-544-6666
TO ADD THE SERVICE.
(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of the fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. The fund's NAV is normally calculated each
business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone, in writing, or through Fidelity's Web site.
Call 1-800-544-6666 for a retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$5,000 worth of shares in the account to keep it open ($5,000 for
retirement accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited
number of checks. Do not, however, try to close out your account by
check.
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ACCOUNT TYPE SPECIAL
REQUIREMENTS
PHONE 1-800-544-7777 (PHONE_GRAPHIC) ALL ACCOUNT TYPES EXCEPT (BULLET)
RETIREMENT MAXIMUM CHECK
REQUEST: $100,000.
ALL ACCOUNT TYPES (BULLET)
FOR MONEY LINE
TRANSFERS TO YOUR
BANK ACCOUNT;
MINIMUM: $10;
MAXIMUM: UP TO
$100,000.
(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 TENANT, (BULLET)
SOLE PROPRIETORSHIP, THE LETTER OF
UGMA, UTMA INSTRUCTION MUST BE
RETIREMENT ACCOUNT SIGNED BY ALL PERSONS
REQUIRED TO SIGN FOR
TRANSACTIONS, EXACTLY
TRUST AS THEIR NAMES
APPEAR ON THE
ACCOUNT.
(BULLET)
BUSINESS OR ORGANIZATION THE ACCOUNT OWNER
SHOULD COMPLETE A
RETIREMENT
DISTRIBUTION FORM.
CALL
EXECUTOR, ADMINISTRATOR, 1-800-544-6666 TO
CONSERVATOR, GUARDIAN REQUEST ONE.
(BULLET)
THE TRUSTEE MUST SIGN
THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF
THE TRUSTEE'S NAME IS
NOT IN THE ACCOUNT
REGISTRATION, PROVIDE A
COPY OF THE TRUST
DOCUMENT CERTIFIED
WITHIN THE LAST 60
DAYS.
(BULLET)
AT LEAST ONE PERSON
AUTHORIZED BY
CORPORATE RESOLUTION
TO ACT ON THE ACCOUNT
MUST SIGN THE LETTER.
(BULLET)
INCLUDE A CORPORATE
RESOLUTION WITH
CORPORATE SEAL OR A
SIGNATURE GUARANTEE.
(BULLET)
CALL
1-800-544-6666 FOR
INSTRUCTIONS.
WIRE (WIRE_GRAPHIC) ALL ACCOUNT TYPES EXCEPT (BULLET)
RETIREMENT YOU MUST SIGN UP FOR
THE WIRE FEATURE
BEFORE USING IT. TO
VERIFY THAT IT IS IN
PLACE, CALL
1-800-544-6666.
MINIMUM WIRE:
$5,000.
(BULLET)
YOUR WIRE REDEMPTION
REQUEST MUST BE
RECEIVED IN PROPER
FORM BY FIDELITY
BEFORE 4:00 P.M.
EASTERN TIME FOR
MONEY TO BE WIRED
ON THE NEXT BUSINESS
DAY.
CHECK (CHECK_GRAPHIC) ALL ACCOUNT TYPES (BULLET)
MINIMUM CHECK:
$1,000.
(BULLET)
ALL ACCOUNT OWNERS
MUST SIGN A
SIGNATURE CARD TO
RECEIVE A CHECKBOOK.
(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
FIDELITY'S WEB SITE at www.fidelity.com offers product and servicing
information, customer education, planning tools, and the ability to
make certain transactions in your account.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
(checkmark)24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESS(registered trademark)
1-800-544-5555
WEB SITE
www.fidelity.com
AUTOMATED SERVICE
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in our electronic
delivery program, call 1-800-544-6666 or visit Fidelity's Web site at
www.fidelity.com for more information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone, in writing, or through Fidelity's
Web site.
Note that exchanges out of 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 enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
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REGULAR
INVESTMENT
PLANS
FIDELITY
AUTOMATIC
ACCOUNT
BUILDER(REGISTERED TRADEMARK)
TO MOVE MONEY
FROM YOUR BANK
ACCOUNT TO A
FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR
$500 MONTHLY OR QUARTERLY CHANGING
(BULLET) FOR A
NEW ACCOUNT,
COMPLETE THE
APPROPRIATE SECTION ON
THE FUND APPLICATION.
(BULLET) FOR
EXISTING ACCOUNTS, CALL
1-800-544-6666 OR
VISIT FIDELITY'S WEB
SITE AT
WWW.FIDELITY.COM FOR
AN APPLICATION.
(BULLET) TO
CHANGE THE AMOUNT OR
FREQUENCY OF YOUR
INVESTMENT, CALL
1-800-544-6666 AT
LEAST THREE BUSINESS
DAYS PRIOR TO YOUR
NEXT SCHEDULED
INVESTMENT DATE.
DIRECT DEPOSIT
TO SEND ALL OR A
PORTION OF YOUR
PAYCHECK OR
GOVERNMENT CHECK
TO A FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR
$500 EVERY PAY PERIOD CHANGING
(BULLET) CHECK THE
APPROPRIATE BOX ON
THE FUND APPLICATION,
OR CALL
1-800-544-6666 OR
VISIT FIDELITY'S WEB
SITE AT
WWW.FIDELITY.COM FOR
AN AUTHORIZATION FORM.
(BULLET) CHANGES
REQUIRE A NEW
AUTHORIZATION FORM.
FIDELITY
AUTOMATIC
EXCHANGE
SERVICE
TO MOVE MONEY
FROM A FIDELITY
MONEY MARKET
FUND TO ANOTHER
FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR
$500 MONTHLY, BIMONTHLY, CHANGING
QUARTERLY, OR ANNUALLY (BULLET) TO
ESTABLISH, CALL
1-800-544-6666
AFTER BOTH ACCOUNTS
ARE OPENED.
(BULLET) TO
CHANGE THE AMOUNT OR
FREQUENCY OF YOUR
INVESTMENT, CALL
1-800-544-6666.
A BECAUSE ITS SHARE
PRICE FLUCTUATES, THE
FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR
DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.
</TABLE>
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 June and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on
the application, call 1-800-544-6666 for instructions. 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.
If you select distribution option 2 or 3 and the U.S. Postal Service
does not deliver your checks, your election may be converted to the
Reinvestment Option. You will not receive interest on amounts
represented by uncashed distribution checks. To change your
distribution option, call Fidelity at 1-800-544-0666.
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-advantaged retirement
account, you should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax, and may also be subject to state or local taxes. If you live
outside the United States, your distributions could also be taxed by
the country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are
taxable as if they were paid on December 31.
(checkmark)UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you are
entitled to your share of the
fund's net income and gains
on its investments. The fund
passes its earnings along to its
investors as DISTRIBUTIONS.
The fund earns interest from its
investments. These are passed
along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
For federal tax purposes, the fund's income and short-term capital
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
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 when the fund has realized but
not yet distributed capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
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. FSC normally calculates the fund's NAV as of the close
of business of the NYSE, normally 4:00 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 on the basis of information furnished by
a pricing service or market quotations, if available, or by another
method that the Board of Trustees believes accurately reflects fair
value. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to redeem and
exchange by telephone, call Fidelity for instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during
periods of unusual market activity), consider placing your order by
mail or by visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased
at the next NAV calculated after your investment is received in proper
form. Note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) 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 canceled and you could be liable for any losses or fees the fund or
its transfer agent has incurred.
(small solid bullet) The fund reserves the right to limit all accounts
maintained or controlled by any one person to a maximum total balance
of $1 million.
(small solid bullet) Shares begin to earn dividends on the first
business day following the day of purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money
order, U.S. Treasury check, Federal Reserve check, or direct deposit
instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements
with FDC may enter confirmed purchase orders on behalf of customers by
phone, with payment to follow no later than the time when 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 order is received in proper form.
Note the following:
(small solid bullet) Normally, redemption proceeds will be mailed to
you on the next business day, but if making immediate payment could
adversely affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares earn dividends through the day of
redemption; however, shares redeemed on a Friday or prior to a holiday
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day
after your phone call.
(small solid bullet) 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.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for
that year. The fee, which is payable to the transfer agent, is
designed to offset in part the relatively higher costs of servicing
smaller accounts. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, 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 fund
without reimbursement from the fund. 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 RESTRICTIONS1.
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
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) If you exchange into a fund with a sales charge,
you pay the percentage-point difference between that fund's sales
charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already
paid a sales charge of 2% on your shares and you exchange them into a
fund with a 3% sales charge, you would pay an additional 1% sales
charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund
performance and shareholders, 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 coincides 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 1.00% and trading fees of up to 3.00% of
the amount exchanged. Check each fund's prospectus for details.
Fidelity, Spartan, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, TouchTone Xpress, Fidelity Automatic
Account Builder, and Directed Dividends are registered trademarks of
FMR Corp.
Portfolio Advisory Services is a service mark of FMR Corp.
(recycle logo)This prospectus is printed on recycled paper using
soy-based inks.
SPARTAN(registered trademark) SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF FIDELITY FIXED-INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
JUNE 26, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus
(dated June 26, 1998). Please retain this document for future
reference. The fund's Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity(registered trademark) at
1-800-544-8888.
TABLE OF PAGE
CONTENTS
INVESTMENT POLICIES AND 27
LIMITATIONS
PORTFOLIO TRANSACTIONS 30
VALUATION 31
PERFORMANCE 31
ADDITIONAL PURCHASE, 34
EXCHANGE AND
REDEMPTION INFORMATION
DISTRIBUTIONS AND TAXES 34
FMR 35
TRUSTEES AND OFFICERS 35
MANAGEMENT CONTRACT 37
DISTRIBUTION AND SERVICE 38
PLAN
CONTRACTS WITH FMR 38
AFFILIATES
DESCRIPTION OF THE TRUST 38
FINANCIAL STATEMENTS 39
APPENDIX 39
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
SSG-ptb-0698
475979
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 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the fund's total assets would be
invested in the securities of that issuer, or (b) the fund would hold
more than 10% of the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page .
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
fund may receive fees or price concessions for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of
price and yield fluctuations and the risk that the security will not
be issued as anticipated. Because payment for the securities is not
required until the delivery date, these risks are in addition to the
risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form
of leverage. When delayed-delivery purchases are outstanding, a fund
will set aside appropriate liquid assets in a segregated custodial
account to cover the purchase obligations. When a fund has sold a
security on a delayed-delivery basis, the fund does not participate in
further gains or losses with respect to the security. If the other
party to a delayed-delivery transaction fails to deliver or pay for
the securities, a fund could miss a favorable price or yield
opportunity or suffer a loss.
A fund may renegotiate a delayed delivery transaction and may sell the
underlying securities before delivery, which may result in capital
gains or losses for the fund.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, OTC Options, Purchasing
Put and Call Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply
with guidelines established by the SEC with respect to coverage of
options and futures strategies by mutual funds and, if the guidelines
so require, will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy
is outstanding, unless they are replaced with other suitable assets.
As a result, there is a possibility that segregation of a large
percentage of the fund's assets could impede portfolio management or
the fund's ability to meet redemption requests or other current
obligations.
COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price, to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices
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.
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 25% of
the fund's total assets would be hedged with futures and options under
normal conditions; (b) purchase futures contracts or write put options
if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would
exceed 25% of its total assets; or (c) purchase call options if, as a
result, the current value of option premiums for call options
purchased by the fund would exceed 5% of the fund's total assets.
These limitations do not apply to options attached to or acquired or
traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options.
The fund further limits its options and futures investments to options
and futures contracts relating to U.S. Government securities.
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 this SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible to enter into new positions or close out
existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and potentially
could require a fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater flexibility
to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer assumes the obligation
to pay the strike price for the option's underlying instrument if the
other party to the option chooses to exercise it. The writer may seek
to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the
secondary market is not liquid for a put option, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position. When writing an option on a
futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by FMR to be illiquid include
repurchase agreements not entitling the holder to repayment of
principal and payment of interest within seven days, non-government
stripped fixed-rate mortgage-backed securities, and over-the-counter
options. Also, FMR may determine some government-stripped fixed-rate
mortgage-backed securities to be illiquid. However, with respect to
over-the-counter options a fund writes, all or a portion of the value
of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the
fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by
the Board of Trustees.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are
indexed, and may also be influenced by interest rate changes. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will borrow
through the program only when the costs are equal to or lower than the
costs of bank loans, and will lend through the program only when the
returns are higher than those available from an investment in
repurchase agreements. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
MORTGAGE-BACKED SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage-backed security is an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations (or "CMOs"), make payments of both
principal and interest at a range of specified intervals; others make
semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage-backed securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject
to prepayment risk, which is the risk that early principal payments
made on the underlying mortgages, usually in response to a reduction
in interest rates, will result in the return of principal to the
investor, causing it to be invested subsequently at a lower current
interest rate. Alternatively, in a rising interest rate environment,
mortgage-backed security values may be adversely affected when
prepayments on underlying mortgages do not occur as anticipated,
resulting in the extension of the security's effective maturity and
the related increase in interest rate sensitivity of a longer-term
instrument. The prices of stripped mortgage-backed securities tend to
be more volatile in response to changes in interest rates than those
of non-stripped mortgage-backed securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. As
protection against the risk that the original seller will not fulfill
its obligation, the securities are held in a separate account at a
bank, marked-to-market daily, and maintained at a value at least equal
to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as
delays and costs to a fund in connection with bankruptcy proceedings),
the fund will engage in repurchase agreement transactions with parties
whose creditworthiness has been reviewed and found satisfactory by
FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. While a reverse repurchase
agreement is outstanding, a fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. The fund will enter into reverse repurchase agreements
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR. Such transactions may increase fluctuations in
the market value of fund assets and may be viewed as a form of
leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are
created by separating the income and principal components of a U.S.
Government security and selling them separately. STRIPS (Separate
Trading of Registered Interest and Principal of Securities) are
created when the coupon payments and the principal payment are
stripped from an outstanding U.S. Treasury security by a Federal
Reserve Bank.
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, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements
can take many different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if the fund agreed to
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 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 or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to
make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses. A fund may be able
to eliminate its exposure under a swap agreement either by assignment
or other disposition, or by entering into an offsetting swap agreement
with the same party or a similarly creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR considers various relevant factors, including,
but not limited to: the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold;
the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of any
commissions.
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; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and
effect securities transactions, and perform functions incidental
thereto (such as clearance and settlement). For transactions in
fixed-income securities, FMR's selection of broker-dealers is
generally based on the availability of a security and its price and,
to a lesser extent, on the overall quality of execution and other
services, including research, provided by the broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to a fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, the
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause 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 that fund
or its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the 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
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services Japan (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar
services. Prior to December 9, 1997, FMR used research services
provided by and placed agency transactions with Fidelity Brokerage
Services (FBS), an indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
The Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended April 30, 1998 and 1997, the fund's
portfolio turnover rates were 166% and 104%, 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.
For the fiscal years ended April 1998, 1997, and 1996, the fund paid
no brokerage commissions.
During the fiscal year ended April 1998, the fund paid no brokerage
commissions to brokerage firms that provided research services.
The Trustees of the fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the fund from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the fund could purchase in the underwriting.
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 or its affiliates,
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
Fidelity Service Company, Inc. (FSC) normally determines the fund's
net asset value per share (NAV) as of the close of the New York Stock
Exchange (NYSE) (normally 4:00 p.m. Eastern time). The valuation of
portfolio securities is determined as of this time for the purpose of
computing the fund's NAV.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities may be valued on the basis of information
furnished by a pricing service that uses a valuation matrix which
incorporates both dealer-supplied valuations and electronic data
processing techniques. Use of pricing services has been approved by
the Board of Trustees. A number of pricing services are available, and
the fund may use various pricing services or discontinue the use of
any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by the fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
The fund may quote 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 income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the fund's
net asset value (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. Capital gains and losses
generally are excluded from the calculation.
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 total return
of 100% over ten years would produce an average annual total return of
7.18%, which is the steady annual rate of return that would equal 100%
growth on a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment alternatives,
investors should realize that the fund's performance is not constant
over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of 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.
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.
CALCULATING HISTORICAL FUND RESULTS. The following table shows
performance for the fund calculated including certain fund expenses.
HISTORICAL FUND RESULTS. The following tables show the fund's yield
and total returns for period ended April 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE CUMULATIV
ANNUAL E TOTAL
TOTAL RETURNS
RETURNS
THIRTY-DAY ONE FIVE LIFE OF ONE FIVE LIFE OF
YIELD YEAR YEARS FUND* YEAR YEARS FUND*
SPARTAN 5.42% 7.35% 5.31% 5.60% 7.35% 29.54% 33.99%
SHORT-INTER
MEDIATE
GOVERNME
NT
</TABLE>
* From December 18, 1992 (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 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (CPI), over the same period. The CPI
information is as of the month-end closest to the initial investment
date for 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
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because 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. The S&P 500 and DJIA returns
are based on the prices of unmanaged groups of stocks and, unlike the
fund's returns, do not include the effect of brokerage commissions or
other costs of investing.
During the period from December 18, 1992 (commencement of operations)
to April 30, 1998, a hypothetical $10,000 investment in Spartan
Short-Intermediate Government would have grown to $13,400, assuming
all distributions were reinvested. Total returns are based on past
results and are not an indication of future performance. Tax
consequences of different investments have not been factored into the
figures below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN INDICES
SHORT-INT
ERMEDIAT
E
GOVERNM
ENT FUND
YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA US
ENDED INITIAL REINVESTED REINVESTED VALUE CONSUMER
APRIL 30 $10,000 DIVIDEND CAPITAL PRICE
INVESTMENT DISTRIBUTIO GAIN INDEX**
NS DISTRIBUTIO
NS
1998 $ 9,390 $ 4,000 $ 10 $ 13,400 $ 28,620 $ 31,006 $ 11,452
1997 9,270 3,202 10 12,482 20,289 20,582 11,290
1996 9,400 2,413 10 11,823 16,214 18,357 11,015
1995 9,440 1,607 10 11,057 12,452 13,923 10,705
1994 9,490 873 10 10,373 10,601 11,549 10,388
1993* 10,090 253 0 10,343 10,065 10,458 10,148
</TABLE>
* From December 18, 1992 (commencement of operations)
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in the fund
on December 18, 1992, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amounted to $14,070. If distributions had not
been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would
have amounted to $3,395 for dividends and $10.00 for capital gain
distributions.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
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
available 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's performance may also be compared to that of a benchmark
index representing the universe of securities in which the fund may
invest. The total return of a benchmark index reflects reinvestment of
all dividends and capital gains paid by securities included in the
index. Unlike the fund's returns, however, the index returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
Spartan Short-Intermediate Government may compare its performance to
that of the Lehman Brothers 1-5 Year U.S. Government Bond Index, a
market value weighted-performance benchmark for government fixed-rate
debt issues. Issues included in the index have an outstanding par
value of at least $100 million and maturities between one and five
years. Government issues include all public obligations of the U.S.
Treasury (excluding flower bonds and foreign targeted issues) and U.S.
government agencies.
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.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
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, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
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 April 30, 1998, FMR advised over $30 billion in municipal fund
assets, $103 billion in money market fund assets, $454 billion in
equity fund assets, $73 billion in international fund assets, and $29
billion in Spartan fund assets. The 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, the fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. The fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
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
1998: New Year's Day, Martin Luther King's Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Day. Although FMR expects the same
holiday schedule to be observed in the future, the NYSE may modify its
holiday schedule at any time. In addition, on days when the Federal
Reserve Wire System is closed, federal funds wires cannot be sent.
FSC normally determines 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 a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing 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 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 securities may
be exempt from state and local taxation. Mortgage security paydown
gains (losses) on mortgage securities purchased by the fund on or
prior to June 8, 1997 are generally taxable as ordinary income and,
therefore, increase (decrease) taxable 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 shareholders have held their shares. If a shareholder receives
a 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 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.
As of April 30, 1998, the fund had a capital loss carryforward
aggregating approximately $4,460,000. This loss carryforward, of which
$168,000, $2,327,000, $582,000, $681,000 and $702,000 will expire on
April 30, 2002, 2003, 2004, 2005, and 2006, respectively, is available
to offset future 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 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 a fund will be the same as if you
directly owned a proportionate share of the U.S. Government
securities. Because the income earned on most U.S. Government
securities is exempt from state and local income taxes, the portion of
dividends from a 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.
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 of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies.
The fund is treated as a separate entity from the other funds of
Fidelity Fixed-Income Trust 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 a fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the 1940 Act, control of a company is presumed where one individual or
group of individuals owns more than 25% of the voting stock of that
company. Therefore, through their ownership of voting common stock and
the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments,
P.O. Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who
are "interested persons" by virtue of their affiliation with either
the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (67), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES (70), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Fund, Chairman
of the Board of Trustees of the Greenwich Hospital Association,
Director of the Yale New Haven Health Services Corp. (1998), a Member
of the Public Oversight Board of the American Institute of Certified
Public Accountants' SEC Practice Section (1995), and as a Public
Governor of the National Association of Securities Dealers, Inc.
(1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993), Imation Corp. (imaging and information storage, 1997), and
Infomart (marketing services, 1991), a Trammell Crow Co. In addition,
he serves as the Campaign Vice Chairman of the Tri-State United Way
(1993) and is a member of the University of Alabama President's
Cabinet.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
CURTIS HOLLINGSWORTH (40), is Vice President and manager of Spartan
Short-Intermediate Government Fund (1992) and other funds advised by
FMR. Prior to his current responsibilities, Mr. Hollingsworth has
managed a variety of Fidelity funds.
ERIC D. ROITER (49), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER (51), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (52), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of the fund for his
or her services for the fiscal year ended April 30, 1998, or calendar
year ended December 31, 1997, as applicable.
COMPENSATION TABLE
TRUSTEES AGGREGATE TOTAL
AND COMPENSATION COMPENSATION
MEMBERS OF THE FROM FROM THE
ADVISORY BOARD SPARTAN FUND COMPLEX*,A
SHORT-INTERMEDIATE
GOVERNMENTB,C
J. GARY $ 0 $ 0
BURKHEAD**
RALPH F. COX $ 28 $ 214,500
PHYLLIS BURKE $ 28 $ 210,000
DAVIS
ROBERT M. $ 29 $ 176,000
GATES***
EDWARD C. $ 0 $ 0
JOHNSON 3D**
E. BRADLEY $ 28 $ 211,500
JONES
DONALD J. KIRK $ 28 $ 211,500
PETER S. $ 0 $ 0
LYNCH**
WILLIAM O. $ 29 $ 214,500
MCCOY****
GERALD C. $ 35 $ 264,500
MCDONOUGH
MARVIN L. $ 28 $ 214,500
MANN
ROBERT C. $ 0 $ 0
POZEN**
THOMAS R. $ 28 $ 214,500
WILLIAMS
* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the fund and Mr. Burkhead are compensated by
FMR.
*** Mr. Gates was appointed to the Board of Trustees of Fidelity
Fixed-Income Trust effective March 1, 1997.
**** Mr. McCoy was appointed to the Board of Trustees of Fidelity
Fixed-Income Trust effective January 1, 1997.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the fund complex as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $62,500; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,699; Marvin L. Mann, $53,699; and Thomas R.
Williams, $62,462.
B Compensation figures include cash.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of March 31,1998, the Trustees, Members of the Advisory Board, and
officers of the fund owned, in the aggregate, less than 1% of the
fund's total outstanding shares.
MANAGEMENT CONTRACT
FMR is the fund's manager pursuant to a management contract dated
November 19, 1992, which was approved by shareholders on November 19,
1992.
MANAGEMENT SERVICES. The fund employs FMR to furnish investment
advisory and other services. Under the terms of its 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,
compensates all officers of the fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of the
fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. Under the terms of the fund's management
contract, FMR is responsible for payment of all operating expenses of
the fund with certain exceptions. Specific expenses payable by FMR
include expenses for typesetting, printing, and mailing proxy
materials to shareholders, legal expenses, fees of the custodian,
auditor and interested Trustees, the fund's proportionate share of
insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal securities laws and making
necessary filings under state securities laws. The fund's management
contract further provides that FMR will pay for typesetting, printing,
and mailing prospectuses, statements of additional information,
notices, and reports to shareholders; however, under the terms of the
fund's transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. FMR also pays all
fees associated with transfer agent, dividend disbursing, and
shareholder services, pricing and bookkeeping services, and
administration of the fund's securities lending program.
FMR pays all other expenses of the fund with the following exceptions:
fees and expenses of the non-interested Trustees, interest, taxes,
brokerage commissions (if any), and such nonrecurring expenses as may
arise, including costs of any litigation to which the fund may be a
party, and any obligation it may have to indemnify its officers and
Trustees with respect to litigation.
MANAGEMENT FEE. For the services of FMR under the management contract,
the fund pays FMR a monthly management fee at the annual rate of 0.65%
of its average net assets throughout the month. The management fee
paid to FMR by the fund is reduced by an amount equal to the fees and
expenses paid by the fund to the non-interested Trustees.
For the fiscal years ended April 30, 1998, 1997, and 1996, the fund
paid FMR management fees of $473,239, $473,885, and $597,622,
respectively, after reduction of fees and expenses paid by the fund to
the non-interested Trustees. In addition, for the fiscal years ended
April 30, 1998, 1997, and 1996, credits reducing management fees
amounted to $0, $0, $589, respectively.
FMR may, from time to time, voluntarily reimburse all or a portion of
the fund's operating expenses (exclusive of interest, taxes, brokerage
commissions and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase the fund's total returns
and yield, and repayment of the reimbursement by the fund will lower
its total returns and yield.
During certain of the past three fiscal years, FMR voluntarily agreed
to reimburse the fund if and to the extent that its aggregate
operating expenses, including management fees, were in excess of an
annual rate of its average net assets. The table below shows the
periods of reimbursement and levels of expense limitations; the dollar
amount of management fees incurred under the fund's contract before
reimbursement; and the dollar amount of management fees reimbursed by
FMR under the expense reimbursement for each period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIODS OF TO AGGREGATE FISCAL YEARS MANAGEMENT AMOUNT OF
EXPENSE OPERATING ENDED FEE MANAGEMENT
LIMITATION EXPENSE APRIL 30 BEFORE FEE
FROM LIMITATION REIMBURSEMENT REIMBURSEMENT
SPARTAN SEPTEMBER 1, JANUARY 31, 0.50% 1996 $ 247,269* $ 56,105
SHORT-INTER 1995 1996
MEDIATE
GOVERNMEN
T
JULY 1, AUGUST 31, 0.35% $ 101,399* $ 59,384
1995 1995
MAY 1, 1995 JUNE 30, 1995 0.20% $ 94,766* $ 65,494
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
DISTRIBUTION AND SERVICE PLAN
The Trustees have approved a Distribution and Service Plan on behalf
of the fund (the Plan) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plan, as approved by the Trustees, allows the fund and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the fund of distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. The Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, the Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has authorized such
payments for Spartan Short-Intermediate Government Fund shares.
FMR made no payments either directly or through FDC to third parties
for the fiscal year ended 1998.
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that the Plan does not authorize payments by the fund other than
those made to FMR under its management contract with the fund. To the
extent that the Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares may result. Furthermore, certain shareholder support
services may be provided more effectively under the Plan by local
entities with whom shareholders have other relationships.
The Plan was approved by FMR as the then sole shareholder of Spartan
Short-Intermediate Government on November 19, 1992.
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. 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.
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.
CONTRACTS WITH FMR AFFILIATES
The fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreement, FSC performs
transfer agency, dividend disbursing, and shareholder services for the
fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in the fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state tuition
program (QSTP), as defined under the Small Business Job Protection Act
of 1996, managed by FMR or an affiliate and each Fidelity Freedom
Fund, a fund of funds managed by an FMR affiliate, according to the
percentage of the QSTP's or Freedom Fund's assets that is invested in
the fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
The fund has also entered into a service agent agreement with FSC.
Under the terms of the agreement, FSC calculates the NAV and dividends
for the fund, maintains the fund's portfolio and general accounting
records, and administers the fund's securities lending program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on the fund's average daily net assets throughout the month.
For administering the fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
For Spartan Short-Intermediate Government Fund, FMR bears the cost of
transfer agency, dividend disbursing, and shareholder services,
pricing and bookkeeping services, and administration of the securities
lending program under the terms of its management contract with the
fund.
The fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Spartan Short-Intermediate Government Fund is a
fund of Fidelity Fixed-Income Trust, an open-end management investment
company originally organized as a Massachusetts business corporation
on June 25, 1970. On September 5, 1984, the trust was reorganized as a
Massachusetts business trust, at which time its name was changed from
Fidelity Corporate Bond Fund, Inc. to Fidelity Corporate Bond Fund. On
October 23, 1985 the trust's name was changed to Fidelity Flexible
Bond Fund, and on August 31, 1986 it was changed to Fidelity
Fixed-Income Trust. Currently, there are five funds of the trust:
Fidelity Investment Grade Bond Fund, Fidelity Short-Term Bond Fund,
Spartan Short-Intermediate Government Fund, Spartan Government Income
Fund, and Spartan High Income 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.
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
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 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.
CUSTODIAN. The 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 a fund's assets and the appointment
of any subcustodian banks and clearing agencies. The custodian takes
no part in determining the investment policies of a fund or in
deciding which securities are purchased or sold by a fund. However, a
fund may invest in obligations of the custodian and may purchase
securities from or sell securities to the custodian. The Chase
Manhattan Bank, headquartered in New York, also may serve as a special
purpose custodian of certain assets in connection with repurchase
agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts serves as the trust's independent accountant. The
auditor examines financial statements for the fund and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the
fiscal year ended April 30, 1998 , and report of the auditor, are
included in the fund's Annual Report, which is a separate report
supplied with this SAI. The fund's financial statements, including the
financial highlights, and report of the auditor are incorporated
herein by reference. For a free additional copy of the fund's Annual
Report, contact Fidelity at 1-800-544-8888, 82 Devonshire Street,
Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. Also, the maturities of mortgage-backed securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
Fidelity and Fidelity Focus are registered trademarks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
SPARTAN(registered trademark)
SHORT-INTERMEDIATE
GOVERNMENT
FUND
ANNUAL REPORT
APRIL 30, 1998
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 13 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 17 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 19 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 20
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
Low interest rates and subdued inflation were two main factors that
bolstered stock and bond markets in the U.S. during the first four
months of 1998. The stock market continued to soar to record heights
as corporate earnings proved to be stronger than expected and
investors shrugged off concerns about the effects of economic
difficulties in Asia. The Federal Reserve Board continued its steady
interest rate policy, which boosted the performance of bonds.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value), and the effect of the $5 account closeout fee on
an average-sized account. You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the past five years and life of
fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN SHORT-INTERMEDIATE GOVERNMENT 7.35% 29.54% 33.99%
LB 1-5 YEAR US GOVERNMENT BOND 7.81% 31.39% N/A
SB TREASURY/AGENCY 1-5 YEAR 7.83% 31.35% N/A
SHORT-INTERMEDIATE US GOVERNMENT FUNDS AVERAGE 7.36% 27.70% N/A
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 18, 1992. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the Lehman Brothers 1-5 Year U.S.
Government Bond Index - a market value weighted performance benchmark
for government fixed-rate debt issues with maturities between one and
five years and the Salomon Brothers Treasury/Agency 1-5 Year Index - a
market value weighted index of U.S. Treasury and U.S. government
agency securities with fixed-rate coupons and weighted average lives
between one and five years. To measure how the fund's performance
stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 97 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN SHORT-INTERMEDIATE GOVERNMENT 7.35% 5.31% 5.60%
LB 1-5 YEAR US GOVERNMENT BOND 7.81% 5.61% N/A
SB TREASURY/AGENCY 1-5 YEAR 7.83% 5.61% N/A
SHORT-INTERMEDIATE US GOVERNMENT FUNDS AVERAGE 7.36% 5.00% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
$10,000 OVER LIFE OF FUND
Spartan Sht-Int Govt. LB 1-5 Year U.S. Govt
00474 LB069
1992/12/31 10000.00 10000.00
1993/01/31 10120.93 10156.20
1993/02/28 10208.15 10275.02
1993/03/31 10247.68 10310.78
1993/04/30 10301.41 10388.17
1993/05/31 10297.86 10354.83
1993/06/30 10377.82 10464.76
1993/07/31 10413.09 10483.75
1993/08/31 10480.38 10607.82
1993/09/30 10496.09 10642.38
1993/10/31 10523.26 10668.24
1993/11/30 10502.89 10645.61
1993/12/31 10568.05 10687.84
1994/01/31 10658.95 10775.54
1994/02/28 10563.57 10668.24
1994/03/31 10376.92 10563.98
1994/04/30 10330.94 10502.95
1994/05/31 10338.65 10514.06
1994/06/30 10346.79 10530.03
1994/07/31 10479.56 10645.61
1994/08/31 10503.93 10678.75
1994/09/30 10454.19 10621.77
1994/10/31 10473.12 10635.10
1994/11/30 10457.15 10581.96
1994/12/31 10513.02 10605.20
1995/01/31 10660.02 10766.25
1995/02/28 10847.55 10948.51
1995/03/31 10902.60 11009.34
1995/04/30 11012.59 11122.49
1995/05/31 11255.21 11377.10
1995/06/30 11321.07 11443.38
1995/07/31 11342.01 11469.85
1995/08/31 11422.19 11549.06
1995/09/30 11476.32 11613.72
1995/10/31 11579.72 11725.06
1995/11/30 11695.99 11846.71
1995/12/31 11804.75 11947.95
1996/01/31 11901.25 12055.04
1996/02/29 11832.42 11973.61
1996/03/31 11792.48 11937.64
1996/04/30 11775.13 11927.94
1996/05/31 11772.59 11936.02
1996/06/30 11866.88 12039.28
1996/07/31 11912.70 12082.53
1996/08/31 11941.78 12113.04
1996/09/30 12060.96 12244.58
1996/10/31 12221.23 12412.50
1996/11/30 12341.39 12528.29
1996/12/31 12308.65 12497.58
1997/01/31 12353.54 12554.15
1997/02/28 12377.65 12578.00
1997/03/31 12339.83 12540.21
1997/04/30 12431.55 12660.85
1997/05/31 12510.32 12752.18
1997/06/30 12613.42 12850.59
1997/07/31 12788.01 13035.48
1997/08/31 12784.01 13020.53
1997/09/30 12889.11 13138.94
1997/10/31 12996.31 13261.80
1997/11/30 13029.98 13287.87
1997/12/31 13122.32 13386.68
1998/01/31 13255.15 13540.25
1998/02/28 13268.92 13537.83
1998/03/31 13301.39 13584.10
1998/04/30 13345.81 13649.37
IMATRL PRASUN SHR__CHT 19980430 19980603 151556 R00000000000067
Spartan Short-Intermediate Government LB 1-5 Year US Government Bond
$13,649
$13,341
$
'98
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Short-Intermediate Government Fund on December 31,
1992, shortly after the fund started. As the chart shows, by April 30,
1998, the value of the investment, with dividends reinvested, would
have grown to $13,341 - a 33.41% increase on the initial investment
which includes the effect of the $5 account closeout fee. For
comparison, look at how the Lehman Brothers 1-5 Year U.S. Government
Bond Index did over the same period. With dividends and capital gains,
if any, reinvested, the same $10,000 investment would have grown to
$13,649 - a 36.49% increase. Beginning with this report, the fund will
compare its performance to that of the Lehman Brothers 1-5 Year U.S.
Government Bond Index rather than the Salomon Brothers Treasury/Agency
1-5 Year Index. The indexes include the same type of bonds, and their
performance is not materially different. The fund is changing to the
Lehman Brothers index mainly because Lehman Brothers indexes are used
by most other Fidelity bond funds. For comparison, both indexes are
shown on page 4.
(checkmark)UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF INTEREST
RATES. IN TURN, THE SHARE PRICE,
RETURN AND YIELD OF A FUND THAT
INVESTS IN BONDS WILL VARY. THAT
MEANS IF YOU SELL YOUR SHARES
DURING A MARKET DOWNTURN, YOU
MIGHT LOSE MONEY. BUT IF YOU CAN
RIDE OUT THE MARKET'S UPS AND
DOWNS, YOU MAY HAVE A GAIN.
TOTAL RETURN COMPONENTS
YEARS ENDED APRIL 30,
1998 1997 1996 1995 1994
DIVIDEND RETURN 6.06% 6.94% 7.35% 7.12% 6.14%
CAPITAL RETURN 1.29% -1.38% -0.44% -0.54% -5.87%
TOTAL RETURN 7.35% 5.56% 6.91% 6.58% 0.27%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested. Capital returns and total
returns include the effect of the $5 account closeout fee on an
average-sized account.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.14(CENTS) 26.02(CENTS) 54.61(CENTS)
ANNUALIZED DIVIDEND RATE 5.36% 5.58% 5.83%
30-DAY ANNUALIZED YIELD 5.42% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $9.40
over the past one month, $9.41 over the past six months and $9.37 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A continued lack of inflationary
pressure resulted in a favorable
investing climate for bonds during
the 12 months that ended April 30,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
gauge of the U.S. taxable bond
market - returned 10.91% during
this period. Bonds enjoyed a strong
rally from May through September
1997 on the heels of encouraging
economic data, as well as the
Federal Reserve Board's reluctance
to raise short-term interest rates. In
the fourth quarter of 1997, global
market volatility and historically
low interest rates were the main
stories. When financial problems
erupted in Asia in late October, the
bond market attracted wary stock
investors in search of investments
offering lower volatility. Interest
rates also plummeted, with the
30-year Treasury bond going
below the 6% mark in November. The
Lehman Brothers Corporate Bond
Index returned 12.07% during the
period, as corporate bonds
benefited from continued economic
growth and high demand for yield.
Despite increased prepayment
activity in early 1998 due to lower
rates, mortgage-backed bonds also
fared relatively well. The Lehman
Brothers Mortgage-Backed Securities
Index returned 10.02% during the
period. The period ended on a
positive note as the Commerce
Department reported that gross
domestic product grew at a
stronger-than-expected rate of 4.2%
in the first quarter of 1998 and
employment costs grew at a
slower-than-expected pace - signs
of continued strong economic growth
and benign inflation. However, the
Fed tempered this news slightly
with warnings about the rising prices
of stocks and real estate.
(photograph of Curt Hollingsworth)
An interview with Curt Hollingsworth, Portfolio Manager of Spartan
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended April 30, 1998, the fund
provided a total return of 7.35%. To get a sense of how the fund did
compared to its competitors, the short-intermediate U.S. government
funds average returned 7.36% for the same 12-month period, according
to Lipper Analytical Services. Additionally, the Lehman Brothers 1-5
Year U.S. Government Bond Index - which tracks the types of securities
in which the fund invests - returned 7.81% for the 12-month period.
Q. WHAT ROLE DOES THE LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND
INDEX PLAY IN THE MANAGEMENT OF THE FUND?
A. It plays a very important role. It's the fund's benchmark index and
includes most of the universe of government bonds with maturities
between one and five years. I use the index as a starting point for my
investment decisions, managing the fund to be generally as sensitive
to changes in interest rates as the index. In addition, I refer to the
index when deciding how to allocate assets among different maturities
and market sectors - such as agencies or Treasury securities - based
on my view of the relative value of each maturity or sector.
Q. A VARIETY OF FACTORS CAUSED AGENCY SECURITIES TO BECOME MORE OR
LESS ATTRACTIVE AT DIFFERENT TIMES DURING THE PAST SIX MONTHS. CAN YOU
DESCRIBE YOUR APPROACH TO THE AGENCY SECTOR DURING THAT PERIOD?
A. Sure. During the final months of 1997, economic and currency
problems in Asia prompted more investors to seek out U.S. Treasury
securities, which are among the highest-quality securities in the
world because they are backed by the full faith and credit of the U.S.
government. As the demand for Treasuries grew, their yields fell and
their prices rose. As a result, agency securities were relatively
inexpensive compared to Treasury securities and their yield advantage
over Treasuries made them attractive, in my opinion. Given that, I
added some additional agency holdings at year end.
Q. HOW DID THE FUND'S ALLOCATION CHANGE IN 1998?
A. In the beginning of 1998, fears over the Asian turmoil faded. As a
result, agency prices strengthened and their yield advantage over
Treasuries diminished. To take advantage of the agency market's
strength, I sold some of the fund's agency holdings to lock in their
gains in January and February. In March, however, agency securities
became inexpensive again and their yields became more attractive
relative to Treasuries. So I added more agencies at the end of the
period. As far as mortgage-backed securities, I used periods of
strength and weakness to buy and sell in a similar fashion.
Q. WITHIN THE AGENCY SECTOR, WHICH SECURITIES DID YOU FOCUS ON?
A. I emphasized agency securities that are non-callable - those that
can't be redeemed by their issuers before maturity. Securities
typically are "called" - or redeemed - when interest rates fall enough
so that the issuer can save money by issuing new securities at lower
rates. A call is positive for issuers because it gives them the
opportunity to cut their borrowing costs. But holders of callable
bonds are often at a disadvantage because they may have to reinvest
the proceeds from the called bonds in new, lower-yielding bonds. I
prefer non-callable securities because they generally perform better
than callable bonds when interest rates fall and bond prices rally,
and generally fare no worse than callable bonds when interest rates
rise and bond prices fall.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET AND THE FUND?
A. At the end of the period, bonds were selling at prices that
reflected the best case scenario - low inflation and falling interest
rates. To me, that suggests that many investors are expecting the
Federal Reserve Board to lower interest rates. If the Fed surprises
investors by hiking interest rates instead, bonds could suffer. But no
matter what the direction of interest rates, I'll continue to manage
the fund with approximately the same interest-rate sensitivity as the
short-intermediate part of the government market.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 474
TRADING SYMBOL: SPSIX
START DATE: December 18, 1992
SIZE: as of April 30, 1998,
more than $75 million
MANAGER: Curt Hollingsworth,
since 1992; manager, various
Fidelity and Spartan
government and mortgage
funds; joined Fidelity in 1983
CURT HOLLINGSWORTH ON
SELECTING
MORTGAGE-BACKED
SECURITIES:
"Mortgage securities are pools of
individual home loans. Certificates
backed by these loans are sold to
investors, who collect interest and
principal when homeowners make
monthly mortgage payments.
Recently, falling interest rates
have incited a wave of home
mortgage refinancings, subjecting
some mortgage-backed securities
to higher `prepayment risk.' That is
the risk that that mortgage holders
will pay off their mortgages before
maturity, leaving those who hold
the prepaid securities to reinvest
at lower interest rates.
"The likelihood that a mortgage
security will be prepaid is one of
the most important factors I
consider in choosing mortgage
securities for the fund, since
prepayment activity can
dramatically affect mortgage
securities' prices. I focus on
finding those securities that I
think are less susceptible to a pickup
or slowdown in the pace of
refinancings, such as `seasoned'
mortgage securities. Seasoned
securities have been through
several refinancing periods, but
the mortgage holders haven't
shown a propensity to prepay in
spite of being presented several
attractive opportunities to do so."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF APRIL 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO 13.6 12.6
COUPON
BONDS
LESS THAN 30.8 11.6
6%
6 - 18.0 8.6
6.99%
7 - 8.9 17.8
7.99%
8 - 1.8 16.4
8.99%
9 - 9.9 14.4
9.99%
10 - 5.8 7.7
10.99%
11% AND 6.6 8.0
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-
TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF APRIL 30, 1998
6 MONTHS AGO
YEARS 3.2 3.3
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF APRIL 30, 1998
6 MONTHS AGO
YEARS 2.2 2.3
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 18.0
ROW: 1, COL: 2, VALUE: 27.0
ROW: 1, COL: 3, VALUE: 51.0
ROW: 1, COL: 4, VALUE: 4.0
MORTGAGE-BACKED
SECURITIES 17.7%
U.S. TREASURY
OBLIGATIONS 26.6%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 51.1%
SHORT-TERM
INVESTMENTS 4.6%
AS OF OCTOBER 31, 1997
ROW: 1, COL: 1, VALUE: 21.0
ROW: 1, COL: 2, VALUE: 20.0
ROW: 1, COL: 3, VALUE: 56.0
ROW: 1, COL: 4, VALUE: 3.0
MORTGAGE-BACKED
SECURITIES 20.8%
U.S. TREASURY
OBLIGATIONS 19.9%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 56.4%
SHORT-TERM
INVESTMENTS 2.9%
INVESTMENTS APRIL 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 77.7%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 26.6%
5 7/8%, 8/31/99 $ 6,000,000 $ 6,022,500
7 7/8%, 11/15/99 800,000 826,281
6%, 8/15/00 1,945,000 1,960,793
7 3/4%, 2/15/01 4,040,000 4,258,402
5 5/8%, 2/28/01 4,930,000 4,928,472
6 1/2%, 8/31/01 1,500,000 1,537,740
19,534,188
U.S. GOVERNMENT AGENCY OBLIGATIONS - 51.1%
Federal Home Loan Bank 5.86%, 4/22/02 6,545,000 6,545,000
Financing Corp. stripped principal:
0%, 8/3/01 1,005,000 829,859
0%, 9/7/01 1,523,000 1,257,297
0%, 10/6/01 850,000 694,663
0%, 6/6/02 6,200,000 4,890,560
Series D, 0%, 3/26/01 2,772,000 2,340,483
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through Defense
Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 5,556,232 5,875,993
Class 2-E, 9.40%, 5/15/02 814,755 858,393
Guaranteed Export Trust Certificates
(assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1994-A, 7.12%, 4/15/06 1,382,008 1,441,158
Series 1994-F, 8.187%, 12/15/04 1,277,593 1,357,304
Series 1995-A, 6.28%, 6/15/04 1,353,529 1,366,246
Guaranteed Trade Trust Certificates
(assets of Trust guaranteed
by U.S. Government through Export-Import Bank)
Series 1997-A, 6.104%, 7/15/03 1,329,167 1,335,520
Overseas Private Investment Corp.
U.S. Government
guaranteed participation certificate
Series 1994-1995,
6.08%, 8/15/04 806,400 808,714
State of Israel (guaranteed by U.S.
Government through
Agency for International Development) 5 5/8%,
9/15/03 1,714,000 1,698,231
U.S. Department of Housing and Urban
Development
government guaranteed participation
certificates
Series 1996-A:
6.24%, 8/1/98 500,000 500,791
6.44%, 8/1/99 5,500,000 5,545,210
6.59%, 8/1/00 140,000 142,209
37,487,631
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $56,680,288) 57,021,819
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 17.7%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FANNIE MAE - 0.1%
11 1/2%, 8/1/14 $ 89,487 $ 101,162
FREDDIE MAC - 4.6%
5 1/2%, 1/1/03 to 5/1/03 3,468,748 3,393,059
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 13.0%
9 1/2%, 36202ADN9/15/17 to 8/15/20 502,319 545,059
10%, 2/15/10 to 7/15/20 1,815,617 1,996,620
10 1/2%, 9/15/15 to 2/15/25 1,955,206 2,178,223
10 3/4%, 3/15/10 73,986 81,521
11%, 1/15/10 to 1/15/21 1,425,439 1,600,840
11 1/2%, 3/15/10 to 8/15/19 2,496,579 2,836,828
12%, 1/15/14 to 2/15/16 197,933 228,792
13%, 9/15/14 34,671 40,684
9,508,567
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $12,877,661) 13,002,788
CASH EQUIVALENTS - 4.6%
MATURITY
AMOUNT
Investments in repurchase agreements (U.S.
Treasury
obligations), in a joint trading account
at 5 1/2%,
dated 4/30/98 due 5/1/98 $ 3,381,517 3,381,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $72,938,949) $ 73,405,607
INCOME TAX INFORMATION
At April 30, 1998, the aggregate cost of investment securities for
income tax purposes was $72,938,949. Net unrealized appreciation
aggregated $466,658, of which $676,753 related to appreciated
investment securities and $210,095 related to depreciated investment
securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $4,460,000 of which $168,000, $2,327,000, $582,000,
$681,000 and $702,000 will expire on April 30, 2002, 2003, 2004, 2005
and 2006, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 73,405,607
AGREEMENTS OF $3,381,000) (COST $72,938,949) -
SEE ACCOMPANYING SCHEDULE
CASH 533
RECEIVABLE FOR INVESTMENTS SOLD 2,319,570
RECEIVABLE FOR FUND SHARES SOLD 104,264
INTEREST RECEIVABLE 820,581
TOTAL ASSETS 76,650,555
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 855,345
PAYABLE FOR FUND SHARES REDEEMED 221,283
DISTRIBUTIONS PAYABLE 30,461
ACCRUED MANAGEMENT FEE 41,957
OTHER PAYABLES AND ACCRUED EXPENSES 402
TOTAL LIABILITIES 1,149,448
NET ASSETS $ 75,501,107
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 79,330,194
UNDISTRIBUTED NET INVESTMENT INCOME 164,920
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (4,460,665)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON 466,658
INVESTMENTS
NET ASSETS, FOR 8,042,450 SHARES OUTSTANDING $ 75,501,107
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.39
PER SHARE ($75,501,107 (DIVIDED BY) 8,042,450 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED APRIL 30, 1998
INVESTMENT INCOME $ 5,012,844
INTEREST
EXPENSES
MANAGEMENT FEE $ 473,239
NON-INTERESTED TRUSTEES' COMPENSATION 316
TOTAL EXPENSES 473,555
NET INVESTMENT INCOME 4,539,289
REALIZED AND UNREALIZED GAIN (LOSS) (400,542)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 930,896
ON INVESTMENT SECURITIES
NET GAIN (LOSS) 530,354
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 5,069,643
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 4,539,289 $ 5,135,106
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (400,542) (1,283,157)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 930,896 134,590
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 5,069,643 3,986,539
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (4,234,397) (4,989,807)
SHARE TRANSACTIONS 44,531,545 25,853,459
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 3,711,179 4,242,939
COST OF SHARES REDEEMED (42,525,402) (38,422,781)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 5,717,322 (8,326,383)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 6,552,568 (9,329,651)
NET ASSETS
BEGINNING OF PERIOD 68,948,539 78,278,190
END OF PERIOD (INCLUDING ACCUMULATED NET $ 75,501,107 $ 68,948,539
INVESTMENT INCOME (LOSS) OF $164,920 AND
$(40,196), RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 4,745,167 2,762,315
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 395,744 453,855
REDEEMED (4,534,660) (4,108,063)
NET INCREASE (DECREASE) 606,251 (891,893)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED APRIL 30,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $9.270 $9.400 $9.440 $9.490 $10.090
OF PERIOD
INCOME FROM INVESTMENT .584 C .658 C .688 .665 .616
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .082 (.149) (.045) (.065) (.579)
UNREALIZED
GAIN (LOSS)
TOTAL FROM INVESTMENT .666 .509 .643 .600 .037
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.546) (.639) (.683) (.650) (.617)
INCOME
IN EXCESS OF NET - - - - (.010)
INVESTMENT INCOME
IN EXCESS OF NET REALIZED - - - - (.010)
GAIN
TOTAL DISTRIBUTIONS (.546) (.639) (.683) (.650) (.637)
NET ASSET VALUE, END OF $ 9.390 $ 9.270 $ 9.400 $ 9.440 $ 9.490
PERIOD
TOTAL RETURN A, B 7.35% 5.57% 6.92% 6.60% .29%
RATIOS AND SUPPLEMENTAL
DATA
NET ASSETS, END OF PERIOD $ 75,501 $ 68,949 $ 78,278 $ 93,888 $ 53,726
(000 OMITTED)
RATIO OF EXPENSES TO .65% .65% .45% D .10% D .10% D
AVERAGE
NET ASSETS
RATIO OF NET INVESTMENT 6.23% 7.04% 7.16% 7.35% 7.33%
INCOME TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 166% 104% 161% 282% 271%
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Intermediate Government Fund (the fund) is a fund of
Fidelity Fixed-Income Trust (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $120,606,184 and $117,604,160, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $1,946 for the period.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Fixed-Income Trust and the Shareholders of
Spartan Short-Intermediate Government Fund:
We have audited the accompanying statement of assets and liabilities
of Fidelity Fixed-Income Trust: Spartan Short-Intermediate Government
Fund, including the schedule of portfolio investments, as of April 30,
1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the
five years in the period then ended. These financial statements and
financial highlights are the responsibility of the fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of April 30, 1998 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Fixed-Income Trust: Spartan
Short-Intermediate Government Fund as of April 30, 1998, the results
of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 5, 1998
DISTRIBUTIONS
A total of 33.22% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
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If you are not currently on the Internet, call Fidelity at
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SM
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+TM
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* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
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INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curtis Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
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Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
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FIDELITY'S TAXABLE BOND FUNDS
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Target Timeline(trademark)1999, 2001 & 2003
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SPARTAN(REGISTERED TRADEMARK)
SHORT-INTERMEDIATE
GOVERNMENT
FUND
(2_FIDELITY_LOGOS)
SEMIANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 14 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 18 NOTES TO THE FINANCIAL STATEMENTS.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the past five years and life of
fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
SPARTAN SHORT-INTERMEDIATE GOVERNMENT 4.59% 7.40% 32.64% 40.15%
LB 1-5 YEAR US GOVERNMENT BOND 5.45% 8.54% 34.92% N/A
SHORT-INTERMEDIATE US GOVERNMENT 4.45% 7.17% 29.45% N/A
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months , one year, five
years or since the fund started on December 18, 1992. For example, if
you had invested $1,000 in a fund that had a 5% return over the past
year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Lehman Brothers 1-5 Year
U.S. Government Bond Index - a market value weighted index of U.S.
Treasury and U.S. government agency securities with fixed-rate coupons
and weighted average lives between one and five years. To measure how
the fund's performance stacked up against its peers, you can compare
it to the short-intermediate US government funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 102 mutual funds. These benchmarks
reflect reinvestment of dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN SHORT-INTERMEDIATE GOVERNMENT 7.40% 5.81% 5.92%
LB 1-5 YEAR US GOVERNMENT BOND 8.54% 6.17% N/A
SHORT-INTERMEDIATE US GOVERNMENT 7.17% 5.27% N/A
FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
Spartan Sht-Int Govt. LB 1-5 Year U.S. Govt
00474 LB069
1992/12/31 10000.00 10000.00
1993/01/31 10120.93 10156.20
1993/02/28 10208.15 10275.02
1993/03/31 10247.68 10310.78
1993/04/30 10301.41 10388.17
1993/05/31 10297.86 10354.83
1993/06/30 10377.82 10464.76
1993/07/31 10413.09 10483.75
1993/08/31 10480.38 10607.82
1993/09/30 10496.09 10642.38
1993/10/31 10523.26 10668.24
1993/11/30 10502.89 10645.61
1993/12/31 10568.05 10687.84
1994/01/31 10658.95 10775.54
1994/02/28 10563.57 10668.24
1994/03/31 10376.92 10563.98
1994/04/30 10330.94 10502.95
1994/05/31 10338.65 10514.06
1994/06/30 10346.79 10530.03
1994/07/31 10479.56 10645.61
1994/08/31 10503.93 10678.75
1994/09/30 10454.19 10621.77
1994/10/31 10473.12 10635.10
1994/11/30 10457.15 10581.96
1994/12/31 10513.02 10605.20
1995/01/31 10660.02 10766.25
1995/02/28 10847.55 10948.51
1995/03/31 10902.60 11009.34
1995/04/30 11012.59 11122.49
1995/05/31 11255.21 11377.10
1995/06/30 11321.07 11443.38
1995/07/31 11342.01 11469.85
1995/08/31 11422.19 11549.06
1995/09/30 11476.32 11613.72
1995/10/31 11579.72 11725.06
1995/11/30 11695.99 11846.71
1995/12/31 11804.75 11947.95
1996/01/31 11901.25 12055.04
1996/02/29 11832.42 11973.61
1996/03/31 11792.48 11937.64
1996/04/30 11775.13 11927.94
1996/05/31 11772.59 11936.02
1996/06/30 11866.88 12039.28
1996/07/31 11912.70 12082.53
1996/08/31 11941.78 12113.04
1996/09/30 12060.96 12244.58
1996/10/31 12221.23 12412.50
1996/11/30 12341.39 12528.29
1996/12/31 12308.65 12497.58
1997/01/31 12353.54 12554.15
1997/02/28 12377.65 12578.00
1997/03/31 12339.83 12540.21
1997/04/30 12431.55 12660.85
1997/05/31 12510.32 12752.18
1997/06/30 12613.42 12850.59
1997/07/31 12788.01 13035.48
1997/08/31 12784.01 13020.53
1997/09/30 12889.11 13138.94
1997/10/31 12996.31 13261.80
1997/11/30 13029.98 13287.87
1997/12/31 13122.32 13386.68
1998/01/31 13255.15 13540.25
1998/02/28 13268.92 13537.83
1998/03/31 13301.39 13584.10
1998/04/30 13345.81 13649.37
1998/05/31 13425.12 13731.01
1998/06/30 13477.79 13809.00
1998/07/31 13532.67 13868.41
1998/08/31 13701.96 14081.19
1998/09/30 13916.60 14394.21
1998/10/30 13958.46 14337.21
IMATRL PRASUN SHR__CHT 19981031 19981106 142200 R00000000000073
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Short-Intermediate Government Fund on December 31,
1992, shortly after the fund started. As the chart shows, by October
31, 1998, the value of the investment would have grown to $13,958 - a
39.58% increase on the initial investment. For comparison, look at how
the Lehman Brothers 1-5 Year U.S. Government Bond Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 would have grown to $14,394 - a 43.94% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1998 1997 1996 1995 1994
DIVIDEND RETURNS 3.10% 6.06% 6.95% 7.34% 7.13% 6.15%
CAPITAL RETURNS 1.49% 1.29% -1.38% -0.42% -0.53% -5.86%
TOTAL RETURNS 4.59% 7.35% 5.57% 6.92% 6.60% 0.29%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.87(CENTS) 28.50(CENTS) 54.52(CENTS)
ANNUALIZED DIVIDEND RATE 6.01% 6.00% 5.79%
30-DAY ANNUALIZED YIELD 4.85% - -
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 $9.54
over the past one month, $9.43 over the past six months and $9.42 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Volatility in overseas markets,
combined with two interest-rate cuts
by the Federal Reserve Board,
provided the backdrop for solid
gains in the bond market during the
six months that ended October 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable
investment-grade bond market -
returned 5.55% during the period.
Global market volatility, low interest
rates and a sharp decline in stock
prices sent U.S. Treasury yields -
which move in the opposite direction
of bond prices - to their lowest
levels in 30 years. Investors' fears
resulted in an extreme flight to
quality that helped Treasuries
outperform all other sectors of the
bond market. Despite signs of
strength in the U.S. economy and the
lack of inflationary pressures,
corporate and mortgage-bond
investors did not fare as well. During
the six-month period, the Lehman
Brothers Corporate Bond Index
returned 4.00%, while the Lehman
Brothers Mortgage Backed Securities
Index returned 3.68%. Late in the
period, the Group of Seven leading
industrial nations eased global
market concerns with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries avert financial
crises. In response, equity markets
rallied and a reduced demand for
safety caused the bond market to
stumble. Despite weakness during
October, the yield on the benchmark
30-year Treasury closed at 5.15%.
(Photograph of Curt Hollingsworth)
An interview with Curt Hollingsworth, Portfolio Manager of Spartan
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended October 31, 1998, the fund
provided a total return of 4.59%. To get a sense of how the fund did
relative to its competitors, the short-intermediate U.S. government
funds average returned 4.45% for the same six-month period, according
to Lipper Analytical Services. Additionally, the Lehman Brothers 1-5
Year U.S. Government Bond Index - which tracks the types of securities
in which the fund invests - returned 5.45% for the same period. For
the 12-month period that ended October 31, 1998, the fund had a total
return of 7.40%. For that same one-year period, the short-intermediate
U.S. government funds average returned 7.17% and the Lehman Brothers
1-5 Year U.S. Government Bond Index returned 8.54%
Q. THE FUND BEAT ITS PEERS DURING THE PAST SIX MONTHS, BUT WHY DID IT
LAG THE LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND INDEX?
A. The fund lagged its benchmark because of the way its holdings were
invested among various types of government securities. During the past
six months, the fund had fewer of the market's best-performing
Treasuries and more of the market's poorer-performing agency
securities than the index. In addition, the fund held some mortgage
securities - which also lagged Treasuries - while the index did not.
Although their higher yields helped agency and mortgage securities
outpace Treasuries early on in the period, a global flight to quality
hurt them more recently.
Q. WHY DIDN'T AGENCY SECURITIES - WHICH ALSO CARRY THE BACKING OF THE
U.S. GOVERNMENT - AND MORTGAGE SECURITIES ENJOY THE SAME BENEFITS FROM
THE FLIGHT TO SAFETY THAT BOOSTED TREASURIES?
A. Treasuries are backed directly by the full faith and credit of the
U.S. government while agency securities carry the implicit, or
indirect, backing of the U.S. government. Even though this appears to
be only a minor distinction, agency securities are not perceived to be
as safe as Treasuries. That helps explain why, in times of
uncertainty, Treasuries - not agency securities - tend to be the safe
haven of choice for many investors. Mortgage securities suffered along
with agency securities, but for much different reasons. A rapid rise
in the number of homeowners who refinanced their mortgages to take
advantage of falling interest rates set off a very large wave of
mortgage prepayments. As homeowners' loans were prepaid, mortgage
securities made up of those loans were retired before their maturity.
Many investors sold or avoided mortgage securities because they felt
that falling interest rates would precipitate even more prepayments
and, in turn, potentially force them to invest proceeds from any
prepaid mortgages at lower, prevailing interest rates.
Q. HOW DID YOU RESPOND TO THESE CHANGING MARKET CONDITIONS?
A. Initially, I added more agency securities when several of the
fund's mortgage securities were prepaid. At that time I felt that
agencies offered more attractive value. That's because the spread - or
difference in yield - between Treasury and agency securities widened
to nearly 0.50%, a historically wide margin and an indication that
investors were demanding more compensation for accepting the slightly
higher risk of buying agency securities versus Treasuries. Because I
believed that the spread would narrow back in to a more historical
norm, and agencies would outpace Treasuries as a result, I added to
the fund's agency holdings. Later, however, I began adding back
mortgage securities, which I felt had gotten very inexpensive. That
said, the fund continued to have a fairly large stake in agency
securities relative to the Lehman Brothers 1-5 Year U.S. Government
Bond Index at the end of the period.
Q. WHICH AGENCY SECURITIES DID THE FUND EMPHASIZE?
A. I continued to favor non-callable securities - those that can't be
redeemed by their issuers before maturity. Some agency securities can
be "called" - or redeemed - by their issuers as a way to reduce their
debt costs. Because they can't be redeemed prior to maturity,
non-callable securities tend to perform better than their callable
counterparts when interest rates fall, and generally keep pace with
callable bonds when interest rates rise.
Q. WHAT'S YOUR OUTLOOK?
A. As always, interest rates will be the primary determinant of the
government bond market. In light of a slowing global economy, it
appears that the Federal Reserve Board is poised to lower interest
rates further, which would bode well for bonds. But no matter what the
direction of interest rates, I'll continue to manage the fund with
approximately the same interest-rate sensitivity as the
short-intermediate part of the government market. In addition, I'm
likely to continue to place a relatively large weighting on agency
securities, because I think they offer better total return potential
than mortgage securities or Treasuries.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: HIGH CURRENT INCOME
WITH PRESERVATION OF CAPITAL
FUND NUMBER: 474
TRADING SYMBOL: SPSIX
START DATE: DECEMBER 18, 1992
SIZE: AS OF OCTOBER 31, 1998,
MORE THAN $76 MILLION
MANAGER: CURT HOLLINGSWORTH,
SINCE 1992; MANAGER, VARIOUS
FIDELITY AND SPARTAN
GOVERNMENT AND MORTGAGE
FUNDS; JOINED FIDELITY IN 1983
NOTE TO SHAREHOLDERS: EFFECTIVE
DECEMBER 7, 1998, AFTER THE PERIOD
ENDED, ANDREW DUDLEY WILL BECOME
PORTFOLIO MANAGER OF SPARTAN
SHORT-INTERMEDIATE GOVERNMENT
FUND. MR. DUDLEY MANAGES VARIOUS
FIDELITY AND SPARTAN TAXABLE BOND
FUNDS AND JOINED FIDELITY IN 1996.
ADDITIONAL NOTES TO
SHAREHOLDERS: EFFECTIVE THE
CLOSE OF BUSINESS ON JUNE 26, 1998,
SPARTAN SHORT-INTERMEDIATE
GOVERNMENT FUND SHARES ARE NO
LONGER AVAILABLE TO NEW ACCOUNTS.
SHAREHOLDERS OF THE FUND ON THAT
DATE MAY CONTINUE TO PURCHASE
SHARES IN ACCOUNTS EXISTING ON THAT
DATE. FURTHER, ON OCTOBER 15, 1998,
THE BOARD OF TRUSTEES OF SPARTAN
SHORT-INTERMEDIATE GOVERNMENT
FUND VOTED TO PRESENT A PROPOSAL TO
SHAREHOLDERS TO MERGE SPARTAN
SHORT-INTERMEDIATE GOVERNMENT
FUND INTO FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND. A
SHAREHOLDER MEETING IS SCHEDULED TO
BE HELD ON APRIL 14, 1999. ON OR
ABOUT FEBRUARY 16, 1999,
SHAREHOLDERS WILL BE SENT PROXY
MATERIALS ASKING THEM TO VOTE ON
THIS AND ANY OTHER PROPOSALS.
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO COUPON BONDS 0.0 13.6
5 - 5.99% 23.4 30.8
6 - 6.99% 19.6 18.0
7 - 7.99% 10.7 8.9
8 - 8.99% 12.8 1.8
9 - 9.99% 14.4 9.9
10 - 10.99% 4.4 5.8
11% AND OVER 5.0 6.6
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31,
1998
6 MONTHS AGO
YEARS 3.0 3.2
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.3 2.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998
ROW: 1, COL: 1, VALUE: 16.5
ROW: 1, COL: 2, VALUE: 7.9
ROW: 1, COL: 3, VALUE: 65.90000000000001
ROW: 1, COL: 4, VALUE: 9.699999999999999
ROW: 1, COL: 5, VALUE: 0.0
ROW: 1, COL: 6, VALUE: 0.0
MORTGAGE-BACKED
SECURITIES 16.5%
U.S. TREASURY
OBLIGATIONS 7.9%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 65.9%
SHORT-TERM
INVESTMENTS 9.7%
AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 17.7
ROW: 1, COL: 2, VALUE: 26.6
ROW: 1, COL: 3, VALUE: 51.1
ROW: 1, COL: 4, VALUE: 4.6
ROW: 1, COL: 5, VALUE: 0.0
MORTGAGE-BACKED
SECURITIES 17.7%
U.S. TREASURY
OBLIGATIONS 26.6%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 51.1%
SHORT-TERM
INVESTMENTS 4.6%
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS
- - 73.8%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. GOVERNMENT
AGENCY OBLIGATIONS -
65.9%
Fannie Mae:
5.75% 4/15/03 $ 1,800,000 $ 1,875,303
6.69% 8/7/01 1,700,000 1,782,603
6.74% 5/13/04 230,000 247,400
8.25% 12/18/00 6,160,000 6,589,289
Farm Credit Systems 4,200,000 5,002,578
Financial Assistance Corp.
9.375% 7/21/03
Federal Home Loan Bank:
5.35% 2/7/01 3,375,000 3,416,141
5.595% 3/27/01 3,000,000 3,055,770
Government Trust
Certificates (assets of Trust
guaranteed by U.S.
Government through
Defense Security
Assistance Agency):
Class 1-C, 9.25% 4,965,422 5,292,842
11/15/01
Class 2-E, 9.4% 5/15/02 707,163 750,370
Guaranteed Export Trust
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-
Import Bank):
Series 1994-A, 7.12% 1,316,586 1,422,440
4/15/06
Series 1994-F, 8.187% 1,172,885 1,265,085
12/15/04
Series 1995-A, 6.28% 1,249,412 1,291,979
6/15/04
Guaranteed Trade Trust 1,208,333 1,241,200
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-
Import Bank) Series
1997-A, 6.104%
7/15/03
Overseas Private Investment 772,800 803,496
Corp. U.S. Government
guaranteed participation
certificate Series
1994-195, 6.08%
8/15/04 (callable)
Private Export Funding
Corp.:
secured 5.8% 2/1/04 600,000 614,790
5.82% 6/15/03 (a) 1,900,000 1,959,375
State of Israel (guaranteed
by U.S. Government
through Agency for
International
Development):
5.25% 9/15/00 1,500,000 1,512,660
5.625% 9/15/03 3,314,000 3,430,189
6.625% 8/15/03 4,300,000 4,630,025
7.75% 11/15/99 800,000 823,000
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS
- - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. GOVERNMENT
AGENCY OBLIGATIONS -
CONTINUED
U.S. Department of Housing
and Urban Development
government guaranteed
participation certificates
Series 1996-A:
6.44% 8/1/99 $ 5,500,000 $ 5,556,760
6.59% 8/1/00 140,000 143,702
52,706,997
U.S. TREASURY
OBLIGATIONS - 7.9%
U.S. Treasury Notes 7.875% 5,800,000 6,329,250
8/15/01
TOTAL U.S. 59,036,2
GOVERNMENT AND 47
GOVERNMENT
AGENCY
OBLIGATIONS
(Cost $58,122,747)
U.S. GOVERNMENT
AGENCY - MORTGAGE
SECURITIES - 16.5%
FANNIE MAE - 0.1%
11.5% 8/1/14 67,361 74,972
FREDDIE MAC - 6.6%
5.5% 1/1/03 to 5/1/03 2,883,183 2,877,560
8.5% 7/1/28 2,300,000 2,393,438
5,270,998
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION -
9.8%
9.5% 9/15/17 to 8/15/20 408,046 440,317
10% 2/15/10 to 7/15/20 1,565,327 1,686,001
10.5% 9/15/15 to 1,616,526 1,761,868
2/15/25
10.75% 3/15/10 58,745 63,948
11% 1/15/10 to 1/20/21 1,163,045 1,279,780
11.5% 3/15/10 to 2,129,188 2,367,569
8/15/19
12% 3/20/14 to 2/15/16 167,200 187,721
13% 9/15/14 34,104 38,995
7,826,199
TOTAL U.S. 13,172,1
GOVERNMENT 69
AGENCY -
MORTGAGE
SECURITIES
(Cost $13,177,510)
CASH EQUIVALENTS -
9.7%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase $ 7,755,645 $ 7,752,000
agreements (U.S.
Government obligations),
in a joint trading account
at 5.64%, dated
10/30/98 due 11/2/98
TOTAL INVESTMENT IN $ 79,960,41
SECURITIES - 100% 6
(Cost $79,052,257)
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $1,959,375 or 2.6% of net assets.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $79,052,257. Net unrealized appreciation
aggregated $908,159, of which $1,129,614 related to appreciated
investment securities and $221,455 related to depreciated investment
securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $4,460,000 of which $168,000, $2,327,000, $582,000,
$681,000 and $702,000 will expire on April 30, 2002, 2003, 2004, 2005
and 2006, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
(UNAUDITED)
ASSETS
INVESTMENT IN $ 79,960,416
SECURITIES, AT
VALUE
(INCLUDING
REPURCHASE
AGREEMENTS OF
$7,752,000)
(COST
$79,052,257)
- -
SEE
ACCOMPANYING
SCHEDULE
RECEIVABLE FOR 5,280,295
INVESTMENTS
SOLD
RECEIVABLE FOR 2,459
FUND SHARES
SOLD
INTEREST 1,166,651
RECEIVABLE
TOTAL ASSETS 86,409,821
LIABILITIES
PAYABLE TO $ 1,483,006
CUSTODIAN BANK
PAYABLE FOR 8,079,605
INVESTMENTS
PURCHASED
PAYABLE FOR FUND 69,449
SHARES
REDEEMED
DISTRIBUTIONS 62,108
PAYABLE
ACCRUED 41,615
MANAGEMENT
FEE
OTHER PAYABLES 384
AND ACCRUED
EXPENSES
TOTAL LIABILITIES 9,736,167
NET ASSETS $ 76,673,654
NET ASSETS
CONSIST OF:
PAID IN CAPITAL $ 79,367,240
UNDISTRIBUTED NET 280,814
INVESTMENT
INCOME
ACCUMULATED (3,882,559)
UNDISTRIBUTED
NET REALIZED
GAIN (LOSS) ON
INVESTMENTS
NET UNREALIZED 908,159
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS
NET ASSETS, FOR $ 76,673,654
8,045,773
SHARES
OUTSTANDING
NET ASSET VALUE, $9.53
OFFERING PRICE
AND
REDEMPTION
PRICE PER SHARE
($76,673,654
(DIVIDED BY) 8,045,773
SHARES)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED
OCTOBER 31, 1998
(UNAUDITED)
INVESTMENT $ 2,664,229
INCOME
INTEREST (INCLUDING
INCOME ON
SECURITIES
LOANED OF
$455)
EXPENSES
MANAGEMENT FEE $ 247,378
NON-INTERESTED 143
TRUSTEES'
COMPENSATION
TOTAL EXPENSES 247,521
BEFORE
REDUCTIONS
EXPENSE (406) 247,115
REDUCTIONS
NET INVESTMENT 2,417,114
INCOME
REALIZED AND 578,106
UNREALIZED GAIN
(LOSS)
NET REALIZED
GAIN (LOSS) ON
INVESTMENT
SECURITIES
CHANGE IN NET 441,501
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENT
SECURITIES
NET GAIN (LOSS) 1,019,607
NET INCREASE $ 3,436,721
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30,
(UNAUDITED) 1998
INCREASE
(DECREASE) IN
NET ASSETS
OPERATIONS $ 2,417,114 $ 4,539,289
NET INVESTMENT
INCOME
NET REALIZED 578,106 (400,542)
GAIN (LOSS)
CHANGE IN NET 441,501 930,896
UNREALIZED
APPRECIATION
(DEPRECIATION)
NET INCREASE 3,436,721 5,069,643
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
DISTRIBUTIONS TO (2,301,220) (4,234,397)
SHAREHOLDERS
FROM NET
INVESTMENT
INCOME
SHARE 12,527,345 44,531,545
TRANSACTIONS
NET PROCEEDS
FROM SALES OF
SHARES
REINVESTMENT 1,972,785 3,711,179
OF DISTRIBUTIONS
COST OF SHARES (14,463,084) (42,525,402)
REDEEMED
NET INCREASE 37,046 5,717,322
(DECREASE) IN
NET ASSETS
RESULTING
FROM SHARE
TRANSACTIONS
TOTAL 1,172,547 6,552,568
INCREASE
(DECREASE) IN
NET ASSETS
NET ASSETS
BEGINNING OF 75,501,107 68,948,539
PERIOD
END OF PERIOD $ 76,673,654 $ 75,501,107
(INCLUDING
UNDISTRIBUTED
NET
INVESTMENT
INCOME OF
$280,814
AND
$164,920,
RESPECTIVELY)
OTHER
INFORMATION
SHARES
SOLD 1,329,570 4,745,167
ISSUED IN 208,807 395,744
REINVESTMENT OF
DISTRIBUTIONS
REDEEMED (1,535,054) (4,534,660)
NET INCREASE 3,323 606,251
(DECREASE)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS
ENDED ENDED
OCTOBER 31, APRIL
1998 30,
(UNAUDITED) 1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 9.390 $ 9.270 $ 9.400 $ 9.440 $ 9.490 $ 10.090
BEGINNING OF
PERIOD
INCOME FROM .299 C .584C .658C .688 .665 .616
INVESTMENT
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED .126 .082 (.149) (.045) (.065) (.579)
AND
UNREALIZED
GAIN (LOSS)
TOTAL FROM .425 .666 .509 .643 .600 .037
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.285) (.546) (.639) (.683) (.650) (.617)
INVESTMENT
INCOME
IN EXCESS OF NET - - - - - (.010)
INVESTMENT
INCOME
IN EXCESS OF NET - - - - - (.010)
REALIZED
GAIN
TOTAL (.285) (.546) (.639) (.683) (.650) (.637)
DISTRIBUTIONS
NET ASSET VALUE, $ 9.530 $ 9.390 $ 9.270 $ 9.400 $ 9.440 $ 9.490
END OF PERIOD
TOTAL RETURN B 4.59% 7.35% 5.57% 6.92% 6.60% .29%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 76,674 $ 75,501 $ 68,949 $ 78,278 $ 93,888 $ 53,726
OF PERIOD (000
OMITTED)
RATIO OF EXPENSES .65% A .65% .65% .45%D .10%D .10%D
TO AVERAGE NET
ASSETS
RATIO OF NET 6.30% A 6.23% 7.04% 7.16% 7.35% 7.33%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 362% A 166% 104% 161% 282% 271%
RATE
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Intermediate Government Fund (the fund) is a fund of
Fidelity Fixed-Income Trust (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $129,130,614 and $127,980,804, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $195 for the period. Effective June 26, 1998, these
transaction fees were eliminated.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as
5. SECURITY LENDING -
CONTINUED
collateral against the loaned securities, in an amount at least equal
to 102% of the market value of the loaned securities at the inception
of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the
loan. At period end, there were no loans outstanding.
6. EXPENSE REDUCTIONS.
FMR has entered into arrangements on behalf of the fund with the
fund's custodian and transfer agent whereby credits realized as a
result of uninvested cash balances were used to reduce a portion of
the fund's expenses. During the period, the fund's expenses were
reduced by $406 under these arrangements.
7. PROPOSED REORGANIZATION.
The Board of Trustees of the fund has approved an Agreement and Plan
of Reorganization ("Agreement") between the fund and Fidelity
Intermediate Government Income Fund ("Reorganization"). The Agreement
provides for the transfer of all of the assets of the fund to Fidelity
Intermediate Government Income Fund in exchange solely for the number
of shares of Fidelity Intermediate Government Income Fund having the
same aggregate net asset value as the outstanding shares of the fund
as of the close of business of the New York Stock Exchange on the day
that the Reorganization is effective and the assumption by Fidelity
Intermediate Government
Income Fund of all of the liabilities of the fund. The Reorganization
can be consummated only if, among other things, it is approved by the
vote of a majority (as defined by the 1940 Act) of outstanding voting
securities of the fund. A Special Meeting of Shareholders ("Meeting")
of the fund will be held on April 14, 1999 to vote on the Agreement. A
detailed description of the proposed transaction and voting
information will be sent to shareholders of the fund in February 1999.
If the Agreement is approved at the Meeting, the Reorganization is
expected to become effective on or about April 22, 1999.
Effective June 26, 1998, the fund's shares are no longer available for
purchase or exchange to new accounts of the fund pending the proposed
Reorganization. However, existing shareholders of the fund can
continue to purchase shares of the fund.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
Longwood, FL
8880 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
16850 SW 72 Avenue
Tigard, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curtis Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline SM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark)(automated graphic)
1-800-544-5555
(automated graphic) AUTOMATED LINE FOR QUICKEST SERVICE
SSG-SANN-1298 66948
1.538510.101
(Fidelity Logo graphic)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
SUPPLEMENT TO
THE FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
NOVEMBER 24, 1998 PROSPECTUS
The following information replaces similar information found under
"FMR and Its Affiliates" in the "Charter"section on page 9.
Andrew Dudley is Vice President and manager of Short-Intermediate
Government, which he has managed since December 1998. He also manages
other Fidelity funds. Prior to joining Fidelity in 1996, Mr. Dudley
was a portfolio manager for Putnam Investments from 1991 to 1996.
FSG-98-03
1.480659.101 December 7, 1998
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
November 24, 1998. The SAI has been filed with the Securities and
Exchange Commission (SEC) and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov). The SAI
is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call
Fidelity(registered trademark) at 1-800-544-8888.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FSG -pro- 1198
1.537651.101
FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
(fund number 464, trading symbol FLMGX)
The fund invests in U.S. Government securities. The fund seeks high
current income with preservation of capital.
PROSPECTUS
NOVEMBER 24, 1998
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
KEY FACTS 2 THE FUND AT A GLANCE
2 WHO MAY WANT TO INVEST
4 EXPENSES The fund's yearly operating
expenses.
5 FINANCIAL HIGHLIGHTS A summary of the
fund's financial data.
7 PERFORMANCE How the fund has done
over time.
THE FUND IN DETAIL 9 CHARTER How the fund is organized.
9 INVESTMENT PRINCIPLES AND RISKS The
fund's overall approach to investing.
11 BREAKDOWN OF EXPENSES How
operating costs are calculated and what
they include.
YOUR ACCOUNT 12 DOING BUSINESS WITH FIDELITY
12 TYPES OF ACCOUNTS Different ways to
set up your account, including
tax-advantaged retirement plans.
13 HOW TO BUY SHARES Opening an
account and making additional
investments.
15 HOW TO SELL SHARES Taking money out
and closing your account.
17 INVESTOR SERVICES Services to help you
manage your account.
SHAREHOLDER AND 18 DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
20 TRANSACTION DETAILS Share price
calculations and the timing of purchases
and redemptions.
21 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: Normally invests in U.S. Government securities and
instruments related to U.S. Government securities while maintaining an
average maturity of two to five years. FMR uses the Lehman Brothers
1-5 Year U.S. Government Bond Index as a guide in structuring the fund
and selecting its investments.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments(registered trademark), which
was established in 1946 and is now America's largest mutual fund
manager.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, will choose investments for the fund.
SIZE: As of September 30, 1998, the fund had over $133 million in
assets.
WHO MAY WANT TO INVEST
PROPOSED REORGANIZATION. The Board of Trustees of Fidelity
Short-Intermediate Government Fund has unanimously approved an
Agreement and Plan of Reorganization ("Agreement") between Fidelity
Short-Intermediate Government Fund and Fidelity Intermediate
Government Income Fund (formerly Spartan Limited Maturity Government
Fund), a Fund of Fidelity Income Fund.
The Agreement provides for the transfer of all of the assets and
assumption of all of the liabilities of Fidelity Short-Intermediate
Government Fund solely in exchange for the number of shares of
Fidelity Intermediate Government Income Fund equal in value to the
relative net asset value of the outstanding shares of Fidelity
Short-Intermediate Government Fund. Following such exchange, Fidelity
Short-Intermediate Government Fund will distribute to Fidelity
Intermediate Government Income Fund as provided in the Agreement (the
transactions contemplated by the Agreement referred to as the
"Reorganization"). The Reorganization can be consummated only if,
among other things, it is approved by a majority vote of shareholders.
A Special Meeting (the "Meeting") of Fidelity Short-Intermediate
Government Fund will be held on April 14, 1999, and approval of the
Agreement will be voted on at that time. In connection with the
Meeting Fidelity Short-Intermediate Government Fund will be filing
with the Securities and Exchange Commission and delivering to its
shareholders of record a Proxy Statement describing the Reorganization
and a Prospectus for Fidelity Intermediate Government Income Fund.
If the Agreement is approved at the Meeting and certain conditions
required by the Agreement are satisfied, the Reorganization is
expected to become effective on or about April 29, 1999. If
shareholder approval of the Agreement is delayed due to failure to
meet a quorum or otherwise, the Reorganization will become effective,
if approved as soon as practicable thereafter.
In the event Fidelity Short-Intermediate Government Fund shareholders
fail to approve the Agreement, Fidelity Short-Intermediate Government
Fund will continue to engage in business as a registered investment
company and the Board of Trustees will consider other proposals for
the reorganization or liquidation of Fidelity Short-Intermediate
Government Fund.
Effective the close of business on June 26, 1998, the fund's shares
will no longer be available to new accounts. Shareholders of the fund
on that date may continue to purchase shares in accounts existing on
that date. Investors who did not own shares of the fund on June 26,
1998, generally will not be allowed to purchase shares of the fund
except that new accounts may be established: 1) by participants in
most group employer retirement plans (and their successor plans) in
which the fund had been established as an investment option by June
26, 1998, and 2) for accounts managed on a discretionary basis that
have discretionary assets of at least $1 billion invested in mutual
funds and have included the fund in their discretionary account
program since June 26, 1998. These restrictions will apply to
investments made directly with Fidelity and investments made through
intermediaries. Investors may be required to demonstrate eligibility
to purchase shares of the fund before an investment is accepted.
The fund may be appropriate for investors who seek high current income
from a portfolio of U.S. Government securities. The fund's level of
risk and potential reward depend on the quality and maturity of its
investments.
The value of the fund's investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other economic and political news. When you sell your
shares, they may be worth more or less than what you paid for them. By
itself, the fund does not constitute a balanced investment plan.
(checkmark)THE SPECTRUM OF
FIDELITY FUNDS
BROAD CATEGORIES OF FIDELITY
FUNDS ARE PRESENTED HERE IN
ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO
MAXIMIZE RETURN MUST ASSUME
GREATER RISK. SHORT-INTERMEDIATE
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.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of the fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page , for an explanation of how and when
these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on None
redemptions
Annual account $12.00
maintenance fee
(for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The
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. The fund's expenses are
factored into its share price or dividends and are not charged
directly to shareholder accounts (see "Breakdown of Expenses" page ).
The following figures are based on historical expenses of the fund and
are calculated as a percentage of average net assets of the fund.
Management fee 0.44%
12b-1 fee None
Other Expenses 0.34%
Total fund operating 0.78%
expenses
EXAMPLES: Let's say, hypothetically, that the fund's annual return is
5% and that your shareholder transaction expenses and the fund's
annual operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses
if you close your account after the number of years indicated:
1 year $ 8
3 years $ 25
5 years $ 43
10 years $ 97
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
(checkmark)UNDERSTANDING
EXPENSES
OPERATING A MUTUAL FUND
INVOLVES A VARIETY OF EXPENSES
FOR PORTFOLIO MANAGEMENT,
SHAREHOLDER STATEMENTS, TAX
REPORTING, AND OTHER SERVICES.
THESE EXPENSES ARE PAID FROM
THE FUND'S ASSETS, AND THEIR
EFFECT IS ALREADY FACTORED INTO
ANY QUOTED SHARE PRICE OR
RETURN. ALSO, AS AN INVESTOR, YOU
MAY PAY CERTAIN EXPENSES
DIRECTLY.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited by
PricewaterhouseCoopers LLP, independent accountants. The fund's
financial highlights, financial statements, and report of the auditor
are included in the fund's Annual Report, and are incorporated by
reference into (are legally a part of) the fund's SAI. Contact
Fidelity for a free copy of the Annual Report or the SAI.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Years 1998 1997 1996 1995 1994 1993 1992 1991D
ended
September
30
Net asset $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960 $ 10.140 $ 10.010 $ 10.000
value,
beginning of
period
Income .591F .603F .599 .648 .533 .722 .694 .027
from
Investment
Operations
Net
investment
income
Net .119 .022 (.167) .174 (.648) (.209) .096 .010
realized and
unrealized
gain (loss)
Total .710 .625 .432 .822 (.115) .513 .790 .037
from
investment
operations
Less (.560) (.575) (.602) (.622) (.555) (.623) (.650) (.027)
Distributions
From net
investment
income
From -- -- -- -- -- (.070) (.010) --
net realized
gain
Total (.560) (.575) (.602) (.622) (.555) (.693) (.660) (.027)
distributions
Net asset $ 9.520 $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960 $ 10.140 $ 10.010
value, end of
period
Total 7.82% 6.90% 4.67% 9.15% (1.18)% 5.26% 8.13% .37%
returnB,C
RATIOS AND SUPPLEMENTAL DATA
Net $ 133,109 $ 120,138 $ 123,044 $ 140,471 $ 132,466 $ 168,292 $ 172,863 $ 1,339
assets, end
of period
(000
omitted)
Ratio of .78% .81% .79% .82% .95% .61%,E .28%,E .65%A,E
expenses to
average net
assets
Ratio of 6.29% 6.45% 6.54% 6.67% 6.80% 7.19% 7.91% 5.67%A
net
investment
income to
average net
assets
Portfolio 253% 126% 188% 266% 184% 348% 419% --
turnover
rate
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D FOR THE PERIOD SEPTEMBER 13, 1991 (COMMENCEMENT OF OPERATIONS) TO
SEPTEMBER 30, 1991.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do
not reflect the effect of taxes.
The fund's fiscal year runs from October 1 through September 30. The
tables below show the fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average. The chart on page presents calendar year
performance.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods Past 1 Past 5 Life of
ended year years fund A
September
30, 1998
SHORT-INTERM 7.82% 5.41% 5.78%
EDIATE
GOVERNMENT
Lehman 9.12% 6.14% n/a
Bros.1-5
Year U.S.
Govt. Bond
Index
Lipper 8.25% 5.31% n/a
Sht.-Int. U.S.
Govt. Funds
Avg.
CUMULATIVE TOTAL RETURNS
Fiscal periods Past 1 Past 5 Life of
ended year years fund A
September
30, 1998
SHORT-INTERM 7.82% 30.12% 48.67%
EDIATE
GOVERNMENT
Lehman 9.12% 34.72% n/a
Bros.1-5
Year U.S.
Govt. Bond
Index
Lipper 8.25% 29.67% n/a
Sht.-Int. U.S.
Govt. Funds
Avg.
A FROM SEPTEMBER 13, 1991 (COMMENCEMENT OF OPERATIONS)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated
period of time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate
of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the
entire period. Average annual total returns smooth out variations in
performance; they are not the same as actual year-by-year results.
YIELD refers to the income generated by an investment in 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.
(checkmark)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 yields and carry
more risk than short-term
bond funds.
LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND INDEX is a market
capitalization-weighted index of government and fixed-rate debt issues
with maturities between one and five years.
Unlike the fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1992 1993 1994 1995 1996 1997
SHORT-INTERMEDIATE GOVERNMENT 4.71% 5.28% -1.38% 11.86% 4.06% 6.61%
Lehman Bros. 1-5 Year U.S.
Govt. Bond Index 6.71% 6.88% -0.77% 12.66% 4.60% 7.11%
Lipper Sht.-Int. U.S. Govt.
Funds Avg. 5.96% 6.96% -2.26% 12.46% 3.52% 6.72%
Consumer Price Index 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 4.71
Row: 6, Col: 1, Value: 5.28
Row: 7, Col: 1, Value: -1.38
Row: 8, Col: 1, Value: 11.86
Row: 9, Col: 1, Value: 4.06
Row: 10, Col: 1, Value: 6.609999999999999
(LARGE SOLID BOX) Short-Intermediate
Government
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-Intermediate U.S.
Government Funds Average. As of September 30, 1998, the average
reflected the performance of 101 mutual funds with similar investment
objectives. This average, published by Lipper Analytical Services,
Inc., excludes the effect of sales loads.
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
SHORT-INTERMEDIATE GOVERNMENT IS A MUTUAL FUND: an investment that
pools shareholders' money and invests it toward a specified goal. The
fund is a diversified fund of Fidelity Charles Street Trust, an
open-end management investment company organized as a Massachusetts
business trust on July 7, 1981.
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 periodically throughout the year to oversee the
fund's activities, review contractual arrangements with companies that
provide services to the fund, and review the fund's performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs.
Beginning January 1, 1999, FIMM, located in Merrimack, New Hampshire,
will have primary responsibility for providing investment management
services for the fund.
Curtis Hollingsworth is Vice President and manager of
Short-Intermediate Government Fund, which he has managed since
September 1991. He also manages several other Fidelity funds. Mr.
Hollingsworth joined Fidelity in 1983.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets
Fidelity's funds and services.
Fidelity Service Company, Inc. (FSC) performs transfer agent servicing
functions for the fund.
FMR Corp. is the ultimate parent company of FMR and FIMM. Members of
the Edward C. Johnson 3d family are the predominant owners of a class
of shares of common stock representing approximately 49% of the voting
power of FMR Corp. Under the Investment Company Act of 1940 (the 1940
Act), control of a company is presumed where one individual or group
of individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form
a controlling group with respect to FMR Corp.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out the fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund
change daily based on changes in interest rates and market conditions,
and in response to other economic, political or financial events. The
types and maturities of the securities a bond fund purchases and the
credit quality of their issuers will impact a bond fund's reaction to
these events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
PREPAYMENT RISK. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment risk occurs
when the issuer of a security can prepay principal prior to the
security's maturity. Securities subject to prepayment risk generally
offer less potential for gains during a declining interest rate
environment, and similar or greater potential for loss in a rising
interest rate environment. In addition, the potential impact of
prepayment features on the price of a debt security may be difficult
to predict and result in greater volatility.
FIDELITY'S APPROACH TO BOND FUNDS. In managing bond funds, FMR selects
a benchmark index that is representative of the universe of securities
in which the fund invests. FMR uses this benchmark as a guide in
structuring the fund and selecting its investments.
FMR allocates assets among different market sectors (for example, U.S.
Treasury or U.S. Government agency securities) and different
maturities based on its view of the relative value of each sector or
maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund may invest. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
The fund seeks high current income, consistent with preservation of
capital, by investing in U.S. Government securities and instruments
related to U.S. Government securities under normal conditions. The
benchmark index for the fund is the Lehman Brothers 1-5 Year U.S.
Government Bond Index, a market capitalization-weighted index of
government and fixed-rate debt issues with maturities between one and
five years. FMR manages the fund to have similar overall interest rate
risk to the index. As of September 30, 1998 the dollar-weighted
average maturity of the fund and the index was approximately 3.4 and
2.7 years, respectively. In addition, the fund normally maintains a
dollar-weighted average maturity between two and five years.
In determining a security's maturity for purposes of calculating the
fund's average maturity, an estimate of the average time for its
principal to be paid may be used. This can be substantially shorter
than its stated final maturity.
The fund normally invests only in U.S. Government securities,
repurchase agreements and other instruments related to U.S. Government
securities. FMR normally invests at least 65% of the fund's total
assets in U.S. Government securities and repurchase agreements for
U.S. Government securities. Other instruments may include futures or
options on U.S. Government securities or interests in U.S. Government
securities that have been repackaged by dealers or other third
parties. It is important to note that neither the fund's share price
nor its yield is guaranteed by the U.S. Government.
FMR may use various investment techniques to hedge a portion of the
fund's risks, but there is no guarantee that these strategies will
work as FMR intends. When you sell your shares of the fund, 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, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of the fund's limitations and more
detailed information about the fund's investments are 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 unless it believes that they are consistent with the fund's
investment objective and policies and that doing so will help the fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in 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 generally pays the investor
a fixed, variable, or floating rate of interest, and must repay the
amount borrowed at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes. In addition, bond prices are also
affected by the credit quality of the issuer.
U.S. GOVERNMENT SECURITIES are high-quality debt instruments issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government securities are backed by
the full faith and credit of the United States. For example, U.S.
Government securities such as those issued by Fannie Mae are supported
by the instrumentality's right to borrow money from the U.S. Treasury
under certain circumstances. Other U.S. Government securities, such as
those issued by the Federal Farm Credit Banks Funding Corporation, are
supported only by the credit of the entity that issued them.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
RESTRICTION: The fund does not currently intend to invest more than
40% of its assets in mortgage securities.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, 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.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, 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.
ILLIQUID 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.
Difficulty in selling securities may result in a loss or may be costly
to the fund.
RESTRICTIONS: The fund may not invest more than 10% of its assets in
illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
OTHER INSTRUMENTS may include real estate related instruments.
CASH MANAGEMENT. The fund may invest in money market securities, in
repurchase agreements, and in a money market fund available only to
funds and accounts managed by FMR or its affiliates, whose goal is to
seek a high level of current income while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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 331/3% of its total assets.
LENDING securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a
means of earning income. This practice could result in a loss or a
delay in recovering the fund's securities. The fund may also lend
money to other funds advised by FMR or its affiliates.
RESTRICTIONS: Loans, in the aggregate, may not exceed 331/3% of the
fund's total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
The fund seeks as high a level of current income as is consistent with
preservation of capital.
The fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
Loans, in the aggregate, may not exceed 331/3% of 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. The fund also pays OTHER EXPENSES, which are
explained on page .
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses 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 fee
is calculated by adding a group fee rate to an individual fund fee
rate, dividing by twelve, and multiplying the result by the fund's
average net assets throughout the month.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
For September 1998, the group fee was 0.1353%. The individual fund fee
rate is 0.30%.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing the fund's investments. FMR will pay FIMM 50% of its
management fee (before expense reimbursements) for FIMM's services.
The total management fee rate for the fiscal year ended September 30,
1998 was 0.44% of the funds average net assets.
OTHER EXPENSES
While the management fee is a significant component of the fund's
annual operating costs, the fund has other expenses as well.
(checkmark)UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in FMR's
total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will pay
a lower rate as FMR's assets
under management increase.
The fund contracts with FSC to perform transfer agency, dividend
disbursing, shareholder servicing, and accounting functions. These
services include processing shareholder transactions, valuing the
fund's investments, handling securities loans, and calculating the
fund's share price and dividends.
For the fiscal year ended September 1998, the fund paid transfer
agency and pricing and bookkeeping fees equal to 0.27% of its average
net assets.
The fund also pays other expenses, such as legal, audit, and custodian
fees; in some instances, proxy solicitation costs; and the
compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by the fund to
reduce the fund's custodian or transfer agent fees.
The fund has adopted a DISTRIBUTION AND SERVICE PLAN. This plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees has authorized such payments.
The fund's portfolio turnover rate for the fiscal year ended September
1998 was 253%. 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, FBSI. Fidelity is also a
leader in providing tax-advantaged retirement plans for individuals
investing on their own or through their employer.
Fidelity is committed to providing investors with practical
information to make investment decisions. Based in Boston, Fidelity
provides customers with complete service 24 hours a day, 365 days a
year, through a network of telephone service centers around the
country and Fidelity's Web site.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity
has over 75 walk-in Investor Centers across the country.
If you would prefer to access information on-line, you can visit
Fidelity's Web site at www.fidelity.com.
TYPES OF ACCOUNTS
You may set up an account directly in 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.
You may purchase or sell shares of the fund through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in the fund. Certain features
of the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
The account guidelines that follow may not apply to certain retirement
accounts. If you are investing through a retirement account or if your
employer offers the fund through a retirement program, you may be
subject to additional fees. For more information, please refer to your
program materials, contact your employer, call your retirement
benefits number, visit Fidelity's Web site at www.fidelity.com, or
contact Fidelity directly, as appropriate.
(checkmark)FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 223
(solid bullet) Assets in Fidelity mutual
funds: over $572 billion
(solid bullet) Number of shareholder
accounts: over 38 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 260
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
Retirement plans provide individuals with tax-advantaged ways to save
for retirement, either with tax-deductible contributions or tax-free
growth. Retirement accounts require special applications and typically
have lower minimums.
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow
individuals under age 70 with compensation to contribute up to $2,000
per tax year. Married couples can contribute up to $4,000 per tax
year, provided no more than $2,000 is contributed on behalf of either
spouse. (These limits are aggregate for Traditional and Roth IRAs.)
Contributions may be tax-deductible, subject to certain income limits.
(solid bullet) ROTH IRAS allow individuals to make non-deductible
contributions of up to $2,000 per tax year. Married couples can
contribute up to $4,000 per tax year, provided no more than $2,000 is
contributed on behalf of either spouse. (These limits are aggregate
for Traditional and Roth IRAs.) Eligibility is subject to certain
income limits. Qualified distributions are tax-free.
(solid bullet) ROTH CONVERSION IRAS allow individuals with assets held
in a Traditional IRA or Rollover IRA to convert those assets to a Roth
Conversion IRA. Eligibility is subject to certain income limits.
Qualified distributions are tax-free.
(solid bullet) ROLLOVER IRAS help retain special tax advantages for
certain eligible rollover distributions from employer-sponsored
retirement plans.
(solid bullet) 401(K) PLANS, and certain other 401(a)-qualified plans,
are employer-sponsored retirement plans that allow employer
contributions and may allow employee after-tax contributions. In
addition, 401(k) plans allow employee pre-tax (tax-deferred)
contributions. Contributions to these plans may be tax-deductible to
the employer.
(solid bullet) KEOGH PLANS are generally profit sharing or money
purchase pension plans that allow self-employed individuals or small
business owners to make tax-deductible contributions for themselves
and any eligible employees.
(solid bullet) SIMPLE IRAS provide small business owners and those
with self-employment income (and their eligible employees) with many
of the advantages of a 401(k) plan, but with fewer administrative
requirements.
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide
small business owners or those with self-employment income (and their
eligible employees) with many of the same advantages as a Keogh, but
with fewer administrative requirements.
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS) allow employees of
businesses with 25 or fewer employees to contribute a percentage of
their wages on a tax-deferred basis. These plans must have been
established by the employer prior to January 1, 1997.
(solid bullet) 403(B) CUSTODIAL ACCOUNTS are available to employees of
501(c)(3) tax-exempt institutions, including schools, hospitals, and
other charitable organizations.
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS) are available
to employees of most state and local governments and their agencies
and to employees of tax-exempt institutions.
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of the fund is the fund's net asset value
per share (NAV). The fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received in proper form. The fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
The fund 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.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888 or visit Fidelity's
Web site at www.fidelity.com for an application.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
IF YOU ARE INVESTING THROUGH A TAX-ADVANTAGED RETIREMENT PLAN, such as
an IRA, for the first time, you will need a special application.
Retirement investing also involves its own investment procedures. Call
1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com for
more information and a retirement application.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
For certain Fidelity retirement accountsA $500
TO ADD TO AN ACCOUNT $250
Through regular investment plans B $100
MINIMUM BALANCE $2,000
For certain Fidelity retirement accountsA $500
A THESE LOWER MINIMUMS APPLY TO FIDELITY TRADITIONAL IRA, ROTH IRA,
ROTH CONVERSION IRA, ROLLOVER IRA, SEP-IRA, AND KEOGH ACCOUNTS.
B FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE .
There is no minimum account balance or initial or subsequent
investment minimum for investments through Fidelity Portfolio Advisory
ServicesSM, a qualified state tuition program, certain Fidelity
retirement accounts funded through salary deduction, or accounts
opened with the proceeds of distributions from such retirement
accounts. Refer to the program materials for details. In addition, the
fund reserves the right to waive or lower investment minimums in other
circumstances.
<TABLE>
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<S> <C> <C>
TO OPEN AN TO ADD TO AN
ACCOUNT ACCOUNT
PHONE 1-800-544-7777
(PHONE_GRAPHIC) (SMALL SOLID BULLET) EXCHANGE FROM (SMALL SOLID BULLET) EXCHANGE FROM
ANOTHER FIDELITY FUND ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME ACCOUNT WITH THE
REGISTRATION, INCLUDING SAME REGISTRATION,
NAME, ADDRESS, AND INCLUDING NAME,
TAXPAYER ID NUMBER. ADDRESS, AND TAXPAYER
ID NUMBER.
(SMALL SOLID BULLET) USE FIDELITY MONEY
LINE TO TRANSFER FROM
YOUR BANK ACCOUNT.
CALL BEFORE YOUR FIRST
USE TO VERIFY THAT THIS
SERVICE IS IN PLACE ON
YOUR ACCOUNT.
MAXIMUM MONEY
LINE: UP TO
$100,000.
THE INTERNET WWW.FIDELITY.COM
(COMPUTER GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE (SMALL SOLID BULLET) EXCHANGE FROM
APPLICATION. MAKE YOUR ANOTHER FIDELITY FUND
CHECK PAYABLE TO THE ACCOUNT WITH THE
COMPLETE NAME OF THE SAME REGISTRATION,
FUND. MAIL TO THE INCLUDING NAME,
ADDRESS INDICATED ON THE ADDRESS, AND TAXPAYER
APPLICATION. ID NUMBER.
(SMALL SOLID BULLET) USE FIDELITY MONEY
LINE TO TRANSFER FROM
YOUR BANK ACCOUNT.
VISIT FIDELITY'S WEB
SITE BEFORE YOUR FIRST
USE TO VERIFY THAT THIS
SERVICE IS IN PLACE ON
YOUR ACCOUNT.
MAXIMUM MONEY
LINE: UP TO
$100,000.
MAIL (MAIL_GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE (SMALL SOLID BULLET) MAKE YOUR CHECK
APPLICATION. MAKE YOUR PAYABLE TO THE
CHECK PAYABLE TO THE COMPLETE NAME OF THE
COMPLETE NAME OF THE FUND. INDICATE YOUR
FUND. MAIL TO THE FUND ACCOUNT NUMBER
ADDRESS INDICATED ON ON YOUR CHECK AND
THE APPLICATION. MAIL TO THE ADDRESS
PRINTED ON YOUR
ACCOUNT STATEMENT.
(SMALL SOLID BULLET) EXCHANGE BY MAIL: CALL
1-800-544-6666 FOR
INSTRUCTIONS.
IN PERSON (HAND_GRAPHIC) (SMALL SOLID BULLET) BRING YOUR APPLICATION (SMALL SOLID BULLET) BRING YOUR CHECK TO A
AND CHECK TO A FIDELITY INVESTOR CENTER.
FIDELITY INVESTOR CALL 1-800-544-9797
CENTER. CALL FOR THE CENTER NEAREST
1-800-544-9797 FOR YOU.
THE CENTER NEAREST
YOU.
WIRE (WIRE_GRAPHIC) (SMALL SOLID BULLET) CALL 1-800-544-7777 (SMALL SOLID BULLET) NOT AVAILABLE FOR
TO SET UP YOUR ACCOUNT RETIREMENT ACCOUNTS.
AND TO ARRANGE A WIRE (SMALL SOLID BULLET) WIRE TO:
TRANSACTION. NOT BANKERS TRUST
AVAILABLE FOR COMPANY,
RETIREMENT ACCOUNTS. BANK ROUTING
(SMALL SOLID BULLET) WIRE WITHIN 24 HOURS #021001033,
TO: ACCOUNT #00163053.
BANKERS TRUST SPECIFY THE COMPLETE
COMPANY, NAME OF THE FUND AND
BANK ROUTING INCLUDE YOUR ACCOUNT
#021001033, NUMBER AND YOUR
ACCOUNT #00163053. NAME.
SPECIFY THE COMPLETE
NAME OF THE FUND AND
INCLUDE YOUR NEW
ACCOUNT NUMBER AND
YOUR NAME.
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, VISIT
FIDELITY'S WEB SITE AT
WWW.FIDELITY.COM TO
OBTAIN THE FORM TO
ADD THE SERVICE, OR
CALL
1-800-544-6666 TO
ADD THE SERVICE.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of the fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. The fund's NAV is normally calculated each
business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone, in writing, or through Fidelity's Web site.
Call 1-800-544-6666 for a retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$2,000 worth of shares in the account to keep it open ($500 for
retirement accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited
number of checks. Do not, however, try to close out your account by
check.
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ACCOUNT TYPE SPECIAL
REQUIREMENTS
PHONE 1-800-544-7777 (PHONE_GRAPHIC) ALL ACCOUNT TYPES EXCEPT (SMALL SOLID BULLET) MAXIMUM CHECK
RETIREMENT REQUEST: $100,000.
(SMALL SOLID BULLET) FOR MONEY LINE
ALL ACCOUNT TYPES TRANSFERS TO YOUR
BANK ACCOUNT;
MINIMUM: $10;
MAXIMUM: UP TO
$100,000.
(SMALL SOLID BULLET) YOU MAY EXCHANGE
TO OTHER FIDELITY
FUNDS IF BOTH
ACCOUNTS ARE
REGISTERED WITH THE
SAME NAME(S),
ADDRESS, AND
TAXPAYER ID NUMBER.
MAIL OR IN PERSON (MAIL_GRAPHIC)
(HAND_GRAPHIC) INDIVIDUAL, JOINT TENANT, (SMALL SOLID BULLET) THE LETTER OF
SOLE PROPRIETORSHIP, INSTRUCTION MUST BE
UGMA, UTMA SIGNED BY ALL PERSONS
RETIREMENT ACCOUNT REQUIRED TO SIGN FOR
TRANSACTIONS, EXACTLY
AS THEIR NAMES
TRUST APPEAR ON THE
ACCOUNT.
(SMALL SOLID BULLET) THE ACCOUNT OWNER
SHOULD COMPLETE A
BUSINESS OR ORGANIZATION RETIREMENT
DISTRIBUTION FORM.
CALL
1-800-544-6666 TO
REQUEST ONE.
EXECUTOR, ADMINISTRATOR, (SMALL SOLID BULLET) THE TRUSTEE MUST SIGN
CONSERVATOR, GUARDIAN THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF
THE TRUSTEE'S NAME IS
NOT IN THE ACCOUNT
REGISTRATION, PROVIDE A
COPY OF THE TRUST
DOCUMENT CERTIFIED
WITHIN THE LAST 60
DAYS.
(SMALL SOLID BULLET) AT LEAST ONE PERSON
AUTHORIZED BY
CORPORATE RESOLUTION
TO ACT ON THE ACCOUNT
MUST SIGN THE LETTER.
(SMALL SOLID BULLET) INCLUDE A CORPORATE
RESOLUTION WITH
CORPORATE SEAL OR A
SIGNATURE GUARANTEE.
(SMALL SOLID BULLET) CALL
1-800-544-6666 FOR
INSTRUCTIONS.
WIRE (WIRE_GRAPHIC) ALL ACCOUNT TYPES EXCEPT (SMALL SOLID BULLET) YOU MUST SIGN UP FOR
RETIREMENT THE WIRE FEATURE
BEFORE USING IT. TO
VERIFY THAT IT IS IN
PLACE, CALL
1-800-544-6666.
MINIMUM WIRE:
$5,000.
(SMALL SOLID BULLET) YOUR WIRE REDEMPTION
REQUEST MUST BE
RECEIVED IN PROPER
FORM BY FIDELITY
BEFORE 4:00 P.M.
EASTERN TIME FOR
MONEY TO BE WIRED
ON THE NEXT BUSINESS
DAY.
CHECK (CHECK_GRAPHIC) ALL ACCOUNT TYPES (SMALL SOLID BULLET) MINIMUM CHECK:
$500.
(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
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INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
FIDELITY'S WEB SITE at www.fidelity.com offers product and servicing
information, customer education, planning tools, and the ability to
make certain transactions in your account.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(checkmark)24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESS(REGISTERED TRADEMARK)
1-800-544-5555
WEB SITE
WWW.FIDELITY.COM
AUTOMATED SERVICE
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in our electronic
delivery program, call 1-800-544-6666 or visit Fidelity's Web site at
www.fidelity.com for more information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone, in writing, or through Fidelity's
Web site.
Note that exchanges out of 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 enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
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REGULAR
INVESTMENT
PLANS
FIDELITY
AUTOMATIC
ACCOUNT
BUILDER(REGISTERED TRADEMARK)
TO MOVE MONEY
FROM YOUR BANK
ACCOUNT TO A
FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR
$100 MONTHLY OR QUARTERLY CHANGING
(SMALL SOLID BULLET) FOR A NEW ACCOUNT,
COMPLETE THE
APPROPRIATE SECTION ON
THE FUND APPLICATION.
(SMALL SOLID BULLET) FOR EXISTING ACCOUNTS,
CALL 1-800-544-6666
OR VISIT FIDELITY'S WEB
SITE AT
WWW.FIDELITY.COM FOR
AN APPLICATION.
(SMALL SOLID BULLET) TO CHANGE THE AMOUNT
OR FREQUENCY OF YOUR
INVESTMENT, CALL
1-800-544-6666 AT
LEAST THREE BUSINESS
DAYS PRIOR TO YOUR
NEXT SCHEDULED
INVESTMENT DATE.
DIRECT DEPOSIT
TO SEND ALL OR A
PORTION OF YOUR
PAYCHECK OR
GOVERNMENT CHECK
TO A FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR
$100 EVERY PAY PERIOD CHANGING
(SMALL SOLID BULLET) CHECK THE APPROPRIATE
BOX ON THE FUND
APPLICATION, OR CALL
1-800-544-6666 OR
VISIT FIDELITY'S WEB SITE
AT WWW.FIDELITY.COM
FOR AN AUTHORIZATION
FORM.
(SMALL SOLID BULLET) CHANGES REQUIRE A
NEW AUTHORIZATION
FORM.
FIDELITY
AUTOMATIC
EXCHANGE
SERVICE
TO MOVE MONEY
FROM A FIDELITY
MONEY MARKET
FUND TO ANOTHER
FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR
$100 MONTHLY, BIMONTHLY, CHANGING
QUARTERLY, OR ANNUALLY (SMALL SOLID BULLET) TO ESTABLISH, CALL
1-800-544-6666
AFTER BOTH ACCOUNTS
ARE OPENED.
(SMALL SOLID BULLET) TO CHANGE THE AMOUNT
OR FREQUENCY OF YOUR
INVESTMENT, CALL
1-800-544-6666.
A BECAUSE ITS SHARE
PRICE FLUCTUATES, THE
FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR
DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.
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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 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.
If you select distribution option 2 or 3 and the U.S. Postal Service
does not deliver your checks, your election may be converted to the
Reinvestment Option. You will not receive interest on amounts
represented by uncashed distribution checks. To change your
distribution option, call Fidelity at 1-800-544-6666.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of
the date the fund deducts the distribution from its NAV. The mailing
of distribution checks will begin within seven days.
TAXES
As with any investment, you should consider how your investment in the
fund will be taxed. If your account is not a tax-advantaged retirement
account, you should be aware of these tax implications.
(checkmark)UNDERSTANDING
DISTRIBUTIONS
AS A FUND SHAREHOLDER, YOU ARE
ENTITLED TO YOUR SHARE OF THE
FUND'S NET INCOME AND GAINS
ON ITS INVESTMENTS. THE FUND
PASSES ITS EARNINGS ALONG TO ITS
INVESTORS AS DISTRIBUTIONS.
THE FUND EARNS INTEREST FROM ITS
INVESTMENTS. THESE ARE PASSED
ALONG AS DIVIDEND
DISTRIBUTIONS. THE FUND MAY
REALIZE CAPITAL GAINS IF IT SELLS
SECURITIES FOR A HIGHER PRICE
THAN IT PAID FOR THEM. THESE
ARE PASSED ALONG AS CAPITAL
GAIN DISTRIBUTIONS.
TAXES 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
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
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 when the fund has realized but
not yet distributed capital gains, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
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. FSC normally calculates the fund's NAV as of the close
of business of the NYSE, normally 4:00 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 on the basis of information furnished by
a pricing service or market quotations, if available, or by another
method that the Board of Trustees believes accurately reflects fair
value. Short-term securities with remaining maturities of sixty days
or less for which quotations and information furnished by a pricing
service are not readily available are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to redeem and
exchange by telephone, call Fidelity for instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during
periods of unusual market activity), consider placing your order by
mail or by visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT to suspend the offering of shares for a
period of time.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your shares will be purchased
at the next NAV calculated after your investment is received in proper
form. Note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) 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) Shares begin to earn dividends on the first
business day following the day of purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money
order, U.S. Treasury check, Federal Reserve check, or direct deposit
instead.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements
with FDC may enter confirmed purchase orders on behalf of customers by
phone, with payment to follow no later than the time when 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 order is received in proper form.
Note the following:
(small solid bullet) Normally, redemption proceeds will be mailed to
you on the next business day, but if making immediate payment could
adversely affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares earn dividends through the day of
redemption; however, shares redeemed on a Friday or prior to a holiday
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day
after your phone call.
(small solid bullet) 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.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 per shareholder. It is expected that
accounts will be valued on the second Friday in November of each year.
Accounts opened after September 30 will not be subject to the fee for
that year. The fee, which is payable to the transfer agent, is
designed to offset in part the relatively higher costs of servicing
smaller accounts. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $2,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send
the proceeds to you. Your shares will be redeemed at the NAV on the
day your account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to
qualified recipients who support the sale of shares of the fund
without reimbursement from the fund. 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 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
available for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) If you exchange into a fund with a sales charge,
you pay the percentage-point difference between that fund's sales
charge and any sales charge you have previously paid in connection
with the shares you are exchanging. For example, if you had already
paid a sales charge of 2% on your shares and you exchange them into a
fund with a 3% sales charge, you would pay an additional 1% sales
charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund
performance and shareholders, 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 coincides 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 1.00% and trading fees of up to 3.00% of
the amount exchanged. Check each fund's prospectus for details.
Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, TouchTone Xpress, Fidelity Automatic
Account Builder, and Directed Dividends are registered trademarks of
FMR Corp.
Fidelity Portfolio Advisory Services is a service mark of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
(Recycle logo)This prospectus is printed on recycled paper using
soy-based inks.
FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
A FUND OF FIDELITY CHARLES STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
November 24, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus
(dated November 24, 1998). Please retain this document for future
reference. The fund's Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity(registered trademark) at
1-800-544-8888.
TABLE OF CONTENTS PAGE
INVESTMENT POLICIES AND 27
LIMITATIONS
PORTFOLIO TRANSACTIONS 31
VALUATION 31
PERFORMANCE 32
ADDITIONAL PURCHASE, EXCHANGE 34
AND REDEMPTION INFORMATION
DISTRIBUTIONS AND TAXES 34
FMR 35
TRUSTEES AND OFFICERS 35
MANAGEMENT CONTRACT 37
DISTRIBUTION AND SERVICE PLAN 39
CONTRACTS WITH FMR AFFILIATES 39
DESCRIPTION OF THE TRUST 39
FINANCIAL STATEMENTS 40
APPENDIX 40
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
FSG-ptb-1198
1.538321.101
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of 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 (the
1940 Act) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
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 thereof, (a) more than 5% of the fund's total assets
would be invested in the securities of that issuer, or (b) the fund
would hold more than 10% of the outstanding voting securities of that
issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(7) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(8) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties (but
this limit 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 objectives, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(iv) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) The fund does not currently intend to lend assets other than
securities to other parties, except by 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. (This
limitation does not apply to purchases of debt securities or to
repurchase agreements.)
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
With respect to limitation (iv), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page .
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related
risks. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Securities may be bought and sold on a
delayed-delivery or when-issued basis. These transactions involve a
commitment to purchase or sell specific securities at a predetermined
price or yield, with payment and delivery taking place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
fund may receive fees or price concessions for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the purchaser
assumes the rights and risks of ownership, including the risks of
price and yield fluctuations and the risk that the security will not
be issued as anticipated. Because payment for the securities is not
required until the delivery date, these risks are in addition to the
risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when delayed-delivery purchases
are outstanding, the delayed-delivery purchases may result in a form
of leverage. When delayed-delivery purchases are outstanding, a fund
will set aside appropriate liquid assets in a segregated custodial
account to cover the purchase obligations. When a fund has sold a
security on a delayed-delivery basis, the fund does not participate in
further gains or losses with respect to the security. If the other
party to a delayed-delivery transaction fails to deliver or pay for
the securities, a fund could miss a favorable price or yield
opportunity or suffer a loss.
A fund may renegotiate a delayed delivery transaction and may sell the
underlying securities before delivery, which may result in capital
gains or losses for the fund.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures
Margin Payments, Limitations on Futures and Options Transactions,
Liquidity of Options and Futures Contracts, Options and Futures
relating to Foreign Currencies, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply
with guidelines established by the SEC with respect to coverage of
options and futures strategies by mutual funds and, if the guidelines
so require, will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy
is outstanding, unless they are replaced with other suitable assets.
As a result, there is a possibility that segregation of a large
percentage of the fund's assets could impede portfolio management or
the fund's ability to meet redemption requests or other current
obligations.
COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price, to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter into the contract. Some currently available futures
contracts are based on specific securities, such as U.S. Treasury
bonds or notes, and some are based on indices of securities prices.
Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a futures commission merchant (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive
all or a portion of this amount. Initial and variation margin payments
do not constitute purchasing securities on margin for purposes of a
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of a fund, the fund may be entitled to
return of margin owed to it only in proportion to the amount received
by the FCM's other customers, potentially resulting in losses to the
fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. 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 25% of
the fund's total assets would be hedged with futures and options under
normal conditions; (b) purchase futures contracts or write put options
if, as a result, the fund's total obligations upon settlement or
exercise of purchased futures contracts and written put options would
exceed 25% of its total assets under normal conditions; or (c)
purchase call options if, as a result, the current value of option
premiums for call options purchased by the fund would exceed 5% of the
fund's total assets. These limitations do not apply to options
attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The fund further limits its options and futures investments to options
and futures contracts relating to U.S. Government securities.
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 this SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible to enter into new positions or close out
existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and potentially
could require a fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater flexibility
to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer assumes the obligation
to pay the strike price for the option's underlying instrument if the
other party to the option chooses to exercise it. The writer may seek
to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the
secondary market is not liquid for a put option, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set
aside assets to cover its position. When writing an option on a
futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
Investments currently considered by FMR to be illiquid include
repurchase agreements not entitling the holder to repayment of
principal and payment of interest within seven days, non-government
stripped fixed-rate mortgage-backed securities, and over-the-counter
options. Also, FMR may determine some government-stripped fixed-rate
mortgage-backed securities to be illiquid. However, with respect to
over-the-counter options a fund writes, all or a portion of the value
of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the
fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by
the Board of Trustees.
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic.
Mortgage-indexed securities, for example, could be structured to
replicate the performance of mortgage securities and the
characteristics of direct ownership.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are
indexed, and may also be influenced by interest rate changes. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. Interfund loans
and borrowings normally extend overnight, but can have a maximum
duration of seven days. Loans may be called on one day's notice. A
fund may have to borrow from a bank at a higher interest rate if an
interfund loan is called or not renewed. Any delay in repayment to a
lending fund could result in a lost investment opportunity or
additional borrowing costs.
MORTGAGE-BACKED SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage-backed security is an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Some mortgage-backed securities, such as
collateralized mortgage obligations (or "CMOs"), make payments of both
principal and interest at a range of specified intervals; others make
semiannual interest payments at a predetermined rate and repay
principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages, including those
on commercial real estate or residential properties. Stripped
mortgage-backed securities are created when the interest and principal
components of a mortgage-backed security are separated and sold as
individual securities. In the case of a stripped mortgage-backed
security, the holder of the "principal-only" security (PO) receives
the principal payments made by the underlying mortgage, while the
holder of the "interest-only" security (IO) receives interest payments
from the same underlying mortgage.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the
mortgage-backed securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued
by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject
to prepayment risk, which is the risk that early principal payments
made on the underlying mortgages, usually in response to a reduction
in interest rates, will result in the return of principal to the
investor, causing it to be invested subsequently at a lower current
interest rate. Alternatively, in a rising interest rate environment,
mortgage-backed security values may be adversely affected when
prepayments on underlying mortgages do not occur as anticipated,
resulting in the extension of the security's effective maturity and
the related increase in interest rate sensitivity of a longer-term
instrument. The prices of stripped mortgage-backed securities tend to
be more volatile in response to changes in interest rates than those
of non-stripped mortgage-backed securities.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. As
protection against the risk that the original seller will not fulfill
its obligation, the securities are held in a separate account at a
bank, marked-to-market daily, and maintained at a value at least equal
to the sale price plus the accrued incremental amount. While it does
not presently appear possible to eliminate all risks from these
transactions (particularly the possibility that the value of the
underlying security will be less than the resale price, as well as
delays and costs to a fund in connection with bankruptcy proceedings),
the fund will engage in repurchase agreement transactions with parties
whose creditworthiness has been reviewed and found satisfactory by
FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. While a reverse repurchase
agreement is outstanding, a fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. The fund will enter into reverse repurchase agreements
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR. Such transactions may increase fluctuations in
the market value of fund assets and may be viewed as a form of
leverage.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity
Brokerage Services, Inc. (FBSI). FBSI is a member of the New York
Stock Exchange (NYSE) and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
STRIPPED GOVERNMENT SECURITIES. Stripped government securities are
created by separating the income and principal components of a U.S.
Government security and selling them separately. STRIPS (Separate
Trading of Registered Interest and Principal of Securities) are
created when the coupon payments and the principal payment are
stripped from an outstanding U.S. Treasury security by a Federal
Reserve Bank.
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, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements
can take many different forms and are known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. For example, if the fund agreed to
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 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, or other factors that
determine the amounts of payments due to and from a fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to
make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses. A fund may be able
to eliminate its exposure under a swap agreement either by assignment
or other disposition, or by entering into an offsetting swap agreement
with the same party or a similarly creditworthy party.
A fund will maintain appropriate liquid assets in a segregated
custodial account to cover its current obligations under swap
agreements. If a fund enters into a swap agreement on a net basis, it
will segregate assets with a daily value at least equal to the excess,
if any, of the fund's accrued obligations under the swap agreement
over the accrued amount the fund is entitled to receive under the
agreement. If a fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount
of the fund's accrued obligations under the agreement.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for
which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal
securities laws, FMR considers various relevant factors, including,
but not limited to: the size and type of the transaction; the nature
and character of the markets for the security to be purchased or sold;
the execution efficiency, settlement capability, and financial
condition of the broker-dealer firm; the broker-dealer's execution
services rendered on a continuing basis; the reasonableness of any
commissions; and, if applicable, arrangements for payment of fund
expenses.
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; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and
effect securities transactions and perform functions incidental
thereto (such as clearance and settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to a fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, the
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause 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 that fund
or its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the 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
National Financial Services Corporation (NFSC) and Fidelity Brokerage
Services Japan LLC (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar
services. Prior to December 9, 1997, FMR used research services
provided by and placed agency transactions with Fidelity Brokerage
Services (FBS), an indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for accounts which they or their affiliates manage, unless certain
requirements are satisfied. Pursuant to such requirements, the Board
of Trustees has authorized NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
The Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended September 30, 1998 and September 30,
1997, the fund's portfolio turnover rates were 253% and 126%,
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.
Variations in turnover rate may be due to a fluctuating volume of
shareholder purchase and redemption orders, market conditions, or
changes in FMR's investment outlook.
For the fiscal years ended September 1998, 1997, and 1996, the fund
paid no brokerage commissions.
During the fiscal year ended September, 1998, the fund paid no
brokerage commissions to firms that provided research services.
The Trustees of the fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the fund from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the fund could purchase in the underwriting.
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 or its affiliates,
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
FSC normally determines the fund's net asset value per share (NAV) as
of the close of the NYSE (normally 4:00 p.m. Eastern time). The
valuation of portfolio securities is determined as of this time for
the purpose of computing the fund's NAV.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities may be valued on the basis of information
furnished by a pricing service that uses a valuation matrix which
incorporates both dealer-supplied valuations and electronic data
processing techniques. Use of pricing services has been approved by
the Board of Trustees. A number of pricing services are available, and
the fund may use various pricing services or discontinue the use of
any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value. In addition, securities and other assets for which
there is no readily available market value may be valued in good faith
by a committee appointed by the Board of Trustees. The procedures set
forth above need not be used to determine the value of the securities
owned by the fund if, in the opinion of a committee appointed by the
Board of Trustees, some other method would more accurately reflect the
fair market value of such securities.
PERFORMANCE
The fund may quote 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 income for a given 30-day or one-month period, net of expenses,
by the average number of shares entitled to receive distributions
during the period, dividing this figure by the fund's NAV at the end
of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. In
general, interest income is reduced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium
from income on a daily basis, and is increased with respect to bonds
trading at a discount by adding a portion of the discount to daily
income. Income is adjusted to reflect gains and losses from principal
repayments received by a fund with respect to mortgage-related
securities and other asset-backed securities. Other capital gains and
losses generally are excluded from the calculation.
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 total return
of 100% over ten years would produce an average annual total return of
7.18%, which is the steady annual rate of return that would equal 100%
growth on a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment alternatives,
investors should realize that the fund's performance is not constant
over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of 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.
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.
CALCULATING HISTORICAL FUND RESULTS. The following tables show
performance for the fund calculated including certain fund expenses.
HISTORICAL FUND RESULTS. The following tables show the fund's yield
and total return for the period ended September 30, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE CUMULATIV
ANNUAL E TOTAL
TOTAL RETURNS
RETURNS
THIRTY-DAY ONE FIVE LIFE OF ONE FIVE LIFE OF
YIELD YEAR YEARS FUND* YEAR YEARS FUND*
SHORT INTERMEDIATE-GOVERNMENT 4.90% 7.82% 5.41% 5.78% 7.82% 30.12% 48.67%
</TABLE>
* From September 13, 1991 (commencement of operations).
The following table shows the income and capital elements of the
fund's cumulative total return. The tables compare the fund's return
to the record of the Standard & Poor's 500 Index (S&P 500(registered
trademark)), the Dow Jones Industrial Average (DJIA), and the cost of
living, as measured by the Consumer Price Index (CPI), over the same
period. The CPI information is as of the month-end closest to the
initial investment date for 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 unmanaged index of common stocks and a narrower set
of stocks of major industrial companies, respectively, over the same
period. Because 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. The S&P 500
and DJIA returns are based on the prices of unmanaged groups of stocks
and, unlike the fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
During the period from September 13, 1991 (commencement of operations)
to September 30, 1998, a hypothetical $10,000 investment in the fund
would have grown to $14,867, assuming all distributions were
reinvested. Total returns are based on past results and are not an
indication of future performance. Tax consequences of different
investments have not been figured into the figures below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SHORT-IN INDICES
TERMEDI
ATE
GOVERN
MENT
PERIOD VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL
INVESTMENT DISTRIBUTIO GAIN
NS DISTRIBUTIO
NS
PERIOD VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL
INVESTMENT DISTRIBUTIO GAIN
NS DISTRIBUTIO
NS
1998 $ 9,520 $ 5,265 $ 82 $ 14,867 $ 31,205 $ 30,914 $ 11,999
1997 $ 9,370 $ 4,338 $ 81 $ 13,789 $ 28,617 $ 30,792 $ 11,801
1996 $ 9,320 $ 3,498 $ 81 $ 12,899 $ 20,375 $ 22,373 $ 11,552
1995 $ 9,490 $ 2,751 $ 82 $ 12,323 $ 16,933 $ 17,824 $ 11,215
1994 $ 9,290 $ 1,919 $ 81 $ 11,290 $ 13,050 $ 13,945 $ 10,937
1993 $ 9,960 $ 1,379 $ 86 $ 11,425 $ 12,587 $ 12,555 $ 10,622
1992 $ 10,140 $ 704 $ 10 $ 10,854 $ 11,137 $ 11,220 $ 10,344
1991* $ 10,010 $ 27 $ 0 $ 10,037 $ 10,028 $ 10,046 $ 10,044
</TABLE>
* From September 13, 1991 (commencement of operations)
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in the fund
on September 13, 1991, the net amount invested in fund shares was
$10,000. The cost of the initial investment ($10,000) together with
the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amounted to $15,378. 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 $4,214 for dividends and $80 for capital gain
distributions.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
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 available 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 advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
The fund's performance may also be compared to that of a benchmark
index representing the universe of securities in which the fund may
invest. The total return of a benchmark index reflects reinvestment of
all dividends and capital gains paid by securities included in the
index. Unlike the fund's returns, however, the index returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
The fund may compare its performance to that of the Lehman Brothers
1-5 Year U.S. Government Bond Index, a market capitalization weighted
index of government and fixed-rate debt issues with maturities between
one and five years. Issues included in the index have an outstanding
par value of at least $100 million and maturities between one and five
years. Government issues include all public obligations of the U.S.
Treasury (excluding flower bonds and foreign targeted issues) and U.S.
Government agencies.
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.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
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, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
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 September 30 , 1998, FMR advised over $32 billion in
municipal fund assets, $115 billion in money market fund assets, $411
billion in equity fund assets, $12 billion in international fund
assets, and $27 billion in Spartan fund assets. The 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, the fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. The fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
The fund is open for business and its NAV is calculated each day the
NYSE is open for trading. The NYSE has designated the following
holiday closings for 1998: New Year's Day, Martin Luther King's
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day, and Christmas Day. Although
FMR expects the same holiday schedule to be observed in the future,
the NYSE may modify its holiday schedule at any time. In addition, on
days when the Federal Reserve Wire System is closed, federal funds
wires cannot be sent.
FSC normally determines 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 a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing 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 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
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 securities may
be exempt from state and local taxation. Mortgage security paydown
gains (losses) on mortgage securities purchased by the fund on or
prior to June 8, 1997 are generally taxable as ordinary income and,
therefore, increase (decrease) taxable 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 shareholders have held their shares. If a shareholder receives
a 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 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.
As of September 30, 1998, the fund had a capital loss carryforward
aggregating approximately $10,705,000. This loss carryforward, of
which $40,000, $1,404,000, $5,655,000, $2,404,000 and $1,202,000 will
expire on September 30, 2001, 2002, 2003, 2004 and 2005 respectively,
is available to offset future 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 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 a fund will be the same as if you
directly owned a proportionate share of the U.S. Government
securities. Because the income earned on most U.S. Government
securities is exempt from state and local income taxes, the portion of
dividends from a 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.
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 of its net
investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis, and intends to comply with
other tax rules applicable to regulated investment companies.
The fund is treated as a separate entity from the other funds of
Fidelity Charles Street Trust 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 a fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the 1940 Act, control of a company is presumed where one individual or
group of individuals owns more than 25% of the voting stock of that
company. Therefore, through their ownership of voting common stock and
the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity
Investments(registered trademark), P.O. Box 9235, Boston,
Massachusetts 02205-9235. Those Trustees who are "interested persons"
by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (68), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (57), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (66), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (55), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES (55), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES (70), Trustee. Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company.
He is a Director of TRW Inc. (original equipment and replacement
products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of the National Arts Stabilization Inc., Chairman
of the Board of Trustees of the Greenwich Hospital Association,
Director of the Yale-New Haven Health Services Corp. (1998), a Member
of the Public Oversight Board of the American Institute of Certified
Public Accountants' SEC Practice Section (1995), and as a Public
Governor of the National Association of Securities Dealers, Inc.
(1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan(registered trademark) Fund and FMR
Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was
also Vice President of Fidelity Investments Corporate Services
(1991-1992). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and
Society for the Preservation of New England Antiquities, and as an
Overseer of the Museum of Fine Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (70), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993), Imation Corp. (imaging and information storage, 1997), and
Infomart (marketing services, 1991), a Trammell Crow Co. In addition,
he serves as the Campaign Vice Chairman of the Tri-State United Way
(1993) and is a member of the University of Alabama President's
Cabinet.
*ROBERT C. POZEN (52), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (70), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (59), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
CURTIS HOLLINGSWORTH (41), is Vice-President and manager of
Short-Intermediate Government Fund, which he has managed since
September 1991. He also manages several other Fidelity Funds. Since
joining Fidelity in 1983, Mr. Hollingsworth has worked as a manager.
ERIC D. ROITER (49), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
STANLEY N. GRIFFITH (52), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
RICHARD A. SILVER (51), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
JOHN H. COSTELLO (52), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (52), Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity
funds, Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
THOMAS J. SIMPSON (40), Assistant Treasurer (1996), is Assistant
Treasurer of Fidelity's Fixed-Income Funds (1998) and an employee of
FMR (1996). Prior to joining FMR, Mr. Simspson was Vice President and
Fund Controller of Liberty Investment Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of the fund for his
or her services for the fiscal year ended September 30, 1998, or
calendar year ended December 31, 1997, as applicable.
COMPENSATION TABLE
TRUSTEES AGGREGATE TOTAL
AND COMPENSATION COMPENSATION
MEMBERS OF THE FROM FROM THE
ADVISORY BOARD SHORT-INTERMEDIATE FUND COMPLEX*,A
GOVERNMENTB
J. GARY $ 0 $ 0
BURKHEAD**
RALPH F. COX $ 45 $ 214,500
PHYLLIS BURKE $ 44 $ 210,000
DAVIS
ROBERT M. GATES $ 45 $176,000
EDWARD C. $ 0 $ 0
JOHNSON 3D**
E. BRADLEY $ 45 $ 211,500
JONES
DONALD J. KIRK $ 45 $ 211,500
PETER S. $ 0 $ 0
LYNCH**
WILLIAM O. $ 45 $ 214,500
MCCOY
GERALD C. $ 56 $ 264,500
MCDONOUGH
MARVIN L. $ 44 $ 214,500
MANN
ROBERT C. $ 0 $ 0
POZEN**
THOMAS R. $ 45 $214,500
WILLIAMS
* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the fund and Mr. Burkhead are compensated by
FMR.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $62,500; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,699; Marvin L. Mann, $53,699; and Thomas R.
Williams, $62,462.
B Compensation figures include cash.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of September 30, 1998, the Trustees, Members of the Advisory Board,
and officers of the fund owned, in the aggregate, less than 1% of the
fund's total outstanding shares.
As of September 30, 1998, the following owned of record or
beneficially 5% or more of the fund's outstanding shares: The Bank of
New York, New York, NY (6.20%).
MANAGEMENT CONTRACT
The fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
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,
compensates all officers of the fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of the
fund or FMR performing services relating to research, statistical, and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, pricing and bookkeeping agent, and
securities lending agent, as applicable, the fund pays all of its
expenses that are not assumed by those parties. The fund pays for the
typesetting, printing, and mailing of its proxy materials to
shareholders, legal expenses, and the fees of the custodian, auditor
and non-interested Trustees. The fund's management contract further
provides that the fund will pay for typesetting, printing, and mailing
prospectuses, statements of additional information, notices, and
reports to shareholders; however, under the terms of the fund's
transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. Other expenses paid
by the fund, include interest, taxes, brokerage commissions, the
fund's proportionate share of insurance premiums and Investment
Company Institute dues, and the costs of registering shares under
federal securities laws and making necessary filings under state
securities laws. The fund is also liable for such non-recurring
expenses as may arise, including costs of any litigation to which the
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT FEE. For the services of FMR under the management contract,
the fund pays FMR a monthly management fee which has two components: 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE EFFECTIVE ANNUAL
SCHEDULE FEE RATES
AVERAGE GROUP ANNUALIZED GROUP NET EFFECTIVE ANNUAL FEE
ASSETS RATE ASSETS RATE
0 - $3 BILLION .3700% $ 0.5 BILLION .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1690
24 - 30 .1800 200 .1652
30 - 36 .1750 225 .1618
36 - 42 .1700 250 .1587
42 - 48 .1650 275 .1560
48 - 66 .1600 300 .1536
66 - 84 .1550 325 .1514
84 - 120 .1500 350 .1494
120 - 156 .1450 375 .1476
156 - 192 .1400 400 .1459
192 - 228 .1350 425 .1443
228 - 264 .1300 450 .1427
264 - 300 .1275 475 .1413
300 - 336 .1250 500 .1399
336 - 372 .1225 525 .1385
372 - 408 .1200 550 .1372
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
OVER 516 .1100
</TABLE>
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $591 billion of group net assets - the approximate level for
September 1998 - was 0.1353%, which is the weighted average of the
respective fee rates for each level of group net assets up to $591
billion.
The fund's individual fund fee rate is 0.30%. Based on the average
group net assets of the funds advised by FMR for September 1998, the
fund's annual management fee rate would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GROUP FEE RATE INDIVIDUAL FUND FEE RATE MANAGEMENT FEE RATE
SHORT-INTER 0.1353% + 0.30% = 0.4353%
MEDIATE
GOVERNME
NT
</TABLE>
One-twelfth of this annual is applied to the fund's net assets
averaged for the most recent month, giving a dollar amount, which is
the fee for that month.
For the fiscal years ended September 30, 1998, 1997, and 1996, the
fund paid FMR management fees of $549,634, $538,951, and $577,374,
respectively.
During the reporting period, FMR voluntarily modified the breakpoints
in the group fee rate schedule on January 1, 1996 to provide for lower
management fee rates as FMR's assets under management increase.
FMR may, from time to time, voluntarily reimburse all or a portion of
the fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses), which is subject to revision
or termination. FMR retains the ability to be repaid for these expense
reimbursements in the amount that expenses fall below the limit prior
to the end of the fiscal year.
Expense reimbursements by FMR will increase the fund's total returns
and yield, and repayment of the reimbursement by the fund will lower
its total returns and yield.
DISTRIBUTION AND SERVICE PLAN
The Trustees have approved a Distribution and Service Plan on behalf
of the fund pursuant to Rule 12b-1 under the 1940 Act (the Rule). The
Rule provides in substance that a mutual fund may not engage directly
or indirectly in financing any activity that is primarily intended to
result in the sale of shares of the fund except pursuant to a plan
approved on behalf of the fund under the Rule. The Plan, as approved
by the Trustees, 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 Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. The Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, the Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has authorized such
payments for fund shares.
FMR made no payments either directly or through FDC to third parties
for the fiscal year ended 1998.
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that the Plan does not authorize payments by the fund other than
those made to FMR under its management contract with the fund. To the
extent that the Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares may result. Furthermore, certain shareholder support
services may be provided more effectively under the Plan by local
entities with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling, or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the 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. 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.
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.
CONTRACTS WITH FMR AFFILIATES
The fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreement, FSC performs
transfer agency, dividend disbursing, and shareholder services for the
fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in the fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer
agency fees applicable to shareholder accounts in a qualified state
tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the QSTP's or Freedom Fund's assets
that is invested in the fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
The fund has also entered into a service agent agreement with FSC.
Under the terms of the agreement, FSC calculates the NAV and dividends
for the fund, maintains the fund's portfolio and general accounting
records, and administers the fund's securities lending program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on the fund's average daily net assets throughout the month.
The annual fee rates for pricing and bookkeeping services are .0400%
of the first $500 million of average net assets and .0200% of average
net assets in excess of $500 million. The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 and a maximum of $800,000 per year.
For the fiscal years ended September 30 1998, 1997, and 1996, the fund
paid FSC pricing and bookkeeping fees, including reimbursement for
related out-of-pocket expenses, of $61,038, $61,689, and $59,674,
respectively.
For administering the fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
For the fiscal years ended September 30, 1998, 1997 and 1996, the fund
paid no securities lending fees.
The fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Short-Intermediate Government Fund is a
fund of Fidelity Charles Street Trust, an open-end management
investment company organized as a Massachusetts business trust on July
7, 1981. Currently, there are six funds of the trust: Fidelity
Short-Intermediate Government Fund, Fidelity Asset Manager, Fidelity
Asset Manager: Growth, Fidelity Asset Manager: Income, Spartan
Investment Grade Bond Fund and Spartan Short-Term Bond Fund. The
Declaration of Trust permits the Trustees to create additional funds.
In the event that FMR ceases to be the investment adviser to the trust
or a fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan"may be withdrawn.
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
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 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. The 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 a fund's assets and the appointment
of any subcustodian banks and clearing agencies. The custodian takes
no part in determining the investment policies of a fund or in
deciding which securities are purchased or sold by a fund. However, a
fund may invest in obligations of the custodian and may purchase
securities from or sell securities to the custodian. The Chase
Manhattan Bank, headquartered in New York, also may serve as a special
purpose custodian of certain assets in connection with repurchase
agreement transactions.
FMR, its officers and directors, its affiliated companies, and the
Board of Trustees may, from time to time, conduct transactions with
various banks, including banks serving as custodians for certain funds
advised by FMR. Transactions that have occurred to date include
mortgages and personal and general business loans. In the judgment of
FMR, the terms and conditions of those transactions were not
influenced by existing or potential custodial or other fund
relationships.
AUDITOR. PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts serves as the fund's independent accountant. The auditor
examines financial statements for the fund and provides other audit,
tax, and related services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the
fiscal year ended September 30, 1998, and report of the auditor, are
included in the fund's Annual Report, which is a separate report
supplied with this SAI. The fund's financial statements, including the
financial highlights, and report of the auditor are incorporated
herein by reference. For a free additional copy of the fund's Annual
Report, contact Fidelity at 1-800-544-8888.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. Also, the maturities of mortgage-backed securities,
including collateralized mortgage obligations, and some asset-backed
securities are determined on a weighted average life basis, which is
the average time for principal to be repaid. For a mortgage security,
this average time is calculated by estimating the timing of principal
payments, including unscheduled prepayments, during the life of the
mortgage. The weighted average life of these securities is likely to
be substantially shorter than their stated final maturity.
Fidelity, Fidelity Focus, Fidelity Investments, and Magellan are
registered trademarks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 14 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 18 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 21 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 22
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, life of fund total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
FIDELITY 7.82% 30.12% 48.67%
SHORT-INTERM
EDIATE
GOVERNMENT
LB 1-5 YEAR 9.12% 34.72% N/A
US
GOVERNMENT
BOND
SB 9.12% 34.59% N/A
TREAS/AGEN
CY 1-5 YEAR
SHORT-INTERME 8.25% 29.67% N/A
DIATE US
GOVERNMENT
FUNDS
AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on September 13, 1991. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the Lehman Brothers 1-5 Year U.S.
Government Bond Index - a market value weighted performance benchmark
for government fixed-rate debt issues with maturities between one and
five years and the Salomon Brothers Treasury/Agency 1-5 year Index - a
market value weighted index of U.S. Treasury and U.S. government
agency securities with fixed-rate coupons and weighted average lives
between one and five years. To measure how the fund's performance
stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 101 mutual funds. These benchmarks reflect reinvestment of
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
FIDELITY 7.82% 5.41% 5.78%
SHORT-INTER
MEDIATE
GOVERNME
NT
LB 1-5 YEAR US 9.12% 6.14% N/A
GOVERNMENT
BOND
SB 9.12% 6.12% N/A
TREAS/AGENCY
1-5 YEAR
SHORT-INTER 8.25% 5.31% N/A
MEDIATE US
GOVERNME
NT FUNDS
AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
Short-Intermediate Govt. LB 1-5 Year U.S. Govt
00464 LB069
1991/09/30 10000.00 10000.00
1991/10/31 10124.47 10116.21
1991/11/30 10206.40 10230.40
1991/12/31 10363.10 10424.16
1992/01/31 10270.73 10373.36
1992/02/29 10301.41 10400.56
1992/03/31 10286.46 10376.96
1992/04/30 10374.47 10477.88
1992/05/31 10511.20 10606.46
1992/06/30 10602.19 10742.90
1992/07/31 10620.67 10908.11
1992/08/31 10766.62 11016.23
1992/09/30 10813.25 11147.05
1992/10/31 10714.24 11038.93
1992/11/30 10721.93 11002.29
1992/12/31 10851.32 11123.90
1993/01/31 11000.33 11297.65
1993/02/28 11099.58 11429.82
1993/03/31 11141.22 11469.61
1993/04/30 11190.03 11555.70
1993/05/31 11192.99 11518.61
1993/06/30 11276.42 11640.89
1993/07/31 11314.31 11662.02
1993/08/31 11364.67 11800.04
1993/09/30 11382.56 11838.47
1993/10/31 11391.68 11867.25
1993/11/30 11374.03 11842.07
1993/12/31 11424.48 11889.05
1994/01/31 11516.80 11986.60
1994/02/28 11419.40 11867.25
1994/03/31 11219.00 11751.26
1994/04/30 11165.11 11683.38
1994/05/31 11169.90 11695.74
1994/06/30 11175.51 11713.50
1994/07/31 11292.35 11842.07
1994/08/31 11315.67 11878.93
1994/09/30 11247.75 11815.55
1994/10/31 11255.23 11830.38
1994/11/30 11211.34 11771.26
1994/12/31 11267.16 11797.11
1995/01/31 11430.33 11976.26
1995/02/28 11611.08 12179.01
1995/03/31 11673.28 12246.67
1995/04/30 11797.39 12372.55
1995/05/31 12051.10 12655.77
1995/06/30 12114.07 12729.50
1995/07/31 12143.32 12758.95
1995/08/31 12210.19 12847.06
1995/09/30 12277.38 12918.99
1995/10/31 12383.41 13042.84
1995/11/30 12503.72 13178.16
1995/12/31 12603.00 13290.78
1996/01/31 12715.55 13409.91
1996/02/29 12636.33 13319.32
1996/03/31 12585.83 13279.31
1996/04/30 12564.15 13268.52
1996/05/31 12563.92 13277.51
1996/06/30 12650.02 13392.38
1996/07/31 12698.67 13440.48
1996/08/31 12733.63 13474.42
1996/09/30 12851.01 13620.75
1996/10/31 13025.35 13807.54
1996/11/30 13146.05 13936.34
1996/12/31 13114.89 13902.18
1997/01/31 13166.72 13965.11
1997/02/28 13200.86 13991.64
1997/03/31 13142.47 13949.60
1997/04/30 13254.65 14083.80
1997/05/31 13341.05 14185.40
1997/06/30 13439.43 14294.87
1997/07/31 13624.99 14500.54
1997/08/31 13622.68 14483.91
1997/09/30 13737.33 14615.63
1997/10/31 13851.70 14752.29
1997/11/30 13885.72 14781.29
1997/12/31 13981.27 14891.21
1998/01/31 14136.15 15062.04
1998/02/28 14137.61 15059.34
1998/03/31 14176.84 15110.82
1998/04/30 14226.61 15183.42
1998/05/31 14298.73 15274.23
1998/06/30 14360.91 15361.00
1998/07/31 14425.64 15427.08
1998/08/31 14596.14 15663.77
1998/09/30 14811.37 15948.57
IMATRL PRASUN SHR__CHT 19980930 19981007 121754 R00000000000087
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Intermediate Government Fund on September
30, 1991, shortly after the fund started. As the chart shows, by
September 30, 1998 the value of the investment would have grown to
$14,811 - a 48.11% increase on the initial investment. For comparison,
look at how the Lehman Brothers 1-5 Year U.S. Government Bond Index
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,949 -
a 59.49% increase. Going forward, the fund will compare its
performance to that of the Lehman Brothers 1-5 Year U.S. Government
Bond index rather than the Salomon Brothers Treasury/Agency 1-5 Year
Index. The indexes include the same type of bonds, and their
performance is not materially different. The fund is changing to the
Lehman Brothers index mainly because Lehman Brothers indexes are used
by most other Fidelity bond funds. For comparison, both indexes are
shown on page 4.
(checkmark)UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
TOTAL RETURN COMPONENTS
YEARS
ENDED
SEPTEM
BER 30,
1998 1997 1996 1995 1994
DIVIDEND 6.22% 6.36% 6.46% 7.00% 5.55%
RETURNS
CAPITAL 1.60% 0.54% -1.79% 2.15% -6.73%
RETURNS
TOTAL RETURNS 7.82% 6.90% 4.67% 9.15% -1.18%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED PAST 1 PAST 6 PAST 1
SEPTEMBER 30, MONTH MONTHS YEAR
1998
DIVIDENDS PER 4.91(CENTS) 29.35(CENTS) 56.04(CENTS)
SHARE
ANNUALIZED 6.31% 6.23% 5.96%
DIVIDEND
RATE
30-DAY 4.90% - -
ANNUALIZED
YIELD
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 $9.46
over the past one month, $9.40 over the past six months and $9.40 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
As a safe haven from turbulent stock
markets worldwide, bond markets
reaped the benefits from the flight to
quality by anxious investors during
the 12-month period ending
September 30, 1998. The Lehman
Brothers Aggregate Bond Index - a
broad measure of the U.S. taxable
investment-grade bond market -
returned 11.51% over the past year,
two and one-half times higher than the
4.54% return generated for the
six-month period ending March 31,
1998. The buying surge sent
Treasury-bond yields - which move
in the opposite direction of bond
prices - to their lowest level in over
three decades, as the yield on the
benchmark 30-year bond fell to
4.96%. In spite of the global economic
crisis that dominated the period, the
U.S. enjoyed low interest rates, low
inflation and a stable economy, which
aided the performance of corporate
bonds. The Lehman Brothers
Corporate Bond Index returned
11.07% for the 12-month period.
Mortgage-backed bonds also
performed well, although lower
interest rates resulted in higher
refinancing activity. The Lehman
Brothers Mortgage Backed Securities
Index had a 12-month return of
8.62%. Interest rates fell even lower
late in the period, as the Federal
Reserve lowered the fed funds rate by
0.25%, the first rate cut in nearly three
years. The period's biggest losers were
shareholders of emerging-market
debt, as the JP Morgan Emerging
Markets Bond Index lost 20.89%
over the past 12 months.
(photograph of Curt Hollingsworth)
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended September 30, 1998, the fund
provided a total return of 7.82%. To get a sense of how the fund did
relative to its competitors, the short-intermediate U.S. government
funds average returned 8.25% for the same 12-month period, according
to Lipper Analytical Services. Additionally, the Lehman Brothers 1-5
Year U.S. Government Bond Index - which tracks the types of securities
in which the fund invests - returned 9.12% for the same one-year
period.
Q. ALTHOUGH THE FUND POSTED DECENT GAINS, IT LAGGED BOTH ITS PEERS AND
THE LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND INDEX DURING THE
PAST YEAR. WHAT EXPLAINS THAT UNDERPERFORMANCE?
A. The fund had more mortgage-backed and agency securities and fewer
Treasury securities than the index and many of its peers. While their
relatively high yields gave the fund an advantage over the index and
its peers during much of the past year, agency and mortgage securities
significantly lagged Treasuries during the final two months of the
period. Amid warnings about corporate profit shortfalls, some poor
economic data and a general aversion to risk, investors increasingly
shunned U.S. and foreign stocks, as well as many types of bonds, in
favor of the relative safety of Treasuries. In addition to the growing
demand, there was also a diminished supply of Treasuries as the U.S.
government curtailed its borrowing needs in the wake of a Federal
budget surplus. The net result of this much stronger demand and
somewhat weaker supply was a healthy Treasury rally in August and
September. While agency and mortgage security prices also moved higher
during the late summer, their gains were rather small in comparison to
Treasuries.
Q. GIVEN THAT MOST TYPES OF BONDS TEND TO PERFORM WELL WHEN INTEREST
RATES FALL, WHY WEREN'T INVESTORS AS ENTHUSIASTIC ABOUT AGENCY AND
MORTGAGE SECURITIES AS THEY WERE ABOUT TREASURIES?
A. Although they carry the implicit, or indirect, backing of the U.S.
government, agency securities are not perceived to be as safe as
Treasuries - which are backed by the full faith and credit of the U.S.
government. In times of uncertainty, Treasuries - more than agency
securities - tend to be the safe haven of choice for many investors.
Mortgage securities, on the other hand, were beset by prepayments. As
homeowners refinanced their mortgages to take advantage of falling
interest rates, their loans were prepaid and many mortgage securities
made up of those loans were retired before their maturity. That often
forced mortgage security holders to forfeit their high-yielding
securities and reinvest the proceeds at lower interest rates.
Q. DID YOU ALTER THE WAY IN WHICH THE FUND'S INVESTMENTS WERE
ALLOCATED AMONG TREASURY, AGENCY AND MORTGAGE SECURITIES?
A. Yes, I made some modifications. When several of the fund's mortgage
securities were prepaid, I reinvested most of the proceeds in agency
securities. It's my view that mortgage prepayment activity will
continue to be strong and ultimately could hamstring the mortgage
market's performance. In comparison, I felt that agencies offered more
attractive value. I also sold some of the fund's holdings in Treasury
securities in order to add more agency securities. Here's why: During
the past several months the spread - or difference in yield - between
Treasury and agency securities widened to nearly 0.50%, the widest
level in about five years. That widening spread signifies that
investors were demanding more compensation for accepting the slightly
higher risk of buying agency securities versus Treasuries. In my view,
that spread is particularly wide when viewed on a historical basis. In
anticipation of the spread narrowing to a more historical norm and
agencies outpacing Treasuries as a result, I added to the fund's
agency holdings.
Q. WHICH AGENCY SECURITIES DID YOU CHOOSE?
A. I continued to favor non-callable securities - those that can't be
redeemed by their issuers before maturity. Some agency securities can
be "called" - or redeemed - by their issuers as a way to reduce their
debt costs. Because they can't be redeemed prior to maturity,
non-callable securities tend to perform better than their callable
counterparts when interest rates fall and generally keep pace with
callable bonds when interest rates rise.
Q. WHAT'S YOUR OUTLOOK?
A. In light of a slowing global economy, it appears that the Federal
Reserve is poised to lower interest rates further. Given that, I
believe that mortgage securities will continue to be challenged by
relatively high prepayment activity. As long as that's the case, I
probably will continue to place more emphasis on Treasury and agency
securities.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(checkmark)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 464
TRADING SYMBOL: FLMGX
START DATE: September 13, 1991
SIZE: as of September 30, 1998,
more than $133 million
MANAGER: Curt Hollingsworth,
since 1991; manager, various
Fidelity and Spartan
government and mortgage
funds; joined Fidelity in 1983
CURT HOLLINGSWORTH ON THE
LEHMAN BROTHERS 1-5 YEAR
U.S. GOVERNMENT BOND
INDEX AND ITS ROLE IN
MANAGING THE FUND:
"The Lehman Brothers 1-5 Year U.S.
Government Bond Index plays a
very important role in managing
the fund. It's the fund's benchmark
and includes most of the universe
of investment-grade bonds with
maturities between one and five
years. I use the index as a starting
point for my investment decisions,
managing the fund to be generally
as sensitive to changes in interest
rates as the index. In addition, I refer
to the index when deciding how to
allocate assets among different
maturities and sectors - such
as Treasury and agency securities
- - based on my view of the relative
value of each maturity or sector."
NOTE TO SHAREHOLDERS:
Effective the close of business
on June 26, 1998, Fidelity
Short-Intermediate Government
Fund shares are no longer available
to new accounts. Shareholders of
the fund on that date may continue
to purchase shares in accounts
existing on that date. On October 19,
1998, after the end of the period,
the Board of Trustees of Fidelity
Short-Intermediate Government
Fund voted to present a proposal
to shareholders to merge Fidelity
Short-Intermediate Government
Fund into Fidelity Intermediate
Government Income Fund. A
shareholder meeting is scheduled to
be held on April 14, 1999. On or
about February 16, 1999,
shareholders will be sent proxy
materials asking them to vote on this
and any other proposals.
INVESTMENT CHANGES
COUPON
DISTRIBUTIO
N AS OF
SEPTEMBER
30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 5% 0.0 8.0
5 - 5.99% 10.2 22.2
6 - 6.99% 18.0 21.0
7 - 7.99% 18.1 6.9
8 - 8.99% 12.3 11.2
9 - 9.99% 17.6 15.3
10 - 10.99% 7.3 9.1
11 - 11.99% 3.7 4.5
12% AND 8.9 0.4
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE
YEARS TO
MATURITY
AS OF
SEPTEMBER
30, 1998
6 MONTHS AGO
YEARS 3.4 3.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION
AS OF
SEPTEMBER
30, 1998
6 MONTHS AGO
YEARS 2.3 2.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES.
IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS
LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS CAN INFLUENCE A
BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S
ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1998
ROW: 1, COL: 1, VALUE: 15.0
ROW: 1, COL: 2, VALUE: 16.8
ROW: 1, COL: 3, VALUE: 64.3
ROW: 1, COL: 4, VALUE: 3.9
MORTGAGE-BACKED
SECURITIES 15.0%
U.S. TREASURY
OBLIGATIONS 16.8%
U.S. GOVERNMENT AGENCY
OBLIGATIONS 64.3%
SHORT-TERM
INVESTMENTS 3.9%
AS OF MARCH 31, 1998
ROW: 1, COL: 1, VALUE: 18.0
ROW: 1, COL: 2, VALUE: 45.8
ROW: 1, COL: 3, VALUE: 34.3
ROW: 1, COL: 4, VALUE: 1.9
MORTGAGE-BACKED
SECURITIES 18.5%
U.S. TREASURY
OBLIGATIONS 45.8%
U.S. GOVERNMENT AGENCY
OBLIGATIONS 34.3%
SHORT-TERM
INVESTMENTS 1.4%
INVESTMENTS SEPTEMBER 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S.
GOVERNMEN
T AND
GOVERNMEN
T AGENCY
OBLIGATIONS
- - 81.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S.
GOVERNMENT
AGENCY
OBLIGATIONS -
64.3%
Fannie Mae:
5.75% $ 3,000,000 $ 3,129,360
4/15/03
6.74% 380,000 416,871
5/13/04
8.25% 10,000,000 10,723,400
12/18/00
12% 10,000,000 11,442,200
11/13/00
Farm Credit 4,000,000 4,793,760
Systems
Financial
Assistance
Corp.
9.375%
7/21/03
Federal 350,000 373,517
Agricultural
Mortgage
Corp. 6.92%
2/10/02
Government
Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Defense
Security
Assistance
Agency):
Class 1-C, 8,825,964 9,426,306
9.25%
11/15/01
Class 2-E, 3,585,314 3,809,037
9.4%
5/15/02
Class T-3, 3,955,274 4,196,545
9.625%
5/15/02
Guaranteed
Export Trust
Certificates
(assets of
Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank):
Series 3,840,000 3,975,821
1995-A,
6.28%
6/15/04
Series 1,615,078 1,745,415
1994-A,
7.12%
4/15/06
Series 1994-F, 4,940,777 5,334,853
8.187%
12/15/04
Guaranteed 2,083,333 2,141,458
Trade Trust
Certificates
(assets of
Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank) Series
1997-A,
6.104%
7/15/03
Israel Export 1,800,000 1,875,780
Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank) Series
1994-1,
6.88%
1/26/03
Overseas Private 1,122,400 1,168,070
Investment
Corp. U.S.
Government
guaranteed
participation
certificate
Series
1994-195,
6.08%
8/15/04
(callable)
Private Export
Funding
Corp.:
secured 5.65% 1,215,000 1,236,955
3/15/03
5.82% 3,500,000 3,636,185
6/15/03 (a)
State of Israel
(guaranteed
by U.S.
Government
through
Agency for
International
Development):
5.25% 1,000,000 1,008,420
9/15/00
6.05% 5,780,000 5,909,530
8/15/00
6.625% 7,000,000 7,564,060
8/15/03
U.S.
GOVERNMEN
T AND
GOVERNMEN
T AGENCY
OBLIGATIONS
- - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S.
GOVERNMENT
AGENCY
OBLIGATIONS -
CONTINUED
U.S. Department $ 230,000 $ 236,348
of Housing
and Urban
Development
government
guaranteed
participation
certificates
Series
1996-A,
6.59%
8/1/00
84,143,891
U.S. TREASURY
OBLIGATIONS -
16.8%
U.S. Treasury 20,200,000 22,081,024
Notes 7.875%
8/15/01
TOTAL U.S. 106,224,
GOVERNME 915
NT AND
GOVERNME
NT AGENCY
OBLIGATIO
NS
(Cost
$104,312,652
)
U.S.
GOVERNMEN
T AGENCY -
MORTGAGE-
BACKED
SECURITIES
- - 15.0%
FREDDIE MAC -
3.2%
5.5% 12/1/02 4,258,135 4,244,680
to 7/1/03
GOVERNMENT
NATIONAL
MORTGAGE
ASSOCIATION -
11.8%
8.5% 1/15/17 51,984 55,363
to 7/15/17
9.5% 4/15/16 659,103 711,824
to 11/15/20
10% 11/15/09 2,712,127 2,938,004
to 11/15/20
10.5% 2/15/14 5,731,204 6,293,860
to 8/15/19
10.75% 178,569 195,265
12/15/09
11% 11/15/09 1,991,280 2,209,561
to 6/15/19
11.5% 3/15/10 2,300,564 2,586,889
to 7/15/19
12% 3/20/14 to 270,308 307,145
2/15/16
12.5% 39,115 44,766
12/15/10
13% 9/15/14 34,479 39,962
15,382,639
TOTAL U.S. 19,627,3
GOVERNME 19
NT AGENCY
- -
MORTGAGE
- -BACKED
SECURITIES
(Cost
$19,585,958)
CASH
EQUIVALENTS
- - 3.9%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in $ 5,074,813 $ 5,074,000
repurchase
agreements
(U.S. Treasury
obligations), in
a joint trading
account at
5.77%,
dated
9/30/98 due
10/1/98
(Cost
$5,074,000)
TOTAL $ 130,926,2
INVESTMEN 34
T IN
SECURITIES
- - 100%
(Cost
$128,972,610
)
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$3,636,185 or 2.7% of net assets.
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $128,972,610. Net unrealized appreciation
aggregated $1,953,624, of which $2,220,303 related to appreciated
investment securities and $266,679 related to depreciated investment
securities.
At September 30, 1998, the fund had a capital loss carryforward of
approximately $10,705,000 of which $40,000, $1,404,000, $5,655,000,
$2,404,000, and $1,202,000 will expire on September 30, 2001, 2002,
2003, 2004, and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30,
1998
ASSETS
Investment in $ 130,926,234
securities, at
value
(including
repurchase
agreements of
$5,074,000)
(cost
$128,972,61
0) -
See
accompanying
schedule
Cash 59
Receivable 275,599
for fund shares
sold
Interest 2,194,159
receivable
TOTAL ASSETS 133,396,051
LIABILITIES
Payable for $ 84,438
fund shares
redeemed
Distributions 115,986
payable
Accrued 47,533
management
fee
Other 39,373
payables and
accrued
expenses
TOTAL 287,330
LIABILITIES
NET ASSETS $ 133,108,721
Net Assets
consist of:
Paid in $ 141,232,703
capital
Undistributed 627,332
net investment
income
Accumulated (10,704,938)
undistributed
net realized
gain (loss)
on investments
Net 1,953,624
unrealized
appreciation
(depreciation)
on investments
NET ASSETS, $ 133,108,721
for
13,978,785
shares
outstanding
NET ASSET $9.52
VALUE, offering
price and
redemption
price
per share
($133,108,72
1 (divided by)
13,978,785
shares)
STATEMENT OF OPERATIONS
YEAR ENDED
SEPTEMBER 30,
1998
INVESTMENT $ 8,918,030
INCOME
Interest
(including
income on
securities
loaned of
$785)
EXPENSES
Management $ 549,634
fee
Transfer 277,563
agent fees
Accounting 61,038
fees and
expenses
Non-intereste 1,214
d trustees'
compensation
Custodian 23,854
fees and
expenses
Registration 25,533
fees
Audit 38,164
Legal 5,252
Miscellaneou 657
s
TOTAL 982,909
EXPENSES
NET 7,935,121
INVESTMENT
INCOME
REALIZED AND 649,418
UNREALIZED GAIN
(LOSS)
Net realized
gain (loss) on
investment
securities
Change in 1,028,320
net unrealized
appreciation
(depreciation)
on investment
securities
NET GAIN 1,677,738
(LOSS)
NET INCREASE $ 9,612,859
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
INCREASE
(DECREASE) IN
NET ASSETS
Operations $ 7,935,121 $ 7,884,065
Net investment
income
Net realized 649,418 178,902
gain (loss)
Change in 1,028,320 135,665
net unrealized
appreciation
(depreciation)
NET 9,612,859 8,198,632
INCREASE
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
Distributions (7,535,429) (7,517,929)
to shareholders
from net
investment
income
Share 54,016,902 51,261,094
transactions
Net proceeds
from sales of
shares
Reinvestment 6,398,701 5,978,419
of distributions
Cost of (49,522,626) (60,826,140)
shares
redeemed
NET 10,892,977 (3,586,627)
INCREASE
(DECREASE) IN
NET ASSETS
RESULTING
FROM SHARE
TRANSACTIONS
12,970,407 (2,905,924)
TOTAL INCREASE
(DECREASE) IN
NET ASSETS
NET ASSETS
Beginning 120,138,314 123,044,238
of period
$ 133,108,721 $ 120,138,314
End of
period
(including
undistributed
net
investment
income and
distributions
in excess of
net
investment
income of
$627,332
and
$97,053,
respectively)
OTHER
INFORMATION
Shares
Sold 5,742,399 5,495,549
Issued in 679,888 639,858
reinvestment of
distributions
Redeemed (5,264,176) (6,514,225)
Net 1,158,111 (378,818)
increase
(decrease)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED
SEPTEMBER
30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
Net asset $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960
value,
beginning of
period
Income .591 A .603 A .599 .648 .533
from
Investment
Operations
Net investment
income
Net .119 .022 (.167) .174 (.648)
realized and
unrealized
gain (loss)
Total from .710 .625 .432 .822 (.115)
investment
operations
Less
Distributions
From net (.560) (.575) (.602) (.622) (.555)
investment
income
Net asset $ 9.520 $ 9.370 $ 9.320 $ 9.490 $ 9.290
value, end of
period
TOTAL 7.82% 6.90% 4.67% 9.15% (1.18)%
RETURN
RATIOS AND
SUPPLEMENTAL
DATA
Net assets, $ 133,109 $ 120,138 $ 123,044 $ 140,471 $ 132,466
end of period
(000 omitted)
Ratio of .78% .81% .79% .82% .95%
expenses to
average net
assets
Ratio of net 6.29% 6.45% 6.54% 6.67% 6.80%
investment
income to
average net
assets
Portfolio 253% 126% 188% 266% 184%
turnover rate
</TABLE>
A NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Short-Intermediate Government Fund (the fund) is a fund of
Fidelity Charles Street Trust (the trust) and is authorized to issue
an unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities for which quotations are not readily available are valued
at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences that will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $314,117,122 and $306,609,748, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .22% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan.
At period end, there were no loans outstanding.
6. PROPOSED REORGANIZATION.
The Board of Trustees of Fidelity Short-Intermediate Government Fund
has approved an Agreement and Plan of Reorganization ("Agreement")
between the fund and Fidelity Intermediate Government Income Fund
("Reorganization"). The Agreement provides for the transfer of all of
the assets of the fund to Fidelity Intermediate Government Income Fund
in exchange solely for the number of shares of Fidelity Intermediate
Government Income Fund having the same aggregate net asset value as
the outstanding shares of the fund as of the close of business of the
New York Stock Exchange on the day that the Reorganization is
effective and the assumption by Fidelity Intermediate Government
Income Fund of all of the liabilities of the fund. The Reorganization
can be consummated only if, among other things, it is approved by the
vote of a majority (as defined by the 1940 Act) of outstanding voting
securities of the fund. A Special Meeting of Shareholders ("Meeting")
of the fund will be held on April, 14, 1999 to vote on the Agreement.
A detailed description of the proposed transaction and voting
information will be sent to shareholders of the fund in February 1999.
If the Agreement is approved at the Meeting, the Reorganization is
expected to become effective on or about April 29, 1999.
Effective June 26, 1998 the fund's shares are no longer available for
purchase or exchange to new accounts of the fund pending the proposed
Reorganization.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Short-Intermediate Government Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Short-Intermediate Government Fund (a fund of Fidelity
Charles Street Trust) at September 30, 1998, the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated in conformity with generally accepted
accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fidelity Short-Intermediate Government Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included
confirmation of securities at September 30, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
DISTRIBUTIONS
A total of 25.09% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Dwight D. Churchill, Vice President
Fred L. Henning, Jr., Vice President
Curtis Hollingsworth, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Strategic Income Bond
Target Timeline SM 1999, 2001, & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress (registered trademark)(AUTOMATED GRAPHIC)
1-800-544-4774
(AUTOMATED GRAPHIC) AUTOMATED LINE FOR QUICKEST SERVICE
FSG-ANN-1198 64332
1.537608.101
(FIDELITY LOGO GRAPHIC)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
Spartan Short-Intermediate Government Fund
(A Fund of Fidelity Fixed-Income Trust)
Fidelity Short-Intermediate Government Fund
(A Fund of Fidelity Charles Street Trust)
Fidelity Intermediate Government Income Fund
(A Fund of Fidelity Income Fund)
FORM N-14
STATEMENT OF ADDITIONAL INFORMATION
February 16, 1999
This Statement of Additional Information relates to the proposed
reorganization whereby Fidelity Intermediate Government Income Fund
(Intermediate Government), a fund of Fidelity Income Fund, would
acquire all of the assets of Spartan Short-Intermediate Government
Fund, a fund of Fidelity Fixed-Income Income Trust, and assume all of
Spartan Short-Intermediate Government Fund's liabilities in exchange
solely for shares of beneficial interest in Intermediate Government.
This Statement of Additional Information also relates to the proposed
reorganization whereby Intermediate Government would acquire all of
the assets of Fidelity Short-Intermediate Government Fund, a fund of
Fidelity Charles Street Trust, and assume all of Fidelity
Short-Intermediate Government Fund's liabilities in exchange solely
for shares of beneficial interest in Intermediate Government.
This Statement of Additional Information consists of this cover page
and the following described documents, each of which is incorporated
herein by reference:
1. The Statement of Additional Information of Intermediate Government
dated September 21, 1998, which was previously filed via EDGAR
(Accession No. 0000708191-98-000012).
2. The Supplement to the Statement of Additional Information of
Intermediate Government dated October 8, 1998, which was previously
filed via EDGAR (Accession No. 0000751199-98-000027).
3. The Prospectus and Statement of Additional Information of Spartan
Short-Intermediate Government Fund dated June 26, 1998, which was
previously filed via EDGAR (Accession No. 0000035315-98-000010).
4. The Supplement to the Prospectus of Spartan Short-Intermediate
Government Fund, dated December 7, 1998, which was previously filed
via EDGAR (Accession No. 0000719451-98-000073).
5. The Prospectus and Statement of Additional Information of Fidelity
Short-Intermediate Government Fund, dated November 24, 1998, which was
previously filed via EDGAR (Accession No. 0000354046-98-000014).
6. The Supplement to the Prospectus of Fidelity Short-Intermediate
Government Fund, dated December 7, 1998, which was previously filed
via EDGAR (Accession No. 0000722574-98-000164).
7. The Financial Statements included in the Annual Report of
Intermediate Government for the fiscal year ended July 31, 1998, which
was previously filed via EDGAR (Accession No. 0000751199-98-000022).
8. The Financial Statements included in the Annual Report of Spartan
Short-Intermediate Government Fund for the fiscal year ended April 30,
1998, which was previously filed via EDGAR (Accession No.
0000035315-98-000009).
9. The Unaudited Financial Statements included in the Semiannual
Report of Spartan Short-Intermediate Government Fund for the six
months ended October 31, 1998, which was previously filed via EDGAR
(Accession No. 0000729218-98-000028).
10. The Financial Statements included in the Annual Report of
Fidelity Short-Intermediate Government Fund for the fiscal year ended
September 30, 1998, which was previously filed via EDGAR (Accession
No. 0000354046-98-000013).
11. The Pro Forma Financial Statements for Spartan Short-Intermediate
Government Fund, Fidelity Short-Intermediate Government Fund, and
Intermediate Government for the period ended July 31, 1998.
This Statement of Additional Information is not a prospectus. A Proxy
Statement and Prospectus dated February 16, 1999, relating to the
above-referenced matters may be obtained from Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, Massachusetts, 02109. This
Statement of Additional Information relates to, and should be read in
conjunction with, such Proxy Statement and Prospectus.
PART C. OTHER INFORMATION
Item 15. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Trust shall indemnify any present or past Trustee or officer
to the fullest extent permitted by law against liability, and all
expenses reasonably incurred by him or her in connection with any
claim, action, suit, or proceeding in which he or she is involved by
virtue of his or her service as a trustee or officer and against any
amount incurred in the settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other adjudicatory body to
be liable to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties (collectively, "disabling conduct"), or not to have
acted in good faith in the reasonable belief that his or her action
was in the best interest of the Trust. In the event of a settlement,
no indemnification may be provided unless there has been a
determination, as specified in the Declaration of Trust, that the
officer or trustee did not engage in disabling conduct.
Pursuant to Section 11 of the Distribution Agreement, the Trust
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading
under the 1933 Act, or any other statute or the common law. However,
the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust by or on behalf of the Distributor. In no case is the indemnity
of the Trust in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any
liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("FSC") is appointed transfer agent, the Trust agrees to indemnify and
hold FSC harmless against any losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from:
(1) any claim, demand, action or suit brought by any person other
than the Trust, including by a shareholder, which names FSC and/or the
Trust as a party and is not based on and does not result from FSC's
willful misfeasance, bad faith or negligence or reckless disregard of
duties, and arises out of or in connection with FSC's performance
under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FSC's willful misfeasance, bad faith or negligence
or reckless disregard of its duties) which results from the negligence
of the Trust, or from FSC's acting upon any instruction(s) reasonably
believed by it to have been executed or communicated by any person
duly authorized by the Trust, or as a result of FSC's acting in
reliance upon advice reasonably believed by FSC to have been given by
counsel for the Trust, or as a result of FSC's acting in reliance upon
any instrument or stock certificate reasonably believed by it to have
been genuine and signed, countersigned or executed by the proper
person.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust, dated July 15, 1998,
is incorporated herein by reference to Exhibit 1 of Post Effective
Amendment No. 48.
(2) Bylaws of Fidelity Income Fund, as currently in effect, are
incorporated herein by reference to Exhibit 2 of Fidelity Union Street
Trust's Post-Effective Amendment No. 87 (File No. 2-50318).
(3) Not applicable.
(4)(a) Form of Agreement and Plan of Reorganization between Fidelity
Fixed-Income Trust: Spartan Short-Intermediate Government Fund and
Fidelity Income Fund: Fidelity Intermediate Government Income Fund is
filed herein as Exhibit 1 to the Proxy Statement and Prospectus.
(b) Form of Agreement and Plan of Reorganization
between Fidelity Charles Street Trust: Fidelity Short-Intermediate
Government Fund: and Fidelity Income Fund: Fidelity Intermediate
Government Income Fund is filed herein as Exhibit 2 to the Proxy
Statement and Prospectus.
(5) Article VIII of the Declaration of Trust, dated
July 15, 1998 is incorporated herein by reference to Exhibit 1 to Post
Effective Amendment No. 48.
(6)(a) Management Contract, dated August 1, 1994, between Fidelity
Mortgage Securities Portfolio (currently known as Fidelity Advisor
Mortgage Securities Fund) and Fidelity Management and Research Company
is incorporated herein by reference to Exhibit 5(a) of Post-Effective
Amendment No. 31.
(b) Management Contract, dated August 1, 1998, between Fidelity
Ginnie Mae Fund and Fidelity Management and Research Company is
incorporated herein by reference to Exhibit 5(b) of Post-Effective
Amendment No. 48.
(c) Management Contract, dated December 1, 1990, between Spartan
Limited Maturity Government Fund (currently known as Fidelity
Intermediate Government Income Fund) and Fidelity Management and
Research Company is incorporated herein by reference to Exhibit 5(c)
of Post-Effective Amendment No. 31.
(d) Management Contract, dated November 28, 1997, between Fidelity
Income Fund, on behalf of Fidelity Government Securities Fund
(currently known as Fidelity Government Income Fund), and Fidelity
Management & Research Company is incorporated herein by reference to
Exhibit 5(d) of Post-Effective Amendment No. 44.
(e) Sub-Advisory Agreement, dated August 1, 1994, between Fidelity
Management & Research Company and Fidelity Management & Research
(U.K.) Inc., on behalf of Fidelity Mortgage Securities Portfolio
(currently known as Fidelity Advisor Mortgage Securities Fund) is
incorporated herein by reference to Exhibit 5(d) of Post-Effective
Amendment No. 31.
(f) Sub-Advisory Agreement, dated August 1, 1994, between Fidelity
Management & Research Company and Fidelity Management & Research (Far
East) Inc. on behalf of Fidelity Mortgage Securities Portfolio
(currently known as Fidelity Advisor Mortgage Securities Fund) is
incorporated herein by reference to Exhibit 5(e) of Post-Effective
Amendment No. 31.
(g) Sub-Advisory Agreement, dated August 1, 1994, between Fidelity
Management & Research Company and Fidelity Management & Research
(U.K.) Inc., on behalf of Fidelity Ginnie Mae Portfolio (currently
known as Fidelity Ginnie Mae Fund) is incorporated herein by reference
to Exhibit 5(f) of Post-Effective Amendment No. 31.
(h) Sub-Advisory Agreement, dated August 1, 1994, between Fidelity
Management & Research Company and Fidelity Management & Research (Far
East) Inc. on behalf of Fidelity Ginnie Mae Portfolio (currently known
as Fidelity Ginnie Mae Fund) is incorporated herein by reference to
Exhibit 5(g) of Post-Effective Amendment No. 31.
(i) Sub-Advisory Agreement, dated August 1, 1994, between Fidelity
Management & Research Company and Fidelity Management & Research
(U.K.) Inc., on behalf of Spartan Limited Maturity Government Fund
(currently known as Fidelity Intermediate Government Income Fund) is
incorporated herein by reference to Exhibit 5(h) of Post-Effective
Amendment No. 31.
(j) Sub-Advisory Agreement, dated August 1, 1994, between Fidelity
Management & Research Company and Fidelity Management & Research (Far
East) Inc. on behalf of Spartan Limited Maturity Government Fund
(currently known as Fidelity Intermediate Government Income Fund) is
incorporated herein by reference to Exhibit 5(i) of Post-Effective
Amendment No. 31.
(7)(a) General Distribution Agreement, dated April 1, 1987, between
Fidelity Mortgage Securities Portfolio (currently known as Fidelity
Advisor Mortgage Securities Fund) and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(a) of
Post-Effective Amendment No. 33.
(b) General Distribution Agreement, dated April 1, 1987, between
Fidelity Ginnie Mae Portfolio (currently known as Fidelity Ginnie Mae
Fund) and Fidelity Distributors Corporation is incorporated herein by
reference to Exhibit 6(c) of Post-Effective Amendment No. 33.
(c) Amendment, dated January 1, 1988, to the General Distribution
Agreement between Fidelity Mortgage Securities Portfolio (currently
known as Fidelity Advisor Mortgage Securities Fund), Fidelity Ginnie
Mae Portfolio (currently known as Fidelity Ginnie Mae Fund) and
Fidelity Distributors Corporation is incorporated herein by reference
to Exhibit 6(b) of Post-Effective Amendment No. 33.
(d) General Distribution Agreement, dated April 30, 1988, between
Fidelity Short-Term Government Portfolio (currently known as Fidelity
Intermediate Government Income Fund) and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(d) of
Post-Effective Amendment No. 33.
(e) General Distribution Agreement, dated November 28, 1997 between
Fidelity Government Securities Fund (currently known as Fidelity
Government Income Fund) and Fidelity Distributors Corporation is
incorporated herein by reference to Exhibit 6(e) of Post-Effective
Amendment No. 44.
(f) Amendments to the General Distribution Agreement between
Fidelity Income Trust on behalf of Fidelity Mortgage Securities Fund
(currently known as Fidelity Advisor Mortgage Securities Fund),
Fidelity Ginnie Mae Fund, Spartan Limited Maturity Government Fund
(currently known as Fidelity Intermediate Government Income Fund),
Fidelity Government Securities Fund (currently known as Fidelity
Government Income Fund) and Fidelity Distributors Corporation, dated
March 14, 1996 and July 15, 1996, are incorporated herein by reference
to Exhibit 6(a) of Fidelity Court Street Trust's Post-Effective
Amendment No. 61 (File No. 2-58774).
(8)(a) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is incorporated
herein by reference to Exhibit 7(a) of Fidelity Select Portfolio's
(File No. 2-69972) Post-Effective Amendment No. 54.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's (File No.
33-43529) Post-Effective Amendment No. 19.
(9)(a) Custodian Agreement and Appendix C, dated December 1, 1994,
between The Bank of New York and the Registrant is incorporated herein
by reference to Exhibit 8(a) of Fidelity Hereford Street Trust's
Post-Effective Amendment No. 4 (File No. 33-52577).
(b) Appendix A, dated September 18, 1997, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and the
Registrant is incorporated herein by reference to Exhibit 8(e) of
Fidelity Charles Street Trust's Post-Effective Amendment No. 62 (File
No. 2-73133).
(c) Appendix B, dated September 18, 1997, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and the
Registrant is incorporated herein by reference to Exhibit 8(f) of
Fidelity Charles Street Trust's Post-Effective Amendment No. 62 (File
No. 2-73133).
(d) Fidelity Group Repo Custodian Agreement among The Bank of New
York, J. P. Morgan Securities, Inc., and the Registrant, dated
February 12, 1996, is incorporated herein by reference to Exhibit 8(d)
of Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(e) Schedule 1 to the Fidelity Group Repo Custodian Agreement between
The Bank of New York and the Registrant, dated February 12, 1996, is
incorporated herein by reference to Exhibit 8(e) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(f) Fidelity Group Repo Custodian Agreement among Chemical Bank,
Greenwich Capital Markets, Inc., and the Registrant, dated November
13, 1995, is incorporated herein by reference to Exhibit 8(f) of
Fidelity Institutional Cash Portfolios' (File No. 2-74808)
Post-Effective Amendment No. 31.
(g) Schedule 1 to the Fidelity Group Repo Custodian Agreement between
Chemical Bank and the Registrant, dated November 13, 1995, is
incorporated herein by reference to Exhibit 8(g) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(h) Joint Trading Account Custody Agreement between The Bank of New
York and the Registrant, dated May 11, 1995, is incorporated herein by
reference to Exhibit 8(h) of Fidelity Institutional Cash Portfolios'
(File No. 2-74808) Post-Effective Amendment No. 31.
(i) First Amendment to Joint Trading Account Custody Agreement
between The Bank of New York and the Registrant, dated July 14, 1995,
is incorporated herein by reference to Exhibit 8(i) of Fidelity
Institutional Cash Portfolios' (File No. 2-74808) Post-Effective
Amendment No. 31.
(10)(a) Distribution and Service Plan between Fidelity Mortgage
Securities Portfolio (currently known as Fidelity Advisor Mortgage
Securities Fund: Initial Class) and Fidelity Distributors Corporation
is incorporated herein by reference to Exhibit 15(a) of Post-Effective
Amendment No. 38.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Ginnie Mae Fund is incorporated herein by reference to Exhibit 15(b)
of Post-Effective Amendment No. 42.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Limited Maturity Government Fund (currently known as Fidelity
Intermediate Government Income Fund) is incorporated herein by
reference to Exhibit 15(c) of Post-Effective Amendment No. 42.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Advisor Mortgage Securities Fund: Class A is incorporated herein by
reference to Exhibit 15(d) of Post-Effective Amendment No. 38.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Advisor Mortgage Securities Fund: Class T is incorporated herein by
reference to Exhibit 15(e) of Post-Effective Amendment No. 38.
(f) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Advisor Mortgage Securities Fund: Class B is incorporated
herein by reference to Exhibit 15(f) of Post-Effective Amendment No.
38.
(g) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Advisor Mortgage Securities Fund: Institutional Class is incorporated
herein by reference to Exhibit 15(g) of Post-Effective Amendment No.
38.
(h) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Government Securities Fund (currently known as Fidelity Government
Income Fund) is incorporated herein by reference to Exhibit 15(h) of
Post-Effective Amendment No. 44.
(i) Rule 18f-3 Plan, dated February 1, 1997, is incorporated herein
by reference to Exhibit 18 of Post-Effective Amendment No. 38.
(11) Opinion and consent of counsel (Kirkpatrick &Lockhart LLP) as to
the legality of shares being registered in connection with the
reorganization of Spartan Short-Intermediate Government Fund and the
reorganization of Fidelity Short-Intermediate Government Fund is filed
herein as Exhibit 11.
(12)(a) Opinion and Consent of counsel (Kirkpatrick & Lockhart LLP)
as to tax matters in connection with the reorganization of Spartan
Short-Intermediate Government Fund is filed herein as Exhibit 12(a).
(b) Opinion and Consent of counsel (Kirkpatrick & Lockhart LLP) as
to tax matters in connection with the reorganization of Fidelity
Short-Intermediate Government Fund is filed herein as Exhibit 12(b).
(13) Not applicable.
(14) Consent of PricewaterhouseCoopers LLP is filed herein as
Exhibit 14.
(15) Pro Forma combining financial statements are filed herein as
Exhibit 15.
(16) Powers of Attorney, dated December 19, 1996, March 6, 1997 and
July 17, 1997, are filed herein as Exhibit 16.
(17) Not applicable.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of the
prospectus which is a part of this Registration Statement by any
person or party who is deemed to be an underwriter within the meaning
of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the applicable
registration form for reoffering by persons who may be deemed
underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an amendment
to the Registration Statement and will not be used until the amendment
is effective, and that, in determining any liability under the
Securities Act of 1933, each Post-Effective Amendment shall be deemed
to be a new Registration Statement for the securities offered therein,
and the offering of securities at that time shall be deemed to be the
initial bona fide offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 22nd day of December 1998.
Fidelity Income Fund
By /s/Edward C. Johnson 3d +
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
(Signature) (Title) (Date)
/s/Edward C. Johnson 3d + President and Trustee December 22, 1998
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer December 22, 1998
Richard A. Silver
/s/Robert C. Pozen Trustee December 22, 1998
Robert C. Pozen
/s/Ralph F. Cox * Trustee December 22, 1998
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee December 22, 1998
Phyllis Burke Davis
/s/Robert M. Gates ** Trustee December 22, 1998
Robert M. Gates
/s/E. Bradley Jones * Trustee December 22, 1998
E. Bradley Jones
/s/Donald J. Kirk * Trustee December 22, 1998
Donald J. Kirk
/s/Peter S. Lynch * Trustee December 22, 1998
Peter S. Lynch
/s/Marvin L. Mann * Trustee December 22, 1998
Marvin L. Mann
/s/William O. McCoy * Trustee December 22, 1998
William O. McCoy
/s/Gerald C. McDonough * Trustee December 22, 1998
Gerald C. McDonough
/s/Thomas R. Williams * Trustee December 22, 1998
Thomas R. Williams
</TABLE>
+ Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
Exhibit 11
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D. C. 20036-1800
TELEPHONE 202-778-9000
December 9, 1998
Fidelity Income Fund
82 Devonshire Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
You have requested our opinion regarding certain matters in
connection with the issuance of shares of Fidelity Intermediate
Government Income Fund ("Intermediate Government"), a series of
Fidelity Income Fund (the "Trust"), pursuant to a Registration
Statement to be filed by the Trust on Form N-14 ("Registration
Statement") under the Securities Act of 1933 ("1933 Act"). These
shares will be issued in connection with the proposed acquisition by
Intermediate Government of all of the assets of Spartan
Short-Intermediate Government Fund ("Spartan Short-Intermediate"), a
fund of Fidelity Fixed-Income Trust and all of the assets of Fidelity
Short-Intermediate Government Fund ("Fidelity Short-Intermediate"), a
fund of Fidelity Charles Street Trust, and the assumption by
Intermediate Government of the liabilities of Spartan
Short-Intermediate and Fidelity Short-Intermediate solely in exchange
for shares of Intermediate Government.
In connection with our services as counsel for the Trust, we have
examined, among other things, originals or copies of such documents,
certificates and corporate and other records as we deemed necessary or
appropriate for purposes of this opinion. We have assumed the
genuineness of all signatures, the authenticity of all documents
submitted to us, the conformity to original documents of all documents
presented to us as copies thereof and the authenticity of the original
documents from which any such copies were made, which assumptions we
have not independently verified. As to various matters of fact
material to this opinion, we have relied upon statements and
certificates of officers of the Trust. Based upon this examination,
we are of the opinion that, except as described herein, the shares to
be issued pursuant to the Registration Statement have been duly
authorized and, when issued upon the terms provided in the
Registration Statement, subject to compliance with the 1933 Act, the
Investment Company Act of 1940, and applicable state law regulating
the offer and sale of securities, will be legally issued, fully paid,
and non-assessable, and no shareholder of Intermediate Government has
any preemptive right of subscription or purchase in respect thereof.
We note, however, that the Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law,
shareholders could, under certain circumstances, be held personally
liable for the obligations of the Trust. The Declaration of Trust
states that all persons extending credit to, contracting with or
having any claim against the Trust or the Trustees shall look only to
the assets of the appropriate Series for payment under such credit,
contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be
personally liable therefor. The Declaration of Trust also requires
that every note, bond, contract or other undertaking issued by or on
behalf of the Trust or the Trustees relating to the Trust or to a
Series shall include a recitation limiting the obligation represented
thereby to the Trust or to one or more Series and its or their assets
(but the omission of such recitation shall not operate to bind any
Shareholder or Trustee). The Declaration of Trust further provides:
(1) for indemnification from the assets of the applicable Series for
all loss and expense of any shareholder or former shareholder held
personally liable solely by reason of his being or having been a
shareholder; and (2) for a Series to assume, upon request by the
shareholder, the defense of any claim made against the shareholder for
any act or obligation of the Series and satisfy any judgment thereon.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust
or Series would be unable to meet its obligations.
We hereby consent to the reference to our firm under the caption
"Legal Matters" in the Proxy Statement and Prospectus which
constitutes a part of the Registration Statement. We further consent
to your filing a copy of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 12(a)
December 15, 1998
Fidelity Fixed-Income Trust
Fidelity Income Fund
82 Devonshire Street
Boston, MA 02109
Ladies and Gentlemen:
Fidelity Fixed-Income Trust ("FFIT"), a Massachusetts business trust,
on behalf of Spartan Short-Intermediate Government Fund ("Acquired"),
a series of FFIT, and Fidelity Income Fund ("FIF"), a Massachusetts
business trust, on behalf of Fidelity Intermediate Government Income
Fund ("Acquiring"), a series of FIF, have requested our opinion as to
certain federal income tax consequences of a transaction
("Reorganization") in which Acquiring will acquire all of the assets
and assume all of the liabilities of Acquired in exchange solely for
shares of beneficial interest in Acquiring ("Acquiring Shares")
pursuant to an Agreement and Plan of Reorganization ("Agreement")
expected to be entered into between Acquired and Acquiring as of
February 16, 1999.
In rendering this opinion, we have examined a draft of the Agreement
("Draft Agreement"), the prospectus/proxy statement to be filed with
the Securities and Exchange Commission ("SEC") in connection with the
Reorganization, the currently effective prospectuses and statements of
additional information of Acquired and Acquiring, and such other
documents as we have deemed necessary. We have also relied, with your
consent, on certificates of officers of FFIT and FIF.
OPINION
Based solely on the facts and representations set forth in the
reviewed documents and the certificates of officers of FFIT and FIF,
and assuming that (i) those representations are true on the date of
the Reorganization, (ii) the Reorganization is consummated in
accordance with the Agreement, and (iii) the Agreement does not differ
materially from the Draft Agreement, our opinion with respect to the
federal income tax consequences of the Reorganization is as follows.
1. The Reorganization will be a reorganization under section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
("Code"), and Acquired and Acquiring will each be parties to the
Reorganization under section 368(b) of the Code.
2. No gain or loss will be recognized by Acquired upon the transfer
of all of its assets to Acquiring in exchange solely for Acquiring
Shares and Acquiring's assumption of Acquired's liabilities followed
by the distribution of those Acquiring Shares to the Acquired
shareholders in liquidation of Acquired.
3. No gain or loss will be recognized by Acquiring on the receipt of
Acquired's assets in exchange solely for Acquiring Shares and the
assumption of Acquired's liabilities.
4. The basis of Acquired's assets in the hands of Acquiring will be
the same as the basis of such assets in Acquired's hands immediately
prior to the Reorganization.
5. Acquiring's holding period in the assets to be received from
Acquired will include Acquired's holding period in such assets.
6. The Acquired shareholders will recognize no gain or loss on the
exchange of the shares of beneficial interest in Acquired ("Acquired
Shares") solely for the Acquiring Shares in the Reorganization.
7. The Acquired shareholders' basis in the Acquiring Shares to be
received by them will be the same as their basis in the Acquired
Shares to be surrendered in exchange therefor.
8. The holding period of the Acquiring Shares to be received by the
Acquired shareholders will include the holding period of the Acquired
Shares to be surrendered in exchange therefor, provided those Acquired
Shares were held as capital assets on the date of the Reorganization.
The foregoing opinion is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the
regulations thereunder, case law precedent, and the Internal Revenue
Service pronouncements in existence at the date hereof. We express no
opinion as to whether Acquired will recognize gain under Section 1256
of the Code on the transfer of futures, forwards, or options to
Acquiring in the Reorganization. Nor do we express any opinion other
than those contained herein.
We consent to the inclusion of this opinion in the Registration
Statement on Form N 14 filed with the SEC and the inclusion of the
name "Kirkpatrick & Lockhart LLP" in the "Federal Income Tax
Consequences of the Reorganization," "Federal Income Tax
Considerations" and "Legal Matters" sections of that Registration
Statement.
Very truly yours,
/s/Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 12(b)
December 15, 1998
Fidelity Charles Street Trust
Fidelity Income Fund
82 Devonshire Street
Boston, MA 02109
Ladies and Gentlemen:
Fidelity Charles Street Trust ("FCST"), a Massachusetts business
trust, on behalf of Fidelity Short-Intermediate Government Fund
("Acquired"), a series of FCST, and Fidelity Income Fund ("FIF"), a
Massachusetts business trust, on behalf of Fidelity Intermediate
Government Income Fund ("Acquiring"), a series of FIF, have requested
our opinion as to certain federal income tax consequences of a
transaction ("Reorganization") in which Acquiring will acquire all of
the assets and assume all of the liabilities of Acquired in exchange
solely for shares of beneficial interest in Acquiring ("Acquiring
Shares") pursuant to an Agreement and Plan of Reorganization
("Agreement") expected to be entered into between Acquired and
Acquiring as of February 16, 1999.
In rendering this opinion, we have examined a draft of the Agreement
("Draft Agreement"), the prospectus/proxy statement to be filed with
the Securities and Exchange Commission ("SEC") in connection with the
Reorganization, the currently effective prospectuses and statements of
additional information of Acquired and Acquiring, and such other
documents as we have deemed necessary. We have also relied, with your
consent, on certificates of officers of FCST and FIF.
OPINION
Based solely on the facts and representations set forth in the
reviewed documents and the certificates of officers of FCST and FIF,
and assuming that (i) those representations are true on the date of
the Reorganization, (ii) the Reorganization is consummated in
accordance with the Agreement, and (iii) the Agreement does not differ
materially from the Draft Agreement, our opinion with respect to the
federal income tax consequences of the Reorganization is as follows.
9. The Reorganization will be a reorganization under section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
("Code"), and Acquired and Acquiring will each be parties to the
Reorganization under section 368(b) of the Code.
10. No gain or loss will be recognized by Acquired upon the transfer
of all of its assets to Acquiring in exchange solely for Acquiring
Shares and Acquiring's assumption of Acquired's liabilities followed
by the distribution of those Acquiring Shares to the Acquired
shareholders in liquidation of Acquired.
11. No gain or loss will be recognized by Acquiring on the receipt of
Acquired's assets in exchange solely for Acquiring Shares and the
assumption of Acquired's liabilities.
12. The basis of Acquired's assets in the hands of Acquiring will be
the same as the basis of such assets in Acquired's hands immediately
prior to the Reorganization.
13. Acquiring's holding period in the assets to be received from
Acquired will include Acquired's holding period in such assets.
14. The Acquired shareholders will recognize no gain or loss on the
exchange of the shares of beneficial interest in Acquired ("Acquired
Shares") solely for the Acquiring Shares in the Reorganization.
15. The Acquired shareholders' basis in the Acquiring Shares to be
received by them will be the same as their basis in the Acquired
Shares to be surrendered in exchange therefor.
16. The holding period of the Acquiring Shares to be received by the
Acquired shareholders will include the holding period of the Acquired
Shares to be surrendered in exchange therefor, provided those Acquired
Shares were held as capital assets on the date of the Reorganization.
The foregoing opinion is based on, and is conditioned on the
continued applicability of, the provisions of the Code and the
regulations thereunder, case law precedent, and the Internal Revenue
Service pronouncements in existence at the date hereof. We express no
opinion as to whether Acquired will recognize gain under Section 1256
of the Code on the transfer of futures, forwards, or options to
Acquiring in the Reorganization. Nor do we express any opinion other
than those contained herein.
We consent to the inclusion of this opinion in the Registration
Statement on Form N-14 filed with the SEC and the inclusion of the
name "Kirkpatrick & Lockhart LLP" in the "Federal Income Tax
Consequences of the Reorganization," "Federal Income Tax
Considerations" and "Legal Matters" sections of that Registration
Statement.
Very truly yours,
/s/Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Proxy
Statement and Prospectus (the Proxy/Prospectus) of the Registration
Statement on Form N-14 (the Registration Statement) of Fidelity Income
Fund: Fidelity Intermediate Government Income Fund of our report dated
September 8, 1998, Fidelity Fixed-Income Trust: Spartan
Short-Intermediate Government Fund of our report dated June 5, 1998,
and Fidelity Charles Street Trust: Fidelity Short-Intermediate
Government Fund of our report dated November 6, 1998, on the financial
statements and financial highlights included in the Annual Reports to
Shareholders.
We further consent to the references to our Firm under the heading
"Experts" in the Proxy/Prospectus and under the headings "Financial
Highlights" in the Prospectuses and "Auditor" in the Statements of
Additional Information which are also incorporated by reference into
the Proxy/Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 16, 1998
FIDELITY INCOME FUND: FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND MERGER WITH
FIDELITY FIXED INCOME TRUST: SPARTAN
SHORT-INTERMEDIATE GOVERNMENT FUND AND
FIDELITY CHARLES STREET TRUST: FIDELITY
SHORT-INTERMEDIATE GOVERNMENT FUNDS
INVESTMENTS AT JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FIDELITY SPARTAN
INTERMEDIATE SHORT-INTERMED
IATE
GOVERNMENT GOVERNMENT
INCOME FUND FUND
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE 1)
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY
OBLIGATIONS--70.9
%
U.S. TREASURY
OBLIGATIONS--4.7%
6.5% 8/31/01 $ 13,700,000 $ 14,061,817
7.875% 8/15/01 10,000,000 10,640,600 $ 3,900,000 $ 4,149,834
_______________ _______________
TOTAL U.S. 24,702,417 4,149,834
TREASURY
OBLIGATIONS
_______________ _______________
U.S. GOVERNMENT
AGENCY
OBLIGATIONS--66.2
%
Fannie Mae:
12% 11/13/00
8.25% 12/18/00 9,600,000 10,135,488 6,160,000 6,503,605
5.44% 1/24/01 4,700,000 4,669,873
6.29% 2/11/02 25,000,000 25,414,000
5.89% 11/06/02 15,000,000 15,058,650
6.74% 5/13/04 2,150,000 2,244,557 230,000 240,115
7.875% 2/24/05 5,455,000 6,061,869
7.49% 3/02/05 5,980,000 6,522,864
Farm Credit
System Financial
Assistance
Corporation
9.375% 7/21/03 25,570,000 29,481,443 4,000,000 4,611,880
Federal 2,050,000 2,192,209
Agricultural
Mortgage
Corporation 7.04%
8/10/05
Federal Farm
Credit Bank:
5.54% 9/10/03 1,300,000 1,289,847
9.15% 2/14/05 500,000 589,765
Federal Home Loan
Bank:
6.26% 9/24/04 3,500,000 3,585,295
8.09% 12/28/04 3,500,000 3,921,645
7.59% 3/10/05 1,940,000 2,123,699
6.5% 11/29/05 3,000,000 3,127,020
6.75% 4/10/06 1,000,000 1,056,090
Freddie Mac:
6.505% 7/01/04 3,200,000 3,311,488
6.08% 12/17/04 14,275,000 14,493,550
8.115% 1/31/05 7,350,000 8,254,932
6.783% 8/18/05 15,000,000 15,827,400
5.825% 2/09/06 4,250,000 4,251,998
6.99% 7/05/06 1,000,000 1,070,310
6.8% 3/19/07 7,300,000 7,738,000
7.1% 4/10/07 2,700,000 2,925,288
Government Loan
Trusts (assets of
Trust guaranteed
by U.S.
Government
through Agency
for International
Development)
8.5% 4/1/06 11,490,000 12,645,434
Government Trust
Certificates
(assets of Trust
guaranteed
by U.S.
Government
through Defense
Security
Assistance
Agency):
Class T-3, 4,305,884 4,537,670
9.625% 5/15/02
Class 1-C, 9.25% 41,309,435 43,716,949 4,965,422 5,254,807
11/15/01
Class 2-E, 9.40% 9,677,519 10,199,524 707,163 745,307
5/15/02
Guaranteed Export
Trust
Certificates
(assets of Trust
guaranteed by
U.S. Government
through
Export-Import
Bank):
Series 1993-C, 1,364,444 1,341,167
5.20% 10/15/04
Series 1993-D, 1,030,638 1,012,437
5.23% 5/15/05
Series 1994-A, 5,693,335 5,917,253 1,349,586 1,402,665
7.12% 4/15/06
Series 1994-C, 173,359 173,997
6.61% 9/15/99
Series 1994-F, 1,172,885 1,247,386
8.187% 12/15/04
Series 1995-A, 1,249,412 1,264,842
6.28% 6/15/04
Series 1996-A, 8,703,500 8,876,874
6.55% 6/15/04
Guaranteed Trade
Trust
Certificates
(assets of Trust
guaranteed by
U.S. Government
through
Export-Import
Bank):
Series 1992-A, 6,781,125 7,001,308
7.02% 9/1/04
Series 1997-A, 12,860,523 12,926,112 1,208,333 1,214,496
6.104% 7/15/03
Series 1994-B, 811,430 862,485
7.5% 1/26/06
Israel Export
Trust
Certificates
(assets of Trust
guaranteed
by U.S.
Government
through
Export-Import
Bank)
Series 1994-1, 5,452,941 5,584,357
6.88% 1/26/03
Overseas Private
Investment Corp.
U.S. Government
guaranteed
participation
certificate:
Series 1994-195, 6,786,800 6,827,181 789,600 794,298
6.08% 8/15/04
(callable)
Series 1996-A1, 4,000,000 4,178,240
6.726% 9/15/10
(callable)
Private Exporting
Funding Corp.
secured:
8.35% 1/31/01 3,800,000 4,031,572
5.65% 3/15/03 2,065,000 2,057,793
5.82% 6/15/03 36,700,000 36,714,680 3,800,000 3,801,520
(a)
5.48% 9/15/03 2,695,000 2,672,793
5.8% 2/1/04 4,590,000 4,594,544
6.86% 4/30/04 2,499,199 2,564,878
State of Israel
(guaranteed by
U.S. Government
through Agency
for
International
Development:
7.75% 11/15/99 4,200,000 4,305,546 800,000 820,104
6.05% 8/15/00
5.25% 9/15/00 11,550,000 11,458,062 1,500,000 1,488,060
6.625% 8/15/01 1,433,000 1,459,296
8% 11/15/01 2,385,000 2,544,723
6.25% 8/15/02 7,300,000 7,435,050 2,400,000 2,444,400
6.625% 8/15/03 12,860,000 13,306,628 2,500,000 2,586,825
5.625% 9/15/03 11,550,000 11,460,603 1,714,000 1,700,734
6.75% 8/15/04 350,000 367,696
7.625% 8/15/04 8,820,000 9,653,490
6.6% 2/15/08 27,910,000 29,186,045
Tennessee Valley 4,060,000 4,081,559
Authority 6%
11/01/00
U.S. Department
of Housing and
Urban Development
government
guaranteed
participation
certificates:
Series 1996-A, 5,500,000 5,540,095
6.44% 8/1/99
Series 1996-A, 1,340,000 1,361,788 140,000 142,278
6.59% 8/1/00
Series 1995-A, 5,000,000 5,415,450 2,000,000 2,166,180
8.24% 8/1/02
Series 1996-A, 8,000,000 8,535,760
6.98% 8/1/05
U.S. Trade Trust
Certificates
(assets of Trust
guaranteed by
U.S. Government 5,468,333 5,906,839
through
Export-Import
Bank) 8.17%
1/15/07
_______________ _______________
TOTAL U.S. 463,048,467 51,184,193
GOVERNMENT AGENCY
OBLIGATIONS
_______________ _______________
TOTAL U.S. 487,750,884 55,334,027
GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS
_______________ _______________
U.S. GOVERNMENT
AGENCY -
MORTGAGE-BACKED
SECURITIES--21.8%
Fannie Mae - 6.8%
5.5% 1/1/09 to 9,708,958 9,502,644
2/1/09
6% 10/1/08 to 20,177,765 20,049,209
12/1/08
8% 10/1/00 8,393 8,455
8.25% 12/1/01 5,399,212 5,824,723
8.5% 9/1/07 to 1,402,419 1,464,268
12/1/22
9% 2/1/13 939,451 998,824
9.5% 11/1/09 3,421,808 3,663,473
10% 1/1/20 132,548 145,098
10.25% 10/1/09 320,118 350,753
to 10/1/18
11% 8/1/10 to 5,161,164 5,749,604
1/1/16
11.25% 1/1/10 to 1,018,875 1,146,670
1/1/16
11.5% 9/1/11 to 3,538,418 4,038,488 80,992 91,386
6/1/19
11.75% 7/1/13 to 136,552 156,498
4/1/14
12.25% 10/1/10 1,070,327 1,238,889
to 6/1/15
12.5% 9/1/07 to 2,850,292 3,335,408
5/1/21
12.75% 10/1/11 1,182,438 1,394,870
to 6/1/15
13% 6/1/11 to 1,335,647 1,575,319
7/1/15
13.25% 9/1/11 to 611,096 729,364
9/1/13
13.5% 5/1/11 to 33,895 40,581
12/1/14
14% 6/1/11 to 103,281 123,226
12/1/14
14.5% 7/1/14 19,320 23,522
15% 4/1/12 23,371 28,455
_______________ _______________
61,588,341 91,386
_______________ _______________
Freddie Mac: -
7.5%
5.5% 5/1/03 to 3,268,803 3,209,409
7/1/03
6.5% 5/1/08 2,451,467 2,472,059
7% 6/1/01 to 1,491,215 1,505,124
8/1/01
8.5% 5/1/10 to 4,551,966 4,750,319
1/1/22
9% 11/1/09 to 1,168,351 1,225,586
8/1/16
9.5% 7/1/16 to 6,912,663 7,435,084
8/1/21
10% 12/1/00 to 11,620,060 12,661,901
2/1/23
10.5% 9/1/09 to 7,808,608 8,677,375
1/1/21
10.75% 7/1/13 122,045 136,300
11% 8/1/00 to 875,896 985,306
9/1/20
11.25% 2/1/10 to 1,005,836 1,128,073
10/1/14
11.5% 10/1/15 to 559,102 633,049
8/1/19
11.75% 1/1/10 to 207,579 234,175
10/1/15
12% 1/1/00 to 2,042,809 2,343,090
11/1/19
12.25% 2/1/11 to 827,750 958,011
8/1/15
12.5% 10/1/09 to 10,247,408 11,913,834
6/1/19
12.75% 2/1/10 to 191,606 222,191
1/1/11
13% 9/1/10 to 1,563,053 1,842,267
5/1/17
13.25% 11/1/10 140,838 163,998
to 12/1/14
13.5% 11/1/10 to 311,184 369,478
10/1/14
13.75% 10/1/14 13,490 14,329
14% 11/1/12 to 46,673 55,991
4/1/16
14.5% 12/1/10 to 90,703 109,269
9/1/12
14.75% 3/1/10 29,201 35,178
16.25% 7/1/11 7,132 8,634
_______________ _______________
59,880,621 3,209,409
_______________ _______________
Government
National Mortgage
Association -
7.5%
8% 9/15/06 to 937,735 975,136
11/15/07
8.5% 4/15/16 to 94,191 100,063
7/15/17
9% 1/15/04 to 1,407,924 1,499,467
5/15/17
9.5% 1/15/09 to 11,922,066 12,860,767 454,249 490,602
11/15/20
10% 11/15/09 to 1,680,164 1,836,705 1,738,862 1,900,274
11/15/20
10.5% 2/15/14 to 2,573,399 2,826,597 1,772,723 1,966,440
2/15/25
10.75% 12/15/09 63,113 69,377
to 3/15/10
11% 4/15/00 to 3,583,951 4,012,275 1,297,653 1,449,279
1/15/21
11.5% 3/15/10 to 12,973,020 14,630,566 2,304,242 2,597,646
1/15/21
12% 11/15/12 to 790,830 902,223 184,455 211,334
6/15/16
12.25% 1/15/14 50,643 57,349
12.5% 12/15/10 65,301 75,626
to 6/15/14
13% 1/15/11 to 1,017,285 1,190,298 34,426 40,180
12/15/14
13.25% 9/15/13 194,947 224,856
to 10/15/14
13.5% 5/15/10 to 528,207 617,185
12/15/14
14% 6/15/11 to 87,123 103,016
12/15/14
16% 4/15/13 163,590 197,841
17% 12/15/11 3,351 4,010
_______________ _______________
42,113,980 8,725,132
_______________ _______________
TOTAL U.S. 163,582,942 12,025,927
GOVERNMENT AGENCY
- - MORTGAGE-BACKED
SECURITIES
_______________ _______________
COLLATERALIZED
MORTGAGE
OBLIGATIONS--0.2%
U.S. GOVERNMENT
AGENCY--0.2%
Fannie Mae 1,661,689 1,775,931
planned
amortization
class Series
1988-21, Class G,
9.5% 8/25/18
Freddie Mac 100,581 100,266
sequential pay
Series 1353 Class
A, 5.5% 11/15/04
_______________ _______________
TOTAL U.S. 1,876,197 -
GOVERNMENT AGENCY
_______________ _______________
TOTAL 1,876,197 -
COLLATERALIZED
MORTGAGE
OBLIGATIONS
_______________ _______________
CASH EQUIVALENTS
- -- 7.1%
Investments in MATURITY MATURITY
repurchase
agreements
(U.S. Treasury AMOUNT AMOUNT
obligations),
In a joint
account at:
5.62%, dated $ 39,746,606 39,728,000 $ 7,535,527 7,532,000
7/31/98 due
8/03/98
5.63%, dated 6,447,023 6,444,000 2,253,057 2,252,000
7/31/98 due
8/03/98
_______________ _______________
TOTAL CASH 46,172,000 9,784,000
EQUIVALENTS
_______________ _______________
TOTAL INVESTMENTS $ 699,382,023 $ 77,143,954
IN SECURITIES -
100%
TOTAL COST OF $ 692,109,010 $ 77,021,214
INVESTMENTS
LEGEND
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FIDELITY
SHORT-INTERMED
IATE
GOVERNMENT COMBINED
FUND
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE 1)
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY
OBLIGATIONS--70.9
%
U.S. TREASURY
OBLIGATIONS--4.7%
6.5% 8/31/01 $ 13,700,000 $ 14,061,817
7.875% 8/15/01 $ 12,800,000 $ 13,619,968 26,700,000 28,410,402
_______________
_______________
TOTAL U.S. 13,619,968 42,472,219
TREASURY
OBLIGATIONS
_______________
_______________
U.S. GOVERNMENT
AGENCY
OBLIGATIONS--66.2
%
Fannie Mae:
12% 11/13/00 10,000,000 11,342,200 10,000,000 11,342,200
8.25% 12/18/00 10,000,000 10,557,800 25,760,000 27,196,893
5.44% 1/24/01 3,300,000 3,278,847 8,000,000 7,948,720
6.29% 2/11/02 25,000,000 25,414,000
5.89% 11/06/02 15,000,000 15,058,650
6.74% 5/13/04 380,000 396,714 2,760,000 2,881,386
7.875% 2/24/05 5,455,000 6,061,869
7.49% 3/02/05 5,980,000 6,522,864
Farm Credit
System Financial
Assistance
Corporation
9.375% 7/21/03 4,000,000 4,611,880 33,570,000 38,705,203
Federal 2,050,000 2,192,209
Agricultural
Mortgage
Corporation 7.04%
8/10/05
Federal Farm
Credit Bank:
5.54% 9/10/03 1,300,000 1,289,847
9.15% 2/14/05 500,000 589,765
Federal Home Loan
Bank:
6.26% 9/24/04 3,500,000 3,585,295
8.09% 12/28/04 3,500,000 3,921,645
7.59% 3/10/05 1,940,000 2,123,699
6.5% 11/29/05 3,000,000 3,127,020
6.75% 4/10/06 1,000,000 1,056,090
Freddie Mac:
6.505% 7/01/04 3,200,000 3,311,488
6.08% 12/17/04 14,275,000 14,493,550
8.115% 1/31/05 7,350,000 8,254,932
6.783% 8/18/05 15,000,000 15,827,400
5.825% 2/09/06 4,250,000 4,251,998
6.99% 7/05/06 1,000,000 1,070,310
6.8% 3/19/07 7,300,000 7,738,000
7.1% 4/10/07 2,700,000 2,925,288
Government Loan
Trusts (assets of
Trust guaranteed
by U.S.
Government
through Agency
for International
Development)
8.5% 4/1/06 11,490,000 12,645,434
Government Trust
Certificates
(assets of Trust
guaranteed
by U.S.
Government
through Defense
Security
Assistance
Agency):
Class T-3, 3,955,274 4,168,186 8,261,158 8,705,856
9.625% 5/15/02
Class 1-C, 9.25% 8,825,964 9,340,341 55,100,821 58,312,097
11/15/01
Class 2-E, 9.40% 3,585,314 3,778,706 13,969,996 14,723,537
5/15/02
Guaranteed Export
Trust
Certificates
(assets of Trust
guaranteed by
U.S. Government
through
Export-Import
Bank):
Series 1993-C, 1,364,444 1,341,167
5.20% 10/15/04
Series 1993-D, 1,030,638 1,012,437
5.23% 5/15/05
Series 1994-A, 1,615,078 1,678,599 8,657,999 8,998,517
7.12% 4/15/06
Series 1994-C, 173,359 173,997
6.61% 9/15/99
Series 1994-F, 4,940,777 5,254,615 6,113,662 6,502,001
8.187% 12/15/04
Series 1995-A, 1,588,235 1,607,850 2,837,647 2,872,692
6.28% 6/15/04
Series 1996-A, 8,703,500 8,876,874
6.55% 6/15/04
Guaranteed Trade
Trust
Certificates
(assets of Trust
guaranteed by
U.S. Government
through
Export-Import
Bank):
Series 1992-A, 6,781,125 7,001,308
7.02% 9/1/04
Series 1997-A, 2,083,333 2,093,958 16,152,189 16,234,566
6.104% 7/15/03
Series 1994-B, 811,430 862,485
7.5% 1/26/06
Israel Export
Trust
Certificates
(assets of Trust
guaranteed
by U.S.
Government
through
Export-Import
Bank)
Series 1994-1, 1,800,000 1,843,380 7,252,941 7,427,737
6.88% 1/26/03
Overseas Private
Investment Corp.
U.S. Government
guaranteed
participation
certificate:
Series 1994-195, 1,146,800 1,153,623 8,723,200 8,775,102
6.08% 8/15/04
(callable)
Series 1996-A1, 4,000,000 4,178,240
6.726% 9/15/10
(callable)
Private Exporting
Funding Corp.
secured:
8.35% 1/31/01 3,800,000 4,031,572
5.65% 3/15/03 1,350,000 1,345,289 3,415,000 3,403,082
5.82% 6/15/03 6,400,000 6,402,560 46,900,000 46,918,760
(a)
5.48% 9/15/03 2,695,000 2,672,793
5.8% 2/1/04 4,590,000 4,594,544
6.86% 4/30/04 2,499,199 2,564,878
State of Israel
(guaranteed by
U.S. Government
through Agency
for
International
Development:
7.75% 11/15/99 5,000,000 5,125,650
6.05% 8/15/00 5,780,000 5,822,191 5,780,000 5,822,191
5.25% 9/15/00 1,000,000 992,040 14,050,000 13,938,162
6.625% 8/15/01 1,433,000 1,459,296
8% 11/15/01 2,385,000 2,544,723
6.25% 8/15/02 9,700,000 9,879,450
6.625% 8/15/03 7,000,000 7,243,110 22,360,000 23,136,563
5.625% 9/15/03 13,264,000 13,161,337
6.75% 8/15/04 350,000 367,696
7.625% 8/15/04 8,820,000 9,653,490
6.6% 2/15/08 27,910,000 29,186,045
Tennessee Valley 4,060,000 4,081,559
Authority 6%
11/01/00
U.S. Department
of Housing and
Urban Development
government
guaranteed
participation
certificates:
Series 1996-A, 5,500,000 5,540,095
6.44% 8/1/99
Series 1996-A, 230,000 233,740 1,710,000 1,737,806
6.59% 8/1/00
Series 1995-A, 7,000,000 7,581,630
8.24% 8/1/02
Series 1996-A, 8,000,000 8,535,760
6.98% 8/1/05
U.S. Trade Trust
Certificates
(assets of Trust
guaranteed by
U.S. Government 5,468,333 5,906,839
through
Export-Import
Bank) 8.17%
1/15/07
_______________
_______________
TOTAL U.S. 83,145,629 597,378,289
GOVERNMENT AGENCY
OBLIGATIONS
_______________
_______________
TOTAL U.S. 96,765,597 639,850,508
GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS
_______________
_______________
U.S. GOVERNMENT
AGENCY -
MORTGAGE-BACKED
SECURITIES--21.8%
Fannie Mae - 6.8%
5.5% 1/1/09 to 9,708,958 9,502,644
2/1/09
6% 10/1/08 to 20,177,765 20,049,209
12/1/08
8% 10/1/00 8,393 8,455
8.25% 12/1/01 5,399,212 5,824,723
8.5% 9/1/07 to 1,402,419 1,464,268
12/1/22
9% 2/1/13 939,451 998,824
9.5% 11/1/09 3,421,808 3,663,473
10% 1/1/20 132,548 145,098
10.25% 10/1/09 320,118 350,753
to 10/1/18
11% 8/1/10 to 5,161,164 5,749,604
1/1/16
11.25% 1/1/10 to 1,018,875 1,146,670
1/1/16
11.5% 9/1/11 to 3,619,410 4,129,874
6/1/19
11.75% 7/1/13 to 136,552 156,498
4/1/14
12.25% 10/1/10 1,070,327 1,238,889
to 6/1/15
12.5% 9/1/07 to 2,850,292 3,335,408
5/1/21
12.75% 10/1/11 1,182,438 1,394,870
to 6/1/15
13% 6/1/11 to 1,335,647 1,575,319
7/1/15
13.25% 9/1/11 to 611,096 729,364
9/1/13
13.5% 5/1/11 to 33,895 40,581
12/1/14
14% 6/1/11 to 103,281 123,226
12/1/14
14.5% 7/1/14 19,320 23,522
15% 4/1/12 23,371 28,455
_______________
_______________
- 61,679,727
_______________
_______________
Freddie Mac: -
7.5%
5.5% 5/1/03 to 4,514,879 4,432,844 7,783,682 7,642,253
7/1/03
6.5% 5/1/08 2,451,467 2,472,059
7% 6/1/01 to 1,491,215 1,505,124
8/1/01
8.5% 5/1/10 to 4,551,966 4,750,319
1/1/22
9% 11/1/09 to 1,168,351 1,225,586
8/1/16
9.5% 7/1/16 to 6,912,663 7,435,084
8/1/21
10% 12/1/00 to 11,620,060 12,661,901
2/1/23
10.5% 9/1/09 to 7,808,608 8,677,375
1/1/21
10.75% 7/1/13 122,045 136,300
11% 8/1/00 to 875,896 985,306
9/1/20
11.25% 2/1/10 to 1,005,836 1,128,073
10/1/14
11.5% 10/1/15 to 559,102 633,049
8/1/19
11.75% 1/1/10 to 207,579 234,175
10/1/15
12% 1/1/00 to 2,042,809 2,343,090
11/1/19
12.25% 2/1/11 to 827,750 958,011
8/1/15
12.5% 10/1/09 to 10,247,408 11,913,834
6/1/19
12.75% 2/1/10 to 191,606 222,191
1/1/11
13% 9/1/10 to 1,563,053 1,842,267
5/1/17
13.25% 11/1/10 140,838 163,998
to 12/1/14
13.5% 11/1/10 to 311,184 369,478
10/1/14
13.75% 10/1/14 13,490 14,329
14% 11/1/12 to 46,673 55,991
4/1/16
14.5% 12/1/10 to 90,703 109,269
9/1/12
14.75% 3/1/10 29,201 35,178
16.25% 7/1/11 7,132 8,634
_______________
_______________
4,432,844 67,522,874
_______________
_______________
Government
National Mortgage
Association -
7.5%
8% 9/15/06 to 937,735 975,136
11/15/07
8.5% 4/15/16 to 58,656 62,300 152,847 162,363
7/15/17
9% 1/15/04 to 1,407,924 1,499,467
5/15/17
9.5% 1/15/09 to 697,962 753,834 13,074,277 14,105,203
11/15/20
10% 11/15/09 to 2,984,189 3,254,204 6,403,215 6,991,183
11/15/20
10.5% 2/15/14 to 6,290,281 6,974,970 10,636,403 11,768,007
2/15/25
10.75% 12/15/09 180,757 198,699 243,870 268,076
to 3/15/10
11% 4/15/00 to 2,121,305 2,367,444 7,002,909 7,828,998
1/15/21
11.5% 3/15/10 to 2,411,351 2,724,849 17,688,613 19,953,061
1/15/21
12% 11/15/12 to 290,588 333,360 1,265,873 1,446,917
6/15/16
12.25% 1/15/14 50,643 57,349
12.5% 12/15/10 39,350 45,269 104,651 120,895
to 6/15/14
13% 1/15/11 to 34,739 40,546 1,086,450 1,271,024
12/15/14
13.25% 9/15/13 194,947 224,856
to 10/15/14
13.5% 5/15/10 to 528,207 617,185
12/15/14
14% 6/15/11 to 87,123 103,016
12/15/14
16% 4/15/13 163,590 197,841
17% 12/15/11 3,351 4,010
_______________
_______________
16,755,475 67,594,587
_______________
_______________
TOTAL U.S. 21,188,319 196,797,188
GOVERNMENT AGENCY
- - MORTGAGE-BACKED
SECURITIES
_______________
_______________
COLLATERALIZED
MORTGAGE
OBLIGATIONS--0.2%
U.S. GOVERNMENT
AGENCY--0.2%
Fannie Mae 1,661,689 1,775,931
planned
amortization
class Series
1988-21, Class G,
9.5% 8/25/18
Freddie Mac 100,581 100,266
sequential pay
Series 1353 Class
A, 5.5% 11/15/04
_______________
_______________
TOTAL U.S. - 1,876,197
GOVERNMENT AGENCY
_______________
_______________
TOTAL - 1,876,197
COLLATERALIZED
MORTGAGE
OBLIGATIONS
_______________
_______________
CASH EQUIVALENTS
- -- 7.1%
Investments in MATURITY MATURITY
repurchase
agreements
(U.S. Treasury AMOUNT AMOUNT
obligations),
In a joint
account at:
5.62%, dated $ 8,064,775 8,061,000 $ 55,346,908 55,321,000
7/31/98 due
8/03/98
5.63%, dated 8,700,080 8,696,000
7/31/98 due
8/03/98
_______________
_______________
TOTAL CASH 8,061,000 64,017,000
EQUIVALENTS
_______________
_______________
TOTAL INVESTMENTS $ 126,014,916 $ 902,540,893
IN SECURITIES -
100%
TOTAL COST OF $ 126,111,119 $ 895,241,343
INVESTMENTS
LEGEND
</TABLE>
(a) Security exempt from registration under Rule 144A of the
Securities Act of
1933 These securities may be resold in transactions exempted from
registration,
normally to qualified institutional buyers At the period end, the
value of these
securities amounted to $36,714,680 or 5.2% of net assets of Fidelity
Intermediate
Government Income Fund, $3,801,520 or 5.0% of net assets for Spartan
Short-
Intermediate Government Fund, and $6,402,560 or 5.0% of net assets
for Fidelity
Short-Intermediate Government Fund.
value of 144A's
Total Net Assets per fund
<TABLE>
<CAPTION>
<S> <C>
FIDELITY INCOME FUND: FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FIDELITY FIXED INCOME TRUST: SPARTAN SHORT-INTERMEDIATE GOVERNMENT FUND
FIDELITY CHARLES STREET TRUST: FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS
12 MONTHS ENDED JULY 31, 1998
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FID. INTER. GOV'T. SP. SHORT-INTER. FID. SHORT-INTER.
INCOME FUND GOV'T. FUND GOV'T. FUND
INTEREST
INCOME
Interest $ 51,759,065 $ 5,098,143 $ 8,756,745
Income
EXPENSES
Management 4,788,011 485,324 542,776
fee
Transfer agent - - 280,075
fees
Accounting - - 62,082
fees and
expenses
Trustees' fees 3,115 1,228 445
Custodian - - 26,992
fees and
expenses
Registration - - 29,189
fees
Audit - - 38,642
Legal - - 5,383
Miscellaneous - - 655
Total 4,791,126 486,552 986,239
expenses
before
reductions
Expense (1,994,126) (470) -
reductions
Total 2,797,000 486,082 986,239
expenses
NET INTEREST 48,962,065 4,612,061 7,770,506
INCOME
REALIZED AND
UNREALIZED
GAIN (LOSS)
Net realized 5,967,502 132,891 1,201,535
gain (loss) on
investment
securities
Change in
net unrealized
appreciation
(depreciation) (6,213,677) (493,507) (1,912,546)
on investment
securities
NET GAIN (246,175) (360,616) (711,011)
(LOSS)
NET INCREASE
(DECREASE) IN
NET
ASSETS $48,715,890 $ 4,251,445 $7,059,495
RESULTING
FROM
OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
INTEREST
INCOME
Interest $65,613,953 $ - $65,613,953
Income
EXPENSES
Management 5,816,111 262,297 (b) 6,078,408
fee
Transfer agent 280,075 (280,075) (c) -
fees
Accounting 62,082 (62,082) (c) -
fees and
expenses
Trustees' fees 4,788 (829) (d) 3,959
Custodian 26,992 (26,992) (c) -
fees and
expenses
Registration 29,189 (29,189) (c) -
fees
Audit 38,642 (38,642) (c) -
Legal 5,383 (5,383) (c) -
Miscellaneous 655 (655) (c) -
Total 6,263,917 (181,550) 6,082,367
expenses
before
reductions
Expense (1,994,596) 1,795,593 (e) (199,003)
reductions
Total 4,269,321 1,614,043 5,883,364
expenses
NET INTEREST 61,344,632 (1,614,043) 59,730,589
INCOME
REALIZED AND
UNREALIZED
GAIN (LOSS)
Net realized 7,301,928 - 7,301,928
gain (loss) on
investment
securities
Change in
net unrealized
appreciation
(depreciation) (8,619,730) - (8,619,730)
on investment
securities
NET GAIN (1,317,802) - (1,317,802)
(LOSS)
NET INCREASE
(DECREASE) IN
NET
ASSETS $ 60,026,830 $ (1,614,043) $ 58,412,787
RESULTING
FROM
OPERATIONS
CAPITALIZATI
ON
The following
table shows
the
capitalization
of the funds
as of July 31,
1998 and on a
pro forma
combined
basis
(unaudited) as
of that date
giving effect to
the
Reorganizatio
n.
Reinvest price: $
9.78
TOTALS
NET ASSET Fid. Inter. Gov't. $ 703,830,764
VALUE
Sp. Short-Inter. $ 75,535,644
Fid. Short-Inter. $ 127,761,710 $ 907,128,118
SHARES Fid. Inter. Gov't. 71,942,356
71,9
42,3
56
OUTSTANDING Sp. Short-Inter. 8,053,544
7,72
3,48
1
Fid. Short-Inter. 13,639,898 92,729,407
13,0
63,5
70
NET ASSET Fid. Inter. Gov't. $ 703,830,764
VALUE
Sp. Short-Inter. $ 75,535,644 $ 779,366,408
SHARES Fid. Inter. Gov't. 71,942,356
71,9
42,3
56
OUTSTANDING Sp. Short-Inter. 8,053,544 79,665,837
7,72
3,48
1
NET ASSET Fid. Inter. Gov't. $ 703,830,764
VALUE
Fid. Short-Inter. $ 127,761,710 $ 831,592,474
SHARES Fid. Inter. Gov't. 71,942,356
71,9
42,3
56
OUTSTANDING Fid. Short-Inter. 13,639,898 85,005,926
13,0
63,5
70
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY INCOME FUND: FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FIDELITY FIXED INCOME TRUST: SPARTAN SHORT-INTERMEDIATE GOVERNMENT FUND
FIDELITY CHARLES STREET TRUST: FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES AS OF JULY 31, 1998
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FID. INTER. GOV'T. SP. SHORT-INTER. FID. SHORT-INTER.
INCOME FUND GOV'T. FUND GOV'T FUND
ASSETS
Investment in $ 699,382,023 $ 77,143,954 $126,014,916
securities, at value -
See accompanying
schedule
Cash 1,099 937 269,533
Receivable for 863,784 - -
investments sold
Receivable for fund 368,334 33,244 158,714
shares sold
Interest receivable 10,263,836 992,951 1,848,746
Other receivable 62,389 - -
TOTAL ASSETS 710,941,465 78,171,086 128,291,909
LIABILITIES
Payable for 5,630,455 2,252,182 -
investments
purchased
Payable for fund 602,075 304,322 320,925
shares redeemed
Distributions payable 632,633 37,060 103,441
Accrued 225,844 41,480 46,420
management fee
Other payables and 19,694 398 59,413
accrued expenses
TOTAL LIABILITIES 7,110,701 2,635,442 530,199
NET ASSETS $703,830,764 $75,535,644 $127,761,710
Net Assets consist of:
Paid in capital $750,604,476 $79,437,548 $138,028,727
Undistributed net 1,866,734 233,514 208,732
investment income
Accumulated (55,913,472) (4,258,158) (10,379,546)
undistributed net
realized gain (loss)
on investments
Net unrealized 7,273,026 122,740 (96,203)
appreciation
(depreciation) on
investments
NET ASSETS $703,830,764 $75,535,644 $127,761,710
NET ASSETS $703,830,764 $75,535,644 $127,761,710
Net Asset Value, $9.78 $9.38 $9.37
offering price and
redemption price per
share
Shares outstanding 71,942,356 8,053,544 13,639,898
</TABLE>
COMBINED PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
ASSETS
Investment in $ 902,540,893 $- $902,540,893
securities, at value -
See accompanying
schedule
Cash 271,569 - 271,569
Receivable for 863,784 - 863,784
investments sold
Receivable for fund 560,292 - 560,292
shares sold
Interest receivable 13,105,533 - 13,105,533
Other receivable 62,389 - 62,389
TOTAL ASSETS 917,404,460 - 917,404,460
LIABILITIES
Payable for 7,882,637 - 7,882,637
investments
purchased
Payable for fund 1,227,322 - 1,227,322
shares redeemed
Distributions payable 773,134 - 773,134
Accrued 313,744 - 313,744
management fee
Other payables and 79,505 - 79,505
accrued expenses
TOTAL LIABILITIES 10,276,342 - 10,276,342
NET ASSETS $907,128,118 $- $907,128,118
Net Assets consist of:
Paid in capital $ 968,070,751 - $968,070,751
Undistributed net 2,308,980 - 2,308,980
investment income
Accumulated (70,551,176) - (70,551,176)
undistributed net
realized gain (loss)
on investments
Net unrealized 7,299,563 - 7,299,563
appreciation
(depreciation) on
investments
NET ASSETS $907,128,118 $- $907,128,118
NET ASSETS $907,128,118 $907,128,118
Net Asset Value, $9.78
offering price and
redemption price per
share
Shares outstanding 93,635,798 (906,391)(a) 92,729,407
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fidelity Intermediate Gov't. Income
Fidelity Short Intermediate Gov't.
Spartan Short Intermediate Gov't.
Pro Forma Combining Schedule of Total Returns and Expense Ratios
(Unaudited)
FISCAL YEAR ENDED JULY
31,
If Fidelity Intermediate Gov't. Income acquires:
1998 1997 1996
Fidelity Short Intermediate Gov't. & Spartan Short Intermediate Gov't.
One year total return 6.39% 8.25% 5.35%
Ratio of expenses to average net assets 0.63% 0.63% 0.62%
One year total return before expense reductions 6.37% 8.23% 5.32%
Ratio of expenses to average net assets before expense reductions 0.65% 0.65% 0.65%
Fidelity Short Intermediate Gov't.
One year total return 6.45% 8.32% 5.39%
Ratio of expenses to average net assets 0.63% 0.63% 0.62%
One year total return before expense reductions 6.43% 8.30% 5.36%
Ratio of expenses to average net assets before expense reductions 0.65% 0.65% 0.65%
Spartan Short Intermediate Gov't.
One year total return 6.45% 8.37% 5.44%
Ratio of expenses to average net assets 0.63% 0.63% 0.62%
One year total return before expense reductions 6.43% 8.35% 5.41%
Ratio of expenses to average net assets before expense reductions 0.65% 0.65% 0.65%
</TABLE>
Fidelity Income Fund: Fidelity Intermediate Government Income Fund
Fidelity Fixed Income Trust: Spartan Short-Intermediate Government
Fund and
Fidelity Charles Street Trust: Fidelity Short-Intermediate Government
Fund
Notes to Pro Forma Combining Financial Statements
(Unaudited)
The accompanying unaudited Pro Forma Combining Schedule of
Investments and Statement of Assets and Liabilities as of July 31,
1998 and the unaudited Pro Forma Combining Statement of Operations for
the year ended July 31, 1998 are intended to present the financial
condition and related results of operations of Fidelity Intermediate
Government Income Fund as if the reorganization with Spartan
Short-Intermediate Government Fund & Fidelity Short-Intermediate
Government Fund, had been consummated at August 31, 1997. Had the pro
forma adjustments not included the effect of the expense limitations,
Pro Forma Combined Expense reductions would have been $8,016,
resulting in Pro Forma Combined Net Interest Income and Pro Forma
Combined Net Increase in Net Assets resulting from operations of
$59,539,602 and $58,221,800, respectively.
The pro forma adjustments to these pro forma financial statements are
comprised of:
(a) Reflects the conversion of Spartan Short-Intermediate Government
Fund and
Fidelity Short-Intermediate Government Fund shares as of July
31,1998.
(b) Increase in fees reflects Fidelity Intermediate Government Funds'
all-inclusive management fee rate of 0.65% charged against combined
average net assets.
(c) Decrease in fees reflects change to Fidelity Intermediate
Government Fund's all-inclusive
fee structure.
(d) Decrease in fees reflects net decrease in costs incurred as a
result of the reorganization.
(e) Reflects reduction in expenses due to FMR's agreement to
voluntarily limit the combined fund's expenses to 0.63% of average net
assets.
The unaudited pro forma combining statements should be read in
conjunction with the separate annual audited financial statements as
of April 30, 1998 for Spartan Short-Intermediate Government Fund,
September 30, 1998 for Fidelity Short-Intermediate Government Fund,
and July 31, 1998 for Fidelity Intermediate Government Income Fund,
which are incorporated by reference in the Statement of Additional
Information to this Proxy Statement and Prospectus.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash Portfolios
Fidelity Advisor Series III Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series VII Fidelity Money Market Trust
Fidelity Advisor Series VIII Fidelity Mt. Vernon Street Trust
Fidelity Beacon Street Trust Fidelity Municipal Trust
Fidelity Boston Street Trust Fidelity Municipal Trust II
Fidelity California Municipal Trust Fidelity New York Municipal Trust
Fidelity California Municipal Trust II Fidelity New York Municipal Trust II
Fidelity Capital Trust Fidelity Phillips Street Trust
Fidelity Charles Street Trust Fidelity Puritan Trust
Fidelity Commonwealth Trust Fidelity Revere Street Trust
Fidelity Concord Street Trust Fidelity School Street Trust
Fidelity Congress Street Fund Fidelity Securities Fund
Fidelity Contrafund Fidelity Select Portfolios
Fidelity Corporate Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Court Street Trust Fidelity Summer Street Trust
Fidelity Court Street Trust II Fidelity Trend Fund
Fidelity Covington Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Daily Money Fund Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Union Street Trust II
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Newbury Street Trust
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund Variable Insurance Products Fund III
Fidelity Hastings Street Trust
</TABLE>
in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
