(2_FIDELITY_LOGOS)FIDELITY
GOVERNMENT SECURITIES
FUND
ANNUAL REPORT
SEPTEMBER 30, 1994
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 13 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 17 Notes to the financial statements.
REPORT OF INDEPENDENT 20 The auditor's opinion.
ACCOUNTANTS
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR
GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE
FDIC, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT
RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY
DISTRIBUTORS
CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING
CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY
BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
The unsettling period that began for investors when the Federal Reserve
Board raised short-term interest rates in February has continued through
the third quarter of 1994. The Board raised the federal funds rate - the
rate banks charge each other for overnight loans - five times from February
through August, taking it from 3.00% to 4.75%. The Fed rate hikes were
intended to forestall inflation that could result from an improving U.S.
economy, and they led to below-average returns for many stocks and negative
returns for many bond investments.
The volatility we have witnessed this year follows a period in which there
was a nearly perfect investing environment. Although there was a
late-summer rally in stocks and, to a lesser extent in bond markets, it is
impossible to predict where interest rates might go or what might happen in
the markets in the months ahead. That's why it probably is a good time to
again review your investment portfolio and how well it matches your goals.
If you can leave your money invested over the long term, you can avoid much
of the volatility that generally accompanies the stock market in the short
term, as we have been witnessing this year. You also can help to manage
risk through diversification of investments. A stock fund is already
diversified because it invests in many issues. You can diversify even
further by placing some of your money in several different stock funds or
in other investment categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. As with any mutual fund, 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 by any agency of the U.S.
government.
Finally, 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, as we have discussed here. 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. Each figure
includes changes in a fund's share price, plus reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value). You can also look at the fund's
income.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 5 PAST 10
YEAR YEARS YEARS
Government Securities Fund -5.81% 50.89% 152.69%
Lehman Brothers Government Bond Index -4.04% 48.62% 166.33%
Average General U.S. Government Bond Fund -5.25% 41.66% 138.11%
Consumer Price Index 2.96% 19.52% 42.29%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one, five, or 10 years. For example, if
you invested $1,000 in a fund that had a 5% return over the past year, you
would end up with $1,050. You can compare these figures to the Lehman
Brothers Government Bond Index - a broad measure of the performance of U.S.
government bonds. To measure how the fund stacked up against its peers, you
can compare it to the average general U.S. government bond fund, which
reflects the performance of 143 funds tracked by Lipper Analytical
Services. This benchmark includes reinvested dividends and capital gains,
if any. Comparing the fund's performance to the consumer price index helps
show how your fund did compared to inflation. (The CPI returns begin on the
month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 5 PAST 10
YEAR YEARS YEARS
Government Securities Fund -5.81% 8.57% 9.71%
Lehman Brothers Government Bond -4.04% 8.25% 10.29%
Index
Average General U.S. Government
Bond Fund -5.25% 7.20% 9.03%
Consumer Price Index 2.96% 3.63% 3.59%
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 10 YEARS
Government Sec. (054)Government Bond
09/30/84 10000.00 10000.00
10/31/84 10277.77 10382.00
11/30/84 10441.42 10561.61
12/31/84 10610.84 10716.86
01/31/85 10770.61 10926.91
02/28/85 10596.04 10740.06
03/31/85 10756.46 10944.13
04/30/85 10949.59 11161.91
05/31/85 11360.15 11676.48
06/30/85 11491.83 11796.75
07/31/85 11407.57 11762.54
08/31/85 11602.82 11954.26
09/30/85 11685.77 12031.97
10/31/85 11860.81 12258.17
11/30/85 12111.90 12526.62
12/31/85 12493.31 12906.18
01/31/86 12545.32 12975.87
02/28/86 13002.99 13496.20
03/31/86 13432.90 14023.91
04/30/86 13509.71 14082.81
05/31/86 13247.37 13761.72
06/30/86 13601.93 14208.97
07/31/86 13721.02 14311.28
08/31/86 14105.53 14716.29
09/30/86 13876.46 14486.71
10/31/86 14082.45 14686.63
11/30/86 14283.53 14855.53
12/31/86 14320.20 14882.27
01/31/87 14454.90 15044.48
02/28/87 14503.62 15146.79
03/31/87 14433.22 15057.42
04/30/87 14049.40 14687.01
05/31/87 13979.94 14623.85
06/30/87 14168.27 14794.95
07/31/87 14185.04 14763.88
08/31/87 14102.46 14681.21
09/30/87 13872.05 14396.39
10/31/87 14250.65 14956.41
11/30/87 14345.32 15029.70
12/31/87 14472.38 15208.55
01/31/88 14872.27 15705.87
02/29/88 15056.67 15873.92
03/31/88 14952.95 15710.42
04/30/88 14909.72 15627.16
05/31/88 14821.17 15516.20
06/30/88 15044.47 15859.11
07/31/88 15016.25 15751.27
08/31/88 15032.87 15782.77
09/30/88 15287.45 16126.84
10/31/88 15508.57 16410.67
11/30/88 15368.09 16217.02
12/31/88 15393.06 16278.65
01/31/89 15582.65 16485.39
02/28/89 15498.64 16351.85
03/31/89 15574.00 16451.60
04/30/89 15872.02 16803.66
05/31/89 16158.41 17200.23
06/30/89 16614.58 17774.72
07/31/89 16915.74 18149.77
08/31/89 16681.81 17844.85
09/30/89 16747.42 17921.58
10/31/89 17090.85 18385.75
11/30/89 17247.15 18564.09
12/31/89 17335.42 18595.65
01/31/90 17111.12 18333.45
02/28/90 17177.59 18370.12
03/31/90 17198.51 18366.45
04/30/90 17137.92 18204.82
05/31/90 17493.16 18712.74
06/30/90 17736.27 19008.40
07/31/90 17962.82 19251.70
08/31/90 17869.36 18984.11
09/30/90 18003.06 19166.35
10/31/90 18271.81 19478.76
11/30/90 18676.14 19911.19
12/31/90 18988.05 20219.82
01/31/91 19125.70 20436.17
02/28/91 19276.28 20552.65
03/31/91 19356.94 20657.47
04/30/91 19536.43 20884.71
05/31/91 19636.10 20966.16
06/30/91 19590.27 20936.80
07/31/91 19832.83 21185.95
08/31/91 20342.59 21677.47
09/30/91 20807.32 22132.69
10/31/91 20985.78 22327.46
11/30/91 21181.19 22550.73
12/31/91 22018.67 23319.71
01/31/92 21641.81 22955.93
02/29/92 21685.65 23045.46
03/31/92 21543.78 22911.79
04/30/92 21677.79 23056.14
05/31/92 22123.75 23482.67
06/30/92 22501.40 23818.48
07/31/92 23193.39 24418.70
08/31/92 23393.29 24645.80
09/30/92 23703.20 24993.30
10/31/92 23318.15 24633.40
11/30/92 23334.66 24591.52
12/31/92 23773.73 25004.66
01/31/93 24336.99 25537.26
02/28/93 24933.53 26048.00
03/31/93 25065.86 26133.96
04/30/93 25313.58 26335.19
05/31/93 25212.65 26306.22
06/30/93 25833.48 26890.22
07/31/93 25998.70 27054.25
08/31/93 26722.88 27657.56
09/30/93 26828.27 27762.66
10/31/93 26967.52 27868.16
11/30/93 26584.95 27561.61
12/31/93 26703.01 27669.10
01/31/94 27132.95 28048.17
02/28/94 26327.88 27453.55
03/31/94 25626.37 26835.84
04/30/94 25382.24 26623.84
05/31/94 25360.54 26589.23
06/30/94 25226.25 26528.07
07/31/94 25789.46 27016.19
08/31/94 25774.11 27021.59
09/30/94 25269.37 26640.59
$10,000 OVER 10 YEARS: Let's say you invested $10,000 in Fidelity
Government Securities Fund on September 30, 1984. As the chart shows, by
September 30, 1994, the value of your investment would have grown to
$25,269 - a 152.69% increase on your initial investment. For comparison,
look at how the Lehman Brothers Government Bond Index did over the same
period. With dividends reinvested, the same $10,000 investment would have
grown to $26,633 - a 166.33% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
YEARS ENDED SEPTEMBER 30,
1994 1993 1992 1991 1990
Dividend return 5.76% 7.06% 8.07% 9.37% 8.98%
Capital appreciation -11.57% 6.12% 5.85% 6.21% -1.48%
return
Total return -5.81% 13.18% 13.92% 15.58% 7.50%
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 6 PAST
MONTH MONTHS YEAR
Dividends per share 5.26(cents) 30.63(cents) 63.23(cents)
Annualized dividend rate 6.80% 6.36% 6.31%
30-day annualized yield 6.94% - -
</TABLE>
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 $9.41 over
the past month, $9.55 over the past six months and $9.99 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
After more than a decade of
generally favorable conditions for
bond investing, U.S. bond
markets took a downward turn
during the first nine months of
1994. Rising interest rates and
inflation concerns caused yields
to rise, and prices to fall, on
virtually all types of fixed-income
investments. For the 12 months
ended September 30, 1994, the
Lehman Brothers Aggregate
Bond Index - a broad measure
of taxable bonds in the U.S.
market - had a total return of
- -3.22%. From February through
September 1994, the Federal
Reserve Board raised the federal
funds rate - the rate banks
charge each other for overnight
loans - from 3.00% to 4.75%.
The Fed was hoping to head off
future inflation that might be
triggered by an improving U.S.
economy. However, investors
heavily sold bonds at the very
threat of inflation because
inflation deteriorates the value of
their fixed-rate income payments.
Higher interest rates in many
foreign bond markets followed
the rate hikes in the United
States. The Salomon Brothers
World Government Bond Index
- - a measure of bond market
performance in developed
nations that includes U.S. issues
- - rose 1.81% for the 12 months.
Although they were especially
hard hit during the first half of
1994, emerging market bonds
rebounded somewhat in August.
The J.P. Morgan Emerging
Markets Bond Index returned
1.09% during the 12 months
ended September 30.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Government Securities Fund
Q. HOW HAS THE FUND PERFORMED, CURT?
A. It's been a difficult year. The best way to measure the fund's
performance is by its total return. This reflects interest payments, plus
capital gains - which occur when the fund profits from selling bonds that
have grown in value - and changes in share price. For the year ended
September 30, 1994, the fund had a total return of -5.81%. According to
Lipper Analytical Services, the fund lagged behind the average general
government bond fund, which returned -5.25% for the same period.
Q. WHAT WERE THE REASONS FOR THE FUND'S SUB-PAR PERFORMANCE?
A. The fund had a longer duration than its competitors during a year in
which interest rates did nothing but go up. Duration is a way to measure
how sensitive a bond is to changes in interest rates. It looks at a bond's
maturity, or how much time remains until the issuer is scheduled to pay off
the principal, as well as the frequency and amount of interest payments.
The longer the average duration of the fund, the more its share price will
move up as rates fall, or down as rates rise. For example, if the fund had
a duration of five years and interest rates rose 1%, its share price would
fall roughly 5%. Conversely, if interest rates fell 1%, its share price
would rise about 5%.
Q. WHY WAS THE DURATION LONGER?
A. Through the period and for the past three years, the fund has been using
a strategy called duration averaging that was designed to profit from the
long-term cyclical nature of interest rates. Using this strategy, I would
lengthen the average duration of the fund after a rise in interest rates,
causing it to become more aggressively positioned for a drop in interest
rates. Conversely, I would invest in bonds with shorter maturities if
interest rates fell, causing the fund to become more defensive by
positioning it for rising interest rates. This strategy, which is contrary
to that of many other bond funds, had been very effective in helping the
fund out-perform most of its competitors over the long haul.
Q. BUT WE'VE SEEN A CHANGE. INTEREST RATES HAVE CLIMBED STEADILY OVER THE
YEAR.
A. Right. I implemented the duration averaging strategy in 1991, when
interest rates were high and the inflation rate was dropping. I thought
then that it made sense to extend duration significantly. Over the next
three years as interest rates came down, duration averaging suggested that
the fund's duration should be shorter and shorter. When rates turned back
up in October 1993, the fund benefited from its relatively short duration
position. However, as rates started going up more and more, the fund's
duration got longer and longer, making it more vulnerable to each rate
increase.
Q. SO WILL YOU CONTINUE TO USE DURATION AVERAGING?
A. Not in the near future. At the end of the period I decided to switch to
a duration neutral approach, matching the fund's duration to that of a
government bond index. I believe it is equally likely that interest rates
will go up or down over the next year, so for me to make a bet on interest
rates now would not be as constructive as focusing on adding value one
trade at a time. Going forward, the duration of the fund should be lower,
making it less sensitive to changes in interest rates.
Q. HAS THE STRUCTURE OF THE FUND CHANGED?
A. Not significantly. As you know, the portfolio only invests in securities
that are exempt from state and local taxes. After increasing the fund's
investments in government agency securities during the period, I've been
lightening up slightly on them because the yield spread between government
agency bond issues and Treasury bonds has tightened. In general, when this
happens it means that prices of the agency bonds are over-valued compared
to Treasury bonds. The trick is to buy non-Treasury securities when the
yield spread widens, and sell them when it gets tight.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. It's very difficult to predict the direction of interest rates. Bond
investors react sharply to any mention of inflation. They keep an eye on
statistics such as commodity prices and the unemployment rate. A rise in
commodity prices and a drop in unemployment can signal economic growth,
often a precursor to inflation. I think the Federal Reserve Board will keep
raising rates as long as the economy grows at a reasonable clip and the
threat of inflation remains. On the other hand, U.S. Treasury bond yields
have risen significantly already. If the economy moderates at all, interest
rates in general - such as the more than 7 1/2 % yield for 10-year Treasury
notes at the end of September - may turn out to be relatively attractive.
FUND FACTS
GOAL: high current income
free from state and local
taxes
START DATE: April 4, 1979
SIZE: as of September 30,
1994, more than $613 million
MANAGER: Curt
Hollingsworth, since
February 1990; also
manages Fidelity Advisor
Government Investment,
Spartan Limited Maturity
Government, Spartan
Long-Term Government
Bond,
Fidelity Short-Intermediate
Government and Spartan
Short-Intermediate
Government Funds; joined
Fidelity in 1983
(checkmark)
CURT HOLLINGSWORTH ON
INVESTMENT STRATEGY:
"It's extremely important for
individual investors to try to
come to an understanding
about what their investment
horizon is. If their investment
horizon is only six months to
one year, even being in a
short-term fund could be
risky. But if the investment
horizon is as long as the
fund's average duration - its
sensitivity to interest rates -
short-term fluctuations of
interest rates aren't as
onerous. The ideal strategy is
to match the length of the
investment horizon to the
average duration of a fund.
With a longer horizon, you'd
choose a longer-term fund,
because you would earn
higher yields and would not be
as concerned about
short-term price fluctuations."
(solid bullet) At the end of the period, the
fund's duration was 6.34
years. That means if interest
rates fell 1 percentage point,
the fund's share price would
rise roughly 6.34%. If rates
rose 1 percentage point,
however, the fund's share
price would fall about 6.34%.
(solid bullet) A total of 100% 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.
(solid bullet) The fund had no
investments in derivatives at
the end of the period.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1994
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO
Under 6% 15.8 25.9
6 - 6.99% 1.9 4.6
7 - 7.99% 14.7 7.5
8 - 8.99% 29.0 34.2
9 - 9.99% 4.3 6.7
10 - 10.99% 1.7 5.8
Over 11% 32.5 10.0
Zero coupon bonds 0.1 5.3
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1994
6 MONTHS AGO
Years 13.8 14.2
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE
FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1994
6 MONTHS AGO
Years 6.34 6.0
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL
LOSE ABOUT 5% OF ITS VALUE.
ASSET ALLOCATION
AS OF SEPTEMBER 30, 1994 AS OF MARCH 31, 1994
Row: 1, Col: 1, Value: 44.2
Row: 1, Col: 2, Value: 55.8
U.S. Treasury
obligations 58.1%
U.S. government
agency
obligations 41.9%
U.S. Treasury
obligations 55.8%
U.S. government
agency
obligations 44.2%
Row: 1, Col: 1, Value: 41.9
Row: 1, Col: 2, Value: 58.1
INVESTMENTS SEPTEMBER 30, 1994
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 100.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 55.8%
7 1/4%, 11/15/96 $ 27,000,000 $ 27,312,120
12 3/4%, 11/15/10 94,500,000 128,859,254
8 7/8%, 8/15/17 34,000,000 36,996,080
8 1/8%, 8/15/19 68,195,000 68,941,053
6 1/4%, 8/15/23 9,800,000 7,953,288
12%, 8/15/23 50,400,000 67,590,936
337,652,731
U.S. GOVERNMENT AGENCY OBLIGATIONS - 44.2%
Federal Farm Credit Bank:
9%, 4/7/99 5,000,000 5,275,000
8.65%, 10/1/99 3,580,000 3,791,435
8.35%, 12/13/00 1,250,000 1,293,888
Federal Home Loan Bank:
4.55%, 7/30/98 100,000,000 92,703,120
5.92%, 3/18/99 3,000,000 2,834,070
8 3/8%, 10/25/99 13,230,000 13,767,403
7.31%, 7/6/01 52,225,000 51,049,938
7.93%, 11/1/01 1,900,000 1,913,053
stripped principal 0%, 2/25/04 1,800,000 851,400
Financing Corporation:
9.40%, 2/8/18 6,000,000 6,761,220
9.65%, 11/2/18 11,095,000 12,717,644
9.70%, 4/5/19 1,000,000 1,152,813
Student Loan Marketing Association 10 1/2%, 11/1/95 10,000,000 10,419,500
Tennessee Valley Authority:
8 1/4%, 11/15/96 3,475,000 3,567,817
8 3/8%, 10/1/99 37,568,000 39,223,246
8 1/4%, 4/15/42 8,500,000 8,122,515
6 7/8%, 12/15/43 4,500,000 3,618,630
Twelve Federal Land Banks:
7.95%, 10/21/96 1,500,000 1,534,215
7.35%, 1/20/97 7,035,000 7,089,943
267,686,850
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $636,285,234) $ 605,339,581
INCOME TAX INFORMATION
At September 30, 1994, the aggregate cost of investment securities for
income tax purposes was $637,010,196. Net unrealized (depreciation)
aggregated $31,670,615, of which $205,481 related to appreciated investment
securities and $31,876,096 related to depreciated investment securities.
The fund hereby designates $931,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
The fund intends to elect to defer to its fiscal year ending September 30,
1995 $21,101,000 of losses recognized during the period November 1, 1993 to
September 30, 1994.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, 1994
ASSETS
Investment in securities, at value (cost $636,285,234) - $ 605,339,581
See accompanying schedule
Cash 510,425
Receivable for investments sold 1,310,815
Interest receivable 12,861,707
TOTAL ASSETS 620,022,528
LIABILITIES
Payable for fund shares redeemed $ 5,085,484
Dividends payable 919,242
Accrued management fee 236,950
Other payables and accrued expenses 155,686
TOTAL LIABILITIES 6,397,362
NET ASSETS $ 613,625,166
Net Assets consist of:
Paid in capital $ 665,035,561
Distributions in excess of net investment income (454,567)
Accumulated undistributed net realized gain (loss) (20,010,175)
on investments
Net unrealized appreciation (depreciation) on (30,945,653)
investments
NET ASSETS, for 65,783,451 shares outstanding $ 613,625,166
NET ASSET VALUE, offering price and redemption price per $9.33
share ($613,625,166 (divided by) shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
INVESTMENT INCOME $ 49,140,534
Interest
EXPENSES
Management fee $ 3,257,871
Transfer agent fees 1,275,823
Accounting fees and expenses 240,654
Non-interested trustees' compensation 4,375
Custodian fees and expenses 5,834
Registration fees 38,159
Audit 28,426
Legal 9,903
Interest 3,453
Miscellaneous 6,606
TOTAL EXPENSES 4,871,104
NET INVESTMENT INCOME 44,269,430
REALIZED AND UNREALIZED GAIN (LOSS) (16,944,754)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (71,976,670)
investment securities
NET GAIN (LOSS) (88,921,424)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (44,651,994)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
INCREASE (DECREASE) IN NET ASSETS
Operations $ 44,269,430 $ 39,434,076
Net investment income
Net realized gain (loss) (16,944,754) 24,081,109
Change in net unrealized appreciation (depreciation) (71,976,670) 14,112,509
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (44,651,994) 77,627,694
FROM OPERATIONS
Distributions to shareholders (44,654,001) (39,891,593)
From net investment income
From net realized gain (21,542,609) (13,892,772)
TOTAL DISTRIBUTIONS (66,196,610) (53,784,365)
Share transactions 443,439,151 400,379,561
Net proceeds from sales of shares
Reinvestment of distributions 49,600,153 38,266,745
Cost of shares redeemed (497,385,873) (315,253,452)
Net increase (decrease) in net assets resulting from (4,346,569) 123,392,854
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS (115,195,173) 147,236,183
NET ASSETS
Beginning of period 728,820,339 581,584,156
End of period (including distributions in excess of net $ 613,625,166 $ 728,820,339
investment income of $454,567 and $349,246,
respectively)
OTHER INFORMATION
Shares
Sold 43,597,123 38,060,588
Issued in reinvestment of distributions 4,917,440 3,689,332
Redeemed (49,752,437) (30,096,524)
Net increase (decrease) (1,237,874) 11,653,396
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED NINE MONTHS YEARS ENDED DECEMBER 31,
SEPTEMBER 30, ENDED
SEPTEMBER
30,
1994 1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, $ 10.870 $ 10.500 $ 10.300 $ 9.640 $ 9.610 $ 9.270
beginning of period
Income from Investment .626 .672 .556 .801 .832 .784
Operations
Net investment income
Net realized and (1.225) .627 .198 .660 .030 .340
unrealized gain
(loss)
Total from investment (.599) 1.299 .754 1.461 .862 1.124
operations
Less Distributions (.631) (.679) (.554) (.801) (.832) (.784)
From net investment
income
From net realized gain (.310) (.250) - - - -
on investments
Total distributions (.941) (.929) (.554) (.801) (.832) (.784)
Net asset value, end $ 9.330 $ 10.870 $ 10.500 $ 10.300 $ 9.640 $ 9.610
of period
TOTAL RETURNB (5.81) 13.18% 7.65% 15.96 9.53 12.62
% % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 614 $ 729 $ 582 $ 522 $ 469 $ 560
(in millions)
Ratio of expenses to .69% .69% .70%A .70 .66 .73
average net assets % % %
Ratio of net investment 6.26% 6.40% 7.31%A 8.23 8.84 8.29
income to average % % %
net assets
Portfolio turnover rate 402% 323% 219%A 257 302 312
% % %
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1994
1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Government Securities Fund (the fund) 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
and is authorized to issue an unlimited number of shares. 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 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.
DISTRIBUTIONS TO SHAREHOLDERS.
Distributions are declared daily and paid monthly from net investment
income. Distributions from realized gains, if any, are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
market discount.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect net investment income per share disclosed. Undistributed net
investment income may include temporary book and tax basis differences
which will reverse in a subsequent period. Distributions in excess of net
investment income may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. 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,
the fund changed the classification of distributions to
2. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
shareholders to better disclose the differences between financial statement
amounts and distributions determined in accordance with income tax
regulations. Accordingly, amounts as of the beginning of the fiscal year
have been reclassified to reflect a decrease in paid in capital of
$30,300,769, an increase in undistributed net investment income of $226,559
and a decrease in accumulated net realized (loss) on investments of
$30,074,210.
2. PURCHASES AND SALES
OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $2,668,518,615 and $2,685,240,751, respectively.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (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 .1400% to
.3700% for the period October 1, 1993 to October 31, 1993; .1325% to .3700%
for the period November 1, 1993 to July 31, 1994; and .1200% to .3700% for
the period August 1, 1994 to September 30, 1994. In the event that these
rates were lower than the contractual rates in effect during those periods,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annual rate of .46% of
average net assets.
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $183,303 for the
period.
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
FSC receives fees based on the type, size, number of accounts and the
number of transactions made by shareholders. FSC pays for typesetting,
printing and mailing of all shareholder reports, except proxy statements.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
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.
4. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The
interest rate on the borrowings is the bank's base rate, as revised from
time to time. The maximum loan and the average daily loan balances during
the periods for which loans were outstanding amounted to $8,955,000 and
$5,917,167, respectively. The weighted average interest rate was 3.5%.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and the Shareholders of Fidelity Government Securities
Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Government Securities Fund, including the schedule of portfolio
investments, as of September 30, 1994, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the two years in the period then ended, the nine
month period ended September 30, 1992 and each of the three years in the
period ended December 31, 1991. These financial statements and financial
highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Government Securities Fund as of September 30, 1994, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the
financial highlights for each of the two years in the period then ended,
the nine month period ended September 30, 1992 and each of the three years
in the period ended December 31, 1991, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
November 1, 1994
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios.(registered trademark)
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
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
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
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
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
4611 Sharon Road
Charlotte, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
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
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Thomas J. Steffanci, Vice President
Curtis Hollingsworth, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
Gerald C. McDonough*
Thomas R. Williams*
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Short-Term World Income
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
THE FIDELITY
TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
AUTOMATED LINES FOR QUICKEST SERVICE
