-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BBWaY8LcDOctbQ3vWSzx3WbSSCkKrABP2dKNdNWvOXkZHS22soDSQAJ+wfAWN64J OFiKGX4VM7evqOOP2iZK4Q== 0000276773-96-000005.txt : 19961115 0000276773-96-000005.hdr.sgml : 19961115 ACCESSION NUMBER: 0000276773-96-000005 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY CHARLES STREET TRUST CENTRAL INDEX KEY: 0000354046 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03221 FILM NUMBER: 96660942 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 2145064081 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE STREET STREET 2: MAIL ZONE ZH-1 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY U S GOVERNMENT RESERVES FUND DATE OF NAME CHANGE: 19880201 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY FEDERAL RESERVES DATE OF NAME CHANGE: 19820215 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY UNITED STATES TREASURY TRUST DATE OF NAME CHANGE: 19811020 N-30D 1 (2_FIDELITY_LOGOS)FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND ANNUAL REPORT SEPTEMBER 30, 1996 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 14 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 18 Notes to the financial statements. REPORT OF INDEPENDENT 21 The auditors' opinion. ACCOUNTANTS DISTRIBUTIONS 22 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. 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. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: Although stocks have managed to post solid returns through the first nine months of 1996, signs of strength in the economy have led to inflation fears, causing some uncertainty in both the stock and bond markets so far this year. In 1995, both stock and bond markets posted strong results, while the year before, stocks posted below-average returns and bonds had one of the worst years in history. These market ups and downs are a normal part of investing, and there are some basic principles that are helpful for investors to remember in different types of markets. Keeping in mind that the effects of interest rate changes on your bond investments will only be "paper" gains or losses unless you sell your shares, staying in your bond fund may be appropriate if your investment horizon is at least a year or more. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and 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, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured or guaranteed by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. A fund's total return includes changes in share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value). You can also look at the fund's income to measure performance. If Fidelity had not reimbursed certain fund expenses, the past five years and the life of fund figures would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1996 PAST 1 PAST 5 LIFE OF YEAR YEARS FUND Short-Intermediate Government 4.67% 28.51% 28.99% Salomon Brothers Treasury/ 5.47% 36.21% n/a Agency 1-5 Year Index Salomon Brothers Treasury 1-5 Year Index 5.47% 36.23% n/a Short-Intermediate U.S. Government 4.41% 32.75% n/a Funds Average CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years, or since the fund started on September 13, 1991. For example, if you 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 Salomon Brothers Treasury/Agency 1-5 Year Index and the Salomon Brothers Treasury 1-5 Year Index. Each index is a market capitalization weighted index of U.S. Treasury securities with fixed-rate coupons and weighted average lives between one and five years. The Salomon Brothers Treasury/Agency 1-5 Year Index also includes U.S. government agency securities. To measure how the fund stacked up against its peers, you can compare it to the short-intermediate U.S. government funds average, which reflects the performance of 86 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. over the past 12 months. Both benchmarks include reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1996 PAST 1 PAST 5 LIFE OF YEAR YEARS FUND Short-Intermediate Government 4.67% 5.14% 5.17% Salomon Brothers Treasury/ 5.47% 6.38% n/a Agency 1-5 Year Index Salomon Brothers Treasury 1-5 Year Index 5.47% 6.38% n/a Short-Intermediate U.S. Government 4.41% 5.82% n/a Funds Average AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND IMAHDR PRASUN SHR__CHT 19960930 19961009 151627 S00000000000001 Fidelity Shrt-Int Govt SB Treas/Agency 1-5 yr 00464 SB025 1991/09/30 10000.00 10000.00 1991/10/31 10124.47 10111.64 1991/11/30 10206.40 10230.09 1991/12/31 10363.10 10424.75 1992/01/31 10270.73 10371.48 1992/02/29 10301.41 10402.37 1992/03/31 10286.46 10376.30 1992/04/30 10374.47 10482.28 1992/05/31 10511.20 10604.40 1992/06/30 10602.19 10741.83 1992/07/31 10620.67 10905.61 1992/08/31 10766.62 11020.09 1992/09/30 10813.25 11151.00 1992/10/31 10714.24 11041.63 1992/11/30 10721.93 11001.39 1992/12/31 10851.32 11125.78 1993/01/31 11000.33 11304.58 1993/02/28 11099.58 11429.83 1993/03/31 11141.22 11469.50 1993/04/30 11190.03 11561.30 1993/05/31 11192.99 11520.78 1993/06/30 11276.42 11645.46 1993/07/31 11314.31 11667.56 1993/08/31 11364.67 11806.69 1993/09/30 11382.56 11847.50 1993/10/31 11391.68 11868.18 1993/11/30 11374.03 11844.38 1993/12/31 11424.48 11892.27 1994/01/31 11516.80 11987.76 1994/02/28 11419.40 11873.00 1994/03/31 11219.00 11752.85 1994/04/30 11165.11 11686.55 1994/05/31 11169.90 11701.57 1994/06/30 11175.51 11720.84 1994/07/31 11292.35 11844.66 1994/08/31 11315.67 11881.50 1994/09/30 11247.75 11817.74 1994/10/31 11255.23 11832.76 1994/11/30 11211.34 11770.42 1994/12/31 11267.16 11800.46 1995/01/31 11430.33 11984.36 1995/02/28 11611.08 12181.58 1995/03/31 11673.28 12248.17 1995/04/30 11797.39 12372.56 1995/05/31 12051.10 12655.63 1995/06/30 12114.07 12730.16 1995/07/31 12143.32 12761.61 1995/08/31 12210.19 12847.47 1995/09/30 12277.38 12914.62 1995/10/31 12383.41 13039.87 1995/11/30 12503.72 13177.86 1995/12/31 12603.00 13288.66 1996/01/31 12715.55 13405.97 1996/02/29 12636.33 13324.93 1996/03/31 12585.83 13282.42 1996/04/30 12564.15 13263.72 1996/05/31 12563.92 13281.01 1996/06/30 12650.02 13394.35 1996/07/31 12698.67 13440.25 1996/08/31 12733.63 13475.67 1996/09/30 12851.01 13621.04 IMATRL PRASUN SHR__CHT 19960930 19961009 151629 R00000000000123 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Fidelity Short-Intermediate Government Fund on September 30, 1991, shortly after the fund started. As the chart shows, by September 30, 1996, the value of the investment would have grown to $12,851 - a 28.51% increase on the initial investment. For comparison, look at how the Salomon Brothers Treasury/Agency 1-5 Year Index did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $13,621 - a 36.21% increase. Beginning with this report, the fund will compare its performance to the Salomon Brothers Treasury/Agency 1-5 Year Index rather than the Salomon Brother's Treasury 1-5 Year Index. This reflects the fund's ability to invest in securities that are not backed by the full faith and credit of the U.S. government. 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 SEPTEMBER 30, 1996 1995 1994 1993 1992 Dividend return 6.46% 7.00% 5.55% 6.34% 6.73% Capital appreciation return -1.79% 2.15% -6.73% -1.08% 1.40% Total return 4.67% 9.15% -1.18% 5.26% 8.13% DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. DIVIDENDS AND YIELD PERIODS ENDED SEPTEMBER 30, 1996 PAST PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 4.55(cents) 28.42(cents) 60.23(cents) Annualized dividend rate 5.95% 6.09% 6.39% 30-day annualized yield 5.77% - - 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 $9.30 over the past month, $9.31 over the past six months and $9.42 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP Bond markets rebounded from sharp sell-offs earlier in 1996, as investors gained confidence that rising interest rates might not be a problem in an election year. For the 12 months ended September 30, 1996, the Lehman Brothers Aggregate Bond Index - a broad measure of U.S. taxable bonds - returned 4.90%. In January, the Federal Reserve Board lowered its target for the Fed funds rate - the rate banks charge each other on overnight loans - from 5.50% to 5.25%, but the move largely was taken into account by the market. Surprisingly robust employment reports in March reversed market sentiment, causing the yield on the 30-year Treasury bond to rise to over 7%, a level not seen in over a year. By June, however, soothing comments from Fed Chairman Alan Greenspan helped ease the market's fears of Fed interest-rate increases and the 30-year yield dropped back below 7%. While bonds traded in a narrow range in the summer months - reflecting confusion over the direction of interest rates - the Fed's decision to take no action at the end of September coupled with weaker than expected employment data helped ease the market's fears. Investment-grade mortgage-backed securities performed well relative to other investment grade securities. With prepayment fears easing in the face of a rising mortgage-rate environment, the Salomon Brothers Mortgage Index returned 5.86% during the period. An interview with Curt Hollingsworth, Portfolio Manager of Fidelity Short-Intermediate Government Fund Q. CURT, HOW HAS THE FUND PERFORMED? A. For the 12-month period ended September 30, 1996, the fund provided a total return of 4.67%. This outpaced the 4.41% return produced by the short-intermediate U.S. government funds average, maintained by Lipper Analytical Services, over the same time. The Salomon Brothers Treasury 1-5 Year Index and the Salomon Brothers Treasury/Agency 1-5 Year Index both had a 12-month return of 5.47%. Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE RELATIVE TO ITS COMPETITORS? A. I think the reason the fund produced a higher return than the Lipper average had something to do with my de-emphasis on predicting the direction of interest rates. Very few people can guess rate movements on an accurate, consistent basis. My belief is that there are still many competitors in the Lipper universe that are reacting to short-term rate swings and, in an investing environment like we've just seen, that strategy can backfire on you. Q. YOU MENTIONED THE INVESTING ENVIRONMENT. CAN YOU SUMMARIZE THE BOND MARKETS' BEHAVIOR OVER THE PAST YEAR? A. The bond markets went through several mood swings as investors closely monitored the actions - or lack thereof - of the Federal Reserve Board. When the period began back in October 1995, things looked rosy. The market was still enjoying a rally, the economy looked to be weak and people were anticipating a decrease in short-term rates. Everything turned around, however, on the heels of the infamous February employment report. The report, which indicated a stronger economy than most had thought, pushed yields up and drove bond prices down. Inflation also became a concern, and investors anticipated a hike in rates. But it never came. As the period drew to a close, the Fed had deemed it unnecessary to take any action. Q. IN TERMS OF PORTFOLIO COMPOSITION, HOW DID THIS CONSTANTLY CHANGING ATMOSPHERE AFFECT YOUR STRATEGY? A. It really didn't have a huge impact. Rather than forecasting interest rate swings, I managed the fund to have approximately the same sensitivity to rate movements as the market for 1-5 year government securities, as reflected by the fund's indexes. I also tried to add value by managing the fund's sector weights and by focusing on individual security selection. Another factor I'd point to was a change in investment policy that occurred in July. Up to that point, the fund could invest only in securities that carried the backing of the full faith and credit of the U.S. government. While this feature was reassuring in terms of quality, my investment universe was quite limited. Since July, I've been able to look at a wide range of U.S. government securities, including bonds backed by federal agencies, while still maintaining high credit quality. Q. LET'S TALK ABOUT MORTGAGE-BACKED SECURITIES. A YEAR AGO, MORTGAGE HOLDINGS ACCOUNTED FOR ONLY 1.4% OF THE FUND'S INVESTMENTS. AT THE END OF THE PERIOD, THE POSITION WAS APPROXIMATELY 24%. THAT'S QUITE A JUMP . . . A. It really is. The mortgage sector as a whole turned in some positive results over the period and, with the fund's increased investment flexibility, I was able to capitalize on opportunities in this area. Mortgages can expose the fund to more "tracking error," or return deviation, but I think the fund was compensated somewhat for that by the favorable yield spreads we saw between mortgages and Treasuries. Another risk you run when investing in mortgages is that of refinancing - or prepayment risk - which was pretty benign during the period. Q. WHICH OTHER HOLDINGS CONTRIBUTED POSITIVELY TO THE FUND'S PERFORMANCE? WERE THERE ANY DISAPPOINTMENTS? A. The fund's largest agency position continued to be Agency for International Development notes issued by the State of Israel. These notes, which are backed by the full faith and credit of the U.S. government, turned in a solid performance over the past 12 months. The fund's yield curve exposure, on the other hand, was somewhat of a disappointment. I overweighted the fund in 2-4 year treasuries because I felt the 4-5 year area was overvalued. This "bunching up" hurt when the market backed up in February and short-term issues felt the brunt. Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS? A. I've already taken steps to reduce the yield curve exposure. Going forward, I plan on adding shorter-duration mortgage securities as I continue to look for ways to improve the fund's return. 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: 464 TRADING SYMBOL: FLMGX START DATE: September 13, 1991 SIZE: as of September 30, 1996, more than $123 million MANAGER: Curt Hollingsworth, since 1991; manager, Spartan Short-Intermediate Government Fund, since 1992; Spartan Limited Maturity Government Fund, since 1988; Fidelity Institutional Short-Intermediate Government Portfolio, since 1987; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON THE FUND'S INCREASED INVESTMENT FLEXIBILITY: "By far, the biggest story of the period was the investment policy change that was implemented in July. Prior to July, the fund could invest only in securities backed by the full faith and credit of the U.S. government. The new investment policy allowed the fund to invest in any type of U.S. government security, including securities backed by the issuing agency rather than the U.S. government. As a result, my opportunities broadened and I significantly restructured the portfolio to try to capitalize on these opportunities. Whereas I previously bought Government National Mortgage Association issues, Treasuries, and State of Israel notes, I began investing in bonds issued by agencies such as the Federal National Mortgage Association, and the Private Export Funding Corp. The fund's investment policy change enabled me to take advantage of some of the yield spreads between mortgages-to-Treasuries and agencies-to-Treasuries. It's a change that I really think is in the best interests of our shareholders because it gives me a better arsenal from which to improve performance." INVESTMENT CHANGES COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1996 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Less than 5% 0.2 0.2 5 - 5.99% 12.1 0.3 6 - 6.99% 28.3 0.9 7 - 7.99% 33.4 59.5 8 - 8.99% 7.2 0.2 9 - 9.99% 1.1 26.5 10% and over 16.1 7.4 COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS. AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1996 6 MONTHS AGO Years 3.3 2.9 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF SEPTEMBER 30, 1996 6 MONTHS AGO Years 2.5 2.3 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. EFFECTIVE JUNE, 1996, THE MODEL USED TO CALCULATE DURATIONS MAY HAVE BEEN SLIGHTLY MODIFIED IN ORDER TO FURTHER REFINE THIS INFORMATION. THESE CHANGES IN METHODOLOGY MAY PRODUCE ADJUSTMENTS IN HISTORICAL DURATION FIGURES. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF SEPTEMBER 30, 1996 AS OF MARCH 31, 1996 U.S. Treasury obligations 40.6% U.S. Government agency obligations 34.0% Mortgage-backed securities 23.8% Short-term investments 1.6% U.S. Treasury obligations 65.7% U.S. Government agency obligations 21.7% Mortgage-backed securities 7.6% Short-term investments 5.0% Row: 1, Col: 1, Value: 1.6 Row: 1, Col: 2, Value: 23.8 Row: 1, Col: 3, Value: 34.0 Row: 1, Col: 4, Value: 20.6 Row: 1, Col: 5, Value: 20.0 Row: 1, Col: 1, Value: 5.0 Row: 1, Col: 2, Value: 7.6 Row: 1, Col: 3, Value: 21.7 Row: 1, Col: 4, Value: 35.7 Row: 1, Col: 5, Value: 30.0 INVESTMENTS SEPTEMBER 30, 1996 Showing Percentage of Total Value of Investment in Securities U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 74.6% PRINCIPAL VALUE AMOUNT (NOTE 1) U.S. TREASURY OBLIGATIONS - 40.6% 7 3/8%, 11/15/97 $ 1,100,000 $ 1,117,358 6 1/8%, 3/31/98 31,360,000 31,418,643 7 7/8%, 11/15/99 7,200,000 7,510,464 7 3/4%, 12/31/99 5,211,000 5,424,338 8 1/2%, 2/15/00 2,420,000 2,575,025 6 1/4%, 2/15/03 42,000 41,331 11 5/8%, 11/15/04 1,180,000 1,540,632 49,627,791 U.S. GOVERNMENT AGENCY OBLIGATIONS - 34.0% Federal Home Loan Mortgage Corporation 5.51%, 2/5/99 (callable) 2,500,000 2,457,800 Federal National Mortgage Association 5 1/2%, 2/2/01 390,000 373,729 Government Trust Certificates (assets of Trust guaranteed by U.S. Government through Defense Security Assistance Agency) Class 2-E 9.40%, 5/15/02 1,000,000 1,068,330 Guaranteed Export Trust Certificates (assets of Trust guaranteed by U.S. Government through Export- Import Bank) Series 1994-A, 7.12%, 4/15/06 801,170 812,061 Private Export Funding Corp. secured: 9 1/2%, 3/31/99 250,000 267,800 8.40%, 7/31/01 3,330,000 3,564,132 State of Israel (guaranteed by U.S. Government through Agency for International Development): 4 7/8%, 9/15/98 260,000 253,490 7 1/8%, 8/15/99 24,729,000 25,151,124 7 3/4%, 11/15/99 787,000 814,498 8%, 11/15/01 2,421,000 2,559,384 6 1/4%, 8/15/02 301,000 293,982 5 5/8%, 9/15/03 4,219,000 3,951,811 41,568,141 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $90,408,102) 91,195,932 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 19.5% PRINCIPAL VALUE AMOUNT (NOTE 1) FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.6% 5 1/2%, 12/1/02 to 7/1/03 $ 5,933,156 $ 5,629,080 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 14.9% 8 1/2%, 1/15/17 to 7/15/17 155,934 162,075 10%, 11/15/09 to 11/15/20 4,190,992 4,576,728 10 1/2%, 2/15/14 to 12/15/19 8,740,064 9,681,388 10 3/4%, 12/15/09 234,144 260,776 11%, 11/15/09 to 6/15/19 912,026 1,024,040 11 1/2%, 3/15/10 to 12/15/15 2,122,224 2,415,716 12%, 1/15/14 to 3/15/14 70,986 82,119 13%, 9/15/14 52,294 61,607 18,264,449 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $23,879,364) 23,893,529 COLLATERALIZED MORTGAGE OBLIGATIONS - 4.3% U.S. GOVERNMENT AGENCY - 4.3% Federal Home Loan Mortgage Corporation planned amortization class: Series 1511 Class D, 6%, 10/15/04 1,680,000 1,663,200 Series 1727 Class D, 6 1/2%, 8/15/14 1,190,000 1,190,744 Federal National Mortgage Association planned amortization class Series 1994-51 Class PD, 5 3/4%, 2/25/15 2,410,000 2,368,572 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $5,234,872) 5,222,516 REPURCHASE AGREEMENTS - 1.6% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.72%, dated 9/30/96 due 10/1/96 $ 1,957,311 1,957,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $121,479,338) $ 122,268,977 INCOME TAX INFORMATION At September 30,1996, the aggregate cost of investment securities for income tax purposes was $121,528,296. Net unrealized appreciation aggregated $740,681, of which $1,060,535 related to appreciated investment securities and $319,854 related to depreciated investment securities. At September 30,1996, the fund had a capital loss carryforward of approximately $9,783,000 of which $320,000, $1,404,000, $5,655,000 and $2,404,000 will expire on September 30, 2001, 2002, 2003 and 2004, respectively. The fund intends to elect to defer to its fiscal year ending September 30, 1997 approximately $1,551,000 of losses recognized during the period November 1, 1995 to September 30, 1996. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 ASSETS Investment in securities, at value (including repurchase $ 122,268,977 agreements of $1,957,000) (cost $121,479,338) - See accompanying schedule Cash 817 Receivable for investments sold 2,317 Interest receivable 1,052,304 TOTAL ASSETS 123,324,415 LIABILITIES Payable for fund shares redeemed $ 70,319 Distributions payable 131,802 Accrued management fee 45,536 Other payables and accrued expenses 32,520 TOTAL LIABILITIES 280,177 NET ASSETS $ 123,044,238 Net Assets consist of: Paid in capital $ 133,926,354 Distributions in excess of net investment income (289,091) Accumulated undistributed net realized gain (loss) on (11,382,664) investments Net unrealized appreciation (depreciation) on 789,639 investments NET ASSETS, for 13,199,492 shares outstanding $ 123,044,238 NET ASSET VALUE, offering price and redemption price $9.32 per share ($123,044,238 (divided by) 13,199,492 shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 INVESTMENT INCOME $ 9,474,353 Interest EXPENSES Management fee $ 577,374 Transfer agent fees 313,588 Accounting fees and expenses 59,674 Non-interested trustees' compensation 557 Custodian fees and expenses 15,634 Registration fees 21,122 Audit 37,694 Legal 952 Miscellaneous 990 Total expenses before reductions 1,027,585 Expense reductions (2,915) 1,024,670 NET INVESTMENT INCOME 8,449,683 REALIZED AND UNREALIZED GAIN (LOSS) (1,688,177) Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on (708,437) investment securities NET GAIN (LOSS) (2,396,614) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 6,053,069 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 INCREASE (DECREASE) IN NET ASSETS Operations $ 8,449,683 $ 10,364,261 Net investment income Net realized gain (loss) (1,688,177) (2,281,074) Change in net unrealized appreciation (depreciation) (708,437) 6,155,442 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 6,053,069 14,238,629 FROM OPERATIONS Distributions to shareholders from net investment income (8,265,922) (10,292,325) Share transactions 44,301,304 138,314,808 Net proceeds from sales of shares Reinvestment of distributions 6,377,996 7,794,252 Cost of shares redeemed (65,893,484) (142,050,186) NET INCREASE (DECREASE) IN NET ASSETS RESULTING (15,214,184) 4,058,874 FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS (17,427,037) 8,005,178 NET ASSETS Beginning of period 140,471,275 132,466,097 End of period (including distributions in excess of net $ 123,044,238 $ 140,471,275 investment income of $289,091 and $281,882, respectively) OTHER INFORMATION Shares Sold 4,686,982 14,890,383 Issued in reinvestment of distributions 676,595 833,568 Redeemed (6,973,858) (15,165,841) Net increase (decrease) (1,610,281) 558,110
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, 1996 1995 1994 B 1993 1992 SELECTED PER-SHARE DATA Net asset value, beginning $ 9.490 $ 9.290 $ 9.960 $ 10.140 $ 10.010 of period Income from Investment .599 .648 .533 .722 .694 Operations Net investment income Net realized and unrealized (.167) .174 (.648) (.209) .096 gain (loss) Total from investment .432 .822 (.115) .513 .790 operations Less Distributions From net investment income (.602) (.622) (.555) (.623) (.650) From net realized gain - - - (.070) (.010) Total distributions (.602) (.622) (.555) (.693) (.660) Net asset value, end of period $ 9.320 $ 9.490 $ 9.290 $ 9.960 $ 10.140 TOTAL RETURN A 4.67% 9.15% (1.18) 5.26% 8.13% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 123,044 $ 140,471 $ 132,466 $ 168,292 $ 172,863 (000 omitted) Ratio of expenses to average .79% .82% .95% .61% .28% net assets C C Ratio of net investment income 6.54% 6.67% 6.80% 7.19% 7.91% to average net assets Portfolio turnover rate 188% 266% 184% 348% 419%
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. B EFFECTIVE OCTOBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. 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. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1996 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Short-Intermediate Government Fund (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The financial statements have been prepared in conformity with generally accepted accounting principles which permit 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. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes 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 between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for paydown gains/losses on certain securities, market discount, capital loss carryforwards, and losses deferred due to wash sales and excise tax regulations. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net investment income and realized and unrealized gain (loss). 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 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 that mature in 60 days or less from the date of purchase for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of long-term U.S. government and government agency obligations aggregated $236,923,726 and $253,537,150, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .1100% to .3700% for the period. 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. The annual individual fund fee rate is .30%. For the period, the management fee was equivalent to an annual rate of .45% of average net assets. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or the fund's distributor, Fidelity Distributors Corporation (FDC), an affiliate of FMR, may use its resources to pay administrative and promotional expenses related to the sale of the fund's shares. Subject to the approval of the Board of Trustees, the Plan also authorizes payments to third parties that assist in the sale of the fund's shares or render shareholder support services. FMR or FDC has informed the fund that payments made to third parties under the Plan amounted to $1,871 for the period. TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .24% of average net assets. ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is based on the level of average net assets for the month plus out-of-pocket expenses. 5. EXPENSE REDUCTIONS. The fund has entered into arrangements with its custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $2,769 and $146, respectively, under these arrangements. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Fidelity Short-Intermediate Government Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Short-Intermediate Government Fund (a fund of Fidelity Charles Street Trust) at September 30, 1996, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods indicated in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity Short-Intermediate Government Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 1996 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts October 31, 1996 DISTRIBUTIONS A total of 64.04% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. 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)(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)(LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 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 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)(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 660602 Dallas, TX 75266-0602 INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Fred L. Henning, Jr., Vice President Curtis Hollingsworth, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * ADVISORY BOARD William O. McCoy GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN The Bank of New York New York, NY * INDEPENDENT TRUSTEES FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Global Bond Government Securities Intermediate Bond Investment Grade Bond Mortgage Securities New Markets Income Short-Intermediate Government Short-Term Bond Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Short-Intermediate Government Spartan Short-Term Bond Target Timeline 1999, 2001, & 2003 THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) TouchTone Xpress 1-800-544-4774 SM AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)SPARTAN(registered trademark) INVESTMENT GRADE BOND FUND ANNUAL REPORT SEPTEMBER 30, 1996 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 19 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 23 Notes to the financial statements. REPORT OF INDEPENDENT 26 The auditors' opinion. ACCOUNTANTS DISTRIBUTIONS 27 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. 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. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: Although stocks have managed to post solid returns through the first nine months of 1996, signs of strength in the economy have led to inflation fears, causing some uncertainty in both the stock and bond markets so far this year. In 1995, both stock and bond markets posted strong results, while the year before, stocks posted below-average returns and bonds had one of the worst years in history. These market ups and downs are a normal part of investing, and there are some basic principles that are helpful for investors to remember in different types of markets. Keeping in mind that the effects of interest rate changes on your bond investments will only be "paper" gains or losses unless you sell your shares, staying in your bond fund may be appropriate if your investment horizon is at least a year or more. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and 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, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured or guaranteed by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. A fund's total return includes changes in share price, reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells securities that have grown in value), and the effect of the $5 account closeout fee on an average sized account. You can also look at the fund's income to measure performance. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1996 PAST 1 LIFE OF YEAR FUND Spartan Investment Grade Bond 4.45% 32.29% Lehman Brothers Aggregate Bond Index 4.90% 27.34% Corporate Debt BBB Funds Average 4.44% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, or since the fund started on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Lehman Brothers Aggregate Bond Index, a market value weighted performance benchmark for investment-grade, fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of at least one year. To measure how the fund's performance stacked up against its peers, you can compare it to the corporate debt BBB funds average, which reflects the performance of 96 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. over the past 12 months. These benchmarks include reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1996 PAST 1 LIFE OF YEAR FUND Spartan Investment Grade Bond 4.45% 7.24% Lehman Brothers Aggregate Bond Index 4.90% 6.22% Corporate Debt BBB Funds Average 4.44% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND IMAHDR PRASUN SHR__CHT 19960930 19961014 104049 S00000000000001 Spartan Inv. Grade Bond LB Aggregate Bond 00448 LB001 1992/10/01 10000.00 10000.00 1992/10/31 9812.23 9867.42 1992/11/30 9910.58 9869.65 1992/12/31 10141.51 10026.59 1993/01/31 10397.72 10218.86 1993/02/28 10729.65 10397.75 1993/03/31 10789.98 10441.07 1993/04/30 10830.04 10513.78 1993/05/31 10871.84 10527.17 1993/06/30 11226.71 10717.95 1993/07/31 11392.79 10778.57 1993/08/31 11782.44 10967.50 1993/09/30 11816.73 10997.62 1993/10/31 11913.99 11038.71 1993/11/30 11705.42 10944.81 1993/12/31 11740.02 11004.13 1994/01/31 11984.80 11152.70 1994/02/28 11571.41 10958.94 1994/03/31 11183.62 10688.76 1994/04/30 11070.36 10603.41 1994/05/31 11000.02 10601.92 1994/06/30 10994.05 10578.49 1994/07/31 11184.69 10788.61 1994/08/31 11183.61 10802.00 1994/09/30 11019.13 10643.01 1994/10/31 10995.76 10633.53 1994/11/30 11028.07 10609.91 1994/12/31 11132.78 10683.18 1995/01/31 11333.41 10894.60 1995/02/28 11549.35 11153.63 1995/03/31 11689.77 11222.06 1995/04/30 11838.95 11378.82 1995/05/31 12332.88 11819.15 1995/06/30 12424.27 11905.80 1995/07/31 12383.63 11879.21 1995/08/31 12539.11 12022.57 1995/09/30 12665.77 12139.54 1995/10/31 12831.52 12297.41 1995/11/30 13022.66 12481.68 1995/12/31 13204.49 12656.85 1996/01/31 13294.65 12740.90 1996/02/29 13063.03 12519.43 1996/03/31 12964.75 12432.41 1996/04/30 12876.88 12362.49 1996/05/31 12843.90 12337.39 1996/06/30 13004.84 12503.07 1996/07/31 13036.96 12537.28 1996/08/31 13015.72 12516.27 1996/09/30 13230.84 12734.39 IMATRL PRASUN SHR__CHT 19960930 19961014 104051 R00000000000051 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Spartan Investment Grade Bond Fund on October 1, 1992, when the fund started. As the chart shows, by September 30, 1996, the value of the investment would have grown to $13,231 - a 32.31% increase on the initial investment. This assumes the fund was still owned on September 30, 1996 and therefore does not include the effect of the $5 account closeout fee. For comparison, look at how the Lehman Brothers Aggregate Bond Index did over the same period. With dividends and capital gains, if any, reinvested the same $10,000 investment would have grown to $12,734 - a 27.34% increase. 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 SEPTEMBER 30, OCTOBER 1, 1992 (COMMENCEMENT OF OPERATIONS) TO 1996 1995 1994 SEPTEMBER 30, 1993 Dividend return 6.33% 7.66% 6.24% 8.77% Capital appreciation return -1.88% 7.27% -13.01% 9.37% Total return 4.45% 14.93% -6.77% 18.14% DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee on an average sized account. DIVIDENDS AND YIELD PERIODS ENDED SEPTEMBER 30, 1996 PAST PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 5.31(cents) 32.16(cents) 63.40(cents) Annualized dividend rate 6.51% 6.45% 6.26% 30-day annualized yield 6.29% - - DIVIDENDS per share show the income paid by the fund for a set period and do not reflect any tax reclassifications. If you annualize this number, based on an average share price of $9.92 over the past month, $9.95 over the past six months and $10.13 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP Domestic bond markets rebounded from sharp sell-offs earlier in 1996, as investors gained confidence that rising interest rates might not be a problem in an election year. For the 12 months ended September 30, 1996, the Lehman Brothers Aggregate Bond Index - a broad measure of U.S. taxable bonds - returned 4.90%. In January, the Federal Reserve Board lowered its target for the Fed funds rate - the rate banks charge each other on overnight loans - from 5.50% to 5.25%, but the move largely was taken into account by the market. Surprisingly robust employment reports in March reversed market sentiment, causing the yield on the 30-year Treasury bond to rise to over 7%, a level not seen in over a year. By June, however, soothing comments from Fed Chairman Alan Greenspan helped ease the market's fears of Fed interest rate increases and the 30-year yield dropped back below 7%. While bonds traded in a narrow range in the summer months - reflecting confusion over the direction of interest rates - the Fed's decision to take no action at the end of September coupled with weaker than expected employment data helped ease the market's fears. Investment-grade mortgage-backed securities performed well relative to other investment grade securities. With prepayment fears easing in the face of a rising mortgage rate environment, the Salomon Brothers Mortgage Index returned 5.86% during the period. An interview with Michael Gray, Portfolio Manager of Spartan Investment Grade Bond Fund Q. MICHAEL, HOW HAS THE FUND PERFORMED? A. It has performed in line with the market and its competitors over the past year. For the 12 months ended September 30, 1996, the fund returned 4.45%, compared to 4.44% for the corporate debt BBB funds average tracked by Lipper Analytical Services and 4.90% for the Lehman Brothers Aggregate Bond Index. Q. WHAT STRUCTURAL CHANGES HAVE YOU MADE IN THE FUND OVER THE PAST SIX MONTHS? A. The most important change is that I've increased the fund's investments in those bonds that can offer a yield advantage over Treasuries. The fund's holdings in agency issues increased from 2.1% to 10.4%, agency mortgage-backed securities from 18.9% to 25.1% and corporate bonds from 16.1% to 21.0%. These moves were done to enhance the yield of the portfolio. When I added to those positions, I took away from the fund's investments in Treasuries. Q. WHAT MADE THE CORPORATE BONDS MORE ATTRACTIVE? A. The fundamental outlook for corporations was favorable. That is, business prospects appeared to improve. The best indicator of a favorable corporate environment has been a strong stock market. This strength showed that corporations were doing well, and that investors were comfortable with future prospects as they drove up stock prices. Part of that optimism was a function of the economic environment, which has been fairly positive. The economy looked like it was growing, while inflation remained under control. Moderate growth with low inflation is a good recipe for corporations. In addition, there was limited supply of new corporate issues, along with fairly strong demand. Many investors were looking for added yield, and there wasn't much to buy in the way of corporate bonds. This backdrop helped corporate bonds post strong price gains on a relative basis. Q. WERE THERE OTHER TYPES OF BONDS THAT WERE ATTRACTIVE TO YOU? A. I was attracted to yankee bonds. These are dollar-denominated bonds issued in the U.S. by foreign banks, governments and corporations. They tend to trade more cheaply than other bonds with similar credit ratings, and often don't drop in price as quickly as other corporate bonds when bad news affects the issuer. Q. WHAT KINDS OF MORTGAGE-BACKED SECURITIES DID YOU FAVOR? A. When rates rose earlier in the period, I bought mortgage-backed securities that were selling at a discount. In general, I sought securities that I found to be less susceptible to changes in interest rates in the mortgage-backed sector. Mortgage-backed securities tend not to perform well if rates go up or down sharply, so I looked for those whose structure would make them less sensitive to interest rate changes. Those securities tended to be 15-year and 30-year mortgages that were selling at a discount. Q. YOU MENTIONED THAT YOU ADDED TO THE AGENCY POSITION. WAS THERE AN AREA THAT YOU FOCUSED ON? A. Nothing in particular stood head and shoulders above the rest. There was not a lot of availability in this sector. I pursued opportunistic buying when I found agency issues that were selling cheaply. Q. MICHAEL, WE UNDERSTAND THERE HAVE BEEN SOME INVESTMENT POLICY CHANGES IN THE FUND . . . A. As of June 24, 1996, the fund may invest up to 5% of its assets - down from 35% - in below-investment-grade securities. I don't intend to seek out the lower-quality, below-investment-grade bonds, but maintaining this 5% limit allows me a degree of flexibility under unusual circumstances. Further, Fidelity now uses two additional agencies to determine the credit quality of the fund's bonds. Ratings from Duff & Phelps Rating Co. and Fitch Investors Service, L.P., may be used along with those from Moody's Investors Service and Standard & Poor's that Fidelity had used previously. Q. WHAT'S YOUR OUTLOOK? A. I believe we'll continue to see a generally positive environment for the sectors that offer a yield advantage over Treasuries. At the same time, these sectors' relatively strong performance versus Treasuries can't go on forever, so there is a need to be cautious. In the near future, I see the favorable backdrop continuing, but I'm going to look for signs of change so that I'll have the opportunity to restructure before conditions worsen. 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: 464 TRADING SYMBOL: FLMGX START DATE: September 13, 1991 SIZE: as of September 30, 1996, more than $123 million MANAGER: Curt Hollingsworth, since 1991; manager, Spartan Short-Intermediate Government Fund, since 1992; Spartan Limited Maturity Government Fund, since 1988; Fidelity Institutional Short-Intermediate Government Portfolio, since 1987; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON THE FUND'S INCREASED INVESTMENT FLEXIBILITY: "By far, the biggest story of the period was the investment policy change that was implemented in July. Prior to July, the fund could invest only in securities backed by the full faith and credit of the U.S. government. The new investment policy allowed the fund to invest in any type of U.S. government security, including securities backed by the issuing agency rather than the U.S. government. As a result, my opportunities broadened and I significantly restructured the portfolio to try to capitalize on these opportunities. Whereas I previously bought Government National Mortgage Association issues, Treasuries, and State of Israel notes, I began investing in bonds issued by agencies such as the Federal National Mortgage Association, and the Private Export Funding Corp. The fund's investment policy change enabled me to take advantage of some of the yield spreads between mortgages-to-Treasuries and agencies-to-Treasuries. It's a change that I really think is in the best interests of our shareholders because it gives me a better arsenal from which to improve performance." INVESTMENT CHANGES QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1996 (MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Aaa 75.9 73.1 Aa 3.0 2.2 A 10.5 4.8 Baa 8.9 9.3 Ba 1.7 0.6 Non-rated 0.0 0.0 TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY FIDELITY. AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1996 6 MONTHS AGO Years 7.9 6.8 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF SEPTEMBER 30, 1996 6 MONTHS AGO Years 4.6 4.6 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. EFFECTIVE JUNE 1996, THE MODEL USED TO CALCULATE DURATIONS MAY HAVE BEEN SLIGHTLY MODIFIED IN ORDER TO FURTHER REFINE THIS INFORMATION. THESE CHANGES IN METHODOLOGY MAY PRODUCE ADJUSTMENTS IN HISTORICAL DURATION FIGURES. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF SEPTEMBER 30, 1996 * AS OF MARCH 31, 1996 ** Corporate bonds 21.0% U.S. government and government agency obligations 47.8% U.S. government agency - mortgage- backed securities 25.1% Short-term investments 0.0% Other 6.1% Corporate bonds 16.1% U.S. government and government agency obligations 52.5% U.S. government agency - mortgage- backed securities 18.9% Short-term investments 10.0% Other 2.5% Row: 1, Col: 1, Value: 6.1 Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 3, Value: 25.1 Row: 1, Col: 4, Value: 47.8 Row: 1, Col: 5, Value: 21.0 Row: 1, Col: 1, Value: 2.5 Row: 1, Col: 2, Value: 10.0 Row: 1, Col: 3, Value: 18.9 Row: 1, Col: 4, Value: 52.5 Row: 1, Col: 5, Value: 16.1 * FOREIGN INVESTMENTS 7.6% ** FOREIGN INVESTMENTS 4.3% INVESTMENTS SEPTEMBER 30, 1996 Showing Percentage of Total Value of Investment in Securities NONCONVERTIBLE BONDS - 21.0% PRINCIPAL VALUE AMOUNT (NOTE 1) AEROSPACE & DEFENSE - 0.9% Lockheed Martin Corp.: 7 1/4%, 5/15/06 A3 $ 1,000,000 $ 1,000,220 7.70%, 6/15/08 A3 1,000,000 1,024,220 7 3/4%, 5/1/26 A3 1,000,000 1,005,770 3,030,210 CONGLOMERATES - 0.3% BHP Finance USA Ltd. 6 3/4%, 11/1/13 A2 1,000,000 899,430 ENERGY - 1.9% ENERGY SERVICES - 0.6% Petroliam Nasional BHD yankee (a): 6 7/8%, 7/1/03 A1 1,750,000 1,724,783 7 1/8%, 8/15/05 A1 450,000 445,239 2,170,022 OIL & GAS - 1.3% Tosco Corp. 7 5/8%, 5/15/06 Ba1 1,130,000 1,127,571 USX Corp. 9 1/8%, 1/15/13 Baa3 3,000,000 3,238,770 4,366,341 TOTAL ENERGY 6,536,363 FINANCE - 8.9% ASSET-BACKED SECURITIES - 1.3% Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 708,573 706,138 Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 1,964,086 1,949,969 Premier Auto Trust: 8.05%, 4/4/00 Aaa 790,000 810,120 6%, 5/6/00 Aaa 950,000 946,134 4,412,361 BANKS - 5.7% Banponce Corp.: 5 3/4%, 3/1/99 A3 690,000 674,068 6.378%, 4/8/99 A3 770,000 761,522 Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 1,000,000 1,045,850 Corporacion Andina de Fomento yankee 7.10%, 2/1/03 Baa2 1,000,000 974,370 Den Danske Bank Group AS yankee 7 1/4%, 6/15/05 (a) A2 500,000 494,945 Export-Import Bank of Korea 6 3/8%, 2/15/06 A1 950,000 891,319 NONCONVERTIBLE BONDS - CONTINUED PRINCIPAL VALUE AMOUNT (NOTE 1) FINANCE - CONTINUED BANKS - CONTINUED Fleet/Norstar Financial Group, Inc. 9%, 12/1/01 A3 $ 250,000 $ 268,065 Kansallis-Osake-Pankki 10%, 5/1/02 A3 430,000 485,879 Keycorp 7 1/2%, 6/15/06 A2 2,000,000 2,012,620 Korea Development Bank yankee: 6 1/2%, 11/15/02 A1 1,000,000 971,550 7 1/4%, 5/15/06 A1 2,000,000 1,993,640 Merita Bank Ltd. yankee 6 1/2%, 1/15/06 A3 3,000,000 2,800,530 Midland Bank PLC yankee 7 5/8%, 6/15/06 A1 1,300,000 1,321,151 Provident Bank 6 1/8%, 12/15/00 A3 210,000 203,977 Signet Bank 7.80%, 9/15/06 Baa1 1,000,000 1,013,380 Summit Bancorp. 8 5/8%, 12/10/02 BBB- 1,000,000 1,068,800 Union Planters Corp. 6 3/4%, 11/1/05 Baa3 1,200,000 1,141,020 Union Planters National Bank 6.81%, 8/20/01 A3 1,000,000 992,500 19,115,186 CREDIT & OTHER FINANCE - 1.5% Associates Corp. of North America 7 1/2%, 5/15/99 Aa3 3,000,000 3,063,630 Commercial Credit Group, Inc. 10%, 5/15/09 A1 350,000 420,228 Fleet Mortgage Group 6 1/2%, 9/15/99 A2 250,000 248,678 Ford Motor Credit Co. 8 3/8%, 1/15/23 A1 500,000 509,460 MCN Investment Corp. 6.03%, 2/1/01 Baa2 800,000 773,592 5,015,588 INSURANCE - 0.1% Protective Life Corp. 7.95%, 7/1/04 A3 400,000 410,836 SAVINGS & LOANS - 0.3% Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa2 1,000,000 1,084,870 TOTAL FINANCE 30,038,841 HEALTH - 0.3% MEDICAL FACILITIES MANAGEMENT - 0.3% Columbia/HCA Healthcare Corp. 6 7/8%, 7/15/01 A3 1,000,000 1,001,400 NONCONVERTIBLE BONDS - CONTINUED PRINCIPAL VALUE AMOUNT (NOTE 1) INDUSTRIAL MACHINERY & EQUIPMENT - 0.6% POLLUTION CONTROL - 0.6% WMX Technologies, Inc. 6 1/4%, 4/1/99 A1 $ 2,200,000 $ 2,184,490 MEDIA & LEISURE - 1.6% LODGING & GAMING - 0.3% Circus Circus Enterprises, Inc. 6.45%, 2/1/06 Baa2 1,000,000 927,470 PUBLISHING - 1.2% Harcourt General, Inc. 8 7/8%, 6/1/22 Baa1 1,000,000 1,097,560 Time Warner Entertainment Co. LP: 10.15%, 5/1/12 Ba2 250,000 293,233 8 7/8%, 10/1/12 Ba2 750,000 797,655 8 3/8%, 3/15/23 Baa3 1,750,000 1,727,338 3,915,786 RESTAURANTS - 0.1% Darden Restaurants, Inc. 6 3/8%, 2/1/06 A3 500,000 454,095 TOTAL MEDIA & LEISURE 5,297,351 RETAIL & WHOLESALE - 0.7% GENERAL MERCHANDISE STORES - 0.4% Dayton Hudson Corp. 6.40%, 2/15/03 Baa1 1,000,000 958,220 J.C. Penney, Inc. 6.90%, 8/15/26 A1 500,000 495,865 1,454,085 GROCERY STORES - 0.3% Kroger Co. 8.15%, 7/15/06 Ba1 1,000,000 1,016,280 TOTAL RETAIL & WHOLESALE 2,470,365 TECHNOLOGY - 1.7% COMPUTERS & OFFICE EQUIPMENT - 1.7% Comdisco, Inc. 5 3/4%, 2/15/01 Baa2 6,000,000 5,752,620 TRANSPORTATION - 1.5% AIR TRANSPORTATION - 1.5% Delta Air Lines, Inc. equipment trust certificate 8.54%, 1/2/07 Baa1 2,713,270 2,829,995 United Air Lines, Inc. 10 1/4%, 7/15/21 Baa3 1,000,000 1,184,420 United Airlines Pass Through Trust 7.27%, 1/30/13 Baa1 990,000 942,233 4,956,648 NONCONVERTIBLE BONDS - CONTINUED PRINCIPAL VALUE AMOUNT (NOTE 1) UTILITIES - 2.6% CELLULAR - 0.8% 360 Degrees Communications Co.: 7 1/8%, 3/1/03 Ba2 $ 1,170,000 $ 1,142,774 7 1/2%, 3/1/06 Ba2 1,500,000 1,458,105 2,600,879 ELECTRIC UTILITY - 0.9% British Columbia Hydro & Power Authority yankee 12 1/2%, 1/15/14 Aa2 410,000 476,223 Hydro-Quebec yankee: 8%, 2/1/13 A2 250,000 255,505 8.40%, 1/15/22 A2 1,000,000 1,054,390 Philadelphia Electric Co. 1st & ref. mtg.: 8 5/8%, 6/1/22 Baa1 300,000 304,524 8 1/4%, 9/1/22 Baa1 100,000 98,121 7 3/4%, 5/1/23 Baa1 1,000,000 959,130 3,147,893 GAS - 0.3% Panhandle Eastern Corp. 8 5/8%, 12/1/99 Baa2 1,000,000 1,041,630 TELEPHONE SERVICES - 0.6% GTE Corp.: 8 3/4%, 11/1/21 A3 200,000 220,808 7.83%, 5/1/23 A3 1,000,000 989,250 MCI Communications Corp. 7 1/8%, 6/15/27 A2 750,000 765,188 1,975,246 TOTAL UTILITIES 8,765,648 TOTAL NONCONVERTIBLE BONDS (Cost $71,892,993) 70,933,366 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 47.8% U.S. TREASURY OBLIGATIONS - 37.4% 7 3/8%, 11/15/97 Aaa 22,810,000 23,169,942 6 1/8%, 3/31/98 Aaa 27,755,000 27,806,902 9 1/4%, 8/15/98 Aaa 12,780,000 13,476,893 8 7/8%, 11/15/98 Aaa 1,972,000 2,077,068 7 3/4%, 12/31/99 Aaa 17,990,000 18,726,511 6 7/8%, 3/31/00 Aaa 8,040,000 8,166,871 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED PRINCIPAL VALUE AMOUNT (NOTE 1) U.S. TREASURY OBLIGATIONS - CONTINUED 6 3/8%, 9/30/01 Aaa $ 1,160,000 $ 1,156,013 12 3/8%, 5/15/04 Aaa 6,320,000 8,451,041 7%, 7/15/06 Aaa 495,000 505,364 9%, 11/15/18 Aaa 18,465,000 22,429,251 125,965,856 U.S. GOVERNMENT AGENCY OBLIGATIONS - 10.4% Federal Home Loan Bank: 7.31%, 6/16/04 Aaa 5,000,000 5,121,850 7.36%, 7/1/04 Aaa 3,000,000 3,081,570 7.66%, 7/20/04 Aaa 4,520,000 4,721,276 7.87%, 10/20/04 Aaa 1,700,000 1,794,027 Federal Home Loan Mortgage Corporation: 8.065%, 1/27/05 Aaa 3,000,000 3,200,610 8.115%, 1/31/05 Aaa 1,200,000 1,286,244 Federal National Mortgage Association: 9.20%, 9/11/00 Aaa 3,325,000 3,626,844 7.65%, 3/10/05 Aaa 4,000,000 4,184,360 7.35%, 3/28/05 Aaa 1,030,000 1,056,069 Guaranteed Export Trust Certificates Series 1994-C (assets of Trust guaranteed by U.S. Government through Export-Import Bank) 6.61%, 9/15/99 Aaa 64,497 64,884 Guaranteed Trade Trust Certificates Series 1994-A (assets of Trust guaranteed by U.S. Government through Export-Import Bank) 7.39%, 6/26/06 Aaa 2,231,667 2,279,900 Private Export Funding Corp. secured: 5 1/2%, 3/15/01 Aaa 2,000,000 1,920,180 6.24%, 5/15/02 Aaa 410,000 400,693 State of Israel (guaranteed by U.S. Government through Agency for International Development) 5.89%, 8/15/05 Aaa 1,280,000 1,187,252 US Housing & Urban Development 8.24%, 8/1/04 participation certificate Aaa 1,000,000 1,072,670 34,998,429 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $161,987,628) 160,964,285 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 25.1% PRINCIPAL VALUE AMOUNT (NOTE 1) Federal Home Loan Mortgage Corporation 7%, 6/1/01 to 7/1/01 Aaa $ 741,135 $ 744,145 Federal National Mortgage Association: 5 1/2%, 1/1/09 to 3/1/11 Aaa 17,667,020 16,397,634 6%, 3/1/11 to 5/1/26 Aaa 13,894,754 12,954,491 6 1/2%, 12/1/02 to 1/1/26 Aaa 13,077,598 12,447,948 7 1/2%, 10/1/26 Aaa 5,000,000 4,942,150 8%, 12/1/21 to 9/1/26 Aaa 6,882,425 6,948,063 9 1/2%, 4/1/17 to 12/1/18 Aaa 1,463,748 1,568,549 Government National Mortgage Association: 6%, 10/15/08 to 4/15/11 Aaa 17,757,479 16,972,288 7 1/2%, 12/15/25 to 5/15/26 Aaa 1,995,637 1,970,690 8%, 5/15/26 to 7/15/26 Aaa 4,033,532 4,071,324 9%, 7/15/24 to 10/15/26 Aaa 4,067,027 4,263,367 9 1/2%, 7/15/16 to 3/15/22 Aaa 1,105,568 1,190,568 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $85,920,614) 84,471,217 COMMERCIAL MORTGAGE SECURITIES - 2.4% CS First Boston Mortgage Securities Corp. commercial Series 1995-AEWI Class A1, 6.665%, 11/25/27 AAA 320,680 318,074 Equitable Life Assurance Society of the United States (a): commercial Series 1996-1: Class B1, 7.33%, 5/15/06 Aa2 1,000,000 996,255 Class C1, 7.52%, 5/15/06 A2 1,000,000 994,375 sequential pay Series 174 Class A1, 7.24%, 5/15/06 Aaa 1,500,000 1,494,375 Oregon Commercial Mortgage, Inc. pass-through certificates Series 1995-1 Class A, 7.15%, 6/25/26 (a) AAA 340,906 340,800 Resolution Trust Corp. commercial Series 1995-C1 Class A-4A, 6 1/4%, 2/25/27 Aaa 180,910 180,684 Structured Asset Securities Corp. commercial: Series 1995-C4 Class A-1A, 6.90%, 6/25/26 AAA 384,724 382,199 Series 1996 Class A-1A, 5.711%, 2/25/28 AAA 173,022 172,022 Series 1996 Class A-2A, 7 3/4%, 2/25/28 AAA 2,249,817 2,274,776 COMMERCIAL MORTGAGE SECURITIES - CONTINUED PRINCIPAL VALUE AMOUNT (NOTE 1) Wells Fargo Capital Markets Apartment Financing Trust commercial 6.56%, 12/29/05 (a) Aaa $ 1,000,000 $ 970,000 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $8,148,971) 8,123,560 FOREIGN GOVERNMENT OBLIGATIONS - 3.7% Irish Republic yankee 7 7/8%, 12/1/01 Aa2 500,000 522,760 Manitoba Province yankee 8.80%, 1/15/20 A1 300,000 340,116 New Brunswick Province yankee 7 5/8%, 2/15/13 A1 500,000 511,145 Newfoundland Province yankee 9 7/8%, 6/1/20 Baa1 1,500,000 1,818,810 Ontario Province 7%, 8/4/05 Aa3 5,000,000 4,962,050 Quebec Province 7.22%, 7/22/36 (c) A2 4,000,000 4,083,000 Saskatchewan Province yankee 8 1/2%, 7/15/22 A3 300,000 329,985 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $12,471,120) 12,567,866 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $340,421,326) $ 337,060,294 LEGEND 6. 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 $7,460,772 or 2.2% of net assets. 7. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 8. Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 88.4% AAA, AA, A 83.8% Baa 8.6% BBB 12.6% Ba 1.7% BB 1.9% B 0.0% B 0.0% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% For some foreign government obligations, FMR has assigned the ratings of the sovereign credit of the issuing government. INCOME TAX INFORMATION At September 30, 1996, the aggregate cost of investment securities for income tax purposes was $340,426,897. Net unrealized depreciation aggregated $3,366,603, of which $1,917,153 related to appreciated investment securities and $5,283,756 related to depreciated investment securities. At September 30, 1996, the fund had a capital loss carryforward of approximately $551,000 of which $105,000 and $446,000 will expire on September 30, 2003 and 2004, respectively. The fund intends to elect to defer to its fiscal year ending September 30, 1997 approximately $7,391,000 of losses recognized during the period November 1, 1995 to September 30, 1996. At September 30, 1996, the fund was required to defer approximately $61,000 of losses on futures contracts and options. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 ASSETS Investment in securities, at value (cost $340,421,326) - $ 337,060,294 See accompanying schedule Receivable for investments sold 11,068,782 Interest receivable 4,596,648 TOTAL ASSETS 352,725,724 LIABILITIES Payable to custodian bank $ 395,003 Payable for investments purchased 7,776,297 Payable for fund shares redeemed 291,057 Distributions payable 232,625 Accrued management fee 198,130 TOTAL LIABILITIES 8,893,112 NET ASSETS $ 343,832,612 Net Assets consist of: Paid in capital $ 355,471,160 Distributions in excess of net investment income (269,538) Accumulated undistributed net realized gain (loss) on (8,007,978) investments and foreign currency transactions Net unrealized appreciation (depreciation) on (3,361,032) investments NET ASSETS, for 34,453,125 shares outstanding $ 343,832,612 NET ASSET VALUE, offering price and redemption price $9.98 per share ($343,832,612 (divided by) 34,453,125 shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 INVESTMENT INCOME $ 21,396,999 Interest EXPENSES Management fee $ 1,988,286 Non-interested trustees' compensation 1,130 Total expenses before reductions 1,989,416 Expense reductions (10,795) 1,978,621 NET INVESTMENT INCOME 19,418,378 REALIZED AND UNREALIZED GAIN (LOSS) (6,833,471) Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on (5,538,097) investment securities NET GAIN (LOSS) (12,371,568) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 7,046,810 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 INCREASE (DECREASE) IN NET ASSETS Operations $ 19,418,378 $ 9,519,507 Net investment income Net realized gain (loss) (6,833,471) (567,968) Change in net unrealized appreciation (depreciation) (5,538,097) 10,872,560 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 7,046,810 19,824,099 FROM OPERATIONS Distributions to shareholders (19,294,801) (9,551,251) From net investment income In excess of net realized gain - (301,382) TOTAL DISTRIBUTIONS (19,294,801) (9,852,633) Share transactions 432,893,618 140,438,576 Net proceeds from sales of shares Reinvestment of distributions 16,270,304 6,708,954 Cost of shares redeemed (240,703,507) (115,705,936) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 208,460,415 31,441,594 FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 196,212,424 41,413,060 NET ASSETS Beginning of period 147,620,188 106,207,128 End of period (including distributions in excess $ 343,832,612 $ 147,620,188 of net investment income of $269,538 and $418,388, respectively) OTHER INFORMATION Shares Sold 42,285,053 14,472,404 Issued in reinvestment of distributions 1,618,766 684,893 Redeemed (23,963,038) (11,814,293) Net increase (decrease) 19,940,781 3,343,004
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992 (COMMENCEMEN T OF OPERATIONS) TO SEPTEMBER 30, 1996 1995 1994 B 1993 SELECTED PER-SHARE DATA Net asset value, $ 10.170 $ 9.510 $ 10.940 $ 10.000 beginning of period Income from Investment .655 .693 .668 .799 Operations Net investment income Net realized and (.211) .673 (1.384) .940 unrealized gain (loss) Total from investment .444 1.366 (.716) 1.739 operations Less Distributions From net investment (.634) (.686) (.704) (.798) income In excess of net - - - (.001) investment income In excess of net - (.020) (.010) - realized gain Total distributions (.634) (.706) (.714) (.799) Net asset value, end $ 9.980 $ 10.170 $ 9.510 $ 10.940 of period TOTAL RETURN A 4.46% 14.94% (6.75)% 18.17% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 343,833 $ 147,620 $ 106,207 $ 128,860 (000 omitted) Ratio of expenses to average .65% .65% .65% .65% net assets Ratio of net investment 6.35% 6.92% 6.90% 7.58% income to average net assets Portfolio turnover rate 169% 147% 44% 55%
D TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE. E EFFECTIVE OCTOBER 1,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1996 1. SIGNIFICANT ACCOUNTING POLICIES. Spartan Investment Grade Bond Fund (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (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 permit 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. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities (including restricted securities) for which quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. 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 between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for paydown gains/losses on certain securities, futures and options transactions, market discount, capital loss carryforwards and losses deferred due to excise tax regulations. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net investment income and realized and unrealized gain (loss). Distributions in excess of net investment income and accumulated undistributed net realized gain (loss) on investments and foreign 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED currency transactions 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 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 that mature in 60 days or less from the date of purchase for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, the fund had no investments in restricted securities (excluding 144A issues). 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $705,186,043 and $481,033,672, respectively, of which U.S. government and government agency obligations aggregated $615,853,778 and $447,413,190, 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. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED 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 $24,266 for the period. 5. EXPENSE REDUCTIONS. FMR has entered into arrangements on behalf of the fund with the fund's custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's expenses were reduced by $10,795 under these arrangements. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Spartan Investment Grade Bond Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments (except for Moody's and Standard & Poor's ratings), 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 Investment Grade Bond Fund (a fund of Fidelity Charles Street Trust) at September 30, 1996, the results of its operations for the year then ended, and 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 Investment Grade Bond Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 1996 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 5, 1996 DISTRIBUTIONS A total of 51.7% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 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 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 950 Northgate Drive San Rafael, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 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 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 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 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 1271 Avenue of the Americas New York, NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, 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 1903 East Ninth Street Cleveland, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 2701 Drexel Drive Houston, TX 1010 Lamar Street Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 511 Pine Street Seattle, WA WASHINGTON, DC 1775 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)(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)(LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 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 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)(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 660602 Dallas, TX 75266-0602 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 J. Gary Burkhead, Senior Vice President Fred L. Henning Jr., Vice President Michael Gray, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * ADVISORY BOARD William O. McCoy GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA * INDEPENDENT TRUSTEES CUSTODIAN The Bank of New York New York, NY FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Global Bond Government Securities Intermediate Bond Investment Grade Bond Mortgage Securities New Markets Income Short-Intermediate Government Short-Term Bond Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Short-Intermediate Government Spartan Short-Term Bond Target Timeline 1999, 2001 & 2003 THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) TouchTone Xpress 1-800-544-5555 SM AUTOMATED LINE FOR QUICKEST SERVICE -----END PRIVACY-ENHANCED MESSAGE-----