As filed with the Securities and Exchange Commission
on February 3, 1999
Registration No. 2-92661
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
Fidelity 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 March 5,
1999, pursuant to Rule 488.
Fidelity Ginnie Mae Fund
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and
documents:
Facing Page
Contents of Registration Statement
Cross Reference Sheet
Solicitation Letter to Shareholders
Form of Proxy Card
Notice of Special Meeting
Part A - Proxy Statement and Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
FIDELITY INCOME FUND:
FIDELITY GINNIE MAE FUND
FORM N-14 CROSS REFERENCE SHEET
PART A
Form N-14 Item Number and Prospectus/Proxy Statement
Caption Caption
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page of Prospectus
3. Fee Table, Synopsis Synopsis; Comparison of Other
Information and Risk Factors Policies of the Funds;
Comparison of Principal Risk
Factors; The Proposed
Transaction
4. Information About the Synopsis; The Proposed
Transactions Transaction; Prospectus of
Fidelity Ginnie Mae Fund
dated September 21, 1998
5. Information About the Synopsis; Comparison of Other
Registrant Policies of the Funds;
Comparison of Principal Risk
Factors; Miscellaneous;
Additional Information About
Fidelity Ginnie Mae Fund;
Prospectus of Fidelity
Ginnie Mae Fund dated
September 21, 1998;
Attachment I.
6. Information About the Cover Page; Synopsis;
Company Being Acquired Comparison of Other Policies
of the Funds; Comparison of
Principal Risk Factors;
Miscellaneous; Prospectus of
Spartan Ginnie Mae Fund
dated October 20, 1998
7. Voting Information Voting Information
8. Interest of Certain Not applicable
Persons and Experts
9. Additional Information Not applicable
Required for Reoffering
by Persons Deemed to be
Underwriters
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 Prospectus and Statement of
About the Registrant Additional Information of
Fidelity Ginnie Mae Fund
dated September 21, 1998
13. Additional Information Not applicable
About the Company Being
Acquired
14. Financial Statements Financial Statements included
in the Annual Report of
Spartan Ginnie Mae Fund for
the Fiscal Year Ended August
31, 1998;
Financial Statements included
in the Annual Report of
Fidelity Ginnie Mae Fund for
the Fiscal Year Ended July
31, 1998.
Pro-Forma Financial
Statements as of 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.
IMPORTANT PROXY MATERIALS
PLEASE CAST YOUR VOTE NOW!
Dear Shareholder:
I am writing to ask you for your vote on an important proposal to
merge Spartan(Registered trademark) Ginnie Mae Fund into Fidelity
Ginnie Mae Fund. A shareholder meeting is scheduled for May 19, 1999.
Votes received in time to be counted at the meeting will decide
whether the merger takes place. This package contains information
about the proposal and includes all the materials you will need to
vote by mail.
The fund's Board of Trustees has reviewed the proposed merger and has
recommended that the proposed merger be presented to shareholders.
The Trustees, most of whom are not affiliated with Fidelity, are
responsible for protecting your interests as a shareholder. The
Trustees have determined that the proposed merger is in shareholders'
best interest. However, the final decision is up to you.
The proposed merger would give shareholders of Spartan Ginnie Mae 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 (March 22, 1999). Your
vote is extremely important, no matter how large or small your
holdings may be.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED.
To cast your vote, simply complete the proxy card enclosed in this
package. Be sure to sign the card before mailing it in the
postage-paid envelope provided.
If you have any questions before you vote, please call us at
1-800-544-8888. We will be glad to help you get your vote in quickly.
Thank you for your participation in this important initiative for your
fund.
Sincerely,
Edward C. Johnson 3d
Chairman and Chief Executive Officer
Important information to help you understand and vote on the proposal
Please read the full text of the enclosed proxy statement. Below is a
brief overview of the proposal to be voted upon. Your vote is
important. We appreciate you placing your trust in Fidelity and look
forward to helping you achieve your financial goals.
WHAT PROPOSAL AM I BEING ASKED TO VOTE ON?
You are being asked to approve a merger of Spartan Ginnie Mae Fund
into Fidelity Ginnie Mae Fund.
WHAT IS THE REASON FOR AND ADVANTAGES OF THIS MERGER?
The proposed merger is part of a wider strategy by Fidelity to reduce
the number of similar bond funds it manages. The combined fund would
have lower expenses guaranteed through June 30, 2001, and similar
investment policies.
DO THE FUNDS BEING MERGED HAVE SIMILAR INVESTMENT POLICIES?
Both funds are bond funds that seek high current income by investing
primarily in GNMA (Government National Mortgage Association)
securities whose interest and principal are guaranteed by the U.S.
Government. In addition, both funds have similar portfolios in terms
of holdings, interest rate risk, and average maturity.
WHO IS THE FUND MANAGER FOR THESE FUNDS?
Tom Silvia currently manages both funds and is expected to manage the
combined fund.
HOW DO THE EXPENSE STRUCTURES OF THE FUNDS COMPARE?
Spartan Ginnie Mae Fund and Fidelity Ginnie Mae Fund have different
contractual expense structures. Spartan Ginnie Mae Fund pays an
all-inclusive management fee to Fidelity Management & Research Company
(FMR) while Fidelity Ginnie Mae Fund pays its management fees and
other expenses separately. If the merger is approved the combined
fund will retain Fidelity Ginnie Mae's current expense structure.
However, FMR has agreed to limit the combined fund's total operating
expenses to 0.63% of average net assets through June 30, 2001. After
that date, the combined fund's expenses could increase or decrease, as
permitted by the Fidelity Ginnie Mae Fund management contract.
WHAT WILL BE THE NAME OF THE COMBINED FUND AFTER THE MERGER IS
COMPLETED?
If shareholders of Spartan Ginnie Mae Fund approve the merger of their
fund into Fidelity Ginnie Mae Fund, the combined fund's name will
remain Fidelity Ginnie Mae Fund.
IS THE MERGER A TAXABLE EVENT FOR FEDERAL INCOME TAX PURPOSES?
Typically, the exchange of shares pursuant to a merger does not result
in a gain or loss for federal income tax purposes.
WHAT WILL BE THE SIZE OF FIDELITY GINNIE MAE FUND AFTER THE MERGER AND
HOW HAS THE FUND PERFORMED?
If the proposal is approved, the combined fund is anticipated to have
over $1.5 billion in assets.
The table below shows average annual total returns for both Fidelity
Ginnie Mae Fund and its Lipper peer group over the last 1, 3, 5, and
10 year periods. Please keep in mind that past performance is no
guarantee of future results and you may have a gain or loss when you
sell your shares.
AVERAGE ANNUAL TOTAL RETURN AS OF DECEMBER 31, 1998*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Fidelity Ginnie Mae Fund 6.39% 6.64% 6.74% 8.41%
Lipper GNMA Funds Average** 6.47% 6.36% 6.51% 8.30%
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF FIDELITY GINNIE MAE
THAT I WILL RECEIVE?
As of the close of business of the New York Stock Exchange on the
Closing Date of the merger, shareholders will receive the number of
full and fractional shares of Fidelity Ginnie Mae Fund that is equal
in value to the net asset value of their shares of Spartan Ginnie Mae
Fund on that date. The anticipated closing date is May 27, 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 (May 19, 1999), the meeting may be
adjourned to permit further solicitation of proxy votes.
HAS THE FUND'S BOARD OF TRUSTEES APPROVED THE PROPOSAL?
Yes. The Board of Trustees has unanimously approved the proposal and
recommends that you vote to approve it.
HOW MANY VOTES AM I ENTITLED TO CAST?
As a shareholder, you are entitled to one vote for each dollar of net
asset value you own of Spartan Ginnie Mae on the record date. The
record date is March 22, 1999.
HOW DO I VOTE MY SHARES?
You can vote your shares by completing and signing the enclosed proxy
card, and mailing it in the enclosed postage paid envelope. If you
need any assistance, or have any questions regarding the proposal or
how to vote your shares, please call Fidelity at 800-544-8888.
HOW DO I SIGN THE PROXY CARD?
INDIVIDUAL ACCOUNTS: Shareholders should sign exactly as their names
appear on the account registration shown on the card.
JOINT ACCOUNTS: Either owner may sign, but the name of the person
signing should conform exactly to a name shown in the registration.
ALL OTHER ACCOUNTS: The person signing must indicate his or her
capacity. For example, a trustee for a trust or other entity should
sign, "Ann B. Collins, Trustee."
* Average annual total returns are historical and include changes in
share price, reinvestment of dividends and capital gains, if any.
Share price, yield and return will vary.
** Lipper, Inc. is a nationally recognized organization that reports
on mutual fund total return performance and calculates fund rankings.
Lipper averages are based on universes of funds with the same
investment objective. Peer group averages include reinvested dividends
and capital gains, if any, and exclude sales charges.
FOR MORE COMPLETE 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.
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 UNION STREET TRUST: SPARTAN GINNIE MAE FUND
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward
C. Johnson 3d, Eric D. Roiter, and Gerald C. McDonough, or any one or
more of them, attorneys, with full power of substitution, to vote all
shares of Fidelity Union Street Trust: Spartan Ginnie Mae 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 May 19, 1999 at 10:00 a.m.
Eastern time and at any adjournments thereof. All powers may be
exercised by a majority of said proxy holders or substitutes voting or
acting or, if only one votes and acts, then by that one. This Proxy
shall be voted on the proposals described in the Proxy Statement as
specified on the reverse side. Receipt of the Notice of the Meeting
and the accompanying Proxy Statement is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When
signing in a fiduciary capacity, such as executor, administrator,
trustee, attorney, guardian, etc., please so indicate. Corporate and
partnership proxies should be signed by an authorized person
indicating the person's title.
Date_____________, 1999
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
cusip # 316448307/fund # 461
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 Agreement and FOR [ ] AGAINST [ ] ABSTAIN [ ] 1.
Plan of Reorganization
between Spartan Ginnie Mae
Fund and Fidelity Ginnie Mae
Fund, a fund of Fidelity
Income Fund, providing for
the transfer of all of the
assets of Spartan Ginnie Mae
Fund to Fidelity Ginnie Mae
Fund in exchange solely for
shares of beneficial
interest in Fidelity Ginnie
Mae Fund and the assumption
by Fidelity Ginnie Mae Fund
of Spartan Ginnie Mae Fund's
liabilities, followed by the
distribution of shares of
Fidelity Ginnie Mae Fund to
shareholders of Spartan
Ginnie Mae Fund in
liquidation of Spartan
Ginnie Mae Fund.
SGM-PXC-399 cusip # 316448307/fund# 461
SPARTAN(Registered trademark) GINNIE MAE FUND
A FUND OF
FIDELITY UNION STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Spartan Ginnie Mae Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
Meeting) of Spartan Ginnie Mae Fund (Spartan Ginnie Mae) will be held
at the office of Fidelity Union Street Trust (the trust), 82
Devonshire Street, Boston, Massachusetts 02109 on May 19, 1999, at
10:00 a.m. Eastern time. The purpose of the Meeting is to consider and
act upon the following proposal, and to transact such other business
as may properly come before the Meeting or any adjournments thereof.
(1) To approve an Agreement and Plan of Reorganization between
Spartan Ginnie Mae and Fidelity Income Fund: Fidelity Ginnie Mae Fund
(Fidelity Ginnie Mae) providing for the transfer of all of the assets
of Spartan Ginnie Mae to Fidelity Ginnie Mae in exchange solely for
shares of beneficial interest of Fidelity Ginnie Mae and the
assumption by Fidelity Ginnie Mae of Spartan Ginnie Mae's liabilities,
followed by the distribution of Fidelity Ginnie Mae shares to
shareholders of Spartan Ginnie Mae in liquidation of Spartan Ginnie
Mae.
The Board of Trustees has fixed the close of business on March 22,
1999 as the record date for the determination of the shareholders of
Spartan Ginnie Mae entitled to notice of, and to vote at, such Meeting
and any adjournments thereof.
By order of the Board of Trustees,
ERIC D. ROITER, Secretary
March 22, 1999
YOUR VOTE IS IMPORTANT
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY
SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO
INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN
IT, AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE
ASK YOUR COOPERATION IN MAILING YOUR PROXY CARD PROMPTLY, NO MATTER
HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of
assistance to you and help avoid the time and expense involved in
validating your vote if you fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it
appears in the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual
signing. This can be shown either in the form of the account
registration itself or by the individual executing the proxy card. For
example:
REGISTRATION VALID SIGNATURE
A. 1 ABC Corp. John Smith, Treasurer
2 ABC Corp. John Smith, Treasurer
c/o John Smith, Treasurer
B. 1 ABC Corp. Profit Sharing Plan Ann B. Collins, Trustee
2 ABC Trust Ann B. Collins, Trustee
3 Ann B. Collins, Trustee Ann B. Collins, Trustee
u/t/d 12/28/78
C. 1 Anthony B. Craft, Cust. Anthony B. Craft
F/b/o Anthony B. Craft, Jr.
UGMA
SPARTAN(Registered trademark) GINNIE MAE FUND
A FUND OF
FIDELITY UNION STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
PROXY STATEMENT AND PROSPECTUS
MARCH 22, 1999
This Proxy Statement and Prospectus (Proxy Statement) is being
furnished to shareholders of Spartan Ginnie Mae Fund (Spartan Ginnie
Mae), a fund of Fidelity Union Street Trust (the trust), in connection
with the solicitation of proxies by the trust's Board of Trustees for
use at the Special Meeting of Shareholders of Spartan Ginnie Mae and
at any adjournments thereof (the Meeting). The Meeting will be held on
May 19, 1999 at 10:00 a.m. Eastern time at 82 Devonshire Street,
Boston, Massachusetts 02109, the principal executive office of the
trust.
As more fully described in the Proxy Statement, the purpose of the
Meeting is to vote on a proposed reorganization (Reorganization).
Pursuant to an Agreement and Plan of Reorganization (the Agreement),
Spartan Ginnie Mae would transfer all of its assets to Fidelity Income
Fund: Fidelity Ginnie Mae Fund (Fidelity Ginnie Mae) in exchange
solely for shares of beneficial interest of Fidelity Ginnie Mae and
the assumption by Fidelity Ginnie Mae of Spartan Ginnie Mae's
liabilities. The number of shares to be issued in the proposed
Reorganization will be based upon the relative net asset values of the
funds at the time of the exchange. As provided in the Agreement,
Spartan Ginnie Mae will distribute shares of Fidelity Ginnie Mae to
its shareholders in liquidation of Spartan Ginnie Mae on May 27, 1999,
or such other date as the parties may agree (the Closing Date).
Fidelity Ginnie Mae is a bond fund, a diversified fund of Fidelity
Income Fund, an open-end management investment company organized as a
Massachusetts business trust on August 7, 1984. Fidelity Ginnie Mae's
investment objective is to seek 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.
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.
This Proxy Statement, which should be retained for future reference,
sets forth concisely the information about the Reorganization and
Fidelity Ginnie Mae that a shareholder should know before voting on
the proposed Reorganization. The Statement of Additional Information
dated March 22, 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 January 1, 1999,
which offers shares of Fidelity Ginnie Mae. The Statement of
Additional Information for Fidelity Ginnie Mae dated September 21,
1998 and supplemented October 8, 1998, is available upon request.
Attachment 1 contains excerpts from the Annual Report of Fidelity
Ginnie Mae dated July 31, 1998. The Prospectus and Statement of
Additional Information for Fidelity Ginnie Mae have been filed with
the SEC and are incorporated herein by reference. A Prospectus and
Statement of Additional Information for Spartan Ginnie Mae, both dated
October 20, 1998 and supplemented, in the case of the prospectus, on
January 1, 1999, have been filed with the SEC and are incorporated
herein by reference. Copies of these documents may be obtained without
charge by contacting the trust or Fidelity Income Fund at Fidelity
Distributors Corporation, 82 Devonshire Street, Boston, Massachusetts
02109 or by calling 1-800-544-8888.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Voting Information 12
Synopsis 13
Comparison Of Other Policies Of The Funds 17
Comparison Of Principal Risk Factors 18
The Proposed Transaction 18
Additional Information About Fidelity Ginnie Mae 21
Miscellaneous 23
Attachment 1- Excerpts From Annual Report Of Fidelity Ginnie Mae Fund Dated July 31, 1998 22
Exhibit 1. Form of Agreement and Plan of Reorganization between Spartan Ginnie Mae Fund and
Fidelity Ginnie Mae Fund
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF
SPARTAN GINNIE MAE FUND
A FUND OF
FIDELITY UNION STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
TO BE HELD ON MAY 19, 1999
_________________________________
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of,
the Board of Trustees of Fidelity Union Street Trust (the trust) to be
used at the Special Meeting of Shareholders of Spartan Ginnie Mae Fund
(Spartan Ginnie Mae) and at any adjournments thereof (the Meeting), to
be held on Wednesday, May 19, 1999 at 10:00 a.m. at 82 Devonshire
Street, Boston, Massachusetts 02109, the principal executive office of
the trust and Fidelity Management & Research Company (FMR), Spartan
Ginnie Mae's investment adviser.
The purpose of the Meeting is set forth in the accompanying Notice.
The solicitation is made primarily by the mailing of this Proxy
Statement and the accompanying proxy card on or about March 22, 1999.
Supplementary solicitations may be made by mail, telephone, telegraph,
facsimile, electronic means or by personal interview by
representatives of the trust. In addition, D.F. King & Co., Inc.
and/or Management Information Services Corp. may be paid on a per-call
basis to solicit shareholders on behalf of the fund at an anticipated
cost of approximately $3,000. The expenses in connection with
preparing this Proxy Statement and its enclosures and of all
solicitations will be borne by FMR. FMR will reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation
material to the beneficial owners of shares.
If the enclosed proxy card is executed and returned, it may
nevertheless be revoked at any time prior to its use by written
notification received by the trust, by the execution of a later-dated
proxy card, or by attending the Meeting and voting in person.
All proxy cards solicited by the Board of Trustees that are properly
executed and received by the Secretary prior to the Meeting, and which
are not revoked, will be voted at the Meeting. Shares represented by
such proxies will be voted in accordance with the instructions
thereon. If no specification is made on a proxy card, it will be voted
FOR the matters specified on the proxy card. Only proxies that are
voted will be counted toward establishing a quorum. Broker non-votes
are not considered voted for this purpose. Shareholders should note
that while votes to ABSTAIN will count toward establishing a quorum,
passage of any proposal being considered at the Meeting will occur
only if a sufficient number of votes are cast FOR the proposal.
Accordingly, votes to ABSTAIN and votes AGAINST will have the same
effect in determining whether the proposal is approved.
Spartan Ginnie Mae 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 the fund at an anticipated
cost of approximately $4,000. The expenses in connection with
telephone voting will be borne by FMR. If the fund records votes by
telephone, it will use procedures designed to authenticate
shareholders' identities, to allow shareholders to authorize the
voting of their shares in accordance with their instructions, and to
confirm that their instructions have been properly recorded. Proxies
given by telephone may be revoked at any time before they are voted in
the same manner that proxies voted by mail may be revoked.
If a quorum is not present at the Meeting, or if a quorum is present
at the Meeting but sufficient votes to approve one or more of the
proposed items are not received, or if other matters arise requiring
shareholder attention, the persons named as proxy agents may propose
one or more adjournments of the Meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of
a majority of those shares present at the Meeting or represented by
proxy. When voting on a proposed adjournment, the persons named as
proxy agents will vote FOR the proposed adjournment all shares that
they are entitled to vote with respect to each item, unless directed
to vote AGAINST the item, in which case such shares will be voted
against the proposed adjournment with respect to that item. A
shareholder vote may be taken on one or more of the items in this
Proxy Statement or on any other business properly presented at the
meeting prior to such adjournment if sufficient votes have been
received and it is otherwise appropriate.
On November 30, 1998 there were 63,494,036.819 and 97,654,630.651
shares issued and outstanding for Spartan Ginnie Mae and Fidelity
Ginnie Mae Fund (Fidelity Ginnie Mae), respectively. Shareholders of
record at the close of business on March 22, 1999 will be entitled to
vote at the Meeting. Each such shareholder will be entitled to one
vote for each dollar of net asset value held on that date.
As of 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.
To the knowledge of the trust and Fidelity Income Fund, no
shareholder owned of record or beneficially 5% or more of the
outstanding shares of each fund on that date. It is not anticipated
that any shareholders will own of record or beneficially 5% or more of
the outstanding shares of the combined fund as a result of the
Reorganization.
VOTE REQUIRED: APPROVAL OF THE REORGANIZATION REQUIRES THE AFFIRMATIVE
VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" OF SPARTAN
GINNIE MAE. UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE 1940 ACT),
THE VOTE OF A "MAJORITY OF THE OUTSTANDING VOTING SECURITIES" MEANS
THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE VOTING
SECURITIES PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE
HOLDERS OF MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE
PRESENT OR REPRESENTED BY PROXY OR (B) MORE THAN 50% OF THE
OUTSTANDING VOTING SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED
"PRESENT" FOR THIS PURPOSE.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement, in the Agreement, and in the Prospectuses of
Spartan Ginnie Mae and Fidelity Ginnie Mae, which are incorporated
herein by this reference. Shareholders should read the entire Proxy
Statement and the Prospectus of Fidelity Ginnie Mae carefully for more
complete information.
The proposed reorganization (the Reorganization) would merge Spartan
Ginnie Mae into Fidelity Ginnie Mae, a bond fund also managed by FMR.
If the Reorganization is approved, Spartan Ginnie Mae will cease to
exist and current shareholders of the fund will become shareholders of
Fidelity Ginnie Mae instead.
INVESTMENT OBJECTIVES AND POLICIES
The following summarizes the investment objective and policy
differences, if any, between Spartan Ginnie Mae and Fidelity Ginnie
Mae.
Spartan Ginnie Mae and Fidelity Ginnie Mae have substantially similar
investment objectives and policies. Each fund's investment objective
is to seek high current income by investing in mortgage securities
issued by the Government National Mortgage Association (Ginnie Maes).
When consistent with its goal, each fund may also consider the
potential for capital gain.
FMR normally invests at least 65% of each fund's total assets in
Ginnie Maes. 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. Each 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.
Each fund is managed to have similar overall interest rate risk to
the Lehman Brothers GNMA Index (the 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 that are issued by the Government National Mortgage
Association. As of November 30, 1998, the average maturities of
Spartan Ginnie Mae, Fidelity Ginnie Mae and the GNMA Index were
approximately 5.4 years, 5.2 years and 5.5 years, respectively.
EXPENSE STRUCTURES
The funds differ in their expense structures. Each fund pays a
monthly management fee to FMR. Spartan Ginnie Mae pays an
all-inclusive management fee to FMR (at an annual rate of 0.65% of
average net assets) which covers substantially all of the fund's
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses). Fidelity Ginnie Mae, 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 Ginnie Mae's total operating expenses (the sum
of its management fee and other expenses) were 0.74% (before
reimbursement) of its average net assets for the fiscal year ended
July 31, 1998. Effective June 27, 1998, FMR voluntarily agreed to
reimburse Fidelity Ginnie Mae to the extent that total operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) exceed 0.65% of its average net assets. 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
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 merger would provide Spartan Ginnie Mae
shareholders with the opportunity to participate in a larger Ginnie
Mae fund with a similar investment objective, strategies and interest
rate risk and expenses guaranteed to be lower than Spartan Ginnie
Mae's for more than two years.
The Board of Trustees believes that the Reorganization would benefit
Spartan Ginnie Mae shareholders and recommends that shareholders vote
in favor of the Reorganization.
THE PROPOSED REORGANIZATION
Shareholders of Spartan Ginnie Mae will be asked at the Meeting to
vote upon and approve the Reorganization and the Agreement, which
provide for the acquisition by Fidelity Ginnie Mae of all of the
assets of Spartan Ginnie Mae in exchange solely for shares of Fidelity
Ginnie Mae and the assumption by Fidelity Ginnie Mae of the
liabilities of Spartan Ginnie Mae. Spartan Ginnie Mae will then
distribute the shares of Fidelity Ginnie Mae to its respective
shareholders, so that each shareholder will receive the number of full
and fractional shares of Fidelity Ginnie Mae equal in value to the
aggregate net asset value of the shareholder's shares of Spartan
Ginnie Mae on the Closing Date (defined below). The exchange of
Spartan Ginnie Mae's assets for Fidelity Ginnie Mae's shares will
occur as of the close of business of the New York Stock Exchange
(NYSE) on May 27, 1999, or such other time and date as the parties may
agree (the Closing Date). Spartan Ginnie Mae will then be liquidated
as soon as practicable thereafter. Approval of the Reorganization will
be determined solely by approval of the shareholders of Spartan Ginnie
Mae.
The funds have received an opinion of counsel that the Reorganization
will not result in any gain or loss for federal income tax purposes
either to Spartan Ginnie Mae or Fidelity Ginnie Mae or to the
shareholders of either fund. The rights and privileges of the former
shareholders of Spartan Ginnie Mae and Fidelity Ginnie Mae will be
effectively unchanged by the Reorganization (except as described on
page 10 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 Ginnie Mae pays FMR a management fee at an annual rate of
0.65% of its average net assets. FMR not only provides the fund with
investment advisory and research services, but also pays all of the
fund's expenses, with the exception of fees and expenses of the
non-interested Trustees; interest; taxes; brokerage commissions (if
any); and such nonrecurring expenses as may arise, including costs of
any litigation to which a fund may be a party, and any obligation it
may have to indemnify its officers and Trustees with respect to
litigation. The management fee the 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 Ginnie Mae pays its management fee and other
expenses separately. Fidelity Ginnie Mae'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. In addition to the management fee payable
by the fund, Fidelity Ginnie Mae 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 Ginnie Mae's total management fee rate and
total operating expense ratio were 0.44% and 0.72% (after
reimbursement), respectively. Effective June 27, 1998, FMR has
voluntarily agreed to limit the total operating expenses of Fidelity
Ginnie Mae to 0.65% of average net assets (excluding interest, taxes,
brokerage commissions and extraordinary expenses).
If shareholders approve the Reorganization, the combined fund will
retain Fidelity Ginnie Mae's expense structure, requiring payment of a
management fee and other operating expenses. FMR has agreed to limit
the combined fund's expense ratio to 0.63% of its average net assets
through June 30, 2001 (excluding interest, taxes, brokerage
commissions and extraordinary expenses). This expense limitation would
lower Spartan Ginnie Mae's total operating expenses from 0.65% to
0.63% beginning on the first business day after the effective date of
the Reorganization through June 30, 2001. After June 30, 2001, the
combined fund's expenses could increase. If the proposed
Reorganization is not approved, Spartan Ginnie Mae will maintain its
current fee structure. For more information about the funds' current
fees, refer to their Prospectuses.
The following table shows the fees and expenses of Spartan Ginnie Mae
and Fidelity Ginnie Mae for the 12 months ended July 31, 1998,
adjusted, in the case of Fidelity Ginnie Mae, to reflect current fees,
and pro forma fees for the combined fund based on the same time period
after giving effect to the Reorganization and 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, in the case of
Fidelity Ginnie Mae, to reflect current fees, of each fund and are
calculated as a percentage of average net assets of each fund.
Spartan Fidelity Ginnie Mae* Pro Forma
Ginnie Mae Expenses** -
Combined Fund
Management Fee 0.65% 0.35% (after 0.37% (after
reimbursement) reimbursement)
12b-1 Fee None None None
Other Expenses 0.00% 0.30% 0.26%
Total Operating Expenses 0.65% 0.65% (after 0.63% (after
reimbursement) reimbursement)
* Effective June 27, 1998, FMR has voluntarily agreed to reimburse
Fidelity 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 Fidelity Ginnie Mae would have
been 0.44%, 0.30% and 0.74%, respectively.
** If the Reorganization is approved, FMR has agreed to limit the
total operating expenses of the combined fund to 0.63% of its average
net assets (excluding interest, taxes, brokerage commissions, and
extraordinary expenses) through June 30, 2001. Had the pro forma
expenses of the combined fund not included the effect of FMR's
voluntary expense limitations, the combined fund's management fee,
other expenses and total operating expenses would be 0.43%, 0.26% and
0.69%, respectively.
EXAMPLES OF EFFECT OF FUND EXPENSES
The following table illustrates the expenses on a hypothetical $1,000
investment in each fund under the current and pro forma (combined
fund) expenses calculated at the rates stated above, assuming a 5%
annual return.
Spartan Fidelity Combined Fund (Pro Forma)***
Ginnie Mae Ginnie Mae***
1 year $7 $7 $6
3 years $21 $21 $20
5 years $36 $36 $35
10 years $81 $81 $79
***After FMR Reimbursement
These examples assume that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. These examples
illustrate the effect of expenses but are not meant to suggest actual
or expected expenses, which may vary. The assumed return of 5% is not
a prediction of, and does not represent, actual or expected
performance of any fund.
FORMS OF ORGANIZATION
Spartan Ginnie Mae is a non-diversified fund of Fidelity Union Street
Trust, an open-end management investment company organized as a
Massachusetts business trust on March 1, 1974. Fidelity Ginnie Mae is
a diversified fund of Fidelity Income Fund, an open-end management
investment company organized as a Massachusetts business trust on
August 7, 1984. Each trust is authorized to issue an unlimited number
of shares of beneficial interest. The Declaration of Trust under which
Fidelity Ginnie Mae 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. The
Declaration of Trust under which Spartan Ginnie Mae is organized
requires shareholder approval to reorganize or terminate the trust or
any of its series and to amend the Declaration of Trust. Therefore,
if the Reorganization is approved, the former shareholders of Spartan
Ginnie Mae 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 the
funds' Statements of Additional Information called "Description of the
Trust."
INVESTMENT OBJECTIVES AND POLICIES
Spartan Ginnie Mae and Fidelity Ginnie Mae have substantially similar
investment objectives. Spartan Ginnie Mae seeks a high level of
current income. Fidelity 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, Fidelity
Ginnie Mae may also consider the potential for capital gain.
Spartan Ginnie Mae and Fidelity Ginnie Mae also have substantially
similar investment strategies. FMR normally invests at least 65% of
each fund's total assets in Ginnie Maes. Each 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.
FMR manages each fund to have similar overall interest rate risk to
the GNMA Index. As of November 30, 1998, the average maturities of
Spartan Ginnie Mae, Fidelity Ginnie Mae and the GNMA Index were 5.4
years, 5.2 years and 5.5 years, respectively.
The investment objective of each fund is fundamental and may not be
changed without the approval of a vote of at least a majority of the
outstanding voting securities of the fund. There can be no assurance
that any fund will achieve its objective. With the exception of
fundamental policies, investment policies of the funds can be changed
without shareholder approval. The differences between the funds
discussed above, except as noted, could be changed without a vote of
shareholders.
PERFORMANCE COMPARISONS OF THE FUNDS
The following table compares the funds' annual total returns for the
periods indicated. Please note that total returns are based on past
results and are not an indication of future performance.
ANNUAL TOTAL RETURNS
(PERIOD ENDED DECEMBER 31)
1994 1995 1996 1997
Fidelity Ginnie Mae Fund (2.00)% 16.60% 4.86% 8.70%
Spartan Ginnie Mae Fund* (1.51)% 16.66% 4.98% 8.95%
*If FMR had not reimbursed certain fund expenses during these periods,
returns for Spartan Ginnie Mae would have been lower.
The following table compares each fund's individual cumulative
returns for the periods indicated. Please note that total returns are
based on past results and are not an indication of future performance.
CUMULATIVE TOTAL RETURNS
(PERIODS ENDED DECEMBER 31, 1997)
1 Year 3 Year
Fidelity Ginnie Mae Fund 8.70% 32.91%
Spartan Ginnie Mae Fund* 8.95% 33.42%
*If FMR had not reimbursed certain fund expenses during these periods,
returns for Spartan Ginnie Mae would have been lower.
The tables above show that the funds have experienced relatively
comparable performance over the time periods shown, with Spartan
Ginnie Mae slightly outperforming Fidelity Ginnie Mae. Differences in
performance may be attributed, in part, to the funds' different
expense structures.
The following graph shows the value of a hypothetical $10,000
investment in each fund made on December 31, 1995, assuming all
distributions are reinvested. The graph compares the cumulative
returns of the funds on a monthly basis from December 31, 1995 to
November 30, 1998, and illustrates the relative volatility of their
performance over shorter periods of time.
Spartan Ginnie Mae Fidelity Ginnie Mae
00461 00015
1995/12/31 10000.00 10000.00
1996/01/31 10073.18 10062.44
1996/02/29 9989.31 9986.82
1996/03/31 9964.01 9965.95
1996/04/30 9936.45 9934.11
1996/05/31 9897.61 9983.41
1996/06/30 10011.72 10004.08
1996/07/31 10047.01 10040.49
1996/08/31 10050.69 10047.25
1996/09/30 10209.06 10198.06
1996/10/31 10400.79 10399.09
1996/11/30 10553.00 10543.78
1996/12/31 10497.50 10485.78
1997/01/31 10566.63 10554.45
1997/02/28 10591.15 10583.01
1997/03/31 10483.32 10474.17
1997/04/30 10653.01 10633.65
1997/05/31 10758.69 10733.28
1997/06/30 10884.79 10863.52
1997/07/31 11077.22 11055.31
1997/08/31 11063.17 11034.48
1997/09/30 11192.18 11166.49
1997/10/31 11310.49 11278.38
1997/11/30 11339.50 11296.58
1997/12/31 11436.78 11398.18
1998/01/31 11545.64 11501.07
1998/02/28 11574.97 11519.70
1998/03/31 11617.91 11562.12
1998/04/30 11680.80 11635.18
1998/05/31 11777.18 11719.04
1998/06/30 11805.08 11747.57
1998/07/31 11868.17 11808.43
1998/08/31 11965.55 11901.16
1998/09/30 12121.88 12048.24
1998/10/31 12090.26 12020.19
1998/11/30 12163.71 12079.30
1998/12/31 12213.21 12126.07
IMATRL PRASUN SHR__CHT 19981231 19990127 150634 R00000000000099
COMPARISON OF OTHER POLICIES OF THE FUNDS
DIVERSIFICATION. Spartan Ginnie Mae is a non-diversified fund. In
order to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the Code), the Code generally
requires Spartan Ginnie Mae 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 Spartan Ginnie Mae's total
assets are invested in securities of any one issuer. However, the
Code allows unlimited investments in cash, cash items, government
securities and securities of other investment companies. Fidelity
Ginnie Mae, by contrast, is a diversified fund. As a matter of
fundamental policy, with respect to 75% of Fidelity Ginnie Mae's total
assets, Fidelity Ginnie Mae may not invest more than 5% of its total
assets in the securities of a single issuer, and Fidelity Ginnie Mae
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 or to securities of other investment companies. Fidelity
Ginnie Mae is therefore required to maintain broader diversification
among its investments than Spartan Ginnie Mae.
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.
As stated above, for more information about the risks and restrictions
associated with these policies, see each fund's Prospectus, and for a
more detailed discussion of the funds' investments, see their
Statements of Additional Information, which are incorporated herein by
reference.
OPERATIONS OF FIDELITY GINNIE MAE FOLLOWING THE REORGANIZATION
FMR does not expect Fidelity Ginnie Mae to change its investment
policies as a result of the Reorganization. In addition, FMR does not
anticipate significant changes to the fund's management or to agents
that provide the fund with services. Specifically, the Trustees and
officers, the investment adviser, distributor, and other agents will
continue to serve Fidelity Ginnie Mae in their current capacities.
Thomas Silvia, who is currently the Portfolio Manager of Fidelity
Ginnie Mae and Spartan Ginnie Mae, is expected to continue to be
responsible for portfolio management of Fidelity Ginnie Mae after the
Reorganization.
All of the current investments of Spartan Ginnie Mae are permissible
investments for Fidelity Ginnie Mae. Nevertheless, FMR may sell
securities held by Spartan Ginnie Mae or Fidelity Ginnie Mae between
the time of shareholder approval and the Closing Date. Transaction
costs associated with such adjustments that occur between shareholder
approval and the Closing Date will be borne by the fund that incurred
them. Transaction costs associated with such adjustments that occur
after the Closing Date will be borne by Fidelity Ginnie Mae.
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. Shares are purchased at the next NAV calculated after an
investment is received in proper form. Each fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
The redemption policies for each fund are identical. The price to
sell one share of each fund is the fund's NAV. Shares will be sold at
the next NAV calculated after an order 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 or sell shares.
For Spartan Ginnie Mae, 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 Ginnie Mae, 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 Ginnie Mae approve the Reorganization, they
would become shareholders of a fund with lower minimum investment and
balance requirements than Spartan Ginnie Mae.
On June 26, 1998, Spartan Ginnie Mae closed to new accounts pending
the Reorganization. Spartan Ginnie Mae shareholders on or prior to
that date can continue to purchase shares of the fund. Shareholders of
each fund may redeem shares through the Closing Date of the
Reorganization. If the Reorganization is approved, the purchase and
redemption policies of Fidelity Ginnie Mae will remain unchanged.
EXCHANGES
The exchange privilege currently offered by each fund is the same and
is not expected to change after the Reorganization. Shareholders of
the funds may exchange their shares 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. Spartan Ginnie Mae normally
distributes capital gains in October and December. Fidelity Ginnie
Mae normally distributes capital gains in September and December. On
or before the Closing Date, Spartan Ginnie Mae may declare additional
dividends or other distributions in order to distribute substantially
all of its investment company taxable income and net realized capital
gain. Due largely to pay-downs on mortgage securities, a portion of
such distributions may be non-taxable.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Each fund has received an opinion of its counsel, Kirkpatrick &
Lockhart LLP, that the Reorganization will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(C) of the Code.
Accordingly, no gain or loss will be recognized to the funds or their
shareholders as a result of the Reorganization. Please see the
section entitled "Federal Income Tax Considerations" for more
information.
As of September 30, 1998, Fidelity Ginnie Mae and Spartan Ginnie Mae
had net unrealized gains of approximately $18,290,832 and $11,635,740,
respectively. During the period between shareholder approval and the
Closing Date, FMR may sell certain securities to make portfolio
adjustments in connection with the Reorganization. Selling these
securities may result in realization of capital gains, which, when
distributed, would be taxable to the selling fund's shareholders.
As of August 31, 1998, Spartan Ginnie Mae had capital loss
carryforwards for federal income tax purposes of approximately
$10,012,000. As of July 31, 1998, Fidelity Ginnie Mae had capital
loss carry forwards for federal income tax purposes of approximately
$15,434,000. Under current federal tax law, Fidelity Ginnie Mae may
be limited to using only a portion, if any, of its capital loss
carryforwards or the capital loss carryforwards transferred by Spartan
Ginnie Mae at the time of the Reorganization. There is no assurance
that Fidelity Ginnie Mae will be able to realize sufficient capital
gains to use the capital loss carryforwards before they expire. The
capital loss carryforwards attributable to Spartan Ginnie Mae will
expire between July 31, 2002 and July 31, 2003, and the capital loss
carryforwards attributed to Fidelity Ginnie Mae will expire between
July 31, 2003 and July 31, 2004.
COMPARISON OF PRINCIPAL RISK FACTORS
Because each fund invests primarily in Ginnie Mae securities and is
managed to have similar overall interest rate risk to the GNMA Index,
the funds have substantially similar levels of investment risk.
Because each fund invests in securities that represent interests in
pools of mortgage loans, each fund is exposed to prepayment risk,
which can lower the funds' yields, particularly in periods of
declining interest rates. 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.
As a non-diversified fund, Spartan Ginnie Mae has the ability to
invest a greater percentage of its assets in the securities of a
single issuer than does Fidelity Ginnie Mae. Thus, 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 have the potential to have a greater impact
on a non-diversified fund such as Spartan Ginnie Mae than such changes
might have on a diversified fund such as Fidelity Ginnie Mae.
THE PROPOSED TRANSACTION
TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN
GINNIE MAE AND FIDELITY GINNIE MAE.
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) Fidelity Ginnie Mae acquiring as of
the Closing Date all of the assets of Spartan Ginnie Mae in exchange
solely for shares of Fidelity Ginnie Mae and the assumption by
Fidelity Ginnie Mae of Spartan Ginnie Mae's liabilities; and (b) the
distribution of shares of Fidelity Ginnie Mae to the shareholders of
Spartan Ginnie Mae as provided for in the Agreement.
The assets of Spartan Ginnie Mae to be acquired by Fidelity Ginnie
Mae include all cash, cash equivalents, securities, receivables
(including interest or dividends receivables), claims, chooses in
action, and other property owned by Spartan Ginnie Mae, and any
deferred or prepaid expenses shown as an asset on the books of Spartan
Ginnie Mae on the Closing Date. Fidelity Ginnie Mae will assume from
Spartan Ginnie Mae all liabilities, debts, obligations, and duties of
Spartan Ginnie Mae 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 Ginnie Mae will use its
best efforts, to the extent practicable, to discharge all of its known
liabilities prior to the Closing Date, other than liabilities incurred
in the ordinary course of business. Fidelity Ginnie Mae also will
deliver to Spartan Ginnie Mae the number of full and fractional shares
of Fidelity Ginnie Mae having an aggregate net asset value equal to
the value of the assets of Spartan Ginnie Mae less the liabilities of
Spartan Ginnie Mae as of the Closing Date. Spartan Ginnie Mae shall
then distribute the Fidelity Ginnie Mae shares PRO RATA to its
shareholders.
The value of Spartan Ginnie Mae's assets to be acquired by Fidelity
Ginnie Mae and the amount of its liabilities to be assumed by Fidelity
Ginnie Mae will be determined as of the close of business of the NYSE
on the Closing Date, using the valuation procedures set forth in
Spartan Ginnie Mae's then-current Prospectus and Statement of
Additional Information. The net asset value of a share of Fidelity
Ginnie Mae 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 Ginnie Mae will distribute to its
shareholders of record the shares of Fidelity Ginnie Mae it received,
so that each Spartan Ginnie Mae shareholder will receive the number of
full and fractional shares of Fidelity Ginnie Mae equal in value to
the aggregate net asset value of shares of Spartan Ginnie Mae held by
such shareholder on the Closing Date; Spartan Ginnie Mae will be
liquidated as soon as practicable thereafter. Such distribution will
be accomplished by opening accounts on the books of Fidelity Ginnie
Mae in the names of the Spartan Ginnie Mae shareholders and by
transferring thereto shares of Fidelity Ginnie Mae. Each Spartan
Ginnie Mae shareholder's account shall be credited with the respective
PRO RATA number of full and fractional shares (rounded to the third
decimal place) of Fidelity Ginnie Mae due that shareholder. Fidelity
Ginnie Mae shall not issue certificates representing its shares in
connection with such exchange.
Accordingly, immediately after the Reorganization, each former
Spartan Ginnie Mae shareholder will own shares of Fidelity Ginnie Mae
equal to the aggregate net asset value of that shareholder's shares of
Spartan Ginnie Mae immediately prior to the Reorganization. The net
asset value per share of Fidelity Ginnie Mae will be unchanged by the
transaction. Thus, the Reorganization will not result in a dilution of
any shareholder interest.
Any transfer taxes payable upon issuance of shares of Fidelity Ginnie
Mae in a name other than that of the registered holder of the shares
on the books of Spartan Ginnie Mae 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 Ginnie Mae 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 Ginnie
Mae, FMR will bear the cost of the Reorganization, including
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 Ginnie Mae and Fidelity Ginnie
Mae due to the Reorganization prior to the Closing Date which will be
borne by Spartan Ginnie Mae and Fidelity Ginnie Mae, respectively. Any
transaction costs associated with portfolio adjustments to Spartan
Ginnie Mae and Fidelity Ginnie Mae due to the Reorganization which
occur after the Closing Date and any additional merger-related costs
attributable to Fidelity Ginnie Mae which occur after the Closing Date
will be borne by Fidelity Ginnie Mae. 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 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 November 19, 1998. In recommending the Reorganization, FMR
advised the Boards that the funds have similar investment objectives,
policies, and investment portfolios. In particular, FMR informed the
Boards that the funds differed primarily with respect to their expense
structures and initial and additional investment and account balance
minimums.
The Boards considered that the proposed merger would provide
shareholders of Spartan Ginnie Mae with a fund that has comparable
historical performance on a year-to-year and cumulative basis.
In addition, the Boards also considered that if the Reorganization is
approved, FMR would voluntarily limit the combined fund's total
operating expenses to 0.63% of its average net assets (excluding
interest, taxes, brokerage commissions, and extraordinary expenses)
through June 30, 2001. This expense limitation would reduce the total
operating expenses of Spartan Ginnie Mae 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 SEC 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. Fidelity Ginnie Mae is one of four funds
of the trust. Each share of Fidelity Ginnie Mae represents an equal
proportionate interest with each other share of the fund, and each
such share of Fidelity Ginnie Mae is entitled to equal voting,
dividend, liquidation, and redemption rights. Each shareholder of the
fund is entitled to one vote for each dollar value of net asset value
of the fund that shareholder owns. Shares of Fidelity Ginnie Mae 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 Ginnie Mae's assets for Fidelity Ginnie Mae's
shares and the assumption of the liabilities of Spartan Ginnie Mae by
Fidelity Ginnie Mae 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 Ginnie Mae and
Fidelity Ginnie Mae, substantially to the effect that:
(i) The acquisition by Fidelity Ginnie Mae of all of the assets of
Spartan Ginnie Mae solely in exchange for Fidelity Ginnie Mae shares
and the assumption by Fidelity Ginnie Mae of Spartan Ginnie Mae's
liabilities, followed by the distribution by Spartan Ginnie Mae of
Fidelity Ginnie Mae shares to the shareholders of Spartan Ginnie Mae
pursuant to the liquidation of Spartan Ginnie Mae and constructively
in exchange for their Spartan Ginnie Mae shares, will constitute a
reorganization within the meaning of section 368(a)(1)(C) of the Code,
and Spartan Ginnie Mae and Fidelity Ginnie Mae 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 Ginnie Mae upon
the transfer of all of its assets to Fidelity Ginnie Mae in exchange
solely for Fidelity Ginnie Mae shares and Fidelity Ginnie Mae's
assumption of Spartan Ginnie Mae's liabilities, followed by Spartan
Ginnie Mae's subsequent distribution of those shares to its
shareholders in liquidation of Spartan Ginnie Mae;
(iii) No gain or loss will be recognized by Fidelity Ginnie Mae upon
the receipt of the assets of Spartan Ginnie Mae in exchange solely for
Fidelity Ginnie Mae shares and its assumption of Spartan Ginnie Mae's
liabilities;
(iv) The shareholders of Spartan Ginnie Mae will recognize no gain or
loss upon the exchange of their Spartan Ginnie Mae shares solely for
Fidelity Ginnie Mae shares;
(v) The basis of Spartan Ginnie Mae's assets in the hands of Fidelity
Ginnie Mae will be the same as the basis of those assets in the hands
of Spartan Ginnie Mae immediately prior to the Reorganization, and the
holding period of those assets in the hands of Fidelity Ginnie Mae
will include the holding period of those assets in the hands of
Spartan Ginnie Mae;
(vi) The basis of Spartan Ginnie Mae shareholders in Fidelity Ginnie
Mae shares will be the same as their basis in Spartan Ginnie Mae
shares to be surrendered in exchange therefor; and
(vii) The holding period of the Fidelity Ginnie Mae shares to be
received by the Spartan Ginnie Mae shareholders will include the
period during which the Spartan Ginnie Mae shares to be surrendered in
exchange therefor were held, provided such Spartan Ginnie Mae shares
were held as capital assets by those shareholders on the date of the
Reorganization.
Shareholders of Spartan Ginnie Mae 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.
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 NAV PER SHARE SHARES OUTSTANDING
Spartan Ginnie Mae $667,426,201 10.16 65,662,073
Fidelity Ginnie Mae $917,229,648 10.87 84,361,995
Pro Forma Combined Fund $1,584,655,849 10.87 145,762,749
CONCLUSION
The Agreement and the transactions provided for therein were approved
by the Boards at a meeting held on November 19, 1998. The Boards of
Trustees of Fidelity Union 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 existing
shareholders of Spartan Ginnie Mae and Fidelity Ginnie Mae would not
be diluted as a result of the Reorganization. In the event that the
Reorganization is not consummated, Spartan Ginnie Mae will continue to
engage in business as a fund of a registered investment company and
the Board of Trustees of Fidelity Union Street Trust will consider
other proposals for the reorganization or liquidation of the fund.
ADDITIONAL INFORMATION ABOUT FIDELITY GINNIE MAE
Fidelity Ginnie Mae's Prospectus, dated September 21, 1998 and
supplemented on January 1, 1999, is enclosed with this Proxy Statement
and is incorporated herein by reference. The Prospectus contains
additional information about the fund including its investment
objective and policies, investment adviser, advisory fees and
expenses, organization, and procedures for purchasing and redeeming
shares. The prospectus also contains Fidelity Ginnie Mae's financial
highlights for the fiscal year ended July 31, 1998, as shown below:
FIDELITY GINNIE MAE FUND
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Per-Share Data and
Ratios
Years ended July 31 1998 1997 1996 1995 1994 1993 1992 1991 1990
Net asset value, beginning $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420
of period
Income from Investment .714B .720B .688 .721 .582 .800 .833 .845 .891
Operations Net investment
income
Net realized and .004 .310 (.107) .292 (.650) .083 .373 .288 (.099)
unrealized gain (loss)
Total from investment .718 1.030 .581 1.013 (.068) .883 1.206 1.133 .792
operations
Less Distributions From (.698) (.710) (.691) (.713) (.582) (.683) (.796) (.853) (.842)
net investment income
From net realized gain -- -- -- -- (.190) -- -- -- --
In excess of net -- -- -- (.020) (.060) -- -- -- --
realized gain
Total distributions (.698) (.710) (.691) (.733) (.832) (.683) (.796) (.853) (.842)
Net asset value, end of $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370
period
Total returnA 6.81% 10.11% 5.55% 10.26% (.63)% 8.23% 11.65% 11.36% 8.01%
Net assets, end of period $ 917 $ 822 $ 790 $ 767 $ 769 $ 976 $ 914 $ 797 $ 658
(in millions)
Ratio of expenses to .72%C .76% .76% .75% .82% .80% .80% .83% .83%
average net assets
Ratio of expenses to .72% .75%D .75%D .75% .82% .80% .80% .83% .83%
average net assets after
expense reductions
Ratio of net investment 6.58% 6.75% 6.69% 7.24% 7.03% 7.26% 7.73% 8.24% 8.71%
income to average net assets
Portfolio turnover rate 172% 98% 107% 210% 303% 259% 114% 125% 96%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Selected Per-Share Data and
Ratios
Years ended July 31 1989
Net asset value, beginning $ 10.020
of period
Income from Investment .916
Operations Net investment
income
Net realized and .322
unrealized gain (loss)
Total from investment 1.238
operations
Less Distributions From (.838)
net investment income
From net realized gain --
In excess of net --
realized gain
Total distributions (.838)
Net asset value, end of $ 10.420
period
Total returnA 13.00%
Net assets, end of period $ 651
(in millions)
Ratio of expenses to .85%
average net assets
Ratio of expenses to .85%
average net assets after
expense reductions
Ratio of net investment 9.03%
income to average net assets
Portfolio turnover rate 291%
</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.
MISCELLANEOUS
LEGAL MATTERS. Certain legal matters in connection with the issuance
of Fidelity Ginnie Mae shares have been passed upon by Kirkpatrick &
Lockhart LLP, counsel to the trust.
EXPERTS. The audited financial statements of Spartan Ginnie Mae and
Fidelity Ginnie Mae incorporated by reference into the Statements of
Additional Information, have been examined by PricewaterhouseCoopers
LLP, independent accountants, whose reports thereon are included in
the Annual Report to Shareholders for the fiscal years ended August
31, 1998 and July 31, 1998, respectively. 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 Union 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 Union Street Trust, in care of
Fidelity Service Company, Inc., P.O. Box 789, Boston, Massachusetts
02102, whether other persons are beneficial owners of shares for which
proxies are being solicited and, if so, the number of copies of the
Proxy Statement you wish to receive in order to supply copies to the
beneficial owners of the respective shares.
ATTACHMENT 1
EXCERPTS FROM ANNUAL REPORT OF FIDELITY GINNIE MAE FUND DATED JULY 31,
1998
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Fidelity Ginnie Mae Fund 6.81% 6.34% 8.37%
Lehman Brothers GNMA Index 7.46% 7.01% 9.25%
Salomon Brothers GNMA Index 7.37% 6.94% 9.27%
Lipper 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 GNMA 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 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 recently changed 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 above.
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
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 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, THOMAS SILVIA IS THE FUND'S
PORTFOLIO MANAGER.
EXHIBIT 1
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as
of March 22, 1999, by and between Fidelity Union Street Trust, a
Massachusetts business trust, on behalf of its series Spartan Ginnie
Mae Fund (Spartan Ginnie Mae), and Fidelity Income Fund, a
Massachusetts business trust, on behalf of its series Fidelity Ginnie
Mae Fund (Fidelity Ginnie Mae). Fidelity Union 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. Fidelity Ginnie Mae and Spartan
Ginnie Mae may be referred to herein collectively as the "Funds" or
each individually as a "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 Ginnie Mae to Fidelity Ginnie Mae solely in exchange for
shares of beneficial interest in Fidelity Ginnie Mae (the Fidelity
Ginnie Mae Shares) and the assumption by Fidelity Ginnie Mae of
Spartan Ginnie Mae's liabilities; and (b) the constructive
distribution of such shares by Spartan Ginnie Mae pro rata to its
shareholders in complete liquidation and termination of Spartan Ginnie
Mae in exchange for all of Spartan Ginnie Mae's outstanding shares.
Spartan Ginnie Mae shall receive shares of Fidelity Ginnie Mae having
an aggregate net asset value equal to the value of the assets of
Spartan Ginnie Mae on the Closing Date (as defined in Section 6),
which Spartan Ginnie Mae 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 GINNIE MAE. SPARTAN
GINNIE MAE REPRESENTS AND WARRANTS TO AND AGREES WITH FIDELITY GINNIE
MAE THAT:
(a) Spartan Ginnie Mae is a series of Fidelity Union 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 Union Street Trust is an open-end, management investment
company duly registered under the Investment Company Act of 1940, as
amended (the 1940 Act), and such registration is in full force and
effect;
(c) The Prospectus and Statement of Additional Information of Spartan
Ginnie Mae dated October 20, 1998, and supplemented December 7, 1998,
previously furnished to Fidelity Ginnie Mae, 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 Ginnie Mae, threatened against
Spartan Ginnie Mae which assert liability on the part of Spartan
Ginnie Mae. Spartan Ginnie Mae knows of no facts which might form the
basis for the institution of such proceedings;
(e) Spartan Ginnie Mae is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Restated Declaration of Trust or By-laws, or, to the
knowledge of Spartan Ginnie Mae, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Spartan
Ginnie Mae is a party or by which Spartan Ginnie Mae 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
Ginnie Mae 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 Ginnie Mae at August 31, 1998, have been audited by
PricewaterhouseCoopers LLP, independent accountants, and have been
furnished to Fidelity Ginnie Mae together with such unaudited
financial statements and schedule of investments (including market
values) for the six month period ended February 28, 1999. 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 Ginnie Mae 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 August 31, 1998 and
those incurred in the ordinary course of Spartan Ginnie Mae's business
as an investment company since August 31, 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 Fidelity Ginnie Mae
issuable hereunder and the proxy statement of Spartan Ginnie Mae
included therein (Proxy Statement), on the effective date of the
Registration Statement and insofar as they relate to Spartan Ginnie
Mae (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 Ginnie Mae, 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 Ginnie Mae
(other than this Agreement) will be terminated without liability to
Spartan Ginnie Mae 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
Ginnie Mae 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 Ginnie Mae has filed or will file all federal and state
tax returns which, to the knowledge of Spartan Ginnie Mae's officers,
are required to be filed by Spartan Ginnie Mae 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 Ginnie Mae's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(l) Spartan Ginnie Mae 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 Ginnie Mae
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 sold in
conformity with all applicable federal securities laws. All of the
issued and outstanding shares of Spartan Ginnie Mae will, at the
Closing Date, be held by the persons and in the amounts set forth in
the list of shareholders submitted to Fidelity Ginnie Mae in
accordance with this Agreement;
(n) As of both the Valuation Time (as defined in Section 4) and the
Closing Date, Spartan Ginnie Mae will have the full right, power, and
authority to sell, assign, transfer, and deliver its portfolio
securities and any other assets of Spartan Ginnie Mae to be
transferred to Fidelity Ginnie Mae pursuant to this Agreement. As of
the Closing Date, subject only to the delivery of Spartan Ginnie Mae's
portfolio securities and any such other assets as contemplated by this
Agreement, Fidelity Ginnie Mae will acquire Spartan Ginnie Mae's
portfolio securities and any such other assets subject to no
encumbrances, liens, or security interests (except for those that may
arise in the ordinary course and are disclosed to Fidelity Ginnie Mae)
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 Ginnie Mae, and this Agreement
constitutes a valid and binding obligation of Spartan Ginnie Mae
enforceable in accordance with its terms, subject to shareholder
approval.
2. REPRESENTATIONS AND WARRANTIES OF FIDELITY GINNIE MAE. FIDELITY
GINNIE MAE REPRESENTS AND WARRANTS TO AND AGREES WITH SPARTAN GINNIE
MAE THAT:
(a) Fidelity Ginnie Mae 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
Fidelity Ginnie Mae, dated September 21, 1998, and supplemented on
December 7, 1998 and October 8, 1998, respectively, previously
furnished to Spartan Ginnie Mae 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 Ginnie Mae, threatened
against Fidelity Ginnie Mae which assert liability on the part of
Fidelity Ginnie Mae. Fidelity Ginnie Mae knows of no facts which might
form the basis for the institution of such proceedings;
(e) Fidelity Ginnie Mae 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 Ginnie Mae, of any agreement,
indenture, instrument, contract, lease, or other undertaking to which
Fidelity Ginnie Mae is a party or by which Fidelity Ginnie Mae 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 Ginnie Mae 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 Ginnie Mae at July 31, 1998, have been audited by
PricewaterhouseCoopers LP, independent accountants, and have been
furnished to Spartan Ginnie Mae together with such unaudited financial
statements and schedule of investments (including market values) for
the six month period ended January 31, 1999. Said Statements of Assets
and Liabilities and Schedule of Investments fairly present its
financial position as of such date and said Statement of Operations,
Statement of Changes in Net Assets, and Financial Highlights fairly
reflect its results of operations, changes in financial position, and
financial highlights for the periods covered thereby in conformity
with generally accepted accounting principles consistently applied;
(g) Fidelity Ginnie Mae 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 Fidelity Ginnie Mae'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 Fidelity
Ginnie Mae of the transactions contemplated by this Agreement, except
such as have been obtained under the 1933 Act, the 1934 Act, the 1940
Act, and state securities or blue sky laws (which term as used herein
shall include the District of Columbia and Puerto Rico);
(i) Fidelity Ginnie Mae has filed or will file all federal and state
tax returns which, to the knowledge of Fidelity Ginnie Mae's officers,
are required to be filed by Fidelity Ginnie Mae 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 Ginnie Mae's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to such
returns;
(j) Fidelity Ginnie Mae 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
Fidelity Ginnie Mae to be issued to Spartan Ginnie Mae will have been
duly authorized and, when issued and delivered pursuant to this
Agreement, will be legally and validly issued and will be fully paid
and nonassessable (except as disclosed in the Fund's Statement of
Additional Information) by Fidelity Ginnie Mae, and no shareholder of
Fidelity Ginnie Mae will have any preemptive right of subscription or
purchase in respect thereof;
(l) The execution, performance, and delivery of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
corporate action on the part of Fidelity Ginnie Mae, and this
Agreement constitutes a valid and binding obligation of Fidelity
Ginnie Mae enforceable in accordance with its terms, subject to
approval by the shareholders of Spartan Ginnie Mae;
(m) The Registration Statement and the Proxy Statement, on the
effective date of the Registration Statement and insofar as they
relate to Fidelity Ginnie Mae, (i) will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act, and the
1940 Act, and the rules and regulations thereunder, and (ii) will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and at the time of the
shareholders' meeting referred to in Section 7 and on the Closing
Date, the Prospectus, as amended or supplemented, insofar as it
relates to Fidelity Ginnie Mae, will not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading;
(n) The issuance of the Fidelity Ginnie Mae Shares pursuant to this
Agreement will be in compliance with all applicable federal securities
laws; and
(o) All of the issued and outstanding shares of beneficial interest
of Fidelity Ginnie Mae 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
Ginnie Mae and to the other terms and conditions contained herein,
Spartan Ginnie Mae agrees to assign, sell, convey, transfer, and
deliver to Fidelity Ginnie Mae as of the Closing Date all of the
assets of Spartan Ginnie Mae of every kind and nature existing on the
Closing Date. Fidelity Ginnie Mae agrees in exchange therefor: (i) to
assume all of Spartan Ginnie Mae'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 Ginnie Mae the number of full and
fractional shares of Fidelity Ginnie Mae having an aggregate net asset
value equal to the value of the assets of Spartan Ginnie Mae
transferred hereunder, less the value of the liabilities of Spartan
Ginnie Mae, determined as provided for under Section 4.
(b) The assets of Spartan Ginnie Mae to be acquired by Fidelity
Ginnie Mae shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest or dividends
receivables), claims, chooses in action, and other property owned by
Spartan Ginnie Mae, and any deferred or prepaid expenses shown as an
asset on the books of Spartan Ginnie Mae on the Closing Date. Spartan
Ginnie Mae will pay or cause to be paid to Fidelity Ginnie Mae any
dividend or interest payments received by it on or after the Closing
Date with respect to the assets transferred to Fidelity Ginnie Mae
hereunder, and Fidelity Ginnie Mae 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 Ginnie Mae to be assumed by Fidelity
Ginnie Mae shall include (except as otherwise provided for herein) all
of Spartan Ginnie Mae'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 Ginnie Mae 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 Ginnie Mae will constructively
distribute pro rata to its shareholders of record, determined as of
the Valuation Time on the Closing Date, the Fidelity Ginnie Mae Shares
in exchange for such shareholders' shares of beneficial interest in
Spartan Ginnie Mae and Spartan Ginnie Mae will be liquidated in
accordance with Spartan Ginnie Mae's Restated Declaration of Trust.
Such distribution shall be accomplished by the Funds' transfer agent
opening accounts on Fidelity Ginnie Mae's share transfer books in the
names of the Spartan Ginnie Mae shareholders and transferring the
Fidelity Ginnie Mae Shares thereto. Each Spartan Ginnie Mae
shareholder's account shall be credited with the respective pro rata
number of full and fractional (rounded to the third decimal place)
Fidelity Ginnie Mae Shares due that shareholder. All outstanding
Spartan Ginnie Mae shares, including any represented by certificates,
shall simultaneously be canceled on Spartan Ginnie Mae's share
transfer records. Fidelity Ginnie Mae shall not issue certificates
representing the Fidelity Ginnie Mae Shares in connection with the
Reorganization.
(e) Any reporting responsibility of Spartan Ginnie Mae is and shall
remain its responsibility up to and including the date on which it is
terminated.
(f) Any transfer taxes payable upon issuance of the Fidelity Ginnie
Mae Shares in a name other than that of the registered holder on
Spartan Ginnie Mae's books of the Spartan Ginnie Mae shares
constructively exchanged for the Fidelity Ginnie Mae Shares shall be
paid by the person to whom such Fidelity Ginnie Mae Shares are to be
issued, as a condition of such transfer.
4. VALUATION.
(a) The Valuation Time shall be as of the close of business of the
New York Stock Exchange on the Closing Date, or such other date as may
be mutually agreed upon in writing by the parties hereto (the
Valuation Time).
(b) As of the Closing Date, Fidelity Ginnie Mae will deliver to
Spartan Ginnie Mae the number of Fidelity Ginnie Mae Shares having an
aggregate net asset value equal to the value of the assets of Spartan
Ginnie Mae transferred hereunder less the liabilities of Spartan
Ginnie Mae, determined as provided in this Section 4.
(c) The net asset value per share of the Fidelity Ginnie Mae Shares
to be delivered to Spartan Ginnie Mae, the value of the assets of
Spartan Ginnie Mae transferred hereunder, and the value of the
liabilities of Spartan Ginnie Mae to be assumed hereunder shall in
each case be determined as of the Valuation Time.
(d) The net asset value per share of the Fidelity Ginnie Mae Shares
shall be computed in the manner set forth in the then-current Fidelity
Ginnie Mae Prospectus and Statement of Additional Information, and the
value of the assets and liabilities of Spartan Ginnie Mae shall be
computed in the manner set forth in the then-current Spartan Ginnie
Mae 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 Ginnie Mae and Fidelity Ginnie Mae.
5. FEES; EXPENSES.
(a) Pursuant to Spartan Ginnie Mae's all-inclusive management
contract with Fidelity Management & Research Company (FMR), FMR will
pay all fees and expenses, including legal, accounting, printing,
filing, and proxy solicitation expenses, portfolio transfer taxes (if
any), or other similar expenses incurred in connection with the
transactions contemplated by this Agreement (but not including costs
incurred in connection with the purchase or sale of portfolio
securities). Any expenses incurred in connection with the
transactions contemplated by this Agreement which may be attributable
to Fidelity Ginnie Mae will be borne by Fidelity Ginnie Mae provided
that they do not exceed the fund's 0.65% expense cap in effect since
June 27, 1998. Expenses exceeding the fund's expense cap will be paid
by FMR (but not including costs incurred in connection with the
purchase or sale of portfolio securities).
(b) Each of Fidelity Ginnie Mae and Spartan Ginnie Mae 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 May 27,
1999, or at some other time, date, and place agreed to by Spartan
Ginnie Mae and Fidelity Ginnie Mae (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 Ginnie Mae and the net asset
value per share of Fidelity Ginnie Mae 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 GINNIE MAE.
(a) Spartan Ginnie Mae agrees to call a meeting of its shareholders
after the effective date of the Registration Statement, to consider
transferring its assets to Fidelity Ginnie Mae as herein provided,
adopting this Agreement, and authorizing the liquidation of Spartan
Ginnie Mae.
(b) Spartan Ginnie Mae agrees that as soon as reasonably practicable
after distribution of the Fidelity Ginnie Mae Shares, Spartan Ginnie
Mae shall be terminated as a series of Fidelity Union Street Trust
pursuant to its 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 Ginnie Mae shall not conduct
any business except in connection with its liquidation and
termination.
8. CONDITIONS TO OBLIGATIONS OF FIDELITY GINNIE MAE.
(a) That Spartan Ginnie Mae furnishes to Fidelity Ginnie Mae a
statement, dated as of the Closing Date, signed by an officer of
Fidelity Union Street Trust, certifying that as of the Valuation Time
and the Closing Date all representations and warranties of Spartan
Ginnie Mae made in this Agreement are true and correct in all material
respects and that Spartan Ginnie Mae 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 Ginnie Mae furnishes Fidelity Ginnie Mae with copies
of the resolutions, certified by an officer of Fidelity Union Street
Trust, evidencing the adoption of this Agreement and the approval of
the transactions contemplated herein by the requisite vote of the
holders of the outstanding shares of beneficial interest of Spartan
Ginnie Mae;
(c) That, on or prior to the Closing Date, Spartan Ginnie Mae 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 Ginnie Mae substantially all of Spartan Ginnie
Mae's investment company taxable income and all of its net realized
capital gain, if any, as of the Closing Date;
(d) That Spartan Ginnie Mae shall deliver to Fidelity Ginnie Mae 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 Ginnie Mae's behalf by its Treasurer or Assistant
Treasurer;
(e) That Spartan Ginnie Mae's custodian shall deliver to Fidelity
Ginnie Mae a certificate identifying the assets of Spartan Ginnie Mae
held by such custodian as of the Valuation Time on the Closing Date
and stating that as of the Valuation Time: (i) the assets held by the
custodian will be transferred to Fidelity Ginnie Mae; (ii) Spartan
Ginnie Mae'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 Ginnie Mae's transfer agent shall deliver to
Fidelity Ginnie Mae at the Closing a certificate setting forth the
number of shares of Spartan Ginnie Mae 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 Ginnie Mae calls a meeting of its shareholders to be
held after the effective date of the Registration Statement, to
consider transferring its assets to Fidelity Ginnie Mae as herein
provided, adopting this Agreement, and authorizing the liquidation and
termination of Spartan Ginnie Mae;
(h) That Spartan Ginnie Mae delivers to Fidelity Ginnie Mae a
certificate of an officer of Fidelity Union Street Trust, dated as of
the Closing Date, that there has been no material adverse change in
Spartan Ginnie Mae's financial position since August 31, 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 Ginnie Mae 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 Ginnie Mae or its
transfer agent by Fidelity Ginnie Mae or its agents shall have
revealed otherwise, Spartan Ginnie Mae shall have taken all actions
that in the opinion of Fidelity Ginnie Mae are necessary to remedy any
prior failure on the part of Spartan Ginnie Mae to have offered for
sale and sold such shares in conformity with such laws.
9. CONDITIONS TO OBLIGATIONS OF SPARTAN GINNIE MAE.
(a) That Fidelity Ginnie Mae shall have executed and delivered to
Spartan Ginnie Mae an Assumption of Liabilities, certified by an
officer of Fidelity Income Fund, dated as of the Closing Date pursuant
to which Fidelity Ginnie Mae will assume all of the liabilities of
Spartan Ginnie Mae existing at the Valuation Time in connection with
the transactions contemplated by this Agreement;
(b) That Fidelity Ginnie Mae furnishes to Spartan Ginnie Mae 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 Fidelity Ginnie Mae
made in this Agreement are true and correct in all material respects,
and Fidelity Ginnie Mae 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 Ginnie Mae shall have received an opinion of
Kirkpatrick & Lockhart LLP, counsel to Spartan Ginnie Mae and Fidelity
Ginnie Mae, to the effect that the Fidelity Ginnie Mae Shares are duly
authorized and upon delivery to Spartan Ginnie Mae as provided in this
Agreement will be validly issued and will be fully paid and
nonassessable by Fidelity Ginnie Mae (except as disclosed in Fidelity
Ginnie Mae's Statement of Additional Information) and no shareholder
of Fidelity Ginnie Mae has any preemptive right of subscription or
purchase in respect thereof.
10. CONDITIONS TO OBLIGATIONS OF FIDELITY GINNIE MAE AND SPARTAN
GINNIE MAE.
(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 Ginnie Mae;
(b) That all consents of other parties and all other consents,
orders, and permits of federal, state, and local regulatory
authorities (including those of the Commission and of state Blue Sky
and securities authorities, which term as used herein shall include
the District of Columbia and Puerto Rico, and including "no action"
positions of such federal or state authorities) deemed necessary by
Fidelity Ginnie Mae or Spartan Ginnie Mae to permit consummation, in
all material respects, of the transactions contemplated hereby shall
have been obtained, except where failure to obtain any such consent,
order, or permit would not involve a risk of a material adverse effect
on the assets or properties of Fidelity Ginnie Mae or Spartan Ginnie
Mae, provided that either party hereto may for itself waive any of
such conditions;
(c) That all proceedings taken by either Fund in connection with the
transactions contemplated by this Agreement and all documents
incidental thereto shall be satisfactory in form and substance to it
and its counsel, Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Fidelity Ginnie Mae and
Spartan Ginnie Mae, threatened by the Commission; and
(f) That Fidelity Ginnie Mae and Spartan Ginnie Mae shall have
received an opinion of Kirkpatrick & Lockhart LLP satisfactory to
Fidelity Ginnie Mae and Spartan Ginnie Mae that for federal income tax
purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Spartan Ginnie Mae and Fidelity Ginnie
Mae will each be parties to the Reorganization under section 368(b) of
the Code;
(ii) No gain or loss will be recognized by Spartan Ginnie Mae upon
the transfer of all of its assets to Fidelity Ginnie Mae in exchange
solely for the Fidelity Ginnie Mae Shares and the assumption of
Spartan Ginnie Mae's liabilities followed by the distribution of those
Fidelity Ginnie Mae Shares to the shareholders of Spartan Ginnie Mae
in liquidation of Spartan Ginnie Mae;
(iii) No gain or loss will be recognized by Fidelity Ginnie Mae on
the receipt of Spartan Ginnie Mae's assets in exchange solely for the
Fidelity Ginnie Mae Shares and the assumption of Spartan Ginnie Mae's
liabilities;
(iv) The basis of Spartan Ginnie Mae's assets in the hands of
Fidelity Ginnie Mae will be the same as the basis of such assets in
Spartan Ginnie Mae's hands immediately prior to the Reorganization;
(v) Fidelity Ginnie Mae's holding period in the assets to be
received from Spartan Ginnie Mae will include Spartan Ginnie Mae's
holding period in such assets;
(vi) A Spartan Ginnie Mae shareholder will recognize no gain or loss
on the exchange of his or her shares of beneficial interest in Spartan
Ginnie Mae for the Fidelity Ginnie Mae Shares in the Reorganization;
(vii) A Spartan Ginnie Mae shareholder's basis in the Fidelity
Ginnie Mae Shares to be received by him or her will be the same as his
or her basis in the Spartan Ginnie Mae shares exchanged therefor;
(viii) A Spartan Ginnie Mae shareholder's holding period for his or
her Fidelity Ginnie Mae Shares will include the holding period of
Spartan Ginnie Mae shares exchanged, provided that those Spartan
Ginnie Mae shares were held as capital assets on the date of the
Reorganization.
Notwithstanding anything herein to the contrary, neither Spartan
Ginnie Mae nor Fidelity Ginnie Mae may waive the conditions set forth
in this subsection 10(f).
11. COVENANTS OF FIDELITY GINNIE MAE AND SPARTAN GINNIE MAE.
(a) Fidelity Ginnie Mae and Spartan Ginnie Mae 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 Ginnie Mae covenants that it is not acquiring the
Fidelity Ginnie Mae Shares for the purpose of making any distribution
other than in accordance with the terms of this Agreement;
(c) Spartan Ginnie Mae covenants that it will assist Fidelity Ginnie
Mae in obtaining such information as Fidelity Ginnie Mae reasonably
requests concerning the beneficial ownership of Spartan Ginnie Mae's
shares; and
(d) Spartan Ginnie Mae covenants that its liquidation and termination
will be effected in the manner provided in its Restated Declaration of
Trust in accordance with applicable law and after the Closing Date,
Spartan Ginnie Mae will not conduct any business except in connection
with its liquidation and termination.
12. TERMINATION; WAIVER.
Fidelity Ginnie Mae and Spartan Ginnie Mae may terminate this
Agreement by mutual agreement. In addition, either Fidelity Ginnie Mae
or Spartan Ginnie Mae 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 Ginnie Mae or Fidelity Ginnie Mae, or
their respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter
hereof, constitutes the only understanding with respect to such
subject matter, may not be changed except by a letter of agreement
signed by each party hereto and shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Fidelity Ginnie Mae or
Spartan Ginnie Mae; provided, however, that following the
shareholders' meeting called by Spartan Ginnie Mae pursuant to Section
7 of this Agreement, no such amendment may have the effect of changing
the provisions for determining the number of Fidelity Ginnie Mae
Shares to be paid to Spartan Ginnie Mae 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 similar information found in the
"Expenses" section on page 6.
INTERMEDIATE GOV'T INCOME
Management fee 0.65%
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.65%
The following information replaces similar information found in the
"expenses" section on page 7.
INTERMEDIATE GOV'T INCOME
1 year $ 7
3 years $ 21
5 years $ 36
10 years $ 81
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.
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 3 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.
17 BREAKDOWN OF EXPENSES How
operating costs are
calculated and what they
include.
YOUR ACCOUNT 18 DOING BUSINESS WITH FIDELITY
18 TYPES OF ACCOUNTS Different
ways to set up your account,
including tax-advantaged
retirement plans.
20 HOW TO BUY SHARES Opening an
account and making
additional investments.
24 HOW TO SELL SHARES Taking
money out and closing your
account.
28 INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND ACCOUNT 29 DIVIDENDS, CAPITAL GAINS,
POLICIES AND TAXES
30 TRANSACTION DETAILS Share
price calculations and the
timing of purchases and
redemptions.
31 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.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The funds
in this prospectus are in the
INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME Seeks
long-term growth and income
by investing in stocks and
bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you 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 32, for an explanation of how
and when these charges apply.
Sales charge on purchases and None
reinvested distributions
Deferred sales charge on None
redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets.
Each fund pays a management fee to FMR. FMR is responsible for the
payment of all other expenses for 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 18).
The following figures are based on historical expenses, adjusted to
reflect current fees, of each fund and are calculated as a percentage
of average net assets of each fund. 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 expenses 0.65%
(after reimbursement)
GOVERNMENT INCOME
Management fee 0.44%
12b-1 fee None
Other expenses 0.25%
Total fund operating expenses 0.69%
INTERMEDIATE GOV'T INCOME
Management fee (after 0.38%
reimbursement)
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.38%
(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>
Selected Per-Share Data and
Ratios
Years ended July 31 1998 1997 1996 1995 1994 1993 1992 1991 1990
Net asset value, beginning $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420
of period
Income from Investment .714B .720B .688 .721 .582 .800 .833 .845 .891
Operations Net investment
income
Net realized and .004 .310 (.107) .292 (.650) .083 .373 .288 (.099)
unrealized gain (loss)
Total from investment .718 1.030 .581 1.013 (.068) .883 1.206 1.133 .792
operations
Less Distributions From (.698) (.710) (.691) (.713) (.582) (.683) (.796) (.853) (.842)
net investment income
From net realized gain -- -- -- -- (.190) -- -- -- --
In excess of net -- -- -- (.020) (.060) -- -- -- --
realized gain
Total distributions (.698) (.710) (.691) (.733) (.832) (.683) (.796) (.853) (.842)
Net asset value, end of $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370
period
Total returnA 6.81% 10.11% 5.55% 10.26% (.63)% 8.23% 11.65% 11.36% 8.01%
Net assets, end of period $ 917 $ 822 $ 790 $ 767 $ 769 $ 976 $ 914 $ 797 $ 658
(in millions)
Ratio of expenses to .72%C .76% .76% .75% .82% .80% .80% .83% .83%
average net assets
Ratio of expenses to .72% .75%D .75%D .75% .82% .80% .80% .83% .83%
average net assets after
expense reductions
Ratio of net investment 6.58% 6.75% 6.69% 7.24% 7.03% 7.26% 7.73% 8.24% 8.71%
income to average net assets
Portfolio turnover rate 172% 98% 107% 210% 303% 259% 114% 125% 96%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Selected Per-Share Data and
Ratios
Years ended July 31 1989
Net asset value, beginning $ 10.020
of period
Income from Investment .916
Operations Net investment
income
Net realized and .322
unrealized gain (loss)
Total from investment 1.238
operations
Less Distributions From (.838)
net investment income
From net realized gain --
In excess of net --
realized gain
Total distributions (.838)
Net asset value, end of $ 10.420
period
Total returnA 13.00%
Net assets, end of period $ 651
(in millions)
Ratio of expenses to .85%
average net assets
Ratio of expenses to .85%
average net assets after
expense reductions
Ratio of net investment 9.03%
income to average net assets
Portfolio turnover rate 291%
</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>
Selected Per-Share Data
and Ratios
Year ended July 31 1998E 1997D 1996D 1995D 1994D 1993D 1992F 1991G 1990G 1989G
Net asset value, beginning $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870 $ 10.500 $ 10.300 $ 9.640 $ 9.610 $ 9.270
of period
Income from Investment .481I .625I .670 .625 .626 .672 .556 .801 .832 .784
Operations Net investment
income
Net realized and .208 .175 (.299) .564 (1.225) .627 .198 .660 .030 .340
unrealized gain (loss)
Total from investment .689 .800 .371 1.189 (.599) 1.299 .754 1.461 .862 1.124
operations
Less Distributions From (.469) (.660) (.641) (.609) (.631) (.679) (.554) (.801) (.832) (.784)
net investment income
From net realized gain -- -- -- -- (.310) (.250) -- -- -- --
In excess of net -- -- -- (.020) -- -- -- -- -- --
realized gain
Total distributions (.469) (.660) (.641) (.629) (.941) (.929) (.554) (.801) (.832) (.784)
Net asset value, end of $ 9.980 $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870 $ 10.500 $ 10.300 $ 9.640 $ 9.610
period
Total returnB,C 7.19% 8.61% 3.82% 13.21% (5.81)% 13.18% 7.65% 15.96% 9.53% 12.62%
Net assets, end of period $ 1,253 $ 1,023 $ 949 $ 897 $ 614 $ 729 $ 582 $ 522 $ 469 $ 560
(in millions)
Ratio of expenses to .69%A .73% .72% .71% .69% .69% .70%A .70% .66% .73%
average net assets
Ratio of expenses to .68%A,H .72%H .71%H .71% .69% .69% .70%A .70% .66% .73%
average net assets after
expense reductions
Ratio of net investment 5.82%A 6.48% 6.52% 6.36% 6.26% 6.40% 7.31%A 8.23% 8.84% 8.29%
income to average net assets
Portfolio turnover rate 289%A 199% 124% 391% 402% 323% 219%A 257% 302% 312%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Selected Per-Share Data
and Ratios
Year ended July 31 1988G
Net asset value, beginning $ 9.520
of period
Income from Investment .839
Operations Net investment
income
Net realized and (.250)
unrealized gain (loss)
Total from investment .589
operations
Less Distributions From (.839)
net investment income
From net realized gain --
In excess of net --
realized gain
Total distributions (.839)
Net asset value, end of $ 9.270
period
Total returnB,C 6.36%
Net assets, end of period $ 568
(in millions)
Ratio of expenses to .79%
average net assets
Ratio of expenses to .79%
average net assets after
expense reductions
Ratio of net investment 8.87%
income to average net assets
Portfolio turnover rate 283%
</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>
Selected Per-Share Data
and Ratios
Years ended July 31 1998 1997 1996 1995 1994 1993 1992 1991 1990
Net asset value, beginning $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030
of period
Income from Investment .652C .675C .678 .610 .470 .872 .836 .853 .816
Operations Net investment
income
Net realized and (.008) .124 (.150) .143 (.410) (.087) .021 .142 (.100)
unrealized gain (loss)
Total from investment .644 .799 .528 .753 .060 .785 .857 .995 .716
operations
Less Distributions From (.654) (.659) (.638) (.603) (.540) (.605) (.677) (.845) (.816)
net investment income
From net realized gain -- -- -- -- -- (.050) (.060) (.020) --
In excess of net -- -- -- -- (.220) -- -- -- --
realized gain
Total distributions (.654) (.659) (.638) (.603) (.760) (.655) (.737) (.865) (.816)
Net asset value, end of $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930
period
Total returnA,B 6.78% 8.56% 5.49% 8.16% .57% 7.96% 8.78% 10.43% 7.49%
Net assets, end of period $ 704 $ 704 $ 740 $ 817 $ 1,018 $ 1,529 $ 1,770 $ 880 $ 132
(in millions)
Ratio of expenses to .38%E .54%E .63%E .65% .65% .65% .61%E .50%E .83%
average net assets
Ratio of expenses to .38% .54% .62%D .65% .65% .65% .61% .50% .83%
average net assets after
expense reductions
Ratio of net investment 6.65% 6.96% 6.89% 7.18% 7.37% 8.05% 8.24% 8.63% 8.28%
income to average net assets
Portfolio turnover rate 188% 105% 105% 210% 391% 324% 330% 288% 270%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Selected Per-Share Data
and Ratios
Years ended July 31 1989
Net asset value, beginning $ 9.880
of period
Income from Investment .806
Operations Net investment
income
Net realized and .150
unrealized gain (loss)
Total from investment .956
operations
Less Distributions From (.806)
net investment income
From net realized gain --
In excess of net --
realized gain
Total distributions (.806)
Net asset value, end of $ 10.030
period
Total returnA,B 10.14%
Net assets, end of period $ 125
(in millions)
Ratio of expenses to .68%E
average net assets
Ratio of expenses to .68%
average net assets after
expense reductions
Ratio of net investment 8.20%
income to average net assets
Portfolio turnover rate 806%
</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 ended July 31, Past 1 year Past 5 years Past 10 years
1998
Ginnie Mae* 6.81% 6.34% 8.37%
Lehman Brothers GNMA Index 7.46% 7.01% 9.25%
Lipper GNMA Funds Average 6.81% 6.11% 8.27%
Government Income 7.67% 5.87% 8.70%
Lehman Brothers Gov't Bond 8.35% 6.57% 8.97%
Index
Lipper General U.S. Gov't 7.32% 5.60% 7.93%
Funds Average
Intermediate Gov't Income* 6.78% 5.87% 7.40%
Lehman Brothers Intermediate 6.83% 5.95% 8.12%
Gov't Bond Index
Lipper Short-Intermediate 5.67% 5.00% 7.38%
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 ended July 31, Past 1 year Past 5 years Past 10 years
1998
Ginnie Mae* 6.81% 36.00% 123.36%
Lehman Brothers GNMA Index 7.46% 40.29% 142.29%
Lipper GNMA Funds Average 6.81% 34.54% 121.63%
Government Income 7.67% 33.00% 130.27%
Lehman Brothers Gov't Bond 8.35% 37.43% 135.99%
Index
Lipper General U.S. Gov't 7.32% 31.41% 115.07%
Funds Average
Intermediate Gov't Income* 6.78% 33.02% 104.23%
Lehman Brothers Intermediate 6.83% 33.48% 118.39%
Gov't Bond Index
Lipper Short-Intermediate 5.67% 27.74% 104.03%
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.
UNDERSTANDING
PERFORMANCE
Because these funds invest in
fixed-income securities, their
performance is related to
changes in interest rates.
Funds that hold short-term
bonds are usually less
affected by changes in
interest rates than long-term
bond funds. For that reason,
long-term bond funds typically
offer higher yields and carry
more risk than short-term bond
funds.
(checkmark)
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
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 23.
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.
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
(checkmark)
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 39. 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 36.
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.
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TO OPEN AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
Mail (mail_graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
In Person (hand_graphic) (small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
Wire (wire_graphic) (small solid bullet) Call
1-800-544-7777 to set up
your account and to arrange
a wire transaction. Not
available for retirement
accounts.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
#021001033, Account
#00163053. Specify the
complete name of the fund
and include your new account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Not
available.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TO ADD TO AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Call before your
first use to verify that
this service is in place on
your account. Maximum Money
Line: up to $100,000.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Visit Fidelity's
Web site before your first
use to verify that this
service is in place on your
account. Maximum Money Line:
up to $100,000.
Mail (mail_graphic) (small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address printed
on your account statement.
(small solid bullet) Exchange
by mail: call 1-800-544-6666
for instructions.
In Person (hand_graphic) (small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
Wire (wire_graphic) (small solid bullet) Not
available for retirement
accounts.
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing #021001033, Account
#00163053. Specify the
complete name of the fund
and include your account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Use
Fidelity Automatic Account
Builder. Sign up for this
service when opening your
account, visit Fidelity's
Web site at www.fidelity.com
to obtain the form to add
the service, or call
1-800-544-6666 to add the
service.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form. Each fund's NAV is normally calculated
each business day at 4:00 p.m. Eastern time.
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the
methods described on these two pages.
TO SELL SHARES IN A FIDELITY RETIREMENT ACCOUNT, your request must be
made in writing, except for exchanges to other Fidelity funds, which
can be requested by phone, in writing, or through Fidelity's Web site.
Call 1-800-544-6666 for a retirement distribution form.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$2,000 worth of shares in the account to keep it open ($500 for
retirement accounts).
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited
number of checks. Do not, however, try to close out your account by
check.
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ACCOUNT TYPE
Phone 1-800-544-7777 (phone_graphic) All account types except
retirement
All account types
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint Tenant,
Sole Proprietorship, UGMA,
UTMA
Retirement account
Trust
Business or Organization
Executor, Administrator,
Conservator, Guardian
Wire (wire_graphic) All account types except
retirement
Check (check_graphic) All account types
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
<TABLE>
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<S> <C>
SPECIAL REQUIREMENTS
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Maximum
check request: $100,000.
(small solid bullet) For
Money Line transfers to your
bank account; minimum: $10;
maximum: up to $100,000.
(small solid bullet) You may
exchange to other Fidelity
funds if both accounts are
registered with the same
name(s), address, and
taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) (small solid bullet) The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
(small solid bullet) The
account owner should
complete a retirement
distribution form. Call
1-800-544-6666 to request one.
(small solid bullet) The
trustee must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
(small solid bullet) At least
one person authorized by
corporate resolution to act
on the account must sign the
letter.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
(small solid bullet) Call
1-800-544-6666 for
instructions.
Wire (wire_graphic) (small solid bullet) You must
sign up for the wire feature
before using it. To verify
that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your
wire redemption request must
be received in proper form
by Fidelity before 4:00 p.m.
Eastern time for money to be
wired on the next business
day.
Check (check_graphic) (small solid bullet) Minimum
check: $500.
(small solid bullet) All
account owners must sign a
signature card to receive a
checkbook.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</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)
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
(checkmark)
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 38.
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDER(registered trademark)
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly or quarterly (small solid bullet) For a
new account, complete the
appropriate section on the
fund application.
(small solid bullet) For
existing accounts, call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
application.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666 at least
three business days prior to
your next scheduled
investment date.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Every pay period (small solid bullet) Check
the appropriate box on the
fund application, or call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
authorization form.
(small solid bullet) Changes
require a new authorization
form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly, bimonthly, (small solid bullet) To
quarterly, or annually establish, call
1-800-544-6666 after both
accounts are opened.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666.
A BECAUSE THEIR SHARE PRICES FLUCTUATE, THESE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income
and capital gains to shareholders each year. 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 your0
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.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings along
to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
(checkmark)
TAXES
As with any investment, you should consider how your investment in a
fund will be taxed. If your account is not a tax-advantaged retirement
account, you should be aware of these tax implications.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income
tax, and may also be subject to state or local taxes. If you live
outside the United States, your distributions could also be taxed by
the country in which you reside. Your distributions are taxable when
they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are
taxable as if they were paid on December 31.
For federal tax purposes, each fund's income and short-term capital
gains are distributed as dividends and taxed as ordinary income;
capital gain distributions are taxed as long-term capital gains. Every
January, Fidelity will send you and the IRS a statement showing the
tax characterization of distributions paid to you in the previous
year.
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.
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 27
Limitations
Portfolio Transactions 31
Valuation 32
Performance 33
Additional Purchase, Exchange 39
and Redemption Information
Distributions and Taxes 40
FMR 40
Trustees and Officers 40
Management Contracts 43
Distribution and Service Plans 48
Contracts with FMR Affiliates 48
Description of the Trust 49
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 48.
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 49.
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 50.
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>
Average Annual Total Returns
Thirty Day Yield One Year Five Years Ten Years
Ginnie Mae 6.37% 6.81% 6.34% 8.37%
Government Income 5.32% 7.67% 5.87% 8.70%
Intermediate Government Income 5.89% 6.78% 5.87% 7.40%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Total Returns
One Year Five Years Ten Years
Ginnie Mae 6.81% 36.00% 123.36%
Government Income 7.67% 33.00% 130.27%
Intermediate Government Income 6.78% 33.02% 104.23%
</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>
GINNIE MAE INDICES
Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested
Capital Total Value S&P 500 DJIA
Investment Distributions Gain Distributions
1998 $ 10,848 $ 11,090 $ 398 $ 22,336 $ 54,515 $ 55,318
1997 $ 10,828 $ 9,686 $ 398 $ 20,912 $ 45,702 $ 50,376
1996 $ 10,509 $ 8,097 $ 386 $ 18,992 $ 30,040 $ 33,218
1995 $ 10,619 $ 6,985 $ 390 $ 17,994 $ 25,770 $ 27,670
1994 $ 10,339 $ 5,633 $ 348 $ 16,320 $ 20,435 $ 21,556
1993 $ 11,238 $ 5,186 $ 0 $ 16,424 $ 19,433 $ 19,721
1992 $ 11,038 $ 4,138 $ 0 $ 15,176 $ 17,870 $ 18,358
1991 $ 10,629 $ 2,963 $ 0 $ 13,592 $ 15,842 $ 15,882
1990 $ 10,349 $ 1,856 $ 0 $ 12,205 $ 14,049 $ 14,704
1989 $ 10,399 $ 901 $ 0 $ 11,300 $ 13,192 $ 12,967
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GINNIE MAE
Year Ended Cost of Living
1998 $ 13,772
1997 $ 13,544
1996 $ 13,249
1995 $ 12,869
1994 $ 12,523
1993 $ 12,186
1992 $ 11,857
1991 $ 11,494
1990 $ 11,004
1989 $ 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>
GOVERNMENT INCOME INDICES
Period Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested
Capital Total Value S&P 500
Investment Distributions Gain Distributions
1998 $ 10,651 $ 11,464 $ 912 $ 23,027 $ 54,515
1997 $ 10,480 $ 10,009 $ 898 $ 21,387 $ 45,702
1996 $ 10,235 $ 8,398 $ 877 $ 19,510 $ 30,040
1995 $ 10,448 $ 7,320 $ 895 $ 18,663 $ 25,770
1994 $ 10,277 $ 6,055 $ 842 $ 17,174 $ 20,435
1993 $ 11,355 $ 5,557 $ 402 $ 17,314 $ 19,433
1992 $ 11,089 $ 4,357 $ 0 $ 15,446 $ 17,870
1991 $ 10,224 $ 2,984 $ 0 $ 13,208 $ 15,842
1990 $ 10,096 $ 1,866 $ 0 $ 11,962 $ 14,049
1989 $ 10,363 $ 902 $ 0 $ 11,265 $ 13,192
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
GOVERNMENT INCOME
Period Ended DJIA Cost of Living
1998 $ 55,318 $ 13,772
1997 $ 50,376 $ 13,544
1996 $ 33,218 $ 13,249
1995 $ 27,670 $ 12,869
1994 $ 21,556 $ 12,523
1993 $ 19,721 $ 12,186
1992 $ 18,358 $ 11,857
1991 $ 15,882 $ 11,494
1990 $ 14,704 $ 11,004
1989 $ 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>
INTERMEDIATE GOVERNMENT INCOME
Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1998 $ 9,899 $ 10,021 $ 503 $ 20,423
1997 $ 9,909 $ 8,714 $ 503 $ 19,126
1996 $ 9,767 $ 7,355 $ 496 $ 17,618
1995 $ 9,879 $ 6,320 $ 502 $ 16,701
1994 $ 9,727 $ 5,220 $ 494 $ 15,441
1993 $ 10,435 $ 4,741 $ 177 $ 15,353
1992 $ 10,304 $ 3,814 $ 104 $ 14,222
1991 $ 10,182 $ 2,867 $ 25 $ 13,074
1990 $ 10,051 $ 1,788 $ 0 $ 11,839
1989 $ 10,152 $ 862 $ 0 $ 11,014
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERMEDIATE GOVERNMENT INCOME INDICES
Year Ended S&P 500 DJIA Cost of Living
1998 $ 54,515 $ 55,318 $ 13,772
1997 $ 45,702 $ 50,376 $ 13,544
1996 $ 30,040 $ 33,218 $ 13,249
1995 $ 25,770 $ 27,670 $ 12,869
1994 $ 20,435 $ 21,556 $ 12,523
1993 $ 19,433 $ 19,721 $ 12,186
1992 $ 17,870 $ 18,358 $ 11,857
1991 $ 15,842 $ 15,882 $ 11,494
1990 $ 14,049 $ 14,704 $ 11,004
1989 $ 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Aggregate Compensation from Aggregate Compensation from
Advisory Board Fidelity Ginnie Mae FundB Fidelity Government Income Fidelity Intermediate
FundB Government Income FundB
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox $ 312 $ 268 $ 414
Phyllis Burke Davis $ 312 $ 268 $ 414
Robert M. Gates $ 316 $ 271 $ 323
Edward C. Johnson 3d** $ 0 $ 0 $ 0
E. Bradley Jones $ 314 $ 270 $ 417
Donald J. Kirk $ 314 $ 270 $ 417
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 316 $ 271 $ 323
Gerald C. McDonough $ 389 $ 334 $ 517
Marvin L. Mann $ 310 $ 266 $ 411
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 314 $ 270 $ 417
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustees and Members of the Total Compensation from the
Advisory Board Fund Complex*,A
J. Gary Burkhead** $ 0
Ralph F. Cox $ 214,500
Phyllis Burke Davis $ 210,000
Robert M. Gates $ 176,000
Edward C. Johnson 3d** $ 0
E. Bradley Jones $ 211,500
Donald J. Kirk $ 211,500
Peter S. Lynch** $ 0
William O. McCoy $ 214,500
Gerald C. McDonough $ 264,500
Marvin L. Mann $ 214,500
Robert C. Pozen** $ 0
Thomas R. Williams $ 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 SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1690
24 - 30 .1800 200 .1652
30 - 36 .1750 225 .1618
36 - 42 .1700 250 .1587
42 - 48 .1650 275 .1560
48 - 66 .1600 300 .1536
66 - 84 .1550 325 .1514
84 - 120 .1500 350 .1494
120 - 156 .1450 375 .1476
156 - 192 .1400 400 .1459
192 - 228 .1350 425 .1443
228 - 264 .1300 450 .1427
264 - 300 .1275 475 .1413
300 - 336 .1250 500 .1399
336 - 372 .1225 525 .1385
372 - 408 .1200 550 .1372
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over 516 .1100
</TABLE>
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $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 Mae 0.1331% + 0.30% = 0.4331%
Government Income 0.1331% + 0.30% = 0.4331%
</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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund July 31 Amount of Credits Reducing Management Fees Paid to FMR
Management Fees
Ginnie Mae 1998 $ 0 $ 3,763,000
1997 $ 0 $ 3,511,000
1996 $ 0 $ 3,534,000
Government Income 1998** $ 0 $ 4,322,000
1997*** $ 0 $ 4,315,000
1996**** $ 0 $ 4,287,000
Intermediate Government Income 1998 $ 7,000 $ 4,782,000*
1997 $ 13,000 $ 4,536,000*
1996 $ 73,000 $ 5,118,000*
</TABLE>
* 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>
Periods of Expense Limitation Aggregate Operating Expense
From To Limitation
Ginnie Mae June 27, 1998 -- 0.65%
Intermediate Government Income March 1, 1997 December 31, 1998 0.38%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Years Ended July 31 Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Ginnie Mae 1998 $ 3,763,000 $ 120,000
Intermediate Government Income 1998 $ 4,789,000* $ 1,987,000
</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 Income $ 287,000* $ 305,000** $ 295,000***
* 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
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
(fidelity_logo_graphic)(registered trademark)
CONTENTS
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
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 YEAR PAST 5 YEARS PAST 10 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 YEAR PAST 5 YEARS PAST 10 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.
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.
(checkmark)
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 MONTH PAST 6 MONTHS PAST 1 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.
(Photograph of Curt Hollingsworth)
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.
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
(checkmark)
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 INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
less than 7% 15.0 7.1
7 - 7.99% 46.3 38.6
8 - 8.99% 26.2 30.3
9 - 9.99% 5.4 4.9
10 - 10.99% 2.4 2.6
11% and over 1.4 1.6
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 82.5%
AS OF JANUARY 31, 1998
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 94.3%
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
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
Investment in securities, $ 950,998
at value (including
repurchase agreements of
$31,732) (cost $936,091) -
See accompanying schedule
Cash 1
Receivable for investments 89,802
sold
Receivable for fund shares 2,217
sold
Interest receivable 5,658
TOTAL ASSETS 1,048,676
LIABILITIES
Payable for investments $ 129,314
purchased
Payable for fund shares 1,019
redeemed
Distributions payable 565
Accrued management fee 297
Other payables and accrued 251
expenses
TOTAL LIABILITIES 131,446
NET ASSETS $ 917,230
Net Assets consist of:
Paid in capital $ 925,829
Distributions in excess of (1,862)
net investment income
Accumulated undistributed (21,644)
net realized gain (loss) on
investments
Net unrealized 14,907
appreciation (depreciation)
on investments
NET ASSETS, for 84,363 $ 917,230
shares outstanding
NET ASSET VALUE, offering $10.87
price and redemption price
per 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 278
expenses
Non-interested trustees' 13
compensation
Custodian fees and 180
expenses
Registration fees 46
Audit 50
Legal 34
Reports to shareholders 77
Total expenses before 6,374
reductions
Expense reductions (143) 6,231
NET INVESTMENT INCOME 56,820
REALIZED AND UNREALIZED GAIN 14,559
(LOSS)
Net realized gain (loss)
on investment securities
Change in net unrealized (13,818)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 741
NET INCREASE (DECREASE) $ 57,561
IN NET ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions:
FMR reimbursement $ 120
Custodian credits 1
Transfer agent credits 22
$ 143
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1998 YEAR ENDED JULY 31, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 56,820 $ 53,630
income
Net realized gain (loss) 14,559 2,497
Change in net unrealized (13,818) 20,073
appreciation (depreciation)
NET INCREASE (DECREASE) 57,561 76,200
IN NET ASSETS RESULTING
FROM OPERATIONS
Distributions to (55,500) (52,899)
shareholders from net
investment income
Share transactions Net 349,964 195,577
proceeds from sales of shares
Reinvestment of 48,330 45,337
distributions
Cost of shares redeemed (305,260) (232,014)
NET INCREASE (DECREASE) 93,034 8,900
IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS
TOTAL INCREASE 95,095 32,201
(DECREASE) IN NET ASSETS
NET ASSETS
Beginning of period 822,135 789,934
End of period (including $ 917,230 $ 822,135
distributions in excess of
net investment income of
$1,862 and $1,202,
respectively)
OTHER INFORMATION
Shares
Sold 32,197 18,325
Issued in reinvestment 4,446 4,249
of distributions
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, $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260
beginning of period
Income from Investment .714 B .720 B .688 .721 .582
Operations Net investment
income
Net realized and .004 .310 (.107) .292 (.650)
unrealized gain (loss)
Total from investment .718 1.030 .581 1.013 (.068)
operations
Less Distributions
From net investment (.698) (.710) (.691) (.713) (.582)
income
From net realized gain - - - - (.190)
In excess of net - - - (.020) (.060)
realized gain
Total distributions (.698) (.710) (.691) (.733) (.832)
Net asset value, end of $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360
period
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 .72% D .76% .76% .75% .82%
average net assets
Ratio of expenses to .72% .75% C .75% C .75% .82%
average net assets after
expense reductions
Ratio of net investment 6.58% 6.75% 6.69% 7.24% 7.03%
income 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 YEAR PAST 5 YEARS PAST 10 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 7.32% 31.41% 115.07%
Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Lehman Brothers 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 YEAR PAST 5 YEARS PAST 10 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 7.32% 5.60% 7.93%
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
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.
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.
(checkmark)
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 MONTH PAST 6 MONTHS PAST 1 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.
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
(checkmark)
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 INVESTMENTS % OF FUND'S INVESTMENTS 4
MONTHS AGO
Zero Coupon bonds 0.1 10.9
5 - 5.99% 9.9 12.2
6 - 6.99% 28.5 18.5
7 - 7.99% 11.4 4.6
8 - 8.99% 24.2 13.5
9 - 9.99% 19.2 26.2
10 - 10.99% 4.2 4.4
11% and over 2.0 1.3
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
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%
AS OF MARCH 31, 1998
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
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
Investment in securities, $ 1,238,685
at value (including
repurchase agreements of
$5,555) (cost $1,224,974) -
See accompanying schedule
Cash 1,389
Receivable for 819
investments sold
Receivable for fund 2,949
shares sold
Interest receivable 18,909
TOTAL ASSETS 1,262,751
LIABILITIES
Payable for investments $ 6,122
purchased
Payable for fund shares 2,472
redeemed
Distributions payable 474
Accrued management fee 460
Other payables and 312
accrued expenses
TOTAL LIABILITIES 9,840
NET ASSETS $ 1,252,911
Net Assets consist of:
Paid in capital $ 1,241,016
Undistributed net 4,504
investment income
Accumulated undistributed (6,320)
net realized gain (loss) on
investments
Net unrealized 13,711
appreciation (depreciation)
on investments
NET ASSETS, for 125,546 $ 1,252,911
shares outstanding
NET ASSET VALUE, offering $9.98
price and redemption price
per 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 287
expenses
Non-interested trustees' 9
compensation
Custodian fees and 7
expenses
Registration fees 170
Audit 34
Legal 38
Interest 2
Reports to shareholders 146
Miscellaneous 5
Total expenses before 6,845
reductions
Expense reductions (74) 6,771
NET INVESTMENT INCOME 57,760
REALIZED AND UNREALIZED GAIN 28,818
(LOSS)
Net realized gain (loss)
on investment securities
Change in net unrealized (5,599)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 23,219
NET INCREASE (DECREASE) $ 80,979
IN NET ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions:
Custodian credits $ 7
Transfer agent credits 67
$ 74
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS TEN MONTHS ENDED JULY 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 57,760 $ 63,391
income
Net realized gain (loss) 28,818 (622)
Change in net unrealized (5,599) 18,125
appreciation (depreciation)
NET INCREASE (DECREASE) 80,979 80,894
IN NET ASSETS RESULTING
FROM OPERATIONS
Distributions to (56,286) (66,908)
shareholders from net
investment income
Share transactions Net 835,669 378,207
proceeds from sales of shares
Reinvestment of 50,449 57,722
distributions
Cost of shares redeemed (680,613) (376,059)
NET INCREASE (DECREASE) 205,505 59,870
IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS
TOTAL INCREASE 230,198 73,856
(DECREASE) IN NET ASSETS
NET ASSETS
Beginning of period 1,022,713 948,857
End of period (including $ 1,252,911 $ 1,022,713
undistributed net investment
income of $4,504 and $581,
respectively)
OTHER INFORMATION
Shares
Sold 84,090 39,114
Issued in reinvestment 5,076 5,974
of distributions
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 JULY 31, YEARS ENDED SEPTEMBER 30,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870
beginning of period
Income from Investment .481 D .625 D .670 .625 .626
Operations Net investment
income
Net realized and .208 .175 (.299) .564 (1.225)
unrealized gain (loss)
Total from investment .689 .800 .371 1.189 (.599)
operations
Less Distributions
From net investment (.469) (.660) (.641) (.609) (.631)
income
From net realized gain - - - - (.310)
In excess of net - - - (.020) -
realized gain
Total distributions (.469) (.660) (.641) (.629) (.941)
Net asset value, end of $ 9.980 $ 9.760 $ 9.620 $ 9.890 $ 9.330
period
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 .69% A .73% .72% .71% .69%
average net assets
Ratio of expenses to .68% A, E .72% E .71% E .71% .69%
average net assets after
expense reductions
Ratio of net investment 5.82% A 6.48% 6.52% 6.36% 6.26%
income 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 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY INTERMEDIATE GOV'T 6.78% 33.02% 104.23%
INCOME
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 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY INTERMEDIATE GOV'T 6.78% 5.87% 7.40%
INCOME
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.
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.
(checkmark)
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 MONTH PAST 6 MONTHS PAST 1 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.
FUND FACTS
GOAL: high current income with
preservation of capital by
investing mainly in U.S.
government and agency
securities while maintaining a
dollar 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
(checkmark)
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 INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Less than 5% 0.0 5.2
5 - 5.99% 14.5 12.7
6 - 6.99% 31.6 35.9
7 - 7.99% 8.5 7.8
8 - 8.99% 9.1 10.3
9 - 9.99% 16.9 12.9
10 - 10.99% 3.8 4.1
11 - 11.99% 4.7 4.6
12% and over 4.3 4.5
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
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%
AS OF JANUARY 31, 1998
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
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
Investment in securities, $ 699,382
at value (including
repurchase agreements of
$46,172) (cost $692,109) -
See accompanying schedule
Cash 1
Receivable for 864
investments sold
Receivable for fund 368
shares sold
Interest receivable 10,264
Other receivables 63
TOTAL ASSETS 710,942
LIABILITIES
Payable for investments $ 5,630
purchased
Payable for fund shares 602
redeemed
Distributions payable 633
Accrued management fee 226
Other payables and 20
accrued expenses
TOTAL LIABILITIES 7,111
NET ASSETS $ 703,831
Net Assets consist of:
Paid in capital $ 750,604
Undistributed net 1,867
investment income
Accumulated undistributed (55,913)
net realized gain (loss) on
investments
Net unrealized 7,273
appreciation (depreciation)
on investments
NET ASSETS, for 71,942 $ 703,831
shares outstanding
NET ASSET VALUE, offering $9.78
price and redemption price
per 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' 3
compensation
Total expenses before 4,792
reductions
Expense reductions (1,994) 2,798
NET INVESTMENT INCOME 48,961
REALIZED AND UNREALIZED GAIN 5,968
(LOSS)
Net realized gain (loss)
on investment securities
Change in net unrealized (6,214)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (246)
NET INCREASE (DECREASE) $ 48,715
IN NET ASSETS RESULTING
FROM OPERATIONS
OTHER INFORMATION
Expense reductions:
FMR reimbursement $ 1,987
Custodian credits 5
Transfer agent credits 2
$ 1,994
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1998 YEAR ENDED JULY 31, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 48,961 $ 48,874
income
Net realized gain (loss) 5,968 (3,334)
Change in net unrealized (6,214) 12,958
appreciation (depreciation)
NET INCREASE (DECREASE) 48,715 58,498
IN NET ASSETS RESULTING
FROM OPERATIONS
Distributions to (49,186) (47,692)
shareholders from net
investment income
Share transactions Net 255,811 147,916
proceeds from sales of shares
Reinvestment of 40,988 39,235
distributions
Cost of shares redeemed (296,896) (233,304)
NET INCREASE (DECREASE) (97) (46,153)
IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS
TOTAL INCREASE (568) (35,347)
(DECREASE) IN NET ASSETS
NET ASSETS
Beginning of period 704,399 739,746
End of period (including $ 703,831 $ 704,399
under (over) distributions
of net investment income of
$1,867 and $(140),
respectively)
OTHER INFORMATION
Shares
Sold 26,122 15,242
Issued in reinvestment 4,188 4,045
of distributions
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, $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310
beginning of period
Income from Investment .652 C .675 C .678 .610 .470
Operations Net investment
income
Net realized and (.008) .124 (.150) .143 (.410)
unrealized gain (loss)
Total from investment .644 .799 .528 .753 .060
operations
Less Distributions
From net investment (.654) (.659) (.638) (.603) (.540)
income
From net realized gain - - - - -
In excess of net - - - - (.220)
realized gain
Total distributions (.654) (.659) (.638) (.603) (.760)
Net asset value, end of $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610
period
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 .38% D .54% D .63% D .65% .65%
average net assets
Ratio of expenses to .38% .54% .62% E .65% .65%
average net assets after
expense reductions
Ratio of net investment 6.65% 6.96% 6.89% 7.18% 7.37%
income 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.
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 Non-Votes 18,415,292.70
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 Non-Votes 1,939,740.10
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
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
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
GVT-ANN-0998 61244
1.537760.101
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Strategic Income
Target TimelineSM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(fidelity_logo_graphic)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
SUPPLEMENT TO THE SPARTAN(registered trademark) GINNIE MAE FUND
OCTOBER 20, 1998 PROSPECTUS
The following information replaces the first paragraph in the "Who May
Want to Invest" section on page 3.
PROPOSED REORGANIZATION. The Board of Trustees of Spartan Ginnie Mae
Fund has unanimously approved an Agreement and Plan of Reorganization
("Agreement") between Spartan Ginnie Mae Fund and Fidelity Ginnie Mae
Fund.
The Agreement provides for the transfer of all of the assets and the
assumption of all of the liabilities of Spartan Ginnie Mae Fund solely
in exchange for the number of shares of Fidelity Ginnie Mae Fund equal
in value to the relative net asset value of the outstanding shares of
Spartan Ginnie Mae Fund. Following such exchange, Spartan Ginnie Mae
Fund will distribute the Fidelity Ginnie Mae Fund shares to its
shareholders pro rata, in liquidation of Spartan Ginnie Mae 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 Ginnie Mae Fund will be held on May 19,
1999, and approval of the Agreement will be voted on at that time. In
connection with the Meeting, Spartan Ginnie Mae 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 Ginnie Mae 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 May 27, 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 Ginnie Mae Fund shareholders fail to approve the
Agreement, Spartan Ginnie Mae 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 Ginnie Mae Fund.
The following information replaces similar information found in the
"Expenses" section on page 5.
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 expenses 0.65%
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.
The following information replaces similar information found in the
"Charter" section on page 9.
Thomas Silvia is Vice President and manager of Spartan Ginnie Mae,
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.
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 Statement of Additional Information (SAI) dated October 20, 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.
SGM-pro-1098
1.704387.101
SPARTAN(registered trademark)
GINNIE MAE
FUND
(fund number 461, trading symbol SGNMX)
Spartan Ginnie Mae seeks high current income by investing mainly in
mortgage securities issued by the Government National Mortgage
Association.
PROSPECTUS
OCTOBER 20, 1998
(FIDELITY_LOGO_GRAPHIC)(REGISTERED TRADEMARK)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
KEY FACTS 3 THE FUND AT A GLANCE
3 WHO MAY WANT TO INVEST
5 EXPENSES The fund's yearly
operating expenses.
6 FINANCIAL HIGHLIGHTS A
summary of the fund's
financial data.
8 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 11 DOING BUSINESS WITH FIDELITY
11 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.
17 HOW TO SELL SHARES Taking
money out and closing your
account.
21 INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND ACCOUNT 22 DIVIDENDS, CAPITAL GAINS, AND
POLICIES TAXES
23 TRANSACTION DETAILS Share
price calculations and the
timing of purchases and
redemptions.
24 EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current income. As with any mutual fund, there is no
assurance that the fund will achieve its goal.
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.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946
and is now America's largest mutual fund manager.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, will choose investments for the fund.
SIZE: As of August 31, 1998, the fund had over $667 million in assets.
WHO MAY WANT TO INVEST
FMR anticipates presenting a proposal to the Board of Trustees of
Spartan Ginnie Mae Fund requesting their approval to present
shareholders of the fund a proposal to merge the fund into Fidelity
Ginnie Mae 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.
This non-diversified fund may be appropriate for investors who seek
high current income from a portfolio of Ginnie Maes. These securities
are interests in pools of mortgage loans, whose interest and principal
are guaranteed by the U.S. Government.
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.
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
Ginnie Mae is in the INCOME
category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME Seeks
long-term growth and income
by investing in stocks and
bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you 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 24, for an explanation of how and when
these charges apply.
Sales charge on purchases and None
reinvested distributions
Deferred sales charge on None
redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES are paid out of 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 12).
The following figures are based on historical expenses, adjusted to
reflect current fees, of the fund and are calculated as a percentage
of average net assets of the fund.
Management fee (after 0.38%
reimbursement)
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.38%
(after reimbursement)
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 $ 4
3 years $ 12
5 years $ 21
10 years $ 48
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses or returns, all of which may vary.
Effective March 1, 1997, FMR has voluntarily agreed to reimburse the
fund to the extent that total operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) exceed 0.38%
of its average net assets through December 31, 1998. If this agreement
were not in effect, the management fee, other expenses and total
operating expenses, as a percentage of average net assets, would have
been 0.65%, 0.00% and 0.65%, respectively.
The reimbursement agreement for the fund will continue through
December 31, 1998.
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.
(checkmark)
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Years ended August 31 1998 1997 1996 1995 1994 1993 1992 1991E
Net asset value, beginning of $ 10.060 $ 9.780 $ 9.970 $ 9.640 $ 10.270 $ 10.400 $ 10.160 $ 10.000
period
Income from Investment .698D .687D .639 .690 .332 .800 .832 .578
Operations Net investment
income
Net realized and .100 .271 (.181) .347 (.359) (.050) .236 .154
unrealized gain (loss)
Total from investment .798 .958 .458 1.037 (.027) .750 1.068 .732
operations
Less Distributions From net (.668) (.678) (.648) (.707) (.533) (.640) (.808) (.572)
investment
income
From net realized gain -- -- -- -- -- (.240) (.020) --
In excess of net -- -- -- -- (.070) -- -- --
realized gain
Total distributions (.668) (.678) (.648) (.707) (.603) (.880) (.828) (.572)
Net asset value, end of period $ 10.190 $ 10.060 $ 9.780 $ 9.970 $ 9.640 $ 10.270 $ 10.400 $ 10.160
Total returnB,C 8.16% 10.07% 4.67% 11.28% (.25)% 7.61% 10.86% 7.53%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (In $ 668 $ 534 $ 435 $ 420 $ 401 $ 684 $ 838 $ 422
millions)
Ratio of expenses to average .38%F .51%F .63%F .65% .65% .41%F .17%F .25%A,F
net assets
Ratio of expenses to average .38% .51% .62%G .65% .65% .41% .17% .25%A
net assets after expense
reductions
Ratio of net investment 6.88% 6.91% 6.77% 7.30% 7.36% 7.63% 8.09% 8.69%A
income to average net assets
Portfolio turnover rate 148% 104% 115% 229% 285% 241% 168% 41%A
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE FORMER ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD DECEMBER 27, 1990 (COMMENCEMENT OF OPERATIONS) TO
AUGUST 31, 1991.
F 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.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
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 September 1 through August 31. 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 August Past 1 year Past 5 years Life of fundA
31, 1998
Spartan Ginnie Mae 8.16% 6.70% 7.75%
Lehman Brothers GNMA Index 8.54% 7.12% n/a
Lipper GNMA Funds Average 8.34% 6.19% n/a
CUMULATIVE TOTAL RETURNS
Fiscal periods ended August Past 1 year Past 5 years Life of fundA
31, 1998
Spartan Ginnie Mae 8.16% 38.32% 77.44%
Lehman Brothers GNMA Index 8.54% 41.04% n/a
Lipper GNMA Funds Average 8.34% 35.06% n/a
A FROM DECEMBER 27, 1990 (COMMENCEMENT OF OPERATIONS)
If FMR had not reimbursed certain fund expenses during these periods,
yields and 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.
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.
(checkmark)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1991 1992 1993 1994 1995 1996 1997
SPARTAN GINNIE MAE 13.79% 6.50% 6.30% -1.51% 16.66% 4.98% 8.95%
Lehman Brothers GNMA Index 16.04% 7.41% 6.58% -1.50% 17.05% 5.53% 9.53%
Lipper GNMA Funds Average 14.86% 6.49% 6.57% -2.49% 16.25% 3.81% 8.80%
Consumer Price Index 3.06% 2.90% 2.75% 2.67% 2.54% 3.32% 1.70%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 13.79
Row: 5, Col: 1, Value: 6.5
Row: 6, Col: 1, Value: 6.3
Row: 7, Col: 1, Value: -1.51
Row: 8, Col: 1, Value: 16.66
Row: 9, Col: 1, Value: 4.98
Row: 10, Col: 1, Value: 8.950000000000001
(LARGE SOLID BOX) Spartan Ginnie Mae
LEHMAN BROTHERS GNMA INDEX is a market capitalization weighted index
of fixed-rate securities issued by the Government National Mortgage
Association.
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 Ginnie Mae Funds Average.
As of August 31, 1998, the average reflected the performance of 53
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 GINNIE MAE IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund
is a non-diversified fund of Fidelity Union Street Trust, an open-end
management investment company organized as a Massachusetts business
trust on March 1, 1974.
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 Ginnie
Mae, which he has managed since February, 1997. 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,
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 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 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 August 31, 1998, the
dollar-weighted average maturity of the fund and the index was
approximately 6.3 and 5.2 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.
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.
ASSET-BACKED SECURITIES include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest
rates, the availability of information concerning the pool and its
structure, the credit quality of the underlying assets, the market's
perception of the servicer of the pool, and any credit enhancement
provided. In addition, these securities may be subject to prepayment
risk.
MORTGAGE SECURITIES include interests in pools of commercial or
residential mortgages, and may include complex instruments such as
collateralized mortgage obligations and stripped mortgage-backed
securities. Mortgage securities may be issued by agencies or
instrumentalities of the U.S. Government or by private entities.
The price of a mortgage security may be significantly affected by
changes in interest rates. Some mortgage securities may have a
structure that makes their reaction to interest rates and other
factors difficult to predict, making their price highly volatile.
Also, mortgage securities, especially stripped mortgage-backed
securities, are subject to prepayment risk. Securities subject to
prepayment risk generally offer less potential for gains during a
declining interest rate environment, and similar or greater potential
for loss in a rising interest rate environment.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
REPURCHASE AGREEMENTS. In a repurchase agreement, 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, 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 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 a high level of current income.
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 can decrease the fund's
expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. FMR pays
all of the other expenses of the fund with limited exceptions. The
fund's annual management fee rate is 0.65% of its average net assets.
For the fiscal year ended August 31, 1998, the fund paid a management
fee of 0.38% of the fund's average net assets, after reimbursement.
Beginning January 1, 1999, FIMM will have primary responsibility for
managing the fund's investments. FMR will pay FIMM 50% of it
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 August
1998 was 148%. 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 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.
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 $546 billion
(solid bullet) Number of shareholder
accounts: over 38 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 250
(checkmark)
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 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 the fund are offered to current shareholders only.
The fund reserves the right to reject any specific purchase order,
including certain purchases by exchange. See "Exchange Restrictions"
on page 29. 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
TO ADD TO AN ACCOUNT $1,000
Through regular investment plansA $500
MINIMUM BALANCE $5,000
A FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO
"INVESTOR SERVICES," PAGE 27.
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 ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
Mail (mail_graphic) (small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
indicated on the application.
In Person (hand_graphic) (small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
Wire (wire_graphic) (small solid bullet) Call
1-800-544-7777 to set up
your account and to arrange
a wire transaction. Not
available for retirement
accounts.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
#021001033, Account
#00163053. Specify the
complete name of the fund
and include your new account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Not
available.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TO ADD TO AN ACCOUNT
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Call before your
first use to verify that
this service is in place on
your account. Maximum Money
Line: up to $100,000.
The Internet www.fidelity.com (computer graphic) (small solid bullet) Exchange
from another Fidelity fund
account with the same
registration, including
name, address, and taxpayer
ID number.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account. Visit Fidelity's
Web site before your first
use to verify that this
service is in place on your
account. Maximum Money Line:
up to $100,000.
Mail (mail_graphic) (small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address printed
on your account statement.
(small solid bullet) Exchange
by mail: call 1-800-544-6666
for instructions.
In Person (hand_graphic) (small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
Wire (wire_graphic) (small solid bullet) Not
available for retirement
accounts.
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing #021001033, Account
#00163053. Specify the
complete name of the fund
and include your account
number and your name.
Automatically (automatic_graphic) (small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark). 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
(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.
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.
<TABLE>
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ACCOUNT TYPE
Phone 1-800-544-7777 (phone_graphic) All account types except
retirement
All account types
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint Tenant,
Sole Proprietorship, UGMA,
UTMA
Retirement account
Trust
Business or Organization
Executor, Administrator,
Conservator, Guardian
Wire (wire_graphic) All account types except
retirement
Check (check_graphic) All account types
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SPECIAL REQUIREMENTS
Phone 1-800-544-7777 (phone_graphic) (small solid bullet) Maximum
check request: $100,000.
(small solid bullet) For
Money Line transfers to your
bank account; minimum: $10;
maximum: up to $100,000.
(small solid bullet) You may
exchange to other Fidelity
funds if both accounts are
registered with the same
name(s), address, and
taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) (small solid bullet) The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
(small solid bullet) The
account owner should
complete a retirement
distribution form. Call
1-800-544-6666 to request one.
(small solid bullet) The
trustee must sign the letter
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a copy
of the trust document
certified within the last 60
days.
(small solid bullet) At least
one person authorized by
corporate resolution to act
on the account must sign the
letter.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
(small solid bullet) Call
1-800-544-6666 for
instructions.
Wire (wire_graphic) (small solid bullet) You must
sign up for the wire feature
before using it. To verify
that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your
wire redemption request must
be received in proper form
by Fidelity before 4:00 p.m.
Eastern time for money to be
wired on the next business
day.
Check (check_graphic) (small solid bullet) Minimum
check: $1,000.
(small solid bullet) All
account owners must sign a
signature card to receive a
checkbook.
(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
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)
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
(checkmark)
(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 29.
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE enables you to transfer money by phone between
your bank account and your fund account. Most transfers are complete
within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses,
and other long-term financial goals. Certain restrictions apply for
retirement accounts. Call 1-800-544-6666 or visit Fidelity's Web site
at www.fidelity.com for more information.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDER
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or quarterly (small solid bullet) For a
new account, complete the
appropriate section on the
fund application.
(small solid bullet) For
existing accounts, call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
application.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666 at least
three business days prior to
your next scheduled
investment date.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay period (small solid bullet) Check
the appropriate box on the
fund application, or call
1-800-544-6666 or visit
Fidelity's Web site at
www.fidelity.com for an
authorization form.
(small solid bullet) Changes
require a new authorization
form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, bimonthly, (small solid bullet) To
quarterly, or annually establish, call
1-800-544-6666 after both
accounts are opened.
(small solid bullet) To
change the amount or
frequency of your
investment, call
1-800-544-6666.
A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income
and capital gains to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains are normally
distributed in October 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 1-800-544-6666.
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.
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.
(checkmark)
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.
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. 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 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) 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) Remember to keep shares in your account in order
to be eligible to purchase additional shares of the fund.
(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 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.
Spartan, Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, Touch Tone Xpress, Fidelity
Automatic Account Builder, and Directed Dividends are registered
trademarks of FMR Corp.
Portfolio Advisory Services is a service mark of FMR Corp.
This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(registered trademark) GINNIE MAE FUND
A FUND OF FIDELITY UNION STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 20, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus
(dated October 20, 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 24
Limitations
Portfolio Transactions 27
Valuation 28
Performance 28
Additional Purchase, Exchange 32
and Redemption Information
Distributions and Taxes 32
FMR 32
Trustees and Officers 33
Management Contract 35
Distribution and Service Plan 35
Contracts with FMR Affiliates 36
Description of the Trust 36
Financial Statements 36
Appendix 37
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Company, Inc. (FSC)
SGM-ptb-1098
1.461736.101
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) 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); or
(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.
(8) 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) 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
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 37.
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.
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 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, are not fundamental policies
and 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 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 August 31, 1998 and 1997, the fund's
portfolio turnover rates were 148% 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. 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 August 1998, 1997, and 1996, the fund paid
no brokerage commissions.
During the fiscal year ended August, 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
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 and income for a given 30-day or one-month period, net
of expenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the fund's
net asset value per share (NAV) at the end of the period, and
annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable
to all stock and bond funds. In general, interest income is reduced
with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. 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 table shows
performance for the fund calculated including certain fund expenses.
HISTORICAL FUND RESULTS. The following table shows the fund's yield
and total return for the period ended August 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
Thirty-Day Yield One Year Five Years Life of Fund* One Year Five Years Life of Fund*
Spartan Ginnie Mae 6.48% 8.16% 6.70% 7.75% 8.16% 38.32% 77.44%
</TABLE>
* From December 27, 1990 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's total returns would have been lower.
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's yield would have been 6.20%.
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 types 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 27, 1990 (commencement of operations)
to August 31, 1998, a hypothetical $10,000 investment in Spartan
Ginnie Mae would have grown to $17,744, 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>
SPARTAN GINNIE MAE FUND
Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1998 $ 10,190 $ 7,167 $ 387 $ 17,744
1997 $ 10,060 $ 5,964 $ 382 $ 16,406
1996 $ 9,780 $ 4,753 $ 372 $ 14,905
1995 $ 9,970 $ 3,891 $ 379 $ 14,240
1994 $ 9,640 $ 2,790 $ 367 $ 12,797
1993 $ 10,270 $ 2,257 $ 301 $ 12,828
1992 $ 10,400 $ 1,500 $ 21 $ 11,921
1991* $ 10,160 $ 593 $ 0 $ 10,753
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN GINNIE MAE FUND INDICES
Year Ended S&P 500 DJIA Cost of Living**
1998 $ 35,428 $ 34,824 $ 12,212
1997 $ 32,775 $ 34,624 $ 12,018
1996 $ 23,303 $ 25,027 $ 11,756
1995 $ 19,627 $ 20,100 $ 11,428
1994 $ 16,161 $ 16,628 $ 11,136
1993 $ 15,323 $ 15,098 $ 10,822
1992 $ 13,298 $ 13,078 $ 10,531
1991* $ 12,320 $ 11,864 $ 10,209
</TABLE>
* From December 27, 1990 (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 27, 1990, 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 $17,433. 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 $5,225 for dividends and $330 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.
Spartan 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.
The fund may be compared in advertising to Certificates of Deposit
(CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, the fund may offer greater liquidity or higher
potential returns than CDs, the fund does not guarantee your principal
or your return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
The fund may 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 August 31, 1998, FMR advised over $32 billion in municipal fund
assets, $113 billion in money market fund assets, $389 billion in
equity fund assets, $61 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 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
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 August 31, 1998, the fund had a capital loss carryforward
aggregating approximately $10,006,000. This loss carryforward, of
which $9,271,000, and $735,000 will expire on August 31, 2003 and
2004, 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 Union 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 Investment Company Act of 1940 (1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their own
accounts pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance,
and participation in initial public offerings is prohibited. In
addition, restrictions on the timing of personal investing in relation
to trades by Fidelity funds and on short-term trading have been
adopted.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. Except as indicated, each individual has
held the office shown or other offices in the same company for the
last five years. All persons named as Trustees and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, and officer who is an "interested person" (as defined
in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments,
P.O. Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who
are "interested persons" by virtue of their affiliation with either
the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (68), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD (57), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (66), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (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 National Arts Stabilization Inc., Chairman of
the Board of Trustees of the Greenwich Hospital Association, Director
of the Yale-New Haven Health Services Corp. (1998), a Member of the
Public Oversight Board of the American Institute of Certified Public
Accountants' SEC Practice Section (1995), and as a Public Governor of
the National Association of Securities Dealers, Inc. (1996).
*PETER S. LYNCH (55), Trustee, is Vice Chairman and Director of FMR.
Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (70), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board of
Lexmark International, Inc. (office machines, 1991). Prior to 1991, he
held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993) and Imation Corp. (imaging and
information storage, 1997).
*ROBERT C. POZEN (52), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc. (1997), and Fidelity
Management & Research (Far East) Inc. (1997). Previously, Mr. Pozen
served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS (69), Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring
in 1987, Mr. Williams served as Chairman of the Board of First
Wachovia Corporation (bank holding company), and Chairman and Chief
Executive Officer of The First National Bank of Atlanta and First
Atlanta Corporation (bank holding company). He is currently a Director
of ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (59), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
CURTIS HOLLINGSWORTH (41), is Vice President of Spartan Ginnie Mae
Fund (1997) and other funds advised by FMR. Prior to his current
responsibilities, Mr. Hollingsworth 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).
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.
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. Simpson was Vice President and
Fund Controller of Liberty Investment Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of the fund for his
or her services for the fiscal year ended August 31, 1998, or calendar
year ended December 31, 1997, as applicable.
<TABLE>
<CAPTION>
<S> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Total Compensation from the
Advisory Board Spartan Ginnie Mae FundB Fund Complex*,A
J. Gary Burkhead** $ 0 $ 0
Ralph F. Cox $ 215 $ 214,500
Phyllis Burke Davis $ 215 $ 210,000
Robert M. Gates*** $ 217 $176,000
Edward C. Johnson 3d** $ 0 $ 0
E. Bradley Jones $ 217 $ 211,500
Donald J. Kirk $ 218 $ 211,500
Peter S. Lynch** $ 0 $ 0
William O. McCoy**** $ 217 $ 214,500
Gerald C. McDonough $ 268 $ 264,500
Marvin L. Mann $ 213 $ 214,500
Robert C. Pozen** $ 0 $ 0
Thomas R. Williams $ 217 $214,500
</TABLE>
* 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 effective March
1, 1997.
**** Mr. McCoy was appointed to the Board of Trustees 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 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 August 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
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. 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 August 31, 1998, 1997, and 1996, the fund
paid FMR management fees of $3,990,456, $2,994,363, and $2,834,108,
respectively, after reduction of fees and expenses paid by the fund to
the non-interested Trustees. In addition, for the fiscal years ended
August 31, 1998, 1997, and 1996, credits reducing management fees
amounted to $8,253, $11,592, and $112,648, 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.
Effective March 1, 1997, 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 0.38% of its
average net assets. For the fiscal years ended August 31, 1998 and
1997, management fees incurred under the fund's contract prior to
reimbursement amounted to $3,990,456 and $2,994,363, respectively
(after reduction for compensation to the non-interested Trustees), and
management fees reimbursed by FMR amounted to $1,658,491 and $654,745,
respectively.
The reimbursement arrangement that is in effect for the fund will
continue through December 31, 1998, after which time FMR may elect to
discontinue it.
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 funds 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 Ginnie Mae 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.
For administering the fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
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 Ginnie Mae Fund is a fund of Fidelity
Union Street Trust, an open-end management investment company
originally organized as a Massachusetts business trust on March 1,
1974. On April 30, 1990, the Board of Trustees voted to change the
name of the trust from Fidelity Daily Income Trust to Fidelity Union
Street Trust. Currently, there are 5 funds of the trust: Spartan
Ginnie Mae Fund, Spartan Maryland Municipal Income Fund, Spartan
Short-Intermediate Municipal Income Fund, Fidelity Export and
Multinational Fund, and Spartan Arizona Municipal 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. 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, 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 August 31, 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.
Spartan, Fidelity and Fidelity Focus are registered trademarks of FMR
Corp.
The third party marks appearing above are the marks of their
respective owners.
SPARTAN(REGISTERED TRADEMARK)
GINNIE MAE
FUND
ANNUAL REPORT
AUGUST 31, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 7 The manager's review of fund
performance, strategy and
outlook.
INVESTMENT CHANGES 10 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 11 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 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 20 The auditors' opinion.
ACCOUNTANTS
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 dramatic volatility we've seen in recent months in the world's
stock and bond markets might seem at first glance to be unprecedented
in its scope and duration. In fact, however, the U.S. stock market has
declined by more than 10% 12 times just since 1970, only to recover
and go on to new highs each time. As has been the case recently,
segments of the bond market - most notably U.S. Treasuries -
frequently have thrived in such periods as investors seek a safer home
for their funds.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1998 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
SPARTAN GINNIE MAE 8.16% 38.32% 77.44%
LB GNMA 8.54% 41.04% n/a
SB GNMA 8.42% 40.70% n/a
GNMA Funds Average 8.34% 35.06% 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 27, 1990. 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 AUGUST 31, 1998 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
SPARTAN GINNIE MAE 8.16% 6.70% 7.75%
LB GNMA 8.54% 7.12% n/a
SB GNMA 8.42% 7.07% n/a
GNMA Funds Average 8.34% 6.19% 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
Spartan Ginnie Mae LB GNMA
00461 LB020
1990/12/31 10000.00 10000.00
1991/01/31 10104.29 10149.46
1991/02/28 10164.54 10233.72
1991/03/31 10239.66 10307.56
1991/04/30 10302.26 10404.24
1991/05/31 10368.05 10489.17
1991/06/30 10380.51 10509.12
1991/07/31 10535.21 10688.74
1991/08/31 10732.56 10887.42
1991/09/30 10902.32 11079.23
1991/10/31 11063.72 11262.17
1991/11/30 11128.99 11340.22
1991/12/31 11378.62 11604.54
1992/01/31 11291.21 11460.85
1992/02/29 11443.21 11580.81
1992/03/31 11373.35 11514.96
1992/04/30 11467.54 11620.73
1992/05/31 11671.03 11825.40
1992/06/30 11808.37 11969.98
1992/07/31 11791.74 12074.86
1992/08/31 11898.52 12236.29
1992/09/30 11982.17 12345.17
1992/10/31 11900.60 12252.70
1992/11/30 11955.78 12308.58
1992/12/31 12118.71 12464.47
1993/01/31 12269.40 12621.24
1993/02/28 12385.98 12749.41
1993/03/31 12468.37 12819.26
1993/04/30 12522.22 12866.04
1993/05/31 12592.37 12954.30
1993/06/30 12720.19 13059.63
1993/07/31 12787.91 13114.62
1993/08/31 12803.63 13147.22
1993/09/30 12802.46 13158.52
1993/10/31 12850.63 13181.14
1993/11/30 12777.48 13162.29
1993/12/31 12881.92 13284.48
1994/01/31 13025.29 13388.92
1994/02/28 12915.69 13322.39
1994/03/31 12612.69 12962.72
1994/04/30 12498.55 12874.03
1994/05/31 12515.63 12910.84
1994/06/30 12488.13 12891.99
1994/07/31 12740.52 13143.45
1994/08/31 12772.21 13183.80
1994/09/30 12606.72 12998.20
1994/10/31 12600.46 12977.58
1994/11/30 12555.14 12940.99
1994/12/31 12687.28 13084.68
1995/01/31 12956.44 13355.66
1995/02/28 13294.80 13707.56
1995/03/31 13343.77 13774.75
1995/04/30 13529.95 13978.76
1995/05/31 13956.47 14405.61
1995/06/30 14035.85 14503.63
1995/07/31 14075.42 14534.23
1995/08/31 14212.67 14683.68
1995/09/30 14349.40 14827.37
1995/10/31 14471.77 14948.89
1995/11/30 14622.51 15121.63
1995/12/31 14801.04 15315.87
1996/01/31 14909.36 15422.53
1996/02/29 14785.22 15307.23
1996/03/31 14747.77 15268.20
1996/04/30 14706.99 15228.29
1996/05/31 14649.50 15177.06
1996/06/30 14818.39 15376.41
1996/07/31 14870.63 15434.29
1996/08/31 14876.07 15440.94
1996/09/30 15110.47 15699.49
1996/10/31 15394.25 16017.03
1996/11/30 15619.54 16250.08
1996/12/31 15537.40 16163.16
1997/01/31 15639.71 16287.34
1997/02/28 15676.01 16346.10
1997/03/31 15516.41 16184.89
1997/04/30 15767.56 16450.32
1997/05/31 15923.99 16619.07
1997/06/30 16110.62 16815.97
1997/07/31 16395.44 17121.09
1997/08/31 16374.64 17084.51
1997/09/30 16565.59 17311.57
1997/10/31 16740.71 17492.07
1997/11/30 16783.63 17545.73
1997/12/31 16927.63 17704.06
1998/01/31 17088.75 17875.02
1998/02/28 17132.16 17914.94
1998/03/31 17195.72 17990.78
1998/04/30 17288.80 18095.22
1998/05/31 17431.45 18218.73
1998/06/30 17472.74 18295.45
1998/07/31 17566.12 18398.34
1998/08/31 17710.25 18543.58
IMATRL PRASUN SHR__CHT 19980831 19980915 111112 R00000000000095
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Ginnie Mae Fund on December 31, 1990, shortly
after the fund started. As the chart shows, by August 31, 1998, the
value of the investment would have grown to $17,710 - a 77.10%
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 $18,544 - an 85.44% increase. Going forward, 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 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 purposes, both indexes are shown on page 4.
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.
(checkmark)
TOTAL RETURN COMPONENTS
YEARS ENDED AUGUST 31,
1998 1997 1996 1995 1994
Dividend returns 6.87% 7.21% 6.58% 7.86% 5.23%
Capital returns 1.29% 2.86% -1.91% 3.42% -5.48%
Total returns 8.16% 10.07% 4.67% 11.28% -0.25%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains paid
by the fund, if any, are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED AUGUST 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.34(cents) 32.84(cents) 66.85(cents)
Annualized dividend rate 6.18% 6.41% 6.58%
30-day annualized yield 6.48% - -
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
$10.17 over the past one month, $10.17 over the past six months and
$10.16 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 reduced certain fund expenses during the periods shown, the
30-day yield would have been 6.20%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The U.S. Treasury market rallied to
record levels over the past year as
investors abandoned stocks for the
safe haven of Treasuries. The Lehman
Brothers Aggregate Bond Index -
a broad gauge of the U.S. taxable
bond market - returned 10.57%
during the 12-month period that
ended August 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. At the end of the
period, a free fall in stock prices,
which sent the Dow Jones Industrial
Average down 15% in August alone,
provided even further strength to
bond prices. As investors continued
to move assets from stocks and
riskier bonds to Treasuries, yields
on long-term Treasury bonds, which
move in the opposite direction of
their price, fell to the lowest level
since October 1968. Corporate bond
investors benefited from domestic
economic stability and high demand
during most of the past 12
months. Similar to U.S. Treasuries,
highly rated corporate debt
received further support toward the
end of the period, as investors left
the turbulent equity markets for
bonds. The Lehman Brothers
Corporate Bond Index returned
9.47% for the past 12 months. Even
with significant prepayment activity
in recent months due to low interest
rates, mortgage-backed securities
performed relatively well. The
Lehman Brothers Mortgage-Backed
Securities Index returned 8.69% for
the past year.
(Photograph of Curt Hollingsworth)
An interview with Curt Hollingsworth, Portfolio Manager of Spartan
Ginnie Mae Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended August 31, 1998, the fund had a
total return of 8.16%. To get a sense of how the fund did relative to
its competitors, the GNMA funds average returned 8.34% 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 - also returned 8.54%.
Q. WHAT FACTORS INFLUENCED THE PERFORMANCE OF GINNIE MAE SECURITIES
OVER THE PAST YEAR?
A. Ginnie Maes performed fairly well in the first half of the period,
thanks in large part to the fact that they offered attractive yields
relative to U.S. Treasuries. But over recent months, interest rates
fell substantially, prompting home sales and mortgage refinancing to
increase to near-record rates. Those transactions, in turn, set off 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
were less immune to prepayment activity than observers once believed.
On the other hand, the fund's stake in loans that originated in early
1998 with coupons - the interest rate the borrower promises to pay -
of between 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 and were bid up as a result.
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 security 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. Because it is extremely
difficult to predict the direction of interest rates with any regular
success over an extended time period, I keep 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. THE FUND USES A STRATEGY KNOWN AS A "DOLLAR ROLL." CAN YOU EXPLAIN
THIS STRATEGY?
A. Sure. A dollar roll essentially describes a strategy whereby I sell
a security that the fund owns, with settlement of that sale to occur
in the current month. At the same time, I buy a similar security at a
lower price, with settlement of that purchase to occur in the
following month. By conducting these two simultaneous trades, I
attempt to add to the fund's total return.
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 generally 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.
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: 461
TRADING SYMBOL: SGMNX
START DATE: December 27,
1990
SIZE: as of August 31, 1998,
more than $667 million
MANAGER: Curt
Hollingsworth, since 1997;
manager, various Fidelity and
Spartan government funds;
joined Fidelity in 1983
(checkmark)
CURT HOLLINGSWORTH ON HIS
MORTGAGE-BACKED SECURITY
SELECTION:
"Because there are some periods
- - such as the past 12 months -
when significantly falling interest
rates can set off an unexpected
wave of mortgage prepayments, I
spend a fair amount of time
analyzing a mortgage security's risk
of being called, or redeemed, when
the underlying mortgages are
prepaid. I try to identify mortgage
securities that have less chance of
being prepaid, such as 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 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."
(solid bullet) Effective the close of business
on June 26, 1998, Spartan Ginnie
Mae 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.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF AUGUST 31, 1998
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
6 - 6.99% 16.6 8.1
7 - 7.99% 47.9 44.3
8 - 8.99% 24.8 33.8
9 - 9.99% 5.4 5.9
10 - 10.99% 2.7 3.7
11% and over 1.1 1.5
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF AUGUST 31, 1998
6 MONTHS AGO
Years 6.3 5.6
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 AUGUST 31, 1998
6 MONTHS AGO
Years 2.3 2.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF AUGUST 31, 1998
Row: 1, Col: 2, Value: 98.2
Row: 1, Col: 1, Value: 1.8
Mortgage-backed
securities* 98.5%
Short-term
investments 1.5%
*GNMA SECURITIES 96.6%
AS OF FEBRUARY 28, 1998
Row: 1, Col: 2, Value: 97.0
Row: 1, Col: 1, Value: 3.0
Mortgage-backed
securities** 97.3%
Short-term
investments 2.7%
**GNMA SECURITIES 94.8%
INVESTMENTS AUGUST 31, 1998
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 98.5%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FANNIE MAE - 0.2%
7%, 9/1/28 (a) $ 121,000 $ 123,269
12 1/4%, 6/1/15 6,839 7,760
12 1/2%, 11/1/13 to 5/1/21 796,721 921,720
13 1/4%, 9/1/11 329,014 393,109
1,445,858
FREDDIE MAC - 1.7%
8 1/2%, 10/1/18 to 2/1/19 15,410 16,244
9%, 7/1/08 to 7/1/21 2,850,634 3,011,698
9 3/4%, 12/1/08 to 4/1/13 230,486 247,324
10%, 1/1/09 to 11/1/20 3,534,115 3,828,800
10 1/4%, 8/1/10 to 11/1/16 607,444 661,090
10 1/2%, 1/1/16 to 12/1/20 2,086,108 2,322,382
12%, 5/1/10 to 2/1/17 363,915 419,129
12 1/2%, 11/1/12 to 5/1/15 613,405 714,235
13%, 11/1/12 to 11/1/14 182,263 215,595
13 1/2%, 1/1/13 to 12/1/14 69,337 83,202
11,519,699
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 96.6%
6%, 4/15/24 to 9/15/28 12,088,931 11,965,462
6 1/2%, 10/15/08 to 9/15/28 99,584,419 100,392,209
7%, 12/15/07 to 9/15/28 170,385,695 173,928,782
7 1/2%, 2/15/07 to 7/15/28 145,491,510 149,896,070
8%, 6/15/04 to 12/15/27 134,627,238 139,686,349
8 1/2%, 7/15/06 to 2/15/23 26,596,490 28,241,653
9%, 2/15/06 to 11/15/24 8,010,379 8,579,267
9 1/2%, 5/15/02 to 1/15/23 22,761,705 24,567,694
10%, 9/15/15 to 2/15/25 8,073,045 8,871,300
10 1/2%, 9/15/00 to 10/15/18 2,587,738 2,865,981
11%, 1/15/10 to 7/15/20 2,266,417 2,549,598
11 1/2%, 10/15/10 to 12/15/15 1,500,418 1,694,942
12%, 12/15/12 to 1/15/15 265,545 304,957
13%, 9/15/13 to 1/15/15 301,859 355,164
653,899,428
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $657,079,908) 666,864,985
CASH EQUIVALENTS - 1.5%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury Obligations) in a joint
trading account at 5.86% dated
8/31/98 due 9/1/98 $ 10,201,659 $ 10,200,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $667,279,908) $ 677,064,985
LEGEND
(a) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
INCOME TAX INFORMATION
At August 31, 1998, the aggregate cost of investment securities for
income tax purposes was $670,337,196. Net unrealized appreciation
aggregated $6,727,789, of which $7,456,044 related to appreciated
investment securities and $728,255 related to depreciated investment
securities.
At August 31, 1998, the fund had a capital loss carryforward of
approximately $10,006,000 of which $9,271,000 and $735,000 will expire
on August 31, 2003 and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
ASSETS
Investment in securities, at $ 677,064,985
value (including repurchase
agreements of $10,200,000)
(cost $667,279,908) - See
accompanying schedule
Cash 384
Receivable for investments 2,787,568
sold
Receivable for fund shares 2,006,005
sold
Interest receivable 3,991,706
TOTAL ASSETS 685,850,648
LIABILITIES
Payable for investments $ 15,209,460
purchased Regular delivery
Delayed delivery 123,159
Payable for fund shares 1,780,071
redeemed
Distributions payable 810,561
Accrued management fee 214,731
Other payables and accrued 8,468
expenses
TOTAL LIABILITIES 18,146,450
NET ASSETS $ 667,704,198
Net Assets consist of:
Paid in capital $ 672,603,421
Distributions in excess of (1,621,205)
net investment income
Accumulated undistributed net (13,063,095)
realized gain (loss) on
investments
Net unrealized appreciation 9,785,077
(depreciation) on investments
NET ASSETS, for 65,515,726 $ 667,704,198
shares outstanding
NET ASSET VALUE, offering $10.19
price and redemption price
per share ($667,704,198
(divided by) 65,515,726
shares)
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1998
INVESTMENT INCOME $ 44,586,107
Interest
EXPENSES
Management fee $ 3,990,456
Non-interested trustees' 5,490
compensation
Total expenses before 3,995,946
reductions
Expense reductions (1,666,744) 2,329,202
NET INVESTMENT INCOME 42,256,905
REALIZED AND UNREALIZED GAIN 6,735,854
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (1,208,969)
Delayed delivery commitments 9,516 (1,199,453)
NET GAIN (LOSS) 5,536,401
NET INCREASE (DECREASE) IN $ 47,793,306
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED AUGUST 31, 1998 YEAR ENDED AUGUST 31, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 42,256,905 $ 31,896,612
income
Net realized gain (loss) 6,735,854 2,400,527
Change in net unrealized (1,199,453) 9,964,708
appreciation (depreciation)
NET INCREASE (DECREASE) IN 47,793,306 44,261,847
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (40,370,877) (31,450,669)
from net investment income
Share transactions Net 374,959,675 189,902,217
proceeds from sales of shares
Reinvestment of distributions 32,565,429 24,444,132
Cost of shares redeemed (280,798,602) (128,152,011)
NET INCREASE (DECREASE) IN 126,726,502 86,194,338
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 134,148,931 99,005,516
IN NET ASSETS
NET ASSETS
Beginning of period 533,555,267 434,549,751
End of period (including $ 667,704,198 $ 533,555,267
distributions in excess of
net investment income of
$1,621,205 and $2,245,026,
respectively)
OTHER INFORMATION
Shares
Sold 36,895,821 19,021,848
Issued in reinvestment of 3,202,749 2,447,823
distributions
Redeemed (27,638,095) (12,858,397)
Net increase (decrease) 12,460,475 8,611,274
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED AUGUST 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.060 $ 9.780 $ 9.970 $ 9.640 $ 10.270
of period
Income from Investment .698 C .687 C .639 .690 .332
Operations Net investment
income
Net realized and unrealized .100 .271 (.181) .347 (.359)
gain (loss)
Total from investment .798 .958 .458 1.037 (.027)
operations
Less Distributions
From net investment income (.668) (.678) (.648) (.707) (.533)
From net realized gain - - - - -
In excess of net realized - - - - (.070)
gain
Total distributions (.668) (.678) (.648) (.707) (.603)
Net asset value, end of period $ 10.190 $ 10.060 $ 9.780 $ 9.970 $ 9.640
TOTAL RETURN A, B 8.16% 10.07% 4.67% 11.28% (.25)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 667,704 $ 533,555 $ 434,550 $ 419,637 $ 401,018
(000 omitted)
Ratio of expenses to average .38% D .51% D .63% D .65% .65%
net assets
Ratio of expenses to average .38% .51% .62% E .65% .65%
net assets after expense
reductions
Ratio of net investment 6.88% 6.91% 6.77% 7.30% 7.36%
income to average net assets
Portfolio turnover rate 148% 104% 115% 229% 285%
</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.
NOTES TO FINANCIAL STATEMENTS
For the period ended August 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Ginnie Mae Fund (the fund) is a fund of Fidelity Union 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 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, 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.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include
temporary book and tax basis differences that will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year
end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,017,753,365 and $891,158,033, 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
MANAGEMENT FEE - CONTINUED
services, FMR or its affiliates collected certain transaction fees
from the fund's shareholders which amounted to $7,438 for the period.
Effective June 27, 1998 these transaction fees were eliminated.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .38% of average net assets. This
agreement will continue until December 31, 1998. For the period, the
reimbursement reduced the expenses by $1,658,491.
In addition, FMR has entered into arrangements on behalf of the fund
with the fund's custodian and transfer agent whereby credits realized
as a result of uninvested cash balances were used to reduce a portion
of the fund's expenses. During the period, the fund's expenses were
reduced by $8,253 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Union Street Trust and the Shareholders of
Spartan Ginnie Mae Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Spartan Ginnie Mae Fund (a fund of Fidelity Union Street Trust) at
August 31, 1998, the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Spartan
Ginnie Mae 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 August 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
October 7, 1998
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.
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MAINE
3 Canal Plaza
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MICHIGAN
280 North Woodward Ave.
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29155 Northwestern Hwy.
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MINNESOTA
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501 Route 17, South
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NEW YORK
1055 Franklin Avenue
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999 Walt Whitman Road
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1271 Avenue of the Americas
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350 Park Avenue
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NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
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19740 IH 45 North
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VIRGINIA
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1900 K Street, N.W.
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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
Curt 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
SGM-ANN-1098 62214
1.536704.101
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 1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
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(9 a.m. - 9 p.m. Eastern time)
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AUTOMATED LINE FOR QUICKEST SERVICE
(fidelity_logo_graphic)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
Spartan Ginnie Mae Fund
(A Fund of Fidelity Union Street Trust)
Fidelity Ginnie Mae Fund
(A Fund of Fidelity Income Fund)
FORM N-14
STATEMENT OF ADDITIONAL INFORMATION
March 22, 1999
This Statement of Additional Information relates to the proposed
reorganization whereby Fidelity Ginnie Mae Fund (Fidelity Ginnie Mae),
a fund of Fidelity Income Fund, would acquire all of the assets of
Spartan Ginnie Mae Fund, a fund of Fidelity Union Street Trust, and
assume all of Spartan Ginnie Mae Fund's liabilities in exchange solely
for shares of beneficial interest in Fidelity Ginnie Mae.
This Statement of Additional Information consists of this cover page
and the following described documents, each of which is incorporated
herein by reference:
1. The Statement of Additional Information of Fidelity Ginnie Mae
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
Fidelity Ginnie Mae dated October 8, 1998, which was previously
filed via EDGAR (Accession No. 0000751199-98-000027).
3. The Supplement to the Prospectus of Fidelity Ginnie Mae dated
January 1, 1999, which was previously filed via EDGAR (Accession
No. 0000917286-98-000011).
4. The Prospectus and Statement of Additional Information of Spartan
Ginnie Mae Fund dated October 20, 1998, which was previously filed
via EDGAR (Accession No. 0000356173-98-000023).
5. The Supplement to the Prospectus of Spartan Ginnie Mae Fund, dated
January 1, 1999, which was previously filed via EDGAR (Accession
No. 0000718581-98-000018).
6. The Financial Statements included in the Annual Report of Fidelity
Ginnie Mae for the fiscal year ended July 31, 1998, which was
previously filed via EDGAR (Accession No. 0000751199-98-000022).
7. The Financial Statements included in the Annual Report of Spartan
Ginnie Mae Fund for the fiscal year ended August 31, 1998, which
was previously filed via EDGAR (Accession No.
000035330-98-000008).
8. The Pro Forma Financial Statements for Spartan Ginnie Mae Fund and
Fidelity Ginnie Mae for the period ended July 31, 1998.
This Statement of Additional Information is not a prospectus. A Proxy
Statement and Prospectus dated March 22, 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) Form of Agreement and Plan of Reorganization between
Fidelity Union Street Trust: Spartan Ginnie Mae Fund
and Fidelity Income Fund: Fidelity Ginnie Mae Fund is
filed herein as Exhibit 1 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 Ginnie
Mae Fund is filed herein as Exhibit 11.
(12) Opinion and Consent of counsel (Kirkpatrick &
Lockhart LLP) as to tax matters in connection with
the reorganization of Spartan Ginnie Mae Fund is
filed herein as Exhibit 12.
(13) Not applicable.
(14) Consent of PricewaterhouseCoopers LLP is filed herein
as Exhibit 14.
(15) Pro Forma combining financial statements are filed
herein as Exhibit 15.
(16) Powers of Attorney, dated December 19, 1996, March 6,
1997, June 30, 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 28th day of January 1999.
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 January 28, 1999
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver * Treasurer January 28, 1999
Richard A. Silver
/s/Robert C. Pozen Trustee January 28, 1999
Robert C. Pozen
/s/Ralph F. Cox ** Trustee January 28, 1999
Ralph F. Cox
/s/Phyllis Burke Davis ** Trustee January 28, 1999
Phyllis Burke Davis
/s/Robert M. Gates *** Trustee January 28, 1999
Robert M. Gates
/s/E. Bradley Jones ** Trustee January 28, 1999
E. Bradley Jones
/s/Donald J. Kirk ** Trustee January 28, 1999
Donald J. Kirk
/s/Peter S. Lynch ** Trustee January 28, 1999
Peter S. Lynch
/s/Marvin L. Mann ** Trustee January 28, 1999
Marvin L. Mann
/s/William O. McCoy ** Trustee January 28, 1999
William O. McCoy
/s/Gerald C. McDonough ** Trustee January 28, 1999
Gerald C. McDonough
/s/Thomas R. Williams ** Trustee January 28, 1999
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 John H. Costello pursuant to a power of
attorney dated June 30, 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
One International Place
Boston, MA 02110-2637
Telephone (617) 261-3100
Facsimile (617) 261-3175
www.kl.com
January 28, 1999
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 Ginnie Mae Fund
("Fidelity Ginnie Mae"), 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 Fidelity Ginnie Mae of all of the assets
of Spartan Ginnie Mae Fund ("Spartan Ginnie Mae"), a fund of Fidelity
Union Street Trust, and the assumption by Fidelity Ginnie Mae of the
liabilities of Spartan Ginnie Mae solely in exchange for shares of
Fidelity Ginnie Mae.
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 Fidelity Ginnie Mae has any
preemptive right of subscription or purchase in respect thereof.
In connection with our opinion expressed above that the shares will be
non-assessable, we note 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
KIKPATRICK & LOCKHART LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Telephone (412) 355-6500
Facsimile (412) 355-6501
January 25, 1999
Fidelity Union Street Trust
Fidelity Income Fund
82 Devonshire Street
Boston, MA 02109
Ladies and Gentlemen:
Fidelity Union Street Trust ("FUST"), a Massachusetts business trust,
on behalf of Spartan Ginnie Mae Fund ("Acquired"), a series of FUST,
and Fidelity Income Fund ("FIF"), a Massachusetts business trust, on
behalf of Fidelity Ginnie Mae 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 March 22, 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 FUST and FIF.
OPINION
Based solely on the facts and representations set forth in the
reviewed documents and the certificates of officers of FUST 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 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 Ginnie Mae Fund of our report dated September 8, 1998
and Fidelity Union Street Trust: Spartan Ginnie Mae Fund of our report
dated October 7, 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
January 28, 1999
FIDELITY INCOME FUND: FIDELITY GINNIE MAE FUND AND
FIDELITY UNION STREET TRUST: SPARTAN GINNIE MAE FUND
PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES AS OF JULY 31,
1998
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FIDELITY GINNIE MAE FUND SPARTAN GINNIE MAE FUND
ASSETS
Investment in securities, at
value
- See accompanying schedule $ 950,998,229 $669,162,310
Cash 692 46,913
Receivable for investments 89,801,968 49,469,663
sold
Receivable for fund shares 2,217,436 547,746
sold
Interest receivable 5,657,590 4,034,857
TOTAL ASSETS 1,048,675,915 723,261,489
LIABILITIES
Payable for investments 129,314,232 54,367,895
purchased
Payable for fund shares 1,019,123 639,611
redeemed
Distributions payable 565,453 602,082
Accrued management fee 297,276 212,985
Other payables and accrued 250,183 12,715
expenses
TOTAL LIABILITIES 131,446,267 55,835,288
NET ASSETS $ 917,229,648 $ 667,426,201
Net Assets consist of:
Paid in capital 925,828,686 $ 674,081,240
Distributions in excess net
investment
income (1,861,903) (1,853,914)
Accumulated undistributed net
realized gain (loss) on (21,644,702) (12,834,191)
investments
Net unrealized appreciation
(depreciation)
on investments 14,907,567 8,033,066
NET ASSETS $ 917,229,648 $ 667,426,201
NET ASSETS 917,229,648 $ 667,426,201
Net Asset Value, offering 10.87 $10.16
price and redemption
price per share
Shares outstanding 84,361,995 65,662,073
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<C>
COMBINED PRO FORMA ADJUSTMENTS PRO FORMA COMBINED
ASSETS
Investment in securities, at
value
- See accompanying schedule $1,620,160,539 $ - $ 1,620,160,539
Cash 47,605 - 47,605
Receivable for investments 139,271,631 - 139,271,631
sold
Receivable for fund shares 2,765,182 - 2,765,182
sold
Interest receivable 9,692,447 - 9,692,447
TOTAL ASSETS 1,771,937,404 - 1,771,937,404
LIABILITIES
Payable for investments 183,682,127 - 183,682,127
purchased
Payable for fund shares 1,658,734 - 1,658,734
redeemed
Distributions payable 1,167,535 - 1,167,535
Accrued management fee 510,261 - 510,261
Other payables and accrued 262,898 - 262,898
expenses
TOTAL LIABILITIES 187,281,555 - 187,281,555
NET ASSETS $ 1,584,655,849 $ - $ 1,584,655,849
Net Assets consist of:
Paid in capital $ 1,599,909,926 - $ 1,599,909,926
Distributions in excess net
investment
income (3,715,817) (3,715,817)
Accumulated undistributed net
realized gain (loss) on (34,478,893) - (34,478,893)
investments
Net unrealized appreciation
(depreciation)
on investments 22,940,633 - 22,940,633
NET ASSETS $ 1,584,655,849 $ - $ 1,584,655,849
NET ASSETS $ 1,584,655,849 $ 1,584,655,849
Net Asset Value, offering $ 10.87
price and redemption
price per share
Shares outstanding 150,024,068 (4,261,319) (a) 145,762,749
</TABLE>
FIDELITY INCOME FUND: FIDELITY GINNIE MAE FUND AND
FIDELITY UNION STREET TRUST: SPARTAN GINNIE MAE FUND
PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE 12 MONTHS ENDED
JULY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FIDELITY GINNIE MAE FUND SPARTAN GINNIE MAE FUND COMBINED PRO FORMA ADJUSTMENTS
INVESTMENT INCOME
Interest $63,051,080 $43,724,580 $106,775,660 $ -
EXPENSES
Management fee 3,763,728 3,912,969 7,676,697 (1,289,144) (b)
Transfer agent fees 1,933,267 - 1,933,267 719,330 (c)
Accounting fees and expenses 278,469 - 278,469 122,944 (c)
Non-interested trustees' 12,741 5,174 17,915 -
compensation
Custodian fees and expenses 179,799 - 179,799 125,344 (c)
Registration fees 45,958 - 45,958 161,218 (d)
Audit 49,649 - 49,649 15,351 (c)
Legal 34,790 - 34,790 24,253 (c)
Reports to shareholders 76,608 - 76,608 -
Total expenses before 6,375,009 3,918,143 10,293,152 (120,704)
reductions
Expense reductions (143,429) (1,635,382) (e) (1,778,811) 807,719 (f)
Total expenses 6,231,580 2,282,761 8,514,341 687,015
NET INVESTMENT INCOME 56,819,500 41,441,819 98,261,319 (687,015)
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on 14,558,020 7,427,086 21,985,106 -
investment securities
Change in net unrealized
appreciation
(depreciation) on (13,816,946) (7,059,647) (20,876,593) -
investment securities
NET GAIN (LOSS) 741,074 367,439 1,108,513 -
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM $57,560,574 $41,809,258 $99,369,832 (687,015)
OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
PRO FORMA COMBINED
INVESTMENT INCOME
Interest $106,775,660
EXPENSES
Management fee 6,387,553
Transfer agent fees 2,652,597
Accounting fees and expenses 401,413
Non-interested trustees' 17,915
compensation
Custodian fees and expenses 305,143
Registration fees 207,176
Audit 65,000
Legal 59,043
Reports to shareholders 76,608
Total expenses before 10,172,448
reductions
Expense reductions (971,092)
Total expenses 9,201,356
NET INVESTMENT INCOME 97,574,304
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on 21,985,106
investment securities
Change in net unrealized
appreciation
(depreciation) on (20,876,593)
investment securities
NET GAIN (LOSS) 1,108,513
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM $98,682,817
OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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 the Reorganization.
Reinvest price: $ 10.87
NET ASSET VALUE Fidelity Ginnie $ 917,229,648 Totals
Spartan Ginnie $ 667,426,201 $
1,584,655,849
SHARES Fidelity Ginnie 84,361,995 84,361,995
OUTSTANDING Spartan Ginnie 65,662,073 61,400,754 $
145,762,749
</TABLE>
FIDELITY INCOME FUND: FIDELITY GINNIE MAE FUND
FIDELITY UNION STREET TRUST: SPARTAN GINNIE MAE FUND
PRO FORMA COMBINING STATEMENT OF INVESTMENTS, JULY 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FIDELITY GINNIE MAE FUND SPARTAN GINNIE MAE FUND COMBINED
PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
- -- 98.0%
Fannie Mae - 0.2%
7% 8/1/28 $ 121,000 $ 122,739 $ 121,000 $ 122,739
8.5% 6/1/08 to 4/1/16 $ 978,785 $ 1,020,500 978,785 1,020,500
9% 10/1/11 190,270 198,887 190,270 198,887
10.25% 12/1/15 to 10/1/18 487,107 535,710 487,107 535,710
11.5% 6/1/13 to 9/1/15 363,454 411,555 363,454 411,555
12.25% 6/1/15 6,918 7,893 6,918 7,893
12.5% 11/1/13 to 7/1/16 232,984 272,327 802,538 927,217 1,035,522 1,199,544
13.25% 9/1/11 335,162 399,718 335,162 399,718
14% 11/1/12 8,561 10,326 8,561 10,326
__________ ___________ ___________
2,449,305 1,457,567 3,906,872
__________ ___________ ___________
Freddie Mac: - 2.0%
8.5% 2/1/04 to 2/1/19 819,553 852,027 15,770 16,643 835,323 868,670
9% 7/1/08 to 7/1/21 3,039,049 3,189,494 2,946,040 3,109,763 5,985,089 6,299,257
9.75% 12/1/08 to 4/1/13 233,438 250,444 233,438 250,444
10% 10/1/04 to 11/1/20 5,852,594 6,334,987 3,633,223 3,938,025 9,485,817 10,273,012
10.25% 2/1/09 to 11/1/16 2,935,720 3,187,844 621,988 677,213 3,557,708 3,865,057
10.5% 5/1/10 to 12/1/20 4,340,561 4,834,930 2,153,651 2,400,184 6,494,212 7,235,114
11.25% 2/1/10 to 10/1/14 249,352 278,447 249,352 278,447
11.75% 11/1/11 108,012 120,734 108,012 120,734
12% 5/1/10 to 2/1/17 306,707 355,009 376,268 433,482 682,975 788,491
12.5% 11/1/12 to 5/1/15 693,746 806,082 622,928 725,546 1,316,674 1,531,628
13% 11/1/12 to 11/1/14 182,570 216,076 182,570 216,076
13.5% 1/1/13 to 12/1/14 69,441 83,370 69,441 83,370
__________ ___________ ___________
19,959,554 11,850,746 31,810,300
__________ ___________ ___________
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FIDELITY GINNIE MAE FUND SPARTAN GINNIE MAE FUND COMBINED
PRINCIPAL VALUE PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE 1) AMOUNT (NOTE 1)
Government National Mortgage
Association - 95.8%
6% 10/15/23 to 7/15/28 13,626,374 13,290,113 10,099,847 9,851,134 23,726,221 23,141,247
6.5% 5/15/08 to 8/15/28 128,951,671 128,844,080 94,449,880 94,364,914 223,401,551 223,208,994
7% 10/15/07 to 8/15/28 232,064,147 235,780,544 166,047,747 168,678,543 398,111,894 404,459,087
7.5% 6/15/02 to 8/15/28 198,427,464 204,255,949 148,584,217 152,935,972 347,011,681 357,191,921
8% 7/15/01 to 8/15/28 189,741,963 196,985,484 142,274,358 147,707,858 332,016,321 344,693,342
8.5% 2/15/05 to 2/15/23 47,609,538 50,537,462 27,388,718 29,078,073 74,998,256 79,615,535
9% 12/15/04 to 12/15/24 15,325,537 16,424,636 8,199,120 8,785,684 23,524,657 25,210,320
9.5% 4/15/01 to 1/15/23 29,275,416 31,555,378 23,616,786 25,473,845 52,892,202 57,029,223
10% 10/15/00 to 2/15/25 2,077,556 2,273,713 8,663,410 9,500,252 10,740,966 11,773,965
10.5% 11/15/98 to 09/15/19 4,901,410 5,415,438 2,638,223 2,916,233 7,539,633 8,331,671
11% 1/15/10 to 7/15/20 3,800,943 4,267,016 2,390,102 2,684,350 6,191,045 6,951,366
11.5% 3/15/10 to 4/15/19 4,445,502 5,006,804 1,587,000 1,789,511 6,032,502 6,796,315
12% 5/15/00 to 11/15/15 922,018 1,050,239 273,449 313,353 1,195,467 1,363,592
13% 2/15/11 to 5/15/15 633,298 742,177 302,583 355,275 935,881 1,097,452
13.5% 5/15/10 to 1/15/15 363,756 428,337 363,756 428,337
______________ ______________ ______________
896,857,370 654,434,997 1,551,292,367
______________ ______________ ______________
TOTAL U.S. GOVERNMENT AGENCY 919,266,229 667,743,310 1,587,009,539
- - MORTGAGE-BACKED SECURITIES
______________ ______________ ______________
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FIDELITY GINNIE MAE FUND SPARTAN GINNIE MAE FUND COMBINED
CASH EQUIVALENTS -- 2.0%
Investments in repurchase MATURITY MATURITY MATURITY
agreements
(U.S. Treasury obligations), AMOUNT AMOUNT AMOUNT
In a joint account at:
5.62%, dated 7/31/98 due $31,746,888 31,732,000 $ 1,419,666 1,419,000 $33,166,554 33,151,000
8/03/98
______________ ______________ ______________
TOTAL CASH EQUIVALENTS 31,732,000 1,419,000 33,151,000
______________ ______________ ______________
TOTAL INVESTMENTS IN $ 950,998,229 $ 669,162,310 $1,620,160,539
SECURITIES - 100%
============== ============== ==============
TOTAL COST OF INVESTMENTS $ 936,090,662 $ 661,129,244 $1,597,219,906
============== ============== ==============
</TABLE>
Fidelity Income Fund: Fidelity Ginnie Mae Fund and
Fidelity Union Street Trust: Spartan Ginnie Mae 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 Ginnie Mae
Fund as if the reorganization with Spartan Ginnie Mae Fund, had been
consummated at August 1, 1997. Had the pro forma adjustments not
included the effect of the FMR Voluntary expense limitations, Pro
Forma Combined Expense reductions would have been $31,439, resulting
in Pro Forma Combined Net Investment Income and Pro Forma Combined Net
Increase in Net Assets resulting from operations of $96,634,651 and
$97,743,164, respectively.
The pro forma adjustments to these pro forma financial statements are
comprised of:
(a) Reflects the conversion of Spartan Ginnie Mae Fund shares as of
July 31,1998.
(b) Decrease in management fee to reflect Fidelity Ginnie Mae Fund's
management fee applied to the combined fund's average net assets.
(c) Increase in fees reflects change from Spartan Ginnie Mae Fund's
all-inclusive fee structure to Fidelity Ginnie Mae Fund's fee
structure.
(d) Increase in fees reflects net increase in costs incurred as a
result of the reorganization.
(e) For the period ended July 31, 1998, FMR voluntarily agreed to
limit the Spartan Ginnie Mae Fund's operating expenses to 0.38% of
it's average net assets.
(f) Reflects FMR's agreement to voluntarily limit the combined fund's
operating expenses to 0.63% of average net assets.
The unaudited pro forma combining statements should be read in
conjunction with the separate annual audited financial statements as
of July 31, 1998 for Fidelity Ginnie Mae Fund, and August 31, 1998 for
Spartan Ginnie Mae Fund, which are incorporated by reference in the
Statement of Additional Information to this Proxy Statement and
Prospectus.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash
Fidelity Advisor Series III Portfolios
Fidelity Advisor Series IV Fidelity Institutional
Fidelity Advisor Series V Tax-Exempt Cash Portfolios
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts
Fidelity Beacon Street Trust Municipal Trust
Fidelity Boston Street Trust Fidelity Money Market Trust
Fidelity California Municipal Fidelity Mt. Vernon Street
Trust Trust
Fidelity California Municipal Fidelity Municipal Trust
Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal
Fidelity Charles Street Trust Trust
Fidelity Commonwealth Trust Fidelity New York Municipal
Fidelity Concord Street Trust Trust II
Fidelity Congress Street Fund Fidelity Phillips Street Trust
Fidelity Contrafund Fidelity Puritan Trust
Fidelity Corporate Trust Fidelity Revere Street Trust
Fidelity Court Street Trust Fidelity School Street Trust
Fidelity Court Street Trust II Fidelity Securities Fund
Fidelity Covington Trust Fidelity Select Portfolios
Fidelity Daily Money Fund Fidelity Sterling Performance
Fidelity Destiny Portfolios Portfolio, L.P.
Fidelity Deutsche Mark Fidelity Summer Street Trust
Performance Fidelity Trend Fund
Portfolio, L.P. Fidelity U.S.
Fidelity Devonshire Trust Investments-Bond Fund, L.P.
Fidelity Exchange Fund Fidelity U.S.
Fidelity Financial Trust Investments-Government
Fidelity Fixed-Income Trust Securities
Fidelity Government Fund, L.P.
Securities Fund Fidelity Union Street Trust
Fidelity Hastings Street Trust Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Newbury Street Trust
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
Variable Insurance Products
Fund III
in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Government
Fidelity Advisor Annuity Fund Securities Fund
Fidelity Advisor Series I Fidelity Hastings Street Trust
Fidelity Advisor Series II Fidelity Hereford Street Trust
Fidelity Advisor Series III Fidelity Income Fund
Fidelity Advisor Series IV Fidelity Institutional Cash
Fidelity Advisor Series V Portfolios
Fidelity Advisor Series VI Fidelity Institutional
Fidelity Advisor Series VII Tax-Exempt Cash Portfolios
Fidelity Advisor Series VIII Fidelity Institutional Trust
Fidelity Beacon Street Trust Fidelity Investment Trust
Fidelity Boston Street Trust Fidelity Magellan Fund
Fidelity California Municipal Fidelity Massachusetts
Trust Municipal Trust
Fidelity California Municipal Fidelity Money Market Trust
Trust II Fidelity Mt. Vernon Street
Fidelity Capital Trust Trust
Fidelity Charles Street Trust Fidelity Municipal Trust
Fidelity Commonwealth Trust Fidelity Municipal Trust II
Fidelity Congress Street Fund Fidelity New York Municipal
Fidelity Contrafund Trust
Fidelity Corporate Trust Fidelity New York Municipal
Fidelity Court Street Trust Trust II
Fidelity Court Street Trust II Fidelity Phillips Street Trust
Fidelity Covington Trust Fidelity Puritan Trust
Fidelity Daily Money Fund Fidelity Revere Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity School Street Trust
Fidelity Destiny Portfolios Fidelity Securities Fund
Fidelity Deutsche Mark Fidelity Select Portfolios
Performance Fidelity Sterling Performance
Portfolio, L.P. Portfolio, L.P.
Fidelity Devonshire Trust Fidelity Summer Street Trust
Fidelity Exchange Fund Fidelity Trend Fund
Fidelity Financial Trust Fidelity U.S.
Fidelity Fixed-Income Trust Investments-Bond Fund, L.P.
Fidelity U.S.
Investments-Government
Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Government
Fidelity Advisor Annuity Fund Securities Fund
Fidelity Advisor Series I Fidelity Hastings Street Trust
Fidelity Advisor Series II Fidelity Hereford Street Trust
Fidelity Advisor Series III Fidelity Income Fund
Fidelity Advisor Series IV Fidelity Institutional Cash
Fidelity Advisor Series V Portfolios
Fidelity Advisor Series VI Fidelity Institutional
Fidelity Advisor Series VII Tax-Exempt Cash Portfolios
Fidelity Advisor Series VIII Fidelity Institutional Trust
Fidelity Beacon Street Trust Fidelity Investment Trust
Fidelity Boston Street Trust Fidelity Magellan Fund
Fidelity California Municipal Fidelity Massachusetts
Trust Municipal Trust
Fidelity California Municipal Fidelity Money Market Trust
Trust II Fidelity Mt. Vernon Street
Fidelity Capital Trust Trust
Fidelity Charles Street Trust Fidelity Municipal Trust
Fidelity Commonwealth Trust Fidelity Municipal Trust II
Fidelity Congress Street Fund Fidelity New York Municipal
Fidelity Contrafund Trust
Fidelity Corporate Trust Fidelity New York Municipal
Fidelity Court Street Trust Trust II
Fidelity Court Street Trust II Fidelity Phillips Street Trust
Fidelity Covington Trust Fidelity Puritan Trust
Fidelity Daily Money Fund Fidelity Revere Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity School Street Trust
Fidelity Destiny Portfolios Fidelity Securities Fund
Fidelity Deutsche Mark Fidelity Select Portfolios
Performance Fidelity Sterling Performance
Portfolio, L.P. Portfolio, L.P.
Fidelity Devonshire Trust Fidelity Summer Street Trust
Fidelity Exchange Fund Fidelity Trend Fund
Fidelity Financial Trust Fidelity U.S.
Fidelity Fixed-Income Trust Investments-Bond Fund, L.P.
Fidelity U.S.
Investments-Government
Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson /s/Peter S.
3d___________ Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary /s/William O.
Burkhead_______________ McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox /s/Gerald C.
__________________ McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke /s/Marvin L.
Davis_____________ Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley /s/Thomas R. Williams
Jones________________ ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned Treasurer and principal financial and accounting
officer of the following investment companies:
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash
Fidelity Advisor Series III Portfolios
Fidelity Advisor Series IV Fidelity Institutional
Fidelity Advisor Series V Tax-Exempt Cash Portfolios
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts
Fidelity Beacon Street Trust Municipal Trust
Fidelity Boston Street Trust Fidelity Money Market Trust
Fidelity California Municipal Fidelity Mt. Vernon Street
Trust Trust
Fidelity California Municipal Fidelity Municipal Trust
Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal
Fidelity Charles Street Trust Trust
Fidelity Commonwealth Trust Fidelity New York Municipal
Fidelity Concord Street Trust Trust II
Fidelity Congress Street Fund Fidelity Phillips Street Trust
Fidelity Contrafund Fidelity Puritan Trust
Fidelity Corporate Trust Fidelity Revere Street Trust
Fidelity Court Street Trust Fidelity School Street Trust
Fidelity Court Street Trust II Fidelity Securities Fund
Fidelity Covington Trust Fidelity Select Portfolios
Fidelity Daily Money Fund Fidelity Sterling Performance
Fidelity Destiny Portfolios Portfolio, L.P.
Fidelity Deutsche Mark Fidelity Summer Street Trust
Performance Fidelity Trend Fund
Portfolio, L.P. Fidelity U.S.
Fidelity Devonshire Trust Investments-Bond Fund, L.P.
Fidelity Exchange Fund Fidelity U.S.
Fidelity Financial Trust Investments-Government
Fidelity Fixed-Income Trust Securities
Fidelity Government Fund, L.P.
Securities Fund Fidelity Union Street Trust
Fidelity Hastings Street Trust Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Newbury Street Trust
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
Variable Insurance Products
Fund III
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 President and Director,
Trustee, or General Partner (collectively, the "Funds"), hereby
constitute and appoint John H. Costello my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to sign for me and in my name in the appropriate capacity, all
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 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 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 July 1,
1997.
WITNESS my hand on the date set forth below.
/s/Richard A. Silver June 30, 1997
Richard A. Silver
